4 reasons why you can’t afford to invest like the rich
Many people accumulate a lot of wealth in their lifetime by investing wisely over time. And if you play your cards right, you too could get pretty rich someday.
But there is a difference between being rich and ultra-rich, and the reality is that by trying as best you can, you might never reach the point where you’ve lost track of the millions you have to your name. In fact, those who are super rich are often quick to give advice on how they got there, but the truth is that the strategies these investors adopt once they have reached a certain level of wealth are not quite suitable. just not for the average investor. Here’s why.
1. The rich can pay higher fees
Some investments, like index funds, are extremely affordable because they charge particularly low fees. But actively managed mutual funds charge much higher fees – sometimes 10 times as much for a comparable investment – because they give you access to an experienced fund manager who picks stocks and follows the market, or certain segments of the market, day after day. While actively managed mutual funds may be an appropriate choice for high net worth investors who can afford these higher fees, if you are an average investor you are generally better off with index funds, which are passively managed and costly. much cheaper to start. with.
2. The rich can take more risks
People with millions and millions of dollars under their belt are likely to have an easier time dealing with large losses than the average investor. As such, they may take more risk in their portfolios – a risk that you may not be in a strong position to bear. Imagine you were to lose $ 10,000 on a bum stock. For you, it could be catastrophic. For someone with millions of dollars, this is probably a non-event. As such, if you are an average investor, you are better off. buy stocks with a proven track record of performance, solid revenues and a clear competitive advantage. Let the rich invest in speculative stocks that could generate strong returns, but could also collapse and burn.
3. The rich can handle less cash
Investing in real estate or in art can be a great way to build wealth. And the ultra-rich can afford to tie up $ 1 million in an income building or $ 500,000 in a painting, two things that aren’t as easy to sell as a stock or index fund. You, on the other hand, like the typical average investor, may not have the ability to lock even a much smaller amount of money into an investment that you cannot unload quickly, which is why you probably can’t afford to broaden your horizons like the rich do.
4. The Rich Can Afford Minimal Investments You Can’t
Some mutual funds and private equity funds impose minimums to ensure they have enough assets under management to meet their goals and cover their expenses. For a wealthy person, a minimum investment of $ 100,000 may be easily achievable. For an average investor, this might be totally out of reach. Fortunately, it is possible to invest with very little money these days. Not only can you buy reasonably priced index funds, but the increasing availability of fractions of shares means you can add stocks to your portfolio even when their individual stock price is more than you can swing.
It is natural to admire the rich and aim to emulate their investment strategies. But the truth is, as the average investor, you are just not on the same playing field. Rather than bemoan this fact, do your best to develop a smart investing approach that works for you. . If you make a plan and stick to it, there’s a good chance you’ll grow your assets over time and find yourself fairly well off financially.