- relevant to careful entrepreneurs and wealth planners.
Pic 01: Trap in your OWN home, locked by loans
The majority of middle-class wealth is locked up
in unproductive assets or assets that only become available upon
retirement or death…(Pic 01)
Pic 02: Little fund for fantastic investments.
Pic 03: insufficient fund to own wonderful businesses like Apple, Facebook, Amazon, NetFlix, Google.
Few families [have] the financial wherewithal to invest in bitcoin or an alternative hedge such as precious metals. (Pic 02 and 03)
The
limitation on middle-class wealth isn’t just the total net worth of
each family; it’s also how their wealth is allocated: The vast majority
of most middle-class family wealth is locked up in the family home or
retirement funds…
The majority of the wealth
held by the bottom 90% of households is in the family home, i.e. the
principal residence. Other major assets held include life insurance
policies, pension accounts and deposits (savings).
What
characterizes the family home, insurance policies and
pension/retirement accounts? The wealth is largely locked up in these
asset classes.
Yes, the family can borrow
against these assets, but then interest accrues and the wealth is
siphoned off by the loans. Early withdrawals from retirement funds
trigger punishing penalties.
In effect, this wealth is in a lockbox and unavailable for deployment in other assets.
Majority income earners fund their house-occupied installments and car installments which accounts for majority of 60% to 80% of their Net Pay. This leaves little or no income opportunity to invest in Revenue Generating Assets such as Stock Market, Properties to rent out or Business ventures.
Take 2 Scenarios of Adam and Benjamin. Both are married with 1 child. Their spouses are working too with combined income RM12,000 per month.
TABLE 1
| Adam - Buys and Stay in House | Column1 |
| Investing in Home Occupied Asset | Monthly Cashflow |
| Combined Income | RM12,000 |
| Tax and Pension contribution | -RM1,800 |
| Loan: House/Condoimium worth $600,000 Installements | -RM5,500 |
| Loan: Honda Civic worth 120,000 Installements | -RM1,800 |
| Food and Utilities | -RM2,500 |
| Net fund for Investment | RM400 |
| Year Cash savings | RM4,800 |
| 20 years Net Present Value | RM67,200 |
| Invest in Stock Exchange over the 20 years period assuming 6% Returns | RM49,862 |
| TOTAL RETURNS | RM117,062 |
| House at Present Value | RM600,000 |
| Total Wealth | RM717,062 |
TABLE 2
| Benjamin - Rents an Apartment | Column1 |
| Investing in Revenue Generating Asset | Monthly Cashflow |
| Combined Income | RM12,000 |
| Tax and Pension contribution | -RM1,800 |
| Rents an Apartment | -RM1,500 |
| Loan: Honda Civic worth 120,000 Installements | -RM1,800 |
| Food and Utilities | -RM2,500 |
| Net fund for Investment | RM4,400 |
| Year Cash savings | RM52,800 |
| 20 years Net Present Value | RM739,200 |
| Invest in Stock Exchange over the 20 years period assuming 6% Returns | RM548,486 |
| RM1,287,686 |
Table 1 above shows Adam has only net savings of RM400 per month. After 20 years, he only has RM117,000 available investment fund and family's wealth is RM717,000.
Contrasts with
Table 2, Benjamin rents a nice condominium. This frees up resources to invest over 20 years amounting to 739,000 which is regularly invested in Business Income Generating activities.
| Column1 | Column2 |
| Difference in wealth between Benjamin and Adam | |
| Adam | RM717,062 |
| Benjamin | RM1,287,686 |
| Difference | RM570,624 |
| Benjamin is wealthier than Adam by almost 80% | 79.6% |
Verdict: Table 3 shows that Benjamin has almost 80% more wealth than Adam, a vast difference of over RM570,000.
Compare
these lockboxes and limitations with the top 1% in society, which owns the bulk of
business equity or Stock Market assets. Business equity means ownership of businesses;
ownership of shares in corporations (stocks) is classified as ownership
of financial securities…
Pic 04: Why the rich gets richer? Read the above book. Very educational and transformational to your life.
The
mean value of business Stock Market Shares are concentrated in the top 10% of
families… while the value of the biz equity held by the bottom 90% has
flat-lined. (pic 04)
Assets either produce income (i.e.,
they are productive assets) or they don’t (i.e., they are unproductive
assets). Businesses either produce net income or they become insolvent
and close down. Family homes typically don’t produce any income (unless
the owners rent out rooms), and whatever income life insurance and
retirement funds produce is unavailable.
Pic 06: Seriously? Wealthy when approaching the grave?
This
is the key difference between financial-elite wealth and middle-class
wealth: the majority of middle-class wealth is locked up in unproductive
assets or assets that only become available upon retirement or death - You are only wealthy when approaching death? Is that good planning? See Pic 06
The
income flowing to family-owned businesses can be spent, of course, but
it can also be reinvested, piling up additional income streams that then
generate even more income to reinvest.
No
wonder wealth is increasingly concentrated in the hands of the top 5%:
those who own productive assets have the means to acquire more
productive assets because they own income streams they can direct and
use in the here and now without all the limitations imposed on the
primary assets held by the middle class.
KEY SUMMARY
1. Don't let your fixed income get locked in non-revenues generating assets. Rent an apartment.
2. Educate yourself on how to set up business and invest in Stock market which is a form of owning businesses
3. Don't limit yourself and be contented with Fixed Income salaries for the next 30 years. You won't have enough to retire
the most important lesson:
4. Seek out business opportunities that doesn't eat up your investable fund. Seek intellectual and marketable knowledge and generates income.
Most important lesson - Pic 07: Invest in Revenue generating activities.
Donald Trump once said that if he loses everything ie bankrupt, he will venture into network marketing.
Seek out world class company to partner with to do your business with little or no financial risks.
What are they?
You can contact me at marcus_ong88@hotmail.com to find out.
1 comment:
Hi,
What are the lessons learnt?
The above article is repeated so often by wealth planners.
Hope it benefits you.
Need advise? Ask me with ZERO Consulting Fee.
Investing in your future, Today.
Marcus Ong - entrepreneurial Lecturer
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