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Thursday, 02.09.2012 |
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| Get Rich, Stay Rich, Pass It On |
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Product Details
Notes
there are 33 million households in the "mass affluent"
these are people with $100k to $1M, not including the primary residence
the average age is 54, 87% have college degrees, and 28% are retired
6% are business owners in this range
two ways to create perpetual wealth that can be passed down:
1) own income-producing real estate
2) practice innovative entrepreneurship
having wealth is no guarantee of being able to pass it on
the amount of money is not the key factor in how long it will last
a common mistake is selling income-producing real estate for cash
the other thing is losing a business to changing times
mega-millionaires get 43% of their income from investments
the mass affluent get only 20% from investments
57% of their income is earned income from their primary job
the goal is to get your investment income to exceed your earned income
the best way to get rich today is to work on keeping your heirs rich
that essentially means investing in the stock market and real estate
you're looking for income-producing investments
business owners sometimes get caught up in their slowing business
they should be investing in real estate or new businesses that can grow
some people do asset allocation to save money for a timed purchase
they may diversify to slightly increase their investment to buy a house
but to get rich, you have to think long term:
1) you want stability over long term volatility
2) you also want renewal, or reinvestment of profits to get compounding
ongoing investment in innovative enterprises adds more income streams
investment assets can be sold for cash if necessary
but your goal is to gain capital appreciation over time
teach your heirs to take an active interest in the management
rather than selling investments for a quick payoff
typical asset allocation:
40-45% in stocks, bonds, mutual funds
(22% in individual stocks and 14% in individual bonds)
12% in principal residence
12% in investment real estate
25-35% in privately held business
10% in insurance, annuities, retirement
how much risk can you handle?
what downturn in the value of your assets will make you lose sleep?
lawyers, doctors, and executives are more risk-averse
business owners, real estate owners, and investors are less risk-averse
most real estate investors have a second home, then a rental unit
leverage the equity in your properties to buy the next property
start investing in the area you live in and get to know the real estate
many people rent out their second home when they're not there
this is better than a timeshare where you get no income or equity
buying undeveloped land is good for the long term
but it costs you money in the meantime with no real income
you have to know the area and understand the market potential
a REIT is a long term investment, typically 20 years at least
two types: equity REIT owns property, mortgage REIT finances it
hybrid REIT does both
REITs can be a good entry point, but eventually you have to own real property
in the long term, you want 23-29% invested in real estate
some degree of personal involvement in business is necessary
90% of the income of the rich come from a business they control
business opportunities aren't as easy to find, you have to go looking
you need time, research, and networking
you're looking for a business in the early stage of innovation
look at your own area and think about what's missing or needed
see if there are lots of other people who also see the same need
58% of business owners look at a down market as an opportunity
97% of business owners look past a downturn to maintain a positive attitude
62% of business owners say their goal is to build wealth, not maintain it
a franchise is very hands-on and requires up-front purchase of the license
partnerships and private equity funds can invest in many types of business
you need to do your homework and make sure you're protected legally
invest in a new business before it goes public
look for a business that serves "life needs" so it will survive a downturn
in any business, you want to constantly reinvent yourself
for investment real estate, you want to put down 20-25%
don't let yourself fall in love with an investment property
see if the area has a lot of rentals vs. mostly homeowners
look for businesses that employ people who would be renters
estimate costs for improvements or renovation
look at any current tenants and possible changes in rent amounts
find out the real estate taxes on the property and any reevaluation
the best rental tenant is the 70-year-old widow
she pays the rent regularly, doesn't do any damage, and doesn't move
vacancy rates can be anywhere from 5-20%
also keep 5-10% of your annual income from the property in reserve
25% of the wealthy consider themselves "self-directed" in their finances
they do their own research and conduct their own trading
but 75% still reach out to advisors to help them with decisions
but only 14% consider themselves dependent on advisors
23% are "advisor-assisted", they get advice but decide on their own
some people use an advisor for only some of their assets
most people stick with the same advisor for more than 10 years
people can build wealth in a professional practice and in a business
but mega-millionaires are more likely to have a privately held business
how mega-millionaires say they got rich:
97% say hard work
90% say education
82% say smart investing
65% say frugality
65% say taking risk
62% say luck
managing wealth is a 24/7 job in itself
but it's more like being "on call" to address any financial decisions
the rich save 23% while the average in 2005 is -1.8% for the general public
how the rich spend their leisure time:
21% travel
12% read books
11% play golf
5% exercise
5% gardening
4% charitable and volunteer work
3% sports
3% tennis
3% family
2% cultural arts
31% in the remaining activities
consult with advisors and make a plan to pass on your wealth
selling your business to fund your retirement can end the income stream
in the long term, trading income for cash won't give you perpetual wealth
41% of wealthy households have a trust in place
and once the trust is established, 62% of total assets are placed in trust
you put the title to various properties and stocks in the name of the trust
74% of individuals trustee their own trust until they die
the wealthy use credit cards daily, but pay the full balance each month
you should own income producing real estate
and you should own or invest in an entrepreneurial venture
you should also have a regular savings plan
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