Editor’s note: This article was first published in July 2010, during the crisis that followed 2008. Its remarks on ‘this recession’, developed countries in crisis while emerging markets form their own bubble, and high government borrowing costs describe that moment.
What do the rich invest in? It’s a very common question on the internet. There are plenty of answers and tips, and most of them end up steering us toward affiliate programs or books to buy. The question is badly framed from the start: the real question should be what certain people invested in to be rich today. We’ll get to the difficult answer right away.
You’re probably hoping to find a magic formula for wealth, so both here (we don’t have one) and on other sites that assure you they do, you’ll end up very disappointed.
First and foremost, the rich invested in knowledge, both about business and about personal finance.
If what you want to know is what they’re investing in right now, the answer is:
- They invest in stocks: When a recession hits, markets fall and share prices end up dirt cheap. It’s a matter of identifying which stocks are undervalued or have been oversold and investing in them. That’s one of their trump cards.
- Debt and bonds: Same as above. In a crisis, governments usually struggle to raise money and their debt becomes more expensive; in other words, countries pay more to borrow. Investing in debt is very profitable when yields are high. The bonds the rich tend to pick are corporate bonds (private debt), above all from companies in emerging countries, because in this particular recession it’s the developed world that is going through the crisis, while emerging countries are forming their own bubble.
- Visionary businesses: The rich are already in two sectors that look set to have a future, technology and renewables, as well as robotics, 3D printers and the like.
Of course, the smartest rich investors also made money betting on the market falling. When stock markets hit bottom, they close those positions and bet on a rise. This approach requires experience in financial markets and in stock investing.
Getting rich is a profession like any other, one in which you need to acquire three essential kinds of knowledge, and the sooner you start, the better. They are business, investing and money.
See also: Warren Buffett makes $500 million in 59 minutes
To this day I haven’t met a single millionaire who, besides owning a company, doesn’t also invest. Once you’ve mastered investing, you can invest in assets that will generate income for a long time, and above all that means stocks.
(Read: How to make a million dollars an hour)
I also want you to be clear that being rich or a millionaire is not the same as having financial freedom. Everyone is chasing financial freedom, and you only achieve it when your passive income is greater than your expenses. By passive income we mean income from capital that you earn without having to work a single day for the rest of your life.
Further reading
Featured image: pingnews.com, Public domain, via Flickr.
