How to Become an Empowered Investor: Learn the Ropes
The Empowered Investor Methodology is a revolutionary way of helping people obtain financial security and transform their lives through alternative real estate investments. This methodology consists of a five-step process: Ethos, Educate, Evaluate, Execute, and Empower.
This article is the second of a five-part series on this original methodology.
Step 2 - Educate
“Spend each day trying to be a little wiser than you were when you woke up.”
― Charlie Munger
Step 1, which can be found here, of The Empowered Investor Methodology discusses the importance of changing one's ethos and how this puts investors on the right track to succeed. Once an investor shifts their mindset and breaks through self-limiting beliefs, they are prepared for the next step: Educate.
The basic premise of Step 2 is to "invest in yourself" and build upon one's financial education. Knowledge is power, right? The ultimate goal is to make better investment decisions and reduce investment blind spots.
When it comes to wealth-building avenues, far too many people lack adequate financial education. As a result, they succumb to the mainstream system and go along with the herd. This typically means that they open online brokerage accounts and 401(k)-type accounts, and inevitably get funneled into buying stocks, bonds, mutual funds, exchange-traded funds, and the like. Then, they spend a lifetime building a nest egg of paper assets that hopefully lasts through the end of retirement.
The commonly accepted ways of creating wealth and planning for retirement need to be reevaluated—and quickly. With periodic crashes of over 50%, investing in the stock markets is fairly comparable to a roller-coaster ride. Because of these ups and downs, people may be forced to delay retirement, as it could take years for the value of their portfolio to recover to pre-crash levels. Many current and future retirees are dependent on Social Security benefits, but the retirement system is projected to face serious shortfalls in the next decade.
Not only is financial education key to empowered investing, it mitigates the effects of the increasing wealth gap in our nation. Being educated and informed allows people to stay ahead of the curve and greatly improves their chances of building wealth.
Empowered investing is a holistic approach to investing. This means that investors consider their investment objectives, risk tolerance, and investment time horizon. In addition, investors must examine the available investment strategies and their unique associated risks.
Many investors have the perception that "alternative" investments are too risky (or a get-rich-quick scheme) and decide against them. However, with the proper due diligence and a trusted team, this is simply untrue. In fact, investments in commercial real estate have generated returns higher than stocks and bonds, and the returns came with a volatility lower than stocks and scarcely higher than bonds. Therefore, on a risk-adjusted basis, that means that commercial real estate is a more favorable investment than both stocks and bonds. So why is this such a widespread notion? It comes down to a lack of education and understanding.
Historically, the alternative investment market was mainly accessible to high net-worth investors, and the market comprised only a relatively small segment of the global investible market. However, due to the disappointing performance of traditional investments, the market’s size and investor interest continues to grow.
Investors have been increasing their allocations toward alternative investments to reduce risks and enhance returns. In particular, stock market volatility and drawdown have prompted them to reduce the downside risk in their investment portfolios through alternative investments. Also, the financial markets are seeing historically low and declining interest rates, as over $17 trillion of global negative-yielding debt has further pushed the need for higher yields and income-producing assets.
According to the Chartered Alternative Investment Analyst Association (CAIA), the alternative investment market increased from 6 percent to 12 percent of the global investible market between 2003 and 2008. Furthermore, CAIA has projected that the alternative investment market will increase to 18 percent to 24 percent of the global investible market by 2025. This would constitute a significant share of the global investible market.
Commercial real estate in the United States has been one of the most favored investment sectors for obtaining enhanced yields and income-producing assets. In the last several years, the growth of online crowdfunding platforms and private equity companies raising investor capital via syndications has made the sector readily accessible to motivated investors.
Learning about and investing in syndicated commercial real estate provides opportunities for investors to obtain above-average returns while simultaneously reducing volatility and maximizing tax efficiency. Investors can achieve meaningful investment returns, participate in investments that enrich lives and provide societal benefits, and generate multiple income streams to live the life they desire.
An on-going process, financial education is an aspect of self-development that can be accomplished through reading books, reports, articles, and newsletters. Other popular ways include listening to relevant podcasts, attending conferences and meetup groups, watching online webinars, and even participating in mastermind groups. Just by learning about The Empowered Investor Methodology, you are embarking on the journey. There are really so many ways to learn about commercial real estate and exchange ideas with others in the investment space.
The time has come to realize the empowered investor within you!
Stay tuned for the next article in this series: Step 3 of The Empowered Investor Methodology.
For more information on passive investing in commercial real estate, please check out our free eBook - More Doors, More Profits - by clicking here.