Chapter 5
The Wealth of Money and Investment

Money is a resource that opens doors to rich potential. Money enables the attainment of security, freedom, choice, plus innovation, which is why it's so powerful. The more money we have, the more safety, flexibility, and optionality is available—broadly speaking—which then invites more opportunity for taking chances and seeking out new ventures. People invest money with the goal of gaining more of this resource, and the materials purchased with this gain.

While this book does over‐index on the qualitative, intangible aspects of wealth, there is no denying that the quantitative, tangible aspects of wealth are a necessary part of the wealth discussion. After over a decade in private wealth management, I thoroughly understand the importance of financial wealth creation. As I’d say to my clients, money has the potential to enhance the most important things in life.

In this chapter, we’ll delve into the interconnected relationship between money, investment, and wealth. This includes a journey through how we make, inherit, spend, save, and invest money these days, all of which have been influenced by technological innovations and societal shifts. Additionally, we will examine the broader societal implications of wealth creation. Let’s begin.

The Relationship Between Money, Investment, and Wealth

Money has a powerful relationship with investment and wealth, because the three are interconnected. Money accumulated over and above your expenses and savings goals can be invested, putting your money to work; you work for your money, and then your money works for you. Money invested has the potential to outpace inflation and increase in value, thereby creating financial wealth. Additional moneys earned through investment returns can then be reinvested, furthering the potential for additional wealth creation. This is called compounding (more on this later). The dollars you earn are the seeds that lead to the full‐grown money tree.

Money is foundational to wealth creation, which is why we’ll explore all the ways we make, inherit, spend, save, and invest money these days. The way we interact with money is changing right before our eyes, and this change is largely due to technological innovations and cultural shifts. Further, there's no doubt that the way we interface with money and our relationship with money will continue to change, exponentially.

The bottom line is money matters, so let's talk about it—making it, inheriting it, spending it, saving it, and investing it, plus the societal implications of each.

Making Money

To spend, save, or invest money, we must first make (or inherit) it. The once dogmatic perspective of how to make money is evolving with time, so let’s do a quick review of this evolution.

Rewind the tape and look back at how the majority of people used to make money, it was through employment at a single company for much of their life. The company (employer) provided the individual (employee) with a sense of financial security in the form of a bi‐weekly check, and thereafter, a healthy pension upon retirement. Gone are the days when people stay with the same company for the entirety of their professional careers. Over time, the decoupling of employer‐employee loyalty began unraveling. In my mind, this inflection point started when employers stopped offering pension plans to their employees (beginning in the 1980s).1 Then came the proliferation of the internet, which expanded employment opportunities in ways previously unthinkable.

The once reliable and expected career path of working for one employer for a lifetime, earning a pension, and then settling into retirement is a relic of the past. Retirement funding is now the responsibility of the individual employee, and loyalty between employers and employees has gradually faded. This morphing of loyalties—in both directions—opened the door for people to move from one organization to the next or to start a company of their own. Play the tape forward and gaps in a résumés are now more accepted, even celebrated, as it demonstrates a willingness to take risks to pursue a bigger opportunity and to increase earning potential. Side hustles and entrepreneurship are the new norms—and so is having multiple streams of income.

Multiple Streams of Income

Having multiple streams of income is a smart way to increase your cash flow, thereby increasing the amount of money you have. There are many ways to set up multiple streams of income, some of which evolved with time, the economy, technological advancement, and human ingenuity. New avenues for income generation are coming online, both literally and figuratively. Generally speaking, there are three categories of income: active income, passive income, and investment/portfolio income. Let’s quickly define each:

  1. Active income is the income earned through a job that you diligently participate in.
  2. Passive income is the income earned through little participation.
  3. Investment income is the income earned from your investment portfolio, in the form of interest, dividends, and capital gains.

The most common stream of income was, and remains, active income. This is income earned from salaried employment: people receiving pay for their active involvement in (specialized) work tasks. Passive income and investment income are the next most common types of income streams. Passive income is the income earned through little participation; for example, rental income from a property owned and rented out to another. Although one owns the property and may have to care for it, there’s very little active involvement once it’s rented out to another party. Investment income is the income you earn from your investment portfolio; for example, Apple stock pays a dividend to their investors, four times a year (quarterly). Typically, people diversify their investment portfolio to gain exposure to different asset classes and sectors. This is a great way to manage investment risk. And now, people are diversifying the way in which they bring in income just the same as they diversify their investment portfolio. This is a great way to manage income risk.

Side hustles are remarkably common nowadays, providing additional streams of income into the wallets of many. In 2022, one in three Americans had a side hustle, and two‐thirds of these people said they loved their side hustle.2 These are meaningful numbers and sentiments. About 50% of millennials have a side hustle, while 70% of Gen Z’s have a side hustle. Lots of people are doing what they love, all the while contributing value to the economy; specifically, $2.58 trillion worth of value.3 These dollars are funneling through gig economy powerhouses such as Airbnb, Uber, TaskRabbit, and Etsy. Workers are leveraging these new ecosystems and influencing the economy, capitalizing on cultural shifts. The shift toward multiple streams of income (supported by entrepreneurial spirit animals and digital transformations) is shape‐shifting the character of the economy.

