526: The Wealth Ladder

If there’s one thing that separates the truly wealthy from everyone else, it’s their relationship with risk. Not blind risk. I’m talking about conviction — the ability to see an opportunity before everyone else does, to lean into it while others are frozen, and to hold through the storm until the payoff is undeniable. The extreme example is Bitcoin. In 2012, when it was trading for less than the price of a cup of coffee, most people laughed it off as internet monopoly money. But a handful of people had conviction.  They understood the asymmetric nature of the bet — the downside was capped at the small amount they put in, while the upside was exponential. Those early adopters didn’t just make returns; many became billionaires. Of course, most people hadn’t even heard of Bitcoin in 2012, so that might not have even been an option for you. So let’s take another example that you almost certainly did live through. Real estate after the Great Recession in 2008 was radioactive. Nobody wanted to touch it. Yet those who bought when fear was at its peak ended up riding one of the longest real estate bull markets in U.S. history.  Data from the National Association of Realtors shows that home prices more than doubled from 2012 to 2022 in many markets. Imagine the rewards of being on the buy side in 2012. I’ve said it before and I’ll say it again: I believe we are in a similar scenario with real estate right now as we head into a descending rate environment following a real estate bloodbath.  Properties are severely discounted, and values are almost certain to go up as rates fall. But you have to see the big picture and not be scared. That’s not easy to do when everyone else is.  Real estate moguls and business owners are the ones most likely to take their wealth to the next level. Real estate is accessible to you — and so is business ownership.  Look at the Forbes billionaire list and you’ll see a pattern: nearly 70% of the world’s wealthiest people are business founders or owners. They didn’t get rich clipping coupons from the S&P 500.  They got there by creating or buying businesses that became valuable, saleable assets. The risk was obvious: most startups fail. But the payoff for the ones that succeed dwarfs anything you’ll ever get in your brokerage account. Now, the reality is that most high-paid professionals never play in this arena. They’re comfortable and don’t want to rock the boat. Some call it the “golden handcuffs” — you make enough money to feel comfortable, but that same comfort prevents you from ever taking risk. And you know what? That’s totally fine. Just know that doing your 9-to-5 and investing into your 401(k) is not going to create life-changing money. If all you’re looking for is life-sustaining money, keep doing what you’re doing. But ask yourself this question: What’s the life you dream about? If it’s the life you already have, then congratulations. If not, are you on a trajectory that even makes it possible to get there? If not, you’ve got to change course. My guest this week on Wealth Formula Podcast has done a great deal of research on the wealthy and has written a book based on what he has learned. Transcript Disclaimer: This transcript was generated by AI and may not be 100% accurate. If you notice any errors or corrections, please email us at phil@wealthformula.com.  An s and p 500 index fund would've outperformed like, you know, 75% of active managers. These are people who, it's their job, they're paid and compensated to try and beat the market, and they can't. Welcome everybody. This is Buck Joffrey with the Wealth Formula Podcast, coming to you from Montecito, California. And, uh, before we begin today, wanna remind you. There is a website associated with this podcast. It's called wealth formula.com. Go check it out. There's lots of resources there for you, uh, including, uh, a chance to join our credit investor group. Our credit investor group is exactly what it sounds like. It's a investor club and uh, it's basically an opportunity to see deal flow where you might not otherwise see. I do think it's, uh, you know, uh, following, uh, Richard Duncan's, uh, podcast last week. I think it is something that you really ought to be thinking about. We, I mean, even, even Richard, who generally is pretty negative about, uh, the economy and, and that kind of thing really sees a big boom, uh, and sort of a takeover of the Trump, uh. Take over the Fed by the Trump administration. Forcing rates to go down. Descending rate environment means increasing asset prices. That's just what it is. And if the Trump administration does what it wants, you're gonna see rates going down, asset prices going up, liquidity going up, dollar going down. What that means is asset prices skyrocket. Dollar falls. I mean, listen, if you're not buying real estate, fine. I don't buy real estate here. If you're in our credit investor