How to Invest Like the Wealthy 1%?

How to Invest Like the Wealthy 1%?

Let’s talk about the 1% of this world.

If you’ve lived long enough you will probably have heard that the wealth is controlled in the hands of the few. Everyone has heard that.

What you probably don’t know is how this happens step by step.

You can take the information in this article to hate the rich or
You can take this information to become the rich, it’s entirely up to you.
Here’s the thing:

One of the biggest questions is what should I invest in and when should I sell that investment?

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When we think of traditional investing it will usually be:

Real estate
Stock
Cryptocurrency

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We think of buying them when we have money, and then when we are ready to retire as millionaires somewhere on an island, we think of selling those investments to pay for our lifestyle. That’s the traditional way of investing.

Being around those richer and wiser than me taught me this:

The rich adopt a different premise than the average person like you and me.

The rich:

Buy> Borrow > Die

Buy

In traditional knowledge, this is the accumulation phase of acquiring assets.

Going to school
Getting a degree and a high-paying job.
Buying assets like real estate, stocks, cryptocurrency, and other investments.
This is where we will spend most of our lives, which is the accumulation phase. This is probably the hardest and the longest phase.

The rich do this as well. They buy assets and not liabilities.

Assets: Put money into our pockets

Liabilities: Take money out from our pockets

Let’s look at real estate:

Owning a real estate offers you:

Cash flow- rental income
It preserves value
Tax write-offs
Borrow money against it (Asset can be used as collateral).
Borrow

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This is the next phase. For the rich instead of selling their asset and getting charged capital gain tax, they will just borrow money instead to finance any investments that they have.

Let me explain how this works:

So you may be wondering if the rich have a lot of money and assets why would they need to take out loans and borrow if they could cover everything with the money they already have.

Well, it is not because they need money. The reason a loan is taken out is that they are being strategic and smart with their money.

With stocks, you can use: Securities backed line of credit.

This is getting a loan at which your existing stock portfolio is used as collateral with some special interest rate which is usually very low given they have your stock portfolio pledge against it in case they need to recover the loan.

Hence the rich will use asset debt to get loans at a much lower favourable interest rate whereas the poor will use credit card debts to take out loans which are around 20% interest rates since the poor do not have collateral pledged against the loans. This is interest rate arbitrage. The loan can then be used to invest in stock, cryptocurrency or real estate

If you have heard of Archegos Capital losing $110 Billion it is because they were over-leveraging to an insane degree that when the value of the portfolio dropped their margin calls needed to be closed out with creditors wanting back their money. talks about this in his article Archegos Capital lost $110 Billion after using nearly 500% leverage.

You can also

check out The New York Times on this.

CONTRIBUTED BY MARCUS TAN

Read More: Things That Millionaires Focus On in Getting Rich

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