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4
DIRECT ASSET ALLOCATION
Assets to Income, Income to Assets

The secret to building wealth is investing in assets that create more assets, and Assets are an integral building block
of the Wealth Cycle.
Albert Einstein said, “The eighth wonder of the world is the compounding power of money.” Investing is a
lifelong process that you should begin as early as possible and manage throughout your life. It’s the process of
continually building your asset pool. As you become more sophisticated, you will reallocate those assets to get
higher and higher returns. If you are starting late in this process, there is no need to be discouraged: this approach
will work for you wherever you are in life. I believe you can become a millionaire in three to five years after
establishing your Financial Baseline and freeing yourself of consumer debt. Most successful investors got that way
by investing small amounts of money consistently, year after year, until they accumulated increasingly larger
amounts. They continually reinvested their profits and added additional money to their accounts when possible. The
majority added to their investment choices monthly and consistently reallocated their funds to diversify their assets.

Patterns of Money
There’s never been a better time to create wealth. This information age in which we live has spawned global
opportunities never before available and the technology to collect the information to access these opportunities. It’s
time to understand how to create a Wealth Cycle.
In order to activate and sustain the Wealth Cycle mechanism, you must

1. Earmark a portion of your earnings to put into a Wealth Account every month. This is your Wealth Account
Priority Payment (WAPP), which we detail later in Chapter 8 .
2. Invest the money in the Wealth Account directly into carefully investigated and researched cash-creating and
cash-appreciating investment opportunities, that is, assets that produce passive income and/or equity.
3. Reinvest the passive income you make to create more assets and produce more passive income.

4. Set up Entities to protect these assets and the passive income they generate.
5. Maximize tax strategies, given the entities you’ve established, by Forecasting the right spending into the right
accounts.
6. Create a Cash Machine—an entrepreneurial venture—to accelerate the Wealth Cycle. Earmark a portion of
your company’s revenue to go into a special Holding Account that will act like a personal Wealth Account
and will be used to invest in assets. Soon, this holding account will essentially become your own bank,
lending money to your other companies for investments.

This cycle of turning income into assets and assets into income is the process of building sustainable wealth. The
money works for you, not you for it, and you focus your energies and attention on maximizing your rates of return.
Rick Noonan, a member of our Team-Made Millionaire and Big Table communities, was a classic example of
someone who didn’t understand effective asset allocation.
Busy but Not Productive

Rick and his wife live outside Seattle with their three kids. When I met Rick, he had a whole lot of assets and
absolutely no clue. He was worried. Though their finances seemed under control, at age 36, he felt that he and his
wife were constantly “busy, but not productive,” that he’d become indentured to his job at a consumer products
company, and that he’d created a lifestyle he wasn’t sure he could sustain into retirement. Driving two hours to and
from work every day for a 10-hour-a-day job that was neither here nor there for him, he seemed to me a man
committed to the commute. I see that a lot. People are so busy racing to do what they’re trapped into doing that they
don’t step back to realize that the running and racing about isn’t working. Few of us rarely take the time to
reevaluate our lives. I asked Rick what better use could he make of those 20 hours a week of driving time and how