Whether you are an entrepreneur or an employee, you might consider investing like something more or less complicated depending on the experience you have in this space. But if you see this investment activity like something key to your freedom, retirement or whatever, you want to master the game of money and think like a billionaire and not like an average investor.
The average investor’s return over the last 20 years is just 3.6% per year – compared to a 9.5% return per year for the S&P 500 according to JP Morgan Research. You might be aware of the inflation situation right now. So if you are still thinking and acting like an average investor, you will end up having the results of an average investor… and with the inflation nowadays, you would end up loosing a lot of money and getting poorer and poorer.
Instead, I suggest you start thinking like a billionaire. Don’t be scared by the word itself.
And Billionaires distinguish themselves from average investors mainly on 2 aspects:
- One aspect is they have a family office
What is a Family Office?
A Family Office is when a wealthy family hires all the needed professionals to handle their wealth management as full time employees working only for the family. These wealthy families have a dedicated CEO who runs the entire office. Family offices are usually reserved for people with more than $200 million because of the payroll cost to create and maintain them.
- Two they think different and nourrish an abundant mindset
You don’t need to have $200m or a proper structure to start thinking and acting like a family office. Just start investing with the right mindset and the right intention. See you investing already like a family office.
It’s Time to Rethink How You Invest
In the past, wealthy individuals bought collectibles as status symbols or passion investments.
Today, they view high-end cars, luxury watches, and fine art as assets whose values will increase exponentially over time – thus protecting their money.
Like you, today’s Family Office and Investors are concerned about inflation. In fact, according to a report by global wealth consultant Knight Frank, it’s their No. 1 concern. You’re in a “New Reality of Money” where the normal rules of money have been perverted by obscene money-printing and out-of-control inflation.
The chart below shows how Consumer Price Index (CPI) inflation has risen since the start of the 21st century:
Everyone knows when inflation increases, the value of your money decreases. Since the early 1980s, inflation has eroded the purchasing power of $1 to about 36 cents.
Stocks Alone Won’t Help You Catch Up
According to a poll by Gallup, 58% of Americans own stocks. But the average investor significantly underperforms the stock market.
As you can see above, the average investor’s return over the last 20 years is just 3.6% per year – compared to a 9.5% return per year for the S&P 500. Since the creation of that chart, inflation has shot up to its current annual rate of 8.6% as of May. That means Main Street’s rate of inflation is now 2.4x higher than the average yearly return they are making in the stock market.
So for most people, investing in stocks will not help them outpace inflation. Can you see how it’s impossible to catch up to inflation when your stock market returns lag inflation by a whopping 5 percentage points? At the same time, bonds aren’t doing any better.
The yield on the 10-year Treasury is 2.8%. With inflation north of 8%, you’re losing 5.2% per year in purchasing power. That is a 5% gap between what you make and what you normally buy each year. And that gap is growing every year.
Working Harder Won’t Work, Either
This is why no matter how hard you work… how many extra shifts you pick up… how many more work meetings you slog through… your standard of living will continue to decline.
Your wages can’t keep up with inflation. Your bonds can’t keep up with inflation. Your stocks can’t keep up with inflation.
If stocks, bonds, working overtime, and pay raises won’t cut it, what will?
If you look at assets like contemporary art, they’ve delivered average annual returns of 14.1% over the past 26 years… while others like venture capital and bitcoin saw average annual returns of 19.3% and 230%, respectively, over the previous decade.
A recent Ernst & Young survey found that 81% of ultra-high-net-worth individuals now invest in alternative assets. You have to think like a billionaire and allocate your money just like the ultra wealth do.
A New Allocation Model for a New Reality
The 60/40 or 40/60 model (stocks and bonds) is not working anymore. According to a Philadelphia Federal Reserve survey, economists predict an average inflation rate of 3.4% over the next five years… That’s more than double the 1.5% average recorded five years before the pandemic. And a report by Trading Economics found that most investors expect inflation to run above 6% over the next year.
So, economists and investors believe inflation will remain high in the short term.
That means you need to prepare for this New Reality of Money. And UHNW are allocating up to 30% of its portfolio to alternative assets. These are a mix of asymmetric ideas with huge potential upside (i.e., cryptos, private deals, etc.) and financial safe havens that offer long-term outperformance. (i.e., collectibles, precious metals, art, trophy real estate, etc.)
Begin to prepare yourself now for the New Reality of Money.
Now the other important strategy we recommend to use is leverage of assets.
Leverage your Assets
What I love to do is the leverage of assets. In a nutshell, we follow these 3 steps.
Step 1: Buy ultra-safe (low beta), Inflation beater stocks that pays out fat dividends.
Step 2: Get a non-recourse loan using your stocks or your gold as collateral and still have benefits of stock ownership (Dividends) and gold ownership.
Step 3: Reinvest on cash flow-producing real estate.
This is this type of thinking that will help you grow your wealth even if you are starting small.
Everything start with an intention and a vision. See your investment efforts like the first stage to your family office.