Assertion of the Mainstream:

“The rich become richer and the poor become poorer, and there’s nothing you can do about it.”

Why this is a flaw:

Although the poor can put aside only a smaller part of income than the rich, if the poor just did put aside this smaller part targeted, to be as effective as possible, then everyone could observe that the opposite assertion is true:

“The poor become richer and the rich become relatively poorer.”

Why? Because the yields achieved by those who aim to build wealth and therefore pursue Asset Accretion with its long-term, regular, and targeted investments in equity instruments, are generally substantially higher than the yields of the respective instruments themselves. Read this sentence over again, this is one of the crucial characteristics of Asset Accretion, it is unique to Asset Accretion.

Why? Because those who aim to build wealth will have to invest a small part of their income regularly and long-term. If they invest these amounts in volatile equity instruments they benefit from the Cost Average Effect, regardless of the direction of the price movements. The Cost Average Effect describes the decrease of the average purchase price when you invest regularly a certain amount versus buying a certain number of share units.

Furthermore, those who aim to build wealth benefit from the increasing yield relevance over time. See the easy-to-understand images in my other article on “The criteria relevant for ANY savings you make” on Affluability.com.

Conversely, the yields achieved by the wealthy with Asset Management are more or less equal to the yields of the respective instruments themselves. “More or less”, because the actual yields achieved are in most cases a bit lower due to transaction cost and administration cost.

Why? Because those who have existing wealth cannot make long-term use of the Cost Average Effect. In other words, they cannot reduce their purchase price if they make a one-off investment. Even if they split their investment into two or three tranches, the impact on the average purchase price is marginal because of the narrow investment interval.

Furthermore, those who have existing wealth suffer from the decreasing yield relevance over time. Again, see the easy-to-understand images in my other article on “The criteria relevant for ANY savings you make” on Affluability.com.

In addition, while the savings amount influences the future capital only proportionally, the achieved effective average annual yield influences the future capital above-proportionally. Again, this is depicted in easy-to-understand images on Affluability.com.

This means that even the tiniest regular savings amounts grow much faster and further than a large one-off investment if you give it time and if you choose the right investment approach.

These are the reasons why I rightfully wrote in the beginning: Although the poor can put aside only a smaller part of income than the rich, if the poor just did put aside this smaller part targeted, to be as effective as possible, then everyone could observe that the opposite assertion is true: “The poor become richer and the rich become relatively poorer.”

You could say, nature has provided for its own limitations to disparities. If the poor are taught genuine financial competence and just followed the right approach to financial protection, the often-cited “gap between the rich and the poor” would vanish within only one generation! One generation here meaning 20 to 25 years.

The benefits would be far greater than reducing juvenile delinquency and other crime. Indeed, no one would feel a loss, but hundreds of millions of people would feel the benefits! Educating the deprived classes on genuine financial competence and financial literacy is the key.

By closing the gap between the rich and the poor, Asset Accretion is the most effective and most rewarding social policy on the planet.

Genuine financial competence is very different to any product knowledge. Sadly, this kind of financial literacy is not taught at school. Genuine financial competence is about common sense and systematic thinking. That’s it. With this indeed everyone can become affluent. If you are interested to learn more go to Affluability.com.

© DBMG Bennett 2000 – 2010. All rights reserved. See http://Affluability.com.

Private Equity Investment Strategist by choice.
Qualified Private Banker, MBA, MSc Economics, Qualified Accountant IFRS by education. See http://Affluability.com

Image taken on 2007-07-10 13:37:35. Image Source. (Used with permission)

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