If you want to be rich, spend your time buying assets. Why does it become true

If you want to be rich, spend your time buying assets. Why does it become true

If you don’t buy assets, your only income source is your ability to sell your labour (a job) or work for yourself (a business).

That ability to earn an income could be taken away any day because of:

• Bad health
• A terrible economy
• Your sector performing badly and you need to retrain
• Your sector is being outsourced internationally
• Any other unforeseen circumstances

That is unless you marry into wealth or get an inheritance, which isn’t something to aim for or rely on.

So, even if you just save money rather than buy assets, that money will dwindle over time if you lose your ability to earn money from your work.

Assets can give you cashflow to guard against this situation. Assets do come in many shapes and sizes now.

They can include

• Stocks
• Bonds
• Sometimes cash equivalents like t-bills, but this is less relevant these days.
• Property
• REITS
• Digital assets. Therefore, you could be achieving cashflow due to something like affiliate marketing or royalties from writing a book.
• Company assets which are recurrent streams of revenue and would remain, or partially remain, if you got sick.

Moreover, we are living in a capitalistic system, even though markets aren’t exactly completely free.

The clue is in the word - capital. Even “anti-capitalists”, like the economist below, have admitted that it is rational to accumulate capital:

The theory of Piketty’s book is simple. Historically, labour costs have risen by inflation +2%.

Some years it is negative, and sometimes it is much higher than that, in a booming economy. But 2% is the average.

Real estate, adjusted for costs, has produced 3%-4% on average. Of course some places have done much better and others worse.

Stocks have done inflation +4%-5%, and +6.5%-6.7% in some markets like the US.

People who run successful businesses might achieve more than that, in return for higher risk.

So owners of capital will experience more fluctuations and volatility over time, but the long-term average will likely be better than just relying on labour alone.

Some Reading

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