The Creator Economy + Web3

Speaking of the character of the economy, creatives are influencing the characteristics of commerce and economies. The creator economy is the segment of the “economy empowering people who are monetizing their content, goods and services online by leveraging their own creativity, talents and passions.”4 Creators use technology, more specifically software platforms, to power and actualize their creations. Think software platforms such as: YouTube, TikTok, Instagram, Facebook, Substack, and Patreon (which are all alternatives to traditional media).5 As a result, creators are providing value to the world, and monetizing it. People create content and distribute it through these platforms. More than 165 million creators joined the creator economy between 2020 and 2022, for a total of 303 million creators worldwide.6 Millennials represent 42% of the creator economy, while Gen Z’s represent 14%.7 In 2022, the creator economy generated $104 billion of value.8 About 48% of creators are motivated by freedom of expression.9 There’s a shift from stiff, unoriginal work to creative, original work.

This new economic trend is reshaping society; The Artist's Way (a nod to the book by Julia Cameron). This is a huge unlock. On one side of the coin, we have creators providing value, doing what they love, and making money for it. On the other side of the coin, we have consumers receiving value, consuming what they want, and enriching themselves in the process. Essentially, this is peer‐to‐peer education and entertainment. Creators are sharing their wherewithal, on demand, with consumers who are interested in their content. This content has the potential for reaching eyes and ears that otherwise would not be available, which is particularly alluring to our increasingly autodidactic society. This trend will have huge implications in the shifting of economies and culture.

While there are many creators making lots of money in the limelight, there is also a dark side to the current structure of this industry. The dark side is that creators typically walk away with little (or no) monetary gain for their creations; instead, the value created ends up lining the pockets of the platforms distributing the content. However, technological innovation may be the antidote—in the form of Web3. You may be asking what is Web3? And you're not alone. The term Web3 only entered our lexicon in 2014 (when Ethereum co‐founder Gavin Wood coined it). But it wasn't until 2021 that this concept started getting off the ground.10 That said, we are in the nascent stages of conceptualizing, let alone actualizing, the potential of Web3.

Web3 stands to unlock more monetary value for creators, thereby elevating the creator economy. Here's why: Web3 is expected to be the third iteration, or generation, of the World Wide Web. This third generation of the web is powered by blockchain technology, and places a strong emphasis on being open, decentralized, and trustable.11 Blockchain will enable peer‐to‐peer (in this context, creators to consumers) interaction without the need for an intermediary, distributive platform. Meaning more money into the pockets of the creatives, all the while retaining 100% ownership of their data. Elevating the creator economy will inspire more content creation, without ad‐driven monetization strategies (on centralized platforms).12 These sentiments and themes are similar to those we saw with Bitcoin, with the dissolving of the intermediary. Web3 could revolutionize work (just the same as Web1 and Web2 did previously). In which case, the way we make money will continue evolving, and quickly. Therefore, the future of wealth and the future of the internet (Web3) are inherently interconnected. And this is only the beginning.

Inheriting Money

Speaking of the next generation, I'd be remiss not to mention the potential of acquiring wealth through inheritance. Especially because, and as we already know, millennials are expected to inherit $84 trillion from their baby boomer parents by 2045.13 A generational wealth transfer is underway. In other words, wealth that spans multiple generations. Regardless of whether you make your own money or inherit money, it's still purchasing power in your pocket.

Spending Money

Money acts as a reflection of what we value. What we value and prioritize ultimately drives how we make money, and what we spend money on. As the saying goes, “show me your receipts, and I'll show you what you value,” although, these days, many receipts are electronic rather than strips of white paper. Digital receipts are a prime example of the evolving ways we interface with money (i.e., how we make payments) thanks to innovative technologies.

At the beginning of this chapter, I presented a core belief—the belief that money has the potential to enhance the most important things in life. For example, spending money on your health has the ability to dramatically enhance your quality of life. Similarly, spending money on experiences with loved ones is a consequential enhancement, too. Money well spent is additive, whereas money poorly spent is detractive to one's life. This is where values‐based spending steps into our wealth journey. Values‐based spending means spending on things that are in alignment with your values; reflecting what's most important to you. It's a personalized approach to spending. Sometimes this might mean right‐sizing your spending habits, but it doesn't have to. This type of orientation around spending certainly doesn't mean forgoing things you enjoy—by all means, buy what makes you happy and enriches your life. After all, the ability to spend money (on x, y, and z) is a great motivator for making money.

In Chapter 2, we saw that millennials (and other generations, of course) are generally more interested in values‐based spending, and both businesses and money managers are taking notice. Consumers are voting with their wallets and showcasing a preference for spending on services over goods, or intangibles over tangibles. We're witnessing a shift away from spending on tangible things (materialism) and toward spending on intangibles (minimalism). We're valuing more space than more stuff. Plus, while tangible things (like cars) tend to depreciate over time, intangibles (like experiences) tend to hold their value, and even compound with time. Take the experience of travel. Travel gives one invaluable perspective, cultural exposure, and broadening of viewpoints, all of which are beneficial.

