The key to building wealth often lies in making smart investments that generate passive income streams. However, many poor people lack the necessary capital, knowledge, and habits to invest in assets that create wealth over time. In his popular article ‘What the Rich Invest in That the Poor Do Not’, Naval Ravikant outlines several key areas that the wealthy invest in but the poor often overlook. These include investing in equity rather than just trading time for money, focusing on long-term compounding games rather than short-term ones, and investing in skills, relationships and health. With the right mindset shift and financial habits, the poor can also begin investing in these wealth-accelerating assets.
Equity Investments Are Key for Building Lasting Wealth
One of the biggest differences between the rich and poor is that the rich invest in equity rather than just trading their time for money. Equity refers to owning a piece of a business, whether through stocks, real estate, or having an ownership stake in a private company. These investments can generate passive income that continues growing exponentially through compounding. However, most poor people focus solely on trading their time for a paycheck, which severely limits their ability to create lasting wealth. As Naval notes, “You’re not going to get rich renting out your time. You must own equity.” By saving and investing in productive assets, the poor can also begin to build streams of passive income.
Long-Term Investing Beats Short-Term Speculation
The rich tend to play long-term games that compound over decades, while the poor often look for quicker wins through gambling or speculation. Getting rich overnight rarely happens, but those who patiently invest in assets like stocks, bonds, and real estate over long periods of time see their money grow exponentially. As Albert Einstein once noted, “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” But compounding takes time, so the rich adopt a long-term mindset. By avoiding short-term speculation and consistently investing over 10, 20 or 30 years, the poor can also harness the power of compound interest to build wealth.
Investing in Skills, Relationships and Health Pays Off
Beyond just money, the rich invest heavily in improving their skills, relationships and health. They know that these three factors enormously impact their ability to generate wealth. The wealthy voraciously read, pursue continuous education and sharpen their productivity skills. They also cultivate win-win relationships that benefit both parties. And they protect their most precious asset – their health – by managing stress and paying for top medical care. While the poor often neglect these areas due to lack of time or money, investing in them actually creates more time and money. As Naval summarizes, “Save, build, and invest in yourself before all else.” By focusing on their skills, relationships and health, the poor can hugely increase their wealth-creating abilities.
In summary, the rich build wealth by investing in equity, playing long-term compounding games, and investing in themselves. With the right habits and mindset shifts, the poor can also begin focusing on these high-return investments to build lasting wealth and financial freedom over time.