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What should your wealth building system look like? January 14, 2009

Posted by shaferfinancial in Finance.
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So far this week I have been talking about the failed retirement system.  Now I am going  to move to what a successful system should look like.

Here are the basic considerations:

1. Creation of wealth producing assets;

2. Minimize taxes, both present and future;

3. Active participation in the plan; and

4. Ability to react to a fast changing world.

Now there are many possible assets that will produce wealth for you from business ownership to real estate to stocks.  They have several things in common.  One they are never guaranteed.  Anytime someone sells you a guarantee in the finance world, you know they are not wealth producing assets.  Two, they require your active participation.  Whether it is managing your investments, or creating a business or buying investment real estate it all requires you to be consistently involved.  You can’t turn over this to someone else and expect to get decent results.  Now, you can find experts to help you, but you have to be wary of these “experts.”  Choose wisely!

Experts on my team include Warren Buffett (nice to have him picking investments for me!), Ed McPherson (real estate development), Bawld Guy (investment real estate),  my accountant, my attorney, my wife, etc.  But I am the person driving  the financial bus!  I am actively involved in all my investments, my business, and my strategies.

If you choose stocks as your medium, you can choose to be a trader or to buy and hold.  Either way you can make good returns, but they require very different mind-sets and time requirements.  Traders, have to do it as a business.  They have to be constantly aware of how each of their stocks are doing.  They must have a trading plan and stick to it no matter what.  To buy and hold requires much more fundamental analysis up front, but then less time after the initial purchase.  They must push off their fears when the market turns against them, remaining focused on the cash flow from the businesses they own stock in and other fundamental components.  They need to forego the idea of diversification for concentration.

Real Estate is a much easier way to go.  The mental work is done up front to come to a price that makes sense.  Real Estate metrics are easy to understand and to figure out.  Expert advice can be found for little money because the seller of a property will pay for it.  But you have to first have a plan.  Then it is just a willingness to look around the country to find properties where the environment and the numbers make sense.  You let leverage and inflation do it’s job, not having to depend upon beating a market.  Price in the cost of management and you can use your time building your real estate portfolio instead of dealing with the renters.

Founding your own business is also easy to accomplish.  But the hard work is in making it profitable.  But if you succeed you can create extreme wealth fast and turn over the day-to-day operations to a manager freeing you to enjoy the cash flow!

Now, not everyone is interested owning their own business although by at least founding one you learn much to help you in the rest of your financial world.  But everyone needs to become an active investor because the alternative has proven to be financially fatal!  So everyone needs a wealth building system.  And everyone should be the driver of their wealth building bus.

bus

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