The 10 Biggest Lessons I’ve Learnt Investing in Alternative Investments For Over A Decade
Welcome to the 115th edition of the Inkosi Wealth Scoop!
In this episode, I’m going to talk about the 10 biggest lessons I learned from investing in alternative investments for almost 14 years and why these distinct asset classes are so powerful when building your wealth rapidly.
- Lesson #1: They Shaved Years if Not Decades of Your Timeline to Financial Freedom
- Lesson #2: Some of Them Can Have a Lower Risk Profile
- Lesson #3: Relationship Capital is the Real Gold
- Lesson #4: You Must Have Investing Rules
- Lesson #5: Don’t Chase Yield
- Lesson #6: Diversify Your Investments
- Lesson #7: Be Really Clear on Capital Allocation
- Lesson #8: Build Your Investments Gradually
- Lesson #9: Invest in Mentors
- Lesson #10: Learn to Manage Risks
If you’re an investor or a business owner who wants to leverage my decades of experience in alternative investing to accelerate your wealth creation, then make sure to listen to this episode!
00:03:20 Lesson #1: They Shaved Years if Not Decades of Your Timeline to Financial Freedom
00:05:26 Lesson #2: Lesson #2: Some of Them Can Have a Lower Risk Profile
00:08:39 Lesson #3: Relationship Capital is the Real Gold
00:11:34 Lesson #4: You Must Have Investing Rules
00:14:07 Lesson #5: Don’t Chase Yield
00:17:03 Lesson #6: Diversify Your Investments
00:19:10 Lesson #7: Be Really Clear on Capital Allocation
00:21:25 Lesson #8: Build Your Investments Gradually
00:23:25 Lesson #9: Invest in Mentors
00:26:22 Lesson #10: Learn to Manage Risks
In today’s episode, I’m going to talk about the 10 biggest lessons I learned in my journey around investing in alternative real estate.
It’s an excellent catch-all for a series of questions I’ve been getting lately.
If you’re interested in knowing whether or not it’s a good time to be focused on alternative investments, it is. I’m going to explain why.
For those who don’t know me, I’ve been investing in alternative investments for almost 14 years now, and I want to emphasise what alternative investments are and what they’re not.
Unfortunately, when you use the word “alternative,” it conjures up all sorts of scary, hair-raising, high-risk investments.
I won’t deny that those kinds of investments exist in the alternative space.
But when I talk about the alternative investments I’m interested in, they are investments backed by real property.
They are deals that revolve around affordable housing.
They sit outside the mainstream because of the creative way these deals are put together, and access to premium opportunities is private.
They include syndications, more funds, lending opportunities, and direct property ownership in turnkey and joint ventures.
Again, I want to talk about today the 10 lessons I learned and why alternative investments are so powerful in rapidly building wealth.Read More
Lesson #1: They Shaved Years if Not Decades of Your Timeline to Financial Freedom
The big problem with traditional assets (like shares or traditional property) is that they are epic for building capital but rubbish for generating income streams or cash flow.
In 2008 or 2009, I believed I was doing all the right things. I was hustling and redlining.
But I realised that even though we had a large portfolio of real estate properties, we were still decades away from generating any meaningful cash flow.
What I have come to learn is that if you can combine traditional investments (which are great for building capital and net worth) with an alternative investment pool of assets (which are excellent for strong, predictable cash flow), you can explode your results and massively compress the timeline that would otherwise take you to reach financial freedom.
When I did the math in 2008, we were at least 25 years off from having the cash flow that I wanted.
By adopting a very small fraction of our portfolio and moving it into alternative investments, I realised that the timeline could be scaled back to five years.
It’s important to understand that the place of alternative investments is to help you ramp up the cash flow as quickly as possible.
Most of the people I work with now are investors with good net worth seeking to resolve the cash flow piece simply.
Lesson #2: Some of Them Can Have a Lower Risk Profile
In volatile times, some alternative investments I focus on can perform better than those that aren’t as stable.
When I first started on alternative investments, I focused on turnkey, meaning assets where I had direct ownership of an individual, single-family home.
I started my journey during the peak of the global financial crisis, and what I noticed almost immediately was that you could acquire real estate for cents on the dollar.
This was particularly true in the US market, where valuations were trashed, there were millions of foreclosed properties, and the banks were offloading them at whatever they could get their hands on.
Although property valuations were smashed, nothing happened to the cash flow.
What that meant was that if you bought cheap or affordable houses at a discounted rate, you could get a much higher rate of return.
In the market that I predominantly focus on now, I noticed that you don’t get those wild fluctuations in valuation either.
