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- 7 Steps to Wealth Multiplication
7 Steps to Wealth Multiplication
Principles to get richer every year
It is easier for the rich to get richer than for the poor (or middle class) to get rich. It is easier to grow and multiply wealth than to make that first million. The first million is always the hardest million.
The first 100k is always the hardest 100k. But the moment you break through, anything on that level becomes easy. But to get to the next level, you would have to break another barrier. But that barrier is often weaker than the previous one (if you didn't cut corners).
Anybody can multiply their wealth. You don't have to be a genius or financial guru. Here are the simple steps:
1. Know What You Have
This means, having a correct estimation of what you have. Many rich people can't multiply their wealth because they don't know the value of what they have. They have a false sense of value of their current wealth.
There is trouble if you value your wealth too high. There is also trouble if you value it too low. If you value too high, you will be focused on doing things with your wealth that it is insufficient to do. And this will constantly result in failure or rejection. The main problem is that you will be unable to determine why.
On the other hand, if you value your wealth too low, you will keep chasing low-hanging fruits. You might get them but you will keep feeling that you are missing something.
How do you get a correct estimation (of value) of what you have? Very easy - ask someone who deals in the type of wealth you have. No matter how brilliant you are, you will not come up with an accurate number off your head. You will be off.
Go find an appraiser. If it is a business, get an outsider to make you an offer (like they want to buy your business). Only then can you know the right value of what you have.
2. Understand the Current Economic Climate
It is hard to paddle uphill on a river flowing downhill. I highly discourage people from paddling against the economic current. It doesn't matter how much money you have - go with the flow.
In every business deal or transaction, there are forces you can control and forces you can't control. The economic climate is an example of a force you can't control. If you say you have billions, some organizations have trillions. If you get into a tug of war with them, you will lose.
What part of the economic cycle are we in?
What is the position of the Federal Reserve Bank?
What are other central banks doing?
What government is under pressure and what are they under pressure to do?
These are questions you need to ask to determine the economic climate. While you can never understand everything going on accurately, you should have a broad idea always. This is not to tell you what you should invest in or not, instead, it is to tell you what you should not invest in.
This is why you read Rich Culture too - these articles give you a sense of the current economic climate.
3. Have a Team
If it is just a few thousand, you might not need a team. But if we are talking millions, you need a team. And your team should (at least) consist of a banker, tax attorney, legal adviser, accountant (or CPA), economic adviser, investment investigator, and business analyst.
A banker gets you leverage for your money. Your banker isn't there to advise you on which bank to put your money. The banker is there to advise and help on how to always leverage the bank's money and reduce risk.
A tax attorney gives you perspective on taxes. You ought to know what the tax structure looks like before you jump into an investment. The tax attorney should help you navigate through tax advantages.
Legal adviser gives you insight to stay within the bounds of the law. Never assume - there are so many things you don't know. The accountant helps you with balancing your books to be able to account for every penny.
The economic adviser gives you a sense of the broader economic climate and gives you signals and warnings about forces you don't control. When those forces are about to hit or come dangerously close. There is more an economic adviser does.
An investment investigator investigates your deals and transactions. This is super important. You must know for sure that people are who they say they are. And also documents are accurate. You must have a proper investigator on your team.
And finally, a business analyst who can analyze the exact business or investment you are getting into. This is someone who can crunch the numbers and give you a good sense of the operations of a company.
Sometimes you need other team members such as marketing, language translator, broker, PR, etc. But that will depend on what you are doing.
Yes, you won't multiply your wealth by holding on to it and doing nothing. You have to invest in something. Everything can't be a fraud.
If you don't do something with your wealth, it will wear away. The value will be eaten by inflation. It will decay or it will go out of significance.
Some investments will still turn out sour. But the better your team, the less chance that has of happening. When you invest, do it in areas where you have knowledge, resources, and competence. Always play to your strength.
5. Double Down on Your Winning Bet
One mistake I see many make is that they get out of an investment too soon. Just because you have a big profit doesn't mean you should get out. This is why you have a team.
Sometimes, you double down on your investment. This is how people make billions. If it is fundamentally a good investment and economic conditions continue to favor it, why sell at 2X gains? Why not wait for 10X or 100X?
This is the true wealth multiplier. The multiplier effect is doubling down on your winning investments. As long as they still have legs to run (according to your economic adviser, business analyst, etc.), you should double down on your winning bet and never take profits out too early.
6. Cut Losses
It is easy to be sympathetic with losses. But that is a way to go poor. Don't be sympathetic. When the losses are steep and your team doesn't give you confidence in a turnaround, cut your losses.
There is one thing you should understand in investing - losers lose and winners win. Trying to make a loser win will very likely make you lose money. You should not dedicate a significant part of your portfolio to trying to "win against all odds".
As an investor, your job is to find good odds. While it is good to bet on outliers, don't make it a significant part of your portfolio.
7. Never Stop
If you get out of the game, even for one month, getting back in will be much more difficult. You may take vacations as you wish, but let your team stay active.
If you get out of the game, you will have to start all over if you come back in. So, don't get out. Create a perpetual system. Never stop learning, never stop investigating, never stop the investing process.
Here are 7 steps to multiplying your wealth:
Know what you have
Understand the current economic climate
Have a team
Double down on your winning bet