Content of the material
- Invest now — youre not getting any younger
- Invest in brokerage accounts that reduce taxes
- Create appropriate estate planning structures
- How Much Do I Need to Invest to Become a Millionaire?
- 5. Short Selling
- Gauge your risk tolerance
- 5. Use peer-to-peer lending
- 2. Budget for Investing
- 5. Create multiple streams of income
- An Example: Investing $10,000 in 1986
- The Time Value of Money
- Sell Short
- Use Market Data to Guide Your Decisions
- 7. Flip real estate contracts
Invest now — youre not getting any younger
What if you had started investing $10 per week five years ago? Assuming an average return of 8%, you'd have thousands of dollars today— all from investing a little more than $1 per day. Think about that $10 a week. Where did it go, anyway? If you're like most, you probably spent it on Uber rides and Frappuccinos.
Despite wild rides in the stock market, the best thing you can do is to think long-term and start investing early:
- If you invest $10 per week: After one year, you'll have $541; after five years, you'll have $3,173; after 10 years, you'll have $7,836.
- If you invest $20 per week: After one year, you'll have $1,082; after five years, you'll have $6,347; after 10 years, you'll have $15,672.
- If you invest $50 per week: After one year, you'll have $2,705; after five years, you'll have $15,867; after 10 years, you'll have $39,181.
Invest in brokerage accounts that reduce taxes
Just as owning the right investments will help you reach your financial goals, where you invest is just as important. The reality is, people don't consider the tax consequences of their investments, which can leave you short of your financial goals.
Simply put, a little bit of tax planning can go a long way. Here are some examples of different kinds of accounts you may want to use on your investing journey. In each of these accounts—except for a taxable brokerage—your investments grow tax free..
Create appropriate estate planning structures
Work with your estate-planning attorney to determine and create appropriate structures for yourself and your family to help hold, manage, protect and transfer your new wealth. These can include Wills, trusts, limited partnerships or LLCs, and other planning vehicles. If you are charitably inclined, you can also create a private foundation or donor-advised fund, which can fulfill not only family and personal goals, but also tax and financial ones, both before and after your liquidity event.
How Much Do I Need to Invest to Become a Millionaire?
The amount you'll need to invest to become a millionaire depends on where you are in your life. You can afford to sock away less money when you're younger because you have more time to accumulate your wealth and you can tolerate more risk. If you put off saving until you're older, you'll have to put away more money every month.
5. Short Selling
Short selling is the opposite strategy of buy and hold. People are looking to make money in the market in a shorter time frame, and they do that by “shorting” stocks.
Here’s the gist: You borrow stocks and sell them at current market prices and receive a cash payment. But since you’ve only borrowed the stocks, you need to replace the stock that you sold. And you are responsible for paying dividends for the length of time that you borrow the stock.
When people short sell, they want the stock to drop sharply so they can buy it back at a much cheaper price. This means they can take home the difference. And sometimes the difference is a lot of money, which makes short selling a way you could get rich in the stock market.
Shorting the market requires a knowledge of the market and an educated guess on when the stocks will go down. You don’t want to borrow them for too long, because you’ll end up owing a lot in dividends. If you’re interested in short selling, you can buy and sell stocks through a brokerage firm like E*TRADE.
Gauge your risk tolerance
What is your approach to investment risk? Asset allocation can be the most significant factor in the variability of long-term performance—sometimes even more so than security selection or market timing. Your risk tolerance—and your cash needs in the short-, medium- and long-terms—will drive an appropriate mix of assets for your investment portfolio.
5. Use peer-to-peer lending
Peer-to-peer lending is a hot investment vehicle these days. While you might not get rich investing in a peer-to-peer lending network, you could definitely make a bit of coin. Which lending platform do you use? Today, there are many to choose from, but the most popular ones include Lending Club, Peer Form and Prosper.
How does this work? Peer-to-peer lending platforms allow you to give small bursts of capital to businesses or individuals while collecting an interest rate on the return. You get more money than you would if you placed it in a savings account, plus your risk is limited because the algorithms are doing much of the work for you.
Once you identify the offer, you can dig in and do some research — then, you can either take the deal or not. You’ll have your risk evaluated based on a proprietary algorithm that includes employment and credit history, and you’ll be able to make the decision to invest based on a variety of well-thought-out data.
2. Budget for Investing
Budgeting your income is a powerful tool for your investments. Include your investment contributions in your monthly budget so you can track your investments over time.
Look for areas that you can cut back in your spending so you can increase your investment amount. Whatever amount you already contribute to your investments, cutting back on another spending could mean investing even more. There’s no shame getting help in organizing your finance.
5. Create multiple streams of income
Do you remember the saying, don’t put all of your eggs in one basket? The same goes when it comes to your income. The average millionaire has seven streams of income! By diversifying your income, you grow wealth faster and create financial security.
