If You Want To Be Wealthy, Don’t Focus on Owning a House–Build a Business

One truism of investing is to follow the lead of those who are building wealth.This chart reveals the foundation of the wealth of the top 1% and the next 9%; business equity, i.e. ownership of enterprises. Compare the assets boxed in red:

The wealthiest households’ primary wealth is businesses and shares in businesses. The bottom 90% depend on the family residence as a store of wealth, and on debt as a means of funding asset purchases and consumption.

Primary residences were once a reliable store of wealth–a store that was accessible to working families who were willing to pinch pennies and save up a down payment.

But now that housing has been financialized and globalized, it is prone to boom and bust cycles like every other risk-on financialized asset. Unfortunately, recent history shows that many middle-class households bought homes at the top and rode the post-bubble burst down.

Those fortunate enough to own homes in bubble-prone regions may benefit from speculating in housing, but playing this speculative game requires cashing out at the top of the bubble–something few have the knack for.

Building a profitable business isn’t easy. That’s why many of the wealthy let entrepreneurs take the risk of starting businesses and then buy the business for a premium once it has proven to be profitable.

But many entrepreneurs refuse to sell out, preferring to hold their businesses as a family asset that can be passed on to the next generation.

It’s also worth noting that the wealthiest 10% own over 90% of the securities and stocks, 84% of trusts (essentially tax havens) and almost 80% of non-home real estate (i.e. second homes and income-generating properties).

Primary residences represent a mere 10% of the wealthiest 1%’s assets.

The key take-away: focus on owning income-producing assets, not a primary residence. The second key take-away:

Don’t finance your assets with debt; finance your income-producing assets with savings and sweat equity, not borrowed money.

It is not accidental that the wealthiest 1% hold very modest levels of debt.

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7 comments on “If You Want To Be Wealthy, Don’t Focus on Owning a House–Build a Business
  1. MereeGran says:

    Good in theory—but people need some place to live. And with rents sky high, owning a house that will develop some value in most (non-bubble) markets, is still the best of the options out there for the 99%.

  2. Max Power says:

    Seeing as how the US is obsessed with motocar plate tracking, RT should run this article :

    http://www.nwcn.com/story/tech/2016/02/01/gates-memorized-microsoft-license-plates-track-employees/79653184/

    In a radio interview with the BBC, Bill Gates admitted to keeping track of employee license plates in the early days of Microsoft, in order to see when they were coming and going from the office.

    In the interview for BBC’s ‘Desert Island Discs’ program, Gates admitted in the early years of leading Microsoft, he didn’t believe in vacations. He also told the BBC’s Kirsty Young that he had to be careful about applying his own standards of work to other employees.

    He told Young, “I knew everybody’s licence plate so I could look out the parking lot and see, you know, when people come in. Eventually I had to loosen up as the company got to a reasonable size.”

    The BBC radio program asks famous interviewees to choose eight pieces of music, a book, and a luxury item to take with them on a desert island.

    It also includes the personal interview with Gates, where he admits his parents sent him to a child psychologist. He also talks about dropping out of college and getting speeding tickets in his first car, a Porsche.

  3. Max Power says:

    ============
    FYI
    ============

    The North American upper 5% already fully own several houses (and or datchas), in several countries in some cases — so home ownership is not so big a deal. MK sort of forgot to make this basic point…

  4. Max Power says:

    Worthy of RIPLEY’s BELIEVE IT OR NOT …

    http://www.nwcn.com/story/news/local/seattle/2016/02/10/does-really-cost-37-cents-open-door/80204828/

    SEATTLE — Open this door and waste 37 cents.

    That’s the message outside King County’s Chinook building in downtown Seattle.

    Eight years ago, the county installed a sign on the only “regular” door trying to encourage people to use the revolving door instead.

    Revolving doors are more energy-efficient because they don’t allow as much air to flow between the inside and outside.

    The employee who calculated the precise cost retired, and current employees don’t know how the math was done, says Cameron Satterfield, spokesman for King County government.

    “The factors that went into that calculation are the average number of seconds a day the door is open, the average number of times a day the door is opened, the volume of air released when it’s open, the cost to maintain temperature for that volume of air, and the ambient weather,” wrote Satterfield in an email.

    Well, eight years later, the message on the door hasn’t resonated with county employees.

    We watched people come and go for several hours on Wednesday morning and afternoon.

    We saw easily 100 or more people — many of them county employees — opening the door and ignoring the sign.

    “I was in a hurry,” said one man.

    “It was a careless error,” said another.

    “Because I can,” said a third man.

  5. YoLithos says:

    The debt culture and its agents forces unpayable debt upon regular people just as it forced higher sub-prime mortgages on them. Even if it didn’t, regular people don’t have enough left over from day-to-day living to own businesses. The few that can even try to graduate already do so with too much debt to even consider owning a business without having it in hock to the bank from day one. Or to a sugar-daddy/mama. Which can be just as sinister. Or even more.

    And debt-ridden businesses aren’t personal debt. But can go bust just as readily. And that wealth then is “gone”. While funds and trusts also usually are heavily invested in debt-instrument-laden footprints, downwind from the meltdowns, and are probably even more vulnerable. And the rich have access to anti-risk financial tech the rest of us proles get thrown out of the payday lender for even daring to speak about.

  6. YoLithos says:

    So. True, but not usually an option. Socially or financially. Not everyone has a CAF to try and set them straight.

  7. Steven says:

    I must concur. Building a business that produces goods, services and decent jobs is morally superior to real estate profiteering and is good business.