Hello All,
This posting is on the topic of long term wealth building strategies. While I’m certainly not an expert, if you read enough in the personal finance literature, you’ll start to get a sense of the long term wealth building strategies that are available to you. This posting briefly addresses three strategies and some of the advantages and disadvantages surrounding them.
1) Winning the Lottery: I secretly fantasize about winning the lottery, probably you do to. However, strictly speaking relying on winning to lottery to build wealth is for chumps. This is harsh, but lets lets reason it through with some basic mathematics. In a typical state powerball lottery, you get to draw 6 numbers out of a total of 49 possible. That’s a probability of 49!/6!*(49-6)!, or chances of winning rough equal to 1 in 13.9 million. Some degree of daydreaming about wealth is actually healthy, but relying on 1 in 13.9 million odds isn’t much of strategy. So, in fact, relying on the lottery is actually no strategy at all.
2) Starting a Business: Many of Americas wealthiest individuals became rich by starting and managing a profitable long term business. In fact, when serious researchers have tried to sample the wealthy, they tend to find that business owners are overrepresented in their samples. For example, in Stanley & Danko’s The Millionaire Next Door, 66% of the data used by the authors were self employed business people. This makes sense, because successful ventures can be quite profitable. For example, business like 7-11 franchises, above ground pool installation, retail clothing stores and real estate investing companies can all provide gross annual sales in the high five figures. Starting a business brings along a somewhat high risk of failure, but this risk is balanced by greater long term profit potential.
3) Saving and Investing Over Time: This strategy assumes that by saving and investing over the course of an individuals career, one can achieve long term wealth by retirement. Proponents of this strategy usually argue that the long term impact of saving and investing will result in 
a very high net worth after a long period of time. In short, you consistently build up your wealth until the effects of time and compound interest take hold.
I cribbed a picture off the internet to show you what I mean by this. The example (above) displays an initial investment of $1,000, but the effects of time and compounding is the same regardless of your start up amount. The main idea here is to save and invest over time while doing your regular job, having children, etc. and let the money take care of itself. No business is required – this third strategy is based on your learning enough to make good saving and investing decisions.
Of these three strategies, the third is probably the most practical. The laws of probability suggest you won’t win the lottery and for good reasons many people choose a 9 to 5 job over full time entrepreneurship. We DINKs have chosen a hybrid approach, we’re saving and investing, but also have a couple of side businesses like this blog and our investment property.
Best,
James
