Every year since 1991, research and consulting company Spectrem Group has studied and surveyed the wealthiest households in America. They would look for their investment habits, how they allocated assets, and why they made certain financial decisions.
From their research, they found that while there were many ways to get rich, there were two definitive ways to stay wealthy and ensure it lasts for future generations. They found that the best way to get rich today is to follow a model for keeping your future generations rich tomorrow.
The Two Paths to Perpetual Wealth
The two paths to perpetual wealth are:
- The path of stability – Ensure a steady stream of income no matter market or economic conditions.
- The path of renewal – Continually add to your income stream by identifying fresh income sources.
In a previous article, I wrote that the primary reason to invest is to create a stream of income for the rest of your life without having to work. Income is freedom and without it, there is little chance for financial security.
1. The Path of Stability
For the path of stability, the primary investment is income-producing investments such as real estate. This can provide a steady stream of income that can provide income despite the ups and downs of the economy.
You want an asset that earns money for you today and that can be passed down to your heirs as part of your legacy. This is an addition to your primary residence.
The key is not to purchase property just for the sake of getting into real estate, but as a valuable option to help diversify your investment portfolio. If not done correctly, it could lead to issues that many had in the 2008 financial crisis.
The right (SMART) type of real estate will provide income despite the ups and downs of the economy. One way or another, rent gets paid. Make sure it gets paid to you!
There are many different types of real estate that you can purchase. If new at real estate, it is best to first start working with a professional or invest in real estate investment trusts (REITs). As always, you want to make sure it fits your risk profile, time horizon, and financial goals.
Examples of Income-Producing Real Estate
Here are some examples of different types of income-producing real estate:
- Commercial Retail and Shopping
- Commercial Office
- Hotel and Resorts
- Raw and undeveloped land
- Time-Shares (be careful here, it may or may not, depending on the type)
If this seems complicated and you don’t know where to start or don’t believe you have enough, REITs, as I mentioned above, are a great way to get into the real estate investment market at an affordable “entry fee”.
You don’t have to worry about doing all of the hard work of analyzing, researching, and managing the properties. You eventually should work to get “hard real estate”.
You can invest in REITs that are on exchanges. The issue with these is that they can be volatile since they trade like a stock. In the 2008 crisis, many tradable REITs collapsed in value, not because of the properties, but people in an emotional panic tried to liquidate.
Non-tradable REITs are less liquid but can be a good solution to avoid emotional investing.
- Diversify your portfolio and historically reduced risk without sacrificing returns
- Help reduce overall portfolio volatility since they aren’t traded on an open exchange and historically has a low correlation to most major asset classes
- Give you a steady stream of income with the potential for capital appreciation and growth
- Hedge against inflation since it historically has been highly correlated to inflation
2. The Path of Renewal
The path of renewal is to continually identify fresh sources of income and add new ways to generate cash flow. This is primarily done through innovative entrepreneurship.
On the high-end of the spectrum, it is being actively involved in new companies, products, and/or services. On the low-end of the spectrum, you can invest in different types of partnerships, private equity, venture capital programs, and passive income opportunities.
It all depends on your willingness to spend the time, effort, resources, and your ultimate commitment to the new ventures you find.
How Billionaires Became Billionaires
There are 1426 billionaires in the world. 960 are self-made with 830 from multiple business ventures. The research found that 90% of the income of those who today have achieved perpetual wealth comes from a business that is significantly controlled by the individual.
The SMART Wealthy are able to identify fresh sources of income and add new ways to generate cash flow. They continually reinvest in innovative enterprises. It is important to do your due diligence, research different opportunities and do your homework, and create your business plan.
How to Get Started
To look for innovative enterprises, I always recommend starting with your own ideas, in your community, in your inner circle, or your friends and family. What are the needs and problems that you can solve and add value to? Do they match the 5 Ps of your Profession and Purpose?
As a serial entrepreneur, I have seen great and bad deals, so I emphasize making sure you choose this path according to your passion and purpose instead of just money. This way if it doesn’t work out, you didn’t risk too much and got to pursue what you love doing.
You want assets that generate income and can rise in value, not either-or. That is what innovative enterprises can do, and also be passed on to future generations just like real estate.
According to their study, both of these paths were the clear-cut way to wealth and financial freedom. Both paths will require you, however, to make some potentially some significant lifestyle changes.
You will need to focus time, energy, money, and actively get involved in activities you likely have not participated before. So before venturing down these paths, you have to make sure it is right for you.
Once you have found the business idea you want to pursue, the next step is to get it started! Starting one is actually very easy, anyone can do it! Maintaining and growing that business is much harder.
With the job market still volatile, many people want to take the plunge to follow their entrepreneurial spirit and start a business. Click here for my podcast with Steve Forbes on becoming a successful businessperson.
Here are some tips on how to start a business, regardless of where you are in life: getting out of school, in the corporate world, unemployed, or between jobs.
Still need a business idea? Here are 55 that will cost you less than $5,000 to start!