How The RICH Make MONEY & How To Build WEALTH. Can You Become A Millionaire With $500/Month?

How The RICH Make MONEY & How To Build WEALTH. Can You Become A Millionaire With $500/Month?

so many people don’t have this financial
education right when I was growing up the only way that I could think of money
was cash right and I would hear about Bill Gates and you know how he has like
50 60 billion back then I was thinking oh this guy must have so much money into
the bank right into public savings account or I don’t know where does he
hold so much money but the problem is that all of the richest people they most
of them they don’t have cash right they probably have around 0.5% of their
wealth into cash and why is that because cash is a very very bad way to hold your
money right so how do these people get so rich and how do they keep their
wealth and how over time they get wealthier and wealthier now that happens
is because the biggest part of their net worth comes from shares and equity in
companies and real estate and that’s the truth let’s look at Wikipedia the
world’s billionaires index and for 2018 right we have Jeff Bezos at one hundred
and twelve billion dollars right but source of wealth is Amazon right and how
does that happen well he has a big percentage of the shares of Amazon and
Jeff Bezos last year was on third place and had seventy two point eight billion
and we can see that for a year from seventy two he has gone up to hunt one
hundred and twelve and the way that happens is because when we look at the
Amazon stock price in one year it has gone up 96 percent and of course since
he is invested into Amazon his net worth skyrockets so that’s how all the richest
people’s held their money right and we can see Bill Gates source of wealth
Microsoft Warren Buffett Berkshire Hathaway but not all nodes
LVMH which is basically a lot of brands including rivet on Mark Zuckerberg
Facebook Amancio tag
Zehra and so on and so forth so why is investing and having equity so important
because if the alternatives are really bad right what are the main two
alternatives cash and charging your money into a savings account into a bank
so first I want to discuss cash and why holding cash is actually quite bad
because cash by design is inflationary object cash is made so that there is
inflation and then there is amazing video by the amazing vitaly oh that
explains how economy works in about 30 minutes it’s very easy to understand
it’s brilliant I’ll put a link into the description of this video and you can go
watch it and understand how economy works so you know in order for economy
to grow you need inflation and when the inflation is controlled is actually very
good and I’m gonna read a bit about that what’s behind inflation that’s on
investopedia inflation comes about this demand for goods and services grows in
an economy as the money supply in the economy Rises there is likely to be more
demand from customers looking to buy various goods the rising demand creates
a pressure on prices and a rise as more people are willing to pay for these
Goods sales hiked up their prices another situation that could lead to
inflation is when there is an increase in the cost of production
so overall growing economy having more money means that there is inflation but
let’s look at the effect of inflation let’s say you have $100 into a savings
account that pays a 1% interest rate after a year you have 101 dollars into
your account during this period if inflation runs 2% you would have to have
102 dollars to make up the impact of the higher prices since you have 101 though
that means that you have actually lost 1% of your purchasing power which means
that if you hold cash you are vulnerable to inflation if
hold cash overtime even though that the number of how much money you have
doesn’t change your actual buying power decreases over time you lose your buying
power another thing that’s very important about cash is that you are
subjected to swings into the price compared to other currencies because
when you have cash you probably have mainly one currency let’s look at the
pound against the door into a period of what four years the pound has lost over
twenty four even over twenty five percent of its value which means that
people that had thousands of pounds you know back in 2014 now even though this
you have these thousand pounds they’re buying power against the door is 25
percent lower in the same time remember that inflation is also compounding it
around one to two percent per year which means that these thousand pounds if they
want to buy something from America now can buy them probably somewhere around
thirty five to forty percent less than what they could buy just four years ago
so they these people lost more than 30% of their buying power in a short span of
four or four years so in short if you’re holding cash over time you are losing
buying power because of inflation and compound it with that you lose power
because it’s very probable that your currency might lose value against other
currencies what about savings accounts right this
is the second option which a lot of people go about and you know this was my
mindset in the problem with that and why this video is so important is because if
you don’t have someone that’s you know doing finance or business or
entrepreneur into your family around you it’s very hard to get out of this mine
said I didn’t talk anything about net worth about shares about equity
you know how inflation affects you and you know how you can make use of that
then turn your money to work for you instead of you losing your bank power
the second thing that gets so many people is savings accounts and we know
that banks these some of the highest rates of savings account received around
1.8 percent per year but if we look at the actual inflation per year we can see
that in u.s. it is between 2 to 2.8 percent in the last two three years
which means that if you hold your money into a savings account used you lose
