Asset accumulation is the way to freedom. The rich get richer and the poor get poor not because of income. But because of the accumulation of assets over a long period of time. If you want to set yourself up for life, you have to accumulate assets in order to live a money stress free life.
When you accumulate assets over a long period of time, amazing things happen. Ben Franklin donated a $2k investment between Philadelphia and Boston at his passing on April 17, 1790. The condition was that they couldn’t touch the money for 200 years. 200 years later, that $2k investment was worth $6.5 million.
Imagine what it would be like to have $6.5 million in assets at the time of your retirement. Granted, we don’t have 200 years to live on Earth. However, we have the ability to invest way more than $2k over our lifetimes. It may take more contributions in order to get there but when you do, it’ll be worth it.
While people are busy spending money on a second vacation home, you should be busy with asset accumulation. It doesn’t strictly have to be with money, it can be in real estate, Pokemon cards, or any other forms of investment. After 20 years is when you get to see the results of your and your friends’ choices.
Did they spend money on a fancy new car to impress others? Or do they have a large asset balance to fall back on should they get fired? That’s when you see who put in the effort towards the future and who did not. Accumulating assets is one way to keep score and find out who is winning and who is not.
What is Asset Accumulation?
Asset accumulation is building wealth and assets over a period of time through earning, saving, or investing money. The valuation of the assets is measured in monetary terms and it shows the financial health of a person. The result is meaningful when measured over a prolonged period of time.
It’s not a meaningful indicator when you measure the change in asset balances over a day, week, or a month. Over a year is better and over a decade is excellent. The longer the better. The best asset classes to accumulate is in stocks or real estate. Can other asset classes outperform them? Absolutely.
However, the tried and true method is still a great approach to investing. This all starts with you first earning money. Asset accumulation cannot start if you never make or earn money in your entire life. This is the first step, no matter where you are in life. Even if you get an inheritance, that still counts as “income”.
Then what separates the accumulators between the spenders is what you do with the earned income. Do you spend money on Nicholas Cage pillows on Amazon? Do you buy an Alpaca because it was the last one on sale at the pet store? Or finally, do you buy stocks and real estate that are going to earn you money after years?
While living in the moment is great and all, there are so many curveballs life throws at you that you will need money to solve. Asset accumulation allows you to live a life on your own terms when push actually comes to shove. Otherwise, you are dependent on your company to provide you a livelihood to survive on.
That’s no good.
How Does Asset Accumulation Help Me?
The number one benefit to asset accumulation is to protect your retirement. Whether we like it or not, the answer to the question “how important is money?” is an extremely resounding yes. Therefore, it’s a more important idea than ever to protect your future and retirement. No one else is going to take care of you but yourself.
Another benefit to asset accumulation is that you have the leeway to SMACK that social share button and post to your favorite social media! It’s a more essential idea than ever that workers need to accumulate assets to live a happier life. There’s a reason why the Great Resignation exists.
Employees are not satisfied with their relationship with their employers. That brings up to another very crucial benefit. When you accumulate assets, you start to have power. The power to do whatever you want. The power to reject to hang out any people that you don’t like.
Many times, people are stuck hanging out with people who they don’t like or respect because they have to. One such person could be your boss. I’ve been fortunate to have good bosses for the majority of my career but fully know what it feels like to have a bad one. It’s not something I would wish on my worst enemy.
It’s more relevant than ever to accumulate assets and to lead a fulfilling life. Life is too short to work decades for someone else that you don’t like or respect. Or even enjoy doing. It’s when you have choices that brings you happiness and joy. Not when you are forced to do something because you have to pay the bills.
You want to do something because you want to and not because you have to.
Different Kinds of Asset Accumulation for Tax Purposes
So with that said, there are different kinds of asset accumulation even within the same asset class such as 401(k)s. Peter Thiel understands this with a $5B Roth IRA balance that puts my $0 Roth IRA balance to shame. For tax advantaged asset accumulation accounts there are 401(k)’s, Health Savings Accounts, and Roth IRAs.
The Roth IRA can be argued as having the biggest advantage. 401(k)’s have limited investment options, depending on if it’s an employer sponsored plan or not. However, Roth IRA’s do not have limited investment options. That’s why a small investment in a private, hard to value company such as Paypal turns into $5B, as was the case for Peter Thiel.
Then there are after-tax brokerage accounts such as Robinhood, Webull, Fidelity, and more. While investments in these accounts are helpful, it is not as great as the 3 retirement accounts as mentioned above. Mitt Romney has a $102MM Roth IRA account through his private equity investments. All of those gains are tax free.