“A man is rich in proportion to the number of things he can afford to let alone.”

—Henry David Thoreau

Regardless of what you spend your money on, finding and buying what you want is much easier and efficient these days. Search, select, purchase, and receive almost anything you want from the comfort of your own home. And recieve, in a matter of minutes, hours, or at most ‐ a few days. Clearly, these technological advancements in the e‐commerce and the payments space are incredibly influential on our spending habits. The most common example of this is the proliferation of Amazon, but let's not forget all the brands and companies that now have online stores (perhaps in addition to brick‐and‐mortar stores). We now have the ability to buy what we need, with a few simple keystrokes, all the while saving time on travel to and from a store.

The way in which we transact to spend money has changed, too— think PayPal, Venmo, and digital wallets like Apple Pay. Apple Pay uses near‐field communication, otherwise known as tap‐to‐pay, which enables you to put your phone near the checkout kiosk, and like magic, payment is made. Near‐field communication is also the technology responsible for the ability to wave your card over a subway or bus turnstile, paying and granting access.14 There are also digital wallets for people who want to transact in cryptocurrencies, like Coinbase and Metamask. Retailers such as Home Depot, Shopify, and Microsoft all accept bitcoin.15 The barriers to shopping and paying are nearly eradicated. What we see reflected back to us is the stark change in the way we interface with invisible money; we reimagined the payments system. In 2020, cash was used in only 11.4% of transactions.16

But what are we to do with all the money that we don't spend? Save it and invest it.

Saving Money

Saving money implies forgoing the purchasing of visible things, keeping your money invisible to the outside world.

Traditionally, financial advisors suggest having six months' worth of expenses saved in cash, before investing excess money. Some people opt for more or less cash on hand, depending on their annual income, annual expenses, risk tolerance, and overall financial goals. By the way, it's interesting to see how idioms such as “cash on hand” remain prevalent in society when it’s no longer physical dollars in our wallet but a swipe of a credit card in a digital transaction. This is another example of the evolving meaning of words and idioms.

Having savings (aka cash on hand) provides peace of mind, because it creates a safety cushion if your income (whether it be active, passive, or investment income) unexpectedly decreases or expenses increase. Saved monies are earmarked for times of need due to unforeseen or one‐off changes in financial circumstances. For this reason, the nature of your work—in other words, the regularity and predictability of your income (streams)—should be taken into consideration when determining how much money to keep in your rainy‐day fund. Intuitively, early‐stage entrepreneurs tend to have more variability in income, therefore their cash cushion might be bigger. Conversely, someone with a more predictable paycheck may not need quite as much cash on hand. Either way, the amount of money that gives you peace of mind is unique to you.

Once a comfortable cash cushion is in place, then the real wealth journey begins.

Investing Money

Sitting comfortably on top of your cash cushion is a great place to start your wealth creation journey. Saving money is a productive step in the wealth creation process, but the real lift comes from investing your money for growth purposes. The best way to grow your money is by keeping it invested or, in other words, invisible. This section places a magnifying glass on the ever‐evolving relationship between money, investment, and wealth. The relationship between money and wealth has a lot to do with access to investment information and investment opportunities; the more information and opportunity you have to invest your money, the higher the likelihood for meaningful wealth creation.

Being invested means putting your money to work behind the scenes, as it remains invisible to the outside world. The current paradigm and societal shifts—away from materialism—support and encourage the transition from visible wealth to invisible wealth.

The question then becomes: what and how should you invest your money in such a dynamic investment landscape? This is an internal exploration first, before it's an external exploration—meaning the answer is rooted in a handful of considerations (which a financial advisor would be happy to walk you through). This means considering your annual income, your annual expenses, your investment risk tolerance, and your overall financial goals in the long‐term and short‐term. The income consideration is particularly interesting given the topics discussed, like the Great Migration, the Great Resignation, and the Great Restructuring—translating into more unconventional work. After addressing these considerations, the exploration shifts externally to the what and the how of investing. One thing is for sure, a diversified investment portfolio is a must. The what, how, and why of what we invest in has changed from years past. While the next bit is by no means a comprehensive deep dive into investing, it does illuminate the macro shifts in landscape.

Investing Before the Internet

Before the internet, people typically invested in public markets with the help of a stockbroker. Public market investment refers to the buying of equity or debt of a publicly owned company (versus a privately owned company). Public markets were (and remain) accessible through investing in individual stocks, bonds, mutual funds, or exchange‐traded funds through a stockbroker. By definition, a broker is an intermediary. Logistically, a phone call to your broker was the primary way to invest. The broker would provide you with some level of investment information and advice, and then execute the investment transaction—for a price. For perspective, a full‐service broker could charge 2.5% commission on a trade.17 Want to know how an investment was performing a month later? Call your stockbroker. There was total reliance on the intermediary, and it would cost you.