You don’t get massive appreciation, nor do you get massive depreciation, and because you are purchasing for cash flow, any drop in asset values has less meaning.
I prefer markets with low volatility because I’m focused on affordable housing sectors of the market, where there are more buyers and renters.
From a recession-resistant perspective, there are always going to be plenty of people available to participate as renters in those deals.
When I compare that to the markets that we have here in Australia and New Zealand, it’s different because we are banking on a rising market.
That means if the market doesn’t rise, we lose because we’re buying for growth and we’re not getting cash flow.
With alternative investments, you don’t care which way the market moves because you’re either buying for cash flow that exists today or you’re creating growth through forced appreciation rather than organic capital growth.
All those factors contribute to a lower risk profile than buying an asset where you are hoping and praying that the market rises over time.
I’m not saying that that isn’t a valid strategy. Some investors are trying to get some traction, and you must start there.
But as you start to build your net worth and capital base, alternative investments become much more meaningful.
Lesson #3: Relationship Capital is the Real Gold
In our market, you will find an entire network of wealth advisors, financial planners, and alike who try to position themselves as experts, therefore overlooking the concept of relationship capital.
Building relationships, not just with one person but with many skilful investors, made the difference and catapulted my results.
I’ve lost money in the past because I relied on the wrong people in the wrong markets.
What I focus on now is continuing to ratchet my way into better-quality private networks so that I can curate better deals with lower risk.
Who you know matters more than what you know, and the single biggest risk in investing is who you align with.
The best deal makers are super private and move in circles that are generally not available to the public.
The reason why I find and work with these people is you get to leverage the decades of experience that they have.
You get to be totally passive in A-grade deals. So one of the things I strongly encourage people to consider is valuing the WHO.
Relationship capital is grossly undervalued.
When I set up to start Freedom Warrior, I was trying to cultivate the idea that a mastermind is composed of many gurus, not just one.
It’s a much better model for wealth-building than trying to go to one educator, trusted financial planner, or wealth advisor and expect them to be your one-stop shop.
It isn’t conducive, and it’s not possible. There isn’t one person out there who has all the answers.
You can see results and transformation once you know how to leverage access to a panel of epic and amazing investors.
Lesson #4: You Must Have Investing Rules
Whether you’re into shares, properties, or alternative investments, not having investing rules makes you opportunistic.
Being opportunistic can get you by for a while, but it cannot get you consistent results without exposing yourself to unrequired losses.
You’re leaving more to chance if you don’t have investing rules, and if you ask me how I developed my own rules, it’s through poor experiences, loss, and learning.
My set of investing rules could be applied to any asset class.
One of my rules is to eliminate emotions.
If you read how prominent investors built their fortunes or their empires, you will know that the biggest demon you have to deal with as an investor is your emotions.
People think it’s about the deals and how to pick the investments. Although that is clearly a part of the equation, your capacity to manage your psychological state and emotions is probably the biggest contributing factor.
What your investing rules do is cap the amount of emotion that goes into your deal selection. It reduces the risk of you being impulsive.
Your rules should be adapted over time to make sure they continue to align with your goals.
When I come across a very lucrative opportunity that doesn’t align with my goals, my rules will tell me.
Refine your investing rules every year and look for opportunities to refine and tweak them. Don’t be like most investors who overlook this important thing.
Lesson #5: Don’t Chase Yield
What I noticed with a lot of younger and seasoned investors is that they are simply looking for the deal that gives them the most profit or the most income.
I’ve learned the hard way that when you chase yield often, that’s when things can come on down.
The reason why I say don’t chase yield is that we can get into the habit of looking at deals based on profitability rather than sustainability of returns.
My mantra is don’t chase yield, focus on sustainability of returns, and always quantify risk in the background, rather than looking for the flash in the pan looking for the gold.
When you have 2 deals in front of you, and you pick one just because it had the higher return but isn’t as well structured as a lower returning deal, you can get into trouble.
There are a lot of deals run by celebrities or pseudo-celebrities in the alternative investing space that claims to deliver 25% per annum cash flow returns.
That’s sexy, but I’ll always choose a lowly cash flow deal that gives me a 10% or 12% return and has a qualified, focused, and experienced deal maker.
Looking at your return on investment by itself is a huge mistake, and I know it because I’ve certainly made that in the past.
Lesson #6: Diversify Your Investments
There are some amazing opportunities that people present in the alternative investing space.
But I always have great scepticism about anything that seems unbelievable.
