{"id":168872,"date":"2024-03-01T12:17:33","date_gmt":"2024-03-01T19:17:33","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=168872"},"modified":"2024-05-23T11:01:25","modified_gmt":"2024-05-23T17:01:25","slug":"creating-a-floor-for-risk-in-investing","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/creating-a-floor-for-risk-in-investing","title":{"rendered":"Blowing the Lid Off Your Financial Ceiling Means Creating a Floor to Allow Risk"},"content":{"rendered":"\n\n      <iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm\/?e=BIGPOC3916336094\" width=\"100%\"><\/iframe>\r\n  \n\n\n\n\n<p><span data-preserver-spaces=\"true\">If you read traditional financial independence\/retire early (FIRE) bloggers, many of them reached their goals by simply pairing a high savings rate with a standard portfolio of stocks and bonds. There\u2019s nothing wrong with that. It works, and anyone can replicate it.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">But my wife and I follow a different path to FIRE. You do need a stable&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/what-a-strong-financial-foundation-looks-like\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">financial floor<\/span><\/a><span data-preserver-spaces=\"true\">\u2014but that\u2019s just the beginning.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Laying the Financial Floor<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">To put it simply, nobody wants to starve on the street. You need a roof over your head, food on the table, and to pay bills to survive. That requires some form of reliable income.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Employment benefits such as health insurance and retirement benefits also help. You can pay for them on your own, of course, but again, that takes income.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">A financial floor goes beyond basic survival, however. When you feel unstable or uncertain financially, when you don\u2019t have a sense of security, you don\u2019t feel comfortable taking risks.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">And as any investor will tell you, no risks usually mean low rewards or returns.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Blowing Open the Ceiling<\/span><\/h2>\n\n\n\n<p><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/financial-freedom-at-the-lowest-barrier-of-entry\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">As I\u2019ve discussed<\/span><\/a><span data-preserver-spaces=\"true\">, my wife has a stable job with great benefits. She doesn\u2019t earn a high salary\u2014as a school counselor, she earns roughly what a teacher does. But as an international educator, she gets fantastic benefits, including full health insurance for the family, free furnished housing, and paid flights home to the U.S. every year.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">We can (and do) live on her modest salary and benefits. That requires some discipline on our part, as we don\u2019t live the jet-setting lifestyle of many of our friends. But it also frees us to take risks we might not otherwise consider, and those risks remove our financial ceiling.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Removing the ceiling in your career&nbsp;<\/span><\/h3>\n\n\n\n<p><span data-preserver-spaces=\"true\">When you work for yourself, there\u2019s no limit on how much you can earn. You can start a business that can eventually earn many millions of dollars each year. Or, if entrepreneurship isn\u2019t your thing, you can change careers to combine your passions with a high salary. That career change might require you to get additional certifications or a new degree or start over at the bottom of a new ladder.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">You can do all this if you have a stable financial floor.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">And no, that doesn\u2019t require you to be married. You can lay a financial floor with a steady part-time job, or by living with your parents to cut your expenses to a few hundred dollars a month, or some other creative strategy. You simply need security in order to make your first move toward removing the ceiling on your income.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">If launching a business appeals to you but your financial floor requires your current full-time job, consider starting as a side hustle. Build your business part-time until you feel confident enough to remove the safety rails of your job.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Removing the ceiling in your investments<\/span><\/h3>\n\n\n\n<p><span data-preserver-spaces=\"true\">You can earn huge returns on real estate investments, whether you invest actively by buying properties yourself or investing passively in&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/ultimate-guide-to-real-estate-syndication\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">real estate syndications<\/span><\/a><span data-preserver-spaces=\"true\">.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">And despite what the gurus might tell you, all real estate investments come with real risk.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">I personally no longer invest actively. Today, I invest passively in real estate every month as a form of&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/dollar-cost-average-real-estate\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">dollar-cost averaging<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;across many different real estate syndications. These investments typically target returns in the 15% to 30% range.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">We vet deals every month as an investment club, with a lot of experienced investors reviewing them together. That reduces risk, as does the fact we can each invest $5,000 instead of the usual $50,000 to $100,000. But it doesn\u2019t eliminate the risk entirely.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Someone without a solid financial floor probably wouldn\u2019t feel comfortable investing anything at all, knowing they could lose money they really can\u2019t afford to. While I have yet to lose money on a real estate syndication, I know it will happen, given that I invest in a new one every single month.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The bottom line is that I can afford to pursue 15% to 30% returns on my investments because I\u2019m comfortable with the risk. And I\u2019m only comfortable with the risk because I have a solid floor beneath my feet.