Is Alternative Investment A Scam?
This is such a fun topic, and I can take it in a number of different directions.
I completely empathise when people hear about alternative investments and say, “Oh my God, they are scams. There are scammers everywhere.”
I think given the current environment, which is full of all sorts of weird and wonderful information about blockchains and really wild investment experiences, there’s a bit of an information overload that can put people off.
Some people would say, “Look, I’ve never even heard of alternative investments. That just sounds dodgy. I don’t know anything about it. So if I haven’t heard about it, it can’t be real, right?”
Ultimately, I think the real fear that people have is that they don’t actually want to lose any money.
Obviously, nobody wants to lose money, but the very nature of investing is that you have to put your money into something where there is the potential risk of loss and stack the odds in your favour as much as possible.
If you can embrace the idea that they are real and that there’s just a small group of ethical, private experts who are specialists in this space, that you understand that it’s really important to be very mindful of what you consume.
You want to stop listening to a lot of the noise that’s out there in the social media and media space, except that they are real, but they’re just not common.
You only have to invest in a way where you take small steps and take small amounts of capital and put them into many deals to give yourself the opportunity to build confidence.
That is a great starting point to open your mind to this world of alternatives.
Redefining Alternative Investment
I know I’ve done this in many other podcasts, but I just want to spend a couple of minutes redefining what alternative investments are, and the way that I think about them.
Alternative investments are definitely on the spectrum. Down one end of the spectrum, you have all of the hair-raising crazy stuff that you hear about where people become overnight millionaires.
Then you’ve got things like hedge funds, seed capital, blockchain, to some degree from my perspective, and a whole range of other investments, which are definitely alternative.
They’re not mainstream, but they’re certainly the sort of thing that your average investor wants to be involved with because, quite frankly, you could lose your shirt.
Down the other end of the spectrum are a whole series of strategies that sit outside of the mainstream, and it doesn’t mean that it’s the wild west or anything like that.
It just means, for various reasons, government authorities haven’t worked out how to clamp down on it and put some regulations around it in a way that makes it available to your average mainstream investor. It doesn’t mean that it is a hair-raising risk or anything like that. In fact, quite the opposite.
But the space that I am specifically talking about at this end is actually only investing deals that are backed by real property. That’s the space that we’re talking about.
For those people who are already property investors, when I talk to them about the strategies in this space, they pick them up immediately.
They understand exactly what they’re about, and they can understand how the deals are structured.
The funny part about these deals, though, is that real estate deals are obviously a dime a dozen, but the creative way in which these deals are structured using non-mainstream strategies is why they are so lucrative.
It is why the deals themselves produce such great cash flow. That’s what I wanted to say about redefining alternatives.
The Five Buckets of Strategy
Just a quick reminder, again, the five buckets of strategies are private funds, small private funds, syndications, joint ventures, lending deals, and turnkey real estate. They’re the five big buckets.
Client Case Study
The story of who prompted this podcast was a younger investor who has effectively, maybe dipped their toe into a couple of real estate deals but has effectively been sitting on a boatload of cash, partly because they don’t have the bandwidth to go out and find deals or even think about investing, but partly because there’s a sense that the market is a bit wobbly right now, and they don’t really believe that investing in either shares or real estate is necessarily going to give them the outcome that they want.
The point that I had to make to this guy, though, was that, while I do think it is a great time in history to be keeping bigger than average adequate cash reserves, having that amount of cash sitting around underperforming also didn’t make sense, particularly given the inflation that we’re experiencing right now.
So I felt for this particular investor, alternative investments could be in good alignment because, from a risk perspective, you are able to quantify the risk and de-risk these deals as much as possible.
They don’t require a rising market, which is another reason that alternative investments in my world make a huge amount of sense. They have a lot more immunity to volatility, meaning that yes, asset values can vary, but the cash flow remains relatively steady.
That’s why it’s such a game-changer for many people.
Does Alternative Investment Work for Salena?
To answer the question do alternative investments work, and if so, will they work for me? The answer is “hell yes, they absolutely work.”
I’ve really dedicated the last few years of my life to getting to know people in this space and just wondering how my life would’ve been so different had I not stumbled across these strategies.
The answer is yes, they absolutely do work, but I don’t know that that’s necessarily what you guys are wanting to hear.
But if I were to unpack a little bit about who they are for and who they are not for, maybe that would be a more useful starting point.