For instance, if you have a side hustle in addition to your day job, you have two streams of income rather than depending on one or the other. This is a smart money move because if you were to lose your job for some reason, you would still have some income coming in from your side hustle. You can even grow your side hustle into a small business if you want to.
Income streams consist of your main job, side hustle, passive income, investment accounts, interest from savings accounts, rental properties, and more. There are many ways to create multiple streams of income. Creating multiple streams of income is a sure way on how to become wealthy.
Keep in mind that while get-rich-quick schemes might sound attractive many of them are exactly that. Schemes.
So instead of trying a get rich quick scheme, work on creating multiple sources of income! Remember rich people find multiple ways to bring in money, especially billionaires!
An Example: Investing $10,000 in 1986
What if someone wasn't lucky or skilled enough to spot Microsoft? The good news is that great businesses, especially boring ones, can be great investments. They don't all have to be Microsoft to be worth your while.
Let's go back to that same day in 1986. Suppose that instead of buying Microsoft, you decided to divide your $10,000 portfolio into two piles.
From one pile, worth $5,000, you pick up shares of five of the bluest blue chips in the United States. They’re companies that everybody knows. They have strong balance sheets and income statements. They’ve long been part of the index, they’re household names, they’ve been in business for decades, and they pay dividends.
You select a random list based on the darlings of the day: McDonald's Corporation, Johnson & Johnson, Hershey, Coca-Cola, and Clorox.
You use the other pile, also worth $5,000, to speculate on high-risk penny stocks. You choose these yourself. You think they have huge payout potential. You promptly lose that $5,000.
You're sitting on an awful 50% loss of principal from day one. You're left with the so-called "grandma stocks." How did you fare? Did these boring names that promise a complete lack of sex appeal or nightly news stories let you down? Hardly! The chart below shows your total return on investment from 1986 to 2014.
- Your $1,000 in Hershey grew to $24,525.92, of which $20,427.75 was stock, and $4,098.17 was cash dividends.
- Your $1,000 in Coca-Cola grew to $25,562.42, of which $19,574.04 was stock, and $5,988.38 was cash dividends.
- Your $1,000 in Clorox grew to $20,668.60, of which $16,088.36 was stock, and $4,580.24 was cash dividends.
- Your $1,000 in Johnson & Johnson grew to $40,088.31, of which $31,521.17 was stock, and $8,567.14 was cash dividends.
- Your $1,000 in McDonald's grew to $16,092.36, of which $12,944.39 was stock, and $3,147.97 was cash dividends.
Overall, your $5,000 grew to $126,937.61, of which $100,555.71 was stock, and $26,381.90 was cash dividends
The Time Value of Money
You multiplied your money by large proportions in this scenario. You did it without lifting a finger or ever glancing at your portfolio again, just as if you had owned an index fund. You did nothing for decades except let the time value of money work for you.
The McDonald's part of the calculation assumes that you didn't take any Chipotle shares during the 2006 split-off. The returns would have been much higher if you had.
A short seller essentially bets that a stock's price will fall. Technically, a short seller borrows shares of stock, sells them, then buys them back and returns them to the lender. If the stock price has fallen in between these two transactions, the short seller turns a profit. But if the stock instead rises, then the short seller loses.
In many ways, short selling is like day trading, meaning it's a quite aggressive strategy. As the long-term trend of the market is strongly up, a short seller must have a compelling reason for believing that a specific stock or index will fall. Macroeconomic factors, an overvalued stock price or a deteriorating business are all reasons that might cause a stock to fall, but they are not guarantees.
In a booming market, even stocks that are "overvalued" or unprofitable may continue to rise. Like day trading, short selling can be profitable, but it takes a very astute or professional trader to do so.
Use Market Data to Guide Your Decisions
Market data refers to the price, bid/ask quotes, dividend per share (if applicable), market volume, and other market information. There is historical data as well as real-time data.
Whether you are more of a fundamental or analytical investor, this data is valuable. Data-driven decisions prevent impulsive and emotional purchases.
You can find some of these data points within your stock trading platform or on stock and investment websites.
Additionally, commonly-available information to you in most online brokerage accounts will show you the current share price, the 52-week range, market capitalization, volume, and more.
7. Flip real estate contracts
Making money with real estate might seem like a long-term prospect, but it’s not. There are ways you can take as little as $500 to $1,000 and invest it in flipping real estate contracts to make money fast. How? Use a system like Kent Clothier’s REWW to first understand how the market works. It’ll then provide you with the data and tools to identify vacant homes, distressed sellers and cash buyers.
While most people think that real estate is won by flipping traditional homes and doing the renovations yourself, the fastest money you can make in real estate involves flipping the actual contract itself. It’s arbitrage. Identify the motivated sellers and cash buyers, bring them together and effectively broker the deal. It might seem odd on the first go, but once you get the hang of it, you can become a mini-mogul in the real estate industry by simply scaling out this one single strategy. It works, and it’s touted by some of the world’s most successful real estate investors.