How to Invest Like the Rich

Sana Al-Badri
May 22, 2020 · 5 min read

Wealthy people can afford to work far less than most of us because their money is working for them. Fact. They usually own assets that create higher returns independent of the time they spend working — welcome to the good side of capitalism. It might come as a surprise to you but 9 out of 10 billionaires are self-made, they acquired their money through starting and owning a profitable business.

Many of those successful businesses eventually end-up on the public market. These investments are called stocks, which are shares issued by companies. They are traded (e.g. bought and sold) on the stock market.

Anybody can buy and sell shares at any time. However not everyone knows how powerful they are and that they can also invest in them

Unfortunately us normies keep most of our money in cash (terrible idea!) locked into low return savings accounts or we put all of our savings towards our homes. Both of these investment choices are very common but are generally considered a bad idea by financial professionals. For example, the average interest rate of a savings account ist at 0.02%. The average return you make with a residential home in Germany (counting in the money you save with rent) is around 2.95%. On the stock market on the other hand the historic average return is at around 8%. As you can see investing in stock returns you 400 times more than leaving it in a savings account, and 3 times the return compared to a home — each year! By the time you retire, choosing predominantly stock-based investments could be the difference between simply sustaining what you have or becoming a multi-millionaire.

(Just to be clear: I’m not saying you should become a millionaire, or that you should focus on growing your wealth. We are fully aware that money doesn’t buy fulfilment. We are providing you with information, so that you are empowered to make the decisions you want. If some of your life goals require capital, then reading this is absolutely what you should do!)

Investing in the stock market is not as risky as you think

You might argue that you’d rather play it safe and steer away from stocks because the risk of investing in the market is too high. Losing everything you reason, is not as bad as keeping what you already have. So many people falsely turn to what they consider to be safe investments, e.g. savings accounts and residential homes. It’s true that in the short-term these investments are safe, because of their predictability, but over the long-term their slow growth cannot outpace inflation. Growing below the inflation rate means that you’re actually losing an average of 2% of value as time goes on, with every ~10 years a quarter of the value of your money wiped out.

Residential homes aren’t all that safe either, usually there’s no diversification when you put your money into one home. What if your country’s property market starts falling and what if your area goes out of fashion or businesses there collapse? You have no way to sell your property to a decent price and will likely lose out on your investment, with no recovery in sight.

An analysis of the real estate market by UBS in many major metropolitan cities shows, for example, that around 19 out of those 24 cities are at risk of being an investment bubble. Bubbles are dangerous because it could mean that you are overpaying massively, with the market at risk of crashing very soon, losing the value of your investment.

Real estate is prone to bubbles and market crashes, too.

On the other hand, when investing in stocks, you on average, double the value of your money every 7 years (and there’s a lot of data on this, namely 150 years of stock market history). I know that recessions and losses are painful, but an analysis of the last 100 years of the stock market has shown that full market recovery takes around 3 years on average. Not bad at all.

Staying safe while managing unpredictability

The stock market is unpredictable if looked at from a narrow view, but if you zoom out to see the broader picture — innovation, efficiency and optimism have prevailed. This is also precisely what the data shows, in 3 out of 4 years the market is going up in value. We know that in the stock market you may have some bad months or a few bad years, but such risks are dwarfed in comparison with the high growth rate of global economies. Stay patient and don’t panic sell, when things get rough (as they always do in life)!

The truth is investing can be safe, IF you diversify your portfolio. Diversification is to sow your money across different markets, regions, industries and asset classes. And this can be achieved especially efficiently through ETFs.

By honouring sound investment principles, there are generally enough winners to offset losses, especially over the long-term (minimum of holding you investments for ~ 7 years).

What do you say? Start now, and let your money work for you. Give it to businesses that work tirelessly to improve themselves and stay competitive — and you get to win, when they win. At Sagefund we did all that work, we’ve selected the products that generate the very same returns that affluent people invest in and so your money can finally start to work for you. Remember only those who dare, win!

We are a start-up and would love you to join our exiting beginnings! So, if you want to become a beta-tester for the product as well as learn about sustainable investing, join our community at our Facebook group — Sagefund Closed Beta.

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