As your cash flow from your Growth investments grows, you’re in a position to start thinking about Momentum investments. You’re probably not in a position to even think about Momentum investing yet, and you may not be for a few years. Still, in these blogs, I will paint you a vision of what’s possible and give you something to look forward to.
Remember, Momentum investments have a very high upside potential. Never invest funds you cannot afford to lose. Whereas Growth investments have a higher probability of providing consistent cash flow, Momentum investments typically pay out in one lump sum (for example, investments in tech startups, angel investing, bio stocks, IPOs, etc.). When you do get a lump-sum payout, my recommendation is to reinvest and recycle those earnings back into a Growth investment to convert the cash into long-term cash flow.
The principle here is that, by funding Momentum investments with the revenue generated from Growth investments, we remove the emotions from the equation. Your Growth investments have been funded by your hard work and are emotionally connected. You want to be conservative with that money. Momentum investments, however, are one step removed from your hard work and emotionally disconnected.
If you invest cash that was generated by a Growth investment and lose it all, you’ll continue receiving cash flow from the Growth investment. If a Momentum investment pays out big, that’s great. You now have more money to invest. But if it fails, then you haven’t put yourself in any financial jeopardy. Allocate a percentage of funds you feel comfortable with in all Momentum investing.
Just because you’re in a position to potentially lose everything you put into a Momentum investment doesn’t mean you’re gambling with this money. Gambling is based on a strong emotion of greed combined with a lack of understanding of what you are doing. In this case, you’re being completely cool-headed, calculating, and strategic.
As with Growth investments, you’re not following the crowd with Momentum investments and investing in what everyone else is investing in. You’re still looking for “alternative” investments that give you greater control, more tax advantages, and higher potential for profit than you’ll find from conventional sources.
My strong recommendation is that you don’t start investing in Momentum vehicles until you’ve developed a 2:1 Financial Independence Ratio, where you have a cash flow contingency and buffer. You have twice the amount of independent income than you need to cover your monthly expenses (plus, you’ll probably still have an active income as well). This puts you on safe ground to invest with confidence. Most people have a 0:1 Fi financial In- dependence Ratio, and at best struggle to maintain a 1:1 Active Income Ratio—they’re only generating active income from a job and spending every dime they earn. In fact, many people are spending more than they earn each month.
With that said, below are a few types of alternative Momentum investments to explore. Again, this is not an exhaustive list, nor is it detailed. The honest truth is that, until you’ve established a foundation of Growth investments you shouldn’t even be thinking about Momentum investments anyway. This is a case where, “When the student is ready, the teacher will appear.” Once you’ve achieved financial independence with conservative Growth investments, you’ll be astounded by how many opportunities arise for Momentum investments.
In my next two posts I will outline several potential Momentum investments.
In the meantime, I’d love to hear from you and where you are in your 5 Day Weekend thinking. Thank you for sharing.
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