A pillar of living a good life is wealth.
For my purposes, I define wealth as the point where you have abundance.
Abundance of time freedom. You can wake up and not have to worry about meeting your essential needs in the modern world, ever again.
To get wealthy, you'll usually need money.
Money gets us the essential things, the material things, the safety on the Maslow's Hierarchy of Needs. It's the bottom tier of the pyramid.
Physiological needs: food ,water, warmth rest.
Safety needs: security, safety.
To have money gives one a better probability to reach the top of self-actualization. It's not required, but it helps when you're financially in a position where you have the resources to make easier choices.
Money is abundance that leads to wealth.
And wealth allows more opportunity for self-actualization. Not required but it sure makes it a helluva lot easier.
And again, self-actualization is the end goal.
Well-being, contentment, a full life.
So how do you get money that'll afford you wealth and time freedom?
When I first started studying money. The go-to answers are invest in index funds and in 30-40 years, you'll be a millionaire. That's a slow way to reach a millionaire dollars.
That million dollars that returns 5% in a diversified portfolio means having an income of $50,000 without touching the principal, theoretically forever.
Great for retirement, bad if you want to be want to deploy lots of money when you're in your prime years.
Warren Buffett says, invest in index funds. He even made a $2 million bet that index fund, like Vanguard would beat hedge funds, and it did the hedge fund ended up giving a 2% return on investment. And the index fund had a return of 6%.
Even though he is a strong proponent of index funds, and says and everyone should be messing with index funds, we look at his behavior and it's different.
Look at what Warren Buffett did, he invested in his business.
With Berkshire Hathaway, he was bold enough and had the courage to make calculated decisions.
Warren Buffett, would not be where he is today, taking his own advice of investing in index funds.
16.7 Million Dollars out of a 302 Billion Dollar Portfolio. That's .0005%.
In other words he'll bet on Index Funds once every 18,000 opportunities.
"Take risks,, if you win you will be happy, if you lose you will be wise." —Warren Buffet
Look at what they do, not what they say.
On the contrary. If you have your first $1,000 or even $10,000, better put down money not in an index fund.
You're better investing in yourself. Your skills.
Top three ways to make a lot of money
1. Build a business
2. Own equity in a business
3. Earn a High Income
My favorite is the first one. Build a business.
But there's risk to building company. 90% of businesses fail since their inception.
With those odds, if you put $100,000 in a company, you get $10,000 back.
Everyone believes they aren't the average. Same as people believe they're not an average driver on the road. 90% of people believe they're above average drivers. But how can that be true?
Entrepreneur Ramit Sethi says the reason why you invest in index funds is businesses can fail. 2 years, 5 years ,10 years. Even the best of the best companies fail.
Look at the S&P 500.
Companies on the S&P 500 used to stay on the list for 30-35 years in the 1970's. In the 2020's they're forecasted to shrink to 15-20 years.
Blockbuster replaced by Netflix.
Kodak replaced by iPhone.
But what's to say Netflix gets replaced with Disney+, Hulu, Discovery+, Amazon Prime, Paramount+.
Businesses like everything in life is subject to entropy.
If even the giants can't stay around. for more than 15-20 years, what happens when you start a business and it fails in 15-20 years due to competition.
On the flip side, there needs to be some calculated risk taking. More risk for more reward.
Invest in index funds, is the safest bet to retire sufficiently.
Yet an index fund is still at the whims of down markets. Let's say you're 65 and you're in a recession. What if it takes another 5 to 10 years where you're free able to deploy your capital.
If $1,000,000 portfolio crashes 40% to $600,000. A 5% annual return is $30,000 instead of $50,000.
The principle is not enough to generate the interest you need to live on what you originally sought out.
But if you just spend any discretionary income you have every month into investing in retirement like a 401k or Roth IRA, you'll most likely be able to retire 65.
But life wasn't made to be put off. To work for 40 years for the reward.
Assuming you're not using any discretionary income and you're a miser.
So there's a balance. People have to come up with the risk tolerance they have. Especially early on. If you have $10,000. Nothing you can invest in will be better than an investment in yourself.
Yourself as in body, mind, skills, knowledge.
Investing in people and experiences.
Experiences that will help you develop these aspects of yourself.
The reason some rich people don't invest next funds, is they have enough money in their portfolios.
If a wealthy person lost 40% of the their investments, they still have more than enough money to cover themselves for a good standard of living.
So there are two games to getting wealthy.
Phase 1: Build a business, or be part of a team that pays out by having stake equity in the business.
Phase 2: Investing that money so it compounds as an asset.
Now the portfolio in which you do that. That's a very unique personal decision. People will say have an allocation of 90% in stocks and 10% in bonds when you're young. As you grow to change to 80% stocks and 20% bonds. The older you get the less risk you take.
But that's your investment allocation.
How much money should you decide to invest in yourself?
How much money should you allocate for your fixed costs?
How much should you allocate to have some fun? Spend money to go out as friends or experiences.
These are different and more nuanced questions to ask.
There's no foolproof plan.
Maybe in your 20's you take massive amounts of risk because you can afford it and the overwhelming majority of your income % goes to investing in learning from classes, courses, coaches, consultants, conferences.
Some people are more entrepreneurial, some people are dialed in to see someone's vision and be a master operator and executioner.
Some people have a higher risk tolerance while some people do not.
People have different personalities due to their genetic makeup, upbringing and experiences.
But there's still a maximum, an optimal ratio.
It's your response to a find that ratio to optimize the amount of money you make and therefore the wealth you attain.
Angel Investor Naval Ravikant says "When you're finally wealthy, you'll realize that it wasn't what you were seeking in the first place. But that's for another day."
I mentioned having good life is thee goal. Wealth is only a pillar within living a good life.
Remember, keep the main thing the main thing. Wealth is just aspect. Reference the heuristic of one level up. Always asking the question of one level up.
"Why is this important?"
I hope you attain wealth so you're more likely to attain self actualization.
That your life is full and abundant.