club, you know, we we're continuously, uh, going after these distressed assets. Um, and, uh, but they may not be your cup of tea. Maybe go buy something yourself, you know, buy some stocks or buy some, uh, buy your own, uh, real estate, uh, whatever, whatever works. But I do think that. Again, I'm not trying to give you financial advice. This is commentary. My commentary is this, is that I think the playbook that the Trump administration is trying to follow is pretty clear. Now it's possible they, they're unable to do it, but I doubt it. I mean, they're gonna fire their way to controlling the Fed and if they can fire their way to controlling the Fed, they can control the Fed interest rates and they can control the bond market through quantitative easing. So, anyway, just a reminder on that. I just feel like people need to wake up on this one. Okay. Let's talk about today's show. It's, you know, it's about, it's a little different. It's about wealth, right? So, um, I wanna talk about generally the idea of, you know, building substantial wealth and, and what does that even mean? Right? Well, I would just say this, it's the, it's life changing, right? So that's gonna be different for different people if you. Are going from, uh, you know, $50,000 a year job and all of a sudden you've got a million bucks. That's life changing, right? So, uh, if you make a million dollars a year and you know, all of a sudden you've got, uh, eight figures of wealth, um, that it, that can be life changing, right? Um, or going from, you know, eight to nine figures or whatever. These are life changing things. That's what I'm talking about. You know, if there's one thing. That separates those sort of truly wealthy from everyone else. It's a relationship with risk that is different. Now, I'm not talking about blind risk, I'm talking about conviction. The ability to see an opportunity before everyone else does, you know, to lean on it while others are frozen and to hold through the storm until the payoff is undeniable. Okay, so the extreme example. We've been talking a lot about Bitcoin lately, right? So in 2012, Bitcoin was, uh, trading for less than the price cup of coffee. And I think it's, uh, as of this, um, I'm recording this a little earlier than it's being released, but it's at about 117. I think Q4 is gonna be huge. So who knows? By the time, uh, by the time this comes out, it could be greater than 117,000. It could be a lot less, who knows? But anyway. Hell of a lot more than a cup of coffee. Let's just put it that way. Okay? But guess what? People laughed it off. They were laughing at this stuff. Even through 2017 when I first kind of got into this world myself in the bitcoin world, people were laughing. They thought it was a joke. They called it buffet, called it rat poison. Blah, rat, rat poison squared. It wasn't just even rat. But guess what? There was a bunch of people, not a bunch, but there were, there was handful of people who had crazy conviction, these Bitcoiners, right? And even, uh, you know, they started off, maybe they had a few hundred bucks or a few thousand bucks they put into it. The next thing you know, they saw that grow into like, you know, six figures. And then they still didn't sell. Then they saw it had their money go into the seven figures and they still didn't sell, and some of these folks even became billionaires. It's crazy. Crazy. What kind of conviction that takes. I mean, I don't think, man, I don't think I'd have that kind of conviction. If I saw, if I saw a hundred acts, I think I would kind of probably bail, to be honest. So maybe I'm, you know, I'm not wired to become a billionaire, so who knows? Um. Got many zeroes to go before I could, uh, call myself that Anyway, so, uh, of course, you know, most people and, and myself, I think maybe I heard about 2000 Bitcoin in 2012, but. I think I was mostly hearing Peter Schiff bash it or something like that. So then I completely went the other way. But you know, most people hadn't heard of it then. So it probably really wasn't realistic for that to, to use that as an example of conviction, because if you'd never even heard of something, then it's hard to have conviction about it. So let's take something that's, well, I know, I know pretty much all of you have recollection of, and that is a great recession of 2008. And guess what? Real estate was radioactive. In fact, I mean, kind of almost like now, right? Like where, you know, there was this bloodbath and all of a sudden nobody wanted to, you know, people were, people were all over it and then nobody wanted to touch it. Yet those, uh, who bought when the fear was at its peak. Ended up rioting one of the longest real estate bull markets in US history, which really only ended like, you know, 20 22, 20 23. But it, there was a crash. There was a big crash. Now, data from the National Association of Realtors show that home prices, uh,