Before the internet, people faced barriers to investing, in the form of lack of information, transparency, and access, plus financial barriers in the form of high commission costs. But the internet changed all of this by changing the way we interface with the investment ecosystem, and it changed the investment ecosystem itself. The public stock market met online brokerage services for retail investors in 1992—thanks to E*TRADE.18

Retail Revolution

Today, people invest in public markets through online brokers like E*TRADE or my former employer, Fidelity, but also newcomers like Robinhood—to buy and sell public securities. Nowadays, there are $0 commission brokerage firms. This is an example of how technology enables (commission) fee compression. Additionally, online brokers now provide troves of investment information and you can execute investment transactions yourself (if you have a brokerage account). Or, if you prefer, you can hire a financial advisor to provide investment advice and execution. The option is yours.

For these reasons, people are flocking to online brokers—finding the power to invest in their own hands. “In January 2021 alone, roughly six million Americans downloaded a retail brokerage trading app, joining well over 10 million Americans who opened up a new brokerage account in 2020.”19 Power in numbers; the rise of the retail investor—the retail revolution. As Deloitte put it, “A new breed of investor, empowered by new platforms.” There's a monumental increase in the “do it yourself” investor, who feels empowered and equipped with access to information and online trading tools. This thematically aligns with the ethos of entrepreneurs, in the sense that people are taking matters into their own hands—when it comes to both making money and investing money.

Public and Private Markets

Let's twirl our attention from public markets to private markets. Private markets used to be, well, more private—or, for the sake of staying on brand here—invisible. Although, nowadays, private markets are at the forefront of many investment discussions and portfolio returns.

Private market investment refers to the buying of equity or debt of a privately owned company (versus a publicly owned company). Private markets are accessible through private equity funds, hedge funds, private debt, and venture capital funds. Private market investments are also referred to as “alternative” investments, meaning they are an alternative to the traditional, public market investments. One key distinction between public and private markets is alternative, private markets are less regulated than traditional, public markets. Despite less regulation, private markets attract lots of money. While 10 million Americans opened up new brokerage accounts in 2020, for purposes of investing in the public markets, the private markets reached an all time fundraising high in 2021.20 The private markets attracted nearly $1.2 trillion in 2021, globally.21 According to Preqin's The Future of Alternatives report, global alternative assets are likely to surpass $14 trillion by 2023.22 The private, alternative, non‐traditional market is becoming less private, alternative, and non‐traditional. There are many factors at play here, but for the scope of our conversation—which focuses on the investment of money for wealth creation—let's look to the return profiles of keeping your savings in cash, investing it in the public markets, and investing it in the private markets.

With a comfortable cash cushion in place, the real wealth journey begins. For sake of conversation, assume you have $100,000 earmarked for investment. The year is 2000, and you don’t plan on touching this money until 2021. You’re considering: leaving your money in cash, investing in public equities, or investing in private equity. First, if you kept your money in cash, you’d have $100,000 in 202123. Second, if you invested into public equities, you’d have $406,005 in 202124. Third, if you invested into private equity, you’d have $894,917 in 2021. Why? Because public equities returned 6.9% from 2000 through 202125, and private equity returned 11%26 during this same timeframe. To be clear, there are considerations we aren’t discussing like risks, fees, inflation, return variability, compounding frequency, taxes, and liquidity, but the point is higher returns result in higher wealth creation. Investing is such an important part of the wealth journey. The sub‐point is, private markets tend to have higher returns, which is why they’re so attractive to investors (when one’s investor profile supports).

The reason I used the $100,000 investment amount, over a 21‐year time horizon is to illustrate that private investments often require significant amounts of money and time. (Two disclaimers. First, private investment structures, and therefore commitment amounts, vary widely. Two, the timeframe isn’t representative of the average private investment, but rather the timeframe we have clean data on. Long term data is better than short term data. Plus, it supports the notion of long‐term investing.) Private investments are typically reserved for institutional and high‐net worth (aka accredited) investors. An accredited investor is someone who has a net worth over $1 million (excluding primary residence), or makes over $200,000 a year or satisfies certain professional criteria.27 The intention of this federal regulation is to limit alternatives to people with the means or sophistication to take on more risk.28

But access to the private investment world is changing: the public is gaining more access to privates.

The Democratization of Wealth

There's incredible emphasis on the “democratization of wealth,” which aims at providing more people with more access to investment information and investment opportunity (both in public and private markets). Ultimately, this enables wealth creation for more people. The demand for the democratization of wealth has opened the door for many investors to access wealth‐generating investment opportunities. How? Through regulatory changes and financial innovations. For instance, in 2020, the SEC expanded the definition of an “accredited investor,” allowing more people to qualify for this investor status.29 As a result, more people can now access alternative investments. Plus, new financial innovations are coming to market and reimagining and redefining the traditional approach to investment.

Digitization and democratization go hand‐in‐hand. On the public market side of the coin, we see the Robinhood's of the world on a mission “to democratize finance for all.” Robinhood democratizes finance by offering free investment information, commission‐free trading, and fractional share trading. This is productive because it provides free investment education, plus lower fees barriers to entry for retail investors. Wealthfront is another example of a fintech entity leveraging digitization for the democratization of wealth. Wealthfront is a “robo‐advisor,” which means it's a digital financial advisor. The Wealthfront platform walks you through an array of questions to determine your investment profile, risk tolerance, financial goals, and time horizon. From there, the digital software builds a diversified portfolio based on your answers—all this, for a fraction of the cost of traditional wealth managers. Technology is scaling financial sophistication, and it's doing so in an approachable and affordable way. This is a win for the retail investor.