It’s more effective to take small bites of lots of cherries when you work with different trusted advisors in different markets with different strategies, different teams, different liquidity points, different timelines, different horizons, and different tax benefits.
Some of those people might have a deep and narrow focus, and others might have a wide and diversified approach.
What I’m trying to say is don’t expose a huge amount of capital to just one deal.
Diversifying investments within the alternative space is how I take small amounts of capital and put them into many deals.
It’s my way of creating a patchwork of strength and better security for all of my deals and capital.
If one of those deals goes wrong, I’m not going to die in a ditch over it because I’ve still got plenty of other deals on the go in other markets with other deal makers.
Diversification has so many more facets to it than just geography, especially in alternative investments where you are completely passive.
You are relying hugely on the management and investing skills of the person that you’re aligning with, so it pays just as an insurance policy to spread the love.
Lesson #7: Be Really Clear on Capital Allocation
I’m a huge believer in having your cake and eating it as well, and what I’m referring to is that there’s no harm in building wealth across multiple asset classes.
Build the bulk of your wealth in an asset class that you feel comfortable and confident about, then take a percentage of that net worth and put it into alternative investments.
I don’t advocate that you take all of your money and put it into any single asset class, including alternative investments.
We want a fail-safe plan to grow our wealth over time, and the best way to do that is to have a Plan A, a Plan B, a Plan C, and a Plan D.
In my case, Plan A is our active income. Plan B is our alternative investment income. Plan C is the portfolio of local investments that we cultivate here in Australia. Plan D is our superannuation, which is probably the dullest and most boring part of the whole lot.
It is important to understand what percentage of my overall net worth I want to be exposed to alternative investments.
For some people, it could be as little as 10%. For some, it might be as much as 30%, 40%, or maybe even 50%.
You want to be clear on how you want your pie to be carved up so that you don’t accidentally get swept up and put all of your eggs into one basket.
Lesson #8: Build Your Investments Gradually
One of the things I noticed with high net worth individuals who have come to me with significant cash balances is that they have an initial tendency to create an instant result.
They get the idea that alternative investments can generate somewhere around the 8% to 12% net return after expenses.
But they want that result straightaway. They want to take their lump sum of capital and dump it into investments all at once.
Now, could you do that and still have a high degree of success? Possibly.
But it’s the accountant in me that wants to take a slightly risk-averse approach by being educated on what you’re doing.
One of the things that I learned over the last decade is that regardless of whether you’ve got cash and capital sitting around to invest, you still need to have the patience to build that portfolio gradually.
There’s no need to rush to the finish line. Take your time and allocate that capital very slowly.
Lesson #9: Invest in Mentors
I have spent hundreds of thousands of dollars on mentors along the way, both formal and informal, in courses and education programs.
Recently, I had one mentor who completely changed my outlook, speed, and trajectory.
Now, I’ve got about five or six people that I would tap on the shoulder and ask questions to. People I really consider my mentors.
If you have a good enough relationship with them, they will share their mistakes and help you cultivate a better set of investing rules.
There are times I even invested with someone just to witness how they invest.
The lessons that come from putting money with a veteran to watch how they digest information, how they run a deal, how they think, and how they implement their investing rules are priceless.
Why reinvent the wheel? Just borrow the brilliance of other people.
What I’m great at is assimilating the insights, views, and learnings from some really wise investors and putting it all together in one place.
We are taught that you should be able to figure things out yourself since there’s so much free information out there.
But I’ve noticed is I’ve had massive growth in my journey when I pay the price and invest in mentors.
Other people might disagree with that, but for me, if you are someone who values time and you are looking for speed to a goal, there’s no other substitute.
You could get to where you want to go by figuring things out on your own, especially if you’ve got time on your hands.
But as time becomes a more valuable commodity to you and the desire to hit your financial goals becomes more important, paying for the right mentors and injecting yourselves into the right circles will change your trajectory and speed.
Lesson #10: Learn to Manage Risks
Losses, from time to time, are natural.
I’ve had some very large losses in the early part of my investing journey, and they’ve been difficult for me to digest during those times.
But if you can get past a loss, learn to manage your risks, and glean the lessons, you can set yourself up for an outstanding result.
If you look at the life of some of the most renowned investors in the world, you’ll realise that none of them has a smooth sailing journey.
Everybody experiences a loss from time to time. Don’t let one loss outweigh the wins and gains you’re getting from your investments.
Well, that’s the 10 lessons I have for you today. This is actually the first time I’ve written them in one place.
I hope there is some gold here for those of you who are looking to learn from good and bad experiences. Please reach out if you have any other questions.
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.inkosiwealth.com 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!
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