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    How to Become Wealthy: Low Risk Strategies to Start a Business and Build Wealth
    How to Become Wealthy: Low Risk Strategies to Start a Business and Build Wealth
    How to Become Wealthy: Low Risk Strategies to Start a Business and Build Wealth
    Ebook97 pages1 hour

    How to Become Wealthy: Low Risk Strategies to Start a Business and Build Wealth

    By Charles Spender

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    About this ebook

    Because of inflation and the constantly growing average standard of living, wealth cannot be reliably and permanently defined in dollar terms or in terms of the number of cars, houses, size of houses, the number of refrigerators, and other assets. There are only two enduring characteristics of being wealthy: {1} relativity, that is, owning hundreds of times more stuff or money than average people do, regardless of what this average value is, and {2} exclusivity, i.e., being a part of a tiny fraction of the population (for example, the top 0.02%).

    This text explains why wealth requires luck and why the only way to get rich is to get lucky. Because luck is beyond anyone's control, 99.98% of people won't become wealthy no matter how hard they try. For example, a moderate and limited correlation exists between IQ and income, but there is no correlation between IQ and net worth. These data suggest that wealth is either a result of pure luck or has to do with mental abilities unrelated to IQ (for instance, an entrepreneurial talent). The latter explanation also involves luck because a person can neither learn nor earn a talent. The correlation between hard work and income is weak and limited. Higher net worth correlates with fewer hours worked per year.

    For this reason, it's a bad idea to prepay for advice on how to get rich because this kind of advice is always useless. If you knew how to make a million dollars easily and quickly, would you let somebody else have this pile of money in exchange for 20 bucks? Careful analysis shows that for someone who has an excellent business idea, it is much more profitable to hire you as an employee than to sell you the info on how to start the biz. Therefore, it's unwise to pay in advance for the information on how to start a successful business. The text also discusses several other disadvantageous ways to invest your money. In addition, this ebook discusses some low-risk approaches to starting a business and to building wealth, but this information does not guarantee anything thanks to Lady Luck.

    LanguageEnglish
    PublisherCharles Spender
    Release dateNov 21, 2014
    ISBN9781311800916
    How to Become Wealthy: Low Risk Strategies to Start a Business and Build Wealth

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    How to Become Wealthy - Charles Spender

    HOW TO BECOME WEALTHY

    Low Risk Strategies to Start a Business and Build Wealth

    Charles Spender

    Distributed by Smashwords

    SECOND (UPDATED) EDITION

    May 2023; ISBN: 9781311800916

    Copyright © 2013 Charles Spender

    Table of Contents

    Chapter 1: Introduction

    Chapter 2: Investing in a lucky stock

    Chapter 3: Investing in your own startup business

    Chapter 4: Trading of financial instruments

    Chapter 5: Prepackaged profit systems

    Chapter 6: The perfect scam

    Chapter 7: Gambling

    Chapter 8: Online poker

    Chapter 9: Safe investments

    Chapter 10: The role of hard work

    Chapter 11: The role of luck

    Literary sources

    Chapter 1: Introduction

    It would be fair to say that wealth is the level of net worth that would allow a person to not work and to enjoy a luxurious lifestyle for many decades. IRS statistics tells us that only approximately 0.02% of the population can boast this level of net worth, which would be $20 million or more in the United States in the year 2007 (compared to the average net worth of about $200,000 or median net worth of ~100,000 dollars).

    Because of inflation and the constantly growing average standard of living, wealth cannot be reliably and permanently defined in dollar terms or in terms of the number of cars, houses, size of houses, the number of refrigerators, and other assets. There are only two enduring characteristics of being wealthy: {1}relativity, that is, owning hundreds of times more stuff or money than average people do, regardless of what this average value is, and {2}exclusivity, i.e., being a part of a tiny fraction of the population (for example, the top 0.02%).

    A basic understanding of mathematics makes it clear that there is no way in hell that the majority of the population (say 51%) can become wealthy. This is because {1} the majority of people cannot have hundreds of times more money than average people do and {2} the majority of people cannot be in the top 0.02% of either net worth or income. The majority consists of average people. Fifty one percent cannot be crammed into the top 0.02%. Therefore, within any fiscal year, any given person roughly has a one-in-5000 chance of becoming wealthy and a 99.98% chance of not becoming wealthy.

