The 4 “Money Monsters” Eating Your Wealth
No.3 is inside your head, not your checking account…
Most people believe their money has one enemy: a down market.
But here’s the thing:
A down market is the least of our worries.
Because there are 4 money monsters stealing our wealth, whether it’s an up market or a down market…
And it wasn’t until one night, when I was staring at a spreadsheet, that I saw the damage these 4 monsters were doing to my wealth…
I’d known what they were for 25 years, but not how much they’d taken from me.
And now I’m going to help you defend against them, so you don’t make the same mistakes as me to protect your wealth.
Starting with the monster you can see but can’t stop…
Monster 1: Inflation
Inflation runs at whatever rate the economy sets.
Now, let’s say you put $100,000 in a savings account that earns 1.5%.
But if you run 4% inflation against this same account for 20 years…
The statement shows a balance of $134,600. But what the money buys has shrunk by $84,400.
Because inflation at 4% for 20 years means prices roughly double. So you need around $219,000 in the future to buy what $100,000 buys today.
This is why every dollar that earns below the inflation rate pays a silent tax.
And this silent tax doesn’t show up on your bank statement...
But the good news is that you have three moves to beat inflation:
List every account you own this week and write the real return next to each one: your rate minus your local inflation rate
Any negative number is a confirmed loss you’ve been calling safe.
Stop benchmarking against nominal return and start benchmarking against real return.
Here’s what this actually means:
The number on the screen is not your return… what it buys is your return.
Put every dollar you won’t need for five years or more into assets with a long-run return above inflation
This could be the S&P 500. It’s returned about 10% nominally and 6% in real terms over 100 years.
But beating inflation still won’t protect you against monster 2…
This is the enemy nobody teaches you about…
Monster 2: Taxes
Taxes are the monster the mainstream financial advice keeps quiet about….
Why?
Because even they don’t understand how they actually work.
And most importantly:
They have no idea how to defend against them.
Now for most high earners, taxes are the most expensive of the four monsters.
An employee making $500,000 in W-2 income keeps roughly $315,000 after federal tax.
But an investor realizing $500,000 in long-term capital gains keeps $400,000.
It’s the same income on paper, but an $85,000 gap every year. So here are the three moves you can make to beat taxes:
First, max every tax-advantaged account you have before you put a dollar into a taxable brokerage: 401(k), IRA, HSA, Roth.
Hold every appreciating asset longer than 12 months before you sell.
Short-term gains get taxed as ordinary income up to 37%, but long-term gains get taxed at 20%.
When you need cash, borrow against an appreciating asset instead of selling it.
It could be using a securities-backed line, a margin loan, or a home equity line. These loans aren’t taxable events.
But this next money monster pays a heavy tax from inside your head.
And the truth is, no tax strategy or inflation hedge can touch it…
Monster 3: Behavioral interruption
The DALBAR has tracked investor behavior for 30 years.
And over those 30 years ending in 2015, the S&P 500 returned 10.35% a year.
But the average equity investor in the exact same market… over the exact same years… earned 3.66%.
Crazy, right?
Because if that was $100,000 over 30 years at 10.35%, it becomes $1.92 million.
But at 3.66%, it becomes $293,000.
This is a $1.63 million difference, and not one dollar of it came from a bad market or a bad pick.
Instead, it came from one thing… Behavior.
The behavior could be:
Panic selling
Lifestyle creep that’s funded by liquidating assets
Or moving money on the back of a headline
Now let’s talk about how you can beat behavioral interruption:
Separate your long-horizon accounts from any money you can reach emotionally
This should be a different institution from your checking account, like an app off your phone to create friction between the money and your hands.
Write a one-page investment policy statement before the next downturn.
Here’s how to do it, ask yourself:
What is this money for?
What’s the time horizon?
What’s the target allocation?
And under what specific conditions will I change it?
Because every money goal needs a money plan, and this includes playing on the defence sometimes.
Check long-horizon portfolios once a quarter, not once a day.
The more often you see red in your portfolio, the more loss aversion you feel and the more likely you are to act on it.
So just let it grow…
But this final money monster stops your money from growing before you’ve even been paid.
It’s the worst money monster on this list because it’s the only one that happens before it reaches you…
Monster 4: Fees
Good markets or bad, fees come off before a single dollar reaches you.
Let me give you an example:
Imagine you have two options to invest a million dollars for 20 years:
A) The S&P 500
B) Or a portfolio manager
The average long-term S&P 500 return is about 10%. So after 20 years, your $1M becomes roughly $6.73 million.
Now the portfolio manager gets the exact same 10% return over those 20 years, but with one difference: a 1% annual fee.
That 1% fee doesn’t sound like a lot today, but over those 20 years?
It’s roughly $1.13 million.
This is the real cost of fees that nobody is talking about.
So what can you do about it?
Here’s three things to beat the fees:
Convert every fee from a percentage into a 20-year dollar cost.
Run it once because I can almost guarantee the number creates a different decision than seeing the percentage would.
Replace any actively managed fund with an equivalent index fund wherever the fee difference clears 0.5%, like the S&P 500
Ask your advisor in writing how they’re compensated on each recommendation, including trail commissions and fund revenue sharing.
A fee-only fiduciary charges you directly and is legally bound to act in your interest.
But a commission-based advisor is paid by the products they sell you.
This one question costs nothing, but could save you millions…
So how can you protect yourself against the 4 money monsters today?
Before you go to sleep tonight, pull up your accounts, and look for one of the four monsters eating your wealth.
Finally, make one move against it this week from the 3 tips I gave you for each one.
Because sometimes it’s not about what you make, it’s about what you keep.
And if you liked this post, I talk about the 7 biggest business and life lessons I’ve learned over the last 46 years in this one:
