Do This and You’ll Experience the “Feeling” of Wealth
The feeling of wealth is not the temporary high of materialism.
It’s not the BMW or Escalade, big house, or even a fancy vacation.
What will give you the feeling of wealth are multiple streams of income.
But what do most people do? They speculate with 100% of their investable net worth.
They go big into micro-cap stocks, hope and pray their 401(k) goes up, and love to check on the value of their home.
Speculating can be smart, fun, and very rewarding when done right.
However, the emotional games it can play with your stomach and the potential liquidity crisis you can put yourself in by being in only capital appreciation investments can cause you to buy high and sell low.
For most investors, we suggest less than 10% of your investable assets in speculations, with 90% focused on cash flow.
I’ll give you a great life example. In 2006, my wife and I purchased a duplex for $116,000. It paid about 10% on our money, and we were very happy with this safe, cash-flowing asset.
During the housing crisis, this duplex collapsed to $65,000 in value, yet the rents didn’t decline. In fact, as forecloses rose, demand for rentals grew, and our cash flow actually increased during the greatest housing crisis the U.S. had ever seen.
Today, the property continues to generate monthly income, and its value is north of $150,000.
This asset that was purchased for cash flow has never caused me a single day of grief, even as its price collapsed 50%. In my mind, I never planned to sell, so I didn’t care – I wasn’t sensitive to a price swing at all.
On the flip side (no pun intended), in 2007, I bought a fixer-upper in Southern California that I invested $165,000 in to pay for rehab and holding costs as we listed it for sale. This was a speculative investment, and when the Bear Stearns went under two weeks after listing the house for sale for $999,999, I was quickly reminded of the difference between a safe, cash-flowing asset and a capital appreciation-dependent investment.
Six months later, my entire $165,000 had been written off as a loss, and the property eventually became a short sale for $550,000 (originally purchased for $650,000). As President Trump would say, it was nothing short of a disaster.
A speculation gone wrong turned into a liquidity crisis, loss of capital, and probably what felt like an ulcer.
Here are some key disciplines for speculating:
1. Never invest more than you can afford to lose. Or, at the very least, only invest what you can afford to not have access to for 5 years.
2. Make sure you have the cash to avoid a liquidity crisis. Avoid using short-term funds for speculations – or any investment, for that matter.
3. Be honest with yourself. No matter the asset, if the only way to make money is for someone else to buy it at a higher price, you are speculating.
As someone who has made great money from investing, business building, and speculating, I can tell you that the thrill of capital appreciation is a real high, so enjoy it when it’s happening and don’t forget to lock in some profits along the way.The peace of mind and feeling of wealth, though, truly come from income. I don’t care if it’s $50,000 a year in passive income or millions of dollars from a business – if you want to live rich, focus on generating multiple streams of income.
Editor’s Note: Legendary investor Rick Rule told us last month that he’s never seen a 1,000% gain without first having to go through a 50% decline!
We are being very patient in 2017, but some of the stock suggestions we’ve made this year are setting up for major moves higher. The precious metals, specifically, look set up for big gains in the fall of this year, as well as marijuana and blockchain companies.
Be ready because the big gains for us will be on the buys!
We’ll buy dirt cheap at the right time.