When most Americans think about building wealth, they focus primarily on saving – as much money as possible. They dump much of this money into the financial markets (stocks, bonds, mutual funds and other actively managed investment products) and then watch with bated breath, hoping for a strong return on investment. Unfortunately, this strategy never seems to deliver. Inevitably, the markets nosedive, and investors lose their shirts.
By contrast, the ultra-wealthy just seem to keep accumulating more and more wealth, with seemingly no risk and no hiccups. What gives?
The truth is that the ultra-wealthy don’t build their wealth like the rest of us. They recognize that putting all of their eggs into Wall Street’s basket is just too risky, so they don’t do it. Instead, they have developed a way to leverage their money and to continually keep their money moving through investment products, with every investment along the way earning a steady rate of return. This strategy is called circular investing, and it’s the secret to building meaningful, substantial wealth. Let’s explore the concept of circular investing in more detail:
Building Wealth:
- Circular investing means making your money work for you: With a traditional linear investing strategy, you put a dollar into an investment and hope to get more than a dollar out. It’s a one-way-in, one-way-out philosophy, where you essentially sit by passively while a financial professional works to get you a steady return on investment. Circular investing, however, involves keeping your money moving through multiple investments, all at the same time. It can’t be done with the Wall Street financial products; you need each of these investments to be earning a steady rate of return if you hope to grow your wealth at the velocity with which the ultra-wealthy earn money.
- Circular investing requires that you focus on cash flow, not cash accumulation: With traditional investing, the focus is on cash accumulation – that is, on growing the total dollar figure of your wealth. Of course, the only way to grow your wealth by that logic is to never spend any of it. And that doesn’t make you wealthy, does it? When you instead focus on increasing your cash flow, you’re able to afford the things you want, which is precisely the goal of building wealth. Keeping your money moving through multiple investments is the key to creating a strong, highly leveraged cash flow.
- Whole life insurance is an essential foundation of a solid circular investing strategy: For decades, the ultra-wealthy have relied on whole life insurance policies as the foundation of their circular investing strategy. Whole life insurance is not just death insurance; when properly structured, it has a cash value that can be accessed at any time. You become your own bank, borrowing against your cash value to fund other investments. In this way, the money you invest in your policy is money that is actually moving through your policy to fund other investments.
- Whole life insurance is secure and liquid: Two of the most important characteristics of circular investing are security and liquidity, and whole life insurance offers both. To be able to move money through investment products, you must have security; otherwise, you’re essentially building your investment strategy on a house of cards. Whole life insurance is one of the oldest, most financially secure investments, paying out consistent dividends even during tough economic times. Furthermore, when you borrow against the cash value of your whole life insurance policy, you’re accessing full, unrestricted liquidity.
When you keep your money in motion, leveraging and reusing it constantly, you’re unlocking the #1 secret to building meaningful wealth. The keys to establishing a successful circular investing strategy are to make your money work for you, to focus on cash flow instead of cash accumulation, to use whole life insurance as the foundation of your investment strategy, and to recognize that whole life insurance offers full security and liquidity.
For more information check out our article: Discover how life insurance is a cash flow resource.
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