How to Build Wealth Long-term with Little Capital

If we want to get to know how to build wealth over the long term, it is essential to make preparations and think about this subject in a strategic manner.

Now, we’ll focus exclusively on the financial dimension of wealth building on this post although all things considered, there’s a number of other equally important dimensions like habits and personal care that must be optimized in order for us to retain not just material wealth but also spiritual and emotional wealth as well.

1. Hoarding Capital

First thing’s first: we need income. Either a job or any other kind of activity that brings in cash will do.

We must make sure it’s an activity that brings in enough cash that can cover all our current living expenses while leaving at least a 30% extra margin for investments. It is crucial to set aside the 30% quota for investing each time we get paid, in that way we can make sure that we are always living beneath our means and have money to invest at least once a month.

When starting out we must be careful what we spend money on, and a sort of personal spending austerity policy must be put in place, so we are able to preserve most of the income we earn through labor and other activities.

It is especially important for young people to realize that the 20’s and 30’s are not for partying, spending or traveling.

These are times when we have the opportunity to hoard resources and build a stable financial foundation for us and our families. Let us not be distracted by mindless spending on bars and night clubs or traveling to expensive places and be specially watchful (for men) of spending time, energy and resources on a relationship. Now it’s not the time for romantic relationships.

We must first get control of spending and hoard as much capital as we can to make our first big investment.

2. Choose the right tool for the job

Assuming we’ve hoarded just enough cash to make our first important investment we now need to allocate that cash and invest it wisely.

There are a number of financial instruments we can use to preserve and grow our capital, some carry less risks than others.

We’re not interested in taking less risk however, now is a good time to take on bigger risks and with them potentially higher returns, much higher returns, and the bond market just isn’t going to cut it for our purposes.

Bitcoin, the S&P index and bonds are great ways to store wealth over the long term but they just don’t produce the returns other more volatile instruments do, big institutions know this.

Prioritize capital gains over cash-flow in the early days.

This might sound controversial because all the wealth gurus of our time tell us the name of the game is cash flow, and that is true to a certain extent. However, it is understandable that when we are young there’s not a lot of capital we can get our hands into, and in order to produce substantial cash flow out of our investments we need to make relatively bigger sized investments.

Say we invest $100,000 at an 8% interest rate annually. That would bring in cash flows of about $8,000 annually. That’s Not too bad.

But let’s decrease capital to $10,000 and suddenly you are only making $800 a year. You might as well put that into bitcoin and forget about it for 30 years.

Point is: With little capital, prioritize capital growth. With bigger capital, prioritize wealth preservation.

The whole motto of this business is wealth preservation and capital growth for a reason.

There are a lot of ways to grow capital from seed to tree and some people may choose real estate and high-risk strategies such as flipping, options trading or other types of moves to grow money aggressively.

I’ll speak from personal experience from this point on, this is not financial advice, as always do your own research but this is my current game plan, take it as you will.

We should always prioritize fundamentals overall, although combining fundamentals with technical analysis is in my view the secret ingredient needed to make informed decisions on any market.

As stated above, choosing the right tool for the job is incredibly important and if we’re looking to 1X perhaps even 10X our investment choosing the financial instrument for this task is crucial. At this point in time for me at least there are currently 2 viable tools we can use to make this happen:

1. Crypto
2. Derivatives

Both are high risk high reward and there’s a lot of things we need to consider before venturing into any of these investments, but there are no other markets that produce the amount of alpha that these two have in the last 15 years or so.

For me personally I chose crypto for several reasons:

– Not leveraged.

– Substantial percentage gains.

– ⁠Ease of movement.

– ⁠Security.

I have also used derivatives in the past but I don’t recommend it if you are a beginner investor simply because of the fact that when you are in a leveraged position you have to time in your entry really well to not get a margin call. Let’s leave derivatives to the more professional traders and managers.

In this case we’re not trying to hedge, we’re trying to invest.

Again, crypto might be controversial to most investors and speculators but from a strictly objective view, there has been no other industry that has produced the returns that crypto does overall, at least not one that I can think of, but as with any other financial instrument we just have to be highly strategic when making our investment decisions.

I choose small to mid cap cryptos to make gains because we all know that altcoins tend to outperform bitcoin at the end of the crypto cycle. The cycle lasts around 4 years which means that we’ll see a year long bull run (give or take) once every 4 years

So, it is wise to position ourselves in a project that has great fundamentals and also has a small to mid-market cap so we take advantage of the heavy upswings once the bull run starts.

I will dedicate another whole article into my process for screening out cryptos and allocating my capital if you want to check it out.

Once the bull run is in full swing, we start to DCA out of the market so that by the time the bull run is over we actually get to keep most of our gains as opposed to just getting stuck on an altcoin which statistically will only outperform bitcoin once in its lifetime.

Or if the project really is that good then I would just hedge my position short and ride the crypto bear market all the way down although this comes with risks and again, shouldn’t be tried by everyone.

Think of the market like a machine that grows wealth.

The market is not a machine to earn income, we must do that elsewhere out in the real world.

But once we have the income and the capital to make strategic investments, we should by all means take advantage of this machine.

Be wary though and study the machine in detail. These are just some of the things we must understand on a deep level to make informed decisions on when to enter and exit the market strategically:

– US Federal interest rates

– Liquidity cycles

– Monetary policy: Quantitative easing vs  Quantitative tightening

– Fiscal policy

– Economic policy

– Employment rate

– Inflation vs adjusted inflation

Remember, when starting out it is ok to wait and do nothing. This strategy consists in taking advantage of the overall federal interest rate and crypto cycles.

NEVER listen to social media, youtubers, articles, news feed, hell even me for that matter.

Actually, UNDERSTAND how the market works and how it moves. Understand the bitcoin algorithm and you will know how to make money on these swings.

4. Build Long-term wealth

Once the high-risk operations have been concluded the next step we need to immediately take is to preserve our newfound wealth.

It would not be wise to risk the newly acquired capital on further high-risk operations, rather a more viable option is to move at least 70% of that capital to more long-term sustainable assets such as an index fund, real estate or bitcoin.

There are a number of assets we can acquire to preserve our wealth. Some assets fit certain types of psychological profiles, but the important thing is to then diversify and branch out into multiple different assets as well as to venture into asset protection for a sustainable long-term wealth building plan.

Bottom Line

These sets of steps and strategies can act as a guide for people who are interested in building their wealth and preserving it on the long term.

The proportion to which we should allocate our new capital will not be discussed in this post. This is a guide, rather, to give general instructions on how wealth is created and sustained over the years.

This takes work and knowledge of financial markets, but the return on investment is well worth the effort and sacrifice.

Our future selves, our children and grandchildren will thank us for this effort.