One final example, under the democratization of wealth umbrella, is Ellevest. Ellevest, co‐founded by Sallie Krawcheck, is a “women‐first financial company” that's on a mission to get more money into the hands of women.30 They offer financial advisory services, coaching, worksheets, workshops, and access to a magazine full of personal finance insights—all tailored to support women on their wealth creation journey. Much needed, and very empowering.

On the private market side of the coin, we see new entrants, such as Titan, who are democratizing access to portfolio management as well as access to private markets to retail investors. Titan is an online brokerage and “investment platform, building a personalized private wealth experience for all.”31 In September 2022, they announced that retail investors can now allocate into private funds managed by alternative investment giants Apollo Global Management and the Carlyle Group.32 Also in September 2022, Titan announced its exclusive partnership with Cathie Wood's ARK Invest, to allow retail investors to invest in ARK's Venture Capital Fund—for as little as $500.33 These are big developments for the democratization of wealth. We'll continue seeing investment opportunities expand for all types of investors. An Ernst & Young study showed that 73% of asset managers believe non‐accredited investors should receive access to invest in private funds, in order to increase their portfolio diversification and participate in potentially higher returns.34 These are game‐changing investment innovations, unlocking new doors to wealth creation.

These are a few investment innovations attempting to bridge the wealth gap—for a more sustainable, financial future for all.

Sustainable Investing

Speaking of a sustainable financial future for all, investors are increasingly interested in both the value (quantitative) and values (qualitative) of an investment. In other words, investor due diligence is extending beyond the tangible and into the realms of the intangible. Naturally, the investment return profile is important, but so are investment themes, specifically environmental, social, and governance—colloquially known as “ESG”. ESG investing is a concept and a framework for considering non‐financial factors when measuring the viability of an investment. Said differently, ESG investing is a form of sustainable investing that considers environmental, social, and/or governance elements when evaluating an investment opportunity.35 Let's drill down a little further.

What type of considerations fall into each of these three ESG buckets? First, environmental considerations include carbon emissions, air and water pollution, and waste management. Second, social considerations include data security, employee diversity, and customer satisfaction. Third, governance considerations include diversity of board members, executive pay, political contributions, and lobbying.36

The ESG commitments of a company are important investment consideration for four reasons: financial strength, competitive positioning, innovative strategy, and perception or corporate reputation.37 Each of these have the potential to reduce investment risk and increase investment return. These benefits extend beyond the investor, and to all the stakeholders as well—employees, consumers, and society. For example, investing in a company dedicated to reducing their carbon footprint is valuable to the investor, and society at large.

As the economic landscape becomes more dynamic, so, too, our investment decisions. There's a conversation going on between investors and investment opportunities determining which factors are of utmost importance when it comes to investing. The message is loud and clear from the values‐based, millennial generation—but also from most other investors too. There is collective interest and demand for socially responsible investments. This is an integral component of the new wealth paradigm.

Now for the numbers, to underscore how this holistic approach to investing is shifting the investment landscape in a meaningful way. As of December 2021, assets under management in exchange‐traded ESG funds—globally—totaled more than $2.7 trillion.38 In 2021, alone, over $500 billion flowed into ESG funds from investors.39 It's projected that ESG mandated investments will make up half of all professionally managed assets, worldwide, by 2024.40 Half! By 2024! The real focus now is ensuring companies and businesses stay true to the investment mandate and ethos.

Blockchain and Digital Assets

Continuing on the theme of tech innovations and societal shifts, let's fold blockchain technology back into the conversation. Blockchain will play a major role in the democratization of wealth and sustainable investing. Understanding blockchain technology, cryptography and cryptocurrency is helpful for considering and appreciating this conclusive statement.

What Is Blockchain Technology?

Here are the building blocks of blockchain technology, plus cryptography and cryptocurrency.

Blockchain technology was first introduced in 2008 in the Bitcoin white paper (see Chapter 1). Elementally, blockchain is a peer‐to‐peer network that sits on top of the internet.41 The Blockchain Research Institute provides a great definition for this technology: “A blockchain is a distributed software network that functions both as a digital ledger and a mechanism enabling the secure transfer of assets without an intermediary. Just as the internet is a technology that facilitates the digital flow of information, blockchain is a technology that facilitates the digital exchange of units of value.”42 Bitcoin and cryptocurrencies included.

To understand what cryptocurrencies are, we must first understand what cryptography is. The first known use of cryptography was in 1900 BCE, which makes a lot of sense when you consider what cryptography is. Cryptography is simply the securing of communication from those who are not intended to receive the communication.43 This can be achieved through code. Interestingly enough, “crypto” comes from the Greek word “kruptos,” which means “hidden.” Hidden is inherently invisible.

