Secrets of the New Wealth Dynasty and What They’re Investing In Today

It can be more expensive to make your own pizza than order one in. But the satisfaction of making it yourself is hard to beat.

Start with a few things to make and enjoy great pizza. Base made from real dough. Oilve oil — extra virgin. Tomato sauce. Mozzarella. A nice red wine to match.

One night making pizza, I started thinking.

What are the main ingredients to generate lasting wealth?

What’s the best investment a person can make?

And how do you select the right investments?

So I did a little research.

When choosing wine to go with pizza the ideal is a light-bodied, high-acid red. Chianti fits well.

I began researching the single best investment decisions people make in their lives. And I stumbled across something impacting both wealth and society.

 

The ‘assortative mating’ dynasty

In his ground-breaking book, The Future of Capitalism, Paul Collier analyses the growing class divide pulling apart Western countries. The source of that divide is surprising.

In the US, household income has grown 174% for the richest 1% of Americans in recent decades, but only 16% for the poorest. Up to 40% of that growth in family wealth inequality may be due to a difference in marriage patterns.

We’re seeing similar patterns here in NZ.

Since 1980, marriage patterns started to diverge rapidly. Marriage rates for educated men and women remained stable and began increasing again in the early 2000s. For those with less education, they declined rapidly.

Paul Collier finds that elite, more educated, and wealthier people are practising ‘assortative mating’. They come from stable, two-parent families. They meet at university and get married. They go on to provide a stable two-parent family for their own children.

Thomas Stanley, in his fascinating study on America’s millionaires, finds that 95% of millionaire households are composed of married couples.

Poorer people tend to come from more unstable relationships. And, according to Collier, these families are falling apart.

He talks about telomeres, the protective caps on chromosomes. Shorter telomeres are associated with aging, cancer, and a higher risk of death. They’re like bomb fuses.

Children of mothers in unstable relationships have been found to have telomeres up to 40% shorter than those from stable families. In context, the doubling of family income has been found to only lengthen telomeres 5%.

An Institute of American Values report found marriage increased net worth by up to 600%. The reason appeared to be financial responsibility to each other. The same level of wealth increase was not seen in cohabitating couples.

Unfortunately, support for the two-parent family has been identified with the socially conservative political right. And we’ve got caught up in the politics rather than the argument for wealth.

Baroness Alison Wolf, author of The XX Factor, economist and British MP, writes that ‘no known human societies have ever operated a sexual free-for-all, on the contrary they have all had a well-recognised institution of marriage…Society after society has had rules, often draconian, designed to force men who fathered children to wed the mothers.

Like Britain, New Zealand provides considerable support, including housing assistance, for single mothers. In comparison, Catholic and conservative Italy does not.

Britain has one of the highest rates of teen pregnancy in Europe; Italy among the lowest.

New Zealand has the second highest rate of teen pregnancy in the OECD (behind the US).

It is clear to me that if we want to build wealth beyond married couples practising assortative mating — forming their own wealth dynasties and having it all — we need to do more to support all families. Particularly families who struggle.

So a stable family is one of the building blocks of wealth.

The other is investing well.

The value of stocks has risen much faster than family incomes, even for wealthy families.

Part of the reason for this has been governments around the world pumping up economies with cheap money after the financial crisis. That inflates asset values.

In the US, the richest 10% of Americans own 84% of stocks. While the middle-class has the majority of their wealth tied up in their home or property, for the wealthiest, their home only accounted for 7.6% of their wealth.

Good stock-market investments are the other keystone to building a wealth dynasty.

But which stocks can perennially keep rising? Stocks have ridges and troughs.

 

Evergreen companies

I ran a search for the most stable and profitable large-caps in the markets I follow.

In particular, I looked for strong business models whose price has risen steadily upward since the Global Financial Crisis in 2008 (GFC).

I found Boeing [NYSE:BA] and McDonald’s [NYSE:MCD].

Family favourite McDonald’s fell very little during the GFC, with the share price hovering between $50 to $60 during the turmoil.

The business is durable and defensive.

Since then, it’s had a steady rising upward streak with only a few troughs — reaching today’s price of $183. That’s a 366% return over 10 years.

And McDonald’s pays steady dividends — currently around 2.5% per annum.

So with growth and dividends, you’d have annualised nearly 40% a year on McDonald’s.

A Big Mac sure tastes great with that in your brokerage account.

Boeing fell much more rapidly during the GFC — from a high of around $100 per share to a low of around $30. Since then, it’s had a stellar run, rising to today’s price of $440.

The Boeing price literally took off after Trump’s election in 2016 and subsequent tax cuts. It was $146 in November 2016, skyrocketing to well over $400 in February of this year, while paying steady dividends of just under 2%.

McDonald’s will likely remain a steady and growing business around the world. The concept matches simple comfort food with good prices.

Boeing may also be flying higher.

With Airbus ceasing manufacture of the A380, Boeing is perfectly poised for its next plane — the ‘797’. Aviation analysts are foaming with excitement, saying this will be a plane all passengers will love. Its planned new layout of 2-3-2 seating with huge overhead storage bins promises to put an end to economy crush.

Paying attention to these stocks and putting time into your family could also keep you from an actual economy crush.

Start building your own dynasty with some good, evergreen investments. Here at Money Morning NZ, we’ll keep you posted on how to do this.

Regards,

Simon Angelo
Analyst, Money Morning New Zealand

Important disclosures

Simon Angelo owns shares in McDonald’s Corp [NYSE:MCD] via wealth manager Vistafolio.


Simon is the editor of Wealth Morning and has been investing in the markets since he was 17. He recently spent a couple of years working in the hedge fund industry in Europe. Before this he owned an award-winning professional services business and online learning company in Auckland for 20 years. He has completed the Certificate in Discretionary Investment Management from the Personal Finance Society (UK), has written a bestselling book and manages global share portfolios.


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