The Weekend Edition is pulled from the daily Stansberry Digest.
Some folks are sensitive about the words "rich man, poor man"...
But either way, they're as true today as when the late Richard Russell wrote them decades ago in his Dow Theory Letters newsletter.
For the uninitiated, Russell was considered the dean of financial-newsletter writers for about four decades. He was prolific. He wrote every day. And he had remarkable, often contrarian insight about the markets.
Russell notably started recommending gold in the 1960s... called the bottom of the great bear market of 1972 to 1974 almost to the day... and said a bull market was finished two months before the 1987 stock market crash.
But in his most iconic essay "Rich Man, Poor Man," Russell said that while predicting the direction of the stock or bond markets can certainly help you make money, truly wealthy investors know about a few more important fundamental secrets to getting rich...
Specifically, he talked about why it's so important to make money on the money you have already... how best to do it... and why this idea makes the difference between being a "little guy" and a "rich man." As Russell wrote...
Because the little guy is trying to force the market to do something for him, he's a guaranteed loser.
The little guy doesn't understand values so he constantly overpays. He doesn't comprehend the power of compounding, and he doesn't understand money.
He's never heard the adage, "He who understands interest – earns it. He who doesn't understand interest – pays it." The little guy is the typical American, and he's deeply in debt.
But here's the ironic part of it. If, from the beginning, the little guy had adopted a strict policy of never spending more than he made, if he had taken his extra savings and compounded it in intelligent, income-producing securities, then in due time he'd have money coming in daily, weekly, monthly, just like the rich man. The little guy would have become a financial winner, instead of a pathetic loser.
In today's essay, we're sharing a piece of information that can be used to be more like the "rich guy" in Russell's essay... and less like the pathetic loser.
In short, Russell's famous essay is really about the "power of compounding"...
The concept of "compound interest" – making a percentage on your capital, then making another percentage on your larger amount of capital, including the interest – is old hat to longtime Stansberry Research subscribers and experienced investors.
Way back in 2009, our founder Porter Stansberry cited Russell's essay in our flagship Stansberry's Investment Advisory newsletter to help describe the idea...
To explain the power of compound interest, Russell notes that if a 19-year-old put $2,000 each year into his IRA for seven years in a row and then never contributed another penny to his retirement, he'd have $1 million by the age of 65, assuming he earned 10% a year on his account on average.
If another investor started saving for retirement at 26 – the same age the first investor stopped contributing – and he put $2,000 into his IRA every single year until he was 65, he still wouldn't catch up to the first guy.
At age 65, the young man who started (and finished) investing earlier had more than $930,000 on a $14,000 investment. The other had about $894,000 on $80,000 invested.
I didn't believe this math the first time I read it either, but it's true.
The first "rich man" amassed a larger fortune than the second "poor man" – once you subtracted the initial investment... despite the fact that the second young man invested nearly six times as much money over a much longer period of time.
It's why we muttered "Compounding is the key to life" to ourselves after reading Russell's essay for the first time years ago.
Even if we update the math to account for a more reasonable return of 5% a year, the first young man would only have to contribute each year until he's 32 to still come out on top of the second investor.
No matter how you slice it, the lesson is clear: Start early and win in the long run...
The sooner you invest in stocks that will pay you back and give you more shares, the more that money can work for you during the rest of your investing life...
At this point, we know a lot of folks may be thinking, "It's too late for me. I don't have enough time to compound my wealth." But there's no time like the present. That's the only place to start, after all. As Porter said in the Investment Advisory more than a decade ago...
What it really means is that you have to start now. You have to learn to be a saver. You have to make sure your money is earning interest all the time.
If you're borrowing money for a house, a car, or anything else (unless, on balance, you're making more in interest in investments than you are paying in interest on the loans), you will never, ever be rich.
Today, generally speaking, interest rates are low...
For instance, the 10-year U.S. Treasury note – and similar bond investments – are yielding basically nothing, or worse. The 10-year Treasury today yields 1.26%. The only time it has ever been lower since the late 1800s was in 2020 in depths of the pandemic.
And taking inflation into account, the "real" yield on the 10-year Treasury today is actually negative, meaning money in these government bonds are losing purchasing power.
So you may think the idea of meaningful interest is dead... And in a lot of cases, you'd be right.
In other words, folks today have fewer traditional ways to generate the kind of interest that can outpace debt payments... or inflation.
But while decent yield might be harder to find, the idea is still alive and desired – in old and new places... like cryptocurrencies.