Cryptocurrencies are tradable digital assets built on blockchain technology that use cryptography to control the creation of coins and to verify transactions.44 Cryptocurrencies are decentralized assets, which are key components of decentralized finance (commonly referred to as “DeFi”). Decentralized finance is a financial system powered by individuals rather than a central authority. Many believe this technology will revolutionize traditional finance because it offers a fundamentally new way for commerce and society to self‐organize. It's even been said that the internet democratized knowledge, and blockchain will democratize wealth.45

We're seeing a society of values emerge with the internet of value, in tandem.

Decentralized Finance (DeFi)

With an understanding for blockchain technology, cryptography and cryptocurrency, let’s explore two practical use cases. Democratize wealth by providing the technological infrastructure for a decentralized financial ecosystem. Decentralized finance offers an alternative to traditional, centralized finance services by dissolving the need for intermediaries and centralized trust mechanisms. DeFi allows people to conduct peer‐to‐peer financial transactions through technology (versus a brokerage firm, for example).46 The technology used in these peer‐to‐peer transactions are enabled by smart contracts on a blockchain. These smart contracts are smart; so, they automatically execute according to the terms of the contract (or agreement), in a trustworthy way.47 Smart contracts are basically conditions programmed into the blockchain; if x then y. Furthermore, this is the financial architecture that makes Web3's vision of a decentralized (creator) economy possible. The bottom line is DeFi represents the potential for: peer‐to‐peer transactions, trust via technology, lower fees, faster transactions, and more transparency when compared to traditional financial systems. This translates into the opportunity to “bank the unbanked” by providing digital wallets to those who cannot establish a bank account (through an intermediary). This is a powerful way to activate and increase financial inclusion.

Here is a practical example of DeFi; of blockchain technology decentralizing finance and democratizing wealth. In September 2022, KKR, a behemoth private equity firm, broadened access to one of their funds through digital ownership on blockchain. Said differently, KKR tokenized a portion of one of their funds, on a blockchain, granting access to investors for a fraction of the money typically required to invest. Just as investors can buy fractional shares in public equity through Robinhood, KKR is providing a way for investors (qualified purchasers) to buy fractional shares in private equity. The fractionalization of investments (using blockchain technology) is lowering the investment commitment required; in this case, to $20,000. As we know, historically, investment into private markets has been reserved for those with very deep pockets. This is changing. KKR, in partnership with Securitize (a digital assets securities firm), is solving for this “by enabling technology to deliver lower investment minimums, improved digital investor onboarding and compliance protocols, and increased potential for liquidity through a regulated alternative trading system.”48 Further, Securitize CEO Carlos Domingo says, “This new fund is an important step toward democratizing access to private equity investments by delivering more efficient access to institutional quality products.” While $20,000 is still a hefty investment commitment, this is, indeed, a step in the right direction.

Additionally, blockchain technology can support sustainable investing considerations. A practical example is the use of blockchain in ethical sourcing and supply chain transparency, because of the technology's trustworthy, transparent, and traceable nature. Blockchain provides the technological infrastructure to record the origin and transactions of goods along the supply chain, providing reliable, indisputable, and accountable insight into the origins and whereabouts of goods every step of the way. This applies to everything from coffee beans to computer chips. Blockchain's trustworthy nature is rooted in the fact that we are trusting decentralized technology rather than a centralized intermediary to manage and report on ESG considerations. Plus, blockchain provides transparency and traceability because it’s a digital, immutable ledger. This ledger can be viewed by consumers, investors, and regulators interested in the sourcing and supply chain metrics of a particular good. Therefore, blockchain provides a clear pathway for values‐based companies to build, manage, and report on their ESG commitments.49

As previously mentioned, we now have a ripe opportunity to reimagine and redefine wealth because so much of what we value, both individually and collectively, is changing. Technological advancements and societal shifts are unlocking the potential for a decentralized financial system. Blockchain provides the foundation for the next era of finance, powered by the quest for personal sovereignty, financial inclusion, trust, and transparency. This shift values both the quantitative and qualitative aspects of the economy, tethering personal finance to personal philosophy. As a consequence, the velocity of adoption is something we haven't seen before. Blockchain and crypto are shattering old paradigms of value and making meaningful changes to the world of finance and therefore, wealth. Needless to say, the next decade will be transformative and mind‐bending.

The main takeaway here is that there are many ways to approach investing and keeping your money invisible to create wealth (instead of leaving excess money in cash, which loses purchasing power over time due to inflation). Investing, and keeping your money invested, increases your potential for exponential growth due to compounding. Compounding interest is the money you earn from your investment's interest. We'll see in the next segment of this chapter why compounding is not only beneficial for the individual account holder, but also society as a whole. After all, there's a reason Albert Einstein called it “the eighth wonder of the world”.

Societal Implications of Wealth Creation

Keeping your money invested gives it the potential to grow in value and to compound. Compounding interest is the money you earn from your investment's interest, which is incredibly powerful for the account holder and is a motivator for investing money in the first place. This is a well‐considered and discussed concept. What we don’t often consider and discuss are the beneficial implications of compounding interest for those beyond the account holder. In other words, how one person's ability to increase the value of their money has compounding effects for society.

