By: Mark Frentzwww.akerahomes.com
mfrentz@akerahomes.com
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If you are a financial planner...
The purpose of this particular post is not to shame financial planners or to question your integrity. The purpose is to help those who tend to trust their money with you because, generally speaking, you aren't helping them. While I realize there are a few of you out there that are outstanding at your job, I'm guessing pretty much everyone reading this will have been educated in conventional financial matters rather than anything outside the box.
Why is conventional financial wisdom anything but wisdom?
Conventional financial planning practices at least two things that don't make any sense to me. The first is that they are paid by the mutual fund companies that they are trying to sell you on. This isn't unbiased financial planning, it is lying about being a salesperson! The second is the idea that I am supposed to work my tail off at my job and scrimp and save every penny in a tight budget in order to build up a large pool of cash which is 'invested' in places that, on average, pay me around 3-6% (I'm actually being kind to the industry with this average) annually so that when I am 65 or 70 and believe I have enough I can slowly decrease this pool of money over the next 15-20 years until, presumably at my death, there is very little left. In other words; I work my tail off so that I might have enough money left over by the time I die.
Another part of this is the mindset that I need to retire with a lot less money than I am living on right now. Why? What sense does this make? Just because I'm working at a full time J.O.B. doesn't mean I need to retire with less money. Just because I will be enjoying my grandchildren a lot of the time doesn't mean I need to settle for no money for the things that are important to me (I might want to take my grandchildren to Calaway park for the day, or take my kids and grandchildren somewhere warm for a coupe of weeks in the winter because they are working hard to save money and could use a break). Personally, what gets me really excited about retirement is that I will have both the time AND the money to invest in other people when and how it fits the lifestyle I am looking forward to.
Priorities are vital for a long term plan
I don't propose you get involved in some kind of Ponzi or get rich quick scheme. It really depends on how much money you are making at your current work situation, but I like the idea of my wife and I making sacrifices now in order to have the lifestyle we want later without compromising certain values. First on my list is family time; I will always spend time with my kids and wife on a daily and weekly basis. One day of the week I do not work, I simply spend time with my family. Every morning for a few hours I spend time with my wife and then my kids. This is uninterrupted time where they have my undivided attention. I also spend some time in the evening with my kids playing. Sunday nights is a dedicated time to my wife where we pour a glass of wine and simply connect at the end of one week and the beginning of another. This is my first priority... period! The reason it is my highest priority is because my greatest long term goal is having great relationships with each member of my family (if I have money and time, but can't see my grandchildren it isn't the ideal picture I have for retirement).
After this, however, my wife and I do make financial sacrifices in order to save and invest for our future. We do have a budget. We don't feel it is overly restrictive; simply a help for keeping on track for our long term goals. As we make more money, our lifestyle can change to accommodate. The focus isn't on restriction, it is on long term goals that are a priority for us as a family. Robert Kyosaki suggests having three 'piggy banks'. In each you can deposit 10% of your income. The first is labeled 'giving', the second 'investing', and the third 'saving'. If I stick to this type of financial planning I can use the rest of the money for basic needs and then desires knowing that I have freedom to meet the needs of others, reach my long term goals, and have a stash in case something unexpected happens. My wife and I live with a lot of freedom in this knowing that we are taken care of and can invest in others.
What do I invest in?
This is, literally, the multi-million dollar question! I don't get excited about 3-6% returns on my hard earned money (in good years). I get excited about having my money work hard for me just as I've worked hard for it. Now, I'm going to share something on a personal level. The purpose of this is simply to raise your expectations of what you really need to start earning on your investments. I don't get excited about any investment that has a projected long term return of less than 30% of my money. I may take less for a short term return, but long term I need at least 30% to be interested.
Take a deep breath!
Yes, I said at least 30%. Most people will have two reactions to this statement:
1. Mark is involved in some kind of scam or get rich quick scheme
2. Mark is taking on unbelievable risk in order to even think about making those kind of returns
Here is why you think that way. Are you ready for it? YOU'VE BEEN EDUCATED BY FINANCIAL PLANNERS WHO RISK YOUR MONEY IN STOCKS YOU KNOW NOTHING ABOUT MANAGED BY PEOPLE YOU KNOW EVEN LESS ABOUT!
The first step to financial freedom is education. Let's be honest, we didn't learn a thing that truly helped us understand financial literacy in school. That means you need to do some learning on your own. Warren Buffet had mentors and taught himself how to invest. Something that is clear about Mr.Buffet is that he doesn't invest in something he doesn't understand well. That's a key factor for how he makes a lot of money. What are the steps to financial freedom that financially well educated people take?
1. They educate themselves
2. They invest only in things they understand
3. They don't take unneeded risks (again, they are educated and understand all risks involved in any investment)
4. They can invest with their head instead of their emotions
5. They manage their investments themselves
The fifth point is essential in this process. I expect 30% returns because I understand risk and manage my investments myself. I can never expect 30% returns if I have someone else managing my investment because, legitimately, they need to be paid for their work which takes a toll on my return.
I don't have enough time right now
Maybe you legitimately don't have enough time to educate yourself and then manage your investments yourself. That's a legitimate concern for some. In that case I would encourage you to learn what you can as you have time to do so. My other posts are a great place to start if you are new to these ideas. The information is 100% free (if you already have an internet connection) and you can go at your own pace. The beauty of a blog like this is you can communicate with me and ask me for more information on certain topics. I'll be happy to comply and give people what they most need. If you have money sitting around right now and don't know what to do with because you aren't happy with 3-6%, then start getting into contact with real estate investors. As you get to know them ask a ton of questions to gain an understanding of how they will manage risk in such a way that you don't have to fear for your investment (don't sacrifice emotional/psychological health in order to receive a few more percentage points). Don't invest with anyone that is even the least bit sketchy! If there are any red flags, ask questions. If you don't receive legitimate answers, then move to the next investor. Ask what type of return is projected and why. How will this kind of return be realized?
Another tip for finding the right person is whether or not they are willing to walk you through what is happening throughout the entire deal. This is important because you can receive more free high quality education by going through the process a few times. After you've done things a few times you will feel much more confidence to invest in a project yourself. A caveat here... Don't pester the investor with multiple questions every 2-3 days. Only work with them if you trust them and then let them do their job. What I'm suggesting is that you can be given updates and at important stages along the way you can ask more detailed questions about what they are doing to manage the investment.
The last word
I have almost completed a series of posts on why I believe real estate is by far the best investment in North America. It offers the greatest returns along with the best possible risk management. Having said that, I'm not against people educating themselves in the stock market or precious metals or the energy sector or small and large businesses. All of these have the potential to give you a great return. Just remember that you need to understand what you are investing in (sorry, a weekend seminar isn't enough).
I would absolutely love to interact with you on this topic. If you are a financial planner, please comment on this post. If you disagree or believe I've missed something, please comment. As we dialogue it will help many others begin their journey of financial literacy.
Here's to your future of risk-averse investing!
If you would like to learn more about investing in real estate please
contact me at the email address listed at the beginning of this article
or go to my website at: www.akerahomes.com/investing-in-real-estate.html
