Epic Real Estate Investing - What Types of Investments are Right For You? | Financial Freedom Friday

Episode Date: January 9, 2015

Today Matt discusses the 4 different ways that you can invest, including the difference between active and passive investing and between capital gains and cash flow investing.  He goes on to explain why so many Americans are devoting their lives to the riskiest and lowest performing investment.    The show wraps up with a short exercise with specific recommendations and resources for the type of investments that are right for your situation and preferences.  Enjoy! ------- If you have a question, comment or concern that you’d like Matt to address live on the show, send it to him at [e-mail] and type "3rd Degree" in the subject line… or leave him a voicemail on the Epic Hotline at 1-888-891-7203.   See you tomorrow for a new episode of Financial Freedom Friday! What interests you most?   E ducation P roperties I ncome C oaching Learn more about your ad choices. Visit megaphone.fm/adchoices

It's time for Financial Freedom Friday with Matt Terrio. We may never be quote-unquote rich, but we all can and should be financially free and way before we are old. You know, one of my primary objectives for producing this podcast is to teach you and or remind you how. You know, without even meeting you, I can predict there is a 99.9% chance that one of these three situations describes you and your family. financially. One, you are working paycheck to paycheck and the thought of investing for the future.

It's the furthest thing from your mind. Or two, you're doing better than paycheck to paycheck, and you are contributing to a 401k or similar qualified retirement plan, but you have no actual financial goals past the short term. You have not actually documented whether you are on track for retirement at the age you desire, and you're likely tired of your account balances going up and down with every statement that you receive. But you just kind of figure that. That's just the way it is. Or three, you are currently retired, but have not documented whether your retirement income will endure inflation as the years press on. In other words, you're living in the moment and figure tomorrow is just, it's going to take care of itself. And if this does not

describe you, hey, then congratulations. You are probably independently wealthy, or very close to being there. Or you're an inmate serving a life sentence in a correctional facility. For the vast majority, living for the moment financially, it's the status quo. You know, at the risk of living beyond the moment, however, let us look at the track record of those who have gone before us to see if this strategy is a good idea. To do so, I encourage you to do an internet search for retirement crisis. Go ahead, go to the internet and type in retirement crisis and click search and take your pick of the bad news of the week. And I actually just did that. I just went to Google before I started recording this, and I typed in those exact words, retirement crisis.

And the very first sentence of the very first article read, it seems that practically every week you read an article about a looming retirement crisis in the United States. That was the very first sentence of the very first article. And it was dated only 30 days ago. There's a crisis. And everyone is reporting on it. There was no shortage of these types of articles. And that's our future if we don't do something right.

now. If you'd like a more personal analysis, Brian Elhart, one of my business partners who works here in the office with me, can tell you that after 10 years in the financial services industry, sitting down with families from every income level and professional status to analyze their debt, analyze their income, their investments, their insurance needs, he can offer you the fact that not one, not one, zero, zilch, nada, not one of them were on track to retire, how and when they wanted to. After 10 years in the business, not one of the families he met with were on track to retire how and when they wanted to. I mean, a few, a few are close, a dozen others are so, not too far behind them, but none, none were actually nailing it. And to be fair, Brian,

he admits that after looking at his own life, neither was he. He recognized that there was a serious problem. So he's joined forces with us here at Cashflow Savvy to where he can affect change with greater certainty and on a much broader scale. It's why Brian and I, we get along so well. I mean, we both recognize that there's a problem. We've experienced it firsthand with our own lives and we've experienced it vicariously through the lives of thousands of others. We're clear there's a problem and we're clear it's not a money problem. It's an idea problem. It's an idea problem. And we're going to get to that. But first, let's look at the roots of the problem.

Okay? Critical problem number one. The rules changed. Retirement, it's no longer an age. And what I mean by that is, you know, back just a generation or two ago, the vast majority of workers had what was known as a defined benefit pension plan. Literally, all you had to do was reach a certain age and or years of service and you would know exactly what amount of income you could expect for.

the rest of your life. Well, today, less than 25% of American workers have such a plan. And usually it's large, unionized companies or more typically, you know, government workers. Today, the vast majority of workers have what are called defined contribution pension plans. The 401K, that's the granddaddy of these plans. And what is known is the amount being contributed. In other words, your statement reads, you now have $12,000. What it doesn't tell you is how long you can live on that. Now, before the 401K crowd gets too jealous of the ever-shinking defined benefit crowd, consider this.

