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How to Create Wealth, How to Keep Wealth

piggy_bank.jpgWealth is made in concentration—and maintained in diversification

A friend recently transitioned from his safe but standing-still job into a promising but “risky” career as a creative professional. So I thought I’d offer some thoughts on how he and readers like him can best ensure that they create and keep wealth.

Many of us aspire to act on our dreams as my friend is doing. And like him, many face the prospect with a mix of hope and excited apprehension. It’s no easy matter to abandon a steady job in favor of an uncertain income.

I once came to this juncture in my own life. What I learned was, there’s no better time to put all your eggs in one basket. Or, in financial advisorspeak, “Wealth is made in concentration.”

My friend mentioned the possibility of supplementing his new career earnings with computer consulting and other work. As one who’s been down that path before, I offered one word of advice.

Don’t.

Focusing time, energy, and capital single-mindedly on your core competency is what builds wealth. Remember The Millionaire Next Door? Most of the people featured in that book became millionaires by devoting themselves wholeheartedly to small businesses. Whether they ranmagnifying_glass.jpg car repair shops, operated restaurants, or flipped rebuilt houses, they poured their time, talent, and cash into one thing. They didn’t hedge their bets by trying to supplement their incomes with peripheral projects. They concentrated with laser intensity on what they did best, and stuck with it over time. We should all do the same. Wealth is made in concentration.

My friend is a talented professional with a deservedly large and growing following. He’s on his way to wealth. So here’s the second of two crucial secrets: “Wealth is made in concentration—and maintained in diversification.” In other words, once you’ve accumulated some wealth, start diversifying away from your concentration.

For example, you’d be wise to invest in at least two uncorrelated asset classes, such as U.S. real estate and overseas stocks. Keep some cash in higher-yield money market funds. Pay off your mortgage (after selling my first company, I paid off three, each on different properties, then kept a vow to buy everything with cash going forward, including real estate).

In recent years, people who became rich on paper by accumulating employer stock in their pension plans learned the hard way that wealth is, indeed, made in concentration—in their cases, in the form of employer stock. But when share prices crashed, those who failed to diversify away from excessive concentration in their own company’s equity paid a dear price.

donotgiveup.gifSo, if, like my friend, you keep on concentrating, before long you’ll face a pleasant new challenge: Diversifying.

Remember: Wealth is made in concentration—and maintained in diversification.

You may also enjoy:

Billionaire Lessons in Prosperity-Building

How Much is Enough?

The Barn of Fortune? (Thoughts on Happiness and Financial Freedom)

5 Comments to How to Create Wealth, How to Keep Wealth

On Aug 21, 2008, Sara at On Simplicity commented:

This is an excellent reminder to stay focused. I’m constantly tempted to take on a million and one projects, but I absolutely agree that having a focus–a well-chosen focus–is not only more likely to result in success, it’s also more likely to keep me sane.

There’s a difference between learning new things and developing new skills as a hobby, and trying to craft a career out of those myriad interests. That’s a difference I really need to keep in mind.

I also like your “first this, now this” approach. Sometimes this message is lost in media profiles of successful folks. The bottom line is that, as an example, the baseball player with the media empire didn’t start out doing all of those things. At some point, he was just a kid swinging the bat over and over again.

On Aug 26, 2008, Computer Consulting Kit Blog commented:

As someone that works primarily with small businesses and small business computer consultant (and someone who is a small business owner myself!), I know that focus is absolutely essential for anyone that wants to build real profit and also job satisfaction. While I often advocate for those that are more trepidatious than others about starting their own small businesses that they moonlight (this particularly works in the computer consulting arena but could also work in other arenas as well) to make sure it’s really for them, eventually they have to make the decision to take the plunge. There are some risks involved, but with some careful planning and dedication, wealth can and will happen. Thanks for these words of wisdom!

On Aug 27, 2008, by Mark commented:

Thanks for your comments, Sara and CCKB. Tim is vacationing off the grid, but he’ll be happy to find your insights here on his return. Cheers, ~Mark

On Dec 7, 2009, Financial Balance Lets You Enjoy Tomorrow AND Today- Financial Eyes & Ears commented:

[…] new-found thrift was exactly what I needed. It helped me to get out of debt and to begin building wealth. I even opened my first savings account, and have now built a sizable emergency fund. Best of all, […]

On Dec 30, 2011, Building Wealth commented:

Building wealth in the times we are in is definitely a hard thing to do. Many have tried and failed and others have succeeded greatly. With the right information and proper amount of work all things can become possible.

I also believe that happiness leads to wealth. Money is not the only form of wealth there is.

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