Article length: 867 words
Article difficulty: 10 school years
One of the over 50 financial flaws of the mainstream school of thought is that “The rich become richer and the poor become poorer, and there’s nothing you can do about it”. That’s a flaw because with REAL Financial Competence the familiar “Gap between the rich and the poor” would disappear within just a couple of decades! This article overturns the familiar assertion of the mainstream, and it shows how your investments and retirement planning will benefit from REAL Financial Competence. Please note that this article is technical financial content and may challenge you at first.
REAL Financial Competence, literacy, asset accretion, affluence, ability, yield relevance, CAE
Assertion of the Mainstream: “The rich become richer and the poor become poorer, and there’s nothing you can do about it.”
Why this is a flaw
Although the poor can put aside only a smaller part of income than the rich, if the poor just did put aside this smaller part targeted, to be as effective as possible, then everyone could observe that the opposite assertion is true: “The poor become richer and the rich become relatively poorer.”
Why? Because the yields achieved by those who aim to build wealth and therefore pursue Asset Accretion with its long-term, regular, and targeted investments in equity instruments, are naturally significantly higher than the yields of the respective instruments themselves. Read this sentence again – this is one of the core elements of REAL Financial Competence!
For the WEALTH ALLOCATOR the yield achieved is almost identical to the yield of the chosen financial instrument (subject to various cost). For the WEALTH BUILDER the yield achieved is very different to the yield of the chosen financial instrument (subject to the investment approach).
Why? First, because those who aim to build wealth will have to invest a small part of their income regularly and long-term anyway. If they invest these amounts in volatile equity instruments they benefit from the Cost Average Effect, regardless of the direction of the price movements. The Cost Average Effect describes the decrease of the average purchase price when you invest regularly a certain amount versus buying a certain number of share units.
Second, those who aim to build wealth benefit from the increasing yield relevance over time: The later yields are most relevant. Therefore, the WEALTH BUILDER does not aim for high constant yields.
Conversely, the yields achieved by the wealthy with Asset Management are more or less equal to the yields of the respective instruments themselves. “More or less”, because the actual yields achieved are in most cases a bit lower due to transaction cost and administration cost.
Why? First, because those who have existing wealth cannot sensibly make use of the Cost Average Effect. In other words, they cannot reduce their purchase price because they make a one-off investment. Even if they split their investment into two or three tranches, the impact on the average purchase price is marginal because of the narrow investment interval.
Second, those who have existing wealth suffer from the decreasing yield relevance over time: The early yields are most relevant. Therefore, the WEALTH ALLOCATOR aims for high constant yields.
In addition, while the savings amount influences the future capital only proportionally, the achieved effective average annual yield influences the future capital above-proportionally. This means that even the tiniest regular savings amounts grow much faster and further than a large one-off investment if you give it time and if you choose the right asset type and the right investment approach.
These are the reasons why I rightfully wrote in the beginning: Although the poor can put aside only a smaller part of income than the rich, if the poor just did put aside this smaller part targeted, to be as effective as possible, then everyone could observe that the opposite assertion is true: “The poor become richer and the rich become relatively poorer.”
You could say, nature has provided for its own limitations to disparities! If the poor are taught REAL Financial Competence and just chose the right asset type and the right approach to financial protection, the familiar “gap between the rich and the poor” would disappear within less than a generation.
The benefits would be far greater than reducing juvenile delinquency and other crime. Indeed, no one would feel a loss, but hundreds of millions of people would feel the benefits! Educating the deprived classes on REAL Financial Competence is the key. That should be top of the agenda for everyone because there cannot be lasting happiness inside you when there is so much poverty around you. You may be unaware how much that affects you unconsciously.
By closing the gap between the rich and the poor, teaching REAL Financial Competence and Asset Accretion is the most effective and most rewarding social policy on the planet!
REAL Financial Competence is very different to financial product knowledge and to the familiar “financial literacy” initiatives: Financial product knowledge sells products but prevents you from thinking systematically for yourself and for your own benefit. The familiar financial literacy initiatives are penny-wise at best and dollar-stupid always. Of course it is useful to know eg how to budget your expenses, how to avoid credit card and mortgage debts, how to save money for a rainy day, etc. But all of that is insignificant compared to: How do you best put money aside for the future if you want to retain the buying power and build wealth safe and quickest.
Sadly, REAL Financial Competence is not taught at school or university, not part of any financial literacy programme, and not part of the propaganda in the media. Although REAL Financial Competence really is easy, it’s the combination of common sense and systematic thinking. That’s it. With this, the “gap between the rich and the poor” would disappear within less than a generation. Start now!
© DBMG Bennett 2000 – 2010. http://Affluability.com has far more for you. Note that we do not give any Financial Advice, instead we raise your Financial Competence. Financial Advice helps others to sell financial products, Financial Competence helps YOU to think for yourself. Choose what you want. If you want to acquire REAL Financial Competence to change your life forever and FOR REAL go to http://Affluability.com now.
© D. Bennett 2000 – 2010. All rights reserved.