How to Build Wealth Like the Top 1%

1. INVESTMENT VS. SPECULaTION

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Let's be clear about what we're talking about. We're talking about investments. The difference between investment and speculation is that investment requires security or proof for product yield and growth. Speculation means you intend to buy something at a low price with hopes of it going high, and then planning to sell at that higher price. 

Investments: Track Records, Balance Sheets, Underlying Assets, Financial Statements, Cash Flow Statements, Performance, and Analytics

Speculations: Relatively new, changing spaces, No property behind it, Hopeful purchases, and High emotional correlation

There is a place for speculation but if it’s not going to be a five year deal, I don't recommend getting into it in the first place.

2. FOUR COMMONALITIES RE: HOW THE TOP 1% BUILD WEALTH

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When studying how the wealthiest individuals did amazingly well in their investing, we saw four commonalities:

1. ACCESS TO INFORMATION IS KEY: They had a large degree of financial literacy and knowledge of at least one part of the financial industry because for various reasons they got involved in banking/accounting/financial networks in their teens or 20s. 
2. They invested in Hard Assets (real estate, gold, silver, whole life insurance, small businesses - venture capitalism type set up)
3. They invested for Passive Income 
4. They had a 100 Year Legacy mindset meaning that at some point they chose to ensure their portfolio could keep on sustaining their intention of making the world better long after they were gone if they built it right.

Overall, they had clarity that they WOULD make money no matter what IF they followed their strategies.

3. TRIANGLE OF WEALTH

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It takes earned income to get passive income.  You will spend 5-10-15 years earning so you can get the passive income.

➢ Earn In Currency

➢ Save In Stores of Value

(I keep one month of cash and immediately move everything else over into Gold or High Early Cash Value Whole Life Insurance. I can borrow against them tax free and they will still grow)

➢ Invest In Income Producing Assets

(real estate, private lending, etc)

Stores of value include things that will keep pace with REAL inflation which is about double of what they tell us it is on CPI.

4. INCREASING YOUR RETURN RATE THROUGH ARBITRAGE 

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Arbitrage is when you have an asset that is growing at a certain rate and you borrow against that asset at a lower rate than what you're earning. You instantly make profit (It's a mathematical equation, there is no hope involved. I'm not referring to buying a stock on margin and hoping it goes up).

The second step of arbitrage is deploying what you borrowed into an asset that produces passive income or cash flow. The Third step is to use that cash flow to service the loan with.

Example:

Step 1: My life insurance is growing at 3%/yr (I can borrow against this life insurance and I will still earn 3% against the total). I pull $50K from my life insurance and it costs 2%/yr to borrow against that. I make 1% on that $50K that I have in hand now if I do nothing further.

Step 2: Now I issue a private note, lending that $50K to someone at a rate of 12% which is $500/month. I make 13% now.

Step 3: I put that $500/mo back into my life insurance. It eventually grows bigger than the amount I previously had and I do it again.

5. PITFALLS PEOPLE FALL INTO 

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➢ They think they are investing when they are speculating

➢ They don't take taxes into account (eg; if you sell a stock you must pay capital gains tax on any increase in value over your basis - Example: Buy at $100K, Sell at $200K, pay $20K of taxes, make $80K. On the other hand, if you sell an investment property, you can do a 1031 exchange and buy a new investment property and avoid paying taxes on the first investment property. 

➢ They don't put a limit on their positions. Position sizing means you identify either an amount or a percentage for your portfolio that you want to dedicate to a certain investment and cap yourself and rebalance your portfolio accordingly.

➢ They think of the stock price (and history) as a picture of valuation when in reality, you need to evaluate the company's financial statements to make a valuation (and the macro and micro indicators that reflect the economy for where that product will be in the next 10-15 years). 

➢ They forget they can dollar cost average into AND out of investments. To dollar cost average you 1) determine how much you want to invest or divest, 2) determine over what time frame you'd like to be fully invested or divested, 3) decide if you want to invest / divest quarterly, monthly, weekly or daily over that time frame and then 4) divide the total amount by the amount of those moments within your time frame. Have your system invest or divest automatically to ensure you don't lose your nerve or otherwise get off track.

6. WANT MORE? 

If you want more, Jerry Fetta offers a free chapter from his book, Blueprint to Financial Freedom, https://jerryfetta.com/free-chapter.