If your retirement is still tied to your age, you better like your job. You know, if you are in your 30s or your 40s, you likely have 10 or 20 years left in your quote-unquote secure job to trigger your, guaranteed retirement. So be careful what you wish for. All righty. Critical problem number two. Investment sales pitches instead of investment education. You know, when the, when the rules changed from guaranteed pensions to do it yourself plans like 401ks, in that instant, in that very instant, the entire nation became investors, whether they knew it or not. In an instant, they all became, the entire nation became investors. The problem is that these quote unquote

investors were the same people way too busy and uninformed to actually be investors, which is why they loved the defined benefit deal they used to have. Suddenly, you know, busy workers who had to pay bills and pick up their kids from school also had to somehow select investments for their self-funded future. Are you kidding me? I mean, who has the time or expertise for that? Especially when it's just dropped in their lap. I mean, it's like, suddenly, everyone is told there's no such thing as the grocery store anymore. And they have to farm their own vegetables if they expect to eat. Seriously?

Yeah. Seriously. So enter the financial services industry to the rescue with pre-packaged, quote-unquote, fast food microwave meals of investments called mutual funds. Now, these investments are completely passive instruments, where the consumer, the investor, the worker, doesn't have to do a darn thing. Literally, all the worker has to do is check a few boxes, usually randomly, one time on a selection

form, and suddenly they are an investor. I mean, it's like hitting buttons on a microwave. Their retirement plan is now set up. Of course, you know, nobody has any idea what is actually happening inside these mutual funds any more than they know what is actually inside fast food. All the average worker knows is that when they get their statement, Sometimes the balance has gone up and sometimes the balance has gone down. So to combat what would otherwise be a riot of angry investors, an entire narrative has been developed as quote unquote wisdom about how mutual funds work.

And here's what I mean. I'm going to translate some mutual fund speak into plain and simple English so you'll understand. You know, the mutual fund speak might say something like maintain a long-term perspective. Translation, mutual funds take freaking forever, Jack. Mutual fund speak. Historically, returns have been 10%. Translation, historically everyone alive then is dead now. Mutual funds speak.

Diversify your portfolio. You've heard that a lot, right? Diversify your portfolio. Translation, buy a sampler platter of nearly identical things that we sell. Mutual fund? past results do not indicate future performance. Translation, don't expect this plan to work for you. Mutual funds speak. Our funds have low fees.

Translation, your trip to nowhere is going to cost you less than similar trips to nowhere. Investing involves the risk of loss. Translation, investing involves risk to you. We get our fees no matter. matter what happens to you. When stock prices dip, it's a chance to buy because shares are on sale. Translation, shopping makes you feel better. So when you get bad news about your account balance, why not just send us more money? And that goes on.

I can give you a lot more examples. Here's another one. Read your prospectus carefully. Translation, prospectus, that's Greek for you can't sue us if we lose your money. Now, in all fairness, are mutual funds right for some people? Yeah, sure they are. Do they work for the right person with enough time and enough money to put into them? Yes, they do.

But just because you can fry an egg on a sidewalk given the right amount of mirrors and enough sunlight, is that the right meal recommendation for the average hungry person? Hardly. You know, to summarize, workers used to do nothing and things worked out fine. Now workers still do nothing. We delegate our futures to mutual fund companies, and we are not fine. So those are the two primary roots of the problem. I mean, sure, they've spun off many more minor roots that we could go on ad nauseum and discuss, but we won't.

