Most parents want to offer their children a better life than they had. If you’re interested in systematic wealth building, you’re probably curious about how to build generational wealth. After all, money is a tool that can allow your children and grandchildren to have the ability to lead meaningful and impactful lives.
Generational wealth isn’t usually something that happens by accident, though. Even if you save up an incredible fortune, it’s all too possible for future generations to not only squander the wealth, but also suffer tremendously because of it.
So what is generational wealth, exactly, and how can you build it? And, perhaps most importantly, what can you do to avoid the negative potential outcomes of offering a fortune to your descendants that they didn’t work to create on their own?
Let’s do a deep dive into everything you need to know about generational wealth to help set up the future generations of your family for success.
The term generational wealth refers to accumulated wealth that is passed down from one generation to the next. This fortune doesn’t have to just come in the form of cash, but can also include:
Generational wealth can be passed down after your death in the form of an inheritance, but it can also be shared with your children and grandchildren while you’re still alive.
When you build generational wealth, you are granting the future generations of your family a significant financial advantage. The goal isn’t to create an outcome where your kids never have to work a day in their lives and suffer from severe affluenza, but instead to open up a lot of possibilities for your kids and their kids.
When you create generational wealth, it means that your children, your grandchildren, and so on, can begin their adult lives on a higher rung of the hierarchy of needs. If you’ve ever lived paycheck to paycheck, you know just how costly and time-consuming it is to be poor. In the best-case scenario, generational wealth can allow your progeny to accomplish more in their lives than you were able to because they started out with a huge advantage.
If you want to have the ability to truly impact the world, creating generational wealth is one of the most effective ways to do so. While rich people can get a bad rap in this day and age, money is definitely one of the most powerful tools when it comes to actually creating positive change in your community and the world as a whole.
When you create generational wealth that your children and their children can use, you are giving them the gift of freedom. Money is a resource that allows people to pursue their dreams and affords them security in life.
If you work a regular 9-5 job, you might be wondering if that will be enough to build generational wealth. The answer to this question obviously depends on what you have in mind when it comes to how much wealth you want to leave your children, what your income is, how many years you plan on working, your cost of living, and much more.
That being said, building substantial generational wealth is probably not possible with a traditional career alone without taking on extreme measures when it comes to saving and investment.
Let’s take a look at some of the biggest names in generational wealth to paint a clearer picture of what I’m talking about.
Some of the most recognizable family names out there certainly didn’t accrue generational wealth working standard W-2 jobs.
John D. Rockefeller is believed to be one of the richest men that has ever lived, despite the fact that he started Standard Oil all the way back in 1870. The fortune he built initially is now divided among 174 different heirs and funds a massive amount of charitable and philanthropic work.
The Walton Family is said to have a net worth of about $235 billion between the seven heirs to Sam Walton’s fortune. This massive generational wealth was built through the Walmart retail empire, a public company that has a market cap of more than $395 billion.
While H.L. Hunt might not be as much of a household name as that of Rockefeller or Walmart, the Hunt family fortune is nothing to scoff at. Supposedly using poker winnings to secure title to a big chunk of the East Texas Oil Field (one of the largest deposits of oil in the world,) the massive wealth of the Hunt family definitely wasn’t built by showing up at the office at 8:45 and clocking out at 5:15 alone.
I could go on, but the point is that the biggest players in the world of generational wealth were entrepreneurs, not employees. While you absolutely can build up a nice inheritance for your children through aggressive savings from a traditional career, building truly significant wealth usually takes something more than a regular job.
Of course, there’s a huge range between leaving your children in debt and building up a Rockefeller-style fortune. You don’t have to be a billionaire to create generational wealth that can have a huge impact on the lives of your descendants for generations to come.
The deeper you get into the examples of families that have generational wealth, though, you will start to notice a pattern.
In short, entrepreneurship of one form or another seems to be the most common thread between examples of family wealth. This doesn’t necessarily mean that you have to start the next big social media platform, though that certainly wouldn’t hurt.
That being said, most of the world’s wealthiest people have a number of different irons in the fire. Some other wealth creation methods you’ll want to consider include:
If you are starting from zero or worse, (that student loan debt can really be a downer,) it’s worth noting that nearly 68% of the world’s richest people are considered ‘self-made.’ Don’t assume that you can’t build generational wealth within you’re lifetime without a huge inheritance of your own– it is completely within your power to build wealth from the ground up.
Now that we’ve taken a look at the basics of generational wealth, let’s hop into how to build it.
One of the most important steps to building generational wealth is about something way more valuable than money– your mindset. In order to accrue assets that you can pass on to future generations, you’re going to need a mindset that allows you to pursue long-term goals on a playing field that offers the opportunity for big gains.
Of course, investing is also essential to building generational wealth. If you’ve got a big pile of cash and you bury it under the oak tree in your backyard for your grandkids to find, they’re probably going to be pretty disappointed. (As an example, $5,000 in 1950 is the equivalent of about $60k in 2022.)
Not only do you need to invest your money to make sure that it maintains its value in face of inflation, but investing is going to be a big part of how you make your money work for you.v
Another way that you can generate wealth is through business ownership. This doesn’t necessarily mean you have to quit your day job if you don’t want to– it’s definitely possible to use your savings from your career to get a business off the ground as an investment.
Not only can a business help you to build your wealth through income generation, but a business is also an asset that you can pass down to future generations. If your great-great-great grandkids don’t want to work in the family business, no problem. All that means is that they have a saleable asset.
One of the biggest expenses you’ll have throughout your life is taxes. If you go through your life without tax-advantaged strategies, you’re taking money right out of the hands of your descendants and handing it over to Uncle Sam. If you know anything about compound interest, you’ll understand exactly how negatively impactful that can be on generational wealth.
Diversifying your income streams allows many of the same benefits you can receive from diversifying your investment portfolio. If you have all of your eggs in one basket, you’re putting yourself at a much greater risk than if you’ve got them spread out in a bunch of different baskets.
No matter how stable your business or job seems now, we ultimately never know what’s going to happen in life. When you have a number of different income-producing endeavors, it means the sky doesn’t fall if something unexpected occurs.
Building wealth doesn’t do you much good if you spend it all on useless material objects. I’m not saying you should find yourself a nice spot in the nearest shanty-town, but I am definitely a big proponent of avoiding the trappings of consumerism.
In fact, I believe wholeheartedly in living a stealth wealth lifestyle. Not only does it keep you safe from spending your money on things you don’t need, but it also can be a valuable asset when it comes to protecting your wealth. To learn more about why you might want to keep your wealth a secret, check out my recent post on “stealth wealth”.
One of the most important steps you can take towards maintaining generational wealth is investing in your children. A lot of people assume that this mostly means sending their kids to college. While a college education might be the right choice for your kid, it is not the only way to obtain success in life and sometimes is an expensive derailment from the type of education that is most beneficial to sustainable generational wealth.
You are the one that can begin the cycle of generational wealth, and you can certainly set things up to avoid your children blowing their inheritance in one crazy year. That being said, without proper education about personal finance and wealth, your descendants will likely make costly mistakes and might even suffer from the afflictions that can come along with being rich.
Beyond teaching your kids about personal finance, you’ll also want to strive to give them the skills they need to grow into responsible, mature, competent, and capable adults. These essential tools are not something you should expect are taught in classrooms, and it takes deliberate effort on the part of the parent to create this outcome. If your children are growing up wealthy, you will likely need to work extra hard to help your children learn the lessons that you learned through the hardships you encountered on your way to success.
You don’t want to learn the hard way that even the most immense fortunes can be squandered quickly if you aren’t careful. Some of the most successful and wealthy people in history have filed for bankruptcy (Michael Jackson, Mike Tyson, and Nicolas Cage, to name a few.)
Even if you aren’t going on wild spending sprees, how much wealth you can tuck away for your kids has a lot to do with deliberating using wealth protection strategies.
Passing down generational wealth isn’t something you want to leave to chance. Let’s take a look at how exactly to pass down generational wealth.
One of the most essential pieces of the generational wealth puzzle is having an estate plan. Not only can it help to minimize or even eliminate estate taxes but it can also help set up safeguards against your hard-earned fortune disappearing due to a few crazy years of excess on the part of your progeny.
When creating an estate plan, it’s a good idea to work with financial professionals that can help you work out the best options for your particular circumstance. That being said, some aspects of estate planning include:
By creating a thorough estate plan, you can avoid a lot of drama and chaos after your death. The last thing you want is for the wealth you worked so hard for to tear your family apart.
It’s all too common for parents to not talk to their children about money and personal finance. This is a big mistake and can end up leaving your descendants unequipped to deal with the fortune they inherit. If you want to create wealth that lasts for generations, go out of your way to teach your kids how to build, grow, and manage money.
Life insurance can also be used to pass your wealth down. If you end up dying unexpectedly, your spouse and children have a safety net. On top of that, it’s an affordable tool you can use to build generational wealth that offers tax advantages.
There are some pretty dire statistics out there about generational wealth which you’ll definitely want to familiarize yourself with. Most notable, 70% of wealthy families are estimated to lose their wealth by the second generation. Even if your kids don’t blow your fortune, there’s a 90% chance that their children will.
While an issue like this is obviously complicated, one of the most common reasons that generational wealth is squandered is that inheriting generations didn’t have to work for the wealth they have. When you build wealth that can be passed down, you likely experienced a lot of hardships along the way that required discipline, hard work, and sacrifice to overcome.
The second generation might have the opportunity to see how hard their parents worked to build wealth and, even though life was easier for them financially, were still able to understand all of the hard work and sacrifice that went into creating the family fortune. They might have grown up in a fairly frugal environment and been able to learn from their parents about making smart financial decisions.
The third generation, however, is much farther away from the hard work and struggle that it took to build the wealth they benefit from. In this situation, it’s all too easy to assume that the family coffers are a bottomless pit of gold. These people really might not have any idea how to handle money or just how much effort went into creating it in the first place.
When you aim to build generational wealth, you likely aren’t hoping that your kids will grow up spoiled, out-of-touch, and extravagant. You probably particularly don’t want them to end up in a heartbreaking riches-to-rags story that involves a life of excess that results in bankruptcy and destitution.
Luckily, it doesn’t have to be that way.
