Paul Moore: Black Friday – I have made AND lost millions – here's my hard won advice for this special day

Yes, take a moment to reflect and ask yourself if you’re on a path to building true wealth — or a path to be among the 6 in 10 with less than $10,000 saved for retirement.

We live in the wealthiest civilization in human history. But statistics say that 10,000 Americans turn 65 every day, and 6 in 10 have under $10,000 saved for retirement.

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I think we know the answer to this paradox: we’re a nation of spenders. We’re short term thinkers. Microwaves, same-day deliveries, and everything on-demand have trained three generations of Americans not to make a simple calculation:

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Every dollar spent today = $5 to $10 out of your pocket tomorrow

The problem is, many of us don’t know how to truly invest.

I was guilty myself. I sold my company at 33 and found myself with a few million dollars in the bank. I thought I was a full-time investor. Actually, I was a full-time speculator. Within a decade, I went from a few million in the bank to a few million in debt.

In the years since, I’ve learned the difference between investing and speculating. Studying Warren Buffett has certainly helped. Investing is when your principal is generally safe and you have a chance to make a profit. Speculating is when your principal is not at all safe, and you have a chance to make a profit.

When my friends and I dropped a million dollars in a hole in the ground, we expected a huge profit from oil. We ended up with air. We were speculating.

I sold my company at 33 and found myself with a few million dollars in the bank. I thought I was a full-time investor. Actually, I was a full-time speculator. Within a decade, I went from a few million in the bank to a few million in debt.

The same happened when I plowed good money into a cutting edge wireless technology I knew nothing about.

It wasn’t until years later, when I began acquiring mobile home parks and self-storage facilities — assets that throw off monthly income and grow in value — that I learned the difference between investing and speculating.

Let’s be clear: It’s fine to speculate. As long as you’re aware of it and wagering only a small portion of your funds. Some of the world’s wealthiest people started out as speculators. Like Stanford Professor David Cheriton, whose $100,000 gamble on Google in 1998 turned into billions.

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But the wild success of speculators is the exception -- and that’s why they are famous.

I propose that the clearest path to wealth is through truly investing. Unfortunately, this path is often less exciting than speculating.

Investing is when your principal is generally safe and you have a chance to make a profit. Speculating is when your principal is not at all safe, and you have a chance to make a profit.

Paul Samuelson, the first American to win the Nobel Prize in Economic Sciences, said, “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”

Watching Bitcoin’s meteoric rise in 2017 was more exciting than plodding along with Warren and Charlie in Berkshire Hathaway stock that “only” rose about 22 percent that year. But like Samuelson said, this is not about fun. In the short run at least. In the long run, it is both fun and satisfying to possess true wealth.

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So what is true wealth anyway? I would define true wealth as assets that produce income.

Assets that have a predictable income stream are the essence of true wealth. This helps me as I differentiate between speculations and investments. And it is one reason I’ve landed in the realm of commercial real estate.

Thankfully I’m not alone. The majority of the Forbes 400 wealthiest on the planet also invest in commercial real estate. They understand the formula: acquire assets that produce income. And they love the tax benefits. The tax reform act of 2017 made the surprising tax benefits of commercial real estate even better.

I know of a successful real estate investor who set aside $2 million for the IRS in late 2018. After consulting with his tax strategist, he realized he could use this same $2 million as a down payment on an $8 million apartment complex instead. Then, through accelerated depreciation provided by the new tax law, he was able to save about $2 million in taxes from this same investment. The money that would have been gobbled up by Uncle Sam was invested in an asset that produces income instead.

Now you may not have a $2 million tax bill to avoid. But if you’re like me and many other investors, you may be surprised at the opportunities to save taxes through commercial real estate while building true wealth by acquiring assets that produce income.

So enjoy Black Friday. But take a moment to reflect and ask yourself if you’re on a path to building true wealth — or a path to be among the 6 in 10 with less than $10,000 saved for retirement.

Paul Moore is an investor and fund manager with two decades of experience in real estate. He is the co-host of "How to Lose Money," a weekly wealth-building podcast, and is a frequent contributor to BiggerPockets. He is the author of "The Perfect Investment: Create Enduring Wealth from the Historic Shift to Multifamily Housing" (2016) as well as forthcoming books on self-storage investing and a real estate investing book on Warren Buffett. To learn more about Paul’s work in real estate investment, visit WellingsCapital.com.

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