How to Protect and Grow Your Wealth While Most Investors Are Freaking Out

Being Aware of Environmental and Cyclical Market 

The first is to understand where we are in the market cycle. 

We’ve moved past being anxious and are now heading towards being fearful, but we’re not quite at the point of panic yet.  The market is going down, and it’s important to know where we are in that cycle.

At the moment, there are mixed signals in the economy. 

On the one hand, businesses are doing well and making a lot of money. But on the other hand, consumers feel the effects of inflation and higher costs for goods and services. This creates a complicated situation that will be interesting to watch over the next six to twelve months.

While staying informed and having context is good, it’s unnecessary for us to panic. 

Now I want to be practical and share that I believe there will be excellent investment opportunities in the second half of 2023. There’s a bit of fear in the market, but sellers aren’t yet willing to sell assets at lower prices. 

I’m not saying this to ignore the struggles of people genuinely facing difficulties. Instead, I’m talking about the potential for investment opportunities later this year.

How to Audit for Vulnerabilities

If you want to protect and grow your wealth, the second thing you should do is audit for vulnerabilities. This means checking for any weaknesses in your financial situation that could cause problems in the future.  

Here are some questions you can ask yourself:

• Do you have enough cash reserves?
• Are you over-leveraged?
• Are you able to cope with your interest repayments?

Remember, even if the value of your investments goes down, it doesn’t necessarily mean you’re in trouble. It’s more about whether you can manage and maintain those investments.

If you’re in a situation where you have to sell your assets because you’ve borrowed too much money, it’s a reason to be worried. When auditing your finances, consider the stability of your wealth and your ability to generate more money. 

Many investors hold assets that have been great for making money in a growing market, but now that the market isn’t growing as quickly, they may struggle to make money and are unsure where to invest next.

The best example of this is a couple that recently joined our community and had been aggressively accumulating a lot of assets.

Unfortunately, they are in a situation now where they have to earn a significant amount of money before they can manage their daily expenses. This has made them feel vulnerable, especially since the market is not expected to grow much over the next one or two years.

With that, ask yourself where you have vulnerabilities and what you can do while the going is good to alleviate some of that pressure. 

Redefining What’s “Enough”

To do better than others struggling financially, the third thing you need to do is redefine what “enough” means to you by figuring out what you need to live on and what you want above that. 

If you have big goals, that’s great. But you must learn to distinguish between your baseline and aspirational goals. Once you’ve determined what “enough” is for you, you should focus on meeting those needs rather than accumulating more assets than you need. 

Anything above “enough” is just extra, like cream on a cake.

So if you haven’t done the exercise recently, please do it. 

In the past, I had a client with an extreme financial goal of earning multiple millions of dollars in passive income each year. However, this goal was unrealistic because the client’s actual needs were much lower than that.

What we can learn from it is to focus on achieving your baseline needs first and then consider whether additional goals are necessary. Take a moment to evaluate your financial goals and prioritise what is truly essential for your well-being.

Many people struggle to grow and achieve their goals because they set unrealistic expectations for themselves. But one group trying to change this is the FIRE community, comprised of millennials and Gen Zs who want to be financially independent, retire early, and live simply. 

They’re redefining what it means to have enough and often aim to live on a budget of $30,000 to $50,000 annually. 

What I like about this group is that they focus on figuring out what they truly need to be happy and secure. Then, once they have enough money to cover those needs, they feel a sense of peace and security that’s hard to beat. 

Even if they earn more than they need, they don’t feel the need to spend it all because they’re content with what they have.

Upgrading Your Investing Rules 

The fourth point is that it’s really vital to update your investing rules right now. 

Many people make investment decisions based on emotions or gut instincts, even if they’re usually good at investing. So to differentiate yourself, it’s crucial to think carefully about your investments and make decisions based on well-researched and updated rules.

When the market is unpredictable and things are changing quickly, our negative emotions can have a bigger impact on our investment decisions. 

We might start to doubt ourselves or break our usual rules, leading us to make bad investment choices or agree to things we’re uncomfortable with. It’s really important to have clear investment rules that guide your decision-making, but it’s especially critical to update those rules during unpredictable times. 

For example, you should be careful about using debt or borrowing money to invest, especially if the investment relies heavily on that debt to generate income. 

If interest rates start to rise, you could be in a tough situation where you’re paying more interest than you’re earning from the investment, so be cautious about using leverage in your investments.

Narrowing Your Strategy Focus

The fifth and final thing to consider is to narrow your strategy focus. 

When the market is doing well, it can be easy to feel like you’re a great investor and that any strategy will work. But during unpredictable times, many investment strategies may not work as well or may even be too risky. 

Even strategies that worked before might not be as lucrative now due to rising interest rates, supply shortages, and other challenges. You have to narrow your investment focus and be careful about your chosen strategies.

Concentrate on diversifying your investments and consider how much exposure you have to bank financing.  Also, think about your own experience as an investor because this will affect whether an asset will help you succeed or potentially cause you to lose money.

Some people I’ve spoken to get excited about commercial real estate.

Don’t get me wrong, I love commercial real estate, but I want to say that you need to be careful. You must understand the risks associated with the asset class, such as the costs of lending and borrowing and the risks associated with tenancy renewals and leases. 

Just because you have a tenant in place and you’re making positive cash flow doesn’t mean it’s guaranteed success. If the market changes or the borrowing costs increase, your cash flow could disappear quickly. 

On top of that, if your tenant goes out of business, you might have difficulty finding a new tenant for your property.

If you want to succeed in the short term, focus on doing one thing well.

However, it’s a different story if you are playing the long game and want to buy things for a lower price to hold onto for a long time.