Historical article note: This article was originally published on 2019-04-11. Rates, policies, home prices, statistics, product names and qualification standards reflect the environment at that time and may have changed. This archive is for historical record and general education only. It is not mortgage approval, investment, legal or tax advice.
Many people can be considered well-educated, yet few realize that they lack a class in investing. After moving through agricultural society and feudalism and entering industrialized mass production, we gradually became accustomed to relying on the state and employers for retirement. All of this stems from the Prussian-style education system: it trains everyone to be employees or soldiers, not employers or commanders. Our generation went through the same education: basic education and vocational education, but no financial education, so we can only expect the government and employers to take care of our retirement. In the information age, this cycle has been broken: many people without basic or vocational education have become our bosses; many PhDs spend their whole lives as temporary workers in schools, living in poverty and instability; the companies we rely on for retirement outlast us in lifespan; a major characteristic of long-lived people is being wealthy in old age… Such worldview-shattering events are occurring more frequently, so that now young people would rather work as delivery riders in the streets of the city than honestly work as factory workers, and their desire to wander the streets in hopes of encountering opportunities surpasses their expectations of retirement security from companies. The education that plays a decisive role in life is no longer basic or vocational education, but survival education and financial education. The education of the past was to make us a part in a machine—when the machine is scrapped, the person is done; now, to survive, one must become an independent portable hard drive that can be connected to any host at any time to work. In Toronto, there is a 32-year-old guy who already owns 10 properties. What sets him apart is that he could have found a job in a professional bank field, yet he chose to become a real estate agent, and at an age when most desire consumption, he lives in a basement while renting out the upstairs. Whether you envy or resent him, he is already in a state where he could retire at any time. When you see people using bank loans to buy investment properties and pay off their own home loans quickly by leveraging investment properties, retiring early in wealth, what do you think? Don’t you feel that you are missing a very important required class?
01 Investment Begins with Accumulation
In 1776, Adam Smith told the world in 'The Wealth of Nations' that wealth comes from division of labor and exchange. 243 years later, those who believed in Adam Smith became wealthy, while those who did not are still struggling in poverty. Regardless of whether a person has received basic or vocational education, as long as they have irreplaceability in a specific division of labor, their value will be realized. A male contestant on the show 'If You Are the One' taught middle school geography in online videos and earned over a million yuan a year. He does not need academic qualifications or professional titles; as long as students enjoy listening and are willing to pay, his income will surpass that of his peers. In social division of labor, one must have irreplaceability, and income depends on the degree of irreplaceability. Young people rushing to office jobs will find that their earnings are lower than those of a migrant worker making dumplings in a restaurant kitchen; the reason for low income is that they are easily replaceable. The Internet has expanded the area in which people can exchange, and without the Internet, this geography teacher would have to rent classrooms, advertise, and compete with seniors from famous schools; the number of students attending his classes would be greatly limited, and earning over a million yuan a year would be almost impossible. After China's reform and opening-up in 1978, the market economy generally expanded people's scope of exchange, so people gradually became wealthier. Be someone who is useful to society, not just to a single enterprise; maximize the exchange of your abilities and services with as many people as possible – this is the only legitimate way to increase income. Only by increasing income can one have surplus and accumulation and consider income-generating ways of making money. Academic qualifications are only somewhat useful when entering the workforce; a school transcript becomes completely invalid after getting the first job. Subsequent survival education and financial education depend entirely on oneself.
The deliberate transformation of active income into passive income is investment.
