Ranking the Investments That Made Me a Millionaire

Business, stocks, index funds, real estate, syndications, and a few things that cost me dearly. Those are the investments. I'm gonna rank them today, 0 to 10, based on one thing. What actually built my wealth over the last 30+ years and what just looked good doing it, all right? I'm gonna warn you now because this list is gonna break some hearts. And one asset class everybody worships, well, I'm selling mine right now and I'm gonna tell you exactly why. And one of the fastest growing investments in America scores an absolute zero because it isn't an investment at all. And millions of people are pouring money into it anyways. So by the end, you'll know exactly where to put your next dollar and where to never put one again. This is Building Your Money Machine, where we help you master your money, eliminate financial stress so you can live life by choice. And I'm your host, Mel Abraham. Let's go do this. So I'm gonna score every one of these on a simple scale of 0 to 10. And the yardstick isn't what sounds exciting at dinner parties. The yardstick is what builds a machine that pays you whether you show up or not. And the first one I'm gonna start with is business, and I score this an 8 outta 10. Now I'm starting with this one because this is the thing that funded everything else. My business gave me the ability to raise my own income instead of waiting for somebody to hand me some 3% cost of living raise once a year. You don't create wealth without income. Income's the fuel, wealth is the machine it feeds. And that's the piece that almost every single investing video seems to skip. See, they talk about where to put the money, but they never talk about where does the money come from? All right? For decades, my business was 100% of the fuel. Every single dollar that went into my portfolio, into my machine, started as a dollar. That my business earned. And here's what that gave me that a paycheck couldn't. When I wanted to accelerate my wealth building, I didn't have to ask permission. I didn't ask— have to ask for a raise. I found a way to serve more people, to raise my value, and to lift my own ceiling. See, an employee getting 3% raises is playing wealth building on a slower speed, but a business owner who builds the right skills can change the speed whenever they're willing to do so. Now, if you're an employee, it doesn't mean that you're corralled. It just means that you gotta find a way to lift your value, lift your service, and lift what you are worth in the marketplace so you can do the same. Now, why is this an 8 and not a 10? Well, because a business is a fuel source, not a guarantee. And plenty of businesses actually fail. And it takes the stomach, the discipline, and the mindset that most people underestimate to truly be successful. I mean, anyone who tells you that business ownership is easy money has either never owned one or is about to sell you on a course. And listen, if you're an employee, don't check out on me here. Some of the wealthiest people I've worked with in 30+ years were literally employees. Their wage, their bonuses, their commissions, that was their fuel. And they figured out how to build those and maybe add a side hustle or do some other things. The question is never business or job. The question really is what's your fuel source and is a piece of it flowing into the machine every single month? And if the answer is no, the rest of this list can't save you. So that's the fuel. Now let's talk about where 80% of my wealth was built. And I promise you, it's the most boring thing on this list. So number 2 is index funds and individual stocks. And I'm gonna pit these against each other a little bit. Individual stocks I'm gonna rank as a number 6, and index funds or ETFs I say is a 10. Now, I was an early investor in Facebook, pre-IPO, around $17 I got in. Crazy, it ran to $400. I was feeling like, mm, a genius. And then they had one of those bad earnings seasons and it dropped to $300. And it clawed its way back to $320 a share. And I looked at it and said, "Ah, God, I don't like it." And I sold. Now, mind you, I made a lot of money, a lot of money. And then I watched it go from $320 a share where I sold it to $600 and $700 a share. Oh God. Now I'd love to tell you that I sold at $320 because of some sophisticated analysis, but it wasn't. It was a mood. I sold a generational company because of a mood. And that's my point. I won the trade and still couldn't play the game right because nobody can. Not consistently, not for decades. I grew up in this realm of believing that stock— the stock market meant picking stocks. My dad tried it, never did it well. I tried it, eh, I hit a few, but most of them languished and then dropped. There was no consistency to it at all. But then I looked at the other side of it. Maybe I made money on Facebook, but there was a guy that I saw who invested in Silicon Valley Bank, $200 a share. It's a bank, it's regulated, it feels safe, but then it goes bankrupt. And it was his only holding in his portfolio. One decision, one company, one headline, and it's gone. Compare that to buying the whole market. And that's why I'm starting this way, so you understand the difference between individual stocks, the exposure you have, and index funds or ETFs, because historically the market itself goes up 8 out of 10 years. So when I buy the entire basket through low-cost index funds or ETFs, I'm not betting on one CEO having a good quarter. I'm not betting on things not going well or going well. I'm putting the probabilities on my side. One company gets sued, has a bad product launch, a bad earnings call, the other hundreds or thousands of companies in the basket, they pick up the slack. And if you think you can outpick the market, look at the people that are paid millions to do exactly that. The S&P runs a scorecard called SPIVA, and that tracks professional fund managers against the plain