By Stephen Buller
What is wealth? We should start by differentiating between the tangible and intangible: Tangible wealth consists of physical items like land, cars, equipment, and gold; intangible wealth consists of non-material items like good health, skills, reputation, and relationships.
In my opinion, one would be wise to value intangible wealth above the tangible – and at the same time recognize that the latter often facilitates the former. Writer Spike Milligan said, “Money can’t buy you happiness, but it does bring you a more pleasant form of misery.”
Good health may require doctors’ visits. Skills may require costly education. Reputation and relationships often involve marketing or recreational expenses. Food and shelter continue to increase in cost. One of the main purposes of money is a medium of exchange, so unless you are an expert in all things, you will need it to trade for these things and more.
That is why this article will focus on tangible wealth, something I have written about many times before, but here I will do my best to give a complete and holistic picture of what I believe it means to be materially wealthy. None of this should be taken as financial advice because the smart thing to do will depend greatly on your specific circumstances.
I divide assets that comprise material wealth into the following categories: Currency, paper assets, commodities, businesses, real estate, and gold.
I am no fan of fiat currency, but we all need it for our daily expenses – as well as our taxes. A wealthy person has enough dollars in their checking or savings account for a “rainy day.” The first step in building wealth should be to obtain an emergency fund which covers a number of months’ living expenses. How many months will depend on your risk tolerance. This takes precedence even over paying down debt.
Most of us have to work for a living, which makes it difficult to dedicate a lot of time to investing. This is why paper assets, such as stocks and bonds, are one good option for most people. The downside is a lack of control over these assets. The upside is it can be as simple as investing in an index such as the S&P 500 which gives exposure to large and profitable companies. When an economy is doing well, or the money printer is working overtime, paper assets usually do well.
In a correction or crash – which occur regularly in our fiat system and even under sound monetary systems – commodities such as oil, crops, and building materials often do well. When people become risk-adverse and need to tighten their belts, the relative value of having a roof over your head and food in your belly goes up.
If you are at a stage in life where you have acquired skill and expertise in a marketable area, starting your own business can build significant wealth because it creates immediate income as well as long-term value. A business succeeds when it leverages tools, equipment, and labor to provide a product or service at a competitive price. It is not for the faint of heart, but I am a huge fan of the freedom and control running your own business can provide.
Real estate is really just another business: It involves providing a service for a price at which it can earn a profit. Real estate is usually considered a special category, however, largely because of special tax incentives, illiquidity (it takes a long time to buy or sell real estate), and because it can be purchased using substantial amounts of borrowed money. It is often a smart way to diversify one’s wealth once it has grown to a certain level.
Gold has been money for thousands of years. Though it can and has been used as currency, these terms should be segregated because, unlike our dollar, gold is a store of value. I don’t think of it as a commodity like oil because it has specific traits that make money its ideal use. GLD is a paper asset – easier to trade but should not to be confused with the real thing. In my opinion, gold is the true savings account. Gold is money, or the family jewels you might pass down to your heirs. It has been here since the universe formed, and it will outlast us all.
The best portfolio is diversified, not just between stocks and bonds, or international holdings, but across all of the assets above, including the intangible ones. This may sound daunting, but I hope this article encourages you to expand how you think about wealth, or to start somewhere. Too many people today feel like it’s impossible to build wealth and so they don’t even try. Remember, “A journey of a thousand miles begins with a single step.”
Most of us earn an hourly wage, and so it’s easy to put a price on our time. However, time is the one resource we can never get back – though we may purchase more of it with our wealth. Some people work their lives away to become materially wealthy at great expense to their immaterial wealth – and never find time to enjoy the fruits of their labor.
As with many things in life, striking the right balance between work and wealth, and play and pleasure is a never-ending negotiation. I hope this article helps you tip the scales in the direction you think best.
