Wealth vs. Money - Episode 11
Brant Greathouse:
Hey, I'm Brant Greathouse and this is Meaningful Capitalism. Today we're going to talk about how being wealthy and having a lot of money are not the same thing.
Carl Moore:
Well, I know what you're talking about. That seems wrong. So let's get into it.
Brant Greathouse:
So a lot of people I don't think understand what is the difference between wealth and money. And so I wanted just to take a few minutes and let's just kind of dialogue about that. See...
Carl Moore:
Yeah, because do I have... what exactly is wealth? I mean, I think in our minds we always look at somebody else and we have this vision of this rich person, but two guys side by side, one of them can be wealthy and the other one can have money. But are those the same thing?
Brant Greathouse:
Yes, and they're totally different. So money, the way that I want to define it here is a store of wealth. It's a form where you can move your money or your wealth into money and that makes your wealth transferable, right?
Carl Moore:
Yeah, that makes sense.
Brant Greathouse:
So, think about back in the days where gold was it, okay, they used gold and it's heavy and you couldn't really carry a whole lot of it around. So just a small amount of it was worth a lot. And gold was sort of a limited resource. Well, now we have paper money. Paper money used to be linked directly, one to one, with gold. You could trade in a dollar and get a ounce of gold. And it was linked to something that had sort of an intrinsic value that everybody agreed gold is valuable because it's a resource that is limited. So there's only so much gold in the world and therefore it's valuable. At one point in history, aluminum was thought to be the most valuable rarest metal in the world. And kings would have aluminum forks and knives and spoons. Could you imagine? And now we realize, no, they just didn't know where to look. There's a ton of aluminum in the world. But, so things have value based on scarcity and abundance and it's very similar with wealth. So...
Carl Moore:
So if wealth comes over and becomes cash or money that makes your wealth transferable, then what are the things that you can own that are wealth?
Brant Greathouse:
So I don't want to own a lot of dollars, I want to own a lot of things that have an increasing value over time. So let's talk about some of those things. Some things you can invest money in is like maybe you could own a business or maybe you could own a piece of real estate or maybe you could own a stock or bonds, 401ks. These things over time tend to increase in value. There's some similarities in those things and some differences. I want to also break it down into two different categories. There's things that have intrinsic value, and what I mean by that is something that people have a need for that's always going to be useful in some form or another. Land. There's only so much of it. We need it to walk on to live on, to build things.
Carl Moore:
You got to grow crops, you got to have a good place to live.
Brant Greathouse:
It always is going to have a value regardless of what's going on in the world. Whereas any kind of paper asset, like a bond or a stock or something like that, is only worth the paper that it's written on unless we believe that it's worth more. So how do you determine value? The way we determine value has to do with what other people are willing to pay. So something is never worth a penny more than what somebody else is willing to pay for it.
Carl Moore:
That's why I can go down and I can get an appraisal and they can say, Hey, your land's worth two million dollars, but if you can't find a buyer that will pay two million dollars for it...
Brant Greathouse:
If I'm only willing to offer you a hundred grand.
Carl Moore:
It's like, you put it out on the open market and 500,000's your max, that appraisal's not worth anything. And essentially cash is the same way. And so we can sell assets, move them into cash, have lots of money, but essentially having a lot of money, especially if you look at what's gone on with inflation in the last few, well, a year, year and a half... if you had $10 one year ago today and you went down to the store and you bought $10 worth of Snickers and you kept that $10 in your bank account and today you went out and so we got our inflation numbers back and it was at nine and now went to 8.7. So essentially your $10 is now worth $9. And so you had this asset that you sold and you got $100,000 for and you thought, man, that's a great safety net, and you put your $100,000 in the bank.
Even though the number is still 100,000 it's really only worth 90 of what it used to be. So if you would've taken that money and done an exchange or you would've just bought something else with your $100,000. And you look at especially real estate, the housing market, these are things that lots of people keep lots of triggers on and you can watch those things grow. I had a great opportunity to invest in just a little house in Austin. It was my brother's house and he bought a new house. So him and my mom and dad and me, we bought this house from him. Well, in that same one year period since we bought it, my $10 went to $9, but my house actually grew in value. So by having that in something that is a store of wealth instead of a store of money, I gained money and all of my money that's been in the bank has gone down. And so cash sounds like a depreciable asset.
Brant Greathouse:
Right?
Carl Moore:
Although I don't think many people would call it a depreciable asset.
Brant Greathouse:
Well, so wealth never goes away. It's never destroyed, wealth does not decrease over time. Wealth transfers hands and it changes forms. So it can go from land to cash back into another type of an investment, but the wealth is not destroyed. The value of what you own may increase or decrease based on what other people think it's worth. And like you said, in an inflationary market, if you're holding a lot of your wealth in cash, your wealth is being siphoned away because people are valuing those dollars or that currency less and less because it truly is only worth what the paper that it's written on.
Carl Moore:
So is there a time when you want to store away a bunch of cash even in an inflationary market so that you have the ability to capitalize on an economic downturn?
Brant Greathouse:
So it's a great question and it's different for everybody, but what I would say is there are times where you want to have cash and have... I'm going to say instead of having cash, have purchase power. Your ability to be able to purchase things when the market is not great, so that when the market turns back around, because markets always go back up, there's always spring time after the winter where things begin to flourish and grow and have new growth again. If you want to be able to purchase things when it's down and own it when it's going up and sell it, maybe one day when it's at the top, then you need to be able to have purchase power. And that means having some of your own cash.
Carl Moore:
Right. Well, and so I took advantage of this and we're going to talk about it more in our other podcast, short term and long term wealth, but I took advantage of the Covid market, the stock markets plummeted, and I was like, Hey, this stuff's all going to come back up, but the numbers were worth nothing. So I bought some stocks and doubled my money real quick. And so join us for that podcast to see how that turned out.
Brant Greathouse:
Yes, absolutely. So is there a time to have cash? Yes. You sometimes want to go ahead and have some cash, but...
Carl Moore:
And cash makes you lend able to the bank. I mean, it is really good to have money and not everything only in wealth because then the bank says, Well what are you going to do for a down payment? How are you going to secure these lines of credit? How are you going to utilize this stuff? So there's a balance here, but do I have money or do I have wealth? Well, I think you need to have both, but you really want to keep most of your cash in wealth that's growing over time, regardless of what the economy's doing.
Brant Greathouse:
That's right. You and I both listen to Ray Dalio from time to time.
Carl Moore:
Oh yeah.
Brant Greathouse:
Ray Dalio, big hedge fund owner. Really, really smart guy. Countries listen to him for financial advice
Carl Moore:
Means we should too.
Brant Greathouse:
What he says is that there's never a time where you want to completely exit the market. People who completely exit the market are doing that based on fear. What you want to do... in the time that you lose being out of the market, you're going to, your wealth is going to diminish. And so it's really important that we don't ever completely exit the market, get everything into cash, but to have that balance of, Hey, do I have enough cash to do what I want to do and have purchase power? And so I think if we can do that, then we can continue to build wealth over time, keep things growing, and just understanding the distinction between money and wealth and that money is not the equivalent of wealth, it's a store of wealth, is really a key thing.
Carl Moore:
Absolutely. Absolutely. So, get yourself some wealth. Don't store it all in money. We'll talk to you soon. We're Carl Moore and Brant Greathouse with Meaningful Capitalism.
