Investing to make money, most people will associate it with the stock market. However, the survey results show that only 2.4% of respondents believe that stocks are their main source of wealth. Through this research, we found that there are many different perceptions of wealth creation between the average person and the wealthy.
There are many differences in the logic of the rich. For example, the average person likes to seek opportunities to get rich in the stock market, likes to diversify their investments, and always thinks that entrepreneurs are the most adventurous people. The logic of the rich is often the opposite, and they are financially free because they have an extraordinary cognitive logic.
The so-called financial freedom is to get the life you want only through investment and other means, rather than passive work. There are three main points. One is to make us understand that it is impossible to achieve financial freedom if we only compare wealth with a large amount of income. The second point is that if you want to become a real rich person, you must learn how to keep your wealth appreciating. The third point is the five characteristics that you should have if you want to become a person with wealth.
First of all, let's talk about why having a lot of money does not mean being rich, because the author feels that money is lost much faster than we can imagine, and if you don't know how to manage money, even if you have more money, it will be emptied. Let's start with a true story. In the United States, there was an unemployed man named David Edwards who won a $27 million lottery in 2001. Davy became rich overnight, he bought a villa, a car, a collectible, a private jet, and drugs. In just one year, he spent 12 million. Soon after, he ran out of money, the bank confiscated his property and threw him into a warehouse. Eventually, he died in solitude.
In fact, there are too many examples of people like him who became rich overnight and then became poor and white, not only ordinary people like him, but even those celebrities. Take American diva Whitney Houston, for example, who was $4 million in debt when he died in 2012. Surveys have shown that most of the people who have won the jackpot have been in a worse position in the past few years than they were before they won the jackpot, because they have a misconception that with this money, they can live comfortably forever. Having a large amount of wealth does not mean that he is rich, in fact, it is more difficult to keep his wealth than to make money.
Once ordinary people have money, they will spend it lavishly, and they will not think about investing at all, and even if they do, they will be blind. In 2001, an Austrian warehouseman named Gintschertana received a prize of more than 700,000 euros. At that time, a financial advisor from a well-known insurance company in Austria offered him an offer to help him make a stable investment that would double his assets. Schertana invested more than 500,000 euros in this effort, while his advisers did not have the ability to do so, and he invested all his money in the stock market and the foreign exchange market. In the past ten years, all of Shertana's funds have been emptied, and he has also been saddled with hundreds of thousands of euros in debt. Many people, like Shertana, trust financial advisors from banks or insurance companies, but Chittman argues that most counselors are mere salespeople whose job is to earn income for banks and insurance companies, not from the customer's point of view. So, while it's easier to entrust your money to them, you're also giving up responsibility for your own investments, which reduces your chances of success.
Rich people don't spend too much money and don't entrust their investments to others, they pay more attention to how to increase their wealth through their own investments, so that they can continue to enjoy the life they want. Rich people know one thing very well, that is, how much money they have is far less important than what they do with it, and this is the biggest difference between the rich and ordinary people. That's the first point we're going to make today. Having a lot of money does not mean being rich, let your money continue to appreciate and let yourself continue to be free, this is the real rich person.
If you want to gain more wealth, you must overcome five misunderstandings. The first is a misunderstanding. It's a common saying that you can't put your eggs in one basket. This means that we try to diversify our money as much as possible, such as buying multiple stocks or investing in different real estate. This sentence makes a lot of sense, but when it comes to rich people, it doesn't make sense. Zittleman believes that diversification hinders the growth of wealth, and this diversification can indeed avoid bad investment decisions, but it only reduces our mistakes, not more value.
If we don't diversify, how can we invest accurately, and the most important thing is to fully understand the market we are investing in. The news we get from the market is often uncertain, and we don't know what the consequences will be in the end. For example, when the U.S. government announces an increase in the number of unemployed, many people will think that this is bad news, which means that the increase in the number of unemployed people means that the economic situation in the United States is worse, and the stock market will also be affected. But there are also those who see this as good news, believing that the central bank will cut interest rates, which will drive the stock market higher. Many transactions in the investment market happen because there are always different points of view, some people are buying, some are selling, but in the end, in the end, only one person can predict the right outcome and benefit from it. So as long as you have a good understanding of the market, you will become better.
