The world is indebted to Albert Einstein for his formulation of a simple, but brilliant algebraic equation that encapsulates the relationship between energy and mass. But he also had some useful day-to-day advice!
If you want to determine your future income and wealth, you need to be proactive now and invest in building your productive capacity, creating a larger pie, and raising the level in your own circular flow!
It’s not rocket science!
Investing comes in many forms, but it always involves making a choice and prioritizing, and delaying gratification.
It may be as simple as buying a book about efficient organisation which may deliver benefits within days.
Or, it may be a longer-term plan, like being a poor student studying for a degree for years while only working part-time or undertaking further qualifications while working full time and missing out on lots of family time now.
Or, it may involve putting some money aside (saving) and investing in shares or property.
The first strategy increases your earning capacity. The second diversifies and adds to your income stream (rent, interest & dividends) but also adds to your wealth (stock of assets) through capital gain over the longer term.
Wealth accumulation is the result of capital gain over time by investing in growth assets.
If the investment in earning capacity is directed to more wealth accumulation over time, it serves both objectives. Once again, the decision to save and not to ‘live to your income’ is a deliberate decision and choice.
A simplified example of building a business for the future is shown below:
Assume you desire a passive income of $2000 per week in retirement:
- Acquire a property portfolio of $2,500,000
- Long term hold – allow for movements around the trend
- DOUBLES to $5,000,000 (based on historical averages)
- SELL DOWN half to pay the debt
$2,500,000 at 4.5% rent yield = $2000pw!*
(*allowing for costs of ownership)
That’s the theory!
What it relies on is the capital growth component BUT
Capital growth CAN NOT be guaranteed.
Capital growth predictions can only be made on the balance of evidence.
All that can be offered in all honesty is above average opportunities
Ethical, compliant, and educated professionals should not and can not offer you certainty and should be open about the fact.
Be guided by those who are honest and transparent about the assumptions on which they are basing their advice.
“The time is
to do what’s right”
Martin Luther King