Know the reasons why the rich get richer (and how you can join their ranks) from ex-hedge fund manager Zach Scheidt!
In this article:
- How the Wealthiest People Multiply Their Money
- How the “Elite” Beat the Market
- The Rich Get Richer on Wall Street
- Organizing Private Equity Funds
- Three Ways the Elite Get Richer
- Put the Private Wall Street Returns Into Your Retirement
- Private Equity Firms to Check Out
Secrets Why the Rich Become Richer, Revealed
How the Wealthiest People Multiply Their Money
There’s a rising sentiment that the only way to make money in the stock market is to be “in the know.”
Traditionally, these insights have only been available to Wall Street pros and their wealthy clients. Millionaires and billionaires hire hedge fund managers to help their income increase exponentially.
And most people planning their retirement savings don’t have access to that sort of insight.
If you’re part of the majority of people who fall into this category, don’t get discouraged.
Because there’s a little-known strategy that allows everyday investors to turn the tables to their advantage.
So today, I’m bringing in our income expert, ex-hedge fund manager Zach Scheidt.
He’s going to show you how to use this strategy to profit just like his former $1 million dollar clients once did. With his tips, you can also earn more to secure your funds for retirement, or even for extra income right now.
How the “Elite” Beat the Market
“The rich get richer, and the rest of us get left behind.”
That’s a popular theme that is showing up a lot more in the media and in our discontented culture today. Movies, TV series, and more show a disparity between rich people and people with “normal” jobs negatively the majority of the time.
Capitalism favors the rich in these movies, shows, and stories.
I’ve always hated this attitude.
Maybe it’s because I still believe that hard work pays off, and that if you dream big, you can find a way to achieve those dreams. Even low-income students can grow up and become some of the wealthiest with perseverance and hard work.
That’s certainly the message I try to pass on to my kids as I encourage them to do their best with everything they tackle.
But on Wall Street, there is an element of truth to the “rich get richer” way of thinking.
The Rich Get Richer on Wall Street
So how do the rich keep getting richer on Wall Street?
In particular, the most elite investors on Wall Street get access to the best trading and investing opportunities. And by the time much of the information gets to individuals like you and me, the opportunity is already over!
I know this because when I was a hedge fund manager, I saw this play out first hand. And admittedly, my firm and my clients profited from knowing where the best opportunities were and how to profit from them before everyone else!
That’s not fair. But sometimes it’s just how the market works.
The most successful players on Wall Street typically come from the “private equity” side of the business.
Private equity investors are simply fund managers who only accept clients that are extremely wealthy and are able to contribute millions of dollars in investment capital at a time. This results in massive capital gains for the investors.
As opposed to mutual funds, which are available to anyone, private equity funds are generally only available to “accredited investors” who have a net worth north of $1 million. At my old hedge fund, you couldn’t even get a meeting with my boss unless you had $1 million in the bank.
Organizing Private Equity Funds
Private equity funds can be organized in a number of different ways.
Some are hedge funds that have the ability to bet on stocks going up or down and can make more aggressive investments using securities like options, futures contracts, and even private deals with other investors.
Real estate funds are also popular in the private equity area. These funds can buy entire tracts of land, oversee the development of retail locations, office buildings, mines or other uses.
Long-term deals on these special real estate plays can be very lucrative.
And some private equity funds invest in companies that aren’t yet trading on the market. For instance, many private funds have already invested in Pinterest, Uber, Slack, and a handful of other popular companies that will start trading later this year.
When the shares of these companies start trading, private equity funds have the potential to make huge gains!
In short, elite investors in the private equity area make a ton of money for their exclusive list of clients.
But more importantly, private equity managers make ridiculous profits for themselves because of the way their fees are arranged. It’s essentially a “no-lose” situation for the companies who run these funds.
Three Ways the Elite Get Richer
Sometimes I look back at my hedge fund days and just shake my head at how much money the industry makes.
Of course, I’m truly thankful to now have more time to spend with my children. (I don’t miss those 80-hour work weeks and the insane commute one bit!)
And I love that my position today allows me to help you live a rich retirement.
But man, oh man do those hedge fund managers make a lot of money!
(And don’t forget, I’m going to show you how to tap into this wealth in just a moment!)
The reason this business is so lucrative, is because the entire industry is rigged to make a profit no matter what happens. For most private equity funds, there’s a three-tier strategy that ensures the manager of that fund always comes out ahead.
Tier 1: Charges to Investors
The first tier of profitability is the management fees charged to investors.
When a new wealthy customer decides to invest in a private equity fund, the fund charges that client a fee before the first dollar is ever put to work.
They charge hefty rates to create and manage their clients’ stock portfolios. If all goes well, the investments these firms manage will bring in millions of returns.
This ensures that the private equity company will have plenty of cash to pay employees and keep the lights on in their fancy high-rise office building.
Tier 2: Incentive Allocations
Second, the most exclusive private equity firms charge incentive allocations.
This is simply a term for “profit sharing” and it means that every time the fund’s clients earn a profit, the private equity fund gets a portion of that profit as well.
Traditionally, private equity firms have charged a 2% management fee each year, alongside keeping 20% of the gains their customers make.
So imagine you invested $1 million into a private equity fund and that fund generated a 25% return…
Your 2% management fee would take a quick $20,000 off the top. And then at the end of the year, the private equity company would take $50,000 of your $250,000 profit for themselves.
Talk about a profitable business model!
Tier 3: Own Capital Investment
The third tier of profit for private equity groups comes from investing their own capital.
As profits from management fees and incentive allocations accumulate, these private equity firms typically put their own money into the private funds alongside their investors.
This money can continue to grow until at some point the manager may stop accepting money from clients and simply invest their own capital in the best opportunities.
For the very best private equity managers, it’s getting harder and harder even for wealthy investors to get money into these private funds. Because over time, these private equity managers simply choose to invest for themselves.
In this case, then the movies were right. Yes, on Wall Street, the rich get richer.
But what if you could join them and use their strategy to fund your rich retirement?
Put the Private Wall Street Returns Into Your Retirement
One of the best-kept secrets when it comes to these private equity companies is that you can actually buy shares of many of the companies themselves.
This means that you can become a shareholder — or part owner — of the companies pulling in the lucrative profits.
Better yet, many of the publicly traded private equity companies that I follow are organized as Limited Partnerships (or LPs).
This works to your advantage because the LPs do not have to pay corporate tax, but they are required to send you the majority of your gains via “distributions.”
These distributions are essentially dividends that can help to fund your retirement, or can be reinvested into new shares to lock in even bigger gains in years to come!
Private Equity Firms to Check Out
Some of my favorite private equity firms include The Blackstone Group LP (BX), KKR & Co. Inc. (KKR) and Oaktree Capital Group (OAK).
An expert team of investors manages all three of these private equity firms are managed, and all three are actively locking in gains from the “unfair” three-tier profitability strategy.
I encourage you to take a look at these plays to help generate extra income and wealth for your retirement.
Now you’re also already “in the know.” How you use this information to improve your financial situation is up to you.
If you aspire to become a millionaire or a billionaire, you need to know how the rich become richer!
Here’s to living a rich and rewarding retirement!
Do you have other tips on how the rich become richer? Share what you practice in the comments section below!
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