Imagine if your great grandfather passed away, and left behind $100,000 of inheritance to your father through a simple life insurance death benefit. Your father just put the $100,000 into an instrument which compound the money at 5% per annum. He didn’t withdraw it at all, and once your father passed on, he passed it to you, and you continue this simple strategy. Over a 50 year period, this $100,000 would have amassed to more than $1,000,0000. Over a 100 year period, it would be more the $13,000,0000.

The thing is, it’s not hard to leave behind $100,000 of inheritance. A simple life insurance will create that for your beneficiary. Any one can do that. It’s also not hard to also find an instrument which can give you 5% per annum return. Someone would have argue to me that S&P 500 offer 10-12% return p.a. Yes you are right, and my point isn’t about the high return or which assets are they. Rather, it’s about the uninterrupted compound interest which you get to enjoy if you take on such a long term view.

The difficult part is actually the word uninterrupted. A common human behaviour is, when we make some money from our investment, we like to take partially, or a substantial amount of it, to purchase luxury items, such as cars, renovate your house, the bag which you wanted etc. There’s actually nothing wrong with buying those items, and it’s also my desire to own some of these prizes. That’s the reason why we want to amass wealth right. I mean, what is those money, if we can only accumulate it, and not spend it? I definitely want to enjoy the fruits of my labor, and not just pass it to the next generations, only for them to potentially squander it away.

However, each time we withdraw money from these assets to fund our desires, compounding effect is being diminished, or destroyed. As a result, it takes longer time again to compound back to the same value before we withdrew it. This is also the main reason why generational wealth transfer fails for many families. While wealth did transfer to the next gen, the compounding effect declines or in most cases, the rate of withdrawal was way higher than the rate of compounding. By the time it reaches the 3rd gen, there isn’t much left from the original legacy. This is a truly sad ending…

What one could do, is just simply change how you fund your desires. You do not, will not, and must not withdraw from your investment portfolio. Let those money work hard for you, and your future family. Let it compound, FOREVER. Whatever purchases you would like, fund it from your existing cash flow, or lend from your banking system. While it’s pretty straightforward case regarding existing cash flow; your income, what is my banking system?

You see, if that $100,000 of inheritance was put back into a life insurance policy, it would compound roughly at 5% p.a long term. Whenever the family has certain big ticket items, if the existing cash flow couldn’t fund it, you can always take a policy loan to fund it. Let’s not debate about the policy loan interest rate yet. Let’s focus on “uninterrupted compound interest”. When one takes a policy loan from the insurer, the policy cash value remain intact. That being said, you continue to enjoy compounding interest from the full amount which you have. Every policy loan you take, just like you took a bank loan or loan from somebody else, you have to pay it back. There’s a repayment schedule. It’s the same for life insurance policy loan, but you set your schedule and you want to pay back using your future cash flow. It is as simple as that. If you do this, OVER TIME, long term, you are going to realise that you not build massive wealth, but most importantly, you have create a right system for you to fund your purchases, without interrupting the compounding effect of your investments, which includes life insurance, equities, real estate etc.

This might sound unorthodox to many of you, but this is what the wealthiest families in history have been practising for centuries. If you understand it, and you apply it, eventually, this action/ strategy shall be a norm to you.

Good luck!