The Pareto principle does not apply to finance
Have you ever heard of the 80/20 rule? What is meant is that we achieve 20% of the results with 80% of our funds (energy or resources). With the remaining 80%, only 20% "more" results are achieved. The Italian economist Vilfredo Pareto gained this knowledge in 1897, which is why it became known as the Pareto principle. You should now ask yourself: With which 20% of your commitment do you generate the desired 80% of your success? And could you even improve this success? My rich father was a staunch supporter of the 80/20 rule in many areas of life.
In money matters, however, he believed in the 90/10 rule. He had noticed that 10% of the people owned 90% of the total wealth. He researched that in Hollywood, 10% of actors skim 90% of salaries. He also saw that 90% of the revenue in sports business stuck with 10% of athletes, in the music industry with 10% of musicians. According to his knowledge, this 90/10 rule also applies to investments, which is why his advice to investors is: "Be better than the average." The Wall Street Journal recently published one Articlewho confirmed my rich father in everything: It said that 90% of all corporate stocks in the United States are held by only 10% of the population. How did some of the 10% investors make 90% of their assets and how can you do that too?
Start from scratch
My story begins in 1973. Less than a year later, I would return from Vietnam and be released from the Marine Corps. To put it plainly, in less than a year I wouldn't have a job, money or assets to fall back on. So I was at a point in my life that many of you will know: I had to start from scratch. All I had in 1973 was the dream of becoming very rich at some point.
I decided to become an investor and benefit from the same investments as the truly rich in the country. Not many people know of such investments. There is nothing to read about it in the financial journal and they are not sold by investment advisors. But I want to tell you the story of a rich man who used pictures and diagrams to teach a young man, me, how to find his way in the world of big money. I call him my rich father.
The 90/10 rule of money
My rich father thought a lot about the 80/20 rule of the Italian economist Vilfredo Pareto, also known as the Pareto principle. In wealth matters, however, he was convinced of the 90/10 rule that 10% of people earn 90% of the money.
What worries me a little is that more and more families are counting on their investments to feed them in the future. The problem is that more and more people are investing, but very few of them have the knowledge to do so. What will happen to all of these new investors if the market collapses? The state saves savings from total loss, but investments do not. When I asked my rich father, "What advice do you have for a young, hopeful investor?" He replied: "Be better than the average." Sounds simple, doesn't it?
How to avoid being average
Already at the tender age of 12 I started to be interested in the topic of investment. Until then I had primarily baseball and football in my head, but no investments. As a child, you are naturally not very interested in money, except maybe for pocket money. However, I noticed relatively early on that you can achieve a lot with investments. I remember one scene: I walked along the beach with my best friend Mike and his father, the man I call my rich father today. My rich father showed us boys a piece of land that he had just acquired. Despite my small age, I realized that my rich father had bought one of the most valuable properties in our city. I knew very well that lots by the sea with a sandy beach in front of the house were more valuable than those without beach access. My first thought was: "How can Mike's father afford such an expensive piece of land?"
I stood there, the waves lapping my feet, and I looked at a man who was the same age as my own father, but unlike the man who had just done one of the biggest businesses of his life. I was impressed and wondered how he could afford such a property. I knew that my own father made a lot more money than he did because he had a high-profile job with the government. But I also knew that my father would never be able to afford to buy real estate by the sea. So why could Mike's father afford this piece of land if my father couldn't? Of course, at that time I did not know that my future as an investor was just beginning because I first sensed what effect the little word "investing" could have.
The power of the investor
About 40 years after this walk on the beach with Mike and his father, many people today ask me the same questions that I have asked Mike's father since then. In my investment courses I also hear questions like:
- "How can I invest when I have no money?" H "I have $ 10 to invest. What do you recommend, where should I invest them? «H» Do you recommend investing in real estate, funds or shares? «
- »Can I buy real estate or securities without my own capital?«
- "Don't you need money to make money with it?"
- "Isn't it very risky to invest?"
- "How do you get such a high return with such a low risk?" H "Can I invest with you?"
Wealth accumulation - and how it is financed
Then, little by little, people begin to understand the power of the word "invest". Many want to find out how to use them for themselves. I would like to encourage you to continue your research on your own: You will definitely find the answers that are right for you personally. In retrospect, it can be said that the most important thing my rich father did for me was to arouse my interest in wealth creation. My curiosity flared up when I realized that my best friend's father, who - at least on the payroll - was earning less than my real father was able to make investments that only really rich people could afford.
I understood that my rich father had a power that my birth father did not have: I wanted that power too. Many people are afraid of power and stay away from it. Others fall victim to it. Instead of running away from her and throwing ideological phrases like "the rich are exploiting the poor" or "investing is risky" or "I'm not interested in getting rich," I accepted the challenge. My curiosity and desire to have this power - also known as knowledge and skills - have put me on the path of lifelong learning and research.
Invest like a rich man
My intention is to give you an insight into how many of the richest self-made millionaires have made their money and continue to grow their wealth. When I was standing on the beach at 12 and looked at my rich father's new property, I suddenly saw a world full of opportunities that my family did not have. I realized that it was not the money that made my rich father a successful investor. It was obvious that my rich father had views that were contrary to, or even contradicting, my biological father's thinking.
I realized that if I wanted to be as strong financially as he was, I had to understand my rich father's inner attitude. I realized that if I learned to think as he thought, I would be rich forever. I also understood that my future wealth had nothing to do with how much money I brought with me. My rich father had just invested in one of the most expensive properties in our city without sufficient funds. I now understood that wealth is an attitude, not an amount in the bank. And it is precisely this way of thinking of rich investors that I want to show you.
