The End of Passive Investing

I have never truly been a “passive” investor. Perhaps for a short time when I had an Office 401(k) many decades ago. (I quickly reversed course after seeing the results and returned to doing what I do best.)

The Wall Street Machine

Savings, tax brokerage accounts, or a 401(k) tax deferral plan are common investments sold to the masses as the go-to default. Wall Street explicitly has an incentive to sell you this model, and it is very profitable. They’ll make money no matter what happens to your money while it’s on Wall Street.

Financial advisors, brokers, and CPAs are incentivized to sell you on the same model—put your money on Wall Street, tax-deferred, and they'll take care of it for you (“passive investing”). They will rarely take care of your money as you would if you spent more time learning how investing on Wall Street actually works.

I won’t say investing in a 401(k) or some kind of savings plan is all bad. It’s not. It’s better than nothing, and having some form of discipline is always beneficial. Saving in any form is always a good habit, and that's how you begin to build wealth.

Investing is Getting Harder

How you invest, spend, or save your money matters. Yes, saving is one aspect, but learning how to shepherd your capital through different financial markets, economic changes, and uncertainty will be more critical than ever before.

Many of us have grown up and navigated our careers with the tailwinds of falling interest rates for the last 40 years. The Federal Funds interest rate was at a high of 20% in 1980 and steadily decreased until it reached an all-time low of next to zero in the summer of 2020.

Forty years of falling interest rates have made capital cheap, allowing assets (typically equities in the stock market, real estate, and/or businesses) to expand and grow. That has been our normal, but that will not be the case going forward.

Our economy is vastly different from what it was even three years ago. The U.S. is in difficult times. I'm not a prophet of doom and gloom, but if you predict that the pattern we’ve had in the last 10-20 years will continue unabated, you're in for a rude awakening.

Investing Requires Education

My investment strategy has focused on acquiring tangible assets outside of my business. One's business is a tangible asset as well. That's partly why you own one. You want control, to call the shots.

Running a business comes with risks, obligations, and responsibilities, but we love to have one because of the freedom and autonomy it can provide. Why don't we want to do that with our own money?

People say you don't have the time or the education to do so, but that is not true. The education can come from ‘the doing,’ from experience. You don’t have to get a degree to learn how to invest in tangible assets like real estate. 

Learning through others and working hands-on is the fastest way to get anywhere in life. I've had mentors and coaches and paid to be a part of mastermind groups for more than two decades.

Doing so has taken me to where I want to go much faster than if I had tried to figure it out myself. Even though I'm capable, learning from other people who have succeeded in that area has accelerated my growth and capabilities.

Your Financial Security is Your Responsibility

If you want to have more certainty in your life and future, using the capital you have worked hard to earn and the capital you may harvest when selling your business/practice, you must learn how to put your money to work.

Learning how to invest will pay huge dividends, but it does take time and effort. I find most people prefer to put more time and effort into planning their summer vacations than learning how to steward their money.

It is the biggest inflection point (positive upward movement) you can make in your quest for freedom and having more time to focus on what matters most to you. The following is a questionnaire that would benefit you to ensure you are taking control of your financial future.

Financial Advocacy Checklist: 

1. Do you make time on a regular basis to develop and grow as an investor? 
2. Are you confident in your ability to orchestrate investments and navigate economic and market changes? 
3. Have you developed your own investment philosophy to guide you and provide clarity on what to say “yes” and (more importantly) what bright/shiny objects to say “no” to? 
4. Have you built relationships with the support team and board of advisors needed to be successful? 
5. Are you and your spouse on the same page about said vision? Do you have regular opportunities to update and discuss progress? 
6. Do you have a firm understanding of where we are in the market cycles and have a plan for the current season and future seasons? 
7. Are you confident in your grasp of the key factors that affect the valuation of your current investments? Do you have a dashboard that allows you to track those metrics?
8. Do you have a clear plan in place with measurable milestones for how those investments will be used to buy back time Freedom in the days, months and years ahead? 

Yes – it is possible to invest in assets that produce cash flow that is not dependent on the work of your hands. However, passive investing requires diligence, intention, and effort.

Freedom Founders is what I created many years ago to help others achieve financial freedom and buy back their time. This Blueprint has now been used by hundreds of doctors, practice, and small business owners. You can have that same freedom. You just need to make the decision and take the next step.