Tuesday, July 19, 2016

Principle of wealth building 1 of 5

The first principle of wealth building is there are only three paths to choose from in this journey... 
  1. Paper assets (stocks, bonds, etc.)
  2. Investment real estate (not your home) 
  3. Owning your own business 
Your wealth plan should include at least two of the three paths and occasionally will include all three (depending on personal circumstances). This increases safety and certainty in the outcome. 
Surprisingly, paper assets are rarely a wealth building vehicle despite the avalanche of media propaganda leading you to believe otherwise. They are typically a parking place for preserving and growing the purchasing power of wealth earned elsewhere. 
The reason this is true is because of strict mathematical limitations to paper asset growth. It is the only asset class out of the three that is governed by these limitations. 
(Side note: Did you notice the irony that paper assets are not really a wealth building vehicle when that is the only thing included in a traditional adviser's financial plan? That may not make sense until you realize that financial advisers are in the business of helping you manage the wealth you already created. They are not in the business of helping you build wealth in the first place.) 
In other words, there are really two steps to the wealth process (but most people only think in terms of one). The first step is to create wealth and the second step is preserve and grow that wealth through investing. 
So how do most people create wealth in the first place? 
Statistically, the answer is real estate and owning your own business. Why this is true will be explained in wealth plan principles 3 and 4 over the next few weeks. These reasons are an important part of your plan. 
A small proportion of the population can save their way to wealth by applying frugality and deferring earned income (wealth earned elsewhere) to wealth vehicles 1 & 2 (real estate and paper assets). 
However, saving your way to wealth is less common because it ignores wealth plan principles 3 & 4 and because it requires discipline, persistence and starting early enough in life to allow compound growth to work its magic. Yes, it is a workable strategy, but not many people fit this profile. 
Your homework from this lesson is to start thinking about which of the three paths to wealth you would like to include in your wealth plan. 
In your next lesson I will explain how to match the various paths to wealth with your unique life situation to begin formulating your personalised wealth plan. This is critically important to actually reaching your goal. 
There are many ways to achieve wealth, but only one path that will uniquely fit you. I will explain how that works in your next lesson. 
Finally, if you're liking this series, consider taking it to the next level with my course on designing your wealth plan. In Module 2 - Lesson 4 of that course I show you exactly how mathematical limitations to asset growth get integrated into your wealth plan design, and I provide the necessary resources showing you realistic rates of growth for each of the assets in your plan. Also, in Module 4 of the course, I explain the principles underlying each of the 3 asset classes so that you know how to properly utilize each asset class in your wealth plan.  
Okay, see you in a few days with your next lesson from this course... which will be wealth plan principle #2 of 5. 
See you then...

Ritesh.Sheth CWM®

              Helping you invest better...  

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