You know, knowing the two primary roots of the problem, that's enough. Let's now talk about what there is to do about it. That's right. There are solutions. It's not all doom and gloom. There are solutions, and you have options. several in fact. So solution number one,

hands-on active investing. Sorry, but to not sink in the same boat everyone else is going down in, you are actually going to have to get up and do something. Fortunately, though, it's much easier, understandable, and exciting than you have been told. You know, the captain of your mutual fund lifeboat has been telling you that the water surrounding you is it's full of sharks and certain death, and that only a professional can navigate such

terrible waters as investing. And banks, they're not helping either. They've joined forces with this bad thinking and telling you the only safe alternative are secured, quote unquote, accounts like CDs where they offer almost zero interest. In reality, however, the water that surrounds us, it's only two feet deep. I mean, you can just jump out and walk to where you want to be, and all you have to be willing to do is to get a little wet. In addition, your results can be way faster than what you've been told,

faster than you've ever thought possible, of which I hope will excite you into action. I mean, I hope you're getting excited right now. We're talking about faster results and we're talking about bigger results. That's exciting. All righty, so you are excited. I can feel it, and you're ready to become an action. active investor. But before you do, let's get clear as to what an active investor is. And it's,

it's probably easiest to go over the differences between active investing versus passive investing. It's just kind of, it'll, I guess, illustrate it better. And I know, I know. You know this already, right? I mean, you know what an active investor is. You know what a passive investor. Just bear with me. Bear with me. It's going to be worth it. Now, before you feel too proud of yourself, if you are a tech geek, active investing is not. picking out your own passive investments like mutual funds. That's not active investing. I mean, gambling on dice does not suddenly become a predictable science just because you researched

and personally picked the best brand of dice. Active investing means you have researched not only that investment, but also the outcome of the investment. And you've done that ahead of time. And you made the decision to pull the trigger on that investment. For example, you purchase a small house that already has a tenant in it paying $1,000 per month in rent. If you paid $100,000 cash for the house, your gross return is $12,000 per year or 12%. There's your gross return.

And you know all of this before you buy the house. So can you, you starting to feel the difference between being a passive investor and being an active one? I mean, this is the feeling right here that you need to fall in love with, the actual. one and getting educated, getting experienced, and getting around other people like yourself who are successfully investing this way, that's going to help tremendously. So to summarize, the first step in your investment salvation is in recognizing and choosing the difference between a passive and active investor. I mean, you can be both, by the way.

I mean, there's room for both in your world. But understand if you're currently and exclusively a passive investor, solution number one is to take some action inside your investments and continue to do so. That's the first solution. Solution number two, cash flow investing or investing for income. You know, the first hurdle in your investing salvation is to realize that you must be involved. That's simply sitting as a passenger on a sinking, or if not sinking, a very slow boat. That's not the answer.

So if you've gotten past that first hurdle, the next hurdle is to ask, what do I invest in? The answer is cash flowing investments. You know, most people have a mind conditioned for capital gain investing. And here's the difference. You see, when you buy something low and hope to sell it high, you are a capital gain investor. Most capital gain investors are also passive investors, which means they literally must purchase an investment and hope the market for that investment goes up. If it does, hey, they make a profit.

How does that sound, that strategy right there, that strategy of hope on the market, how does that sound to you when planning for your future? I mean, you just, what do you do? You put your sales up, and if there's a wind, and if the wind is blowing the right direction, you're going to go somewhere? I mean, certainly there's room for that strategy in a portfolio. But it can be pretty hairy if it's your only strategy. And unfortunately, this is exactly the strategy people subscribe to when they buy a mutual fund.

And the only way to make them safe is to hold them for a very, very, very long time. Passive capital gain investing is the riskiest, lowest returning investment there is. Now, cash flowing investments, on the other hand, do not need to go up in value to produce a profit. In fact, they can even go down in value and still produce a profit. I mean, take our earlier example of taking $100,000 to purchase a small house with a tenant in it paying $1,000 per month in rent. What happens if the value of the house rises to $110,000? Cool, right? That's nice.

But you would still get $1,000 per month in rent. On the other hand, what if the value of the house fell to $90,000 or even $70,000? Well, you guessed it. You would still receive $1,000 in rent. This is an example of active cash flow investing. And I point this out because active cash flow investing is the safest, highest returning investment that there is. So there is a distinct difference,

and maybe there's room for both in your portfolio. But which investor type are you leaning more towards? which investor type is the true you. Investment professionals who really only sell one type of investments, mutual funds, they categorize investors based on that investor's tolerance for risk. You know, in reality, risk exists in all mutual funds. But what is different is the volatility or the bumpiness, if you will, of the ride along the way. In other words, some people can stomach big roller coasters and other people can only stomach small ones.

