Remember the show “Who wants to be a millionaire?” Are you the kind of person that wants to build some serious wealth? Live an exceptional life? Be financially free?
I don’t mean just a comfortable amount. I mean a lot – like being a multi-millionaire.
The truth is, average people can become very wealthy just by managing their money for maximum growth.
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The chart is based on “The Story of Joe & Rich”. This story is an extreme version of the life of an ordinary person managing his money exceptionally.
I’m not talking about a “get rich quick scheme”. I’m talking about a solid, reliable way to become wealthy over time.
The “Rempel Maximum” is a process to build as much wealth as you can in a solid, reliable way. There is a list of strategies that could potentially be part of it. You can choose which of these tools make sense for you and how big or small to go.
The Rempel Maximum is the quest to find the methods most likely to build wealth reliably. It is best to think of the it as a concept – a set of tools, not a recipe. Do none of it, a bit, or the amount you are comfortable with and that will give you the life you want.
Important things to know first:
- Doing these ideas to the maximum is probably not for you. It is only for the perhaps 3-5% of people that are aggressive wealth-builders, have a high risk tolerance and are highly motivated to become wealthy. Even these wealth-builders should probably not push it to the maximum.
- Why become wealthy? You may think that is a strange question, but motivation is important.
It’s not about the money. It’s about your life.
I have been working with a select group of wealth-builders for quite a few years. They each have their own personal motivation, but mainly:
- Wanting more out of life. They are not satisfied with a typical, middle class life. They want to do something exceptional or live life to the fullest.
- Knowing they will be able to do whatever they want. This could include retiring early, extensive travel or “fun money”, supporting their family, or becoming a philanthropist. They want to know they could afford to do anything.
- Security (with a huge buffer). A large nest egg means they do not have to worry about money.
- Being financially independent creates a great feeling of self-confidence.
What is your motivation?
- What does Ed know?
I decided 25 years ago that I wanted to live an exceptional life. I want to build a large portfolio to be financially free.
For me, it’s not having just enough that, if I am super-frugal, I can live without a job. It’s not just a round number like $1 million. For me, it’s about feeling self-confident and being able to make the biggest difference in the world.
I started my quest 25 years ago to figure out the best way to achieve this.
- Being a Fee-For-Service Financial Planner, a tax accountant and reading hundreds of financial books gave me the background knowledge. I learned an “unconventional wisdom” – much of what most people believe about finance is wrong or not optimal.
- Being a motivated & creative math guy, I love developing strategies.
- Writing nearly 1,000 professional financial plans, including quite a few for wealth-builders.
Here are the Rempel Maximum 5 steps to building maximum wealth:
- Financial plan – Without a plan, a goal is just a dream. Specific written goals and the strategies to get there. These are big, risky strategies and you need to think them through. There is a reason that people with a financial plan on average have 4.2 times more wealth (CIRANO study).
- “Stocks for the long run” – The investing “bible” by Prof. Jeremy Seigel showed that stocks are the highest return asset class. They are risky short and medium term, but what most people don’t realize is that growth is reliable over the long term (25+ years). The process can be done with real estate, but stocks have much higher long term growth.
- Leverage – All wealthy people borrowed to invest. The bigger the leverage, the more wealth you can build – assuming you can stick with it long term. The main mistake is not thinking big enough.
Leverage is risky, but the risks are reasonable if you invest reliably for the long term and take steps to make sure you never sell after a decline – for financial or emotional reasons.
You have to qualify for any investment loan or credit line. When you are young and have a low income and net worth, your loans may be small. With a good credit rating, as your wealth builds, you should be able to qualify for much larger loans or credit lines.
- Tax-efficiency – Minimize and defer tax. Invest tax-efficiently. The tax rules provide many creative opportunities that make a huge difference.
- Faith, Patience & Discipline – The mindset necessary to build wealth. The biggest risk in the Rempel Maximum is your behaviour. Major declines are buying opportunities. Your mind must be in the right place – always focused on long term growth.
Why does this work? The Rempel Maximum is based on 5 power principles:
- The power of the plan – It’s hard to over-state the importance of a plan. Decide what you want to accomplish, how big or small to go, and what tools make sense for you. Don’t get side-tracked. Know your next step. Visualize your ultimate goal.
- The power of compounding – The “snowball effect”. “Compound interest is the eighth wonder of the world.” (Albert Einstein) Building wealth means having the largest amount invested for the longest time.
- The power of leverage – Borrowing to invest magnifies your gains and your losses. Investing effectively for the long term means you are highly likely to get magnified gains. Borrowing to invest should be for a minimum of 25 years to be most confident of success.
