Misplaced assumptions are the cause of large scale delusion.
Everybody believes that once they get a substantial amount of money, they’ll forever be able to coast through life, enjoying the finest pleasures it has to offer, never again having to worry about the problems poverty brings.
One look at TMZ and you would believe all rich people do is rent out luxury yachts and sail through the French Riviera all year long. But this is far from the truth, after all, you don’t become a billionaire, or remain one, if all you do is squander your money.
Let’s take a look at popular rapper 50 Cent as an example, to see what senseless spending without proper investment does to an individual’s net worth.
Some years ago, he, together with Dr. Dre, were in line to be the worlds first hip-hop billionaires.
Whereas Dr. Dre invested in his time, money and energy into a line of headphones, 50 Cent was found all over the newspapers racking up huge bar tabs and otherwise enjoying a lavish playboy lifestyle.
Fast forward to 2014 and Dr. Dre was selling his insanely successful Beats by Dre franchise to Apple Music for $3 Billion, while jut a year later 50 Cent was being photographed in a New York Court filing for bankruptcy.
This is not to say that all billionaires have a stake in the headphone industry, but most, if not all, of them, have a portfolio of investments to maintain and grow their wealth, while also being able to enjoy it.
So where do they put their money?
The Stock Market
We have all heard the stories of regular middle class citizens investing their savings in the stock market and, by a fortuitous turn of events, ending up as millionaires.
That’s all good for them, but to be completely honest, that is just as likely as winning the Powerball lottery.
Money, just like everything else in this world, needs to be worked for and such instances of luck are one in a million.
However, with patience and a proper understanding of the stock market, even you could make a few hundred thousand dollars in a medium-span of time. For billionaires, their investment in the stocks is on a whole other level.
Seeing as they have a few billion dollars to spare, they can go all in on supposed surefire stock and wait to reap the dividends. Lets take Apple Inc. as a sample stock.
Whenever a new model of the iPhone is slated to be released, thousands of people buy into Apple stock knowing that their price is going to skyrocket. For you and me, that could be a $5000 investment, but for a billionaire such as Warren Buffet, this would be a $10 billion gamble.
If it pays off and the stock price rises by say 3%, you walk away with an extra $150 while Mr. Buffet comfortably earns $300,000,000. It may seem unfair, but as we all know, it is easier for the rich to get richer, than for the poor to get rich.
Efficiently forecasting investment value is another means through which many modern day billionaires manage to maintain their affluence. Going back to Warren Buffet, he has become the most successful value investor in all of history.
While his fellows are making deals outside the public eye, Mr. Buffet makes it his duty to inform the public on how he goes about obtaining his wealth. \
The first time he detailed his valuation strategy for the stock market, many people scoffed at it believing it was already general knowledge.
Essentially, all it entails is identifying undervalued stocks and purchasing as much of it as you can. This will eventually pay dividends because, in economics, value rarely stays hidden for long.
But general knowledge or not, it has rarely been applied to perfection, but for Warren Buffet such a strategy has had him in the top 5 Forbes Rich List every year for over a decade.
Billionaires who feel that stocks are too much of a gamble tend to settle for private equity as a like-for-like alternative.
Whereas stocks leave you dependent on a company’s probability of success, private equity allows you to invest directly in specific projects that companies are in the process managing or completing.
Lets say you have a billion dollars lying around without any particularly pressing expenses. To add onto that, you like what Elon Musk and Tesla are doing in relation to their space exploration program.
With private equity, you could pump your cash directly into the Research & Development Unit, aiding their ground breaking research.
If a breakthrough is made, you could reap great rewards from your direct investment.
From time immemorial, owning land and property has been seen as the ultimate investment.
While flashy cars and expensive jewelry may depreciate in value, there’s only so much land, and therefore housing to put on it, making property both a safe and often appreciating asset with time.
Billionaires know this, and are constantly making in roads into the real estate market to secure their financial well being.
Has it never seemed odd to you that you will read about Carlos Slim buying a $30 million house in Los Angeles today, and a few days later, he has bought another mansion in Florida for $26 million?
For the uninformed mind, this may seem like a spoilt rich man wasting his money on luxury homes.
But if you track the status of such houses, you will realize that 5 years down the line, the same properties were sold off for upwards of $50 million; that is $20 million earned doing absolutely nothing.
The current POTUS, Donald Trump, made a lot of his money in the real estate sector too.
By constructing the famed Trump Towers and his various hotels, he has safeguarded his wealth into assets that will most likely only appreciate with time. Pretty smart for a man many people believe to be an overgrown baby.
All in all, as billionaires make financial movies, we should take notes and maybe even mimic, although with slightly smaller amounts.
Don’t blow your paycheck on clothes that one year down the line will be useless to you. Instead, invest and reap the benefits over time, after all, who wants to be dressed in Gucci pants if your pockets will be empty?