In this article, I want to show you the “three-bucket system” that I’ve been using for about 20 years to create wealth.
I will also cover:
How much money should you put into your trading account?
How to grow your trading account fast.
Should you put all your money into your trading account or also in some other investments? If so, what kind of investments? I
’m also going to show you exactly how I manage my money.
In 2002 I came to the US with $30,000 in my pocket, and today I am a multimillionaire. People ask me all the time, “How did you do that?” And they want to know, “What would you do in 2022 if you had to start over?”
What Are The Three Buckets To Create Wealth?
Let’s first talk about the three buckets to create wealth and what their goals are. Then, how much money you should put into these buckets, and what to do if you don’t have a lot of money for trading yet.
I love trading, so it’s no surprise that it is bucket number one for how to create wealth. The goal with trading is to make 30-60% per year.
Bucket number two is investing. There is a huge difference between trading and investing.
Bucket three is for crazy ideas, and we will talk about these. As you’ll see, this one is a lot of fun.
Bucket Number 1 – Trading
Here is what I love about bucket number one. This is where you can start small and grow big. When I came to the U.S. more than 19 years ago, I put $20,000 in my trading account.
I made a lot of mistakes and I traded it down to $8,000. But that is the great thing. You can actually start with a small account.
The idea is to trade for a living. This means that all the profits that you make are being transferred to your checking account. Here’s the good news, this is where you can calculate how much you need to have in your trading account.
If, for example, your goal is to make $100,000 with trading per year, with trading a margin account you can make 60 percent based on your cash.
But let’s start with 30 percent. How big does your account need to be?
To figure this out, you take the $100,000 that you want to make, divide it by 0.3 (30%), and this gives us an account of $333,000. Here’s the good news, you don’t need to have all this in cash.
If you choose to use a margin account, you only need half of this. This means that you need around $166,666, let’s say $170,000 to make it easier, in cash.
What if you don’t have $170,000 in cash? I’ll show you exactly what I would do, including what account size I would start with and how I would plan to grow it.
First, let’s talk about the risk here, because if you try to make 30 to 60 percent per year, there is some risk involved. It means that you could lose 30 percent to 50 percent of your account while you are trading.
I don’t think you should lose more than this, because you should trade this account conservatively.
This is why I always talk about SRC profits which stands for systematic, repeatable, and consistent.
So what would I do if I didn’t have $170,000 in cash? Let’s now talk about investing to create wealth.
Bucket Number 2: Investing
The 2nd bucket to create wealth is investing. When I say “investing,” what do I mean here? Some examples of investing that I would do, and I have been doing a lot of this in the past, is real estate.
We’ll talk about how everything flows into the buckets, and how much you should have in each account.
I started trading in 2002, and I’ve been investing in real estate since about 2006 or 2007, this is one way to invest.
You could also invest in dividend stocks. The idea here is that you are buying a stock and you’re holding it for the long run to collect dividends. You could also try to get into index funds.
With investing, the goal here is that you make 10 to 20 percent per year. This is possible with real estate investing, dividend stocks, and with index funds. You could also do some hard money lending if you are into this.
The goal here is that you want to have a very conservative account for the long term. By “long-term” I’m talking about many years. This is especially true if you’re investing in real estate.
Unless you’re doing some crazy flips or buying a house or an apartment complex to rent out, it might take many years before you can sell it again.
The idea here is that you are creating net worth. The idea is that you’re investing in assets that appreciate over time.
There’s also some risk involved here. The risk is lower, and that is where you see the less money you want to earn, the less risk is involved. It is possible to lose 10 to 20 percent of your account.
If you’re trying to make 30 to 60 percent per year, we have to take some risks. If we are trying to make less, there’s less risk. The least risk is if you’re putting money into a CD or into a savings account, but you’re not making any money.
Bucket Number 3: “Crazy Ideas”
The goal with these “crazy ideas” is to make 400 to 1,000 percent. For example, if you would invest in some cryptocurrencies.
Let’s say you are expecting bitcoin to go to $100,000 next year when right now it’s trading at around $50,000. So cryptocurrencies would be one of these ideas.
Biogen stocks, or BIIB for example, is a crazy idea that you might have. They are inventing an Alzheimer’s drug. And this is where you see, “Oh my gosh, this is going from around $200 to over $400.”
Or it could be something crazy like meme stocks such as AMC or GME, where you think this is going to the Moon.
So these “crazy ideas” could be stocks like Biogen. They could be your friend’s crazy idea, or something like cryptocurrency. The goal here is to create some fun money.
With this fun money, you can use it to buy crazy stuff. This could be a new car, or an expensive grill like a Green Egg or a Kamado Joe. You might want to buy a boat or even a yacht.
But, here’s the problem. This is where the risk is high. You could lose 50 percent, even up to 100 percent. On average I would say 50 to 80 percent. The more return you expect here, the more risk you could have.
How To Allocate Your Assets To Create Wealth
Here is what I think is a good asset allocation. I’m just sharing what has worked for me. For you, it might be completely different.