- The power of free enterprise – Be an owner, not a loaner. Invest in great businesses. The worst 25-year period in the stock market (S&P500) has been:
- Last 150 years – 5%/year.
- Last 80 years – 8%/year.
- The power of the mind – “What you focus on grows, what you think about expands, and what you dwell upon determines your destiny.” (Robin Sharma)
What are the risks:
- Your behaviour – Avoid the 2 big mistakes:
- Big mistake #1 – Selling after a market decline. This is the main risk of borrowing to invest. If you might sell even once in the next 30 years after a big market crash, don’t borrow to invest.
- Big mistake #2 – Chasing performance. The Dalbar study has shown over the years that the average investor loses 3-6%/year because they buy popular investments that have performed well recently and then sell when they become unpopular. Think of your portfolio as a bar of soap – the more you touch it, the smaller it gets. Invest with a solid, proven strategy/style and stick with it.
- Too far/too fast or over-confidence – Your growth needs to be sustainable. Make sure you can always make your payments. Investment loans should never be subject to a margin call. Have a buffer for emergencies.
The Rempel Maximum is a process, not a recipe. You can go big or small. It can include any of these tax and investment strategies (tools):
- Automatic investing – Pay yourself first. Be frugal, so you can invest 20-50% of your income.
- 100% equity investing – “Stocks for the Long Run”. Invest for long term growth, not income.
- Smith Manoeuvre – Use your home equity to build wealth without using your cash flow. Convert your mortgage to tax deductible interest over time.
- Lifecycle Investing – The ultimate strategy for Millennials and renters. Avoid “last decade” risk. Slowly building wealth the traditional way leaves you at risk of one bad decade just before you retire. Reduce risk by diversifying across time.
- Leveraged investing – Borrow to invest with an investment loan. Can be an enhancement of the Smith Manoeuvre or Lifecycle Investing.
Here are some possible examples to illustrate the concept of Rempel Maximum vs. conventional wisdom:
- Conventional methods – Save 10% of your income and keep a large amount for emergencies.
Rempel Maximum – Be frugal. Save 20-50% of your income. Invest mainly for long-term growth.
- Conventional methods – Save down payment for home. Pay off mortgage. Then save for retirement.
Rempel Maximum – Save 20% down, possibly using an RRSP loan. Do Smith Manoeuvre, possibly with additional investment loan. Focus cash flow on maximizing RRSP & TFSA.
- Conventional methods – Invest to “sleep at night” in a diversified portfolio of stocks, bonds & cash.
Rempel Maximum – Invest 100% in “stocks for the long run”.
- Conventional methods – Save & invest $10,000 per year.
Rempel Maximum 1 – Save $10,000 per year. Take 3:1 loan every year. Invest $40,000 per year.
Rempel Maximum 2 – Take a $250,000 investment loan with interest payments of $10,000/year.
- Conventional methods – Retire debt-free and invest conservatively to protect capital. Senior on a “fixed income”.
Rempel Maximum – Retire with a rising income, not a fixed income. Invest focused on equities to make more than inflation and have the maximum sustainable income. Keep your investment credit line right through retirement until you sell your home.
The “Rempel Maximum” is a process to build as much wealth as you can in a solid, reliable way. It is best to think of the Rempel Maximum as a concept – a set of tools, not a recipe. Do none of it, a bit, or the amount you are comfortable with that will give you the life you want.
It can include a variety of tax and investment strategies (tools). You can choose which of these tools make sense for you and how big or small to go.
There are 5 steps. Always start with a written plan to decide exactly what you want to accomplish and why, what tools make sense for you, and how big or small to go. Don’t start on the road until you know where it leads for you.
Be frugal. Save and invest 20-50% of your income. Invest the highest portion of equities that you are comfortable with. Borrow to invest as high as you can tolerate. This could be part of the Lifecycle Investing strategy or the Smith Manoeuvre strategy. Make sure you can stick with it during market crashes.
Then have faith in equities, discipline to stick with it, and patience to be a good investor.
It works because of the 5 power principles.
Doing these ideas to the maximum is probably not for you. There is nothing wrong with a conventional life.
It’s not about the money. It’s about your life.
The benefits of being wealthy are hard to put into words until you get there. There is the obvious great lifestyle, but the emotional benefits are most important.
Security. Freedom. Self-confidence. These are priceless.
Read “The Story of Joe & Rich”. This story in one example of these principles. It is an extreme version of the life of an ordinary person managing his money exceptionally.