Can you increase your net worth by putting your money in investments? What should you invest in?
There is a lot of noise out there, fighting for your attention… people telling you to put money in the stock market, real estate, commodities, crypto currency, or mutual funds. The list goes on. You want to believe that if you listen to the advice of experts, it will pay off.
You also want to believe if you take the advice of the wealthy, it will pay off. After all, the rich are rich, so they must know how to multiply their wealth. So how do rich people invest their money?
Today I’m going to teach you how the affluent invest, but I’m not going to teach you what to invest in.
What you invest in depends on many factors: your preferences, knowledge, strengths and weaknesses, and net worth. A good investment for me might not be a good investment for you. Let’s begin with how you can decide what to invest in.
Watch this video on how rich people invest their money.
1. Invest In What You Understand
Number one, rich people invest in something that we understand. Warren Buffet and Bill Gates have a great relationship, but Buffett doesn’t invest in tech companies or technology stocks. One of the greatest investors of all time, he only invests in what he understands.
Same with me, I do not invest in crypto currency. That’s not my area of expertise. I have friends who made a lot of money, from five to twenty times on their return of investment. But they study crypto currency and how all of that works and they sometimes give me tips.
I have never invested a single dime although I trust my friends. Ultimately we are the ones who can best decide where to put our money because we are the best judge of what we know.
Rich people invest in what we understand. Don’t invest in something unfamiliar to you just because you saw a hot tip and other people are making money. And don’t buy into the whole get rich quick or you’re going to miss out mentality. That’s the thinking of a very amateur investor.
After you are confident in what you want to invest in, develop a plan. I have a simple investment rule that I follow, which I will explain in step 2.
Below: A brief snapshot of what Americans are investing in.
2. Follow The Simple Investment Rule
Rich people are always looking for investments, meaning we’re looking for deal flow. We always want to have deal flow coming to us from all kinds of sources. It could be from a broker, high net worth friends, or the internet.
I have a simple rule: 100, 10, 3, 1. It means you look at a hundred deals, a hundred potential investments. You might break it down into ten possibilities worth considering and from ten, you will narrow it down to three that have very good potential, and then you might do one.
So every day that investment deals come across my desk, I turn down 99.9% of them. I look at hundreds and hundreds of investments and I select just a couple.
If you’re buying stocks, don’t look at two stocks and buy one. Or look at three properties and purchase one. You are not doing your research. Always remember to investigate before you invest.
Don’t worry about missing the opportunity of a lifetime. When it comes to investments, there’s always another deal. Rich people are always looking for investments so they look for many possibilities and then they narrow it down to the best choices. It’s a numbers game.
The ultra wealthy members of TIGER 21, 630 people with over $10 million to invest, had 75 percent of their holdings in public equity, private equity and real estate, with only 10 percent of their money held in cash last year.
According to a report, they are investing more in stocks, less in real estate, and 1 percent of their assets in miscellaneous. That percentage includes crypto currency, cybersecurity and cannabis.That’s how they allocated their investments last year, meaning their choices may change the following year.
Their investments are based on what areas they have expertise in. There will always be deals and opportunities. No matter where you choose to allocate your money, using your head and not your heart to make the decisions will make a tremendous difference. I explain this further in step 3.
3. Use Logic Not Emotions
Amateur investors are very emotional. For example, they will buy real estate property because they love the neighborhood. Or they love the color of the carpet or the relaxing view of the cityscape.
When I make an investment, there’s no emotion. I don’t care about the carpet color. I don’t care about the beauty of the bathroom fixtures. What I care about are the numbers. Does it make sense to buy the property?
Similarly, amateur investors lose money on stocks because of their emotions. They get greedy when stock prices go up and they don’t want to sell. They keep riding the winner. Then suddenly it drops and they lose money. Then they wait for it to bounce back.
The prices drop some more. So they wait again. Instead, they should sell some shares when the stock has gone up a certain amount, enough to have a profit. If the stocks continue to rise, that will be the gravy. But if it drops, you accept the loss and sell. You use logic.
Rich people make decisions about their investments using logic. However, if you don’t understand the stock market or real estate, if you haven’t done your research or don’t know where to start, begin by investing in yourself.
4. Invest In Yourself
If you’re not a sophisticated investor, upgrade your skills and improve your training. Your knowledge is something no one can take from you. You’ll also get a better return.
Read a book, go to an event. Hire a consultant. Investing in yourself is the greatest investment with the greatest return. I constantly invest in myself and upgrade my skills. When it comes to investing myself, I never stop and I never go cheap.
Never. And I am already successful. So if that’s the case, if that’s me, what should you be doing?
Final Thoughts On How Rich People Invest Their Money
You’re the best person to decide what to invest in because you want to invest in what you understand. Even the uber wealthy look for deal flow, for as many opportunities as possible, so they can do their research and then invest in what they understand.
When you’re making decisions about your investments, use logic, not emotion, otherwise it’s too easy to make unwise choices. And finally, if you’re not sure what to invest in, then invest in yourself. Even at my level of success, I will never stop investing in myself.
What do you do to invest in yourself? Comment below.