The one sure way of securing financial freedom requires thinking outside the box. The trick is diversification. Not the kind of diversification your stock broker talks about, but a different kind of diversification. Something your financial planner probably won’t tell you about it either.
Thankfully, Matt Theriault is here to shed a bright light on the mysteries of financial planning with the Epic Wealth podcast.
Take a fresh look at your financial planner’s idea of diversification, discover the power of passive income investing, and leverage a bit of time now to secure a lot of cash flow later. Unravel the secrets to financial freedom on the Epic Wealth podcast. Enjoy!
What You’ll Learn:
- Why a portfolio of ‘paper investments’ provides a false sense of security
- How the “Forest Gump mentality” could be hurting you. Investing is not a box of chocolates.
- Why the buzzword ‘diversification’ doesn’t mean what you think it does
- Why multiple strategies are necessary when building your investment portfolio
- Why the trilateral income based strategy works so well
- How building Epic Wealth is just a matter of time when investing in real estate
- Why passive income real estate investing provides the surest way to wealth
- Why paper instruments are only a portion of the available investments
- How to keep a balanced portfolio in the face of a shifting market
- Why your broker will not tell you about passive income real estate investing
Read the Transcript:
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Matthew Theriault: Alrighty. So, we've done a lot of discussion this week and last week about what there is not to do and what there is to watch out for. But, what is there to actually do? That's what we're going to discuss now, and to begin, I want to kind of lay some groundwork. I got a question for you. Do you remember when Forrest Gump famously said "Life is like a box of chocolates. You never what you're going to get". You remember that? Classic line, right? Certainly already cemented its place in movie pop culture.
But, let's think about that. How do you not know what you're going to get inside a box of chocolates. I mean, wouldn't you absolutely always expect to find some sort of chocolate? You're not going to possibly find the keys to a Ferrari, or a gold coin, or a Rolex, are you? No, of course not. Now, to be fair to old Forrest, I know what he means. In the limited context of "a box of chocolates", you may have different flavors. You may have some with nuts, some without nuts, you've got different fillings, you've got different types of chocolates. To Forrest, that made it all a really big adventure. But, unfortunately, this limited Forrest Gump view of what variety means is exactly the same mentality traditional investment brokers use when they talk about investment variety, or their word for it, "diversification".
See, diversification is one of the largest cornerstones of wisdom taught to clients in traditional investment vehicles like mutual funds. Clients are taught that diversification is a key element to providing a safe portfolio for the long term. Now, to stockbrokers, diversification means, simply, purchasing stock in different companies, and different industries, and different sectors of the economy, and then breaking up your holdings between stocks, bonds, and cash. That's how brokers define diversification, and it might even be what your definition of diversification is right now.
I know some of you that are listening to me, you're already convinced about the power of real estate and you've been convinced for a while. Now, others of you though, may already be even successfully investing in other more traditional vehicles like stocks and bonds and mutual funds, and you've heard the buzzwords like "diversification". The thought, just the very thought of investing in real estate, while intriguing, very interesting, may seem like such a departure from what you're used to that it almost seems like you are breaking the rules.
Now, in case this describes you, today I want to ease you into the thought of purchasing real estate by embracing, not dispelling, the investing wisdom your broker may have taught you, and to help you get the Forrest Gump mentality out of your investments. In reality, there are three major classes of investments, and they are not called stocks, bonds, and mutual funds, contrary to popular belief.
The first one is called paper investment instruments, which is what you are investing in when you are purchasing stocks, bonds, and mutual funds. While they may sound different, at the end of the day, they are all market-driven. They're all in the same box. Having a variety of these chocolates, as it were, does not make you truly diversified. You feel that you are, but you are not. I mean, sure, on a hot day, your milk chocolates may melt faster than the dark chocolates. I mean, when the stock market melts down, maybe your stocks fall faster than your bonds. But, there's nothing directly under your control here. You just purchased multiple seats on the same train, and guess what, you're not steering and there are no brakes. This doesn't mean paper instruments don't belong somewhere in your portfolio if you feel they're right for you. It just means that you may be operating with a false sense of diversification, and thus, a false sense of diversification's promise, which is safety, which is security. A false sense of comfort.
You know, getting completely outside of paper instruments, the second truly separate asset class you can invest in are businesses. Being specific, businesses that can be scaled to run with or without you. Specifically, without you. Preferably, without you. You may do this actively or passively. For example, if you're an architect and can actively train other architects to create designs, to create buildings, and a sales team to go out and find the clients and take care of those clients, then you can sit back as an owner and just collect the proceeds, and then you can work more on your business and not have to work in the business. On the other hand, if you passively lend your cousin's architecture firm $50,000 at 10% interest so that he can expand his operations, even if your architectural skills don't allow you to draw stick figures very well, you are still investing in a business. That's the second asset class: business.