buying power because of inflation the second thing is you still subjected to
swings into currencies and the third thing is most banks will not let you
actually withdraw money or you know handle your money which means that you
don’t even have access you know to your own funds let’s talk about why investing
is so good so this is a chart of the S&P 500 index which basically tracks the 500
biggest companies in u.s. which are basically some of the biggest companies
in the world overall which means that it is a quite good indicator what the stock
market overall is doing so we can see here I’ve opened the all-time chart of
the S&P 500 and what we could observe is that at any period over 15 years the
stock market is higher than where it was before that and into a very big
percentage of the time in every period of 5 to 10 years the stock market is
high and it was and you know we can follow that from 1950 to 2018 if you
invest into the S&P 500 which means that it’s super simple right you invest into
index you don’t have to choose companies don’t implant the stand companies
you just invest into the economy right because these basically tracks the
economy if you invest introduced the economy into an index let’s see what
happens so if I opened here a kind of reverse compound calculator and here
have calculated the interest rate that you would gain if you get invested in s
AP 500 back in 1950 when it began so I want to see how much on all the data
that we have over time how much is the interest rate and we can see that back
in from 1950 basis the ACP started at around sixteen point nine and now in
2018 it is a two thousand eight hundred fifty
this is sixty eight point six years and we are calculating the annual interest
rate and we can see that we get an annual appreciation of seven point seven
six percent seven point seven six percent with inflation we said at around
two percent at the moment right so okay but let’s look at some more interesting
stuff okay let’s look at if you invested exactly at the best possible time at the
downturn in through the 2008 crisis if we look at this back in 2008 GAAP was
around 683 and now as we said this at two thousand eight hundred fifty and
that’s it into a time frame of nine and a half years we can see that this is
again of sixteen point three percent per year with a savings account giving you
one point eight and with cash giving you zero right so we can see the difference
and you would say yes but nobody can time the market right that’s what you
say all the time like you know nobody can invest the best time and I say okay
let’s look what if you invest at the worst time okay if you invested exactly
at the top before the crisis and you never sold stayed invested
into the index let’s see what happens okay the peak here before the crisis is
around 1550 60 and as we said now we had two thousand eight hundred fifty and
that’s almost eleven years what we get is again if we invested at the worst
time in the last ten years you still get five point seven compounded interest
rate per year five point seven which means that you cover your inflation rate
in you still get three point seven percent gain of buying power per year
what is even better is that stocks have something called dividend yield which
means that stocks give you back money just to hold them and on average the SI
p 500 companies which is what you’ll be invested in you have a dividend yield as
we see in the last twenty years around two percent over all over time it’s been
actually much higher but let’s take the last two percent which means that on top
of this five point seven percent compound interest rate when you put two
percent up you get seven point seven right this is the worst time if we to
which we take the seven point seven percent which is on the all-time average
interest rate and you put 2% that’s nine point seven percent historically on
average you would get as a game if we invested just into basically the
economic of United States and here I have opened a very simple compound
interest calculator and what if you started right now with
zero dollars you get your nine point seven percent annual rate because you
invest in the S&P 500 use a new safe five hundred dollars per month for 30
years and the numbers that we get actually really really interesting into
the first ten years starting from zero in investing into the SA P 500 you have
$100,000 in 20 years you have $368 and into 30 years you have over a
million safe that’s how all the rich people have money that’s how they become
richer and that’s why over time the richer become richer because they invest
their money they don’t call them cash they don’t spend them on stupid stuff
that loses value they invest them thank you for listening I hope you enjoyed
this video comment on anything you want to down into the comments and also
consider checking out my patreon page which is on slash in
travursel where you can support the channel so I can create more and also
access quite interesting content about investing technology mindset and
anything else thank you for listening see you next time

1 Comment

  1. Entiversal says:

    Equities offer far greater returns than cash or any savings account because their value is based on productivity & the underlying economy's output. You get returns greater than inflation, hence you gain buying power. Equities also offer greater protection from currency swings because they represent the underlying value of the asst. Due to the same reason if you invest in the overall market you do not need to spend time or even understand businesses, while you can benefit from the gains with extremely small risk (the world stops progressing?). If you want to build wealth, what the leading long-term investors suggest is to start by saving as much as possible & investing on regular periods (ex: every month) into an ETF or index fund covering for example S&P 500 or All World.

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