There’s a common saying that is very appropriate to understanding how family wealth is lost only a few generations down the line. It refers to a cyclical pattern that can be broken down into four steps before looping back around to step number one:
Rinse, repeat.
To avoid this all-too-common sequence, you’re going to want to purposefully instill the value of struggle in your children. It’s natural to want to give your kids everything in life and never let them feel uncomfortable even for a moment. If you shield them from ever having to face hardships and struggle, though, you’re actually doing them a major disservice.
I’m not saying you need to drop your five-year-old on a desert island and send them off with just a pocket knife. Being put in a position to deal with a hardship that is too far out of your comfort zone can sometimes be just as damaging as never facing hardships at all.
The value of struggle can be learned in an incredibly diverse variety of ways– through sports, games, jobs, school, relationships, hobbies, business endeavors, and travel, just to name a few. The goal is to support or help facilitate challenging situations for your kids so that they can see the personal gain and growth that comes from struggle firsthand.
We think of struggle as negative, but it’s ultimately one of the most important ingredients to achieving personal growth and success.
“Strength does not come from winning. Your struggles develop your strengths. When you go through hardships and decide not to surrender, that is strength.” – Arnold Schwarzenegger
If you’re not yet convinced, let’s just take a look at a handful of some of the benefits of struggling:
I could go on and on. While too much struggle can obviously be devastating to an individual, you might be surprised just how resilient, strong, and capable your children are in the face of challenges. When your children learn the valuable lessons of struggling, mistakes, failure, and success, you’ll find that they are much better equipped for the “real world” when it’s time for them to go off on their own.
If you dump a cool $20 million in cash on your kids on their eighteenth birthday, there’s a good chance you’re playing with fire. Of course, how they handle this type of situation will have a lot to do with how much personal finance education they’ve had and whether or not they understand the value of money. However, even the most responsible person can start to act erratically when they see all those zeros in their bank account.
There are a lot of different ways you can go about creating criteria future generations need to meet before they have access to wealth. Some examples include:
The ability to pass money on to your children is something you should be truly proud of. That being said, it’s important that you don’t project the lessons you’ve learned onto your children and assume that they will be as diligent in building and maintaining wealth as you have been.
Of course, it’s generally not a good idea to use financial incentives to get your kids to be the way you want them to be. For example, if your kid has always wanted to run their own restaurant, it probably won’t go well if you only allow them to receive their inheritance if they graduate from medical school. You want your wealth to support future generations in their ability to achieve their goals and ambitions, not cause major personal and relationship issues in your family.
Sure, your kids don’t have to work or pay for any of their own stuff. If you just buy them everything they want without them having to do anything for it, it’s going to be hard for them to learn the value of money.
I don’t care if you have one trillion dollars in the bank– make your kid get a regular job. Even working at the local pizza place a few hours a week can go a long way in teaching your children priceless lessons.
Beyond your kids learning that money is something you receive through offering something of value to others, it’s important to teach them that pretty much everything costs money. It isn’t enough to constantly harp on your kids about how expensive their back-to-school wardrobe was or how much you spent sending them to private school. In order for them to really learn, they’ll have to use their own hard-earned money to make some meaningful purchases.
There are a lot of different ways you can go about this. You might have your kid be responsible for saving up and buying their first car, pay for their own clothes beyond the basic essentials, or let them foot the bill when they go to the movies with their friends.
Having financial wealth can offer a lot of opportunities in life, but it can also be a curse. Money is just a tool that can be used in positive and negative ways. At the end of the day, it’s going to be hard to prevent the downsides of generational wealth if your kids don’t understand that material objects and a luxury lifestyle don’t automatically result in a happy or satisfying life.
I’ve actually written at length about the fact that you need more than money to lead a meaningful life. Check out my article on the different types of wealth to learn more.
At this point, you’ve heard enough of what I have to say about generational wealth. Let’s check in with what some of the greatest (and, in some cases, wealthiest) minds throughout history have said about family fortunes and wealth in general.
“Wealth consists not in having great possessions, but in having few wants.” – Epictetus
“The poorest man I know is the man who has nothing but money.” – John D. Rockefeller
“We need to make a game out of earning money. There is so much good we can do with money. Without it, we are bound and shackled and our choices become limited.” — Bob Proctor
“Someone’s sitting in the shade today because someone planted a tree a long time ago.” – Warren Buffett
"Be careful to leave your sons well instructed rather than rich, for the hopes of the instructed are better than the wealth of the ignorant.” – Epictetus
“Industry, perserverance, and frugality make fortune yield.” – Benjamin Franklin
“The philosophy of the rich and the poor is this: the rich invest their money and spend what is left. The poor spend their money and invest what is left.” — Robert Kiyosaki
“The advantages of riches remains with him who procured them, not with the heir.” – Ralph Waldo Emerson
“Every person who invests in well-selected real estate in a growing section of a prosperous community adopts the surest and safest method of becoming independent, for real estate is the basis of wealth.” – Theodore Roosevelt
“Material abundance without character is the surest way to destruction.” – Thomas Jefferson
Building generational wealth is within reach for anyone that is seriously invested in systematic wealth building. That being said, you will need to employ the same thoughtfulness, hard work, diligence, and planning in passing your wealth on to future generations as you did in creating that wealth in the first place.
When you create a family fortune, you are giving your descendants a tremendous gift. However, if they don’t have a good head on their shoulders in relation to money, it honestly might do more harm than good. It’s therefore essential that you help your kids learn how to create and lead meaningful lives. A part of the toolkit you’ll want to pass on to them will be a thorough education in personal finance, but that simply isn’t enough if you don’t help them learn how the value of struggle, the power of a growth-oriented mindset, and the reality that you need more than money to lead a worthwhile life.
Every week I post a new article about wealth building to share some of the valuable lessons I’ve learned over the years. You can learn more about me and my projects here.
According to a number of recent studies, an increase in income can actually lead to more stress and less happiness. Winning the lottery doesn’t appear to create the perfect life any more predictably than earning a higher salary, either. In fact, getting rich quick can leave people suffering from something called sudden wealth syndrome.
Before you start playing the world’s smallest violin for people out of feigned sympathy, you might want to consider the negative ways that a windfall could impact your life.
Why would someone who won a $315 million lottery have been quoted as saying “I wish that we had torn the ticket up”? The reason is that, for all the problems that money can solve, it is also very capable of creating a lot of new ones that are hard to even imagine before it happens to you.
Sudden wealth syndrome is a psychological condition (though not technically a psychological diagnosis) that can happen when someone comes into a large sum of money in a short period of time.
While many of us assume that having a surprise windfall would be the best thing that could ever happen, there are a number of potentially negative side effects that you should be aware of. A big influx of cash or assets can be shocking even when you’ve been expecting it, but it can really shake up your world if you had no idea that the wealth was heading your way.
When you have access to wealth all of a sudden, it can create a bunch of overwhelming pressures in your life. Even the most level-headed person can start making decisions they normally wouldn’t when their bank account blooms overnight, and it’s hard to anticipate how you would act if your net worth suddenly puts you in the “rich” category.
You might think that a ton of money is the answer to all of your problems. In reality, though, it can lead to extreme psychological outcomes like:
Understanding sudden wealth syndrome is essential for anyone who is working to build wealth. While some people might have a hard time feeling sympathy for someone that has money to burn, you never know with certainty how you would react to a windfall unless it happened to you.
A quick trip on the rags-to-riches roller-coaster can leave you experiencing a tremendous amount of stress and other negative psychological symptoms. It’s one thing to steadily and systematically build wealth over many decades, where you have time to adjust to your increasing net worth in small bites. Of course, people who get rich slowly can certainly fall prey to the same side effects as people who receive a windfall, but it’s particularly notable when a fortune is received in a short period of time.
Whether you know an inheritance is on its way, you expect that your side hustle might blow up and make you rich, or you have no expectation of experiencing sudden wealth, it’s a good idea to familiarize yourself with the potential symptoms of sudden wealth syndrome.
Guilt is often described as a self-conscious emotion because it involves self-reflection. In its healthiest iteration, guilt can help us learn to not repeat mistakes we’ve made. However, it’s all too common for people to feel guilty in ways that are out of proportion to the supposed error or are even completely disconnected from any actual harm to themselves or others.
This is the case with the guilt that comes along with sudden wealth syndrome.
There are a lot of reasons why you might feel guilty after a windfall. One familiar example is if you received an inheritance after the death of a loved one. This can create mixed emotions, such as feeling like you can’t be happy to have the money because that would imply that you’re glad your relative passed away.
People who come into wealth suddenly can also feel guilty because they don’t believe they deserve the money. They look around and see other people that seem to be working harder or that appear to need the money more. Why did you get rich all of a sudden, while these other people that are seemingly more worthy of a windfall have to keep struggling? This is particularly common for people who grew up poor, but it can happen to people of all tax brackets.
There’s also a pervasive cultural concept that money is bad and so are people who have it. Someone who was wandering around complaining about the 1% just a few months ago might be overcome with incredible guilt when they find themselves a lot closer to that category.
What would you do if you found out you were about to receive an inheritance of $100k? How about $500k? What about $5 million?
Your first instinct might be to celebrate. After all, why wouldn’t you call your buddies, your parents, and your girlfriend of six months to tell them the good news? Heck, you’re rich now– it’s time to party!
Unfortunately, money can complicate even the strongest relationships, and the actual emotions you experience might be a lot different if you experienced a windfall than you think they would be.
Coming into a lot of money all of a sudden can compel people to isolate themselves from the people they know. Because getting a bunch of money can trigger a lot of self-critical emotions, you might separate yourself from others due to depressive moods or other unpleasant mental states.
If the people in your social circle aren’t well off, you might feel uncomfortable being around them with your new wealth and lifestyle. Similarly, your friends and family might create separation through envy, resentment, or jealousy.
Sudden wealth can, in short, leave you feeling really alone.
If isolation as a symptom of sudden wealth syndrome doesn’t make you nervous, perhaps this one will. Becoming rich all of a sudden can lead to paranoia in its own right, but paranoia can also result from social isolation.
People who suffer from SWS might worry, for example, that their fortune will disappear as quickly as it showed up. They also might become paranoid in regard to their relationships. The changing dynamic of their social world can create paranoia– whether their fears are real or imagined, the newly rich person might feel that their friends and family members are always trying to get a piece of the action.
