7 THINGS WEALTHY INVESTORS DO WITH THEIR MONEY

There is this popular saying, “The rich get richer and the poor get poorer.” This saying is a fact.

It is true because the rich deploy their time to get an education in money, personal finance, and investing.

This education that they’ve given themselves makes them think differently about money than the way the poor or middle class do.

They use their money to do things that generate more money in which there poor or middle class don’t do.

It’s these differences that make them rich.

One fact about the rich is that they use certain financial tools and they also understand certain principles that pertain to investing.

They also adopt a mindset of an investor that leads to profitable investments.

Financial independence

For the rich, the ultimate goal of investing is to attain financial independence. 

Financial independence is having more money coming in from investments each month than is going out with the monthly expenses.

This is income that comes from investments, whether stock dividends, bond interest, real estate rents, tax lien interest, or ownership interests in a business. 

It is not income earned from working at a job or from self-employment.  This is a key distinction

Passive Income And Portfolio Income

There are two types of income that investments can generate: passive income and portfolio income.

Rental real estate generates passive income, which is income from rents.

Stocks, bonds, tax liens, and gold and silver generate portfolio income, which is income from dividends, interest, royalties, and capital gains.  Capital gains are the gains from selling a stock, for example, at a higher price than what you paid.

The key to financial independence is passive income and portfolio income.

Position Yourself For Wealth

 You have to put yourself in the right place to learn about investing and then go out and find suitable investments.

A saying goes thus: if you face east waiting to see a sunset, you will be waiting a long, long time.

Likewise, you can draw pictures in your mind about making lots of money, but unless you go out and do something to make money, it is not going to happen.

The #1 Rule Of Money

Success skills can be learned. 

There are certain rules or laws of money that if bee made use of can change your financial model completely. 

The first and most important rule is:

You have to spend less than you make.

You can’t achieve your goal of financial freedom without having money to invest.

Think about it – in reality, a single person making $15,000 a year and who manages to save $1,000 each year is far better off than someone making $100,000 a year but spends $100,000 a year.

The Two-Part Wealth-Building Formula

1) They convert their earned income into passive or portfolio income. 

2) They trade assets that put money or have the potentiality to put money, in their pocket. They take the income they earn from their job or business and invest whether part or whole in assets that pay dividends, rents, royalties, and other forms of income.  This is called cash into assets.

This is why the rich get richer!

In contrast, the middle class and poor use their money to purchase things that lose value or are needed immediately, or they buy things that take out money from their pocket each month via debit or credit card payments. 

Assets & Liabilities

Assets and liabilities are two key concepts you must understand on your journey to becoming financially free.

Robert Kiyosaki explains more about this in his Rich Dad, Poor Dad books.

He describes them like this:

An asset is something that puts money in your pocket.

A liability is something that takes money out of your pocket and puts your money into someone else’s pocket.

7 THINGS WEALTHY INVESTORS DO WITH THEIR MONEY – THAT YOU SHOULD CONSIDER TOO

1. They understand the importance of liquidity.

Some may see keeping a good amount of cash on hand as being too conservative and volatile or having a fear of the market.

More than half of these high net worth investors keep their liquidity high so that they are in a position to act fast when great opportunities present themselves.

Not only do they make sure that they have access to cash before they need it by forming healthy savings habits, but they also make sure they have access to various sources of liquidity.

2. Large cash positions are commonly found in their portfolios.

About 6 in 10 high net worth investors have at least 10% of their portfolio in cash.

Remember that for these investors, this isn’t a sign of ultra-conservatism.

It’s a sign of their desire to utilize the right opportunities at a moment’s notice.

This serves as another source of liquidity, allowing their cash on hand to flow opportunistically.

3. Their investment philosophy is geared toward the long-term.

Six in ten high net worth investors seek well-balanced, risk-managed growth.

Even if it means lower returns on investment, it was still more crucial for them to lower the risk of their investments.

The wealthy keep their priority on funding long-term goals while keeping short-term opportunities in mind as they go.

A vast majority (83%) have made their investment returns through a long-term buy and hold strategy.

According to Warren Buffet, who has said time and again that money is made in investments by investing, and by owning good companies for long periods of time.

This disciplined approach to investing helps the wealthy control their emotions and fade off market noise.

