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5 Pillars of Wealth-Building All Savvy Investors Should Consider

Dave Van Horn
3 min read
5 Pillars of Wealth-Building All Savvy Investors Should Consider

Recently, I attended a conference in Dallas, TX held by Jeff Brown (aka “Bawld Guy” on BiggerPockets), and I have to admit that he has a really great way of keeping things simple.

Jeff has always said that we should really only have one goal, and that’s to accumulate as much passive income as possible as soon as you can, especially by retirement and to have as much of it as possible be tax-free.

Now, I don’t think that we always agree on how to get there, but I must admit that I like the Four Pillars to Building Wealth that he discussed. I’ll even add a fifth, which may not always be passive, but it is certainly a very powerful part of building wealth.

5 Fundamental Pillars of Wealth-Building

1. Real Estate

Obviously, real state is the cornerstone for passive income and wealth building. Between the tax advantages and write-offs, as well as depreciation and appreciation, it has some investing characteristics that are second to none. Now, how we build this pillar in our portfolio of passive income may vary based on our strategy.

For example, some types of real estate are easier to manage than others (e.g. garages are easier to manage than houses, and commercial real estate may be easier than residential). Since Jeff is a little more conservative than me, he likes to see real estate paid off and with no debt, especially by retirement.

Related: There Are Two Ways to Build Wealth: Here’s the Route I Would Recommend

For me, as long as my real estate has had positive cash flow and I’ve had earned income, the debt hasn’t really bothered me. But as I get older, I can start to see his point of having a better comfort level with little or no mortgage debt.

Are owning fewer homes that are all paid off better than owning a lot more homes that are carrying debt in retirement?

Sometimes less responsibility and maintenance could be seen as more advantageous to some investors.


2. Insurance Contracts

Now, insurance contracts are often overlooked, but they’re a valuable tool when trying to build and protect your wealth.

Although there are many different types of insurance, as well as varying strategies, Jeff likes the EIUL (Equity Indexed Universal Life). It can never lose money since it has guaranteed yield regardless of the market, and it throws off tax-free retirement income, as you are able to access the cash value through loans. Keep in mind, these are long-term investment vehicles, but they are very safe and predictable.

Can you beat the yield elsewhere? Absolutely, which is why it is only one of the pillars.

Two other nice features of insurance contracts are that they have built-in asset protection, and money borrowed out doesn’t count as income when you’re filing out a tax-return, applying for social security, etc.

For some, EIUL is a big investment, but I’m sure there are similar strategies that can be employed with other insurance contracts.

3. Notes

I know Jeff likes the power of note investing, and I guess that’s why I like Jeff.

This is really a simple idea, too. If you can invest in something like notes purchased at a discount with a high yield that’s backed by collateral, such as real estate, it’s pretty hard to beat that investment vehicle. With notes, your money can start to work as hard as or harder than you do.

For example, sometimes a note bought at a discount due to partial equity in the property backing it could suddenly become more valuable if equity were to come back into the marketplace. Many times, a note purchased at a discount can be sold a few years later for almost the same money it could be sold for today, either due to the bulk of the monthly payment being mostly interest, or due to the improved track record of a longer pay history.


4. IRA Accounts

Self-directed IRA types of accounts are a big part of Jeff’s strategy to increase tax-free passive income in retirement. I couldn’t agree more.

As my buddy says, get as much and as many types of these accounts as possible. Tax-free is usually best, and tax-deferred is probably next in comparison.

Related: What Does It REALLY Take to Build Wealth in Real Estate? The Answer May Surprise You…

Trust me, there’s nothing like the high yield of getting cashed out (early payoff) of a note in your Roth IRA (all gains would be tax free).

5. Business Equity

Business equity can be a fifth pillar for some, but for business owners, it may not always be all that passive.

The real goal here is to have a salable business that doesn’t revolve around you by retirement age, so that it can either throw off passive income or cash you out in retirement.

So, there you have it — some of the pillars to building wealth. And if you ever get the chance to attend a Bawld Guy live event, it’s probably well worth the trip.

Do you agree with this list? Would you add anything?

Let me know with a comment!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.