The Three Main Roads to Wealth: Do They Work?

Some of you know that as we’ve worked on our journey to get out of debt, we’ve been transitioning into a new goal: building wealth. When we first started our journey toward debt freedom in 2013, we didn’t know if we could even get to the point where we were paying the bills without scrambling each month.

With a $1,000 to $1500 and sometimes even bigger shortage every month, we would have been happy to break even. As the debt has gone down, the savings up and the shortage disappeared, we started to see that financial independence and stability were a real possibility. 

So we started looking into this whole business of FIRE (financial independence/retire early) and how it works. I started reading blogs of people who were at the point where they had retired – or could if they wanted to.

Three Choices

The three main routes to wealth that most of these people talked about were:

  • real estate
  • business ownership
  • stock market investing

The details of each investment avenue varied. Some gained wealth through real estate by flipping; others by owning rental properties.

Others gained wealth through a myriad of different businesses they owned. And still others gained wealth by investing in different stock market venues.

Some bought individual stocks. Others owned mutual funds or index funds. Others bought dividend-paying blue chip stocks. But they all reached their goals to be FI and to be in a position where they could retire early.

They’re Not Foolproof

That doesn’t mean the three main roads to wealth are foolproof. The stock market crashes, although it’s always proven to recover. But those investing in IPOs or new companies might find themselves losing a great deal of money if things don’t go as projected.

I’ve seen several people fail at real estate investing, whether because they bought at the height of the market before the big 2008 crash, or because they didn’t manage their rental property business wisely, or because they simply made a poor choice in the property or properties they purchased.

The same goes for business ownership. This post on the Motley Fool shows the rising failure rate of businesses as the years in business go on.

Depending on the type of business and the ability of the management team to grow it, business ventures are often risky ones.

And then there are the success stories.

It Can Be Done

Yesterday at a family gathering, I was talking with relatives who had owned several businesses through their lives (they’re in their late 70’s now) and finally settled on three that made sense for them (one was in manufacturing, the other two in janitorial services).

The businesses weren’t huge businesses by any stretch of the imagination but served the family well, providing a nice home, a cabin on the lake and plenty of surplus spending money.

A couple of years ago they sold the three business. When they talked about selling one of them, the guy mentioned that two people came in to talk with him about buying it, tipped off by their local banker.

My relative threw out his dream number to the guys.  His mouth about about hit the floor when they answered, “Okay.”

The deal was done, they sold the other two businesses for a nice profit, and now spend their time traveling the world in luxury, driving their brand new SUV to wherever they want to go.

The couple is the first to admit they worked their living tails off to grow these businesses. And they worked longer than they had to because they loved the work.

The payoff was great. It worked. Their businesses provided a comfortable semi-lavish lifestyle during their working years and endless comfort in retirement.

What Will Your Road to Wealth Be?

Now it’s time for you to choose. What will your road to wealth be? Will you work at your job and invest all extra income into some form of stocks, funds or bonds? Or will you save to invest in real estate?

Or will you turn in your office job for ownership in a business?

It’s important to choose a path to wealth that you’ll love. If the stock market sends your heart into palpitations, it might not be the best wealth building tool for you – at least not in large quantities.

Likewise if you hate the thought of owning and maintaining rental properties, you may want to avoid investing in real estate as part of your wealth growing path – unless you’re willing to pay someone to manage the properties for you or invest in real estate via crowdfunding.

The point is that growing wealth through these three avenues can work, provided you educate yourself and make the right choices for you.

How are you building your financially independent money stockpile? 

17 comments on “The Three Main Roads to Wealth: Do They Work?

  1. Great post, Laurie. I am at about the same point as you – thinking more about wealth building than simple debt-reduction. I don’t quite trust myself yet though. I seem to need to be on a program to keep me on the straight and narrow (thank you Dave Ramsey). I fear my old impatience and mindlessness would rear their heads if I side-stepped the plan. So for us, until the mortgage is paid off, we’ll keep on saving/investing 15% of our income (Ramsey’s step #4). Once that mortgage is gone, we might get more creative or radical in our wealth building. And I think all of the above – real estate, business, and investments – will be in the mix.

  2. Up until recently, we just kept to investing (index funds), but just recently dipped our toes into the real estate waters. All I can say so far is that we are learning a ton – about what is working and what isn’t (though I admit, it’s a bit overwhelming at the moment). I like the idea of diversifying, so this is our way of doing that. Time will tell if this is a route we will continue down or not.

    1. I hope you will share what you’re learning on the site, Amanda – I know many of us could learn from your expertise!

  3. Great breakdown of these three main pathways. Although we sometimes talk about ideas for a business, thus far we have chosen stock investing from traditional employment income. I’d rather work regular hours, limit our expenses, and let the stock market do the rest compared with working crazy hours to build a business. Especially because I don’t want a “semi-lavish lifestyle.” A rental property is an option for us, but we’d want to find a good deal.

    You’re wise to point out that there are risks with each method, too.

    1. Yeah, I think knowing that there are risks with all three is important. So much of the answer of “what’s right for me?” is about understanding the risks and knowing what one’s risk tolerance level is. Thanks, Kalie!

  4. My Dear Hubby just turned 62 last week. He spent the last year in retirement mode. We learned that what we always thought we wanted to do (full time travel) doesn’t appeal to us any longer. He truly missed working. So, he’s back in business and loving it. OH, and we’ve flipped 2 houses in the past ten years and we’re ready to do it again. YAY ! 😀

    1. That is so cool. The great thing about your hubby is he is paying close attention to what he wants. SO important!

  5. Great post.

    All three can be successful for different personalities. Unfortunately, you may not find that out right away. For me, I’ve discovered that real estate is what gets me charged up and where I’m finding success. I tried my hand at three different businesses and it didn’t work out on any of them. I lost a good chunk of money and time.

    However, I have friends and clients that are doing fantastic as business owners, but they have no interest in the real estate market. One of them dabbled in the real estate market and took a beating, but he’s one of the most successful restaurateurs in the area.

    Just because you fail at one, doesn’t mean you’ll fail at all.

    1. That is such a powerful point, Colin. Not all types of investments work for all people. For me, I’m not crazy about investing in the stock market. We have some money there, but we keep it to a minimum just because we’re not comfortable with the risk.

    2. That really is a great point, Colin. So interesting to get a glimpse into your experience of the different paths that work for different people. Here’s the tough part: “Unfortunately, you may not find that out right away.” If it’s linked to personality, that might be a clue – but I suspect there’s a lot more to it than that. Being aware of risk aversion, as Laurie points out, is certainly another clue. Thanks again for you comment : )

  6. Great post. I’m planning to plod along, investing a larger percentage as I’m able, but I’m also starting to think that right about the time I’ll have a nice pile of cash available will line up with the next recession – at which point I’d seriously consider buying a rental property in my area. Or moving to the woods in a smaller house and renting mine, but that might make my bike commute a bit harder! 🙂

  7. I feel quite lucky, because Rob and I got an early start to building wealth. Because of that, we can literally choose any route whereas some people have to take the extra risk associated with real estate or entrepreneurship. In the mid-term, we’ll start looking more seriously at Real Estate Opportunities, while we use the Stock Market mainly for tax breaks.

    Great post Laurie!

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