It was close to twenty years ago that I sat in my first personal finance class, learning how to invest money I didn’t have for a “retirement” that seemed inconceivably far away.
It was my first year at the academy. And the government thought it appropriate to ensure that its future Army officers had sufficient acumen to manage their finances.
Their sage advice back then was to buy stocks, hold for 40-50 years, and then rotate into bonds.
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(Funny how the government’s finance class encouraged us to buy government bonds.)
The idea was to build wealth through stocks, which conventional wisdom tells us will increase in value.
Then, generate stable income from government bonds, which are “safe” and provide much needed supplemental income for retirees.
It’s become clear to me over the years that this story is completely wrong.
The belief in finding safety by loaning your money to a bankrupt government that has no hope of ever repaying its debts is completely ludicrous, especially given that their interest rates are either negative or well below the rate of inflation.
For anyone that has the courage to look beyond the mainstream, there are a number of much more profitable and stable asset classes available to grow your wealth and generate income.
1. Private Businesses
Private businesses are almost unparalleled in wealth creation, and can offer superior risk-adjusted returns to anything out there in public markets.
I’m not talking about investing in tech startups trying to find the next Google (though investing in startups can also provide outsized, risk-adjusted returns).
I’m talking about acquiring shares of more mature, privately held businesses.
These would typically be medium-sized companies that have a 20+ year history of generating profits.
There is a limited market for these opportunities (as there usually is for any great deal). But they do exist.
Business brokers around the world often list these types of companies at between two and four times their annual earnings.
This means that it’s possible to generate a 50% return on your investment. And if you have skills or access to management that can grow the earnings, the returns can be even higher.
Mature businesses with long operating histories may even qualify for bank financing, thus reducing the amount of upfront capital you need to purchase the business.
I’ve been involved in a few of these deals myself where banks have stepped forward to provide most of the financing necessary to buy a mature business based on the company’s long-standing operating history.
In comparison to loaning money to a bankrupt government for a one-percent annualized return, this strikes me as a no-brainer asset class to consider.
2. Royalty streams and intellectual property rights
Royalty streams and intellectual property rights are another unconventional asset class to consider.
This can include anything from patents to songwriter credits, to income streams from privately held mines or oil wells.
Given the weakness in commodity prices this market is starting to become much more attractive from a value perspective, particularly if you have a long-term outlook.
Some friends of mine own the website RoyaltyExchange.com, a platform where royalty owners for film assets, patents, mineral rights, etc. are auctioned off to investors.
In one recent deal for songwriter credits, a $15,000 annual royalty stream sold for less than $29,000.
I have another colleague who holds book copyrights through his Individual Retirement Account to generate tax-deferred royalty income.
One of my personal favorites is agriculture.
Understandably most people won’t be able to achieve the size and scale of necessary to run an efficient agricultural corporation.
But even on a small scale, agriculture works. Apple trees have outperformed apple stock for 30+ years.
It’s hard to imagine you’ll be worse off for having a small organic garden or planting some fruit trees in your backyard.
Not only will you be putting real food on the table, but with an investment of just a couple of dollars you could substantially increase your property’s value.
Last but not least, the most important investment I believe anyone can make is an investment you make in yourself.
For anyone looking to secure greater income and wealth, there is no substitute for real education: business education, financial education, and the development of important skills.
To generate $1,000 in monthly income through conventional investments, for example, you’d have to buy $674,000 worth of US government treasuries based on today’s bond yields.
Or you could invest a tiny fraction of that to learn a skill that makes you more valuable at work or in the marketplace.
This is one of our main focuses in our annual youth liberty and entrepreneurship camp.
Each summer we spend an intense five-day workshop developing critical skills, business education and financial education, guided by some of the smartest, most successful people I know.
It’s free of charge for those who are accepted.
We’re just about to open up the enrollment window, if you’d like to find out more about how to apply to our Liberty and Entrepreneurship camp, click here.