If there’s one advantageous thing you can do to accumulate assets, it’s to maximize your retirement account contributions to the limit. Every single year, without fail. If you can’t maximize all 3, then at least maximize one of them. The most minimum account to contribute to is the 401(k) up to the company match.
That’s the first account to contribute to. Then it should be to maximize the HSA. Then it is indifferent between Roth IRA and 401(k). However, if you aren’t interested in optimizing the order of contributions, just maximize one of the accounts. You are far better off than the majority of Americans if you do so.
Asset Accumulation on a Low Income is Possible
It absolutely is NOT a requirement that you have a high income for asset accumulation. It doesn’t matter. At all. All you need to do is invest at least $5,050 per year at a 7% interest rate and to be a millionaire after 40 years. Yes, if you do make poverty line income, you need to generate additional money through side hustles and such.
However, poverty line income that covers your living expenses plus an extra $5,050 per year is not a “high income” by any means of definition. It’s still low income. Therefore, asset accumulation is absolutely still within the realm of reality for the vast majority of Americans. Do people actually take action to do it? No.
As an astute personal finance Filled With Money reader, you will be different. You will actually take the lessons and apply it to your life because it can change your life for the better. Absolutely. I’ve met so many people who make $60,000+ per year yet doesn’t have a dime in their retirement accounts.
You can easily beat their financial success while making a fraction of their salary. It’s more than possible. I personally lived on $20,000 – $25,000 per year after maxing out retirement accounts. I still had money leftover by the end of it. If I can do it, anyone else can do it as well.
The reason why the rich get richer and the poor get poorer is because the poor do not have assets that pay them. They forever have to work for an employer because they’re the ones who give them money. When you have assets that pay you while you sleep and whether you work for the day or not, that’s on the path to success.
Is it Too Late to Accumulate Assets?
Although it could be too late to generate next level wealth, it is NEVER to late to practice asset accumulation. Never ever. The earlier you start, the more advantageous it is. However, that does not mean that it is impossible or too late to do anything about it. When there’s a will, there’s a way.
We have plenty of time to correct any amount of mistakes we made over our lives. This isn’t some motivational speech to get you excited about accumulating assets. I practice brutal honesty to the utmost respect. If I truly thought it was too late for you, I would point blank tell you without caring about your feelings.
However, it doesn’t work when brutal honesty is factually and objectively that it’s never too late. Even if you are in your 30’s, 40’s or 50’s, it’s still possible. There are many people becoming millionaires in 10 years. Ten years seem to be a standard time in the FIRE community to achieve the millionaire status.
Whether you get there slower or later than that is not the point. It’s whether you actually can get there, which is completely doable for the majority of people in the developed world. I recently convinced my 27-year old friend to max out his retirement accounts. After 5+ years of me working hard to convince him.
While he did lose all of that time, it’s still not too late. He can absolutely get there, even if it takes him 5 more years than me to get there. The key is taking action. Do you have what it takes and the motivation to actually see things through? Or are you going to sit back, think “this is good advice”, close the laptop, and move on?
It’s up to you.
My Asset Accumulation Story
I started saving since I was 17. By the time that I graduated college, I had between $30 – $40k in the bank compared to the average person who are five figures in debt. After graduation, I saved and invested every bit of my paycheck that I possibly could. I contributed 50% of my salary onto my 401(k) starting out.
Then I maxed out my Health Savings Account. Then I started up my brokerage investing accounts and contributed cash. Everything that I possibly could contribute to saving and investing, I did. I lived in near poverty but still had leftover funds for a $500/month fun money budget.
Even though I felt like I was just existing for two years or so, I didn’t care. I loved the concept of asset accumulation and kept contributing no matter what others were telling me. Many called me “cheap” and made fun of me for saving too much money. That was fine. I’m far ahead than any one of them who called me that.
It took 3 years before I started to feel happy about my efforts. I don’t regret it for a single second. I was sacrificing today for a better tomorrow. Even today, I still look for opportunities to accumulate assets and have my money pay for my expenses. Instead of the other way around.
Once I get to a satisfactory number, I plan to take the foot off the gas significantly and enjoy life. I personally enjoy spending money. I just dislike spending money when it hurts my long term goals. It took me five years to feel like I’m at a very good place. It may take shorter or longer for you.
However, you won’t regret practicing asset accumulation after doing it for long.