Bucket one, which is the trading bucket. Let’s say, in this bucket, you put $250,000 with margin, which would give you around $500,000 in buying power.
If this is the case, in bucket two for investing, I would allocate approximately $2,000,000. So definitely way more, which is on the safer side, because again, trading is risky. Yes, you can grow your account quickly and you can lose some money.
I would say that here it would make sense to invest $1 – 2MM into safe-haven investments like real estate. Nothing too crazy here, and very solid. Multifamily units, or maybe single-family homes, something like this.
Then in bucket three, for the crazy ideas, I would put around $25,000 – $50,000 into this one, and here is the exact order.
I started with bucket one and started with trading. Then as I was generating money with trading, I started using some of the profits and invested them in real estate.
In the beginning, my first real estate investment was $30,000 that I had to put down. But then over time, I generated some momentum.
Then eventually, this is when you start to accrue money that you don’t care about losing, and think, “You know what? This $25,000, I don’t care if I lose all this and I want to invest it in something crazy.”
How To Grow Your Account
The question right now is, if I didn’t have $170,000 to put into my trading account, what exactly would I do? As I said earlier, I started with $20,000 and traded the account down to $8,000.
I found over the years that it is difficult to grow such a small account, and it will take you a long time. So here is what I would do.
I would start with at least $25,000 that I would put into a margin account to turn into $50,000 in buying power. Then I would grow this to whatever amount I need here. This amount is based on how much money I need for a living.
How do I get the first $25,000, or can I grow my account fast? Well, here’s what I would do if I lost it all and I had to start over now that I’m way smarter.
I would try to earn more. And that’s not what you want to hear, right? Because it means that you have to, at least for a while, work for somebody and make them money, or have your own business. So have a side gig.
Don’t worry, I won’t leave you hanging by saying, “You should work more and maybe drive an Uber.” No, that’s not it. I will tell you specifically what I would do here.
One important concept I ran across a few months ago, is this idea about Ikigai. It’s the Japanese concept of finding purpose in life.
The idea is to find something that you love to do, what the world needs, what you can be paid for, and what you’re good at.
This is something where you should light a candle, take a bubble bath and really think about this.
How To Earn Extra Income
Here are five examples you may realize you can absolutely do.
Example number one is Steve Jobs. Everybody uses him as an example, and you might not be a Steve Jobs, but he was doing something that he loved that he was good at.
He gave the world something that the world needed. We didn’t know it yet, but we needed iPhones.
Example number two, if you’re not Steve Jobs, you may have heard about Marie Kondo. She’s great at organizing.
Marie made a whole business around this and is charging others to help them organize their closets. So maybe you are good at organizing.
For example number three, maybe you’re good at playing video games. Take Minecraft for example. I’m just using Minecraft because I’m not into playing video games, and that’s the only one that I know.
LThe search volume on YouTube is 481,000,000 searches per month.
Is this something that the world needs? There’s a Youtuber, “Yeah Jaron,” that actually built 25 Minecraft farms for this one project, and got 30,000 views only seven hours ago.
There are literally millions of views for people making Minecraft content.
Now you might not be good at video games, you just need to have a crazy idea.
For example four, I don’t know if you heard about this guy MegaLag, but here is what he did. It’s actually pretty funny.
He used AirTags from Apple, and he sent an AirTag to North Korea, to Tim Cook, and Elon Musk. All he did was, on his computer he tracked it.
He was thinking about sending one to the White House, but his lawyer advised against this.
This guy received over 2MM views on this one video. 2MM views and all he did was send an AirTag to North Korea.
Has he been doing a lot of videos? Absolutely not. If you look at his channel, he did a total of 11 videos. That’s all.
Now this one video, sending the AirTag to North Korea, has probably made him $20,000.
For example five, I don’t know if you heard about this lady. Her name is Celeste Barber. What she does is she looks at popular videos and then does her own version of them.
In the screenshot above, she found this video somewhere on Instagram of a model dancing. Then she filmed herself trying to replicate this. Now is she sexy as a model? No, but it’s hilarious. It’s funny.
In the image above she says, “The holidays can be rough.” So she found this great picture, and then she’s replicated it in her own style and people find it hilarious. She has millions of followers and viewers.
This is how you can monetize this and create wealth. And this it was I mean when I say to earn more. Work for somebody, work in your own business or have a side gig. Put every thousand dollars aside until you have at least $25,000.
How To Create Wealth Summary
How do you grow an account fast? Put every cent you can into this account. I know that this is not popular.
You might think, “Well, what about if I start with this crazy idea? What if I start with investing everything in a meme stock like GameStop or AMC? What about in some crazy stocks like Biogen?”
No. This is not the right order to do this. You do bucket 3 LAST, only with money you’re ok with losing.
Again, for me, what I found works best is if I start with the first bucket, trading. Then move on to investing, and then go on to the third bucket where I do some crazy ideas.
Read Next: My Trading Routine 2022