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Other real estate pursuits<\/span><\/h3>\n\n\n\n<p><span data-preserver-spaces=\"true\">The same logic applies to any real estate investment strategy, from&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/guides\/how-to-flip-houses\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">flipping houses<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;to becoming a&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/what-is-a-landlord\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">landlord<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;to&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/wholesaling-strategy\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">wholesaling&nbsp;<\/span><\/a><span data-preserver-spaces=\"true\">to&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/real-estate-704\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">land investing<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;and beyond.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">I lost money on my first few rental properties. For that matter, last week, I was interviewing an expert flipper with hundreds of deals under his belt. I asked him about his losses, and he replied that he aims for a win ratio of 90% to 95%. In other words, even he sometimes loses money on deals, and he\u2019s been doing this for decades.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">You can\u2019t remove risk entirely from your investments. You can only reduce it with knowledge and skill. And to take risks, you need the security of knowing you can afford to take losses sometimes.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Slow and Steady Isn\u2019t the Only Path to FIRE<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">Working a day job and investing your savings in index funds is one way to reach financial independence. But it\u2019s not the only way.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Small businesses don\u2019t typically grow by a steady 5% to 10% a year. They plod along with little results and then have a breakthrough year with 300% growth. Then, they often hover there for a while before they break through to the next level up.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">In some years, they could lose money. Again, risk is real.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">But when you untether your earnings potential from your working hours and a salary, you blow the lid off your income ceiling. There\u2019s no limit to how much you can earn.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The same goes for your investments when you feel comfortable investing in equity. I\u2019ve seen passive real estate syndications pay 124% annualized returns to their investors upon exit. Treasury bonds don\u2019t pay those kinds of returns.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">When you play it safe by necessity, you accept a ceiling on your earnings. Break through the ceiling by establishing a stable floor.<\/span><\/p>\n\n\n\n    \n  <div id=\"visibility-group-block_64d548bdc69a2606d2a376e1efa5459d\" class=\"visibility-group  hidden\">\n        \n\n<div id=\"hero-block_8812f23adf75e551fec31ce1b8e22791\" class=\"first:mt-0 hero-block py-4  alignwide   has-background has-theme-gold-light-background-color has-text-color has-theme-gold-color\">\n    <div\n        class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 w-full \">\n            <main class=\"py-4\">\n                \n\n<p class=\"has-theme-gold-color has-text-color has-large-font-size\" style=\"font-style:normal;font-weight:800\">Get the Best Loan Today<\/p>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-slate-900-color has-text-color\" style=\"font-size:16px\">Find trusted, <em><strong>investor-friendly<\/strong><\/em> lenders who specialize in your strategy. <\/p>\n\n\n\n<p><\/p>\n\n\n\n<div id=button-custom-event-block_c9420083cc9781a5344ea449bac7b609 class='button-custom-event'>\n      <a\n    href=\"https:\/\/www.biggerpockets.com\/business\/finder\/lenders\"\n        x-on:click=\"window.analytics.track('Blog Block | B2C Marketplace Lender Finder', {\n      referrer: 'https:\/\/www.biggerpockets.com\/blog\/creating-a-floor-for-risk-in-investing',\n    });\"\n    class=\" btn-shape inline-block no-underline has-background has-theme-gold-background-color has-text-color has-white-color\" target=\"_blank\">Find a Lender<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n                <div class=\" first:mt-0 relative h-full lg:flex lg:items-center\">\n            <img decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  rounded-md hidden lg:block\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/08\/Marketplace-Blog-Blocks-Lender-v3.png\" alt=\"investor friendly lender, investor friendly real estate loans\" title=\"\">\n        <\/div>\n            <\/div>\n<\/div>\n\n  <\/div>\n  \n\n\n<div class=\"wp-block-group\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n    \n  <div id=\"visibility-group-block_64dd31c79f00f\" class=\"visibility-group  \">\n        \n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div id=\"hero-block_64dd2875dba9d\" class=\"first:mt-0 hero-block py-4    has-background has-slate-100-background-color has-text-color has-theme-slate-color\">\n    <div\n        class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 w-full \">\n            <main class=\"py-4\">\n                \n\n<h3 class=\"wp-block-heading my-0 tracking-tight font-extrabold has-theme-slate-dark-color has-text-color has-large-font-size\">Join the community<\/h3>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-theme-slate-color has-text-color\" style=\"font-size:16px;font-style:normal;font-weight:400\">Ready to succeed in real estate investing? Create a free BiggerPockets account to learn about investment strategies; ask questions and get answers from our community of +2 million members; connect with investor-friendly agents; and so much more. <\/p>\n\n\n\n<div id=button-custom-event-block_64dd2888dba9e class='button-custom-event'>\n      <a\n    href=\"https:\/\/www.biggerpockets.com\/signup\"\n        x-on:click=\"window.analytics.track('Blog Block | Acquisition | Free Membership Signup', {\n      referrer: 'https:\/\/www.biggerpockets.com\/blog\/creating-a-floor-for-risk-in-investing',\n    });\"\n    class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\" target=\"_blank\">Sign Up<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n            <\/div>\n<\/div>\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n  <\/div>\n  <\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<p>Without risk, there&#8217;s no path to an extraordinary life. Here&#8217;s what you should do instead.<\/p>\n","protected":false},"author":158586,"featured_media":168876,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7385,7119],"tags":[],"class_list":["post-168872","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-wealth-management","category-biggerpockets-daily"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/168872","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/158586"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=168872"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/168872\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/168876"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=168872"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=168872"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=168872"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}