The Rich Get Richer!

Asians value education.  However, education alone does not create wealth.  It is what one does with all the knowledge that is key to getting rich.

Have you ever wondered why the rich get richer?  

By virtue of their wealth, they are able to take advantage of two components:

• time and
• risk.

They are able to set aside money at an early age and watch their savings grow through compounding over time.  The other component is risk.  If you have time on your side, you can afford to take on more risk and invest in instruments that can give you better returns.  The end result is achieving exponential returns on your savings.

The 3 ways to riches are:

• Born Rich
• Rich Professionals
• From Rags to Riches - Entrepreneurs

With time on their side, the rich can afford to take more risk and invest for higher returns.  This means that they would have the "holding power" to ride through any short-term losses.  

In the world of finance and investment, time is really money because money has a time value.  As an economic resource, money is capable of earning a  rate of return which we call interest.  With the compounding effect, your money can really grow exponentially over time.

The Next Level

With sufficient seed money, you get to invest in property, which is one of the favourite investment vehicles for the rich.  Through leveraged investing in property, returns can double or triple in the short term.  In fact, nearly everyone who has invested in property leverages.  For example, an investment of $100,000 can be leveraged 10 X , via a loan, to buy a $1 million property.  A 20% appreciation on the property would be equivalent to $200,000, representing a 200% gain on the initial capital invested.

Other than property, you may be wondering if the rates of return of 10%, 15% or 20% are realistic and possible.  The answer is a resounding 'yes' but you will need to take the risk with a multi-asset portfolio that can invest in equities, bonds, futures, etc.  It must be able to adopt alternative strategies, like investing short and using leverage, to capitalize on market conditions that are constantly changing.  In brief, you will need to include non-traditional investments to your portfolio.

The point is that investment is a continuous process.  You need to keep searching for instruments that can yield returns of 10% or more.  It takes time and effort but it is not impossible.

For those who are risk-adverse and growing their money at fixed deposit rates - the likely trade-off is that they will have to settle for lower returns and thus end up with a smaller retirement nest-egg.  The value of their money will shrink over time as a result of the ravaging effect of inflation and they might just end up poor.  The rich, on the other hand, will most likely attract better opportunities to them.  They will also be able to stomach risk and diversify their assets into different businesses to multiply their wealth.

Get richer.  Understand risk, manage it well and you will be rewarded over the long term.


Ref:  How to be a successful investor by William Cai