Two fortunes. Two paths.
Rockefeller and Vanderbilt. These two names likely ring a bell.
We learned about the Rockefellers and the Vanderbilts in high school. They were both extremely wealthy in their time. Cornelius Vanderbilt and John D. Rockefeller were both labeled “robber barons,” which refers to a person that gains their riches through “ruthless and unscrupulous business practices.” But that’s not why I’m writing 700+ words on these two men.
Regardless of their practices, they both were successful in building large amounts of wealth for their families. According to a Harvard Business School article, Rockefeller was worth an “estimated $1.4 billion net worth in 1937…equivalent to 1.5% of U.S. GDP.” Vanderbilt was worth around $200 billion in today’s money when he passed away.
But there is a major difference between these two men, and more importantly, the legacy they left behind.
It’s ironic that Cornelius Vanderbilt once said, “any fool can make a fortune; it takes a man of brains to hold onto it,” because only 30 years after his death, no member of his family was considered among the wealthiest in the U.S.. The Vanderbilt fortune was gone.
The Rockefellers, on the other hand, chose a different path. In 2020, Forbes estimated the family’s net worth at $8.4 billion.
So what is the difference between these two notable families?
The Vanderbilt family spent a vast majority of their wealth in ways that squandered the fortune left behind by Cornelius.
They invested in assets that had depreciating value, and built massive properties for personal use rather than long term investment.
Vanderbilt also did not diversify his investments. Since he was directly involved in the businesses he was running, he could mitigate risk. But once he was out of the picture, these companies were operated by other people. Diversification is essential for wealth preservation, and having all of his wealth in one or two industries proved to be fatal to the Vanderbilt fortune.
Vanderbilt worked hard to reach the heights of success he saw in his lifetime, but he failed to create the financial armor to preserve his family’s wealth for generations to come.
Rockefeller elected trust administrators to be in charge of financial decision making over the fortune he’d leave behind, and their purpose was to preserve the family’s wealth. What assets did these administrators invest in?
The Vanderbilt family did not have their wealth invested in real estate. Investing in a hard asset like real estate would have protected the family’s wealth from selling on a whim. Real estate is less liquid than stocks.
Why does this matter?
Although they might not be working with the size of wealth as these two families, the average Americans have similar issues they are facing when it comes to wealth building and preservation. Many older Americans are finding themselves unprepared for retirement. According to a Bankrate survey, about “55% of Americans say they’re behind on saving for retirement.”
How Do We Plan On Avoiding the Vanderbilt Fate?
Our plan - and one you might consider - is to invest an appropriate percentage of savings into cash-flowing assets that build wealth, and have a likelihood to appreciate over time. Instead of investing in depreciating and liquid assets like the Vanderbilts did, we’ll invest in hard and illiquid assets like the Rockefellers.
I’ve never met Mr. Rockefeller, but if I had a chance to sit down with him for coffee or a cheese platter (apparently he liked cheese a lot), I bet he’d list the following benefits of real estate as justification for investing in the asset class.
Your income - whether it’s $100,000 or $1,000,000, is not going to get you any wealth unless you know how to invest it and actually invest it! Investing in depreciating assets is the same mistake the Vanderbilts did — to their own detriment.
We invest actively in real estate. That means we are directly involved in the management of real estate, and oversee the business plan. But, we also invest passively, which is a hands-off approach to building wealth.
Many wealthy investors outsource the day-to-day real estate duties to operators (like us), and enjoy a passive role in the deal. Passive investors leave nearly all of the decision making to the managers of these real estate firms. They enjoy the benefits of real estate without the full-time demands or headaches that come with managing and running a property. These savvy investors can also diversify their wealth across multiple assets to create multiple income streams, rather than having all of their eggs in one basket.
As mentioned earlier, one of the biggest factors that led to the fast squandering of the Vanderbilt fortune was how liquid their investments were. Real estate is illiquid, which means it’s protected from market volatility and the “mob mentality” that contributed to the impulsive selling off of assets.
Investors in passive investments are usually locked in for a hold period of 5 years. Investors are protected from themselves, and can’t impulsively sell off their shares in a panic as a result of economic turbulence only to regret it later on.
Pass It Down
Real estate is simple to pass down to future generations. Many wealthy families establish trusts to hold their investments, and once the grantor passes away, ownership is immediately transferred through the trust.
You Can Count On Me
Real estate has proven itself to be a secure and reliable asset class. Yes, the market might go down for a year or two, but when it comes to long-term investing, real estate has passed the test of time. It has reliability produced cash flow and appreciation benefits to owners. While volatility is a staple of many other industries, real estate has been a consistent part of portfolios for many wealthy investors.
What Would Rockefeller Do?
There are many great asset classes out there. Many of these allow investors to build generational wealth. But real estate is one of the main investments that helped the Rockefellers preserve their wealth to this day.
So, we’re going to start approaching our investments with this question: “What would Rockefeller do?”