Government tax laws favor investing in assets over increasing your salary. The more money you earn, the more income taxes you pay. The more assets you acquire, the less taxes you pay.
In building wealth, your first step is to get clarity about your financial and wealth building goals and your purpose for investing.
Americans who don’t have specific financial and wealth building goals are unlikely to have much success managing their money, building wealth over the long-term and achieving financial freedom.
Americans are conditioned from an early age to equate asset diversification with investment risk mitigation.
- Mutual funds are deemed safer than single stocks.
- A portfolio of stocks is considered safer than real estate.
- A real estate portfolio is thought to be safer than a single business venture.
As the proverb says, “Don’t put all your eggs in one basket.”
If you aren’t educated and don’t thoroughly understand about a specific asset class, investing heavily in that single asset can be incredibly risky. But if you take the time to learn and become knowledgeable about the sector and the specific markets and properties in which you plan to invest, you can make much of that risk disappears.
The Four Benefits of Real Financial Education
Four things happen when you focus on increasing your education and increasing your knowledge of a specific investment asset:
- You increase the level of control you have around the investment. More knowledge allows you to be a wise and active participant in managing the asset.
- Your rate of return typically increases. Wise investors use their knowledge and control to make decisions that will improve performance.
- Your taxes go down. What most people have learned about taxes is wrong. Taxes and tax laws are essentially a framework for what kind of money is taxed and at what rates. If you do precisely the same thing when it comes to money, you will pay the same amount of tax. But the tax law is packed with incentives the government has created to encourage people to do specific things with their capital. The more knowledge you have about those incentives, the less you’ll pay in taxes. One of the first things you’ll learn is that the government favors investing in assets over increasing a salary. The more money you earn, the more taxes you pay. The more assets you acquire, the less taxes you pay.
- Your risk goes down. When you combine a high level of control with higher returns and lower taxes, you will have greatly reduced the risk associated with a specific asset class. Compare your average mutual fund to a multi-family housing property that you control in a market you know like the back of your hand and that generates a high rate of return with additional tax benefits. Which one feels like the bigger risk now?
The real key to a successful retirement investment strategy—or any investment strategy—is financial education that includes proven systems for building wealth over the long term and, reducing taxes and expenses.
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