How the rich get rich and why you can too

Hello friends, and welcome to The Unsophisticated Investor! Brought to you by Scott & Rob, the founders of PitchedIt!

If you want to be one of the first to get access to some of the most exclusive private market investment opportunities in Europe, join our limited waitlist now.

Now, let’s get into it 👇

Everyone dreamt of being a ‘millionaire’ when they were young. A dream that most people carry with them into adulthood. Part of the problem is that when we were kids, the word “millionaire” was a catch-all term for being super wealthy. And we didn’t even know what ‘wealthy’ meant! In reality, as we get older, what most of us really want is financial freedom and enough money to live a stress free, comfortable life with some luxury and carefree spending thrown in. Plus, let's be real, a lil’ dollop of that ‘let's drop everything and fly to Vegas”, money wouldn’t hurt.

The death of our teen years usually coincides with starting to fend for ourselves financially. And it’s at this time that our knowledge of money takes a few leaps forward. We quickly realise that €1 million isn’t as much as we thought when we were kids. I mean, given the cost of housing, childcare and, well, life; in this day and age, it mightn’t even pay for your current lifestyle for very long!

So, knowing that €1 million isn’t what it used to be, it’s probably fair to say that it’s more attainable than we once thought, right? So why do people seem to shy away from reaching for it and not double down on their efforts? Our guess…we’re too impatient!

The truth is, building personal wealth isn’t necessarily difficult. Of course you need luck. Lots of it! But when it comes to the things you can control, you mostly just need patience! You’ve probably heard the saying “Time in the market beats timing the market”. The problem is, no one wants to wait. Most humans are naturally a little impatient. Add to that this new age of instant gratification and well, we want it all and we want it now…no matter what ‘it’ is. The iPhone era has spawned a generation who have grown to expect anything and everything at the touch of a button. Unfortunately, building wealth doesn’t work like that 99.9% of the time.

If you’re unconvinced, let's look at how the wealthy made their money and what it takes to join their ranks.

Firstly, if you think you need to come from wealth to be wealthy, you’re way off. Turns out there’s hope for us non-trust fund babies. The National Study of Millionaires (A US study on millionaires) showed that of the 10,000 participants, 79% were self-made and received no inheritance from their family. Not one cent (pretty stingy)! A further study - The World Ultra Wealth Report, a study on the world's ultra high net worth (people with a net worth over $30m) had similar findings with 72.6% being entirely self-made. Kudos to them!

Ok great, so you don’t have to have rich parents to build wealth. Maybe you just need a particular job. Well, the same study found that engineers, accountants, management, solicitors and teachers spawned the most millionaires. But don’t freak out just yet. We don’t believe how you make your money is that important, it's what you do with it that counts. Plus, you don’t need to earn a ginormous amount of money to become wealthy. The study goes on to say:

“Only 31% averaged $100,000 a year over the course of their career”, and, “one-third never made six figures in any single working year of their career.”

So what’s the trick? Well firstly, the basics. The National Study of Millionaires found 8 in 10 invested in their company’s pension plan. These plans not only offer tax breaks as you build up savings but many employers also offer generous contributions. So taking advantage of these is important! Careful spending is also crucial as 94% of respondents revealed that they live frugally and about three-quarters never carried a credit card.

3 out of 4 of those surveyed also invested outside of company plans. 75% said regular, consistent investing over a long period is the reason for their success. So, the story about the computer genius who developed an app that earned millions overnight is the exception, not the rule. You’re unlikely to be the next Mark Zuckerberg so act accordingly!

Now I know the above is all a little ‘bleh’. It's not some trick play that's going to make you rich and I’m sure it’s stuff that most of you were aware of already, regardless of whether you’ve put it into practice yet. But that's the thing. Building wealth is not some get-rich-quick scheme. It’s done through patience and consistency.

I get it though. We’re nearly at the end and we haven’t imparted some nugget of advice or wisdom that you didn’t already know; so maybe this will help: While researching, we decided to take a look at the uber-wealthy; the 0.1%, to see what made them different and what they did that helped them build their fortunes.

A recent paper titled “Why Are the Wealthiest So Wealthy? A Longitudinal Empirical Investigation” by Wharton finance professor Sergio Salgado, points to some interesting stats. Firstly, there are two types of super-rich: the Old Money, who started life substantially wealthier than most, and the New Money, who have higher rates of returns and savings that bring them to the top.

But, most interesting for us was that regardless of which cohort they fell into, the 0.1% invested a substantially higher share of their portfolio in private businesses starting from very young ages. Private equity constituted around 60% of total assets early on in their lives and increased to 80% by their mid-40s, after which it stayed roughly constant. 

Investing in private businesses eh?…something PitchedIt will be able to support you with!

So there you have it folks. Take advantage of the obvious things and be patient. Oh, and invest in private companies 😉

Until next time…

The Unsophisticated Investor is brought to you by Scott & Rob, the founders of PitchedIt. We were both sick of private markets being a playground exclusive to the ultra-wealthy. So… we started a company to challenge the status-quo. PitchedIt’s singular focus is to unlock private markets for Millennial and Gen Z retail investors and help them build wealth through the highest performing private market opportunities.

Scott & Rob
PitchedIt Co-Founders