And if you can't stand roller coasters at all, then you are offered a park bench to sit on and watch from what's called fixed return investments like CDs paying 1% a year, if that. Now, depending on the size of roller coaster that you can tolerate, you are labeled a conservative, aggressive, or balanced investor. And all of this is nonsense, by the way. I mean, there are actually four ways to invest. we've already covered two of them and they will be attractive to you based on who you are. So let's find out who you are.

Okay? The true choices and what kind of investor the true you comes in. It comes in two parts. First, pick for yourself between active and passive. And then we're going to pick between capital gain and cash flow.

And you got to be honest with yourself, okay? This is your future we're talking about. Be honest with yourself. You might be able to fool other people, but you're not going to fool yourself. Okay, that's not going to do, you're not going to do in yourself any favor.

be honest with your answers. Are you an active or passive type? That's the first question. And don't bother knowing about the how to invest yet. These questions are about you and what resonates with you, not the investment yet. So of those two, which type speaks to you the most, passive or active? Go ahead and write that down. Write your answer down.

And then let's move on to the second question. We'll come back to the first. Are you the capital gain type? or the cash flow type. That's the second question. So capital gain investing seeks the short-term benefit of flipping an investment that is bought low and sold high. Sometimes these items are improved somehow, such as, say, restoring an item for resale,

and another time simply market conditions alone determine a profit or the loss. That's capital gain investing. Cash flow investing focuses on the monthly income of the asset or rent, if you will, that is produced by owning an item and lending it to someone else. Sometimes the item is physical, such as equipment or property, and sometimes it's simply a paper asset, including money itself, that can be rented or loaned at a set interest rate to produce cash flow.

That's cash flow investing. So which one of these resonates with you most? The capital gain investing or the cash flow investing. Now write your answer to that question down. now on your piece of paper you should have two answers one from the first pair of options active or passive and another from the second pair capital gain or cash flow it's now time to put these two answers together and take a closer look at what kind of investor is the true you and then give you some examples of investments that will fit you and then some resources on where to find those investments

and i'm going to cover those in 30 seconds right after this is wall street failing to your expectations? Has your 401k tragically turned into a 201k or worse? Warning, warning, warning, warning. Don't panic. You don't have a money problem. You have an idea problem. We're cashflow savvy.com, and we'd like to share with you a new idea how one small shift can transform your financial future and accelerate its arrival.

Go to cashflow savvy.com to get this new idea that Wall Street doesn't want you to know about. Cashflow savvy.com. More control, less risk, cashflow savvy.com. Okay, got your answers handy. Are you a passive or active investor? You should have chosen one by now. And are you a capital gain investor or a cash flow investor? You should have chosen one of those by now as well.

So your answer to those questions is going to determine what type of investor you are. And you are one of four types. So that's investor type number one. Passive capital gain investor. If this is the true you, stay focused on mutual funds. Keep a very long-term perspective and put every free cent you have into them. Mutual funds, they can work, but that is what it's going to take. It's going to take a long-term perspective and investing every free cent you have into them.

And an investment example being mutual funds, particularly growth or high-growth stock funds or stocks selected by a personal broker if you have a large enough balance. Resources for these types of investments would include just about any bank, any brokerage, any financial planner or employer that offers a 401k. So that's investor type number one, passive capital gain investor. Investor type number two, active capital gain investor. Now, this is where the action is. your hands on and you like the thrill of the short-term hunt because you are an active investor.

You have still done your homework and can expect a positive result. But there's still an element of watching an uncertain outcome to unfold. I mean, some extremely high returns as well as losses there are possible here. Education and discipline to a system outside of your gut, your gut instinct, that's going to be essential here. You're going to need the education. you're going to need the discipline of a system. And investment examples would be like house flipping or technical stock trading or day trading. And some resources for you are essentially you.

