Don't Skip the Foundation ... Build Down Deep Before You Build Up

If you want to build high, you should first go deep.

Almost immediately following the tragic events of September 11, 2001, there was a popular agreement that another magnificent structure must take the place of the fallen Twin Towers. In April 2006, about five years later, construction began on the structure that would one day be called One World Trade Center.

During the first three years of that construction, however, no small amount of grumbling went on concerning the “lack of progress,” so to speak, on the project.

In reality, it took three years to complete the foundation and “below ground” portion of the building that would one day be the tallest skyscraper in the Western Hemisphere.  The structure was completed in July of 2013. About half the construction time was spent below ground.

But that’s how it is with skyscrapers…and lasting wealth – the larger the structure you wish to build, the deeper you have to go with the foundation.

I know less than nothing about construction. But I assume that a skyscraper’s foundation must protect the building from at least two things: that would be, movement below the ground and high winds and other elements above the ground.

The taller (the larger) you want your wealth to stand, the deeper that you need for its foundations to go. So, what are these foundations of sustainable wealth?

Liquidity. The only reason to invest money is for someone, one day, to spend it. To make it personal – I save and invest so that one day (hopefully during retirement) I’ll have something to spend when I am no longer able or willing to work.

Well, that’s a great plan, but often the vagaries of the marketplace get in the way. Portfolios have a nasty habit of going through down phases at just the time I need to withdraw money to live on. One of the foundations I need under my portfolio is a reserve of cash sufficient to weather those storms. Two years’ worth of expenses would be a minimum when you retire. Five years’ worth might just let you sleep a little more peacefully in your retirement years.

Longevity. Wealth needs to last…certainly it needs to last longer than we do. Given enough time, a well-designed, diversified portfolio has great odds of growing at a sufficient pace to do just that. But the fact remains, there are no guarantees in portfolios – just possibilities.

I’ve observed that retirees with a significant portion of the basic lifestyle (their needs, maybe not all their wants) that are covered by guaranteed, fixed income from Social Security or pensions or guaranteed income annuities, they sleep better at night and they make better long-term investment decisions. Less reasons for them to get nervous. Less reason to shoot their portfolio in the foot at the wrong time. More likelihood that they’ll let their portfolio live to fight another day.

Legacy. Most of us want to know that there’s going to be something that will outlast us. It may be nothing more than something left for our children or grandchildren. But given the opportunity, most want to leave some sort of legacy. A portfolio is a significant, and perhaps the largest part, of that legacy.

But if I know that undergirding the portfolio portion of my legacy is something guaranteed to be there when I leave this earth, it can give me a steady hand during rough investment weather.

Cash. Guaranteed income. Guaranteed death benefits.

To those who are unfamiliar with building strong, lasting structures, these can seem like a bit of a waste of time – kind of like a hole in the ground.

But if you want to build wealth that will stand the test of time, learn from those who have done it before – don’t skip the foundation.

Actually, it comes first.

Offering you Wisdom on Wealth, I’m Byron Moore.

Argent Advisors, Inc. is an SEC-registered investment adviser. A copy of our current written disclosure statement discussing our advisory services and fees is available upon request. Please See Important Disclosure Information here.


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