Why Hanging Your Hat on One Investment Strategy Is Dangerous
In this week’s episode, I talk about why I believe you can’t simply rely on what’s been previously done. Now there is significantly more going in our economy that we need to consider and pay attention to.
I unpack why hanging your hat on one strategy may have worked in the past, but it might not in the present.
why there is vulnerability in sticking to the same strategy;
why it’s time to be focusing on how to diversify and build up the strength of your portfolio; and
- why it’s imperative to be thinking about whether your investments are generating enough cash flow to help you weather any future storm.
00:00:00 – Intro
00:01:03 – The Single-Minded Approach to Investing
00:01:48 – Why Your Early Investments are CriticalRead More
00:03:26 – Not Only Relying on One Investment Strategy
00:05:25 – Not Over-Relying on Government Support
00:06:37 – Strengthening Your Investment Portfolio
00:08:04 – Making Informed Decisions
00:09:42 – Outro
While I genuinely believe that there are many investors who’ve been very successful over the last 20 to 30 years by being very single-minded – they found a strategy that worked for them and then really doubled down on it.Read More
From a net worth and wealth creation position, you can say that they outperformed the market.
So, there’s nothing wrong with that idea of being focused on one particular strain of investment strategies and types of investment properties to maximise the wealth that you build.
There is Vulnerability in Sticking To One Strategy
What I want to steer your awareness towards is this idea that there is some vulnerability in this way of thinking.
After speaking to various investors over the last few weeks, I think there’s a layer of uncertainty and possibly even some sort of fairly cancerous activity in our economy that you simply can’t ignore, even though things continue to look rosy on the surface.
Now, if you’re someone who’s 20 or 30 years into your investing journey and you’re continuing to do the same thing, there’s no question that your level of vulnerability is lower than potentially someone who is just starting.
When you’re just starting, it’s important to have those first few investment properties work and deliver the results that you need to increase your net worth and get into other deals.
To build that capital base, you need to have those first few deals take you in the right direction.
Generally speaking, relying on what has worked in the past has been a relatively safe way of thinking, given that we’ve never had anything as impactful as COVID-19 happen to us before.
And while Australia was relatively untouched during this global financial crisis, what we’re experiencing now is far more systemic.
If you were to think of the economy as a human body, the impact of the COVID-19 pandemic runs vein deep – especially on businesses, jobs and even the psyche perspective.
So, you can’t just rely on what’s been previously done because now there is significantly more going on at a much deeper level that we need to consider and pay attention to.
Doing any kind of investing that fits into the box of speculation could be very dangerous right now, so if you’re relying on what has worked in the past, you’ll need to do it with a little more care.
Suppose you have the risk tolerance for that sort of thing, and you’re doing it knowingly. In that case, that’s a very different situation compared to someone who is a newer investor trying to enter this market and heading straight for those high risk, high return type investments.
Is it Business as Usual?
The other thing I want to mention is that I do believe that there’s a lot of blind faith that the government is just going to keep on doing whatever it takes to keep the economy pumping.
And credit to them for helping us navigate through these unprecedented times.
I would also say that there are many investors out there right now who are arguing that it is “business as usual” because the marketers trying to sell products and education advice are saying so.
What I would say to you is, if you’re an investor that’s already reasonably well-rounded in your approach to investing, now is the time to be battening down the hatches and focusing on how to diversify and build up the strength of your portfolio.
Strategies that focus on developing a good cash flow is what is going to give you some immunity to what comes next – because who knows what’s going to happen next? There are so many conflicting market signals, and clearly, the economic impact of what’s happened over the last 12 months hasn’t hit home yet.
So, I seriously believe that the expression “cash is king” is even more important now than at any other time in history!
It’s imperative to be thinking about your portfolio in terms of where its vulnerabilities are and whether your investments are generating cash flow to help you weather any future storm.
Suppose anything does happen, and I do believe it will at some point. In that case, those who have created a generous cash reserve or have a substantial section of their investment portfolio, generating good cash flow, will be able to position themselves and ride this next period unaffected.
Hanging your hat on one strategy may have got you to where you are today, but I would be questioning the wisdom of merely continuing that narrow focus during the next twelve months to three years.
I think the impacts of COVID-19 are still to be felt. And while there could be a chance that the effect is just a slight hiccup and we’ll be back to business as usual, I think you want to make informed decisions before committing large sums of capital to the same old strategies that were working yesterday.
If you’re interested in understanding how to create wealth through alternative strategies, please check out my programs, where I help you get onto the path of generating passive income through investing or getting in touch today!
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