Who Does Not Qualify for an Alternative Investment?
If you are a brand new investor and you are just trying to get out of the gates and find some investments to get you on your way, I probably wouldn’t advocate the alternative because although you can apply leverage, you can’t do it in the same way as going to a bank and controlling a piece of real estate in your local market, which might grow 5% to 10% every year.
Over time, that will give you a very good capital base, and that is certainly what you need to focus on when you start out in the spring of your investment journey.
For Whom is Alternative Investment?
They are for people who may have moved into summer, meaning they’ve applied leverage, they’ve grown their capital to as big a pie as they possibly can, and now they’re just letting time do the heavy lifting. Maybe they’ve hit a bit of a ceiling with borrowing, or maybe they’re not comfortable with borrowing any more money.
Maybe they’ve optimised their investments as much as they could, but they realise there’s still a gap between where they are and where they want to be.
Now, what most investors tend to do, I would say what 95% of investors tend to do when they hit their ceiling with borrowing or they decide to tap out of buying or accumulating any more real estate, they basically just use any surplus income at that point to enjoy life and just wait for time to do the heavy lifting and give them that growth in net worth that they want.
But if you’re like me and don’t like the idea of retiring at 65 and want the freedom to step off sooner, then putting a small percentage of that capital into alternative investments makes a lot of sense, because you can easily shave a couple of decades off your timeline to reach your financial goals.
It’s people who’ve not been in spring, so not your newbie investors, maybe your more seasoned summer investors, meaning that you’ve really focused on getting traction with your investments and now you’re starting to plateau.
Definitely also people in autumn. People in autumn are looking to optimise the capital that they have.
They want to take a small percentage of their pie and just make it work a little harder before moving into winter.
If you’re someone in winter, it means your primary focus is on preservation and things like legacy, just looking after the capital that you have and keeping it ticking over nicely.
On top of summer, autumn, and winter, it’s definitely the right time to be thinking about alternative.
Will Alternative Investment Work for You?
Will they work for you? The real answer to that question is probably based more on what investments you actually undertake.
When people come and work with me, they say to me, “Where’s the biggest risk in what you’re doing? Like, how could this go wrong?”
Obviously, there are no guarantees with any kind of investing, but the biggest risk in everything to do with alternative investment is to do with the deal maker.
Whom are you relying on as an investor to put the deal together and execute the deal?
Because you could have the best real estate deal in the world and have a really poor operator or a poor executor, and it can fall flat on its face and everyone can lose their money.
Similarly, you can have a really average deal and just have someone with an awesome track record who knows exactly what to do to turn that into a really profitable deal.
So the biggest risk in the whole equation is who you rely on, and that’s why I have spent the most time in my program and in my trusted advisor network curating the who, because in my experience, the who is what will transform your wealth.
The ‘who’ is what will transform your access to A-grade opportunities.
These are the people who are at the coal face, who feel the tremors in the market and can warn you about them long before you start hearing about them in the media.
Final Thoughts
I hope that kind of answers the question, “do alternative investments work and will they work for me?” Because I think the ultimate message with this podcast is that they work for anyone really, but like everything in life, it’s always about timing.
Think about the person that you are with, your partner. Had you met them a few years earlier or a few years later, maybe it wouldn’t have worked out.
But sometimes just meeting the right person at the right time can result in a fantastic lifelong union, but with investments, it’s a little bit like you’ve got to pick for the season that you’re in, for the cycle of your journey that you are on, what investments make sense right now.
I think if you can look through that filter, then thinking about whether alternative investments will work for you or not is easy, and then really the final piece around “Do they actually work?” is really an exploration and an increase in your education that will really ultimately determine that for you.
I hope this was helpful. I’m super excited about some of the podcast episodes that we’ve got lined up.
I’ve got a couple of people who I might even bring on as guests. If you’ve got any questions on this, if this question, “Will alternative investments work for me?” has crossed your mind and you want to ask me something specific that I haven’t covered today, please reach out and send me an email at salena@www.www.inkosiwealth.com.
But otherwise, until next time, take care.
If you’re a business owner feeling frustrated that despite doing everything right in the property investing playbook and you’re no closer to financial freedom, then head over to www.inkosiwealth.com to learn more about how you can use alternative investments to catapult your investing income and blend strategies to shave decades off your timeline to financial freedom.
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