The second misunderstanding. Less volatility in the market means less risk. There are also problems with this theory. Another economist, Michael Kepler, gives us an example of a stock that rises 10% in the first month, 5% in the second month, and 15% in the third. At the same time, the shares of other companies also fell by 15% in a month. According to volatility theory, when one stock has a high volatility and the other stock has a volatility of 15% at all times, the risk of choosing the former is higher than that of the latter. But the share price of the first stock continued to rise, and after three months, its profit had reached 32.8%. The other stock, although highly volatile, is constantly falling, and in three months, its share price has fallen by 38.6%. This example shows that less volatility does not equal less risk.
The third misconception is that many people believe that they should invest locally as much as possible. Local preference will ignore foreign profitable markets, and if it is a long-term investment of large amounts, then this proportion will bring huge losses.
The fourth mistake is to use past market data as the basis for future investment, which is the so-called rearview mirror perspective. When driving, we look at the road ahead through the front window, and we can only see the road that has already been driven from the rearview mirror. Psychologists have found that we have a herd mentality, which makes people reluctant to clash with the opinions of most of the people around them, and this kind of going with the flow and obeying the collective will is the biggest obstacle for the most common small investors in the stock market.
Another mistake is that many people always think that they can beat most of the people in the stock market. Seventy percent of private investors feel that their investments are better than the average person, but their returns do not prove it, a phenomenon that scientists call the illusion of control, which leads many investors to overestimate their opportunities to create wealth in the stock market.
The first step in avoiding the five major mistakes of growing your wealth is to avoid diversifying your choices as much as possible and to have a good understanding of the market so that you can make the right predictions. The second point is not to assume that low volatility investments will reduce risk. The third point is to move away from the presentation of local preferences and invest from a broader perspective. The fourth point is to avoid investment and backward perspectives, rather than having to determine future investments based on past information. Fifth, you should not overestimate yourself in the stock market, and you should avoid having an illusion of control.
The last thing I would say is that there are five types of wealth traits that you have to have.
The first trait is to have an entrepreneurial spirit. A survey jointly conducted by UBS and PwC in 2015 found that the majority of the world's wealthy do not derive their wealth from legacies, but from entrepreneurial entrepreneurship and investment. What is entrepreneurship? The key is to be more open-minded. According to a survey, the average person thinks that trying something new is a risk, but more than 60% of German entrepreneurs are willing to try something new. For entrepreneurs, inaction is a risk because it loses opportunities. The American psychologist Albert Bandura came up with a concept known as self-efficacy, which reflects people's confidence in dealing with difficult situations. According to a survey by German scholars Rauch and Feraser, successful entrepreneurs are generally more efficient than others, and they are more confident in more complex situations.
The second point is a prudent experience. People tend to confuse risk with gambling, which is a misconception. As we mentioned earlier, the success of an entrepreneur is actually a deliberate strategy that includes ways to reduce risk. To start a business, there must be a transition period, and in the transition period, don't neglect the current work. There are too many accidents in the process of starting a business, and you can't make a business plan in stone, otherwise, your company will go out of business sooner or later.
The third point is to be honest. People think that business is a zero-sum game, where some people make money and others lose money. However, a strong business relationship should be a win-win situation.
The fourth point is frugality. Most wealthy people are reluctant to spend ostentatiously. Those wealthy and successful people value the value of their property more than they spend.
Fifth, the last trait is to set financial goals. Is it an unrealistic goal to make 1 million? If you think so, then you will fail on the road to wealth creation. To achieve financial freedom, you first need to understand what you want to achieve and why.