Crypto Cashflow editor and cryptocurrency expert Eric Wade calls this idea "Crypto 2.0"...
As Eric wrote to subscribers in his June issue...
You see, cryptos have always been a speculative investment. With their volatility, you could make life-changing gains – or suffer big losses.
For example, bitcoin rose from $5,800 to more than $18,000 in just three weeks in late November into early December 2017. It went on to peak near $20,000 before falling back down to $6,000.
Recently, we've seen incredible volatility in bitcoin. Its price hit a new all-time high in April, above $60,000, then was cut in half over the subsequent two months to below $30,000... and just in the last week it has rallied 15% to around $40,000.
But as Eric noted, the crypto space involves much more than just the price of bitcoin...
Cryptos have steadily been moving away from pure speculation. Now, many of them are income-producing assets. Bitcoin, stablecoins, and many other cryptos can create cash flows for you.
It's a concept as old as successful investing itself, and it's a "rich man" idea applied to a "new frontier of finance."
Now, a lot of people get the "scarcity" argument about bitcoin...
There will only be a certain number of bitcoins (21 million) ever mined.
So, in a world where the value of the U.S. dollar has declined 95% over the last several decades and the Fed creates money from nothing, we can see the appetite and use for a currency whose entire framework and code is designed to protect against inflation.
Now, add the ability to generate interest – earning more of that scarce asset – into the equation by doing a couple of simple, specific actions and paperless keystrokes... and we're left with what sounds like a compounding story for the next century.
It's called "DeFi," or decentralized finance.
Eric says investors can earn interest on their cryptocurrency holdings in a few big ways...
The simplest way is to simply lend it out.
In the early days of crypto, that meant connecting directly with a borrower and agreeing on a loan term and rate. Today, several platforms make it simpler.
You can deposit your crypto and instantly earn yield, up to 6% in some cases, without having to find or interact with borrowers. And as Eric said in an August 2020 DailyWealth, demand is growing for this concept right now...
First, users may want to tap their crypto equity without selling it. That's because when you sell your crypto, you're taxed on the capital gains – just like with a stock.
For example, you could borrow some money against your bitcoin holdings and pay back the loan without selling your bitcoin. You've tapped the "value" of your bitcoin without spending or selling it (and without generating a tax bill on your capital gains).
Second, a borrower might need a specific token for a short period of time. For example, a user could borrow tokens that they need for an online game, or they might want to hold a token to participate in a governance vote.
Finally, borrowing platforms offer a way to leverage trades. Folks who own Ethereum (ETH) can borrow against their holdings to buy tokens in another project without selling their ETH tokens, for example. Or they can borrow a token they want to bet against, then sell that token with the hopes of buying it back cheaper in the future. This is a popular strategy for hedging and short selling.
The second way to make income with cryptos is through something called "staking."
It's kind of like renting out your house on Airbnb. You still own the house, but you're giving up control over it for a short period of time in exchange for a financial reward.
The third way is by owning and lending "stablecoins," like the collateral-backed DAI or USD Coin ("USDC"), which were created to mirror the value of the U.S. dollar. They are less volatile than bitcoin, hence the name.
You can convert U.S. dollars into stablecoins directly on platforms like Crypto.com and begin earning double-digit yields on them without getting exposure to more volatile cryptos.
But you shouldn't put your entire nest egg into stablecoins – or any other crypto investment for that matter. We do not recommend that. We simply want you to be aware of these investments today... and consider allocating a portion of your wealth if you're interested.
Eric will be the first to tell you that investing in the still-maturing crypto market comes with risk. We don't recommend you go at this alone.
But at the same time, this is an exciting space to learn about and take advantage of. The broader investing world "hasn't recognized this amazing opportunity yet," Eric says...
But with shrinking yields in virtually every other major asset class, they will. Until then, stablecoins are a compelling way to grow your wealth. Take advantage of it while you can.
For example, if you hold 1 BTC today and you earn a compounding 8.2% on it over the next four years, you would have nearly 1.4 BTC. If bitcoin surges to, say, $100,000 over the next four years, your holdings would be worth $140,000 instead of the $100,000 they would have been worth otherwise.
That's a "rich man" idea for a new, zero-interest rate era... perhaps even for the next century.
All the best,
Corey McLaughlin
Editor's note: Eric sees a new opportunity ahead in the crypto space that could earn investors yields as high as 35%... and he's not referring to bitcoin. Instead, he has found a handful of little-known cryptos that are set to soar when everything unfolds. There's massive upside in cryptocurrencies ahead. Click here to learn more.
