As a business owner, know that property is the best way to store and build your wealth. We look at why it’s the most prudent asset and how your business can’t store your wealth.
I have a question…
Do you know what will happen to your wealth over the next 50 years?
It’s an important question because most business owners don’t even think to ask it. They’re so tied up in working inside their business that they’re not really thinking about what’s going to happen to the wealth they accumulate.
They’re just trying to make more of it.
And what happens is that these business owners typically don’t end up investing their wealth. As we’re about to find out in this article, that is a mistake.
But first, I’d like to introduce you to a guy called Charlie.
You see, Charlie is a digital marketer who runs his own business and he’s been doing that for about a decade.
But now, he’s starting to switch his focus towards building an asset base.
After 10 years of working heavily on his business, he’s starting to invest the wealth he has accumulated into property.
There’s a simple reason…
Property is the Most Prudent Asset
I invited Charlie onto my podcast to talk about his journey with property and why he, as a business owner, has started investing.
Property is the most prudent asset available.
Like many business owners, Charlie’s seeing a lot of volatility in his industry. That’s partially a sign of the times, especially given what we went through in 2020.
But he also has an eye towards the future. And the trends he’s seeing in his industry have started to worry him. As he puts it:
“There are people right now, writing code and building machines to replace what we do as a company.”
So, the volatility he’s experiencing right now may get amplified in the coming years, as new technologies come along and threaten the very fabric of what he does.
Now, Charlie could, and may, adapt to these changes in his business.
However, he’s wary of doubling down on investing in his business when there’s so much risk involved. He characterised it as doubling down into Blockbuster video when Netflix was on the rise. It’s a risky move when it looks like what you do for a living is on the verge of being swallowed up by the next big thing.
And that brings us to his choice to invest in property.
Through property investing, Charlie’s able to create stability during a period where volatility may threaten his industry. Property gives him a place to store his wealth where he’s sure that it won’t get swallowed up by the changing tides of the business world.
But why property?
For as much as different industries change, people will always need places to live. No matter what new technologies or ideas come along, there is a fundamental need for shelter that we all have.
That’s what makes property the most prudent investment.
Charlie’s choice to invest in it means he’s able to use this asset to protect and grow his wealth during a time when investing in his own business seems like a risky proposition.
That brings us to an important question:
Should you follow Charlie’s lead?
You should, for a simple reason…
Your Business Can’t Hold Onto Wealth
As effective as a business may be for actively generating wealth while you’re working in it, the fact is that no business does a great job of holding onto wealth.
And there are three key reasons for this.
Reason #1 – Business Investments Offer Depreciating Returns
Most of the investments you make into a business have depreciating returns.
If you buy plant equipment, for example, it will depreciate over time. The same goes for your computers and most of the physical tech that you buy. And practically anything you need to keep your business running.
As time goes on, these assets don’t become more valuable.
They lose value.
And that means you’re always stuck in this cycle of having to reinvest to refresh the business, only to watch what the assets you’ve just poured money into start to depreciate.
Reason #2 – Volatility
Charlie already identified this in his business.
Let’s build on that concept for a moment.
We’ll say that you have a million dollars that you’re going to diversify into a million different businesses. As diversified as you are, you’re inherently investing in volatile and depreciating assets. Over time, a bunch of those businesses will collapse. Others will struggle and only a select few will give you any kind of return on your investment.
Businesses tend to not stay around forever.
If you need proof of that, the Fortune 500 from 50 years ago is almost completely different from what it is today.
The reality is that businesses rise and fall based on a ton of different factors, which makes them volatile investments.
Reason #3 – Limited Exit Options
So many business owners operate on the infinite return idea.
They think they’ll be able to build a sellable business. Or, they assume their kids will take over the running of the business when they retire.
Unfortunately, reality doesn’t always work out that way.
The business might not grow to the point where somebody will want to buy it. And if you’re thinking about passing the business on to your kids, what happens when they tell you they don’t want it?
The point is that you have limited exit options with a business.
And if you exhaust those options without a return, all of the time and money you invested into the business goes to waste.
Play the Long Game
Charlie invests in property because he’s playing the long game.
His business is a good active strategy, in that it generates a lot of money right now. But the volatility that exists, both in his industry and in the business world at large, means he needs long-term assets that he can use to store wealth and generate passive income in the future.
As a business owner yourself, you need to think about what your investment into your company is really giving you.
Now, I’m not saying you shouldn’t invest money into growing your business.
Just be prudent about it.
Focus on the future by investing in property and you’ll overcome the volatility and depreciating returns we so often see in the business world.
Keen to explore your own property strategy?