In the first Iron Man movie, while on a business trip negotiating an arms deal in Afghanistan, Tony Stark is ambushed by terrorists then held captive in a cave until he meets their demands to build them a missile.
Tony played along with his captors’ demand to build a missile, but he was determined to escape by leveraging every single resource at his disposal and risking life and limb to get out of that cave.
What his captors thought was a missile Stark was building for them turned out to be the prototype of the Iron Man suit, the Mark I Armor, which he built with the assistance of a fellow captive doctor. Of course, we all know Stark used the Mark I to rocket out of that cave to freedom and the rest is – as they say – history.
If your goal is to escape the cave of financial mediocrity to financial independence, you need to leverage every resource – including experts – at your disposal to make that a reality.
The following 7 things will make you rich:
Embrace Alternatives & Private Companies –
Ultra-wealthy investors have long been drawn to alternative investments to avoid Wall Street volatility and higher risk-adjusted returns. Shunning the traditional 60:40 stocks:bonds investment model, the ultra-wealthy adopt a 55:45 private equity & real estate:everything else investment model.
For example, the members of the exclusive ultra-high-net worth investment club, Tiger 21, are allocating more and more of their portfolio to private equity and commercial real estate every year. By the end of the last quarter of 2019, the members of Tiger 21 had increased their combined holdings in both assets from 45% in the previous quarter to 55%.
Why the preference for private investments? I’ll let one of the highest-ranking directors at the SEC explain in her own words.
In a speech given in July of this year at the PLI Investment Management Institute 2020, Dalia Blass, the Director of the Division of Investment Management at the SEC made a stunning suggestion: Main Street investors need more access to private markets.
“Private investments have the potential to provide stronger returns and diversification for investors.”
Invest for Income –
Passive income is the difference between breathing easy as the economy tanks amid an economic crisis like the latest COVID-19-induced downturn and wondering when the next stimulus check is coming.
A diversified portfolio of passive income generating assets ensures continued cash flow through tough economic times because even as one asset or segment suffers, income from the other assets will carry you through the crisis.
True financial independence is gained when your passive income exceeds your earned income – when you no longer need to rely on your job or the government, when you lose your job, as your primary source of income.
Leverage the Tax Code –
People complain that the rich pay fewer taxes but it’s not their fault the tax code is set up to encourage entrepreneurship. Sure, workers pay higher tax rates, but the government wants to encourage more businesses, not more worker bees.
That’s why the rich will leverage every provision in the tax code available to them to reduce their tax liabilities. Tax reduction is just as valuable as a high return on investments because they accomplish the same goal of putting more money in their pockets for reinvestment and wealth building.
Ensure your tax advisor is suited to serve you well throughout the year and not just at year-end when it’s too late to take advantage of the business and investing-related tax deductions and benefits.
Connect with Key Players –
Like it or not, there’s a club of insiders and you may already be a part of it. You just don’t know it. It’s just a matter of opening your eyes and ears to the possibilities.
I see deals every week, which the majority of investors will never see. Deals are happening every day in front of you and with the JOBS Act you may be able to find them on the Internet and through social media, but those deals may not be the most lucrative. The best deals are often the ones in your backyard.
Leverage your personal and professional connections and relationships in your local market to seek out available off-market deals and opportunities that may provide greater upside potential than the deals found on a Google search. When talking to somebody about what they do or what they’re doing these days, listen for keywords that may indicate alternative opportunities like “venture,” “private capital,” “promoter,” “private equity,” “deals,” “real estate,” etc.
Think Long-Term –
Long lockup periods found in private market investments prevent the type of volatility pervasive on Wall Street. Illiquidity prevents runs on capital that can tank a business plan and strategy before it can even get off the ground.
Protect Your Principal –
Asset-backed investments ensure that your entire principal is never put at risk. Investments backed by hard assets like real estate or tangible business property guarantee that you could never lose your entire investment.
Seek Intrinsic Value –
Assets with intrinsic value have value separate from what buyers and sellers are willing to pay for them in the market. This value is derived from income-producing activities like real estate, productive farms, and income-producing businesses.
This intrinsic value grows over time as rents increase, farm production grows, and as the demand for a business’s goods grow. This growth in intrinsic value leads to appreciation – a growth in the price of the asset separate from inflation. Income plus appreciation leads to above-market returns.
The rich invest differently than mainstream investors.
They have seven key investing principles that they live by that if you incorporate into your investment plan will put you on the path to wealth.