Both paranoia and isolation can lead to a number of other health issues, such as insomnia, depression, or anxiety disorders.
Receiving a windfall can also leave you in a state of shock. Even if the money can seriously change your life for the better– allowing you to get out of debt, start saving for retirement, invest in new business ideas, and follow your dreams, the experience of getting a bunch of money can be shocking on just about every level.
Becoming suddenly rich can leave you feeling paralyzed. You might not have the slightest idea what to do with the money. Even the smallest spending decisions can become completely overwhelming.
Feeling numb from sudden wealth often results, at least in part, from being emotionally unprepared for all the changes that money can create. Things like the new lifestyle you can afford, increased responsibility, and the ways money changes your relationship can leave you feel shocked and dissociated.
You could also find yourself ridden with feelings of confusion and uncertainty. Regardless of how good your new wealth could be for you and your family, it’s can be downright impossible to wrap your mind around.
How you respond to a sudden fortune can depend on your background. If you grew up in a wealthy family but didn’t have access to much money until your recent windfall, you might have a place to put the experience in your mind. However, if you grew up in a family that was always living paycheck-to-paycheck, the realities of wealth might be so new and unknown that you end up resorting to self-destructive coping mechanisms.
People afflicted with SWS might start spending money excessively, make financial promises to their friends and family, or make risky investments. This, of course, can happen to people who grew up in wealthy families as well. Regardless of background, and influx of charities and other organizations giving you their attention can leave you feeling suspicious and paralyzed.
As you might imagine from all of the symptoms we’ve discussed so far, increased anxiety or even panic attacks can result from the sudden change of becoming wealthy. All of these potential psychological consequences of an overnight fortune are deeply interconnected and interrelated. For example, anxiety about the money vanishing could lead to social isolation and paranoia, or the shock of being rich can start making even the most level-headed person anxious.
Panic attacks occur when a person is overcome with unreasonable feelings of anxiety and fear that manifest themselves in physical symptoms like fast breathing, a racing heart, and excessive sweating. If you’re truly overwhelmed by your new wealth and don’t know what to do, you can also find yourself experiencing these intense waves of fear.
A play on the phrase sticker shock, ticker shock refers to a state where a person watches the stock market obsessively and experiences cycles of anxiety and depression in response to market volatility. If you invested your windfall in the stock market (or made your money that way,) it’s a little too easy to be constantly checking in on your investments.
No matter how much money you have, it’s important to never exceed your risk tolerance when investing. If you invest money that you can’t afford to lose, you’ll find yourself flinching every time there’s a slight dip in the market.
All of these other symptoms can leave you suffering from insomnia or other sleep problems. You’d think that being rich would mean you can sleep like a baby every night, but all of the new responsibilities and other related issues can leave you staring at the ceiling until the wee hours of the morning.
One of the most drastic symptoms of sudden wealth syndrome is the potential it creates for an identity crisis.
I dealt with this myself when I went from being broke and in debt to a multi-millionaire over the course of eighteen months. Even though I’d been putting my all into the projects I was working on, I was left in a state of deep confusion about who I was when one of them actually panned out in a big way.
While we might not realize it, we tend to factor our financial situation into our sense of identity. On top of that, humans typically settle into a comfort zone where they can feel in control and everything is familiar.
When you get rich quickly, it can make you question who you are and what matters to you. If it was a part of your identity that you’re working class, for example, what does it mean about who you are when your bank account says otherwise?
Even though everyone thinks they want more money than they have, having your net worth skyrocket can put you way out of your comfort zone. This can be incredibly stressful, confusing, and overwhelming.
You might think that you’d be clicking your heels and shouting from the rooftops if you got news of a $10 million inheritance, but it’s actually not that uncommon for sudden wealth to leave people with feelings of depression.
This might appear on its own or it can result from guilt, isolation, paranoia, anxiety, or any of the other symptoms of SWS.
We’ll talk about why rich people can get depressed a little later in the article. But, in short, receiving a ton of money can actually leave people feeling empty and low energy. This might be for a number of reasons, including the realization that money simply can’t fix all your problems or provide meaning in life on its own.
Money can make people start acting strange. Even if you manage to keep your cool after striking it rich, unfortunately, your friends, family, and coworkers might not be as emotionally mature.
Sudden wealth can make you isolate yourself from others, make others isolate themselves from you, or both. You might find your best friend is all of a sudden so envious of you that your relationship falls apart. Your mother might demand that you give her a chunk of your winnings. Childhood friends can start coming out of the woodwork with sob stories about medical bills and sick kids.
It really is sad but true. The reality is that an experience like this can teach you who your true friends are. That can be a pretty hard pill to swallow if you come to find that you have a lot fewer friends than you used to think.
Similarly, it can make you suspect of every new person you meet. This is particularly the case if your wealth is known to the general public.
Let’s say, for example, that you made a killing trading crypto. You didn’t think to hide this about yourself, and you jumped at the opportunity to be interviewed about your new fortune for stories that appear in the Wall Street Journal, Buzzfeed, and on NPR. In your hometown, news travels fast and everyone from your high school drama teacher to your middle school girlfriend now knows that you’re a multi-millionaire.
Maybe the attention feels good for a while, but chances are you’ll start wondering whether your popularity is resulting from the fact that everyone is hoping for a handout. You might get tangled up in the dangerous gray area between reasonable and unreasonable paranoia.
As you can see, there are a lot of ways that getting wealthy can mess up the relationships you already have in life and jeopardize your ability to make new relationships in the future.
So, now that we know what can happen to people who become suddenly wealthy, let’s take a look at some of the most common ways that a regular Joe can find themselves with deep pockets practically overnight. Remember, there are many types of wealth, but the type we're talking about here is purely financial wealth.
Even if you know that an inheritance is coming down the road, it can still be hard to grasp how it’s going to change your life if you don’t consider it carefully ahead of time. Sometimes, individuals might receive news of an inheritance that they had no idea about, which makes them ripe candidates for the symptoms of SWS.
People talk about winning the lottery as if it would solve all of their problems and change their lives for the better. However, the actual experience can be so shocking for a person that is unprepared for wealth that it can lead to a number of horrible consequences.
There are a lot of examples of lottery winners whose lives seemed to take a turn for the worse as soon as they became rich.
Take Billy Bob Harrell Jr., for example. He won $31 million dollars from the Texas Jackpot after unsuccessfully attempting to become a minister. With his winnings, he helped out his family, his church, and his parishioners. No matter how much money he gave, though, people always seemed to be asking for more.
His family life fell apart as well, with the constant demands plus some bad investments eventually leading to divorce and general family turmoil.
“Winning the lottery was the worst thing that ever happened to me.” – Billy Bob Harrell Jr.
Sadly, less than two years after Harrell had become a multi-millionaire, he committed suicide.
You can spend hours going down the rabbit hole of the sometimes tragic lives of lottery winners. If you’re interested in learning more about how destructive sudden wealth syndrome can be, there are, unfortunately, countless extreme examples out there.
The median salary for all NFL players is $860,000, which is a pretty healthy income if you ask me. For the biggest names in the game, players can receive contracts that include yearly salaries in the tens of millions of dollars.
You’d expect that, from these numbers, NFL players would be set for life.
However, statistics suggest that, within just two years of retirement, 78% of NFL players fall into severe financial distress or go bankrupt.
You can find examples of this same type of situation in the world of celebrity as a whole. People as rich and successful as Michael Jackson, Nicolas Cage, Mike Tyson, and Kim Basinger have had to file for bankruptcy.
When people start making huge amounts of money every year, it can leave them with the expectation that their bank account is bottomless. They can lose site of smart money management and fall into self-destructive (and sometimes very expensive) habits.
Other types of gambling beyond playing the lottery can also leave people with more money than they know what to do with. This is also a particularly dangerous way to become suddenly wealthy, because people can end up putting their money back into games where the odds are against them.
Sometimes people can end up with a big chunk of cash if they’ve sued someone for medical malpractice, wrongful death, or some other legal proceeding. Unfortunately, a lot of people aren’t aware of the necessary steps that should be taken to manage and protect wealth, and suffer from the symptoms of sudden wealth syndrome when they get a big payout from a lawsuit.
Whether you take investing very seriously or you engage in r/wallstreetbets style gambling, having a big win in the stock market or crypto can change your life incredibly fast. Take a look at this story from the New York Post, for example, about people who’re rich thanks to crypto. While I hope everything works out for these new millionaires, getting rich from crypto or stocks doesn’t always go well in the long run.
Of course, the symptoms of sudden wealth syndrome shouldn’t be enough to keep you from trying to systematically build wealth. However, you should learn how to avoid SWS so you don’t become another tragic story recounted on a blog.
If you come into a bunch of money, the first thing you should do is nothing.
Before you buy a new house, pay off your parents debt, or put it all into a risky investment, slow down. I mean way down.
The most important thing is to avoid making quick decisions. All those zeroes can do weird things to your brain, and even the most level-headed person can start acting erratically with new-found wealth. Put the money somewhere safe (like an insured savings account, for example) and don’t touch it until you’ve created a solid plan.
I get it. You’ve struck it rich and you want to tell everyone you know. It’s essential that you resist this urge and keep it to yourself as much as possible.
If you don’t, your friends, family, and colleagues might start acting differently when they learn you’re rich. Whether they’re giving you investing tips, asking for money, or just acting strange, letting people know about your wealth can cause a lot of problems. If you do tell the people in your inner circle about your windfall, make sure you can trust them and be sure to set clear boundaries.
Instead of telling your coworkers about your major gains, talk to an experienced financial planner. They’ll help you make a plan that protects your wealth.
To learn more about how to keep your wealth a secret, check out this article on stealth wealth.
Sometimes you can’t plan ahead for sudden wealth, but in other instances, (like an inheritance you know about,) you can. Regardless of whether or not you were able to prepare for your fortune, if you slow down and keep it quiet, you can make a plan with the help of a financial advisor.
Make sure you are keeping the big picture in mind when you make a long-term plan. Your windfall could change your life for the better if you’re smart about it, but it could also vanish if you have too narrow of a focus on how the money changes your life right now.