4. They make tax-conscious investment choices.

More than half of high net worth investors say that it’s more important to reduce the impact of taxes when deciding on which investment to consider.

Even more important than pursuing higher returns regardless of the tax consequences.

This can be attributed to the point that counts is your net pay – how much you are making in returns after taxes.

Poor tax management will add up over the long haul, and can easily cause you to sacrifice large portions of your gains for the year.

5. They invest in tangible assets.

Almost half of high net worth investors own some sort of alternative investment, such as a real estate investment.

These assets can generate income for the investor, and increase in value over time.

While deciding what to include in your portfolio aside from stocks and bonds should be an individualized decision, there is no doubt that the wealthy understand how alternative investment can be a key element for a well-rounded portfolio.

6. Many know how to use credit as a wealth building strategy.

Almost 65% of high net worth investors agree that credit is a strategic way to build wealth.

While 8 in 10 say that they know how to leverage other people’s money to their financial advantage, it’s worth noting that this strategy does come with some risks.

Credit can be expensive.

But there are small ways that you can achieve this as well, such as using a credit card with rewards for the spending you would be doing anyway.

Rather than running to pay down fixed, low-interest loans (mortgages, student loans, etc.) consider paying them down on schedule and saving or investing the extra money.

7. Their interest in impact investing is growing.

This is the practice of investing in companies and organizations with the aim to produce a beneficial social or environmental impact alongside a financial return.

Over the past year, the percentage of high net worth investors who own impact investments has increased tremendously.

Of those investors surveyed, 11% currently own impact-focused investments in their investment portfolio.

More than half of these investors believe companies that adhere to good social and environmental practices have lesser risk.

Not just that alone, but they want to invest in a positive social impact and support issues they strongly care about.

One of the greatest myths about rich people is that they know some ultra-classified money management secrets that let them make millions of dollars each year. 

This brings about a lot of people on the Internet that claim to have unearthed these secrets and will gladly reveal them for a modest fee.

The truth is that rich people do know some things about money that the rest of us don’t.

The biggest thing they know about money is how to make money work for them.

In other words, they know how to invest wisely and effectively.

What are the other things that the wealthy investors know

Delay Gratification

According to many financial advisors, the most crucial attitude you need to make money is the ability to delay gratification.

Rich people invest in long-term goals instead of focusing on short-term wants and needs.

One of the most important ways rich people delay gratification is to save their money, rather than spend their money on something on things they don’t need.

For example, if you can put $100 each paycheck into a savings account instead of spending it, most people would be able to save $200 a month. That comes to $2,400 a year that you can invest in your future.

Delaying gratification also comes into play when making buying luxuries.

Yes, the rich people indeed buy luxury items like sports cars or swimming pools, but they wait until they have the cash saved instead of buying on credit.

While you may require to take out a loan to get some items, like a house, try to pay for other items all at once instead of putting them on a credit card.

If you know a big event is coming, like Christmas or purchasing a new car, make a plan to put aside money throughout the year rather than charging it all.

Invest Conservatively

When you think the ultra-wealthy investing, do you see them as risking millions of dollars on startups or making huge bets on the next earnings statement from Tesla? If you do, you might want to consider making some changes to your Netflix viewing habits.

The truth is that most millionaires focus on eliminating risk more than they focus on making money.

Master investor Warren Buffet famously has only two rules of investing:

Don’t lose money.

Don’t forget Rule number one.

Applying this rule, most rich people choose to invest in safe mutual funds, such as index funds, and stocks that show a slow but steady rate of growth.

Some wealthy people also invest their money in treasury bonds.

Make Long Term Investments

Apart from the fact that rich people are conservative, rich people also invest with an eye towards long-term profits.

They don’t watch the market for hot stocks that are scheduled to skyrocket “any day now.” Rather, they favor buying an investment and holding onto it for years.

This advice is followed by none other than Warren Buffet himself, who claims that “the money is made in investments…by owning good companies for long periods of time.

If they purchase the stock of  good companies, purchase them over time, they’re going to do fine 10, 20, 20 years from now.”

Diversify

Rich people understand never to put their financial eggs in one basket.

They keep their investments in several different investment vehicles to weather any financial crisis, like the 2008 recession.

Fortunately, a lot of financial institutions are more than happy to help you out with this.

Many company 401(k) programs will invest your money in a handful of companies that meet up the investment style you select.

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