150 millionaires say getting rich boils down to a 3-step formula

[gaussian]

All these articles are garbage. They can be summed up as such:

1. Start out well off
2. Get a good job and use (1) to launch yourself into a position making multiple 100ks a year
3. Fuck off until (2) gets you where you need to be.

I've read rich dad poor dad, and the millionaire next door. While the millionaire next door tackled this problem with data (for example, most millionaires never make more than 80,000 a year in their lives and are prolific savers), these examples in these tabloid-style articles don't help anyone. If anything, they make the problem worse.

I wish they'd talk about people who make less than 100k a year. The millionaires in this category are truly prolific, and would serve a good example to people who aren't C-suite executives or sales-types. When it's C-suites and sales-types it feels more like masturbation in public than an actual exercise in educating the would-be working man on how to create wealth.

The number one benefit of some wealth is not being burdened with unproductive debt. That might seem obvious. But the money you have isn't worth as much as the debt that you do not have.

It took me a long time to justify putting a down payment on my house, and I put down 5% as an escape hatch despite being able to afford more. Even though my balance sheet shows an asset, the house is a liability until it is paid off, and as such, I wanted to balance down payment with total PMI additions (its literally only $30ish dollars a month) instead of thinking in "payments" because if I wanted to I could chop down the loan considerably by shelling money into it. I also got lucky and bought at near the bottom of the interest rate nose dive which benefited this plan greatly.

I do believe the single most important thing someone can do is own a home and some land anywhere. If you can't - move. Your retirement calculations simplify considerably when you don't have to worry about your rent going up.

Your statement on starting life being short one house is a good way to think about it. I like that analogy.

 

[Cuddles]

where's the "have a rich dad" bullet point?

 

[Seaweed]

My main gripe with articles like this is that they often unknowingly serve, like lemmings, the deep state, the true operators of America. In order for stock valuations to hold it requires ever more buyers and fresh meat to join in. Wall Street and white shoe America is scared of millennials and younger ones because they don't invest as much as previous generations (not that they could even if they wanted to). Demand has been constantly dropping. It requires fresh demand to grease the rat wheels.

But and here is the big but: historically it has never been advantageous to buy at lofty highs in the market. One may argue that retail investors are very poor at market timing and that is true. Some also counter that long term holdings have produced 6-7% equity returns per year which would be terrific if that continued. Those returns were generated when America was the lone wolf and almost all innovations out of the US directly fed into higher stock valuations. That does not hold true anymore. Also, while Warren Buffet is a long term investor he never buys at high market valuations and rather invests in stable companies when valuations are low due to external temporary factors. I came across a research paper that showed that one would generate for superior rturns over just long term holding and fractional investing by

* saving up cash and investing it in tbills and wait until
* stock markets correct to the downside and to then buy a chunk at 20-30% discounts. One perfect example was December 2018. It does not take 10 years for 10-30% corrections to exhibit themselves. Waiting and then investing in those corrections generates far superior returns rather than keeping on buying at fixed intervals regardless of market valuations. Anyway, that is what I have been doing over the past 15 or so years and it served my retirement account very well.

Investing through any subset of the past 15 years produced returns in the region of 6.7% per annum. That is only taking reported inflation into account. It gets worse when investing cash at fixed intervals. Investments at times when markets are depressed produced much higher returns,especially over the past 15-20 hears

I couldn't agree with this more. In some ways I am a permabear, but what I have also learned is that everyone in the market has to be flushed out at some point. The buy and hold crowd really hasn't taken a hit yet, and there is no rule that says for the next 20 years we can't have sideways actions, or worse, for exactly the things you mention.

The boomers might be ready to slowly start cashing out and spending their money, so, as you point out, where will all the new money come from? Not only will they be cashing in their investments, but also their properties. Given the obvious lower income of the current young generation, where will the money come from to take over their houses and investments at these prices?

I could be wrong, and usually am, but this smartphone generation will I think have to learn that life isn't as easy at it appears. First the crazy high valuations of tech companies that make no money will implode, and then the rest of the re-pricing will follow.