Discipline is key for navigating the obstacles of sudden wealth. Work on being self-aware (i.e. keep an eye on ideas that crop up about impulsive purchases or risky investments) and don’t do anything until you make a solid plan.
Once you create a plan, trust it. Don’t stray from it unless you have a very good reason to and it supports your long-term purposes.
This one is simple. If you get a windfall and you don’t have any experience as an investor, now isn’t the time to learn just how risky it can be. Don’t let your coworker talk you into putting your money into the latest meme stock– while it could work out, it could also leave you right back where you started.
Depending on how you made your money, you’re likely going to need to give some of it to Uncle Sam. You’ll want to learn about how your new fortune will be taxed so you can make sure you can foot the bill when it comes time to pay.
Regardless of whether or not you ever strike it rich overnight, educating yourself about personal finance is never a bad idea. The more you know about managing money, the more prepared you’ll be if you end up with a ton of it.
When you don’t have any money, it can feel like being rich would make all your troubles go away. If that was really the case, though, why are some rich people depressed?
There are a lot of different reasons for this, but a big one is that money is just a means and not an end in itself. While it can seriously expand your options in life, money alone won’t make life meaningful.
Having money can also lead you to:
Being rich can also leave people struggling with boredom and purposelessness. A regular person doesn’t have to question why they get out of bed and go to work in the morning– they have to in order to support themselves. For multi-millionaires or billionaires, though, motivation and purpose is necessary beyond putting food on the table.
Even though being short on cash can create a lot of tension in the family, having a high net worth isn’t necessarily a walk in the park either. Building generational wealth can be a blessing or a curse depending on how you navigate the situation, and the family turmoil it can lead to can certainly contribute to depression and other mood issues.
Then there’s also the treadmill effect to consider. Some people get caught in a cycle where the more the make, the more they spend. They are victims of lifestyle creep and rather than money being the solution to all their problems, it actually leaves them with a more complicated life.
A few of the other reasons that rich people can be depressed include:
Wealth guilt can come in a number of different forms. These include:
If you receive a windfall, you don’t have to fall prey to Sudden Wealth Syndrome. Here are some tips to help stay stable, sane, happy, and healthy in the face of sudden wealth:
Getting rich quickly can be really overwhelming, and I know that from first hand experience. If your net worth has dramatically increased and you’re feeling like you’re in over your head, feel free to reach out and I’d be happy to give you some pointers. Don’t worry, I don’t have an angle here and I’m not trying to sell you anything. I’m just all too aware of how isolating it can feel to jump up a few tax brackets practically overnight.
Simply understanding the potential pitfalls of sudden wealth can go a long way in avoiding the risks associated with a windfall. I feel motivated to share what I’ve learned over the years in the hopes that others will be able to avoid the mistakes that I made along the way.
Who am I to be telling you how to deal with a big influx of cash, anyway? You can learn more about me and my projects here.
When you’re dreaming of getting rich, it’s easy to overlook the downsides of having money. One major risk of having a high net worth is that, once people know you’ve got money in the bank, they’ll try and take it from you. For this reason, wealth protection strategies are essential for anyone who is practicing systematic wealth building.
Are you wondering how to protect your wealth from lawsuits and predators? Are you concerned that once you finally “make it,” you won’t ever be able to relax and fully enjoy the fruits of your labor?
Don’t worry. It really is possible to be rich and have peace of mind. To do so, you’ll likely use a collection of wealth protection strategies to reduce the risk of being sued, having your income stream dry up, or otherwise having your assets dramatically drop in value.
At the end of the day, the more assets you have, the more strategic you’ll have to be to protect what is yours. Let’s dive in and take a look at what I’ve learned over the years about the best ways to protect wealth.
Asset protection refers to various strategies you can adopt to protect your wealth and property from creditors, lawsuits, and predators. You can practice asset protection strategies both at the individual level and for any business entities you operate.
If you’re new to the world of asset protection, the whole thing might sound paranoid to you. After all, who’s going to try and take your money?
Unfortunately, the more wealth you have, the more you can expect that others will try and get a piece of the action. Asset protection should be an essential tool in everyone’s financial planning. When you practice asset protection, you can enjoy the benefits of:
You might think that asset protection strategies are only for the mega-rich. Honestly, though, if you have any assets to your name and plan on building wealth over time, it’s never too soon to start protecting your wealth.
Before we get into the specifics of how to protect your wealth, let’s start with why your wealth is at risk in the first place. I want to mention first and foremost that you should not assume that you are safe from lawsuits and accusations against you because you do everything by the book and aren’t engaged in any shady business. The reality is that people can and do make frivolous, baseless lawsuits. Even if they won’t win, it can still cost you a lot in legal fees, time, bad press, and stress.
If you’re a business owner, you probably already know that there are potential pitfalls and risks just about everywhere you turn. That being said, let's take a look at some of the risks you face when you operate and own your company or work as a business professional:
Again, you don’t have to actually be at fault for predatory people to make these sorts of claims against you. If you don’t have your business and personal finances separated, you might find that your personal assets are at stake when someone comes after you professionally.
Even if you’re retired or generally not concerned about your professional liability, you’ll still want to consider the ways that your personal wealth is at risk:
I’ve said it before, but it’s worth repeating: the more money you have, the more likely it is that predatory people will try and take it from you. The scent of money can make people do strange things, and the apologetic person that was obviously at fault in a car accident might start to sing a different tune when they realize who you are or how rich you are. You can’t necessarily completely avoid these risks in life, but you can set yourself up with wealth protection strategies that make it so your money isn’t unguarded from opportunistic parties.
Now that we’ve looked at why you need to protect your wealth, let’s dig in to the how.
I'm a big believer in the fact that, while money is an incredibly powerful tool, it isn't the only thing that matters. Check out my complete guide to the different types of wealth you need for a meaningful and fulfilling life.
John D. Rockefeller once famously gave the advice that you should “Own nothing. Control everything.” This is an oft repeated quote in the world of asset protection and the offshore industry, promoting the idea that no one can take something from you if you don’t own it.
While it might make the purchasing process a bit more complicated, ensuring that none of your assets are owned in your name can provide serious wealth protection. You also might choose to retitle the assets you already own so that they can’t be taken from you in the case of a legal dispute. Some people also choose (in certain states where it’s advantageous to do so) to title their assets as tenants-by-the-entirety with a spouse.
Depending on the state you live in, your home equity might be safe from creditors through homestead protection. However, how much protection you really have is going to vary a great deal depending on which state you’re in.
There isn’t one go-to strategy for avoiding owning your assets outright in your own name. Here are some of the ways that wealthy people control their assets without technically owning them:
An additional benefit of avoiding owning anything in your own name is the anonymity it provides. If you purchase property with a trust or an LLC, (which, by the way, is definitely more complicated and involved than buying a house as an individual,) you don’t have to worry about the fact that your family’s home address is a part of the public record.
Are you an entrepreneur?
If so, you’ll definitely want to separate your personal assets from the assets, debts, and liabilities of your business sooner rather than later. LLCs are a popular method for a number of reasons, one of the primary of which is that creditors can’t go after an LLC owner’s personal assets in the event of the company going under or a lawsuit. Unless you act in a way that leaves a court feeling justified to pierce the corporate veil, the only assets at risk if your business is sued or creditors pursue it are those that are invested in the business itself.
Depending on the state you live in, you might be able to put some of your assets into a trust that creditors can’t access. However, this isn’t something you should try and start doing when you feel like a lawsuit is imminent. Creating trusts for your assets is something that you’ll want to do years in advance of any judgments or unpaid debts.
There are a lot of different types of trusts out there, and determining which ones are right for you should be a part of your larger estate planning efforts. Some of the types of trusts that might be applicable in your asset protection include:
In any case, I could go on. The short story is that trusts can be a valuable tool in your asset protection strategy, but they’re also pretty complicated and not something to mess around with lightly. It’s generally a good idea to work with a knowledgeable attorney who can make recommendations based on your specific circumstances.
When the name of the game is asset protection, your arsenal should be loaded with insurance, insurance, and more insurance. This is the first line of defense against liability, so this isn’t where you want to try and cut corners.
You should periodically make sure that your policy limits are in line with your current net worth and assets for insurance to serve as an effective method of asset protection. Depending on your situation, here are some of the types of insurance you might want to have protecting you at all times:
It’s also worth understanding deposit and securities insurance. For example, up to $250,000 per depositor, per bank, and per “ownership category” is insured by the Federal Deposit Insurance Corporation (FDIC) for member banks. Using this in your favor can ensure that your money in individual accounts, joint accounts, trust accounts, IRAs, and more is protected to the fullest extent.
No matter what you’re investing in, it’s never possible to completely avoid risk. After all, even if you hide your money under the mattress, it’s just going to get demolished by inflation over time.
That being said, there are ways you can significantly reduce your risk when investing. One of the common tactics used to help preserve your capital is by diversifying your investments.
The more diversified your investments are, the less impacted your portfolio will be by market anomalies. To protect your assets from unexpected events, some of the asset classes you might consider investing in (after thorough due diligence, of course,) include:
In short, you want to invest in several different asset classes and sectors that typically react differently to various types of events. If you’re not diversified, you might not even realize how much risk you’re taking on until something catastrophic wipes out your principal. For example, imagine if you were months away from retirement with all of your capital invested in tech stocks when the dot-com bubble burst. Ouch.
Another important step you can take to protect your wealth is to diversify your business income. As they say, don’t put all your eggs in one basket.
If you have a stable, high-income W-2 job, you might think this doesn’t apply to you. However, diversifying your business income is just as important for 9-5 workers as it is for entrepreneurs.
When you have several different sources of income, it can act as a hedge against income loss, provide stability, and help you systematically build wealth. In these arguably uncertain economic times, having several different irons in the fire can also help to keep you financially agile.
If something catastrophic happens, diversifying your income can mean you don’t have to go down with the ship. If everything continues chugging along as planned, having several sources of income can have a huge impact on your ability to build wealth and fund your retirement.
Diversifying your income is an important strategy that keeps the long-game in mind. Even the most successful companies can lose relevancy and go under, and even the healthiest income streams can dry up over time.
Lastly, having a number of different sources of income can help keep life interesting! It can keep you on your toes, keep you engaged, and help avoid the all-to-common disease of complacency.
Related to the need to diversify your business income, diversifying your skills can also go a long way in protecting your wealth.