My rich father's answer
During that memorable walk on the beach, I took all my courage to ask Mike's father: "How can you afford to buy this 10 hectare beachfront property when my father can't afford it?" My rich father gave me an answer that I have never forgotten. He put his arm around my shoulders and we turned around and strolled back along the beach. My rich father kindly explained the principles of his thinking to me. He described how he thought about money and investments: “I can't afford this country either. But my company can do it. ”Our walk was only an hour long. My rich father in the middle, Mike on the right and I on his other side. It was my first lesson in investing. Some time ago I held a three day investment course in Sydney, Australia.
For the first day and a half I talked about the details of starting a business. Finally, a participant raised his hand in frustration and asked, “I came here to learn about investing. Why do you spend so much time talking about companies? "I replied," There are two reasons for that. Reason number one is that everything we invest in is a company. When you buy stocks, you are investing in a company. If you buy a property, such as an apartment building, this is also a company. When you buy a bond, you are providing money to a company. To be a good investor, you must first be a good entrepreneur. Reason number two is that it is the smartest way to make a fortune when your company buys your investments for you. The worst way is to invest as a private individual. The average investor knows very little about companies and often invests as a private individual. That's why I spend so much time talking about companies on an investment course. «It should always be about how to invest through a company, because my rich father taught me that.
Build a successful company
Think of his statement: »I also cannot afford to buy this land. But my company can do it. "In other words, the rule is:" My company buys my investments. Most people are not rich because they invest as a private person and not as an entrepreneur. «There is a reason why most of the 10% who own 90% of the shares are entrepreneurs and invest through their company. And you will understand how you can do the same. I call such people "90/10 investors". Later in the course, the questioner also realized why I was spending so much time talking about companies. The further we progressed in the course, the better the participants understood that the richest investors in the world are not participating in existing investments. Most of the 90/10 investors create their own investments. The reason we know billionaires who are still in their twenties is not because they have participated in investments. You have invested in companies and created values that millions of people want to buy.
Almost every day I hear people say, "I have an idea for a new product that will bring millions." Unfortunately, most of these creative ideas are never implemented. 90/10 investors have turned their ideas into multi-billion and even multi-billion dollar companies, in which other people put their money. That's why my rich father spent so much time teaching me how to build businesses and how to value them before investing in them. So if you have an idea that you think could make you rich or maybe even help you join the 90/10 Investors Club, then you should consider starting a business.
Buy, hold and pray
Over the years, my rich father found that investing meant something different for everyone. Today I often hear things like:
- “I just bought 500 shares of XYZ for $ 5 a share; the price rose to $ 15 and I sold it. I made $ 5000 in less than a week. ”
- "My husband and I buy old houses, renovate them and sell them at a profit."
- »I trade commodity futures (futures).«
- "I have over a million dollars in my investment account."
- "As safe as money in the bank."
- "I have a broad portfolio."
- "I invest long-term."
My rich father would say: "Investing means something different for everyone." Although the statements above reflect different investment products and investment processes, my rich father proceeded differently. He said, “Most people are not investors. They are speculators or players. Many act according to the “buy, hold and pray” strategy. Most investors live in the hope that the market will keep its level and in the fear that the market may collapse. A real investor makes money regardless of whether prices go up or down. He definitely deserves whether he wins or loses. The average investor doesn't know how to do that, and that's why most investors stay average. They are among the 90% who only earn 10% of the money. «
More than buying, holding and praying
For my rich father, investing meant more than buying, holding and then praying. In his opinion, one should always remember:
- The 10 points an investor needs to control to reduce risk and increase return. My rich father said, “Investing is not risky. Having no control is risky. ”
- My rich father's five-phase plan, which led me to invest large sums out of destitution. Phase I of the plan was to prepare myself mentally to act as an investor. This is a simple but very important phase for anyone who wants to invest with confidence.
- The tax laws that have to interest different investors in different ways. In the book CASHFLOW Quadrant I dealt with the four different groups of people who operate economically. They are: E stands for Employee, S for Self-Employed or Small Business, B for Business Owner and I for Investor.
- Why and how a true investor will make money, whether prices go up or down.
- The difference between fundamental investing and technical investing. #
- How To Make Much More Than The $ 200 Minimum Income To Access The Rich's Investment Opportunities. My rich father said to me: “Money is only a matter of opinion. How can you be rich if you think $ 000 is a lot of money? If you want to be a rich investor, you can only see the $ 200, the minimum qualification as an accredited investor, as a drop in the bucket. «
- Five types of top level investors. In CASHFLOW Quadrant I address the five levels of investors. You should know the skills and training requirements for each of these types of investors. I divide the top two investor levels (professional and capitalist) into five types of investors:
- the accredited investor
- the qualified investor
- the financially educated investor
- the insider investor
- the ultimate investor
Know the tax laws
My rich father encouraged me to invest from the B quadrant because the tax laws favor investing there. My rich father always emphasized the following: »Tax laws are not fair. They were made by the rich for the rich. If you want to be rich, you have to use the same tax laws as the rich. ”One reason that 10% of people control most of the wealth is that only this 10% know which tax laws to use.
In 1943 the United States government closed most of the tax loopholes for white-collar workers. In 1986 it eliminated the tax loopholes for sole proprietorships in the S-Quadrant, from which freelancers such as doctors, lawyers, accountants, engineers and architects had previously benefited. In other words: Another reason that 10% of investors make 90% of the money is that only 10% of all investors know how to invest based on the different quadrants in such a way that one can take advantage of the respective tax advantages. The average investor often only invests out of one quadrant.
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