In my previous posts, I presented you with a few of the reasons I find most conventional investing to be downright ludicrous, and how I see things differently. There are many reasons to avoid conventional investing! So I’m continuing my list here:
No Inflation Hedge
Inflation is the devaluation of currency as the government prints more and more. It traditionally reported to average about 3% per year, meaning every dollar you earn is worth less and less.
Conventional investments provide zero inflation hedge. Even if a mutual fund grows by 10% in one year, not only do you have to pay taxes on that growth, it’s not really worth as much as you think because of inflation.
One example of an inflation hedge is rental properties. As inflation rises, you can raise your rent to compensate. And that’s something you have direct control over. You don’t have to cross your fingers and hope and pray the market performs well enough to compensate for inflation.
Another example is business ownership. As inflation rises, you can raise your prices and your products and/or services to offset inflation.
Diversification Versus Focus
Diversification is touted as a great risk-management strategy. Throw your money into a bunch of stuff. Some of them will lose money, others will gain. With luck, you’ll come out ahead on the whole. The greatest risk of all, however, is that ignorance and diversification are by definition an admission of ignorance. People diversify because they don’t know what will work, they have little or no control, and they can’t or don’t know how to add value to an investment. This isn’t investing; it’s gambling. Diversification is another way of telling the “investor” that he doesn’t have to think; he can just throw money in and good things will happen. This is clearly a philosophy for the ignorant. Ironically, the institutions that want us to believe it teach it as a way to reduce their own risk; the more risk we take, the less risk they have.
The only way to properly invest is to focus. Know what you’re buying. Know how you can add value. Know how to control the outcome of the investment. Knowledge is power. And it also creates profit.
Furthermore, the sequential phases of the Wealth Matrix make diversification obsolete. People get into diversification, like investing in mutual funds, when they skip foundational steps. In contrast, my advice is that first you get your financial house in order. Get your protection in place, create liquidity, set up your wealth accounts, and start generating entrepreneurial income. Then, focus on specific Growth investments. Speculative Momentum investments don’t come until much later.
Typical diversified investments are actually speculative in nature, meaning that you don’t have any certainty that they’ll pay off for you. When you diversify as taught by mainstream media, advisors, and pundits, you can actually create more risk instead of reducing it. You do things out of order. You start speculating before having your foundation in place.
The investments I recommend are much different than anything you’ll hear from financial shows on cable. Those are designed to separate people from their money, trust the so-called experts and forgo the 5 Day Weekend lifestyle in the name of sacrifice and deferral. It has a horrific failure rate for the investor and is an antiquated philosophy with disastrous results for far too long.
I don’t want you to hand off money to institutions, without knowing what you’re doing, and hope and pray they’ll work out. I don’t want you to have to depend on the market cooperating to achieve lifestyle freedom. I want you to own your destiny. I want you to be free within five to 10 years instead of 30 to 40.
To achieve this requires that you think like the wealthy do— outside the box of “buy, hold, and pray.” The accumulation theory of investing (save money in tax-deferred vehicles and let it grow) will not create a 5 Day Weekend for you. Instead, consider cash- owing investments as an alternative to what you’ve been taught. Focusing on cash flow is the path to true financial independence.
In my next post, I will discuss some cash flow-optimized growth investments to build your independent income streams.
I’d love to hear form you about your investment strategies to date. How have they worked for you? What do you plan to change? Thank you for sharing!
Secure your copy of the “5 Day Weekend” book. 5 Day Weekend: Freedom to Make Your Life and Work Rich with Purpose [Nik Halik & Garrett Gunderson]
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