In the previous article, I talked about business and how this is the only (legal) way to get to financial freedom. There’s the second one, which is investing. But there’s a caveat: to invest, you need some money first. So there’s no point in discussing investing before we have a tangible sum for that. But let’s be creative and imagine that scenario.
So, let’s say you’ve built your first chunk of capital through business. Maybe it’s $100,000, maybe it’s $500,000, maybe you’ve hit that magical first million. Congratulations – seriously. You’ve done what most people never will.
But here’s where most people completely screw up: they have no idea what to do with that money once they have it.
Some stick it in a savings account earning 0.5% interest while inflation eats away 3-4% of its value every year. Others see some crypto bro on Twitter showing off a Lamborghini and think “that could be me” – then proceed to lose everything chasing the next pump-and-dump scheme.
Investing vs. Gambling
There’s a massive difference between investing and gambling, but in today’s world, those lines have been deliberately blurred by scammers who want your money.
- Real investing has two essential ingredients: capital and time. You put money into assets that have a reasonable expectation of growing in value based on actual economic productivity. Then you wait – years, sometimes decades – while compound returns do their magic.
- Gambling, on the other hand, is when you put money into something with no intrinsic value, no cash flow, no fundamental basis for valuation, and you just hope that someone else will pay you more for it tomorrow than you paid today.
Benjamin Graham, the father of value investing, defined it this way:
“An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative”.
By that definition, here’s the uncomfortable truth: most people who think they’re “investing” are actually just gambling.
Let me show you what real investing looks like – and what it absolutely doesn’t.
The Index Fund That Beat 90% of Wall Street Experts
Let’s start with the simplest, most boring, most reliable wealth-building tool: the S&P 500 index fund.
The S&P 500 tracks the 500 largest publicly traded companies in the United States. When you invest in an S&P 500 index fund, you’re basically buying a tiny piece of the entire U.S. economy – Apple, Microsoft, Amazon, Tesla, Johnson & Johnson, all of them.
It’s not sexy. Nobody’s going to brag about their S&P 500 holdings at parties. But here’s what it does: it makes money, consistently, over time.
Since 1957, when the S&P 500 took its current form, it has delivered an average annual total return of about 10.5%. After adjusting for inflation, that’s roughly 6.7% real growth per year.
Let me put that in concrete terms so you understand what compound returns actually mean:
If you had invested $100 in the S&P 500 in 1957, by 2025 it would have grown to over $96,000 in nominal terms – that’s about $8,300 in inflation-adjusted purchasing power.
That’s not from trading, picking hot stocks, or any genius moves. Just buying the index and holding it through every crash, every recession, every bear market, every moment of panic.
Now: the stock market isn’t a straight line up. There have been drops – the 2008 financial crisis saw declines of over 50% in some cases. The 2020 COVID crash happened so fast it made people’s heads spin.
But every single decline has been followed by a recovery to new highs, given enough time.
This is why time is the second essential ingredient for investing. You need the patience to ride out the volatility. If you “invested” money you need next month into the stock market, you’re gambling that it won’t crash before you need the cash.
Let’s Do Some Public Math
Warren Buffett, who is worth about $160 billion and is widely considered one of the greatest investors ever, has repeatedly said that for most people, an S&P 500 index fund is the best investment.
He even made a public bet in 2007: he wagered that an S&P 500 index fund would outperform a selection of hedge funds over 10 years. The hedge funds had all the fancy strategies, the expert managers, the complicated algorithms. The index fund won by a huge margin.
Here’s another mind-blowing stat: over any given 15-year period, over 90% of actively managed stock mutual funds underperform the S&P 500 index after fees.
Think about that. Professional fund managers, with teams of analysts and millions of dollars in research budgets, can’t beat the simple strategy of “buy everything and hold it.”
Jack Bogle, the guy who popularized the index fund, said:
“The stock market is a device for transferring money from the impatient to the patient”.
But you need time. Compounding a 5-10% annual return doesn’t change your life overnight.
If you invest $1,000 and it grows at 8% annually:
- After 10 years: $2,160 (decent, not life-changing)
- After 30 years: $10,000 (now we’re talking)
- After 50 years: $46,000 (substantial wealth from one initial investment)
This is why index fund investing works best as a long-term wealth builder, not a get-rich-quick scheme. You’re literally investing in the productive capacity of the entire economy and collecting your share of that growth.
The key principle: your investment return must exceed inflation, or you’re losing money in real terms. The S&P 500 has cleared that hurdle with room to spare for seven decades.
How a Vermont Janitor Died Wealthier Than Most Doctors
Let me tell you a story about Ronald Read.
Ronald worked as a gas station attendant and later as a janitor in Vermont. Not glamorous jobs. Not high-paying. He lived in a modest house, drove an old car, wore the same jacket for years.
When he died at age 92, people in his town were shocked to discover he had accumulated an $8 million portfolio.
How did a janitor become a multimillionaire?
He bought shares in solid, dividend-paying companies – blue-chip stocks that you’ve heard of, held them for decades, and reinvested the dividends, while lived below his means so he could keep buying more shares. And he waited.
That’s it. No secret formula, insider information, or complicated trading strategies.
Just patience, discipline, and the power of compound returns over time.
There Was a Secretary
There’s a similar story about Grace Groner, a secretary who in 1935 invested $180 in shares of Abbott Labs (her employer). She held that investment, reinvested dividends, and never sold. When she died in 2010, that initial $180 had grown to $7 million.