Money earned by spending time and energy is active income. When you get older and no longer have time and energy, active income will also disappear. Wilde said: 'When I was young, I thought money was the most important thing in the world. Now that I am old, I realize that indeed it is.' Cicero believed that extreme poverty would make life in old age very difficult. Even if one had exceptional money-making skills when young, failing to maintain those skills into old age would lead to hardship. Sports stars and entertainment celebrities often show us dramas of going from great wealth to extreme poverty. The most tragic human tragedy is to be rich first and then poor. However, in the words of economist Zhang Wuchang, there is no standard answer to how to retain wealth, and it is the most difficult question to answer—a timeless topic that humanity continues to pursue. If wealth could be effortlessly passed down, the Aisin Gioro family would now be the richest in China. Currently, the best way to maintain money-making ability is to use active income to buy assets, but these assets must be able to generate passive income. When active income decreases or disappears, passive income becomes the final safeguard for sustaining life and maintaining dignity. Many people rely on government and corporate pensions, but even in high-welfare countries like Canada, retirees receive less than 15,000 per person per year from the government; very few companies can last for 60 years, yet most people live beyond 60, making corporate pensions even less reliable. Sports stars and entertainment celebrities go broke because the assets they purchase not only fail to generate income but also drain their savings. Buying yachts and luxury homes are efficient ways to quickly become poor. Buying stocks, bonds, and investment properties is the correct method to turn income into wealth. Previously, a WeChat article titled 'Are You Investing in Real Assets?' introduced asset warehouses where savings could be safely stored. Identifying types of income is simple: look at the T1 tax form used for reporting. Salary income, self-employed income, commission income, etc., are active income and are reported on lines 101, 135, 139; passive income includes dividend income, interest income, rental income, and capital gains, reported on lines 120, 121, 126, and 127. Each year, check your tax return: if the proportion of passive income increases annually, it shows that you are self-teaching on the path of investment and financial management. Consciously and proactively, after accumulating a certain amount of wealth, making efforts to convert income into passive income constitutes investment behavior. This lesson is a compulsory class for survival in old age, which schools never teach and must be learned independently.
3. The ability to get rich is the ability to turn assets into capital.
Getting something for nothing means letting money generate more money, using passive income to replace active income. Some people who strive to move downstream gain without labor by working hard to meet government welfare policies. In contrast, those who strive to move upstream work to turn assets into capital, and then let capital create more wealth, buying more assets that can generate passive income, achieving the goal of getting something for nothing. All the articles I write on my official account are for readers who strive to move upstream. The water in a reservoir can be seen and touched, but the power it can generate is invisible and intangible. When water in the reservoir flows down and creates electricity through power generation equipment and power lines, the value of the water's power is realized. For a house, what we can see is its size, appearance, and lawn, but the invisible aspects are who owns the property rights, who has the mortgage rights, and the market value. Tangible and visible water and houses are assets; the invisible water-generating capacity and value, as well as the house's market value, property ownership, and eligibility as collateral, are considered capital. Chinese people living in Canada need to consciously undergo a capitalist transformation, understanding the differences between our original living environment and the current one: the essence of capitalism is a large gap in national wealth; the legal environment for converting assets into capital is complete; all efforts to maximize personal wealth are protected by law rather than opposed. A Frenchman wrote a book called "Discourse on the Origin and Basis of Inequality Among Men," which is often used as a negative example in developed capitalist countries because the author Rousseau believed that human inequality originates from private property, that all humans are born equal with natural rights, and that inequality caused by wealth differences is evil. This view is often mocked because the author so revered equality, encouraged everyone to embrace freedom, give up private property, and return to nature, yet he himself did not disrobe and run back to caves to commune with wild animals. The more a country protects private property rights, the greater the wealth gap; the greater the wealth gap, the higher the general living standard; and countries with small wealth gaps are all poor countries. Canada is not a poor country seeking to equalize wealth; here, people who have the ability are encouraged to become infinitely wealthy without being despised. Your house in Canada is not only a tangible asset that you can live in, but through a well-established property and transaction system it can also be converted into capital, meaning it can be freely transferred to others, rented out, or used as mortgage collateral. There are no restrictions on sales, purchases, or loans because this is a country where private property is sacred and inviolable. The legal system not only protects the exclusivity of property rights, but also ensures the effectiveness and safety of transactions. Do not underestimate the convertibility of assets into capital; this reflects the most fundamental superiority of capitalism.
As property owners, our ability to convert our own assets into capital reflects our financial literacy, that is, the ability and level to make money generate more money.
A new immigrant friend who has read all my public account articles told me: Canada is a paradise for creating wealth. Before immigrating, I would never have even thought about the ways to get rich that you mentioned. The superiority of the system and law can bring out a person's full potential, and paying taxes is well worth it. Receiving feedback like this from a new immigrant friend makes me feel that the first 60 public account articles I wrote were not in vain.