What Makes Wealthy Investors Different When It Comes To The Stock Market?

I have been working as an attorney for investors for 25 years and have concluded there is a simple difference between truly wealthy investors and traditional investors. Wealthy investors tend to be obsessed with cash flow and appreciation while traditional investors are only worried about appreciation. Don’t get me wrong, they are both light years ahead of folks who do not invest, but the difference between the wealthy investor and the traditional counterpart is massive when the economy turns and the markets decline. Let’s examine both.

The Traditional Investor

With traditional investing, people tend to buy stocks they are familiar with, and then they hold on to them. This isn’t necessarily a bad approach – so long as you have money to invest and a long window of time. This tactic can become problematic for traditional investors who are banking on these investments for retirement or other significant experience since this approach takes time and requires the market to be in a good place.

While it is the nature of the stock market to fluctuate over time – sometimes crashing, only to rally back – using the traditional investor strategy could result in needing your cash during an off stock market year. It’s the gamble traditional investors take. The problem is, some of those market lows can last a long time and combined with the time waiting for decent recovery can end up being a very long time. Your utility company will not keep your lights on if you tell them you cannot pay because your stocks are down and you do not want to sell right now. Meanwhile, there’s another group of investors making a lot of money regardless of what the market is doing.

The Wealthy Investor

What is it that makes wealthy investors different and ultimately, successful? They aren’t just holding on and waiting through thick and thin in hopes that their investments go up – they demand cash flow. That’s the difference. They utilize dividends and stock rentals to increase their wealth. They are buying stocks at a discount, earning dividends, leveraging those dividends, and receiving rent checks on their stocks. These four things are very important in the stock market and can open opportunities for you. Instead of trying to just make money on an upswing in a stock like a traditional investor does, the focus is placed on doing things to lower risk. These investors want to eliminate the chance of losing money in the market by eliminating the need to liquidate or being forced to sell because of economic pressure.

The stock market is still a means by which to achieve these goals, but it’s not solely focused on it having to be during a big upswing. Because remember, the stock market is always going to go up and go down – sometimes violently. Overall, the S&P 500, as with all of the major US indexes, has continued to grow over time, but not without ups and downs.

It is with all these ups and downs that traditional investors can get hurt. The safety net is always having cash coming in whether the markets are up, down, or sideways. By investing like the wealthy do, you’re going to be able to avoid getting hurt by those swings and generate consistent cashflow. Cashflow is king when the markets tumble and it is still a Prince when the markets are going up, and the wealthy investor knows this and uses that to mitigate risk and generate great returns in up and down markets.