I mean, you are the investor. There are no real pre-built resources, so to speak. But getting an education from a credible source and finding other investors to network with, that's essential. There is a whole world inside this type of investing and it all starts with an education. So that's investor type number two, active capital gain investor. Now, investor type number three, passive cash flow investor. So if you like the security and higher returns of cash flow investments, but do not honestly ever see yourself with the time or inclination to become an active investor, then this may

be a category for you. As a passive cash flow investor, you can buddy up with active investors with much more secure, better performing investments that can use your cash. for their deals and provide you with a much higher interest on your money in return. And now some examples of this would be private lending to an active investor. Real estate note buying. Basically, you act as the bank on a mortgage or a trust deed. Or life settlements.

You know, brokers buy and sell life insurance policies or buying high interest debts or some real estate hedge funds that pay a preferred return. Now, the investment resources for you are other active investors, active investors that you know or active investors that you know of or other brokers that advertise a specialty in this type of investment. So that's investor type number three, passive cash flow investor. Now investor type number four, active cash flow investor. Now here, this is where the magic lies. This is where long-term, almost certain wealth and security can be obtained for even an average person with an average income, but with the drive to take control and change their financial lives forever.

And some examples here would be business ownership, specifically an automated business that works with or without you. And that can be something that you build yourself, you can build it from scratch, or it could be something that already exists and you go out and purchase it. And then there's rental real estate. Number one, all-time king in producing real wealth. In fact, it's the final frontier where real wealth is available to the average person. And that's why my focus is here. I mean, this is what I do. And this is what I help others do as well. I teach people to be active cash flow investors. I show them how to do it themselves via this podcast and the Epic Pro Academy. And I assist people doing it whether I provide information via this podcast or I help them via

experience, labor, and an established network through our turnkey real estate service at CashflowSavvy.com. You know, I'd actually invite you to visit CashflowSavvy.com to download our investors package of which includes the top 10 cash flow markets in the United States. We went to great lengths and employed a team of researchers to pull this report together for us. And it doesn't include all great cash flow markets in the United States, but it does reflect the top 10 based off of our exhaustive research. And you can have a copy. of that for free. Whether you choose to work with us or not, that's entirely up to you. But at the very least, you'll know where the top 10 cash flow markets in the United States are. And as a bonus,

you'll likely, you're going to get a quick follow-up call from Brian, the very person that helped me put today's episode together. So if you have any specific questions about today's episode as it pertains to your specific situation, I can't think of a better person for you to speak with. Like me, he knows the subject of today's episode inside and out. And I promise you, he's not going to try to sell you a thing either. This ain't that type of rodeo. We are both here to educate and assist. So if any of this makes sense to you, go to cashflow savvy.com.

Get our active cash flow investor package, the report, top 10 cash flow markets in the United States, and an opportunity to discuss your situation with Brian. And if you ask him, he'll gladly give you some direction in what's likely to be your best next step forward. The next step, it's easier than you think. It's easier than what you've been told. As you don't have a money problem at all. You have an idea problem. And Brian can share several different types of ideas with you. And what you do with those ideas, hey, it's up to you. You know, regardless of where you get your ideas from, look at new ideas very much in the manner we discuss today what type of investor you are and try the idea on for size. You know, kind of like a new coat.

Try them on to see how they fit. If one doesn't fit, hey, put it back up on the rack and try on another. And keep trying them on until you find that perfect fit that's going to get you where you want to go in the fashion you want to arrive. I'm Matt Terrio, and I'll see you next week on another episode of Financial Freedom Friday. If waiting for your investments to grow feels like waiting for paint to dry. There's a powerful secret your financial planner doesn't want you to know. You can accelerate your investments growth by two, three, or even four times. That's bad news for Wall Street, but great news for you.

We're cash flow savvy, and we'd like to offer you free information that will show you how to take control of your investments and double, triple, or even quadruple their returns. And it's yours for free. For the secret your financial planner doesn't want you to know, go to cashflow savvy.com. That's cashflow savvy.com. This podcast is a part of the C-suite Radio Network. For more top business podcasts, visit c-sweetradio.com.