Do high investment returns require high risk?
“Risk comes from not knowing what you’re doing.” Warren Buffett
In our last email, we shared the importance of building your financial foundation through the use of the best Tier 1 asset in uniquely designed whole life insurance contracts. You not only save money in a tax advantaged asset while protecting your family and assets for life, but you also have access to your money to use for anything during your lifetime.Once you’ve secured your rainy day fund, any money above this foundation is considered the Opportunity Fund where your investment captial originates.
This is where the fun begins as you can start putting your saved dollars to work for growth. Many start investing before truly establishing the financial foundation in Tier 1. Having the access to handle emergencies and take advantage of opportunities puts you a prime position to win when the market shifts.
So where do you save start investing once you’ve built up your Tier 1 asset base?
Tier 2 assets are classifed as those investments in which you have control, collateral, cash flow, and consistency.
The first place to invest is in your personal development to make more money. Similar to the philosophy of “paying yourself first” by saving 15-20% of your income, investing in yourself first is also the most prudent strategy. Education doesn’t stop after you graduate from formal education. Read books, attend seminars, join a mastermind, and connect with other driven and successful people to continue raising your skills, knowledge, and value. This applies whether you work for a company, are self-employed, or run your own business. You’ll never learn everything, but you’ve got a lifetime to try so be your best financial asset by investing in yourself.
Secondly, invest in hard assets such as residential real estate that you own, control and produces passive cash flow that you don’t have to spend a lot of time managing. Given the various advantages of investing in real estate (e.g. income, depreciation/deductions, building equity, appreciation, and leverage), there’s are multiple ways to win with this type of investment. However, it does require you to learn what investment strategy works best for you and find trusted partners who can provide support for areas outside your expertise. If done properly, owning residential real estate can help you build siginficant wealth and help avoid many wealth eroding factors such as taxes, inflation, and market volatility.
Lastly, investing in your own business can grant you more control over your financial life. Although working for a company does create the illusion of security and comfort, there are clearly risks if the company changes strategic direction and experiences hardships. Those who have gone through restructuring and layoffs know full well the risks in working for a company you do not control.
Although the above may seem counter to what is conventional wisdom, having the additional control over your financial life will help you withstand the damage incurred when the next recession or market downturn hits.