A lot of people seem to think that billionaires sit on mountains of money and just invent new ways of spending it. Which is obviously not true.
Billionaires actually don’t see money as something to spend on themselves. Money is simply there to invest and create. This mindset is what allows them to multiply their wealth day in and day out creating more jobs and businesses along the way which is why countries with billionaires are better off with countries without them.
Over the years, numerous researchers have studied dozens of self-made billionaires for several years and found that they have specific habits that help them build wealth. For starters, they focus on saving and bringing in multiple income streams.
They also tend to favor the long game and look for opportunities when others are panicking – all traits that help 10x their wealth building efforts.
The good news is, you can replicate what the 1% is already doing and increase your net worth fairly quickly. Here are some key strategies used by billionaires that you can also implement to have your money work for you.
Get into the investing game early
You may be sick of hearing this advice, but this is the reason why Warren Buffett is one of the richest people on this planet even despite his politics which have hurt so many people. The Oracle of Omaha bought his first stock when he was 11!
Buffett is unarguably one of the most successful investors on this planet today and he credits his success to his early investing habit. And many other billionaires attest to the same fact.
By starting to invest early, you can take advantage of the power of compounding to the maximum. Don’t wait for the “right time” – there is none. Save as much as you can, start small and then increase your investments gradually.
Ask any mega successful investor about the fundamental principle of their investing strategies, and they will all say the same thing: have patience.
Let’s circle back to Mr. Buffett for a minute because there really is no better person to learn investing about. He first bought six shares of an oil service company (Cities Share) at $38 a share. He had identified the company as an undervalued stock and was confident of making a great profit.
Unfortunately, the stock lost nearly one-third of its value within a few weeks of Buffett buying it. Most people in his shoes would have sold the shares as fast as possible but he waited. Buffett held onto the stock until it rebounded to $40 a share and received $2/share profit.
But that stock didn’t stop rising. After Mr. Buffett had cashed in, he observed the stock rising to over $200 a share without him.
If you are a newbie investor, don’t sell at the first sign of trouble. Follow the buy-and-hold strategy that all billionaires swear by and you’ll substantially increase your odds of getting rich dividends in the long term.
Always keep in mind that the market has an inherent upward bias. Just look at the US stock market: it has survived two world wars and countless recessions and crashes, and still has always managed to bounce back stronger and it certainly will after the Wuhan virus stops spreading. This will happen after it warms up but this is another topic.
Another benefit of holding onto your investments for longer is, their returns will be classified as capital gains. This means the amount of returns will be taxed at a lower rate compared to the tax rate charged at which your routine income. This is why almost every billionaire holds onto a significant amount of their assets in equity.
Put your money in real estate
There is a reason why pretty much every billionaire has invested in commercial and residential real estate. Investing in real estate has the potential to be profitable in the short-term as well as the long-term.
According to the National Association of Realtors, the value of real estate in America has appreciated by 6% each year since 1968.
Also, it can provide you with a nice steady stream of rental income every month like clockwork. Even if the real estate market crashes tomorrow and your property goes down in value, you’ll still have the monthly income to rely on.
Be strategic, don’t panic
When the market slows down, an ordinary investor starts panicking and looks for an exit. On the other hand, billionaires see it as an opportunity to make strategic investments that will pay off big time in the long run.
In the aftermath of the Greenspan/Frank 2008 recession, people called Warren Buffett crazy when he invested $5 billion in Bank of America. But he knew that even though the banking sector had experienced a crippling blow, it will bounce back. And it did. Buffett traded those shares for an incredible $16 billion in 2017 which is the same year America emerged out of the recession because of the 2017 tax cuts.
So, no matter how bad it looks at any point in time, don’t do what inexperienced investors do. Instead, do what billionaires do and look for growth and value stocks that can be bought at a steep discount.
Use tax saving strategies
Billionaires understand that using some smart tax strategies, it is possible to reduce their tax burden. Some of these strategies include setting up trusts to pass down their wealth to the future generations and holding most of their assets in equity.
You can also shrink down your tax bill in a variety of ways, such as:
- Claiming as many tax deductions as you can: mortgage interest, HAS contributions, 401(k) contributions, student loan interest deductions, medical expenses deductions, state and local taxes deductions, charitable contributions, and more.
- Increasing the contributions to your retirement accounts to the maximum amount possible.
- Holding your equity investment for at least 1 year to take advantage of capital gains taxes.
Despite what you may think, most self-made billionaires are not Ivy-League educated geniuses with advanced degree in finance. Heck, most of them never even went college! But there’s a big difference between getting a degree and getting an education.
If you want to invest like a billionaire, start thinking like one. Instead of thinking you’re not ready or getting fixated on short-term gains, learn how to take calculated risks. We are living in times of turmoil right now, and most people are selling quality companies at rock bottom prices due to fear.
This is the time to take advantage of that gloom in the market and score yourself a deal. This is the time to buy because America will rebound soon as already indicated and the rest of the world will rise with it (though not as much because most countries have leaders who are not cutting taxes and regulations but this is another topic too).