In Stoic philosophy, one of the main principles is that some things in life are in your control and some things aren’t. Your main task is to distinguish the difference between these two camps. Once you’ve done that, you can work to accept the things you can’t control and focus your energy towards the things that you can control.
Unless you are one of the elite group of people in the world that have the power to directly affect change at a global scale, you likely can’t control what happens economically, politically, or geopolitically. You don’t have the power to start wars or end wars and you don’t have the power to impact the housing market in a meaningful way.
What you can control, though, is what you do. You can control the skills you choose to master.
When you have a diversity of skills, it means that you are all the more able to pivot in the face of unexpected life events or global occurrences. Mastering a variety of skills doesn’t just mean you might have the right skills to call upon in the face of a crisis, but it also means you’ll be more equipped to gain new skills when necessary. If you are constantly pushing yourself to travel beyond your comfort zone and learn new things, you’ll be able to hop back on your horse a lot faster when you get knocked off.
If you’re not convinced yet, let me also just say that building a diversity of skills also helps to keep you engaged and fully alive. It’s easy to go to your 9-5 everyday and let the days slip by without ever pushing yourself to become more. When you invest in your skills, you’ll find it helps to produce a zest for life you might have thought automatically disappears once you reach adulthood.
As you start building your net worth, one thing you’ll want to understand is that the odds of getting hit with lawsuits starts increasing exponentially the more money you have. If it’s common knowledge that you’re doing well financially, the sad reality is that there’s a good chance people will start coming out of the woodwork to try and get a piece of the action.
Don’t assume that you can avoid this outcome by obsessively doing everything by the books, being incredibly charitable with your wealth, and never uttering a harsh word to another soul. It is not beyond predatory people to make frivolous, baseless lawsuits against someone they know has some money in the bank.
For this reason, you’ll want to build an aggressive team that you can call upon at any time to vigorously defend your interests. If someone files a lawsuit against you, no matter how vulnerable you are in reality, you should never be afraid to bristle when someone threatens legal action against you.
In fact, the more vulnerable you are, the more you should fight to look less vulnerable. When someone is threatening to sue you, they are declaring war. In these instances, you’ll want to follow the advice outlined in one of the most influential strategy texts of all time, the Art of War:
“All warfare is based on deception. Hence, when we are able to attack, we must seem unable; when using our forces, we must appear inactive; when we are near, we must make the enemy believe we are far away; when far away, we must make him believe we are near.” - Sun Tzu
This isn’t the time to play nice– the more aggressive you are against legal attacks, the clearer you make it that you’re willing to put up a fight. Lawsuits are expensive, and when you start beating your chest like a silverback (metaphorically, of course), it makes it clear that it’s going to be costly to try and take you down.
The goal here is to never appear vulnerable. Asset protection can go a long way in creating that appearance. If you have bombproof asset protection strategies in place (like utilizing management companies to keep your holding companies cash free, avoiding owning anything in your name, and being willing to contest every tiny legal detail,) lawyers will see that the legal battle likely isn’t worth fighting. Through aggressive asset protection and an even more aggressive legal stance, you can swat away anyone that even thinks about opportunistically taking your money.
It would be nice if we lived in a world where you could run around making verbal contracts and assume everything will work out alright. In reality, approaching life, business, and other people that way is probably going to burn you pretty quick.
If you’re constantly saying “I’ll take your word for it,” you’ll learn this the hard way. If you’d like to avoid this, always act from the assumption that it’s best to get everything in writing.
You likely understand the importance of contracts when it comes to business deals, real estate deals, and legal matters. (If you don’t, now is the time to start.) But getting everything in writing can also refer to things that you might not think are that important. Creating a paper trail helps to provide certainty in just about every situation for everyone involved, even if you’re not worried about there being any malicious intent.
Prenups often get a bad rap, but they are an absolutely essential tool for anyone that wants to protect their wealth. When you and your soon-to-be spouse create a thoughtful prenup together, it can help to protect both of your interests in the case of separation, divorce, or death.
However, a prenup really isn’t just a laundry list of who gets what if the marriage doesn’t work out. It can also be a way for you and your fiance to create a financial plan for married life that will actually help to avoid arguments over money and finances down the road. On top of that, it can be an important exercise before marriage to make sure that the two of you are fundamentally on the same page when it comes to wealth building and protection.
In the event that you and your spouse get divorced or one of you passes away, a prenup is a document that lets the two of you stay in control of what happens to your assets. This can save a lot of headache, drama, and stress down the road. In general, you’ll be in a much better position to make level-headed decisions about asset distribution when you aren’t actively embroiled in a divorce or grieving the death of a spouse.
You might not like this one, but the reality is that one of the best ways you can protect your wealth is by building more. Though it’s not the cheeriest news, the truth is that the more you earn, the more you can afford to pay for safety. This is an inherent part of living in a scarce-resource universe– resources allow you to have more options and more security, regardless of whether you’re talking about financial, personal, or political resources.
The more wealth you have, the more peace of mind you can buy. If you’ve ever stressed about money– and let’s be real, we all have– you know just how priceless the ability to relax really is.
On top of that, building more wealth is the most reliable path to having the freedom over what you do. The more money you have, the more ability you have to protect the most valuable asset to your name: your time.
The point of getting rich isn’t so you can spend your days cackling and counting your cash. The point is to allow you to engage with life in meaningful, purpose-driven ways. If you’ve ever lived paycheck to paycheck, you know just how impossible it can be to pursue your life goals when you’re scraping together pennies to fix your car or pay your rent.
What’s one of the best ways that you can protect your wealth from lawsuits and predators? Easy. Don’t let anyone know you’re rich.
For an in depth look at the concept of keeping your wealth a secret, check out my article on stealth wealth here. There are a lot of benefits to practicing a stealth wealth lifestyle, one of which is helping you avoid frivolous, baseless lawsuits from people who have nothing better to do than try and take your money.
When you don’t advertise that you’re wealthy through your home, car, clothes, and Instagram account, opportunistic predators will look right past you. Similarly, you can avoid the whole uncomfortable experience of second-cousins-once-removed and friends from the second grade calling up out of the blue to see if they can squeeze you for some cash.
While researching and putting in place asset protection strategies might not be everyone's idea of a good time, it’s absolutely essential to hedging against future financial disaster. On top of that, you’ll find that once you know your wealth is protected, you sleep a lot better at night.
If you’re as passionate about wealth building as I am, you’re likely also passionate about protecting your wealth from lawsuits, predators, and unexpected events of any kind.
Are you wondering why you should take my advice when it comes to something as important as asset and wealth protection strategies? You can learn more about me and my projects here.
I’m a buyer of gold and silver, but I take a different approach than most metals investors.
I don’t predict soaring gold prices - even while I buy more gold and silver every single week.
In fact, while I was acquiring large quantities of precious metals, I wrote a much-ridiculed article expressing caution over gold prices - at the peak of the gold bull market.
While everyone else was drunk on perpetually increasing gold prices, I wrote that gold was ‘expensive’ and would ‘likely’ drop ‘dramatically’ in price. Even more provocatively, I published the article on a popular Austrian economics website, which was rabidly pro-gold.
But I got the last laugh, not because I’m some kind of Nostradamus, but because following cautious, conservative principles works, over time.
Whenever you see someone who makes radical predictions be on the lookout.
Radical predictions are a byproduct of radicalism, and radicalism does not work. Just ask the people who lost their savings with bitcoin, the tech bubble of the late 1990s, real estate in 2007, and pretty much every other bubble in history.
The universe rewards conservatives, both politically and economically.
Conservatism is more than just a partisan buzzword. It’s a strategic philosophy that emphasizes caution, skepticism, realism, and historical patterns. Conservative investors are nearly always going to outperform penny stock investors, bitcoin speculators, and pretty much anyone else who is trying to get rich by gambling on a dramatic prediction.
In 2011, when gold prices peaked, I wrote an article for the Mises Institute of Canada, explaining that gold was expensive and that it was likely that the market would “dramatically overcorrect, meaning gold will essentially become cheap again.”
The price of gold peaked… that week. And it’s been dropping pretty much ever since.
If you look at the comments on the article, you’ll see a collection of people who were confused. They let their oversimplified libertarian radicalism cloud their ability to understand gold - and they believed that the only possible direction for gold prices was up.
That said, I did NOT predict the crash with any kind of time frame. I also didn’t say it was inevitable - just that it was “more likely” that it would “probably dramatically overcorrect.”
The reason I emphasize this is that while I’ve made a lot of money in my life being right about niches and markets, I never assume that something must happen. Predictions are for suckers.
The future is largely unpredictable, at least at any level beyond vague trends. This means that finding opportunity means more than looking for the most obvious play.
Just because we can identify major trends doesn’t mean we can translate that knowledge into actionable specifics. Life isn’t that simple.
As John Maynard Keynes once wrote, “The market can remain irrational longer than you can remain solvent.”
Conservatism isn’t about fearing radicalism. It’s simply recognizing that the universe is a fuzzy, difficult-to-understand place. Good strategy requires a healthy dose of humility and realism.
When it comes to building wealth and taking part in long-term trends, here’s how to do it:
How does gold fit in to this? Gold shouldn’t really be seen as an investment. It should be seen as an insurance policy that, if everything goes well, will lose money over time. It’s like buying a life insurance policy on a family member - you don’t win if you make money. It means something horrific occured. If gold becomes the best asset I own, it means that hell has been unleashed.
Bonus: Follow the clipper-ship strategy. I’ll be writing more about this in the future. It’s one of the most powerful ways to make money in nearly any market. Rather than trying to strike gold during a gold rush, you sell shovels to the miners.
Conservative strategy is good strategy.
When you make the right decisions, you don’t have to look for radical predictions to gamble on - you don't need the gamble at all. Cautious, skeptical, humble strategies always win out over time.
Because I use dollar-cost averaging and have a diversified portfolio and a high rate of savings, I’m unlikely to find myself in the desperate position of being close to retirement age and gambling on penny stocks because I didn’t save enough and am looking for a big payout to make up for lost time.
Legendary corporate strategist Michael Porter wrote: “The essence of strategy is choosing what not to do.”
But how do you make the right choices? Ultimately, it’s all about your mental framework. Making caution an important part of your investing strategy focuses your attention on what not to do.
