How To Prepare For The Greatest Wealth Transfer In History

Sound advice for a limited audience.  Those in the bottom third have already been excluded; inflation will see to that.  Those in the top third have nothing to worry about; government stimulus will see to that.

So, the targeted audience for this advice is the middle third.  Not too surprising since the middle third have historically taken care of the bottom third and provided the profits for the top third.  Unfortunately the middle third is in danger of collapsing; the demands for charity and the demands for profits have simply overwhelmed the middle third.  

Notice that the advice for the middle third kinda dismisses the stock market?  The advice is really about using money as a tool; money doesn't do the work itself.  Passive investing is not the path to a more prosperous future.

S E E D E D   C O N T E N T

The greatest wealth transfer in history will take place over the next three years. What does this mean for you? It means now is not the time to blindly hand your money over to Wall Street or bury your head in the sand. Your 401(k) won't save you in this COVID-19 world.

As our economy continues to be pumped with money, the money will end up in the hands of only a few, redistributing wealth and creating even more of a wealth gap. Do you know where your money is going to end up? In the hands of people who know how to get rich. Even during the Great Depression, when one-third of Americans were financially devastated, more millionaires were created at that point in time than at any other time in American history (adjusted for inflation).

The same is true now: one-third of Americans have and will be hit hard by the pandemic and the recession; one-third will be able to maintain their lifestyle, but it will be increasingly tougher to do so; and one-third of Americans will get much richer.

Which group will you be in?

If you want to be part of the third that gets rich, here are three things to keep in mind.

Prioritize Cashflow and Reinvest

Have you ever wondered why a staggering number of lottery winners end up bankrupt within five years of winning? It's because Americans are poorly trained on how to use money to create cashflow. Entrepreneurs aren't much better when it comes to investing in anything outside of their business. They think it's about accumulation, setting money aside, taking unnecessary risks, and trusting financial pundits and experts who, in reality, are nothing more than salespeople.

Making money is one thing. Keeping it is entirely different. As we navigate this pandemic and the ensuing wealth transfer, cash is going to be king. Opportunities will be available, but only to those who have liquid capital available to bail out needy business or home owners. If you are automatically allocating money to plans that lock your money away or require performance from a stock market you have no control or expertise over, plan on a bumpy (and disappointing) ride.

Automatically save, but deliberately invest. This isn't about setting it and forgetting it or investing early, often and always, instead it is about having cash on hand to capitalize on opportunities. You must focus on cash management and cash flow, but people paid commissions won't be able to tell you this- it is a threat to their income.

Let me break this down to five levers you can pull in order to become a better cashflow investor—and don't worry, these are about leveraging knowledge, not capital.

#1: Plug The Leaks

You can keep more of what you make without cutting back. Look to save on taxes, interest, investment fees (especially on non-performing investments), and insurance. Make sure you don't have duplicate coverage or improper structures that are costing you more. There is substantial opportunity to save on tax. Due to CARES there are several IRS acts that may allow you to go back and amend your returns and get a refund.

#2: Know Your Costs

What are your monthly costs? Not necessarily to thrive, but just to live. You can't achieve financial independence—having income from assets cover your basic costs—until you know what those basic costs are. Once you have that piece, you can work backwards to create the cashflow necessary to cover your costs and invest money you earn back into yourself. Once you know your costs, differentiate your expenses.

There are 4 types:

1- Destructive, eliminate those.

2- Lifestyle, manage those and pay cash.

3- Protective, having cash is part of this as well as asset protection and insurance.

4- Productive, these are investments that when you put in a dollar more than a dollar comes back to you.

#3: Accelerate Investment Income

Too many people have been trained to save 10% and attempt to earn a 10% return on that money. That approach has been leaving people well short of their retirement goals for decades now, and it's only going to get worse in a post-COVID world. So, stop looking at easy or automatic investments like mutual funds and shift your focus to investments that create cashflow from day one. Another note, protect the downside. Focus on risk management and mitigation. Stop gambling with your money. If you don't know how you benefit now and in the future, when it is a good time to get out and be in cash, or if you think high/risk=high/return, you are on the wrong side of the equation. You are taking risk while others get a return. Instead, look to make money on the buy, create cash flow from day one and be patient. Rookie investors always stay invested, pros sit on the sidelines until the opportunities are right.

#4: Scale Business Revenue

Your best investment is likely your business. You may even consider buying complimentary businesses that have people retire or simply didn't manage their business properly and you can buy it for a deep discount. The economic turmoil and struggle is only at its beginning. The opportunities will be plentiful for the next few years.

#5: Make It Count

Money is a great benchmark when it is the context of ways to improve your life. What about money is important to you? What are the best uses of money for you? Invest back in yourself. Invest in the things that move the needle: marketing knowledge, emotional intelligence, financial IQ, and things that will be necessary to add substantial value to grow your wealth.

Make Sure Your Wealth Is Sustainable

In addition to prioritizing cashflow, take a look at your risks. This is what the pros do: they learn to manage and mitigate risk. Part of the new reality we're going to face is that inflation is going to sting. The government is pumping trillions of dollars into the economy, without any value being created for those dollars, therefore, devaluing the worth of your dollars. You don't have to be an economist to know a day of reckoning is coming.

Now is the time to protect your profits. How do you do that? By looking for assets, not stocks or funds. A lot of business will go on sale in the next few years. Could you buy one? If there's already infrastructure in place and you can add value through your expertise, that investment could be profitable from the start. You could also invest in real estate, although I'd opt for residential real estate that people will be looking for no matter what the economy does.

The stock market is artificially inflated with the printing of money and automated deposits from retirement accounts AND the price to earnings and multiples are temporarily inflated. Those sitting in funds will lose. Hedge funds will sell short and take those dollars and it is time to be mindful and careful. This is your warning.

You Can Become Part of the Upper Third

No matter who you are, you can join the one-third of Americans who will get rich during the wealth transfer we're about to experience. Most Americans talk about passive income, but what does that mean? It means the money passes them by on its way to make someone else rich. Take time choosing investments and be active in the selection, handing money over and relying on others that are paid more on commission than performance will be a costly mistake.

Now that you know what it takes, the only missing piece is action. There will be money to be made in the next three years. Will you be part of the third who captures it?