 

[maxinger]

TWO step formula :

1. don't invest now !!! only invest around end of recession / beginning of bull run
2. trade now!!!

 

[GRULSTMRNN]

You make one excellent point I omitted. Because of the long run up in equities long term holders have not been feeling pain in a long time. Any astute student of history knows that markets never just go up. It takes just one serious additional financial crisis to catapult all the long term holders back 20 years by halving their portfolios or even worse. Same with properties in overheated markets like Hong Kong or Vancouver or tier 1 cities in China. Tell a Chinese that property prices can crash and they laugh into your face. Some people have either not studied history at all or have lived for a way too short time without undergoing regular market cycles, which admittedly have been quite long in duration in the past 30 or so years.

So, my point was that doing the math and actually running a simplified backtest easily proves that buying at market corrections of greater -10% produces superior returns vs investing at fixed time spans.

I couldn't agree with this more. In some ways I am a permabear, but what I have also learned is that everyone in the market has to be flushed out at some point. The buy and hold crowd really hasn't taken a hit yet, and there is no rule that says for the next 20 years we can't have sideways actions, or worse, for exactly the things you mention.

The boomers might be ready to slowly start cashing out and spending their money, so, as you point out, where will all the new money come from? Not only will they be cashing in their investments, but also their properties. Given the obvious lower income of the current young generation, where will the money come from to take over their houses and investments at these prices?

I could be wrong, and usually am, but this smartphone generation will I think have to learn that life isn't as easy at it appears. First the crazy high valuations of tech companies that make no money will implode, and then the rest of the re-pricing will follow.

 

[gkishot]

I literally read or see an article like this posted 3-4 times a day. Rinse and repeat.
Also find out that most of these articles are all written by individuals are between late 20s and early 40s who alllllllllll seem to have a personal financial blog. Yep. They became millionaires and started a financial blog, that's all these people do is write articles about person financial freedom and sell either a book or a seminar. . Blah blah blah.....

Do you disagree with the basic premise? What is your formula if you don't mind?

 

[2FT]

Your statement on starting life being short one house is a good way to think about it. I like that analogy.

The biggest gain I never made probably came as a result of being negative about that advice when I was given it 25 years ago. And at the time I was very focused on building a stake to fund my "algo" trading, rather than saving for a home deposit. Wasn't called algo then. Yah, I chose the mechanical bull. I stand by my choice.

Agree on move to where you can afford a home. Wife and I found our self in an affordable place. Let us get a home and get on with building life.

A thought that comes into mind: trade the positions that life accidentally gives you. Life will eventually give you a position that you almost didn't plan, it will be a good position, or the best one you have, and it will be on the path of life's least resistance.... so fkn work it in your favor. They don't come often.

The other one is easier said, and often said: big returns comes from big positions that last a long time and are big winners. I am running a huge open winning position right now, and I don't care one bit. We have had 1 big winner so far, and one big scratch. And the current open winner. In 13+ years. Everything else for us is peanuts in comparison. Luck is a big player.

 

[GRULSTMRNN]

George Carlin understood this decades ago: watch from minute 7:48: big fucking business interests is which likes little Joe Smoe to keep on buying and keep on investing:

My main gripe with articles like this is that they often unknowingly serve, like lemmings, the deep state, the true operators of America. In order for stock valuations to hold it requires ever more buyers and fresh meat to join in. Wall Street and white shoe America is scared of millennials and younger ones because they don't invest as much as previous generations (not that they could even if they wanted to). Demand has been constantly dropping. It requires fresh demand to grease the rat wheels.