index. And over 15 years, roughly 9 out of 10, 90% of them lose to the S&P 500. In other words, they can't beat the market. And these are the pros. They have the research teams, they have the Bloomberg terminals, they have the Ivy League analysts, they have all of it, and they can't beat it. To think we can consistently long-term. Oh my God. So when the pros with all that firepower can't beat the boring basket, your brother-in-law's hot stock tip at Thanksgiving doesn't stand a chance. Pass the potatoes and change the subject. That's what you need to do. And so this is where the 80% number comes in. When I look at how my wealth was built, the business was the fuel, but roughly 80% of the actual wealth got built in low-cost index funds and ETFs. The boring basket, not the hot picks, not the exciting stuff, but the basket. And once I moved from picking stocks to owning the basket, my portfolio moved more consistently than it ever did in the past. And when I thought I was smart picking the stocks, this showed that it was easy to be smart. So, because wealth building was never meant to be a talent contest. It's a probabilities game. And that basket is how you take the probabilities that the casinos would kill for and put them into your pocket. Now, do I still own individual stocks? Yeah, I do. And that's why they get a 6 and not a 2. But they're a tiny, tiny slice of my portfolio. See, my rule is simple. If every individual stock I own went to zero tomorrow. Listen, I'd be pissy. I'd probably eat some bad food, but it wouldn't touch my life. That's the position size. Pissy but not destroyed. Individual stocks are seasoning, but the index fund is the meal. Most people have that backwards, and it's why they're stressed watching the tickers at 2 AM. They're sitting back thinking they gotta hit it out of the park, and they're trying to hit it quickly. Versus just allowing it to run. That's the 10 on the list. Now, for the asset class that everybody worships, and I told you one of these I'm selling out of right now, and this is the one. Number 3 is real estate. I give this a 6 out of 10. Now, let me be really clear before I get the, the real estate demons in my comments. I love real estate, but there are some things about it that I think we need to be aware of. I don't love it for the starting investor. And there's a reason for it. So I'm gonna say something that would really get me kicked out of half wealth-building conferences in America. I own real estate right now and I'm liquidating most of it intentionally on purpose. While everybody else is telling you it's the holy grail, I grew up hearing that constantly. Real estate is the way to wealth and it, in certain markets with the right investor, it can be a powerful wealth creator because it's one of the few places a regular person can use leverage. You can control a big asset with a smaller amount of money, but nobody talks about the price tag on that power. Here's the way you run the math. Let's say I've got $50,000, and on the West Coast where I live, that might get me into one property, one roof, one tenant, one location, one set of problems. That same $50,000 in a broad-based ETF or index fund and I own a slice of thousands of companies across every industry, and I can sell any piece of it in a day and have cash in my account. Try selling a fourplex by Friday. The real estate only works if you can flip it or cash flow it. And I think we forget this. We assume that we're gonna get the good tenants. We assume that it's always gonna work out perfectly, but the tenant stops paying, you're funding an eviction. You can't rent it, and you own an asset that eats money every single month that sits there. I literally, if you buy it wrong or you buy the wrong property, It's a problem. I have a friend, he bought an office building. He had no idea that it was loaded with asbestos. He literally had to take that office building, take all the tenants and clear them out. He had to remediate the whole thing. And then he did some improvements. And by that time he was 6 months into it and then he had to re-lease it. And for months, no money coming in, but all the bills to do the work, still the mortgage, the utilities, the insurance, Everything all going out the door. He bought it wrong and it nearly buried him. Now, here's my personal math, and this is why I'm selling. Take a $700,000 property, fully paid off. In a lot of markets, the rent on that is around $20,000 a year. That's what's happening in this one market that we're in. That's under 3% on my money before the roof leaks, before the cost, before the real estate taxes and insurance. And yes, I know what the real estate crowd is yelling at the screen right now. What about the appreciation, Mel? And it's a fair question, but that property that I'm talking about sits in a market that's done running. The dramatic appreciation has already happened. It's behind it. So I'm not going to hold an asset that is worth $700,000, giving me a return at less than 3% and hope for history to repeat itself. And because of that, and how I evaluate any investment, I don't look at it in a vacuum. I look at it against the alternatives that are in there. And that same $700,000 in a basket of S&P 500 stocks that might average 8 to 10% a year over the long haul earns me 2 to 3 times more return with no phone calls about the water heater, no problems, no liability, no exposure. So listen, people say get a property manager. Sure. But I've reached the stage of my life where I don't even want the property manager calls. My dream tenant is an index fund. It never texts me at midnight. And for me, it's bigger than the returns. It's a lifestyle decision. I don't want the liability exposure. I don't want the landlord life. And my machine runs beautifully without it. So why is 6 and not lower? Because leverage is real. And the right investor in the right market with the right temperament This works and it works wonderfully. But