The Key Portfolio Element Of Wealthy Investors 

Call their ways stodgy, old-fashioned, uninspired – what have you – but there’s no denying the effectiveness of the investment strategy of the wealthy. It’s why they’re wealthy.

And, as long as the middle class and the poor keep thinking that the wealthy are rich because they were lucky or born into it, then they’ll keep denying themselves the opportunities to reach the heights of the rich.

While the new breed of retail investors – born of COVID isolation and stimulus payments – chases capital gains, old-school investors stick to what’s tried and true – income investments.

Capital gains – the returns from an investment that is sold for more than its purchase price – is all the Robinhood and Reddit crowds are interested in.

With an unhealthy appetite for risk, these new retail investors rely on social media and chat rooms when making investment choices. They can’t be bothered with data, research, and metrics. Their sole concern is that the stock or cryptocurrency they pick up will continue to mushroom from media hype so they can cash out down the road.

Chasing capital gains isn’t investing; it’s gambling. It’s playing the timing game to beat the market. It may work once in a while, but it’s not an effective investment strategy.

While the crowds chase capital gains, the wealthy chase income. Income-generating assets that provide immediate cash flow while appreciating naturally over time are the critical key elements of the portfolios of the wealthy. Investment income – whether it be profits from a productive business, rental income from commercial property, income from agriculture, or oil & gas – is the fuel that drives the wealth engine.

Here’s how passive investments in income-producing tangible assets are ideal for building wealth for the following reasons:

  • Passive investments allow for scaling by allowing investors to leverage the expertise of others to invest in multiple assets passively instead of a single asset directly.
  • Passive income can be reinvested to compound wealth by supercharging an existing asset or expanding into multiple other assets.
  • The extended timetable of passive income investments insulates assets from market volatility. Long lockup periods of at least five years or more prevent investors from making rash investment decisions. While the public markets trade freely on online trading platforms – free trading platform Robinhood being one of the most popular – the private markets have no such liquidity. This illiquidity is its strength as it prevents private investors from being susceptible to herd behavior.
  • Tangible assets underlying the income investments appreciate naturally over time, giving investors another source of returns. Assets like real estate and businesses that appreciate over time with backing data serve two purposes:
  • It provides another source of returns.
  • It offers predictability – allowing investors to plan and project into the future.

Predictable passive income allows the wealthy to do what retail investors can not, and that is to be free from uncertainty. When you’re gambling with capital gains, it’s boom or bust. Nobody who does it has the confidence to quit their day jobs because there’s no telling what the future will hold.

For the wealthy who pad their portfolios with passive investments that generate multiple streams of recession-resistant diversified income, they can achieve what no other investors can:  FREEDOM.

  • Freedom from time constraints.
  • Freedom from worry.
  • Freedom of choice.
  • Freedom from a time clock.

How do you find passive income opportunities in assets like commercial real estate and cash-flowing businesses for beginners?

  • Network. Get out on the street and social media and seek out those investing the way you want to invest.
  • Ask around.
  • Be curious.
  • Search. With relaxed advertising rules, many passive investments can now be found through a simple Google search.

To be wealthy, stop chasing capital gains and start focusing on income.

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About the author

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.