Way to Financial Freedom

Base on the definition of financial freedom, it’s obvious that passive income is the key. To build passive come, you need to be either the owner of some property or business, or other assets which can generate regular income.

We all heard of many stories of successful businessman, people like Bill Gates. They become super rich starting with not much capital. Besides financial rewards, it’s really exciting to create a business. However, according to US research figures the surviving rate of start-ups is 29% after 10 years. (Please see the following figure. The data come from a special tabulation by the Bureau of the Census produced for the Office of Advocacy of the U.S. Small Business Administration.)

Surviving Rate of Start-upsSurviving Rate of Start-ups

The 71% of failure rate is discouraging enough for many people, considering money and time lost in the business venture. You really need to have the entrepreneurial mindset to succeed or just to hold up yourself in one piece. It’s obviously not a job for everyone.

Well, you don’t have to start your own business to earn passive income. You can be an investor. To avoid becoming a victim of financial weapons of mass destruction, you should only invest in something not to difficult to understand. That could be bond, real estate and stocks.

Many people prefer real estate. But over the long run stocks win easily. A new study by Jack Clark Francis, a finance and economics professor at Baruch College in New York City, and Yale's Roger G. Ibbotson compared the annual returns of real estate from 1978 to 2004 with those of 15 different "paper" investments, including stocks, bonds, commodities futures, mortgage securities and real estate investment trusts (REITs).

The results? Housing delivered a solid but unimpressive annualized return of 8.6%. Commercial property did better at 9.5%. The S&P, however, delivered a crushing 13.4%.

The reason behind is simple. It is business activities which actually create value. Without business activities, we would be growing our own food and making our own clothes like our ancesters. The most wonderful thing of capitalism is that everyone can own a piece of wonderful business by buying stocks from the stock market. As the owner of shares, you are actually the owner of the relevant business, although you only own a fraction of the business. Of course, there are risks. But if you know how to value a business, the risk is much lower than creating your own business, because you can choose a company with proven successful business model, comparing with a start-up which has no track record. Well, you may miss the drastic growth phrase of a successful start-up. However you can still gain very handsome return from some excellent companies in the stock market, like Google, Walmart, and so on. An outstanding company can out-performance market and general economy over a long period of time, because it simply create tremendes value for its customers and therefore for its share holders.

Further more, with Internet connection you can just sit at home to analyse and monitor the performance of these companies as the share holder of these companies arround the globe. That means there are hundreds and thousands of professionals and top managers are working and managing for your business arround the globe, even when you are sleeping or on vacation.

The key is how to figure out which company is the winner.