According to the recent CNBC Your Money Financial Confidence Survey, 58% of Americans are now living paycheck to paycheck, and even more – roughly 70% – say they feel stressed about their finances. This is not surprising since it’s estimated that half of Americans, or 120 million adults, do not practice responsible finances.
Financial illiteracy is a big problem, but children born into homes with financially illiterate parents will more than likely end up being financially illiterate themselves. For those parents who make an effort to teach their children some financial responsibility, their efforts usually take the form of passing comments like “saving is good” and “spend less than you earn.” This amounts to a 2nd-grade financial education at best because what these parents don’t tell their kids is that by putting money in a savings account or under the mattress, they’re slowing the financial bleeding because of inflation.
Unfortunately, what society deems conventional financial “wisdom” isn’t much better than the 2nd-grade financial education your parents offered by telling you to save more by spending less. Conventional wisdom tells you to save and put your money into “safe” investments and slowly build up your portfolio. These “safe” investments suggested by family, friends, financial planners, and society at large often involve traditional fixed-income assets or investments in mutual funds and 401(k)’s. The problem with these “safe” investments is that they’re usually not much better than putting your money under the mattress.
Yields on fixed-income assets like CDs, money market accounts, savings accounts, and treasuries fail to keep pace with inflation, and returns on mutual funds and 401(k)’s are often mediocre and swallowed up by management fees. The proof that these managed funds are found is that more than 90% of investment professionals (i.e., fund managers) fail to beat the market. If this is financial literacy, it’s not working.
The fact that more than half of Americans are financially unprepared for retirement should tell you everything about the value of conventional financial literacy.
Most of these same Americans who are unprepared for retirement thought they were financially literate and doing the right things. The problem is they were being taught financial literacy by those with a 5th-grade financial education – barely financially literate themselves.
To avoid the fate of the more than 70% of Americans who say they’re stressed about their finances requires financial literacy beyond what’s being taught by traditional sources.
Why not learn from those with Ph.D.’s in financial literacy? Why not observe the investment habits of ultra-high-net-worth investors (UHNWIs) who don’t follow conventional thinking? What do they invest in?
The members of TIGER 21 are one such group of UHNWIs worth observing. TIGER 21 describes itself as “an exclusive network of wealth creators and preservers, a peer membership organization serving as your own personal board of directors. Our Members consist of successful entrepreneurs, investors, and executives.”
Membership in TIGER 21 is exclusive, with candidates required to show $50M in investable assets to join. Every quarter, TIGER 21 publishes its Asset Allocation Report showing where its members place their money.
So where are these UHNWIs putting their money?
According to the latest asset allocation report, The members of Tiger 21 continue to allocate more than half their portfolios to Private Equity investments (PE) (31%) and Real Estate (RE) (24%). Stocks come in third.
So why do the rich gravitate towards Private Equity and Real Estate, not traditional assets like fixed-income investments, stocks, and mutual funds?
Because they know a truth that the mainstream will not tell you, and that truth is it’s possible to earn consistently higher returns than those traditional assets but at reduced risk. Besides, these assets offer the key to wealth that traditional assets cannot offer: passive income.
Consistent and reliable passive income that can be generated through partnerships with seasoned experts in their respective fields is the key to wealth for UHNWIs. Passive investments offering reliable above-market cash flow that can be reinvested is the key to achieving peace of mind and a world without stress over your finances. UHNWIs aren’t interested in traditional investments offering low single-digit returns.
Instead, they prefer assets like PE and RE that generate double-digit returns and, when reinvested, compound wealth.
For example, if you invest $100,000 in an asset offering an annual return of 14.87% that can be reinvested, you can double your money in 5 years.
Why do the wealthy love real estate?
The wealthy love real estate because it’s not unrealistic for private real estate funds (multiple assets) and real estate syndications (a single asset) to offer and deliver average annual returns of 13% to 20%. It’s one of the most realistic and practical ways to invest in doubling your portfolio every five years. And because real estate is illiquid, it’s sheltered from broader market volatility – insulating your returns from recessions and inflation.
If you want to be financially literate, learn from successful investors with a Ph.D. in investing. They didn’t go to college to gain this financial literacy, nor do you.
Kyle Jones is a co-founder and Key Principal of TruePoint Capital, LLC. Kyle is responsible for the company’s strategic planning, investment decisions, asset management, and overseeing all aspects of the company’s financial activities, operations, and investor relations.
Kyle obtained a Bachelor of Science degree from Texas State University – San Marcos, where he also played Division 1 Baseball.
