CEO of Boron Capital, a private investment firm creating alternative investments through real estate to help investors build legacy wealth.
When it comes to building wealth, most people follow the same basic plan — buying stocks or mutual funds, opening a savings or retirement account, and maybe buying some real estate. These are all great ways to save for the future, but none of these strategies are likely to lead to abundance and wealth in the future.
The super rich expect more than just “saving for the future.” They use their investment dollars to create a snowball effect of ever-increasing wealth to pass down to their children and grandchildren. They play big not only because they have more money at their disposal, but also because they expect their investments to work for them like a business. The super rich treat each investment dollar like a working employee; they don’t send those dollars on a lazy vacation to a stock or savings account the way many middle-income earners do.
Even though most middle-income earners haven’t heard of these wealth-building strategies of the rich, these strategies can be effective at any income level. Here are four simple wealth-building strategies used by some of the wealthiest people in the world that you can put into action for your own future.
1. Control multiple assets. The more assets you control, the more you’re able to mitigate risk when the market fluctuates. This is one way that the super rich hold on to their money even when the market bounces around like a rubber ball.
For example, rather than sinking your entire $100,000 into a single-family home you intend to turn into a rental, you can spread that $100,000 over multiple assets in a real estate fund or hedge fund. Investing in multiple assets can protect you from volatility in the market, because while some of your assets may decrease in value when the market dips, others may increase. Minimizing risk by investing in multiple assets is crucial to sustainable, long-term growth of your investments.
2. Tap into leveraged investing. Leveraged investing is investing using borrowed funds. By using borrowed funds to invest, you have the potential to increase your potential returns because you’re investing a higher amount of capital. Leveraged investing works when the investment returns are higher than the interest you’re paying on the borrowed money.
Most people are taught that they invest a dollar and get a dollar’s worth of investment in what they buy. It’s a one-to-one ratio. Then they wait for that investment to increase in value. The rich, however, use other people’s money to exponentially increase their potential gains by investing more upfront. When they use borrowed funds for investing, the rich are able to use their own money in other ventures and investments, rather than having it all tied up in one investment.
3. Make sure your money has high velocity. If you’ve ever heard the phrase “velocity of money,” you’ve probably heard of it in terms of the overall economy. In that sense, velocity of money means how fast money is exchanged in an economy. It’s the rate at which consumers spend. High money velocity is associated with a healthy economy. Low money velocity is associated with recessions.
The problem with most investments is that your money is stuck and cannot spin. For example, in the stock market, your money is cemented to a stock until you sell. It may grow in value, but you can’t access the money without cashing out of your investment.
But with investments that generate cash flow — such as mobile home parks, storage units, or apartment complexes — money flows out of those investments, which you can use for other ventures. This spins the wheel. As your portfolio grows, so does your wealth.
Wealthy people think of their own finances as a miniature economy. The faster the money spins, the healthier that economy is performing because money is flowing from one investment to another, creating exponential growth.
Consider whether your overall investment plan includes using your investment gains to invest in other profitable ventures. Don’t stop the wheel from turning by cashing out to buy a car or even fund your retirement. Instead, consider using your investment gains to create more investments, so you can use small amounts of each investment to fund your dreams while keeping the machine turning for long-term returns.
4. Seek out infinite returns. Infinite returns are something the rich know about, but they’re not regularly discussed amongst a majority of investors. Infinite return means getting your principal investment back without selling the asset, then gaining interest or cash flow on the investment indefinitely. You’re receiving infinite returns on your investment when you are receiving cash flow or building equity but you no longer have any money tied up in the investment itself.
The rich don’t like to have their money tied up, because that limits their ability to tap into opportunities that arise. Investing with a goal of infinite returns is one way to have their money tied up only for a short time, so they can use it again sooner.
There are many ways to achieve infinite returns on an investment, but the simplest way is to invest in something that generates cash flow, like rental properties or storage units. The more cash an investment generates, the faster you can achieve infinite returns. Once you’ve regained your principal investment, then you can use that same money to invest again and grow your portfolio and, therefore, your wealth.
Building Wealth Is A Long-Term Game
Those dreams of hitting it big in the stock market are exciting, but they rarely come true. Instead, focus on building long-term wealth that grows consistently over time, like the super-rich. When you use their same strategies for wealth-building, you set yourself up for exponential gains that you can pass down to future generations.