So you want to be an investor, huh? Well, being an investor is more than just putting money into the stock market. You have to understand the bigger picture and also the smaller picture.
The bigger picture is everything external that affects the markets. Whether that is interest rates, the employment rate, or the housing market, understanding the bigger picture will ensure you are making the best investment decisions with the information on hand.
The smaller picture is how you structure your investment life. You see, if you structure your investment life to meet your goals, you will not need to make out-sized returns to achieve success. And if you don’t need out-sized returns, then you can make decisions at the right time for the right reasons.
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The “Become a Bonafide Investor” series is about understanding the bigger and smaller picture to help you make significant investment decisions for your lifetime. Although this series will fall under my investment tab on my website, it will still cover real estate, crypto, and tax considerations. You see, everything ties together because it all affects you, the investor.
Over the course of this series, we will cover such things as investment cycles, commodities, interest rates, precious metals, hedging vs. speculation, and FOREX. And these are just the start. Hopefully, I can continue this series for years to come. But now, let’s get into our first topic Investing Insider vs. Outsider.
First, let’s clarify the definitions of the words investment insider and outsider. An investing insider is not doing anything illegal or receiving insider information. The insider has access to control of his investment vehicle. I’ll explain more below. The investing outsider is outside the investment vehicle and cannot make decisions that affect the outcome. Let’s take a look at how this plays out in real life.
Real Estate Investing Insider. I am a real estate investing insider. I own multiple houses. I can increase the return on my homes at any time I want by doing certain things like raising the rent, adding rental spaces, making great use of my land, etc. For example, we are in the middle of refinancing our primary residence, which will put $200 back in our pocket. We have control of the outcome of our returns.
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Real Estate Investing Outsider. I own multiple shares of REITs on the stock market and off of the stock market (Fundrise). I have no control over how they run their businesses. However, I can control what REITs I own, when I buy them, and how long I keep them. To make the best purchasing decisions, I need to become a bonafide investor and understand interest rates and the housing market.
The best thing I can do as an outside investor is to position myself to make the best possible returns. If I want to increase my return by $200/month, I will need to invest a large amount of money into the REITs. However, I also carry less risk than owning property directly.
Business Investing Insider. I own my own business—it is a Kindle publishing and website called Military Family Investing. I write articles daily and publish on my website and combine them into a book format for easy reading. I control how many books I release, when I release them, and their price.
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From there, I can increase my opportunities to make money by adding advertising, affiliate marketing, hardback selections, and publishing in different languages. I have complete control of the financial aspect of the business, and I can do whatever the market can support.
Business Investing Outsider. On the stock market, I invest in Amazon shares. I have no control over Amazon and their business. They can shut down the business tomorrow or merge with Walmart. Whatever they choose to do, it is up to them. I am a speculator, for lack of a better word.
Why is understanding Insider vs. Outsider so important? You need to understand what you are, insider and outsider, and make sound investment decisions based on where you sit. You also need to manage expectations.
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Too often I see people trying to get rich as an outsider. Being on the outside has certain perks, like less perceived risks, the ability to move in and out of investments faster, and investing as a large group. But being on the outside is not for becoming rich. It is to keep your money generating more money. The big “pot” or “source” of money should be coming from your insider investments.
Okay, let’s break this down into different terms. As an example, let’s say I want to bring in $6,000/month passive income. Using only the stock market, I would need $1.8 million in my dividend portfolio to achieve this monthly payment amount. I can probably reach this in 8 years.
If I wanted to make the $6,000/month from my business, I could separate it into $2,000/month each of royalties, affiliate marketing, and website ad revenue. If I busted my ass, I could probably reach this amount in three years. But the true magic hasn’t even begun.
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I can then convert some of my books into audiobooks, different languages, a subscription model on my website, etc. The money keeps rolling in. On top of that, this money is entirely separate from the stock market and its fluctuations. I have complete autonomy to increase income as I deem fit.
How do I become an insider? In the stock market world, you have to become an accredited investor. When you are accredited, you will need to earn roughly $1 million a year, among other stipulations. Once accredited, you will have access to a more significant part of investments that could be deemed risky by the SEC.
Some investments you can participate in are: angel investing into startup companies or helping to take companies into their initial public offering. You get to buy into companies for low amounts (say $1/share) and then watch as it goes to IPO and the shares sell for $200/share. Getting in early is how you become wealthy—not being a buyer at the IPO.
I am not trying to discourage anyone; we all start as outsiders. Just realize where you are on the wealth pyramid and work your way up. Let’s take cryptocurrencies, for example. Most of us are on the outside right now. We are learning about coins, smart chains, and smart contracts.
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That does not mean that we will always be on the outside. We can work our way up the chain. Remember, the closer we are to the inside, the richer we become. So we can slowly work our way up to the groups that release coins. We can buy in before their initial coin offerings. Then over time, we can start our own syndicate that can eventually release its own coin. It may take some time, but the real money is in climbing the pyramid and creating an investment vehicle for others (outsiders) to invest.
The ideas in this article are from the book “Rich Dad’s Guide to Investing.” These ideas changed my life because I was purely a dividend investor when I read it first. Then I realized I was on the outside of this business. Shortly after reading this book, I decided to become an insider and start my business.
You do not have to be an insider in everything, probably just in a couple of areas. You can be a dividend and crypto investor and own a couple of rental homes and gardening businesses. As an investor, we can take a whole life approach. When you synergize your entire life, you become a bonafide investor.
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Let’s take the life of a bonafide investor. In one month, their job gives them a $100/month raise. That is very nice; however, they also raise the rent to the tune of $100/month. Their dividend stocks increase the dividend by $100/month, and they make some changes to their business for an increase of $100/month.
Overall, the bonafide investor brings in $400/month because of the diversity of their portfolio. They are insiders and outsiders, but the total package leads to wealth building at a fantastic rate. Instead of trying to be an outside investor attempting to increase their payout rate on the stock market by $400/month, the bonafide investor uses all their resources to become wealthy.
And that is the jest of the Become a Bonafide Investor series. We want to use everything at our disposal to become affluent over time and with a whole life diversification mindset. There is no reason to get involved in risky ventures. We need to be well-read, deliberate, and versatile. Welcome to Becoming a Bonafide Investor. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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