The Secret to Wealth

Ownership has played an essential role in building the fortunes of many of America’s wealthiest individuals, who often came from humble beginnings. Andrew Carnegie was a poor immigrant from Scotland who built a steel empire. Bill Gates started Microsoft in a garage and became the richest man in the world. When Warren Buffett buys stock in a company, he buys the whole company — or at least a controlling interest. Each of these individuals understood the secret to wealth creation: ownership.

Granted, the typical investor isn’t Bill Gates, but here are four ways you, too, can be an owner:

Stocks. Stocks are ownership with risk. You give someone your cash, and you get all the risk.

Real Estate. With real estate, you own the property and all the potential appreciation. If you use someone else’s money, you can enhance your return and reduce your risk.

A Good Idea. Just ask Bill Gates how well his idea worked out. And the more civilized the society, the better its protection of intellectual property rights.

Mutual Insurance Societies. These are a safe way to protect your wealth. You have ownership of the company and transfer the risk. This may not be the most aggressive way to create wealth, but in my opinion it’s the best place to protect it.

Over the past couple years, I’ve traveled abroad and immersed myself in developing countries like India, South Africa and, most recently, Thailand, Cambodia and Vietnam. In environments from bustling cities to Soweto villages made from sheet metal scraps, I have witnessed how the simple principles of ownership affect societies and individuals. In each case, what we take for granted they can only dream of having.

For example, only recently have Cambodian and Vietnamese citizens been permitted to acquire land rights. It’s not the same as a title, but they have the right to use the land. In Cambodia, foreigners can own a condo but not the first floor.

The more I travel and read, the more I believe that a society that has limited ownership has a limited financial system. In order to prosper, a society must provide an economic structure that enables individuals to participate. It must allow for some form of ownership.

You may not be a country, but if you apply this simple litmus test when you evaluate investment decisions, you will be taking what I believe to be the most important step in building wealth.

John E. Girouard, CFP, ChFC, CLU, CFS, author of “Take Back Your Money” and “The Ten Truths of Wealth Creation,” is a registered principal of Cambridge Investment Research and an investment advisor representative of Capital Investment Advisors in Georgetown.