Efficient markets = economic vulnerability
The Wall Street markets are an efficient marketplace with millions buying and selling in seconds, making it very difficult to “beat” the market. Without sophisticated technology or insider knowledge, individual traders have zero market advantage.
The markets are also vulnerable to global factors beyond our control. The news cycle can send shockwaves in minutes, and fear, greed, and crowd mentality can cause dramatic market swings with little basis in investment fundamentals.
Do you really want your future tied to something you have such little control over?
Most advisors encourage practitioners to follow the same path as they did 50 years ago, even though market realities have dramatically changed. We have seen the results of this approach; an increasing number of dentists are faced with economic uncertainty, the possibility of inflation reducing their real yields and threatening the purchasing power of their dollars in retirement.
A change in strategy is necessary. This involves a different plan that prioritizes translating equity into cash flow (insulated from market volatility with capital preservation), cash flow generation, and buying back time.
A return to merit-based investing
In a growth market, the rising tide lifts all boats. Many have invested according to the greater fool theory—i.e., buying in the hope that someone will be willing to pay even more in the future. But what happens in an era of limited growth, stagnation, or correction? When markets correct, they fall hard.
It’s time to return to merit-based investing, or investing in assets that have fundamental value, generate real profit, and are thus insulated from financial market volatility. It requires skill, effort, and intention. Start by identifying assets that turn your equity into reliable, sustainable, and sufficient cash flow. Divest your performance from indices and invest in real, tangible assets for a sustainable cash flow that frees you from the constraints of typical investment advice.
The case for real (hard) assets
Owning a business as an asset offers the highest degree of control. Rely on real, concrete profits that your business generates. You can adapt to changing economic conditions, pivot your strategies, and seek new opportunities, providing a resilience that’s hard to match with other investment forms. At some point, however, the next stage in the progression of economic freedom is to take the profits from your business and redeploy them into assets that produce cash flow and require less time to operate (such as real estate).
Invest in cash flow-producing assets that produce consistent cash flow streams and a hedge against inflation. It isn’t necessary to become a landlord or build a rental property portfolio (a second job) to enjoy the benefits of investing in tangible assets. It is critical to select a method that aligns with where we are in the market cycle and one that minimizes your commitment of time (trading one job for another). Now is a hazardous stage of the cycle in which to invest in traditional equity forms of real estate (rental properties, most multifamily or commercial syndications, etc.—all are susceptible to reduced profits in an overvalued and high-interest rate environment). However, investing in private credit secured by real estate (i.e., “being the bank”) can reduce investor risk exposure and provide more predictability in cash flow.
The key = relationships and access
Investing in real estate is about people, where building and maintaining strong relationships can be the difference between success and failure. Being a successful, passive investor involves meticulous planning, understanding your financial goals, risk tolerance and investment criteria, and working with trusted partners. These partners can provide insider knowledge, access to off-market deals, and firsthand advice on specific markets or property types, helping you navigate potential pitfalls and significantly reducing the time and money required to succeed. Remember, your network is your net worth.
Find guides
Sustainable success as a full-cycle investor comes from shifting and adapting through all market-cycle stages. Beware of relying on one model. Just because an operator is skilled in a particular expertise (multifamily, commercial, private lending/notes, etc.) doesn’t mean that asset is the right one for where the markets are headed.
Passive investors must develop a network of relationships that allows them to shift their investments as needed through each stage of the market cycle. This requires specific skill sets and an understanding of the market’s direction.