Make a suggestion to accomplish your financial goals within the next ten years. He believes that people tend to overestimate what they can accomplish in a year, and often overestimate what they can accomplish in a decade. Many major achievements take a decade to complete, so a decade is just right for economic development. After setting a goal for the decade, we can divide it into smaller goals and work towards them over the course of each year. If you're going to make 1 million in 10 years, you can't make 100,000 a year. On the contrary, you can earn very little over a period of time, but your income will increase exponentially over time, and therefore, you can set a reasonable goal for each stage based on this ratio. If we don't do it, and we are always afraid of failure, we won't be able to gain wealth.
Also, if you are not looking for development, but just for profit, in principle, do not take out loans, especially through financial intermediaries. The purpose of bank lending is not to save zombie enterprises, on the contrary, it is to completely cut off the liquidity of some bad enterprises through credit thresholds, and to clean up zombie enterprises through financial means. Therefore, if the enterprise has come to the edge of survival, it is better to survive with a broken arm than to continue its life through loans.
This is because there are too many zombie enterprises, so although the loan amount has been enlarged and the interest rate has been relaxed, the banks are still resolutely stuck in credit and do not save zombie enterprises.
Why don't you save zombie companies? The background of our economy is a lack of demand, and even if you stick to it, time may not be on your side. It is useless to reduce prices, since it is overproduction, the collapse of a number of enterprises, it is inevitable, but this word cannot be said clearly, I am afraid that the small hearts of the small bosses will not be able to stand it. However, the direction of the policy is indeed selective, the 12 trillion yuan of bailout funds launched by the government are not shared by all enterprises, and the target of tax reduction and exemption is individual industrial and commercial households and small-scale taxpayers, because there are as many as 100 million individual industrial and commercial households and small-scale taxpayers, where can they be regarded as capitalists? In fact, they are all small people, and to save them is to save the people's livelihood. The real private capital is the general taxpayers with a registered capital of more than 5 million, who are the leaders of private capital and the distribution center of zombie enterprises.
Why are there so many zombie enterprises? The problem lies in two ends: one is long-term arrears, including local and leading enterprises, especially those state-owned enterprises, which do not seek to forge ahead and rely on project subcontracting to extend the payment cycle, but they themselves go to earn money for financial management, which has caused a large number of triangular debts.
On the other hand, it is the access to the market, the project space is narrowing, it is said that it is an investment of 14 trillion to stimulate the economy, which is completely led by state-owned enterprises, these projects have nothing to do with private enterprises, and it is already very lucky to be able to drink some soup behind the butt of state-owned enterprises. But in the end, it's still overproduction, and the damned ones still have to die. If it is to save the enterprise for the sake of saving the enterprise, it is not in line with the principles of economics.
Since there is a surplus of supply, of course, we cannot make up for the shortage. So sometimes we don't solve the triangular debt that companies are most concerned about, but tax refunds. What's the point of tax refunds? If you have enough revenue, it means that you are not short of projects, but of insufficient liquidity. Then I'll give you a tax refund, so that you can ease down and talk about it. If you are a zombie company and have no input, this bailout policy has nothing to do with you. In this way, it is clear that the bailout is selective, and the ultimate goal is to clear a large number of zombie enterprises from the market through the survival of the fittest in the market, and rebuild the balance between supply and demand in the market.
In this process, the policy does not clean up the triangular debt, but desperately lending, which actually constitutes a kind of support for the enterprise, if you have the ability to regenerate and the business is doing well, you will get the support of low-interest loans, which is real support. If you can't get your receivables back at once, then sorry you have to overdraft the expected profits and exchange interest for space in the form of loans. And if you are a zombie company, and you don't have the courage to face the future of failure and nothing, then the front door of the bank is doomed to not enter. You can only keep your desire for miracles by increasing the interest rate on the loan exponentially through financial intermediaries, drastically increasing the cost of finance, and your last loan is just a gamble.
So I said that a loan is a broad choice, and if you want to develop, with other people's money, that's the best option. It depends on your assessment of your condition. If you're using a loan to survive, I hope my point of view clears your head.