Do You Have a Proven Model for Building Wealth in Uncertain Times?
Welcome to the 126th episode of the Alternative Investing Podcast!
In this episode, I’ll help you understand whether your wealth-building model is proven to protect you through uncertain and high-volatile markets.
- Client Case Studies
- My Story
- My Wealth-Building Model
If you’re an investor who wants to give yourself the highest probability of success three to five years from now, then make sure to listen to this episode!
03:25 Clients Case Study
06:45 My Story
10:08 My Wealth-Building Model
When a bull market is in full swing, it’s easy for everyone to jump on board talking about how smart their strategies are. But that’s because, in these circumstances, share prices are on the rise and buying is highly encouraged. The circumstances favour these situations, so it’s simple enough to come off looking genius.
But how does your wealth-building model really stand the test of time when things are more uncertain, and markets are highly volatile?
Legendary investor Warren Buffet rose to fame for saying that you discover who’s been choosing to swim naked, only once the tide goes out. And this metaphor is highly relevant here. For example, in the last couple of years, people have been quick to congratulate themselves for making significant investment decisions and coming out on top.
But once they find out they’ve put themselves in a dangerous position, that mentality shifts. This is because of the pullback in the market, or situations where the assets they chose to invest in didn’t have good fundamentals, to begin with.Read More
Right now, the news is riddled with doomsday headlines.
There’s a lot of talk about mortgage stress, financial distress, rising interest rates, skills shortages, supply chain issues, inflation, increasing government debt, and threatening wars. Then there’s the cost of living. The list goes on and on.
Unfortunately, the media are very talented when it comes to perpetuating these fear-mongering stories, and now, more than any other time in your life, it’s crucial you become aware of your own actions, and not the headlines around you.
Financially, the model you use to build and preserve wealth has to be proven. It has to be tried and tested, alongside the attitude you choose to adopt. And that said attitude should be one that reflects the fact that you simply cannot afford to make big mistakes.
However, putting your head in the sand, which is on the other end of the spectrum, doesn’t work either. So if this is the case, how exactly should you choose to think – what mindset is best?
Several studies over the last five years show that investors incorrectly attribute their trading success (or luck) to their abilities. They’re often more overconfident than they should be in a bear market.
But the good news is, there’s a lot to learn from this mode of thinking…
Client Case Studies In Action
With all that said and done, there are two case studies worth exploring here. The first is a high-income earner who decided late in life to start diverting some of their premium income into investing.
In essence, they kicked off their real estate journey by hitting the ground running between 2000 and 2022. During this time, they felt they had collected smart purchases, but now, they’re experiencing service difficulties they simply weren’t expecting.
From huge cash flow burdens to rising interest rates, the couple now struggles with a negative cash flow that keeps them anchored down. Continuing on this road would mean pretty grim prospects over the next two to three years.
The other case study I’d like to delve into is based on another high-income earner who is also late to the investing game.
This person is a lifestyle spender, previously allocating $10,000 a week during the COVID period to share trading alone. This saw him dish out money to a broker that would accumulate shares in his portfolio on his behalf.
On the surface, everything looked great, and he found himself congratulating himself that he had absolutely nailed the wealth-building piece. Better yet, he didn’t have to be involved in any of the
proactive investing decisions – the broker did it all.
But it was that same broker that eroded a lot of the capital.
Two scenarios – two different lessons
In these situations, one invested heavily in the property market during a bull run, and the other did the same in the share market. Why these remain so important to observe because they’re similar to what a majority of people have felt over the last couple of years.
At the beginning of this year alone, there was very little evidence of inflation. Supply chain issues were causing price rises, but these shifts were not enough to change people’s investing behaviours. But now, many investors are starting to hand money back after making so much over the last couple of years – there comes a time when they just have to, and for some, this can be at a time when they cannot afford to do that at all.
My point is that it doesn’t matter what stage of investing you’re at; you should never be going backwards if you’ve got a sound model in place. Preserving your capital is where it all starts, but you still have to expect losses, and you need to be able to take them when they do come.
Every single investor will get cuts and bruises along the way. That’s just how it works. No one comes out unscathed. And with so many uncertainties and volatility, you must have a wealth-building model in action to carry you through the fluctuations of bull and bear markets.
Where My Story Comes In
When I started as an investor, I was very much like the case studies I’ve just described. I spent a reasonable period trading shares and found that too hair-raising. I didn’t like it because using leverage in the share market didn’t appeal to me in the slightest, plus I struggled to wrap my head around the lack of control and the fact that sentiment drove those markets in the first place.
Long-term investing is probably valid for some people, but I wanted more control in my journey – I wanted to take on a risk-adjusted approach to leverage, which was virtually impossible in a share market. And that’s how I entered the property market, combined with the passion I carry for it.
When I first started, I was looking for investments in property real estate that I could afford and that wouldn’t put me in a situation where I had a house of cards. I had the option of going for the growth, refinance and repeat model, which I understand well, but my husband and I were conscious of the dangers that came with it – especially if the market were to turn.
In the end, I was conscious of only doing deals where I could afford to carry the cost of holding onto them. I went searching long and hard for deals with the highest probability of delivering growth over the medium term. And it’s this model that I believe investors should start with.
When you begin your journey, you need to look at opportunities to grow your wealth using assets that will most likely deliver you exponential capital over the medium to long term.
The bad news is that model is exhausting, and it’s pretty depressing when you look at the cash flow you generate. It requires you to hold real estate for a substantial period of time – sometimes even 25 to 35 years before it delivers any meaningful cash flow.
And so, when I found alternative investments, I realised I had developed a much greater immunity to volatility…
My Wealth-Building Model
Let’s talk about my wealth-building model and how it can help you find growth.
Firstly, it’s important to note that this is a proven model and not just a hypothesis. If you follow this correctly, you can become financially independent, no matter which way the market moves.
My model is based on the fact that I’ve spent enough time building wealth through traditional means. I’ve established a portfolio of traditional assets that gives me a good fallback position. But note that I haven’t given up on traditional property. It’s just my plan C in terms of a safety net.
Instead, I now put all my surplus capital and cash into alternative investments backed by real property. And while alternative investments like these are low-risk and boring bread-and-butter deals, they deliver consistent returns that will outperform the market more than any other asset class.
I don’t have to look for those one-off killer deals – I can put small amounts into different liquidity and dealmaker-wise deals and get a solid outcome. And that’s because my model requires me to invest in diversified deals with strong and predictable cash flow. The result is better protection than almost any other asset class during uncertainty and volatility.
My model also requires that I only work with deal operators who’ve been through multiple market cycles, who know how to assess risk, know how to create multiple exit strategies with good downside protection, and that has a track record of producing solid returns even in a market that’s not rising.
Finally, when it comes to wealth building in the current environment, I’m relaxed about how volatility can impact my returns because my model was built to help me through it.
Additionally, my traditional assets have a huge equity cushion, and my alternative investments are diverse and structured so that the risk-adjusted return is still far beyond what most investors could hope for in a bull market.
Ask yourself whether you have a proven model like this. If you don’t, ask yourself what you need to do to have the highest probability of success over the next three to five years. It is possible, and you can build stability during volatility.
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