That makes all the difference.
It's tempting to see a major drop in the stock market and believe that you have enough information to make a fast profit.
Right before I started writing this article, the stock market dropped well over 4%, leading to social media exploding with small-time investors saying things like, "Buy the dip!"
It sounds like sound advice. If anything, it almost sounds obvious.
After all, if you buy when stocks dip, that should, if you're guesstimating things correctly, mean that you're getting stocks just like normal over time - but at a slightly better deal.
This makes you more money, right? If stocks were a good investment yesterday, and today they're 4% cheaper, then you're just grabbing a 4% better deal, right?
Not quite.
In fact, this tempting approach is statistically more likely to cost you than earn extra. In fact, since investors started saying "buy the dip", stocks are down another 4% - and we could be on the verge of a substantial correction.
Fundamentally, "buy the dip" is a bad strategy based on an economic illusion.
As they say, "If it's too good to be true..."
"Buy the dip" has a lot of built-in assumptions that you can't statistically assume over time without getting seriously burned.
Let's break them down:
The ideas discussed immediately above are the basic assumptions of the "buy the dip" strategy. They might seem innocent but they can literally wipe out decades of savings because of several extremely important economic principles.
Let's look at the main principle that shatters these bad assumptions: the efficient market hypothesis.
Even if you find this to be mind-numbingly boring (most people would agree that it is), if you have any desire to save for retirement or find almost any level of financial independence, it's an idea you need to understand as much as possible.
This is the kind of financial and economic concept that every high-school student and college student should be deeply familiar with before they graduate. As I've written before, teaching financial concepts like this would change society completely. Unfortunately, the ideas are largely ignored.
Think of articles like this as the broccoli of self-help content. They're not fun to consume but you'll be better off if you do.
So grab a cup of coffee or tea, read the article, and feel free to contact me to discuss it further - or browse around the Internet to read some more. It's important and about way more than just "buy the dip" analysis.
Let's back up a bit.
To understand why you can't beat the market with tactics like the ones discussed above, we need to understand a concept called the "efficient market hypothesis (EMH)."
Effectively, the efficient market hypothesis (EMH) is the idea that asset prices fully "account" for all "known" information.
Without getting lost in the weeds, the hypothesis claims that, roughly, the market is already accounting for everything we know about the market.
In other words, if you think a downturn is coming, the market is already priced for what it believes is the likelihood of one - so gambling on a future bear market will probably not make money, because the market has already accounted for that prediction as well.
There's a reason Google is priced higher than a failing grocery store chain. The market is already pricing in the gamble that Google has better long-term growth likelihood than the failing grocery chain, to put it simply.
This notion of the market already pricing predictions is confusing to people.
Most tend to think that investing is about picking winners more often than picking losers. This isn't remotely true.
In fact, this isn't true any more than the idea that sports gambling is about just picking winners - if you pick winners of football matches 75% of the time, you will probably still lose money because a bunch of other gamblers made those same predictions - meaning the odds aren't always going to be 50-50. If anything, after fees, you're effectively going to almost always lose money gambling over time.
The same thing goes for stocks. You think Coca-Cola is a good bet? So do billions and billions of investor dollars. You think Google is a good bet? So do billions and billions of investor dollars.
Market prices reflect market predictions, effectively. So whenever you are gambling on the basis of a prediction you are making, so are all of the other people buying, selling, holding - or considering those things - that asset.
It's not enough to get a prediction right. There's a lot more going on. That simplistic "good prediction" understanding of investing is tempting and destructive.
No one person or organization decides what something is priced in the market. The stock market, in particular, is just a large collection of people buying and selling identical assets to other investors via bidding.
This means that prices simply reflect whatever supply and demand for the priced asset reflect at the time - if people suddenly stop selling, prices might go up - assuming there's the same number of people trying to buy with the same intensity as before.
This means that prices go up and down for individual assets on the basis of the investors trying to buy, hold, or sell the assets. So the prices reflect the desires being acted upon by the investors - market prices respond to what all of the investors think they are worth.
This understanding that markets reflect the beliefs of huge number of investors is important. Markets don't reflect random people or the average investor - they reflect the applied beliefs of investors with the most money being gambled on the asset, as well. The more exposure to the asset one has, the more one's acted-upon beliefs impact its price.
Market prices reflect what investors know about the market. Information being released impacts prices. Prices reflect known information - not just information, but known information. Or, more technically (and philosophically accurate, for lack of better word), prices reflect believed information.
This makes markets brutal, powerful, and very fast responders to events, analysis, and the learned experience of the most powerful investors. In other words, markets are elaborate social pricing machines based on known information about the assets in question.
Put simply, prices are the market's reflection of the known information about the asset at that particular time. This is important. If anything, understanding this is key to understanding everything else discussed on this page.
As information continues to spread faster and faster with innovations like the Internet, being able to have an "information edge" becomes increasingly difficult to the point of being impossible.
It would have been easier to outperform the stock market in 1940 than it is in 2018. Information simply spreads too fast and is too widely available to beat everyone else. Having an information advantage is difficult when insider trading is illegal and Indonesian street vendors have more information than the Library of Alexandria in their pocket computers.
Even Benjamin Graham, the father of value investing, (which Warren Buffet based his life work on), eventually came to concede to the efficiency of public markets. He wrote in 1976, literally 42 years ago and well before the Internet made things worse:
“I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when our textbook "Graham and Dodd" was first published; but the situation has changed a great deal since then. In the old days any well-trained security analyst could do a good professional job of selecting undervalued issues through detailed studies; but in the light of the enormous amount of research now being carried on, I doubt whether in most cases such extensive efforts will generate sufficiently superior selections to justify their cost. To that very limited extent I'm on the side of the "efficient market" school of thought now generally accepted by the professors.”
If Graham thought it was tough then, he would have been a vigorous supporter of the efficient market hypothesis now. As everyone should be.
Understanding markets as nothing more than an incredibly massive, incredibly comprehensive series of pricing mechanisms is the first step towards financial humility.
People who misunderstand the EMH almost always misunderstand the first step: the market is just a big pricing machine accounting for nearly all known information. So unless you have some massive, massive information advantage (like insider trading, or some kind of elaborate expertise in a particular industry mixed with the ability to understand utterly in-depth financial valuations), you won't outperform the market. Period.
So you won't do better if you buy the dip than if you don't. You won't do better if you refuse to invest during a dip. You won't do better no matter what you do - not risk-adjusted.
This doesn't mean you're helpless. Make sure to read the end of this article if you'd like to skip to the more optimistic interpretation of these concepts.
You and I aren't nearly as smart as we'd like to be. Our comically tiny ability to comprehend the Universe pales in comparison to countless investors using countless unique angles coming together in the total capital markets - with almost everyone looking for the slightest advantage.
You can't beat the stock market, risk-adjusted.
Even if you predict all kinds of things correctly, that's not the point - you'll eventually get a couple wrong and those will ruin your numbers - putting you back where you started, or worse. If you do get lucky, you didn't get lucky on a risk-adjusted level - meaning, well, you were lucky, not better informed than the market at large.
And getting lucky isn't the same thing as having a superior strategy.
Studies repeatedly confirm this EMH framework. So do surveys. So does, well, almost all known evidence. And, it's even getting worse.
This bleak conclusion makes sense - after all, the market is nothing more than a pricing machine, so the more efficient (ie, the more informed the market is - which during the Information Age is going to be pretty damned informed) the market, the less likely you are to beat it.
For anyone keeping score on how well information spreads these days, you have effectively no chance of beating the market, risk-adjusted. Period. Sorry. End of story.
'Buy the dip' sounds good, but like I wrote earlier, it's based on some assumptions that don't make risk-adjusted sense. The biggest one is that you're assuming the dip isn't the beginning of a crash. Imagine if instead of "buy the dip" we said, "buy the stocks right before the bear market wipes you out for about 10 years." Doesn't sounds as clever, does it?
Of course, almost never will the dip end up a bear market. Nine times out of ten, you'll avoid that. But it's that one out of ten that wipes out your statistical advantage. That's the part that confuses people. You're not trying to usually beat the market - you're trying to beat the market on a risk-adjusted level - which is economically impossible.
The same concept applies to the other assumption: the notion that if you can "buy the dip" then you're buying it with resources that supposedly you had access to beforehand, otherwise you would just say "buy" and not "buy the dip." The reference to taking advantage of a specific opportunity in the market and not just buying consistently suggests you've been sitting on the money.
If you sit on money you want to invest in public markets at some point because you want to outperform it, you're missing the economic point - you're never going to perform better sitting on the sides. Think about how many people thought the market was "too" expensive a couple of years ago - they've lost an incredible amount of wealth because of that view.
I spent a lot of time writing about these concepts, but i want to make sure what I'm saying isn't misunderstood as another set of arguments. Here's a quick clarification. I'm not saying anything bolded in the section below:
Avoiding mistakes is 99% of investing. But enough about the bad news. Let's look at some interesting applications of these ideas that will make you money.
Now here's the cool part. You can invest better than almost every financial genius on earth in a couple of surprisingly simple steps.
You can invest better than the billionaires, the stock-market gurus, the bankers, the college endowment investment managers, the financial planners - you can outperform almost all of them over time.
The way is simple. They're all trying to outperform the market. This, on average, causes nearly every last blasted one of them to dramatically underperform the market for the reasons explained above.
So if you just hook up your portfolio to track the market as cheaply and as consistently as possible, you'll outperform the experts - by default.
All you have to do:
Do this and you'll outperform almost every mutual fund on earth over time. You'll outperform almost every equity hedge fund. You'll outperform almost every individual investor.
And you'll do it because of your humility.
Vanguard is an organization that exists so that any 'profits' get passed back to the funds themselves, meaning they are as low fee as is legally and economically possible - in general. Their index funds just try to not beat the market - they're based on the assumption that the market is essentially always priced the best possible way based on all known info.
And it works. Vanguard slaughters the competition easily. It's almost embarrassing for the experts. I'll be writing about this more down the road. Make sure to sign up for my newsletter if you'd like to read more. It's boring, but it's powerful because it's true.
Don't try to buy the dip. Don't try to make financial gambles on the basis of your market predictions. Build a simple portfolio like the one described above. Don't fight the market - let it carry you itself.
