Financial Independence -Learning from the Rich

Problem:

If you’re like most of us, you’re looking for the road to financial independence.  I’ve been searching for the perfect system for allocating my assets.  Instead of trying to just figure it out, I decided to learn from the people already successful.

Why Reinvent the wheel right?  So, what is you’re financial goal?

Do you want to be in the top 20%, top 10% or top 1%?

Why not study how the rich invest and copy what they’re doing?

 

Simply put, the middle class keeps most of their assets tied up in their house or home.  That “American Dream” is actually holding you back on your financial freedom.

Now I’m not knocking home ownership, I’ve got a house myself.  And many folks look at it as a huge personal achievement.  It’s a self-esteem booster.  So, I’m not discounting the impact home ownership does for your life.  But if most of your net worth is tied up in a house, you might be doing this investing thing wrong.

What are some options for the budding entrepreneur who wants to reach for the top 1%?

Objectives:

  1. Build an asset allocation strategy to match the richest 1%.

Time Frame:

A Lifetime.  Keep working at this strategy.  The earlier you start the further ahead you’ll be, but remember it’s never too late to start.

Action Plan:

Here’s a few tips –

  • Rent and not buy when you’re starting out.  
    • Stay cheap.  Unless the housing market in your area makes the mortgage payments combined with taxes, insurance, utilities, HOA, and on-going maintenance make sense for you.  You’re probably better off renting when you’re trying to build up your assets.Don’t forget that you’ll have to mow that lawn, do landscaping, furnish all the space you now have and do repairs when things break.

      And disconnect your hoses during the winter – frozen pipes are no fun.  Learn from my first year of home ownership…

  • If you decide to purchase real estate, make it a duplex or small apartment which you can rent out to others.  
    • You want assets.  And an asset makes you money.  This is where you want to spend your money and credit (e.g. first mortgage) on to build up cash flow / income sources.

      Take a look at that 47% allocation in Business Equity and other real estate.  This is that ‘Other real estate’ part.  You can become a multi-millionaire by just doing this one thing, over and over.

      Money in real estate is a proven path to success, but it takes time.

  • Business Equity is the other big chunk of the pie.
    • If you’re in a corporate gig and still a desk jockey, that’s OK.  You’re building up experience and that’s personal equity and intellectual capital.  But if you get the chance to advise on some projects on the outside and take a piece of equity, now you’re on the road to millions my friend.

      While I still work a 9-to-5 to keep the lights on, I participate in a tons of entrepreneurship activities around town.  And every so often, I get invited to help advise on a project.  I normally help folks pro-bono and truly want to see folks succeed.

      But there’s some projects where they see the value of having me advise long-term and I normally receive some ownership of the company in the form of 5-10% equity, or milestone bonuses if I can make a significant contribution through my network.  This is one way to get business equity…

  • The other way is to start your own business.  
    • I’ve started a few companies in my few years of business experience and each one has different challenges.  The lessons I’ve learned is that you don’t need everything to be perfect to get started.  You need an idea, some validation (get paid) and then a lot of execution.

      Normally, things don’t go according to plan anyways.  Projects fail, but life goes on.  You’re best bet at succeed at your own business is to start one up and give it a try.  If you fail, who cares, dust yourself off and try again.

      Do: Keep track of the lessons learned from each attempt and every experience.

      Don’t:
      Take out a ton of debt or borrow money from family and friends to try to start your first business.  If you can’t make money on day one by selling your product or service, or if you can’t pre-sell the concept to enough people to get started, try something else.

      If you can find partners to invest in your idea though, that’s good enough in my book.

  • Financial Securities is the other key investment.  
    • Everyone’s starting position is different, but if you can allocate even 5% of your income each month into stocks and bonds, you’re going to be sitting pretty in a few years.

      The key to financial investments is to keep it simple and to keep investing.

      People have all sorts of crazy ideas when it comes to investing money and everyone’s got an opinion.  But the truth is no one can predict where the market is going to go and what an individual stock is going to do.  They can only make educated guesses.

      Having started my career in derivative trading and later private equity, I’ve seen how most of the analysis is done in the pit and by the ‘big boys’.  My advice to the common investor is to use a site like Betterment or Motif Investing to manage your portfolio.  80% S&P 500 Market-Cap Weighted Index ETF and 20% in a Diversified Bond ETF.

      If you use Betterment, set up your account to automate your deposits and automatically re-balance each time there’s a new deposit.

      If you use Motif Investing, you’ll have to manually re-balance your account through their system, but you’ll be able to offset costs by depositing cash each time you do it.

      I personally started with Motif Investing, but now looking at moving over to Betterment because of the automatic system.  Remember, this is how you want your systems – automated.

Summary:

That’s all I have to say about portfolio allocations today.  I think there’s a lot of good that can be gained by looking at what the rich are doing.  If you can focus on these two types of investments, you’re on your way to making millions.

Two key points to remember:

  • Assets create Income / Liabilities create Expenses
  • Set Aside a portion of Your Income Each Month for Assets

Keep bettering yourself each day and if you like this article, you can receive more like it each week from our weekly newsletter.  More details to come.

Cheers!
-Alex

Inspired by: https://www.motifinvesting.com/blog/acquire-assets-like-rich

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Author: Alex

Go Fanatic. Soccer Star. Jesus Freak.

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