According to author Chris Martenson in his 2012 book, Crash Course: The Unsustainable Future of Our Economy, Energy & Environment, there are only two out of the three types of wealth that matter and that investors should focus.
First, the three types of wealth are:
Primary Wealth. Primary wealth represents the physical resources from which all other wealth is created. It’s the farmland that produces agriculture for sale, the land from which oil, gold, and coal are extracted, and the buildings from where businesses are operated.
Secondary Wealth. Secondary wealth is what is made from primary wealth. It’s the wealth created from putting primary wealth into production. After all, rich soil, oil-rich land, and office buildings that sit idle aren’t much use.
It’s by putting the physical resources of the primary type of wealth into production that creates secondary wealth. It’s the produce and meat sold on the market, the leasing of the building to business tenants, and the oil and gold extracted and sold to willing buyers.
Tertiary Wealth. Tertiary wealth is paper wealth, including cash, stocks, bonds, and mutual funds. Highly-compensated professionals such as CEOs, doctors, and lawyers generate this type of wealth from working. Workers convert their cash into other types of tertiary wealth like stocks, bonds, and mutual funds in hopes of growing it from appreciation.
Here’s the problem with tertiary wealth. It’s unreliable and unsecured.
A doctor, lawyer, and CEO can all get in an accident tomorrow and lose the capacity to make money and lose this tertiary type of wealth. Even cash itself is unreliable as currency can lose value due to inflation. Putting money in a savings, CD, or money market account where inflation outpaces interest earned is the same as burning your dollar bills.
As for stocks and mutual funds and other Wall Street products, you could lose everything. Shareholders are last in line in a liquidation. Just ask the shareholders of Lehman Brothers, Worldcom, and Enron.
The 1%, the wealthiest of the wealthy, are focused on primary and secondary wealth. They own natural resources, land, real estate, and businesses.
Why? Because these are the only type of wealth that can create income while they sleep. But you’re thinking CDs and money market accounts make money while you sleep. Not if inflation is eating up that gain.
Ultra-high-net-worth investors (“UHNWIs”) are only interested in the types of wealth that will create generational wealth - wealth that can be passed on to their children and their children’s children, and so on.
Do you want to know the UHNWI strategy? They acquire physical assets then put those assets to use and put those profits back into acquiring more physical assets.
The business owner uses office space and resources to peddle their wares then use the profits to expand the business by acquiring more office space and resources. One recent example is Amazon’s plans to open up an East Coast headquarters. A real estate investor converts a building and land into rentable space and uses the income to acquire more rentable space.
The key to true wealth - the kind that you make even as you sleep - is leveraging primary wealth to create secondary wealth in the form of income to reinvest into more physical resources and income-producing products and services.
Primary and secondary wealth are the only types of wealth that investors should be focused on because it’s those types of wealth that can build upon itself as well as the least volatile and most secure.
You hear about investors losing a billion dollars in one day from a stock market crash. You don’t hear the same about investors in alternative assets like real estate, precious metals, farmland, and businesses that are uncorrelated to Wall Street. A shareholder can lose their entire investment, but a real estate investor will always have an underlying asset, the value of which will never go to zero.
Here’s the good news for the doctors and lawyers of the world who have tertiary wealth.
They can convert that wealth into primary and secondary wealth to generate true wealth. But top earners are time-constrained. They’re at the hospital and courtrooms. How do they have time to acquire resources and develop those resources into productive farms, businesses, or real estate? The answer is they don’t have to.
Time-constrained top earners can generate secondary wealth by investing indirectly and taking partial ownership in private companies in the business of creating primary and secondary wealth.
For example, investing in a private fund in the business of commercial real estate investing offers investors the opportunity to reap the income, appreciation, capital preservation, and recession-resistance benefits of direct real estate investing without the time commitments or headaches.
Conclusion
If you’re focused on tertiary wealth, you’ll never stop trading time for money, or you’ll always be a victim of low yield (CDs, bonds, money market accounts) or volatility (stocks, mutual funds, etc.).
Unless you focus on primary wealth through direct investments or secondary wealth through indirect investments, you will never achieve the true type of generational wealth the 1% enjoy.
Unless you find a way to generate income in your sleep, you’ll never stop working.
Investing for growth,
Michael Foley
I'm Michael Foley, an experienced financial strategist with a deep understanding of wealth creation and investment strategies. Over the years, I have delved into the intricacies of various wealth types, gaining firsthand expertise in the dynamics of primary, secondary, and tertiary wealth. Allow me to draw upon this knowledge to dissect and provide insights into the concepts presented in the article by Chris Martenson.
Primary Wealth: Martenson introduces primary wealth as the foundation, representing physical resources such as farmland, natural resources, and operational buildings. This aligns with my understanding that primary wealth forms the cornerstone of all other wealth types. Its value lies in the tangible assets that can be utilized to generate further wealth.
Secondary Wealth: Secondary wealth, as outlined by Martenson, is the result of putting primary wealth into production. This resonates with my knowledge that the transformation of physical resources into marketable products or services creates secondary wealth. Martenson emphasizes the importance of converting primary wealth into income-producing assets, highlighting its role in sustained wealth generation.
Tertiary Wealth: The article discusses tertiary wealth as paper wealth, including cash, stocks, bonds, and mutual funds. My expertise supports the notion that tertiary wealth is less secure and reliable compared to primary and secondary wealth. Tertiary wealth is subject to market volatility, inflation, and external factors that can erode its value.
Focus of Wealthy Investors: Martenson emphasizes the preferences of the wealthiest individuals, the 1%, who concentrate on primary and secondary wealth. This aligns with my knowledge that high-net-worth individuals prioritize physical assets like natural resources, real estate, and businesses. These assets provide a continuous income stream and serve as a foundation for long-term wealth preservation.
Generational Wealth and UHNWI Strategy: The concept of generational wealth is tied to the strategy of ultra-high-net-worth investors (UHNWIs). Martenson suggests that true wealth, passed down through generations, is created by acquiring physical assets and reinvesting profits. This resonates with my understanding that UHNWIs strategically leverage primary wealth to ensure long-term financial success for their descendants.
Time-Constrained Top Earners: Martenson addresses the challenge faced by time-constrained high earners in acquiring and developing physical assets. My expertise supports the idea that indirect investments, such as investing in private funds focused on commercial real estate, provide an avenue for these individuals to participate in wealth creation without the need for direct involvement.
Conclusion and Investment Advice: The conclusion underscores the importance of focusing on primary and secondary wealth for true generational wealth. This aligns with my belief that investments should be directed towards assets with intrinsic value and income-generating potential rather than relying solely on tertiary wealth. The advice to shift the focus from trading time for money to strategic wealth-building strategies reflects my approach to financial planning.
In summary, the concepts presented by Chris Martenson align with my extensive knowledge of wealth creation and investment strategies, reinforcing the importance of primary and secondary wealth in building lasting financial success.
