How to De-Risk Your Portfolio

At a certain point in one’s career, you will want to slow down and one day even exit your business/practice – transitioning away from trading your time for dollars. You deserve it and should be able to do just that without fear, anxiety, or uncertainty about your capital base in the marketplace.

The Market Will Correct

In recent years we have experienced a bull market, a very strong market. This bull run has lasted longer than many, in large part due to stimulus and financial manipulation, but as all markets do, this one will end, and we will go through a correction period. 

Going back to 2008, stock market equities alone lost over 40%. This means those invested had to start over and climb back up. Their returns would have to be double what they lost in the marketplace just to catch up to even.

I stress this because when you exit your active income, the stakes are higher. You do not want to experience a scenario in which you are forced to return to active income due to financial constraint. 

Are Safe Investments Enough for Retirement?

In order to minimize the risk of losing your capital in a market correction, you must look for safer investments. Where should you put your capital?

Money markets, CDs, and treasuries are relatively safe, but they don't generate the returns you need to offset the high cost of living. Inflation, which is not going down again, runs at a much higher rate than the government's CPI states it is.

Inflation is most likely running from 8-10% today, and I predict it will remain higher for longer. It will not return to the government’s target of 2%. Taxes, already a high amount, will also continue going up. They will not go down. 

If you factor in the taxes you need to pay and the decrease in value from inflation, most will need at least double-digit returns to accommodate the cost of living today.

So where are you going to get that on a predictable and reliable basis? Is the stock market going to continue to produce that forever? No. It will go through a correction.

This is why I love tangible assets. Through tangible assets like real estate and businesses, there are opportunities to create sustainable cash flow, as well as to ride through economic storms and take advantage in their wake. Wall Street does not have a cash flow model that will reliably produce the returns most practitioners will need to replace practice income with replacement cash flow. 

Success will Always Be Dependent on You

Your business is a tangible asset, and it can be highly profitable because, while you own it, you have control over its performance. You are the active operator, and if something is not going well, you can turn the dial or lift the levers to fix it/improve it. Its success is dependent on you alone, and you have the most control over that asset.

But when you move away from that, you trade that control for more time. You want to enjoy life after putting in the hard work for many years. But this passive mode requires a different set of skills than the ones active owners have relied on to be successful thus far.

You must learn to rely less on active income (from your business) and more on the passive income generated from your invested capital.

Most people rely on the financial markets via their 401(k)s, defined benefit plans, or other retirement accounts. Unfortunately, these only work when the market is up.

But what happens when we go through a correction? How much of your retirement savings are you willing to lose? How many years do you want to set aside just in case you have to go back into active income?

It’s never been more pertinent to determine how much you need to maintain your lifestyle and how to invest your capital to generate that income month by month. Most do not know how to generate any passive income, let alone enough to achieve their target burn rate.

You Need Replacement Income

Replacing your active income with tangible assets that can consistently and predictably generate income is the goal.

I love real estate, but not all real estate is the same. Different asset classes are better suited to different market conditions. You have to position yourself accordingly.

I've done this for over four decades. I understand the markets and have access to asset classes most people have not even heard of. That's why the real estate market is a good place to be. 

The small investor, the retail investor, has a place in that game. The key is having a network and access to those opportunities. You can start from the ground up, figuring it out and doing it yourself. This takes many years, but you could do it. That's the way I did it in the 1980s.

Why You Need to Build a Network

Today, I don't want to do all that work, but I still want to mitigate the risk of where I put my money. The way I do this is by investing my money in places where others can't. They could if they gained the access points and built a network, like what I've done throughout my life, but most don’t have this.

Today, I have found a better, more efficient path. I invest my money through other people with whom I've built trust and relationships. I’ve vetted these individuals and understand where the opportunities lie. We collaborate to form a mutually beneficial partnership for each opportunity (this is what investing is). 

Collaborating with other trusted experts can make a big difference, but you need to find the right place with the right group and learn how to do this.

Becoming your own financial advocate means not delegating any decisions to anyone else (advisors, CPAs, fund managers, etc.) It means working with others to make the best decisions for your money. This is how you de-risk your portfolio.

You can’t follow the herd. Safety will never be found in the common markets. The key is to understand the market cycles and how you can hedge for each market iteration. This is different from trying to time the market. I'm advocating for hedging your risk. Do you know how to do that? Would you like to learn?

Your dedication and hard work brought you to your current pinnacle of success. You can do the same with your money, but you have to take the steps to learn how to do it.

You don’t need to go back to school to get an MBA in finance, real estate, or anything else. I built Freedom Founders to be a place for practitioners like you to fold time and gain the knowledge and connections needed to generate enough cash flow to cover your burn rate in 2-3 years or less (depending on available capital, goals, etc). 

We help doctors and practitioners take their capital base and put it in assets where they have more control, more understanding of how it works, and more sustainability in every market cycle.

Don’t let your money keep cycling through the financial markets and hope, fingers crossed, that it's going to “end up” okay.