Buy the market regularly regardless of the news. Sometimes, you'll buy while the market is rising. Sometimes, you'll buy while the market is falling. Sometimes, you'll buy while the market is flat. Regardless, over time, your portfolio will get better, and your returns stronger.
Most importantly, perhaps: use economic literacy to avoid big mistakes that you'll regret for the rest of your life.
If you're looking for a legitimate excuse on which to blame everything going wrong in your life, I've got some great news: there's definitely a legitimate excuse for your situation.
In fact, I've never met a person yet who didn't have at least a few major external reasons they weren't wherever they wanted to be with their finances, health, fitness, and/or relationships.
I'm serious. Almost everyone I know has perpetual, legitimate excuses on hand useful for rationalizing every missed goal, every dropped ball, and every small flaw in their life. Excuses on tap.
Almost everyone has major areas outside of their control which consumes their time, energy, and mental bandwidth on such a level that using those areas as excuses would be honest, understandable, and even respectable. Let's review a few common ones.
Here are some extremely common excuses that you might have access to right now:
These are just the major excuses. Smaller ones are even more plentiful and just as legitimate.
Late for something? There was someone in front of you going too slowly. Miss a morning deadline? Your computer was giving you problems for a full 20 minutes. Ignoring the emotional needs of your significant other? They were rude earlier, and it's drastically easier to just give them the silent treatment like you were raised. Going into debt every month? Eating out a few times a week is not unreasonable.
If you have a somewhat normal life, then you're probably going to have a couple of mental health issues, a couple of kids, an emotionally needy spouse, and a lack of money. These are major excuses that, if you use them, nobody will blame you for the problems they will cause. If anything, your friends will bring them up to help you rationalize things whenever life goes south.
Heck, if you called me right now and told me your situation, I'd probably even go along with the excuses. They're legit. You have tons of them. Everyone will agree.
This is why the whole social justice movement is growing so quickly with young people. Because they're right about the oppression, kind of. This is true even on the smaller level we're talking about. In almost every negative situation, something else - outside of your direct control - is causing the problem on a major, fundamental level.
In fact, the general narrative behind excuses is all wrong. Most people believe that the default is things going correctly and that when something bad happens, that's the unknown variable that caused things to go south - that's why it's the excuse. Excuses are seen as exceptional events outside of one's control.
The truth is the opposite. In the same way, some people see "privilege" everywhere, the other side of that coin is to see legitimate excuses everywhere. Bad things happen to you constantly for legitimate reasons outside of your control.
That said, the purpose of this article isn't what it might look like right now. In fact, the real lesson is the opposite of how most people take these lessons.
Obstacles are inevitable, but excuses aren't.
When something goes poorly and you have the choice to blame the external cause or find some flaw or area of potential improvement with yourself, err on the side of choosing yourself - while also learning about the external source as well.
This puts you in a perpetual position of learning from failure rather than a cycle of repeating failure.
There is no strategic value in excuses - even legitimate excuses. There is a strategic value in understanding your disadvantages. Understanding your disadvantages is good, but an excuse is when you reject understanding the disadvantage in favor of surrendering your personal narrative to the disadvantage.
That distinction is the difference between an obstacle being a problem you overcome or the defining characteristic of your ruined, wasted life.
Think of your daily life like a general who surveys a potential battlefield: only a fool would ignore the terrain, but only a bad general would see the terrain as either good or bad without considering his options for navigating said terrain. You're the general of your life. So act like it.
An excuse is when someone surrenders their entire identity of being a strong, independent, strategic human being in exchange for telling their boss someone was driving slightly slower than normal in front of them. Excuses are pathetic, strategically useless, and are, ironically, a major personal flaw that causes major life harm.
This bears emphasis: excuses - surrendering to legitimate obstacles - is a reflection of your flaw. That means that the wrong mentality takes the understandable blame and shifts it from that external cause and points it right back at you: the foolish general.
It's important to understand the obstacles you face, yes. But that's not the same as surrendering to them and believing that those obstacles are the unmovable, unchangeable catalysts of the inevitable undesired outcome.
Scroll up and look at that list of excuses. Now, look at it as a list of possible disadvantages that one can overcome. Now one's entire outlook on life shifts drastically. You become more powerful when you realize you have the power in the first place.
The point of this article isn't to somehow suggest that you should ignore when you are, in fact, being oppressed. The concepts described don't mean you shouldn't care about things like unequal pay, abusive parents, or any other situations where you truly are being victimized. That's not the point at all.
It's also not the point of this article to shame you for not "overcoming" every situation. I wouldn't have been as successful if I'd grown up as a black female in 1930s Alabama. Some things are beyond our control. That's just a fact.
It's not a mental "trick" to suggest people should blame themselves over situations for which they aren't responsible. Sometimes structural, and macro changes are necessary.
"Victim blaming" and "blame yourself first" aren't remotely connected.
In "victim-blaming", you blame the innocent person for the actions of the guilty - and entrench the problem.
In "blame yourself first", you seek to understand the catalysts of the unwanted final result, and then act to minimize the unwanted final result as much as possible - and prevent it from happening again.
That's why it's "blame yourself first" and not "blame yourself only."
If you're only partly to blame, focus on what can be done on your end to change the outcome. But don't ignore the problems caused by external sources - and don't accept blame for what is not within your control.
Of course, if you aren't to blame at all, then don't blame yourself at all. Sometimes, there's nothing we can do and we can't fix a broken situation. These ideas are about empowering you, not enslaving you to unjust blame.
Let's look at a real-world example.
If you're the CEO of a company and someone running a department makes a series of horrible decisions that severely damages their department, then you should immediately figure out what you could have done to prevent the problem, what you did to cause the problem - if anything - and what you can do to minimize the current damage.
You begin by asking yourself the following questions:
That might mean realizing that you made a mistake in hiring for the position. It might mean you didn't put the right processes in place. It might mean you should have communicated better with the department head. It might mean many things.
What it shouldn't mean is that you should just blame the department head and ignore all culpability - direct or indirect. Blame yourself first weaponizes the fact that you can only, in the end, control your own decisions - and that's where the brunt of your analysis should be for fixing problems.
Even when someone else is to blame, "blame yourself first" results in a more comprehensive, total awareness of what occurred and how to minimize the damage.
In business, this really is an effective "hack" for almost every situation.
An excuse is when someone driving slow made you late for work. An obstacle is when someone drove slow in front of you - but your day was so organized that you still made the deadline because you (almost) always have the ability to arrive a little early through good planning.
In plain English: just because there's an external cause for something negative in your life, that doesn't mean that you don't have options for getting around that cause - even if the solution might seem "extreme" to others.
Just because you're poor doesn't mean you have to stay poor. Just because you're poor doesn't mean you can't compete against wealthier people. Just because you're poor doesn't mean you can't use that experience as a leverage point when dealing with others.
Just because you didn't have a father doesn't mean you have to have the "daddy issues" of someone who didn't have a father - sometimes, those who were fatherless become the best fathers because they trained themselves to use that pain and emotional vacuum as an energy source.
Sometimes, your biggest disadvantages and obstacles can become your biggest advantages and strengths. But you have to blame yourself first in order to rule over your life well. This is the beginning of a good personal strategy.
With a good personal strategy, even our weaknesses become untraditional advantages.
A fundamental part of a high-school education in America should involve understanding personal finance, the true cost of credit, and how delaying consumption for a few years can be the difference between financial hardship and an early retirement.
I don't mean a class or two of textbook information about how credit works. I mean actually teaching the principles of financial discipline.
We need a producer society focused on creating value - not a consumer society focused on taking as much as possible. Think: thrift and productivity as a culture.
Consumerism has become one of the most destructive quasi-religious elements of modern culture. People identify themselves on the basis of what they consume - not what they do or who they are.
That's why the following should be taught as a comprehensive part of high-school - and heck, college - education. Not just a single class, but as a fundamental approach to finance whenever it comes up, referenced throughout curriculum, branding, and materials.
For example, here are some thoughts that could be developed either through in-depth explanations or specific tutorials and hands-on guidance:
Building a culture of thrift is possible, but it requires focusing on just that - culture. Finance isn't just about math. People have to begin, as early as possible, to understand that not all consumption is "reasonable." We should view consumption with suspicion.
I say this as someone who was a millionaire for years before I bought a new vehicle. I live in a small house that I renovated. My biggest luxury is an occasional $15 cigar. This doesn't mean I don't live well - I live like a king. I just don't mindlessly consume.
The crazy thing is that basic personal finance teaches us to reject consumerism and ironically helps us achieve a much better lifestyle. Rather than spending money on things we don't need, we find freedom - and more money down the road to spend on experiences and a good life.
Good personal finance turns money around so that rather than us being enslaved by the economic system, we're using the economic system to maximize our own options, happiness, and legacy. It's incredibly powerful.
Consumerism is one of the most destructive forces in modern society. It takes potentially free people and enslaves them to empty consumption, constantly increasing their standards for what they believe "normal" people should be able to consume. The end result is an impoverished society... surrounded by material wealth.
Good finance is critical to a good life. That's why so many philosophies - from the book of Proverbs to Stoic thought - emphasize contentment, self-control as something to practice like any other skill, and a lifestyle of discipline.
What better place to develop a strong culture than educational institutions? What use is an educational institution that doesn't educate on the fundamental ideas, concepts, and identities that are key to every other part of society's prosperity?
Imagine every high school student becoming intimately familiar with these concepts. It would transform the world.
Mark Zuckerberg has announced that he wants to shift Facebook away from "passive" content to more active, "engaging" content. In other words, your Facebook newsfeed will soon replace the content that you might merely click on with content that you and your friends are more likely to engage with.
In other words, the pages that post 30 times per day hoping they can monopolize the newsfeeds of their "readers" will be penalized. Facebook traffic is going to shift heavily to brands that are dramatically more engaging.
Of course, this transformation has led to instant backlash from a wide variety of internet publishers -- probably because they don't really understand what Mark was saying, why he said it, or what the consequences of Facebook's easy-to-manipulate passive content ecosystem have been so far.
I founded one of the most popular political websites in the world. It began with an important mission: speaking truth to power by giving a voice to the forgotten middle class.
In the past, I wrote headlines for articles that reached over 15,000,000 users on Facebook. From a single posting. On a single page.
