If you watch “The Lions Den” show, you will have some idea how the wealthy maintain their financial superiority. It is not a walk in the park. However, it can be done. Below, I elaborate on how they invest in startups, spread their investments, and make strategic decisions.
BY Senwelo Tsie
- Invest in high-return startup opportunities
Networking
Their network is primarily made up of successful business people; they get referrals from their network, with whom they have long-term relationships. This gives a measure of trust, making it easy for them to choose the startup which will give them better returns.
Venture capital
Usually, when they someone with a brilliant idea but no funding, they fund it and get shares in the company. At most, it’s a business idea they feel passionate about and consider worth taking a risk for.
Roll-up of shares
They buy shares in small companies in the same industry and combine them to achieve a set profit goal. According to www.investopedia.com, a roll-up merger is when an investor, such as a private equity firm, buys up companies in the same market and merges them. There is an expectation that when these companies are combined, they will reduce some of the risk seen by an investor and make better returns. According to dealrrom.net, the end goal of a roll-up strategy is a company of much more significant value that is more than the sum of its parts.
Spread investments across a few platforms.
As the saying goes, don’t put all your eggs in one basket; this is a critical factor for wealthy people. Diversification is one way to balance risk and reward in your investment portfolio.
Stocks
The wealthy invest in various company stocks for dividends. However,
before investing, they will evaluate the valuation to see if the company is trading at a reasonable price, study its fundamentals and visions to see if they are aligned, and invest.
Bonds
Most bonds provide regular interest income and are considered less volatile than stocks. They can also act as a cushion against the unpredictable ups and downs of the stock market, as they often behave differently than stocks. The wealthy focus on making a profit that drives financial maintenance.
Cryptocurrencies
Recently, cryptocurrencies like Bitcoin and Ethereum have gained in popularity with investors, even though they come with their own risks. Michael Blank states, “Government regulations and market volatility make cryptocurrency speculative. It’s wise to keep it to a small portion of your portfolio, say 1-5%.’’ You never know how things could turn out.
- Make strategic decisions
Trusts
Keeping their money in trust safeguards the investments and minimises the tax burden. There are various trusts that investors (the rich in this case) have to identify, which is favourable to them and hence aids in maintaining their wealth.
Researching and reading
They stay ahead of the game by reading, researching and staying informed about the market they are in. They keep up with current news to know what is happening around them, which helps them make better investing decisions.
Compound interest
Compound interest is excellent for maintaining wealth. They understand that leaving their investments for longer allows one to enjoy the benefits of compounding interest, which means getting more interest on their initial principal and previous interest, resulting in high returns.