How Anyone Can Generate Wealth
wealth
If you’re a poor person, the only way you generate real wealth is to generate assets.
How do you do it? You either create a company, issue yourself stock, or save money at another job, and then when you save money, you buy something.
You can buy a house with leverage, the house goes up to seven percent a year, and now you have generated home equity and wealth.
Equity
Many middle-class people generated wealth by owning their own homes because they could buy them with leverage. You can’t do it without leverage.
With low-interest home equity, pull the money out and invest in the stock market or an intelligent investment in a business that appreciates.
Now, the house appreciates, flip it, buy another house on more debt. You now have assets and wealth.
Investing
The goal is never to shrink your balance sheet. Ultimately what you want to do is construct your balance sheet with the best high-quality assets.
The definition of a high-quality asset is one that a wealthy person will want to buy in 10 years.
A house in the Hamptons, a Picasso, or something you know about.
If you bought 100 acres in the middle of Kansas and you paid a lot for it.
It’s not scarce, it doesn’t seem desirable, and it’s not going to appreciate as fast.
It would be best if you found scarce, desirable assets.
Avoid Risk
It’s important to find something which is not going to force you to liquidate.
One way is too much risk. You might make a risky investment, and you might get wiped out before you make your money on it right.
Some things are riskier than other things. Another way to lose your assets is by legislation.
You could own something the government may not want you to own someday.
Assets
The big disservice we tell people is you have to spend something for it to have value. It has to be spendable, like money to be valuable. This is not true!
You don’t have to spend shares of Apple stock for value. Just because you have valuable assets, you are not stuck. You do not have to sell them to realize the value or wealth they possess.
A smart, wealthy person goes down to their banker or broker and says, I have a million dollars in stock. I want to borrow $100,000 at low or next to low interest, the going rate.
The collateral is your asset. Bottom line, you still have my wealth, You tapped it, and you didn’t pay taxes. I have no capital gains tax, and I never sold.
My assets are gonna go up or down over time, and am I going to sell them?
The answer is I’m never going to sell. Suppose you look at John D Rockefellars’s life. John D Rockefeller is one of the great businessmen ever. He was one of the true genius billionaires.
If you read the story of his life, it was all about I bought this business, and I did a tax-free merger with that business. I leveraged up that business. I leveraged that business.
His descendants still own all of their companies and assets after 100 years, never sold. And the number one reason is he never wanted to incur tax.
The tax that kills you is capital gains tax. You want to buy assets, and you want to find a way to build up your asset portfolio.
However, if you don’t believe what you’re investing in and borrow money against it, you’re going to get wrecked.
Business
Maybe you don’t want to launch a bakery, restaurant, or business. How about buying the S&P 500 Index with long-term debt.
If you did the analysis for the past 40 years and considered if someone were to basically take a home equity loan and then reinvest it in the S&P 500 and roll that forward for decades, you probably would be fine.
Also, it would have been a simple thing to leverage up your house, take as much equity as you can out of your house, and buy the S&P index. The S&P is up ten percent a year for a hundred years.
It’s up a lot more right now. You might find one year when it might have been a little ugly for sure, but if you just held that position for your entire life, this simple idea borrows money cheap and buy a diversified portfolio of company stocks.
Bitcoin
With some with Bitcoin assets, the average person will eventually have to borrow against their bitcoin or generate yield. Either go to a yield strategy, or you have to borrow against it.
Lastly, if you’re really hyper-conservative, you get a job, and you live off your earnings from your job, and then you let your bitcoin appreciate unleveraged.
I don’t think it would be untrue to say that 95% of the businesses and 95% of wealthy individuals have some debt.
Businesses all have debt on them and so a friendly bank that’ll loan you money against it. Leverage it up when you need to.
If I bought a house now and someone offered me two and a half percent interest. I would put debt on it. The cost of capital is today 40% this year.
That’s the key. The best surrogate for the cost of capital for an investor in the S&P 500 Index. It’s just another example of a portfolio of desirable assets.
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Category: Family Finances