The third, and quite frankly, the most versatile asset class, that's real estate. Now, you already know my passion for real estate, specifically cash flowing real estate, specifically income-generating investment-grade real estate, and you know my passion for its power to create true wealth for an average person in a reasonable period of time. In a very quick period of time, all things considered. This is the asset class I chose to embrace, and I used it to successfully deliver myself to financial freedom's front doorstep in less than four years. Three years, eight months, to be exact.
So, getting back to the notion of diversification. Now that you can clearly see the vast differences between the three investment classes, how is it that the vast majority of us equate investing itself with only one investment class? With paper instruments. Well, it's simply because paper instruments are the easiest to sell. They are absolutely everywhere in our lives. They're inside of our 401(k)s, they are inside of our pension funds, and they are splashed across our TV screens as the "right thing" to roll over our retirement funds into. Paper instruments are inescapable in our culture, in our society, but they, in reality, only make up a small part of what investing actually is. In fact, I would argue that someone that owns three churro carts and one income property is diversified into more investment classes than someone with a typical mutual fund portfolio consisting of hundreds of company stocks. So, if you're going to truly embrace your broker's wisdom to diversify, shouldn't you be taking them up on that and looking outside of paper instruments altogether?
The next buzzword brokers like to teach as wisdom is the concept of rebalancing your portfolio, and what this means is that when one piece of your portfolio is up, then sell some of that at today's high price, and purchase more of another piece of your portfolio that may be down in price. Rebalancing, by its nature, it's a capital gains strategy. Typically meaning that when stocks are high, sell some and buy bonds. But, of course, this rebalancing always takes place in the same box of chocolates: paper instruments. This is simply because brokers aren't set up to sell anything else. Most especially not physical investment grade real estate. So, for them, nothing else exists.
But, now that we can look at all three investment classes as a whole, let's take a look at what some rebalancing and diversification may look like. For instance, I keep seeing in the news that the stock market, it's going up and down, and up and down, but it is technically at an all-time high. If we are truly going to rebalance and diversify the paper instruments we own at these high prices and you don't have a cousin with an architecture firm looking for partners, couldn't maybe it be time for some real estate?
As for me, yes. I diversify and rebalance within my real estate portfolio, but I do that through investing in different parts of the country, and in different property types, all with a complete emphasis on cash flow. It's an income-based strategy, and I run my investments as a business. I am so fundamentally cash flow focused that I don't necessarily see myself reverse diversifying back into paper instruments. Except, perhaps as, I guess, maybe a place to accumulate some cash while I seek out my next investment property. Anyway, I can get into all of that later.
But, for now, I hope you got what you needed to take a second look at the Forrest Gump style investing you might be doing. I also gave you some great buzzwords to use to still keep your street cred over at the firm. In all seriousness, I do hope this helped you think a little bit outside of that box, and it helps you get closer to your financial goals. If there is anything you'd like to think through with our fantastic team over here, we're always here to help. Go to cashflowallies.com and download our Investor Package, which includes the top 10 cash flow markets in the United States. You know what? You might even get a chance to speak with Mercedes, who is a wealth of information, more than I even on today's discussion.
As I like to say here, it's never a money problem. It's merely an idea problem, and that's what we're really good at: ideas, creative ideas on how to start building your income portfolio, how to grow your income portfolio, how to access multiple sources of other people's money to help you grow your income portfolio. I think that's what has given us a real insane advantage over most real estate investors, meaning I didn't have any money when I got started, so I didn't have the option to throw money at every single problem I encountered to make them go away. I had to get creative, I had to come up with ideas to solve my challenges without money, and today, I've got money, but I still use as little of it as possible to build my portfolio. I mean, why would I use it if I don't have to. If I built what I've got without money, why would I implement its use now. My point is it's never a money problem. Just an idea problem.
Next segment: I want to go over how to virtually eliminate the risk from your real estate investing right after this.
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And now back to creating your epic wealth.
Matt: Alright, so how does one virtually eliminate the risk from their real estate investing. I mean, it almost sounds impossible, doesn't it? Because we all know at least one person who has lost big in real estate. Maybe you know many people that have lost big in real estate. Maybe even someone a little bit closer to home, like you. Maybe you lost big in real estate. You know, what never made sense to me is how real estate, how it's responsible for creating so much wealth, more wealth than anything else, but it still holds onto this risky stigma in our society. How can it create more wealth than anything else, but also be the riskiest thing out there. Those two, they can't go together. It doesn't make sense. But they do. They do in our society and here's why.
You see, most people that play in real estate, here's the issue that is they aren't investing. They're gambling. They have a flawed strategy. In fact, there are really just three areas where people can lose money in real estate, and if you can cover these three bases, it's pretty difficult to lose. So, the first is a contractor, a bad contractor. A contractor can make or break your project and your bank account. Second, a bad property manager. A property manager, they can make or break your cash flow, your income, your streams of cash, your overall livelihood. You're at the mercy of their production and their performance.