I've written articles that have been read by millions and millions of people from Facebook. No, I don't mean "seen" by millions of people. I mean millions of people clicked on the actual link and read the message crafted to influence their political interpretation of the world.
My site's style focused on the sizzling elements of stories that the Wall Street Journal and even Fox News didn’t want to cover. It was a perfect marriage with Facebook's algorithm because it ignored branding and focused on whether users would click on stories.
It was good storytelling. It was fun. And it worked frighteningly well.
Realistically, my personal headlines and articles had drastically more reach than the entire "Russian interference" scandal covered by mainstream outlets like the New York Times. So when it comes to the algorithm change and the implications, I'm speaking from the position of someone who has utilized this algorithm more than almost anyone on earth.
Still, the ecosystem that allowed what I was able to do is now mostly gone - and that's a good thing.
Visionless people look for consistency regardless of context. Some want the ecosystem that existed 4-5 years ago to be all that exists going forward. That's disturbingly short-sighted.
In the past, alternative media needed a huge boost to shake up the narrative. Now we're in a weird place where those same alternative media brands acquired too much power, and we need to change things again.
I now run the Conservative Institute, a very different project. It seeks to provide reliable, trustworthy news for conservatives in an era where dishonesty has become a fundamental pillar of the right-wing media ecosystem. The goal of CI content is not to "go viral" - it's to simply tell the truth. Accuracy is the primary goal, come what may.
We don't defend Trump when he's wrong. We don't attack liberals when they're right. We only report what we believe to be important stories that should circulate on the right wing - and everywhere. A typical article will link to sources like the New York Times, federal agencies, and PDFs of actual studies.
Now, Facebook seems to be responding to the same basic issues that CI was built to combat: a social media ecosystem that replaced high-quality, investigative journalism with shallow "passive" content mostly ripped quickly from other - often just as shallow - sources.
To better understand what's happening, let's look at the following basic concepts that provide context for the Facebook change.
Never in the history of the world was it so easy to reach so many people with a message.
I know people who had no experience in marketing, journalism, research, or much of anything else, reach thousands of people with low-quality stories mostly lifted from other sources.
In fact, ripping off my projects was a pretty easy way for someone with no talent or instincts to make a healthy six-figure income. It happened frequently.
That entire system was incredibly powerful for shaking things up. Now, we're in a different situation - the balance has shifted from the Associated Press, NBC, and local newspapers to an army of smaller sites that often spread misinformation, nasty accusations, or outright lies. Another way to describe it? Fake news.
The algorithms that decided how many people would see content didn't account for "accuracy" at all. Who cares if a fake story goes viral? It was getting the clicks and shares it needed to get more and more traffic on Facebook. That's a massive design flaw, especially when alternative media became so powerful.
This was a temporary hiccup in world history. "Alternative" and "mainstream" media aren't the future - quality media is, regardless of where on the political spectrum it may fall.
Everyone has an ignorant family member known for accidentally sharing fake news stories they didn't verify. The idea that a global media distribution system should give that person just as much power as someone who isn't as gullible is absurd.
I don't mean this in a condescending manner at all. I'm ignorant of many things just like you are. But many people simply don't have the time or expertise in media and geopolitics to know what source should be considered "trustworthy" and what source is taking them for a ride.
If anything, this system isn’t even fair to the person falling for the fake news - the distribution system should minimize the lies that show up in that person's newsfeed as well.
Some will huff and puff over what I just said, pretending they deeply care about ignorant people having the right to easy access to fake and misleading news. The problem is that this is mostly bad-faith virtue signaling.
Let me be blunt: passive-content farms/publishers don't respect their audiences. They often laugh at them. It’s easy to get rich off of people who don’t know any better.
Those market incentives are largely gone, and that's a wonderful thing.
"Passive" content is content that requires no investment from the reader. You don't have to have any kind of relationship with the brand or the content. It's content that happens to be in your feed, and you just may find it interesting enough to click on and read without comment - or not. Most of the content in your newsfeed is like this.
You probably have no emotional connection to the brand and if you click on the story, you may skim it or watch some video, and then exit out and never think about it again. No comments, no shares, no personal connection - nothing. It's passive content.
"Passive content" is where fake news comes from. It's the ecosystem that allows fake news to flourish. It's the system built on a series of economic incentives that allow bad faith publishers to make money manipulating you for fun and profit.
There are a few brands that manage to engage me with almost all of their content; Tim Ferris, Ryan Holiday, Bloomberg, The Art of Manliness, etc. I engage with their community, share their links to my personal page, and have a connection to the brands themselves. They don't just happen to show up on my feed and trick me into clicking.
I have a deep appreciation of the personalities behind the content. That's vital. That's good. And that's the future.
If your business model is based on easy traffic from one website, that's your problem, not Facebook's problem.
As the founder of Axios said to the Wall Street Journal:
"Facebook is a public company that controls its own decisions... Publishers should do the same damn thing."
This isn't new. Copyblogger, (a resource any content marketer should see as kind of like a regularly updated Bible), wrote years ago:
"If you're relying on Facebook or Google to bring in all of your new customers, you're sharecropping. You’re hoping the landlord will continue to like you and support your business, but the fact is, the landlord has no idea who you are and doesn’t actually care."
The future will still have plenty of content. The future will still have plenty of news. But it won't be low-quality content lifted from other sources without any attempt at providing extra value like additional context, additional sources, or additional facts.
The future belongs to quality publishers with strong brands and vibrant communities. This is the way it's been for centuries - and this is the way it will continue to be for centuries more.
If Facebook's change is going to harm your business, then discover higher-quality, more long-term oriented workarounds. Build an online "TV" show. Launch a podcast. Write a book. Go to other platforms. But don't blame Facebook for not allowing you cheap access to a gravy train.
The Clipper Ship Strategy: to make money during a gold rush, focus on supplying a secondary demand created by a primary boom. Chances are, it'll have drastically less competition while being just as lucrative.
Cryptocurrencies have a similar situation unfolding. Everyone is trying to get rich buying the 'coins' in order to sell them to someone else later. This is extremely risky, and just as many people will get wiped out as will make money. It's one thing to buy bitcoins if you're worried about a paradigm shift (like I described in my 2013 article on Seeking Alpha). But it's another thing to buy Bitcoins hoping it's your personal gold rush.
Trying to strike gold - or its digital equivalence - is for suckers or extremely skilled speculators. Chances are, you're not one of the latter.
Here's the real way people are making money with cryptos:
Either way, whenever you see a gold rush, don't fall for the trap. Don't go for the bait. Don't become a miner. Find a way to build wealth by looking for the second opportunity - it's probably being overlooked by others and there's more room to grow and profit.
Facebook's "trending" news section currently includes a statement by Alibaba founder and CEO Jack Ma. The soundbite is going viral.
Ma suggested, much to the dismay of business leaders around the planet, that fake goods from China are actually better than the real products.
Most are laughing at Ma, but I think he's making a great point and it's part of a multi-trillion dollar disruption going on in manufacturing and physical product marketing.
What Jack Ma Actually Said
Jack Ma was being questioned about all of the endless fake and counterfeit and "knock off" products that are for sale in bulk on Alibaba.com, a website that is essentially an Amazon.com for people looking to buy products to sell through repackaging.
Here's what Ma actually said:
"The problem is that the fake products today, they make better quality, better prices than the real products, the real names. It's not the fake products that destroy them, it's the new business models."
This isn't nearly as bad as it's being made out to be. It's also not wrong, in many cases. Let's do a quick review of some facts most people don't understand.
2 Facts to Keep in Mind
Jack Ma has a front-seat view of some massive economic shifts going on right now. He understands two very important facts:
If you buy a knock off watch, there's a fairly good chance it's made at the same factory as the big name brands - it just doesn't have the same brand.
This is especially true for easy to make products. Private labeling as an industry is changing how people view products.
That's why some companies, like the app Wish, are based on getting cheap private labeled products into the hands of consumers - they can be just a fraction of the cost, but have the same qualities as the name brand.
The above point touches on something that is difficult to wrap one's mind around at first: branding is largely an illusion.
If a small firm makes a product with identical quality as Apple, most people will think the apple product is higher quality because they believe in the illusion of the brand.
This isn't necessarily a bad thing. It can make decision making simpler and more efficient. But if you're spending more for a same-quality brand, then you might be missing the point.
This illusion is starting to crumble. It probably won't fully go away, but people are deconstructing what "name brand" means in the first place. This is incredibly interesting, and a sign of things to come, especially in ecommerce.
The Future of Manufacturing and Branding
As things progress, we're going to see more and more "same quality" products that will rival top brands.
Amazon recently started launching more of their own "branded" products that just slap on the Amazon label to a high-quality no-brand (previously, at least) product. This is making huge changes for all sorts of industries, especially in fitness and tech.
This trend is only going to get stronger. If you sell a fairly benign product and make money from your brand value, you'll still have many options for huge profits - but you'll want to make sure you pick the right product.
Generic products like "lase mouse" or "keyboard" are going to run into problems. Specific products like "gaming mouse" and "programmer keyboard" will likely be more promising, but we'll see how it plays out.
This article is going to be a little weird because it will reflect a very, very different mindset than one which is extremely common. Writing this article was weird for me as well, because it's difficult for me to sometimes understand other paradigms - and financial decisions is an area where I generally operate in my own little world.
For example, I delayed marriage and children for financial reasons. I didn't buy a new car until I had enough to literally retire. Right now, I'm reading the same books that I hope my financial planners had to read to become financial planners, because I want to know about every aspect of my financial situation and future.
To read more about my thoughts on careers and developing strategically sound income streams, keep researching this website.
No, I've Never Had a Job
I've never had a full-time job. I've had some freelance relationships as a writer, copywriter, and funnel builder for some financial companies. But I've never actually had a salary or anything along those lines.
It just never materialized. I started learning marketable skills while in high school. In fact, I started my business while in high school. I was doing consulting during my very brief moment at college before I dropped out to work on growing my business.
Yes, I'm a Millionaire
I mention this a lot for a few reasons. First, I don't care to be polite. It's not polite to bring it up a lot. But it's relevant, so I'll do it anyway. Second, as I just said, it's relevant. I'll talk more about this below, but suffice it to say
