Feb 18 2016
Someone asked recently about a financial scheme being pitched that claims wealth creation with no investment risks and numerous other benefits.
I believe we all have to deal with the natural laws of money to achieve our objectives. There are no short cuts, good deals, guarantees or ways around the natural laws of money and wealth building.
The truths behind “wealth creation” and “savings” are two totally different things. There are two accepted avenues for managing money, owners and loaners.
Owners (investors) are people who own assets that grow in value over time (or not if you select bad assets). Owners own stocks, properties, or their own business.
Only ownership builds wealth. Wealth is required for retirement. Owners build wealth because ownership involves risk and risk pays. To create wealth, you have to earn returns large enough to not just offset taxes and inflation but to earn a surplus of returns well above taxes and inflation. There is no such thing as a safe ownership investment.
Successful ownership requires knowledge about managing the risks associated with ownership. Manage to risks and your returns will be a by-product.
Loaners (savers) are paid interest. Loaner accounts are bonds, CDs, savings accounts, money markets, fixed-income (interest bearing) insurance products…anything safe or guaranteed is a loaner.
A loaner’s objective is wealth preservation not wealth building. Interest bearing accounts don’t pay enough to offset taxes and inflation and provide surplus returns. Being safe doesn’t pay and doesn’t create wealth.
Schemes sell books. Schemes also make enticing pitches.
If the scheme is not backed by the truths mentioned above, then I discount the scheme out of hand.
Example: the scheme relayed to me was about dividend paying and fixed-income insurance products. The products didn’t involve ownership so how was this scheme going to build wealth for retirement?
If the scheme plays around with the truths mentioned above, then I question how credible their method is.
As mentioned above, the scheme relied on dividend paying and fixed-income insurance products. If your objective is wealth preservation, this scheme may work for a portion of your money. But do you need the insurance in the scheme? Are there better, more efficient, options available to you?
Valid savings or investment vehicles are all a shade of gray to me—neither totally good nor bad. It’s about whether the vehicle is best for your objective.
However there are bad schemes because they aren’t valid. They are never meant to work only to steal your money. That puts every scheme on my radar as an enemy target until proven otherwise.