This is Not an Uncommon Experience

On the surface level, many people seem to have a net worth that runs into the millions. But, in reality, their experience of money and their experience of stability, of how much wealth they have, is probably not where they want it to be. 

I really want this particular episode to resonate with specific people, so I’m going to really dial it in. The reason that I’m dialing it in is I’ve spoken to dozens of investors over the last 12 months: business owners who have been massively adversely affected through all of the turbulence that’s been going on around COVID. Regardless of whether their business has been able to right itself, or whether they’re still limping, or it’s just a matter of time before they get back on track, there’s no question that a lot of people have been really spooked. 

There’s a group of people aged, say, 48 to 55 who don’t have the net worth that they think they should have at this point in time and don’t see themselves being able to create it over the next five to ten years. There is a group of people who look at their balance sheet, meaning their assets and liabilities on paper, and it looks great. However, they’ve either got a highly underperforming portfolio of investments, meaning that the capital’s there, but the cash flow is terrible, or maybe they have one primary asset, being their home, where a disproportionate amount of their wealth is tied up. 

Now, I’m trying to paint a picture here, but as I said, this is a very common experience. Because the percentage of their overall capital, and I call it working capital, is so small, they worry that if they don’t take some serious action over the next three to five years, they’re going to find themselves in a situation where there is a gap between the income that they need to live off when they retire, and the income that their assets actually produce. 

Unfortunately, that’s, a tragic situation that is happening to more and more business owners – even those guys who managed to sell their business for a big paycheck. 

I literally just got off presenting with a panel, talking about the relationship between the value of your business and wealth-building. It’s really apparent to me that even if you ended up with a huge lump sum of capital in your bank account tomorrow, and let’s say you sell for two or ten million bucks and it’s the number that you’re looking for. Most people would still not have any clarity about how to effectively convert that into wealth that they could actually categorically live off for the rest of their lives and beyond.

The Three Courses of Action to Building Sustainable Wealth

If you’re looking to create a really epic result with your investments over the next three to five years, then I’m going to say at point-blank: it’s very hard to do that through traditional avenues. It’s very hard to do that with straight-out financial planning products, managed funds, shares, and even to some degree, property – unless you’re super active and you’re thinking outside the square, maybe trading a little bit or doing some higher-risk strategies. If they’re the options that you’re looking at now, you are really going to flounder. 

If there’s a bit of a gap between the asset base that you feel you need and where you are right now, then there are three courses of action:

1. You just do what you can to pump up your net worth between now and when you retire, and then as you retire, you sell down assets, and you live off them. Many of you may have heard me refer to this as eating the cow. From a sustainability perspective and from a longevity perspective, that is one of the worst formulas for building sustainable wealth – not to mention the fact that you don’t actually know how many years in retirement you’re going to have. We’re obviously living longer, and the old model of saying, well, get to X lump sum and then divide it by say 10-15 just doesn’t cut it anymore because we’re living beyond that.
   
   
2. Get to your point of retirement and see what you have in play. Look at either liquidating the lot and then moving it to some kind of financial planning product or retirement product that pays you. Typically, I’m hearing that people are earning somewhere between 2 to maybe 4% net after expenses. If you have a super high net worth portfolio of assets and that seems OK to you, and it gets you more or less where you want to go, maybe that’s OK, but for those entrepreneurs and business owners who recognise that 2 to 4% net income off a pool of assets is fairly miserable, I think the third scenario is probably worth considering.
   
   
3. Look at what you can do to optimise the asset base that you have. Do you have lazy assets? Are there things that you could redeploy your capital into so that you get better performance overall? But the other thing, which is the asset class that I have fast become a huge advocate of is, do some simple math to work out what kind of impact something like alternative investments would have in your world.

   
   

The Impacts of Using the Three Key Strategies

You need to understand the potential impact with this third option of deploying or investing some of your money into alternative. The purpose around that is to build predictable, sustainable, reliable cash flow instantly. There are very few other asset classes that we take for granted in the mainstream that can actually achieve that for you. I know that I can take a dollar today, put it in an investment, and it will start paying me straight away – and that is what I’m looking for when I talk about alternative investments. 

Let’s imagine that you have $1,000,000. Now, in that first strategy that I mentioned, which is you take your million bucks and you sell it down, and you just hope that it’s going to last. I think we’re just going to put that one to the side because that doesn’t make sense to anyone. 

The second option is that you take that $1,000,000 from wherever it is, consolidate it and give it to a financial planner. And maybe they say to you, look, I can get you 3 maybe 4% net income per annum. So that gets you to $40,000 income per annum. And I can tell you now, for most people, that’s not enough to sustain the lifestyle that they may have had up until this point in time. 

