The Illusion of Building Wealth

by | Nov 18, 2023

The difference between success and failure as an investor is being able to measure and outperform the Breakeven Rate on your investment portfolio. Use the Fynanc Breakeven Calculator to see how you measure up.

The breakeven rate (also known as the break-even return) is the rate at which your investments must appreciate each year to beat inflation and maintain purchasing power.  

Use the Breakeven Calculator to assess your Breakeven Rate and learn how to use this information to achieve your financial goals.

Why Are People Failing to Achieve Their Financial Goals?

You spend your entire life making sacrifices to build the wealth you need to maintain the lifestyle you desire during your retirement years. Ideally, you want to retire while you are young enough to enjoy your golden years.

The unfortunate truth is that simply acquiring a portfolio of appreciating assets will not build the necessary wealth. This is because financial forces such as inflation are eroding your purchasing power.

Calculating the break-even rate will tell you how much your portfolio needs to generate in returns, year over year, for you to reach your financial goals.

However, for many, the breakeven rate is so high the return is simply unachievable. The result is that reaching your financial goals becomes virtually impossible. With all these forces working against you, how is it possible to build wealth without taking the risks needed to generate sky-high returns?

As it turns out, the answer is to lower your break-even return.

The Breakeven Calculator

Before we discuss lowering the breakeven rate, let’s first recap what it is and how to calculate it.

The “Breakeven Rate” (also known as the “Breakeven Return”) is the rate at which your investments must appreciate each year in order to beat inflation and maintain purchasing power. You can use a simple formula to calculate the rate at which your portfolio needs to produce returns, year-over-year, to beat inflation and maintain your purchasing power.

Breakeven Rate


Using an effective tax rate (R) of 30% and an inflation rate (I) of 8%, you calculate a breakeven return of 11.43%. This means that every year, your portfolio must appreciate 11.43% to maintain your purchasing power.

The breakeven rate explains why it is so difficult for you to reach your financial goals. It also illustrates why, despite having a portfolio that appreciates every year, you are moving backward financially in terms of purchasing power. As you know, generating those kinds of returns without taking on massive risk is incredibly difficult.

Lowering the Breakeven Rate

Fortunately, lowering the breakeven rate is quite simple.

There are three main methods to “beat the breakeven.” We call them the Smart Levers:

The fastest way to build wealth and sprint towards your financial goals is to incorporate all three of these levers into your portfolio. However, for now we will focus on the first one – Strategic Debt.

Strategic Debt

Strategic debt is not just any debt. It is specifically defined as debt that is used in a calculated and precise way to pass on the negative effects of inflation to the lender. This debt has certain characteristics such as a fixed-interest rate, among other things. Additionally, when using strategic debt, you must understand how much to use since each asset can only carry a certain amount of debt.

The important thing to know is that strategic debt is one of many powerful “tools” that a Personal Financier deliberately uses to make the financial system work for them. It is how they accelerate towards their financial goals.

Let’s see what happens when we add strategic debt to the Breakeven Formula

Breakeven Rate


How to use debt to make money

Think of buying a rental property using a mortgage. Typically, you pay a 20% down payment, and the bank finances the remaining 80%. In this case, 20% is your capital, and 80% is strategic debt.

Let’s assume the same effective tax rate and inflation rate from above. However, this time, you are using only 20% of your own capital (M). You can see that by using strategic debt to buy the rental property, your breakeven return decreased from 11.43% to 2.29%.

Said another way, by using the bank to finance your asset, your rental property has to generate 2.29% in returns year over year in order to maintain your purchasing power. This is significantly more achievable than your original breakeven return of 11.43%.

Lowering the breakeven rate means that you no longer have to rely on risky assets to generate astronomical returns each year to maintain your purchasing power. You can afford to invest in stable, lower-risk assets that generate moderate returns. And the best part? Even though you are generating lower returns, you are increasing your purchasing power instead of merely maintaining it.

Even though you are generating lower returns, you are increasing your purchasing power instead of merely maintaining it.

In our example, we used real estate because most people have experience buying real estate using a down payment and strategic debt. Still, the good news is that there are numerous assets with which you can use strategic debt, many of them requiring far less time and hassle than owning real estate.

Your Wealth-Building Choice

Now that you see the illusion of building wealth and why most people will never reach their financial goals, you have a choice.

You can continue to work hard for the rest of your life. You can keep investing in the same assets. You can continue saying to yourself that because your portfolio appreciates, it means you are moving towards your financial goals. Unfortunately, you will reach retirement and realize that you cannot retire because you didn’t build enough wealth and have run out of time, energy, and health.


You can choose to invest in stable, lower-risk assets generating moderate returns. You can use strategic debt and other financial strategies Personal Financiers use to leap forward financially. You can continue working, knowing that your portfolio is building wealth every year, bringing you closer to achieving the retirement you’ve always desired years earlier than you ever imagined.

Fynanc Team

At Fynanc (pronounced “finance”), we are on a mission to help people build wealth faster, safer, with more certainty.


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