You’re dreaming about luxury vacations and nice cars. OH, you can’t wait to be a millionaire.
But I’m here to tell you to think again.
While having more money is never a bad thing, what you’ve probably envisioned and what the reality is don’t match up. Let me explain.
What is the Definition of a Millionaire?
By definition, a millionaire is a person or family who has a net worth in excess of $1 million dollars. This answer is very U.S. centric as different countries have their own versions of this answer. For example, it takes 117 Japanese Yen to make 1 USD, so $1 million Yen doesn’t get you very far!
Even though in the U.S. the concept of a millionaire is static, what those million dollars gets you over time can change dramatically.
An example of that is the effect of inflation. A million dollars in 1950 is worth about $10.5 million in today’s dollars. But, the definition of a “millionaire” didn’t change. So, Today’s millionaires have 1/10 the amount of money that millionaires had when your parents were born.
So, the idea of “millionaire” status is really less meaningful than it was decades ago.
Another thing that messes with the definition of a millionaire is the fluctuation of exchange rates and purchasing power.
Let’s go back to the example above with Japan. We know that 1 US Dollar can get 117 Japanese Yen. We know that $1 can get you a chicken sandwich at a fast food restaurant. If you can go to Japan and get a similar sandwich for ¥ 117 then your purchasing power hasn’t changed.
The reason why I bring this up is to show that having a million dollars may be worth a lot in one place in the world but not worth much elsewhere depending on purchasing power.
How Many Millionaires in the U.S.?
There are roughly 325 million people in the U.S. which means that around 4.6% of the US population are millionaires. In other words, around 1 in 20 people are millionaires.
When you go to the mall, a huge number of cars in that parking lot are owned by millionaires.
In your child’s classroom, chances are one of those children were born to a millionaire family.
Chances are, one of your friends or family members is a millionaire and you don’t even know it.
But, if so many people are millionaires, where are all the Lambos and mansions?
It’s Not What You Think
Net Worth is not cash in the bank. You can’t spend $1m when it’s coming from the value of your home or 401k. Even if it was cash in the bank, it’s not even a lot of money.
$1m doesn’t get very far. You can buy a decent house with it but that comes with expensive maintenance, lawn care, repairs, and a crap ton of new furniture to fill up 5x more space than you’re used to having.
It can get a foreign sports car, but that comes along with $500 oil changes and $1,000 for a new tire (remember, you need 4).
$1,000,000 invested conservatively could earn you around $40,000-$50,000 per year in interested. That’s hardly enough to retire on especially as old age comes with added costs of health care.
But, if most of that $1m is in your home, which is true for most people, it’s not earning any interested. Even if it was, you’d have to sell your home to get that money. Then what?
Don’t Focus on Becoming a Millionaire
Of course, anyone would rather have $1m than not have it. But, don’t make it your focus. Having it isn’t going to get your cars or vacations. Net worth is one thing to measure, but it’s more important to focus on cash flow.
Yearly passive income will buy you anything you want. It’s money you can spend. It’s cash in the bank. Net worth is money locked up somewhere. You need assets, but assets don’t buy you things. If that asset doesn’t produce cash flow, you can only use it by selling it and that’s not a good place to be.
What’s more important is focusing on building up passive sources of income from real estate, side businesses, stocks, or other ventures.
Focus on building up $40k or $100k in passive income rather than focusing on having $1m in net worth.
[VIDEO] ETF, Explained
Stocks, bonds, mutual funds, hedge funds, REITs, S&P, indices…there’s a lot of jargon that goes with investing. Lucky for you, #wealthgang, we have all the breakdowns here, in a non-boring way that’s easy to understand.
So what’s an ETF? Well, ETF stands for exchange-traded fund, which basically is a fund that owns various stocks. Giving you the luxury of diversifying your investment dollars into several stocks vs. just one.
Or as wikipedia puts it, an “ETF holds assets such as stocks, commodities, or bonds and generally operates with an arbitrage mechanism designed to keep it trading close to its net asset value, although deviations can occasionally occur.”
There are now over 6,000 ETFs on 60 exchanges and ETFs exist for everything from corporate bonds to gold bars to oil futures.
If that doesn’t make sense, just check out this Bloomberg video.
DATA: Are VC Investors Cutting Down On Checks?!
According to a recent survey, venture capitalists are worried there’s too much money moving around the private markets.
For Q3, the Silicon Valley Venture Capitalist Confidence Index—a quarterly University of San Francisco undertaking for the past 15 years—scored 3.58 on a 5 point scale (5 indicates high confidence, 1 low).
“But 3.58 is still high….ish…no?”
Well. Not really. You’ve gotta look at how it’s trending.
So how’s it trending?
This quarter’s index measurement dropped from Q2’s index reading of 3.76—and below the nearly 16-year average of 3.70.
That said, it’s better than Q4 of last year where investor confidence market the lowest index reading since Q1 of 2009, right around Recession time.
And with all the tech IPO activity this year—including BOTCHED ones like WeWork and not-so-good ones like Uber—investor confidence could be dipping even further. Especially with, what appears to be, IPO fatigue in the public markets.
And that may not play out well for valuations.
OK, so what’s the deal?
A couple of factors.
According to the researchers, investors are catching stank face over the—quote— “lofty valuations due to a continuing enormous supply of capital being made available to new ventures as more mega funds ($500M or more) are being established.”
ROUGHLY TRANSLATED: Mega investors—like WeWork sugar daddy SoftBank—are frustrated with poor returns.
So what are the VCs saying?
Well, the VCs chipped in with their two cents, in jargon, of course.
Menlo Ventures Partner Venky Ganesan says private markets have been fueled “by the availability of cheap capital and the surge of new entrants to private investing.”
AllegisCyber’s Bob Ackerman said something similarly jargon-y, adding there’s “too much capital chasing too much undifferentiated innovation with unrealistic return expectations.”
In other words: Too much money being thrown at ideas that aren’t new ideas but expect to be the next Facebook from standpoint of traction.
On one side of the spectrum, then you have guys like Kobe Bryant, whose $100M VC fund Bryant is straight CRUSHING IT, with 18 active deals and 10 exits.
Then there’s Trump…
Trading uncertainty is making people stay on the sidelines. Apparently, all the impeachment chatter isn’t helping either, according to the research.
USF’s Mark Cannice concluded his report—and brace yourself, there’s a whole heap of jargon coming—by saying this:
“With new sources and unprecedented amounts of capital being made available to new ventures” along with “evolving expectations of public markets for venture-backed firms in terms of paths to profitability, it could be argued that the venture industry is itself in the midst of a transformation.”
What the FUCK does that even mean?!
We’ll tell you what it means.
TRANSLATION: Venture capitalists are basically sick and tired of startups burning through cash without being profitable in the hope that a massive IPO will get said venture capitalists their 10x returns on the back of sucker public investors.
And said sucker public investors have caught on to the shiznit. In other, less pretentious words, the gig is up.
(See how we did that in three words vs. three lines? 🔥)
But that doesn’t mean there’s no money to be made…
There are entrepreneurs out there who raise capital scale, just like there are VCs who don’t just invest to cash out at IPO. Or you can always go catch an alley oop with Kobe and get straight back into the gains game. That’s always an option…
‘Till next time, #WealthGANG…
INFOGRAPHIC: How To Invest Your Money (In 8 Simple Steps)
Plenty of savers are making do with low rates of return on their deposits—almost eroding the value of their savings. Here’s a guide on how you should invest your money and gain some great returns off it.
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