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The Widening Wealth Gap – Why The Rich Get Richer

Based on a recent report by Credit Suisse, there are currently about 33 million millionaires globally, an increase of about 155% since the start of this century. Despite representing under 1% of the world’s adult population, this group of affluent individuals hold about 46% of the total wealth in the world. In fact, this staggering wealth disparity is expected to exacerbate, and by 2021, Credit Suisse expects the number of millionaires to grow by 37% to just over 45 million.

While there are various reasons attributed to the widening wealth gap, here are some reasons behind why the top 1% consistently build wealth faster than others.

The Rich Educate Themselves

Real knowledge is to know the extent of one’s ignorance.

- Confucius, philosopher

Amazingly, the single biggest skill that can make or break an individual’s investment success, is often the most overlooked. Financial literacy and investment know-how are essential skills one must develop if one’s goal is to build personal wealth and financial freedom. Successful investors take time to study key financial concepts, understand the mechanics behind various investment structures and stay abreast of current events and trends. There are no secrets to investing, educate yourself on the fundamentals to find financial success.

The Rich Save Differently

The philosophy of the rich versus the poor is this: The rich invest their money and spend what is left; the poor spend their money and invest what’s left.

- Jim Rohn, entrepreneur,

While investing may seem complicated and convoluted, one cannot argue that saving is pretty much as straightforward as it can get. Saving and spending go hand in hand; the rich continually keep their financial goals at the forefront, saving and investing, before spending.

The Rich Spend Differently

Someone is sitting in the shade today because someone planted a tree a long time ago.

- Warren Buffet, renown investor

While the rich are still working, they have disciplined themselves to live strictly off their wages. Rather than spend money coming from their investment returns, they allow their investment returns to accumulate, compounding the returns on their investments over the long run.

The rich are also disciplined in their spending habits. Many live well below their means, and save or invest their money rather than showcase it. Look around you, many of these millionaires are probably not who you think. To them, it is not about keeping up with the Joneses, but rather establishing a standard of living that brings them happiness, without the need to splurge, impress, or indulge excessively.

Lastly, the top 1% believe in spending on purchases that generate future income streams for themselves. Rather than purchasing a car, the wealthy investor might invest in a property to generate rental income. In the long term, with good market fundamentals, the property also has the upside potential from an appreciation in its intrinsic value.

The Rich Invest Differently

Buy not on optimism, but on arithmetic.”

- Benjamin Graham, renown value investor

There are some key concepts that the top 1% understand better than the remaining 99% when it comes to investing.

While the 99% is focused on getting rich, the 1% has the goal of staying rich. Driven by sentiment and hype, the typical investor accumulates too much concentration risk in a single investment or asset class. Successful investors on the other hand are cognizant of their risk tolerance, and make a conscious effort to diversify their investment portfolio.

The top 1% focus on their investment objectives, they do not chase investment trends or asset classes that make the headlines every day. Unsexy assets do not equate to bad investments for them. Relying on their financial literacy and investment knowledge, they base their investment decisions on facts, figures, and market fundamentals.

The concepts successful wealthy investors abide by are not necessarily exclusive to the top 1%. These investors are just more disciplined, more diligent, and more dedicated to their financial objectives compared to the remaining 99%. Take the time to educate yourself on the fundamentals of investing, create good saving habits, and learn to live below your means. Finally, invest with the knowledge and acumen that you have acquired, focusing on fundamentals and your investment objectives.

     

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