Not only does the account holder benefit from the exponential growth that comes with compounding interest, but perhaps others do too—truly drawing on compounding interests, by many (versus one). It is in the individual account owner's interest and society's interest to have money growing at exponential rates, because once the account owner acquires enough wealth for themselves, then they are more inclined to share their wealth with others. This could be with loved ones or loved causes like a charity, or a socially responsible investment. Exponential wealth has the potential to support a multitude of interests, both in a vertical framework (grandparents, parents, kids, grandkids) and in a horizontal framework (community, state, country, world). For example, the Great Wealth Transfer is shifting money from the hands of boomers to milennials. Plus, financial wealth allows one to take on more risks in the arena of entrepreneurship and innovation—something we all stand to benefit from. By accumulating wealth, one is able to reduce the consequences of taking risks and this allows for more innovation, which is beneficial on an individual level and a societal level.

It's worth pulling forward the etymological pearls of insight we discovered in Chapter 1, which showed us that the definition of wealth started as a noun relating to the individual. Thereafter, the term expanded conceptual reach to the community. This supports the premise that wealth relates to the individual first, and then has the potential to expand to society.

Another benefit, or application, of compounding interests beyond the account holder is the concept of “voting with your wallet.” Let’s consider what “voting with your wallet” means. This saying represents the spending or investing of money in ways that align with your values. When we support brands, stores, movements, or investments that are in alignment with our values, we provide the financial fuel to support their success. What we appreciate, appreciates. Here's an example: let's assume it's really important for you to support local farmers and to eat organic food. In this case, you decide to purchase organic food from the local farmers market to support and sustain their business. As a result, you are not buying conventional apples from a large supermarket in town. This creates an inherent feedback loop, by signaling to the large supermarket that you are not interested in their conventional apples, thereby influencing the supply/demand dynamics. One key point here is that local, organic foods tend to be more expensive than a bundle of conventional apples. Therefore, those with more wealth are in a stronger position to vote with their wallets and influence society in a positive way. The more people voting with their wallet and demanding organic food (for example), the higher the aggregate demand, thereby ultimately reducing cost (for all). (This hypothetical assumes an increase in farmers converting to organic farming over time, and with production costs decreasing.)

There's no denying that money is powerful; it will always be a resource that enables the attainment of security, freedom, choice, and innovation. Plus, money has the potential to enhance the most important things in life. For this reason, the more people who make, inherit, save, and invest their money with the potential for exponential growth, the better, because of the compounding interests at play. We all reap the rewards of the democratization and widespread access to wealth creation.

“The only wealth which you will keep is the wealth you have given away.”