hear me on this because it matters. Real estate is not a starter asset. On the wealth priority ladder that I have in my book and in my courses and what I teach and what we work with, it comes after you've built a critical mass in your portfolio. Because let's go back to the person that bought the office, the friend that bought the office. Had he not had the liquidity, the critical mass in his portfolio to carry the asset to do the remediation and take care of it, he would've sunk all his money into a single property that wasn't cash flowing and having to try and support it, and it could have literally destroyed him. I love real estate at the right time, and that right time is after you have a critical mass in your portfolio so you can carry things that go bad and you don't have to deal with it. So, because without the cushion, one bad property, can literally break you. So if the basket is the engine and the real estate is optional, where do the fancy exclusive investments land? This is where my scars start and they cost me 1/3 of everything I owned. It was crazy. Now, everything we've talked about so far, the index funds, the ETFs, the individual stocks that live inside the accounts and picking the wrong account can quickly cost you tens of thousands of dollars in tax. So I built a free guide called Investing Accounts Demystified. It shows you exactly which accounts to use when and in what order. It's totally free. Go to melabraham.com/demystified so you can grab it and get you dialed in and make sure it's in the right places at the right times for the right reasons. All right, on to investment number 4, non-public investments. This is like angel investing, real estate investment trusts, syndications. Now I'm going to rate these a 4 out of 10. I put $100,000 to $125,000 apiece into a number of syndicated alternative investments. The pitch was polished, the projections were beautiful, and the word exclusive was doing a lot of heavy lifting. See, they said not everyone gets access to it, but because you're at this level of wealth, you get access to it. You can belong to the— that club. Well, guess what happened? Many of them got devalued. And many times I walked away with a fraction of what I put in. See, 3 things went wrong in those investments, and this is why I don't like them, and unless we kick the tires in a really, really deep way. 3 things went wrong, and they're the same 3 things that go wrong in almost every deal like this. First, fee drag. The fees in these deals are heavy, and they eat your returns before you ever see it, and you don't realize it, and they're buried in there. And the people structuring the deal, they get paid whether you do or not. Second, there's no liquidity. See, there's no market for these things. If I wanted to sell my ETF or index fund, I just do it on my app. You can't do that with these things. You can't just sell. And at one point, I was unwinding my financial life. I had 22 different accounts, and I was trying to get it down to a simpler machine, and these were the ones I couldn't touch. See, my money was locked in to someone else's timeline. And the third issue is no information. See, with an index fund, I can see everything every day. With these deals, it was getting vague updates once a quarter, if that. And while my money did who knows what, I didn't know what was going on. And access to the information was not necessarily available. And that's the part that stinks. As a CPA, I'm the numbers guy. I spent 30-plus years reading financials for high-net-worth families. And I even myself couldn't get enough information out of these deals to know what was happening to my own money. So when the pitch says this deal is exclusive, believe them. You'll be exclusively excluded from your own money for about a decade. Now, why a 4 and not a 1? Because these can have a place in your portfolio after you have critical mass with the money you can afford to lock up in deals where you can't necessarily get all the information, but you can verify enough to know that you're good, but they are the dessert at the end of the meal. If someone's selling you on a syndication as the foundation of your wealth plan, they're not building your machine, they're building theirs. That was money I got some of it back. The next category though is where money went and never came home to me again. And this category is the speculative investments. These are the, what I call the private bets. And I'm gonna rate these 1 out of 10. Now, let me tell you a story. I put $45,000 into a friend's private business. Not because I looked at the business and analyzed it. It's because I believed in him. I wrote the check. The business went nowhere. And unfortunately, the friend disappeared on me. Not the deal went sideways. He disappeared. Gone. The money and the friendship both. That's the biggest cost. And that wasn't my biggest tuition payment in this category because I've done a few things where I got involved because of relationships with people that that I trusted, and it was misplaced trust. I lived my— through a Ponzi scheme. This was a significant one where I lost one-third of my net worth. I watched it completely vanish because it was never real to begin with. And once again, I'm a CPA. I'm the guy that's supposed to catch this stuff, and I got caught too because the returns looked steady, the story sounded right, and I trusted the people telling it. And it was brought to me by someone who I trusted so well, someone who I knew for well over a decade. And so here's what both of those losses had in common. Speculation always sells you two things bundled together: a return and a feeling. The feeling of being early, of being on the inside, of being the one who saw it coming. And that feeling is precisely what should scare you. If the structure of your portfolio gives you an adrenaline rush, there's something wrong with the portfolio. Wealth building done right It's boring. It's the