But and here is the big but: historically it has never been advantageous to buy at lofty highs in the market. One may argue that retail investors are very poor at market timing and that is true. Some also counter that long term holdings have produced 6-7% equity returns per year which would be terrific if that continued. Those returns were generated when America was the lone wolf and almost all innovations out of the US directly fed into higher stock valuations. That does not hold true anymore. Also, while Warren Buffet is a long term investor he never buys at high market valuations and rather invests in stable companies when valuations are low due to external temporary factors. I came across a research paper that showed that one would generate for superior rturns over just long term holding and fractional investing by

* saving up cash and investing it in tbills and wait until
* stock markets correct to the downside and to then buy a chunk at 20-30% discounts. One perfect example was December 2018. It does not take 10 years for 10-30% corrections to exhibit themselves. Waiting and then investing in those corrections generates far superior returns rather than keeping on buying at fixed intervals regardless of market valuations. Anyway, that is what I have been doing over the past 15 or so years and it served my retirement account very well.

Investing through any subset of the past 15 years produced returns in the region of 6.7% per annum. That is only taking reported inflation into account. It gets worse when investing cash at fixed intervals. Investments at times when markets are depressed produced much higher returns,especially over the past 15-20 hears

 

[zghorner]

wait...so most people dont get rich from buying OTM options?

 

[murray t turtle]

https://www.afr.com/wealth/personal...oils-down-to-a-3-step-formula-20191023-p533b4

Tanza Loudenback
Oct 23, 2019 — 8.53am
Key Points

• John, who runs the personal-finance blog ESI Money and doesn’t share his last name online, has spent the past few years interviewing millionaires.
• John was a business executive for 28 years before he retired at age 52 with a $US3 million net worth.
• Now that he’s interviewed 150 millionaires, he says the formula for getting rich is clear: Increase your income, control your spending, and invest early and often.
• The key element in each step is time – the earlier you start, the better.

Adopting the habits and strategies of rich people can guide you towards wealth, as long as you’re willing to put in the work.

John, who runs the personal-finance blog ESI Money and doesn’t share his last name online, has spent the past few years interviewing millionaires. John was a business executive for 28 years before he retired at age 52 with a $US3 million ($4.4 million) net worth.

There are three elements to getting rich: earning, saving, and investing. Shutterstock.com

John says there are three elements to getting rich: earning, saving, and investing. Now that he’s interviewed 150 millionaires, he’s figured out exactly what it takes to be successful at each step.

1. Increase your earning potential
Looking back, most millionaires realised that earning was more important than they originally thought, John found.

John wrote. “This means considering both growing your career as well as developing a side hustle. Over time they will both increase and be what fuels strong net worth growth.”

Many of the millionaires “started with very minimal paying jobs” and worked hard to develop the skills needed to increase their salary, John said. They also diversified their income, most commonly with investment dividends, side hustles, and income-producing real estate.

2. Control your spending
One of the most surprising patterns to John was that the vast majority of millionaires don’t live by a budget.

But that doesn’t mean they never did.

“Developing a spending self control is vital to becoming wealthy and a budget is the best tool for doing so,” John wrote. “Even if it’s just for the first few years of your financial journey, develop and live on a budget at least until you know you can manage your spending impulses.”

Despite not determining their spending for the month or year, many of the millionaires still track where their money goes, John said. The point is to save and invest as much as possible, and you achieve that by keeping expenses and discretionary spending low.

Once you’re spending less than you earn, saving automatically, and investing prudently, a self-control mechanism takes over and it’s no longer necessary to budget every dollar.

3. Invest now
The maths proves that time is on your side in investing.

“Sock away as much money as you can as early and as often as you can to get compounding working for you,” John wrote.

He found that, like himself, millionaires overwhelmingly favour simple investments, like index funds. They made their fair share of mistakes early on, but most realised quickly that they aren’t killer
Index funds are a type of passive investment that exposes investors to a broad selection of stocks in order to diversify and ultimately minimise risk. They’re low-cost and regularly outperform actively managed funds. One of the easiest ways to invest in index funds is through your retirement accounts, such as a 401(k) or IRA (superannuation in Australia).

“Over time you can keep at it or look to expanding into real estate depending on your goals and interests,” John wrote. “After that, it’s simply time. Give it long enough and one day you wake up wealthy.”

%%
Good points.
BUT sounds like they still live on a budget, more or less.As that implied= once you have the wise giving,saving, spending habits + investing habits, its still good habits . Good habits are hard to break also...................................................................................................