These aren’t isolated cases. A 2019 study by Ramsey Solutions found that many millionaires were engineers, accountants, teachers, and other steady professions – not hedge fund managers or tech entrepreneurs. They built wealth through consistent saving and disciplined investing over decades.
The common thread between them is that they became investors while remaining employees. They didn’t rely solely on their salary – they made their money work for them in the markets.
They also shared another critical trait: they kept their expenses modest, didn’t upgrade to a bigger house every time they got a raise, didn’t buy new cars every few years, didn’t try to look rich – they actually became rich by investing the difference.
Compare these real stories to the crypto traders who made millions in 2021 buying Lamborghinis and luxury watches, only to lose it all in the 2022 crash. One group was investing based on economic fundamentals and patience. The other was gambling on momentum and hype.
Real Estate: The 90% Solution Nobody Talks About
Here’s a stat that should make you pay attention: approximately 95% of U.S. millionaires own real estate – either their primary home or investment properties – and nearly half own investment real estate or land.
Andrew Carnegie, one of the richest industrialists in history, once said:
“90% of millionaires become so through owning real estate”.
So why is real estate such a powerful wealth-builder?
The model is actually pretty straightforward: you buy property (residential or commercial), you rent it out for monthly income, and over time the property value appreciates. You’re getting two returns – rental yield (like a dividend) plus property value growth.
Historically, housing prices in the U.S. have increased at about 4-5% annually in nominal terms – roughly 1-2% above inflation on average. Not as high as stocks, but more stable with less volatility.
But here’s where real estate gets really interesting: leverage.
When you buy stocks, you typically pay cash for the full amount. But with real estate, you can put down 20% and borrow the rest with a mortgage. If the property value goes up, you earn appreciation on the full value, not just your down payment.
Let me make this concrete:
You buy a $500,000 property with $100,000 down (20%) and a $400,000 mortgage. Your tenants pay rent that covers your mortgage payment, property taxes, and maintenance. After 20 years, the property is worth $800,000 and the mortgage is paid off.
You invested $100,000 initially (plus costs over time, sure), but you now own an $800,000 asset. The tenants essentially paid off your mortgage for you while you built equity.
This is the time-tested formula that has created millions of ordinary millionaires: buy rental properties, hold them for 20-30 years, let rents and appreciation do the work, end up owning valuable assets outright.
Real Examples of Real Estate Wealth
Carl and Mindy Jensen used a strategy called “live-in flips.” They’d buy houses that needed work, live in them for a couple of years while fixing them up, then sell for a profit – taking advantage of a U.S. tax law that exempts capital gains on primary residences up to $500,000 for couples. They repeated this multiple times, rolling profits into the next property, and built significant wealth relatively quickly.
Ryan Pineda started by flipping couches for small profits, then flipped his first house with a $25,000 gain. He rapidly scaled to flipping dozens of homes per year, turning those profits into a multi-million dollar real estate portfolio by his late twenties.
Even more common: the schoolteacher and postal worker couple who buy a duplex, live in one unit, rent out the other (house hacking). After a few years, they use savings and equity to buy another rental. They repeat this a few times over 30 years. By retirement, their properties are paid off, have quadrupled in value, and produce steady passive income.
These aren’t billionaires of course. But these are regular people who understood real estate’s wealth-building power.
Fly In The Ointment
Now, I’m not going to pretend real estate is perfect. The 2008 housing crash proved that property values can decline. Properties come with costs: maintenance, property taxes, insurance, potential vacancy periods, and they’re not liquid – you can’t sell half a house if you need cash quickly.
It’s also more hands-on than buying an index fund. You’re dealing with tenants, repairs, property management. Unless you hire a property manager, which eats into your returns.
And of course the real estate market conditions vary from country to country.
But here’s why many people gravitate toward real estate: it’s tangible. You can see it, touch it, drive by it. It feels more “real” than numbers on a brokerage statement. And historically, it generally appreciates over time while providing cash flow along the way.
Real estate also serves as an inflation hedge – when prices in general rise, rents and property values tend to rise too. Your mortgage payment stays fixed while your rental income increases.
For passive investors who don’t want to manage properties directly, there are REITs (Real Estate Investment Trusts) – basically mutual funds for real estate that you can buy like stocks.
The bottom line: real estate is a proven, legitimate wealth-building asset class. It requires more capital upfront than stock investing, more active management, and isn’t as liquid. But for those willing to learn the game, it’s created more millionaires than probably any other asset class.
To Be Continued
The last part I want to talk about is crypto and my relationships with it. And also I talked about two ingredients of successful investing: money and time, so I want to expand on that topic as well. I gathered a lot of examples from the Internet that will help us be more specific and real. But all that is material for the next article.
In the meantime let’s quickly recap all we have to say about finding your path to financial freedom. There are two fundamental ways for that: business and investing. Investing requires time and money, which not all of us have at the beginning. But we have to consider this path as soon as we start making any money, because of the compound effect. And for making money we have to build a business, there’s no other way.
As for me personally, I started some tangible investments while having my last job: all the bonuses I got I invested in some crypto assets and commercial real estate. We will discuss crypto in the next piece, but real estate already brought me dividends after two years of passive waiting. So it’s the first time I can say on my personal example this works.
As for business, I’m currently providing web-development services for my clients at anticode.net and building my own products: some of them related to my personal brand and I mention them a lot in my writings, and some are yet to be announced, so stay tuned for that.
And let me know in the comments what type of investing you personally experienced and want to try.