basket funded every month, compounded while you're— you just go about living your life. The excitement is supposed to be in your life, not in your brokerage statements. You want an adrenaline rush? Take up martial arts like I did. Getting thrown on the mat is cheaper than a Ponzi scheme, and at least you learn how to fall. So listen, why does speculation get a 1 instead of a 0? Because once in a great while, with money you can fully afford to lose, a private bet pays off for somebody. But build your plan on it and you're not investing. You're buying lottery tickets with better branding. That's it. And I want to be honest about the recovery because this matters more than the loss. After the Ponzi scheme, I rebuilt. It took discipline. It took time. But the machine, the boring basket funded by the business, is what brought me back. The speculation dug this freaking hole, but the machine helped me climb out. The exciting money dug the hole, the boring money climbed me out. Sit with that one because it's the entire episode in two sentences. Which brings us to the zero, the one I told you about at the start. Millions of people are pouring money into this right now, and it is not an investment at all, even though they're trying to say it is. Number 6 is prediction markets. This gets a fat 0 out of 10. Platforms like Kalshi. Prediction markets, the fastest growing asset class nobody should own. Let me give you a quick education because most people don't know how these work. You buy a yes or no contract on a real-world event. Will the Fed raise rates? Will this team win? Will this movie win Best Picture? Contracts, they literally trade between a penny and 99 cents. And if you're right, you get a dollar. If you're wrong, you get zero, you get nothing. Now, they'll tell you it's regulated as a financial exchange, and technically that's true. There are even contracts that settle in 15 minutes. 15 minutes, that's not an investment horizon, that's a commercial break. That's it. Now, the defenders will say, but Mel, it's not like a sportsbook. You're not betting against the house. You're trading against other people. And it's fine. You're right. That's the difference between a casino and a poker room. A casino, you play the house. A poker table, you play each other and the room takes a rake. Both of them are still gambling. That's it. And here's the test that cuts through every costume. An investment is a claim on something that's productive. A stock is ownership in a company that creates value. An index fund is thousands of them. Even real estate shelters a family and produces rent. A prediction contract? It's a claim on nothing. No earnings, no compounding, nothing gets built. For you to win, someone else has to lose. That is not investing. That's a wealth transfer with a ticker symbol. And before you race to the comments and say, yes, this is the same test and is why I've never been a crypto buyer also. Because have people made money on crypto? Yes, but I put it in the same category. Plenty of people have lost their shirts in it too. Here's the thing, there's no business underneath it. There's no earnings, there's no cash flow, there's no business model, there's no utility other than that nothing is being built. It is a pure supply and demand asset, which means the only way I win is finding someone who's willing to pay more for it than I did. And where I come from, that structure has a name and it isn't investing. Dress it up in a trading app all you want, give it charts and a regulated exchange, and it's still the roulette wheel wearing a suit. 0 out of 10. Not because you can't make money on the bet, but because a bet can never be a machine. That's the game. So let me tell you what this list looks like from where I sit today. The fortune didn't come from the exciting stuff. I chased the exciting stuff and it cost me 6 figures. It cost me 7 figures. It cost me a friendship and a piece of my net worth that I had to claw back over years. The fortune came from the boring end of the list. A business that I poured myself into, a career that I poured myself into, feeding a basket of index funds month after month, decade after decade, whether it was thrilling or not, and mostly not. And here's why that should give you hope. Because you don't need to pick the next Facebook. I picked it. I still fumbled the trade. You don't need the exclusive deal or the inside track. You need the fuel source, a boring basket, and the patience to let the probabilities do what they've always done. The noise will keep selling you adrenaline. Your job is to build something so steady it's almost dull so that your life gets to be the exciting part. Because earning more doesn't make you free. A money machine does. All right, listen, if this gave you clarity, do me a favor. Subscribe, give it a thumbs up, and share it with one person who's being pitched something exclusive right now. They may need this more than you know. And I'll see you in the next one because this is what we're here to do. I hope that this helps, and I can't wait to hear from you. If you've got a comment or anything, reach out to me, leave it to me. I love having conversations. And until I get a chance to see you in the next one, as I always say, always, always strive to live a life that outlives you. Cheers for now. And that's it for this episode of Building Your Money Machine, where we help you learn how to master your money, eliminate financial stress, and live a life of choice. If you found this valuable or helpful to you, here's what I'd love for you to do. If you'd do me a favor, go to Apple, Apple, Podcast or wherever you're listening to this podcast and rate and review the show. It helps us tremendously to keep us at the top of the list so we can continue to get this information and this message out to people, because I truly believe that financial freedom is your birthright, and I want to help each and every one of you claim it. Thanks so much.