    To fully grasp this argument, it is also helpful to look at the flow of cash or income. Net worth can increase if a person receives more money from other people than he or she transfers to other people (in the form of purchases, gifts, wages, sales, awards, inheritance, and so forth). The money supply and the amount of material wealth in the economy are limited within any given fiscal year (plus/minus several percentage points). Accordingly, the majority of people cannot receive a hundred times more money than they spend. Getting rich means that a person’s income is hundreds of times greater than the expenses. This situation can be true only for a tiny minority of the population (~0.02%) and cannot happen to the majority of people.

    This ebook explains why wealth requires luck and why the only way to get rich is to get lucky. Because luck is beyond anyone’s control, 99.98% of people won’t become wealthy no matter how hard they try. Scientific evidence shows that wealth and entrepreneurship do not require either hard work or high intelligence.

    Chapters that follow explain why it’s a losing proposition to invest your savings in the following: a) stocks, b) your own startup business, c) trading of financial instruments, d) prepackaged profit systems, e) the lottery and other pure gambling activities, and f) online poker. In addition, this text discusses some low-risk approaches to starting a business and to building wealth, but this information does not guarantee anything thanks to Lady Luck. Also, any publicly available information, if it is useful, spreads quickly and provides no special advantage to any one person. Nonetheless, if you have a good job, it is realistic to become financially independent and well-to-do at the retirement age.

    Chapter 2: Investing in a lucky stock

    SUMMARY. Financial future of any one corporation is unpredictable and the price of its stock is even less predictable because it depends on many factors: future changes in the management of the company, accidents, natural disasters, political changes, and future changes in the marketplace, such as new technologies, consumer preferences, new competitors, and changes in investor preferences. For this reason investing in one or several stocks is risky. A better strategy is investing in hundreds and thousands of corporations simultaneously by purchasing shares of a stock index fund.

    Investing all your savings in one or several stocks is a bad idea because there are too many variables that the investor cannot predict, for instance,

    future changes in the management of the company

    accidents

    natural disasters

    political changes

    future changes in the marketplace, such as

    new technologies

    consumer preferences

    new competitors

    changes in investor preferences (affect stock price)

    Investing in one or several stocks is similar to gambling because luck plays a major role in the successful outcome of this activity. It is understandable that these investors are trying to outperform the market average (return on investment of about 10% per year). Yet it is highly unlikely that they will pick a winning stock and keep holding and buying it as their sole investment for decades. Past performance of a stock is not a guarantee of future results. They are trying to win a lottery, but instead, there is a high probability that this investing strategy will perform worse than the market average in the long run. There is also a small risk that the company in question will go bankrupt.

    A number of studies have shown that the absolute majority of fund managers (who are not amateurs, by the way) cannot outperform the market average in the long run. That is, they cannot provide their clients with a long-term return on investment better than 10% per year. For example, a recent research article showed that only about 0.6% of mutual fund managers can grow your money faster than the market average. The article examined a period of 30 years and it took into account fees and expenses. People who are not professional investors are even less likely to pick a stock or a portfolio that will outperform the 10% per year. If the great majority of professional investors cannot outperform a broad stock index, then it makes sense to invest in the broad stock index (a fund that holds hundreds of different stocks) and to hold it for decades. It also makes sense to avoid picking and choosing stocks and actively managing the portfolio. Thus, diversification, or simultaneous investing in a large number of stocks, is key to successful and safe investing. Warren Buffett, arguably the best investor in the world, holds a well-diversified portfolio of stocks. A recent study showed that his portfolio had outperformed the average by about 14% per year, based on data from 1976 to 2006. Nonetheless, if copying Warren Buffett’s investing approach were easy, then there would be a far higher percentage of fund managers who outperform the stock market average.

    The notion that it is easy to outperform the average market return is self-contradictory and fallacious at its core. The majority of people cannot be better than average in principle because the average reflects performance of the majority of people. Although Warren Buffett has often revealed his basic investing principles, the devil

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