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Should I Invest? What to Consider Before Wiring Funds

“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.” — Warren buffet

Some Multifamily deals are in trouble.

Value-add deals in particular are seeing challenges.

Why is that?

As an investor, it’s important to know the risks.

Obviously, some risks are unknowable, but you should always try to understand as many risks in a deal as you can.

You also don’t want to want too long because inflation will destroy your purchasing power.

Inflation is a savings killer.

With that in mind, what should you know before investing?

What factors should you consider before wiring funds?

I want you to make the right decisions and feel good about what you do.

Let’s do this!


1. What is My Risk Tolerance?


When deciding whether or not to invest, you should first look at your risk tolerance.

Everyone has a different risk tolerance depending on their specific situation.


For example, if somebody is 90 years old, they probably shouldn’t be in a startup venture.

The business could take 10 years to mature, and it could close before seeing any sort of profit.

That’s why it is so important to know what your specific risk tolerance is.

Can you handle an investment going down by 30 or 50% before coming back up?

How much volatility are you prepared to deal with?

You should also be aware of how much to allocate for speculative investments.

Some people would say 5% in higher risk investments.

Others would say 95% or more.

There is no one right answer for everyone.

How much money you allocate depends on your ability to tolerate risk and also your age.

If you’re older, it’s not as easy to tolerate risks.

You should also ask yourself about your liquidity needs.

If you’re 95% or 100% invested, what happens if the deal goes south?

How do you maintain your livelihood?

This is why knowing your investment parameters is so important.

Having lofty goals is great, but if your risk tolerance is low, you may need to do some adjusting.

2. Upside/Potential Downside Risk

The second thing to consider in an investment is the upside/potential and the downside risk.

If things go well, how will that affect the investment?

How will the investment be affected if things don’t go well?

There’s a book called The Dhandho Investor by Mohnish Pabrai, who is a disciple of Warren Buffett.

In the book, Pabrai talks about the idea of “heads I win and tails I don’t lose much.”

For example: When the investment lands on heads and you win, you can double your money.

If you land on tails and the investment doesn’t go as well, you only lose a little bit.

Maybe that loss would be time or a smaller chunk of money.

I think this is a great way to look at investment risk.

When you use this method, you limit your downside.

We have been involved with some venture deals.

One of our deals in the energy space could be a potential 10x to 100x return.

But there’s also a fairly decent chance the deal could go to zero.

I’m willing to tolerate that type of risk, because it’s an asymmetric return.

If someone with a $2 million net worth or more has four or five of these deals that go to zero, but the last one turns a 10x to 100x return, that is a great scenario for them.

That kind of situation wouldn’t make sense to someone with a lower net worth.

In the book Thinking, Fast and Slow, Daniel Kahneman talks about how people are loss averse.

We don’t want to lose money.

Let’s say I flip a coin and establish every time it lands on heads, I’ll give you $200, but you pay me $100 every time it lands on tails.

There’s a two-to-one chance you’ll make money, but most people would say no.

Statistically, if you kept repeating that deal, you would become very wealthy.

But we overvalue losses in our minds.

A lot of times, we don’t see the risks that are actually there.

No one predicted multifamily would have the fastest interest rate increases over the last 50 years.

Some investors have experienced great losses.

Now, many people are saying they don’t want to get involved in those investments.

The market is constantly changing and non-risky real estate deals do exist.

However, no matter what your situation, it’s important to look at the upside/downside and consider the risks.

3. Inflation Kills Saver

Lastly, you should remember that inflation kills savers.

“Kill” is a bit harsh, but it’s true that inflation will hurt savers.

According to this chart, the Fed created over 40% of new currency over a two-year period.

This increased spending costs by 40% to 50% across the board as we can now see in current prices in the US.

If you have $100,000 sitting in the bank, you’ll be penalized.

That money will have less purchasing power over time.

When it comes to investing, don’t wait!

Understand the risks as well as the plus side and the downside.

If you want more tips on vetting deals, check out my new book: Fire Yourself.

There are tips on figuring out your liquidity and cash flow needs.

Now I want to hear from you!

What steps are you taking to make your investing goals a reality?

Before you leave, make sure to check out our special report about inflation investing. It shares the best choices to invest during an inflationary environment.

If you are interested in investing with us, we are happy to answer any questions that you may have. Join our investment club today and we will be in touch.

Disclaimer: I am not your investment advisor. This is for educational purposes only. I am not giving specific advice on what you can do. I am simply giving my opinions.

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