It has been lamented that these bridges are being destroyed, locking people into the demographic group into which they were born. It could be argued that nearly all of this has been the result of shifting responsibility for individual security from the corporation and government to the individual. Those who have knowledge of the financial markets are bound to prosper in this system. (Personally, I would thrive under a privatized social security system because of my understanding of Wall Street. Yet, a vast majority of Americans are likely to get swept up into a hot stock or fear-based selling at least once in their life and that’s all it takes to wipeout your nest egg.) Instead of the company or government providing pensions, health care, and social security, those tasks have fallen on the worker. If history has proven any example, most are unable to make intelligent financial decisions and, if left to their own devices, would starve, all the while blaming the system. Perfect case in point from my own family: I once had a very close relative work for a large company, collecting blocks of stock throughout his career. Upon retirement, he sold his entire position to buy new living room furniture and pay off debt. A decade later, those shares would have been worth more than $2,000,000. Yet, who gets the blame? Ask him who is responsible for him working at a local discount retailer trying to make ends meet after staving off bankruptcy and you’ll get a tirade against corporate America, layoffs, and wealthy executives stuffing their own pockets. (For help on how to avoid this fate, read Surviving and Thriving in the New American Retirement System.)
This brings me to the greatest point about the American financial system. Although starting out can be rough (trust me – back during my college days, I was the first to graduate from my family and paid my own way), if you live long enough and have basic insurance protection against health and property catastrophes, in the end, you are likely to end up with what you deserve. In this country, it can truly be said that you are responsible for making your own dreams come true. No one is going to hand them to you. And it’s not going to be easy. But it can be done. If you want it for your own life, here are three investing tips that I think might help you.
1. Buy Cash Generating Assets
When you borrow money, not only do you have to pay it back, but also you must pay “rent” for using it. In financial terms, the cost of “renting” money is known as interest expense. This is devastating when you “rent” money to buy an asset that depreciates – that is, loses value. A perfect example is an automobile. To add insult to injury, you are not just on the hook for the interest cost of your auto loan. In addition, the car loses resale value plus it actually consumes cash in the form of repairs, gasoline, and insurance. There is a reason that most Americans count their biggest non- real estate asset as an automobile; it’s just as much cause as effect.Instead, imagine you had borrowed money to buy an asset that actually generated, rather than consumed, cash. Perhaps you built a car wash or storage unit in your hometown. Maybe you invested all of your excess money in a diversified group of bank stocks with instructions to reinvest the dividends. Possibly, you or your spouse started an online ecommerce store using your knowledge of a specific industry from your day job. Regardless, instead of eating money, these assets (assuming they are well-run) are likely to spew cash like an oil geyser. You could get used to having checks arrive in your mailbox every month rather than having to send them out to bill collectors. Over time, you use these cash flows to buy more cash generating assets and, before you know it, your net worth is compounding. The emotional stress and worry can disappear. If something were to come up, you know you could simply write a check.
It’s amazing to me how many doctors and lawyers would be unable to support their lifestyle if they were suddenly unable to work. True independence is control over your time and the only way to get that is to have assets that do the heavy lifting for you. If you are self-made (as I am and many of you reading this are likely to be given that most of the wealth in this country is not inherited), the only way to get this capital is to spend far less than you earn and put the money away into tax-advantaged accounts. By the time I was in my early 20’s, my biggest asset wasn’t a car. It was my stock portfolio. As I grew older, it provided the financial foundation that allowed me to start businesses, access capital when it came time for expansion, and support my lifestyle.