So, you want to do as much due diligence on your contractors and your property managers as you do the properties themselves. Contractors and property managers, they're like who dentists are to us and who car mechanics are. When you find a good one, you got to hold onto them and you want to treat them well. You want to make sure that they get a Christmas card, because good dentists and good car mechanics are worth their weight in gold, and so are good contractors, and so are good property managers. Now, if you have dependable and competent property managers and contractors on your team, what you've done right there, you've eliminated probably 50% of all the risk that exists in real estate. I mean, boom, just like that. With those two people in place, half your risk is gone.
The remaining 50% of the risk, that lies within your strategy, and that strategy for most is appreciation based. Now, don't get me wrong. Some do really great with appreciation. Some do really great with an appreciation-based strategy and some don't. Just as many don't. The reason is it's not investing. It's gambling. Sometimes you win, sometimes you lose. So, you can win big and you can lose big. It's gambling. Now, I love my appreciation, don't get me wrong, but you just got to keep it in its proper perspective. Appreciation, it's the icing on the cake. It's not the cake. Income is the cake. Cash flow, now there's your cake. That's the cake. And just by shifting to an income-based strategy from an appreciation-based strategy, just by making that shift going from appreciation-based to income-based, you are miles ahead, from a risk perspective. And if you make it a trilateral income-based strategy, you can blow the appreciation investors right out the water in both risk and returns.
So, a trilateral income-based strategy, what is that? Well, it's one that consists of three different income strategies: a fast strategy, one that produces today money. That might be transactional funding, or hard money lending, or maybe wholesaling properties, really quick flips. That's your fast strategy, your fast income strategy. Then you have a medium pace strategy. That's one that produces tomorrow money. That could be your single family buy and holds, maybe your duplexes and fourplexes. That's your medium pace strategy, produces tomorrow money. Then the slow strategy, one that produces future money, and that's going to be your bigger projects, like your land developments, or your commercial buildings, or your large multi-family buildings where you have to go in, you have to do a lot of rehab, and you got to go in and rework the management and increase their performance, and then maybe swap out some tenants here and there. Those are long-term projects, but what they do is they provide long-term security. They're stable investments.
Now, when you have those in place, real estate really becomes a very beautiful thing when you have those three strategies in place, those three income strategies in place. Here's why you need all three. If you just have the tomorrow money and the future money, what happens is you lack the funds. The typical thing that you're at risk of is you lack the funds to run your day-to-day operations, so you never really get to that tomorrow or future money because you're always struggling today. And if you just have the today money and the future money, the typical risk is you're just kind of always waiting for the big payout. You've got money to run your operations, don't have really any tomorrow money, and your today money is getting eaten up by your operations and you never really get the resources or the manpower to develop the long-term future money to create that stability in your life. And if you just have the today and tomorrow money, well this is a little bit misleading because a lot of people run their business this way with the today and tomorrow money, because things get really exciting here because you are making good money because you're making money today, you're making money tomorrow, you feel like you're prospering. But, what happens is you're typically really vulnerable to market conditions, and because you don't have the future money strategy in place, you don't have long-term security.
So, you need all three. You need all three to get the best of all the worlds. You need the tomorrow, the today money, and you need the future money. If you have a good contractor in place, a good property manager in place, and a trilateral income strategy in place, it's really tough to lose money in real estate, really tough. This is how I set up the Epic Wealth Fund. I set it up just like this to protect my investors. So, what I want you to do is I want you to look at your current strategy, look at your current portfolio, look at how you're potentially currently your real estate investing business. Look at that and bounce them off of each other. Measure against this, of the good contractor, the good property manager, and this trilateral income strategy. Compare. Compare what you're doing to what I just explained to you, and what is missing? You want to ask yourself that question. What's missing here and what can I put in its place, and how can I put something in its place to protect me and to virtually eliminate my risk. How can I put the pieces together?
It's a lot of work. I wouldn't say that it isn't, but what is high reward no risk worth to you? I mean, if you don't want to take on the heavy lifting and you're an accredited investor, maybe hopping on our back and going along for the ride, that's going to make sense for you. Maybe that's going to be a good fit for you. If so, you can go to epicwealthfund.com, download the executive summary, and you be the judge. epicwealthfund.com. Regardless of how you do it, whether it's on your own or you come along with us and you do it with us, you need good property management, you need a good contractor, and you need a trilateral income-based strategy for your real estate investments.
Alrighty, it's been an absolute pleasure today. I'm getting used to this time with you and it's really, really great. So, I will see you here next week as we continue to create your epic wealth, as we continue to build your epic wealth.
If opening up your financial statement each month is about as exciting as watching paint dry, [snoring] the Epic Wealth Fund may be the next investment opportunity for you. The Epic Wealth Fund invests in distressed real estate and shares the profits with its shareholders. If you're an accredited investor who has already enjoyed success elsewhere in their business or investing life and you're seeking a broader exposure to real estate in your portfolio on a passive basis, the Epic Wealth Fund's executive summary is available for your review. Go to epicwealthfund.com to review the fund's executive summary, epicwealthfund.com. Real estate investments involve a high degree of risk. Residential income and returns may vary and are not guaranteed. Past performance is no indication of future performance. Nothing herein shall be construed as investment, tax, legal, or accounting advice.
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