Now let’s imagine we go to our third strategy. You want to remain fairly conservative and recognise that if you took a small percentage of that capital and put it into investments that pay a higher rate of return, you are exponentially going to alter your relationship with money. 

So let’s imagine that of that million dollars, you took 20% and you said, look, I’m going to leave 800,000 in my low yield product or plan that somebody has for me that’s going to earn me my 4%. So 4% of 800 gives you 32,000, so that’ll give you $32,000 per annum. 

But then I’m going to take 20%, and I’m going to put it into alternative investments that feel like they are in alignment with my risk profile preferences, what I’m trying to achieve, the liquidity that I want, the geography that I want, the dealmakers that I want, and I’m going to average a 12% net return. 

Now, immediately off that 200,000, you’re going to be earning 24,000, so that takes your overall income up to about 56,000. 

So you’ve gone from 40,000, and by taking 20%, you’ve shot it up to 56,000. So you’ve increased your income by about 40%, which is staggering considering how small an amount of money you’ve just moved. 

Now let’s say OK, I’m comfortable with that, I’m going to keep going. I’m going to leave 700,000 or 70% in my 4% yielding conservative, traditional asset. And I’m going to take 300,000 and put it into a bunch of investments that are only 12%. Then I’m going to get 28,000 from my 700,000, and I’m going to get 36,000 at 12% off my 300,000. And that’s going to give me an overall income of, say, 64,000. Now that is getting kind of sexy. It’s now 60% above what you would have been getting if that money had all been in traditional low-yielding investments. 

Let’s be even more aggressive, and let’s say you become very comfortable with how these alternative investments work and you go, I am really happy with a split of 50/50. Even relatively speaking, I would still argue that’s conservative. 

But 500,000 goes into your 4% yielding account that gives you 20,000 a year. And 500,000 goes into your alternative space, which is going to yield you 12% per annum, which is $60,000 a year. And you add those two together, and you get $80,000 per year simply by splitting your original pool of $1,000,000 into two buckets.  

Now that is a 100% increase on your original income, had you just taken that whole $1,000,000 and put it with one bucket or a series of low yielding buckets. This is not voodoo. These are not scary strategies. These are, in my world, conservative bread and butter strategies.

Why These Three Strategies Aren’t That Accessible

Because of the way that the wealth industry has evolved, there are not a lot of middlemen, there are not a lot of people who offer quality A-grade vetted deal flow that will allow you just to cherry-pick deals that you want. These are private networks, so these opportunities usually reside in relationship-to-relationship, peer-to-peer kind of groups, and they’re hard to break into. 

I want to reassure you that these well and truly do exist. And if you are interested in how to go about working out and I and you’ve heard me talk about this in different ways, like what is the right freedom formula for you, then I am going to suggest that you reach out because I would love to help you with this piece.

Why You Should Consider Alternative Investments

You know I have no vested interest in whether you invest in traditional or alternative. All I can say to you is alternative has changed my life. 

If your timeline to retirement is sure, if you have underperforming assets, if you don’t have as much capital as you think, if you are in that age group of, say, 48 to 55 and you know you need to take some action, then understanding whether or not alternative investments are a fit for you is an absolute no brainer. Unless your plan, of course, is to take it all and put it all on red and take on some hair-raising, higher-risk investments. 

Even if your financial situation is very stable and you’re very comfortable, you cannot ignore the mathematics around taking a small percentage of your income and massively amplifying it to get a significantly better return. 

I have to say, I’m not mincing my words because I’m heartbroken by the number of business owners that I’m speaking to at the moment who are in a deep place of hurt. They recognise they don’t have a lot of time to do all the things that they might have done when they were 20. 

They don’t have the inclination, the knowledge space or have the network. But alternative investments are a series of strategies where you are still backed by real property, you still have a high degree of control, but you don’t necessarily have to deal with tenants and toilets. If that appeals to you, then I’m really going to encourage you to look down this rabbit hole further.

Final Thoughts

If you are someone who recognises their high net worth on paper, but you don’t feel rich, now is the time to take action. 

Frankly, there hasn’t been a better time in history to be looking and thinking outside the square. 

You never know, alternative investments could be the asset class that truly changes your life.

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.freedomwarrior.com.au 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.

If you’re interested in understanding how to create wealth through alternative strategies,  please check out my programs, where I help you catapult your investment income and blend strategies to shave decades off your timeline to financial freedom.

Or, you’re welcome to get in touch today, book a call with me, and I would be happy to talk you through it – no obligation!