—Marcus Aurelius

Notes

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  2. 2. Zhou, Luisa. “2022 Side Hustle Statistics: The Ultimate List.” Luisa Zhou (blog), June 3, 2022. https://www.luisazhou.com/blog/side-hustle-statistics/.
  3. 3. Ibid.
  4. 4. “Adobe ‘Future of Creativity’ Study: 165m+ Creators Joined Creator Economy since 2020.” Adobe, August 25, 2022. https://news.adobe.com/news/news-details/2022/Adobe-Future-of-Creativity-Study-165M-Creators-Joined-Creator-Economy-Since-2020/default.aspx.
  5. 5. Wikipedia, s.v. “creator economy.” Accessed October 4, 2022. https://en.wikipedia.org/wiki/Creator_economy.
  6. 6. “Adobe ‘Future of Creativity’ Study.”
  7. 7. Ibid.
  8. 8. Pop‐Andonov, Neda. “The Creator Economy Market Size in 2022.” Influencers Club, June 14, 2022. https://influencers.club/2022/06/14/creator-economy-market-size/.
  9. 9. “Adobe ‘Future of Creativity’ Study.”
  10. 10. Wikipedia, s.v. “Web3.” Accessed October 4, 2022. https://en.wikipedia.org/wiki/Web3.
  11. 11. Kannan, Sreekanth. “What Is Web3?—Definition from Techopedia.” Techopedia, May 18, 2022. https://www.techopedia.com/definition/4923/web-30.
  12. 12. Plavnik, Julie. “The Creator Economy: How We Arrived There, and Why We Need Its Web3 Upgrade.” Cointelegraph, July 16, 2022. https://cointelegraph.com/news/the-creator-economy-how-we-arrived-there-and-why-we-need-its-web3-upgrade.
  13. 13. Godbout, Ted. “Wealth Transfers to Hit $84 Trillion through 2045.” National Association of Plan Advisors, January 27, 2022. https://www.napa-net.org/news-info/daily-news/wealth-transfers-hit-84-trillion-through-2045.
  14. 14. Tardi, Carla. “Near Field Communication (NFC) Definition.” Investopedia, September 23, 2020. https://www.investopedia.com/terms/n/near-field-communication-nfc.asp.
  15. 15. “What Can You Buy with Bitcoin: A Beginners Guide to Spending Your BTC.” Cointelegraph, November 24, 2021. https://cointelegraph.com/bitcoin-for-beginners/what-can-you-buy-with-bitcoin-a-beginners-guide-to-spending-your-btc.
  16. 16. Csiszar, John. “How 2021 Changed Investing Forever.” GOBankingRates, January 17, 2022. https://www.gobankingrates.com/investing/strategy/year-in-review-how-2021-changed-investing-forever/.
  17. 17. Furhmann, Ryan. “How the Internet Has Changed Investing.” Investopedia, July 31, 2022. https://www.investopedia.com/financial-edge/0212/how-the-internet-has-changed-investing.aspx.
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  23. 23. Nesbitt, Stephen. “Long‐Term Private Equity Performance: 2000 to 2021: Portfolio for the Future.” CAIA, July 20, 2022. https://caia.org/blog/2022/07/20/long-term-private-equity-performance-2000-2021.
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  25. 25. Nesbitt, “Long‐Term Private Equity Performance: 2000 to 2021.”
  26. 26. “Free Online Calculators—Math, Fitness, Finance, Science.”
  27. 27. “Accredited Investor.” SEC Emblem, April 28, 2022. https://www.sec.gov/education/capitalraising/building-blocks/accredited-investor.
  28. 28. Hayes, Adam. “Accredited Investor Defined: Understand the Requirements.” Investopedia, July 12, 2022. https://www.investopedia.com/terms/a/accreditedinvestor.asp.
  29. 29. “Accredited Investor.” SEC Emblem.
  30. 30. https://www.ellevest.com/about-us.
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  32. 32. Semenova, Alexandra. “Apollo, Carlyle Launch Funds on A16z‐Backed Titan as PE's Retail Push Expands.” Yahoo! Finance, September 13, 2022. https://finance.yahoo.com/news/apollo-carlyle-private-markets-retail-investors-titan-140014353.html.
  33. 33. Semenova, Alexandra. “ARK Invest Launches Private Fund for Retail Clients with A16z‐Backed Titan.” Yahoo! Finance, September 27, 2022. https://finance.yahoo.com/news/ark-invest-venture-fund-retail-clients-titan-app-130900829.html.
  34. 34. Capolaghi, Laurent, and Sonia Michel Sonia Michel. “The Future of Private Equity: Embracing the ‘Retail Revolution’?” EY Luxembourg, March 16, 2022. https://www.ey.com/en_lu/private-equity/the-future-of-private-equity--embracing-the--retail-revolution--.
  35. 35. Benson, Alana. “Environmental, Social and Governance (ESG) Investing and How to Get Started.” NerdWallet, August 18, 2022. https://www.nerdwallet.com/article/investing/esg-investing.
  36. 36. Ibid.
  37. 37. Venkataramani, Swetha. “85% of Investors Considered ESG Factors in Their Investment Propositions.” Gartner, June 10, 2021. https://www.gartner.com/smarterwithgartner/the-esg-imperative-7-factors-for-finance-leaders-to-consider.
  38. 38. Bhagat, Sanjai. “An Inconvenient Truth about ESG Investing.” Harvard Business Review, March 31, 2022. https://hbr.org/2022/03/an-inconvenient-truth-about-esg-investing.
  39. 39. Wu, Jennifer. “ESG Outlook 2022: The Future of ESG Investing.” J.P. Morgan Asset Management, January 2, 2022. https://am.jpmorgan.com/dk/en/asset-management/liq/investment-themes/sustainable-investing/future-of-esg-investing/.
  40. 40. Taylor, Tania Lynn, and Sean Collins. “ESG Investing and Sustainability.” Deloitte Insights. April 5, 2022. https://www2.deloitte.com/uk/en/insights/industry/financial-services/esg-investing-and-sustainability.html.
  41. 41. Iansiti, Marco, and Karim Lakhani. “The Truth about Blockchain.” Harvard Business Review, February 2017. https://hbr.org/2017/01/the-truth-about-blockchain.
  42. 42. https://www.blockchainresearchinstitute.org/an-intro-to-blockchain-and-nfts/.
  43. 43. Wikipedia, s.v. “cryptography.” Accessed October 9, 2022. https://en.wikipedia.org/wiki/Cryptography.
  44. 44. Bonnie. “How Does Cryptocurrency Work?” CryptoCurrency Facts, November 5, 2017. https://cryptocurrencyfacts.com/how-does-cryptocurrency-work-2/.
  45. 45. Lehnis, Marianne. “More Than a Ledger: How Blockchains Will Democratize Wealth.” Bitcoin Magazine, July 31, 2018. https://bitcoinmagazine.com/culture/more-ledger-how-blockchains-will-democratize-wealth.
  46. 46. Sharma, Rakesh. “What Is Decentralized Finance (DeFi) and How Does It Work?” Investopedia, September 21, 2022. https://www.investopedia.com/decentralized-finance-defi-5113835.
  47. 47. Roose, Kevin. “What Is Defi?” New York Times, March 18, 2022. https://www.nytimes.com/interactive/2022/03/18/technology/what-is-defi-cryptocurrency.html.
  48. 48. “Securitize Launches Fund Providing Tokenized Exposure to KKR Fund.” Securitize, September 13, 2022. https://securitize.io/press-releases/securitize-kkr-tokenized-fund.
  49. 49. “How Blockchain Tech Can Power ESG Initiatives That Really Work.” Kaleido. Accessed October 5, 2022. https://www.kaleido.io/industries/esg.
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