Freedom Through Passive Income
Freedom Through Passive Income
Ep 347 - The Harm of Liquid Investments
We’re here towards the end of the year, we're starting to recap some of the most important lessons that we want to ensure that you guys retain going into the new year, especially in light of some of the funds that we're getting ready to launch. That's going to serve you, but we're going to give you some parameters on how it should serve you.
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Today, we are going to share some of the potential pitfalls of liquid investments. When we invest in liquid assets, like the new liquidity fund we are making available shortly, we have understood that although the funds are more available in case of an emergency we must control our emotions that can lead to a constant cycle of placements and withdrawals that can negatively affect our retirement or other end goal. Studies have shown that investing in illiquid vehicles that are of a stable and lower risk class provides very high returns. However, people who are afraid of not having liquidity have investments that underperform those who choose to place and hold investments. When investing, it is critical that we apportion our total into different buckets or risk categories. One mix to consider is investing in 40% stable, 40% mild and 20% higher risk investments. This allows us to take a reasonable risk/reward or diversification strategy based on our level of comfort. Perturbations in the market are inevitable and by understanding its various cycles, we can invest confidently preserving and growing our wealth much better than if we allow our emotions to control our decisions.
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Hey everybody! Flip and Dani here, founders of the Freedom Real Estate Group Family of Companies, and welcome to another episode of our podcast, which is called Freedom Through Passive Income. That's right, and welcome to another episode. And this episode is entitled, "The Harm of Liquid Investments". That's right. So here towards the end of the year, we're starting to recap some of the most important lessons that we want to ensure that you guys retain, right? Going into the new year, especially in light of some of the funds that we're getting ready to launch.
One of the funds that we're getting ready to launch is our liquidity fund. And the liquidity fund has a high focus on liquidity. That's why we're not going to call it liquidity fund, but we refer to it as liquidity fund, because the importance of that fund is allows you to invest and allows you to keep your money liquid, so that you can give us certain amount of notice to be able to take that money back out if you need it. So for those of us who have funds that we need for liquidity for banks, whenever we buy apartments, we have funds that we have to sit and we just can't use it. So those funds are great to be, you know, putting into this liquidity fund for emergency savings, things like that, Flip and I are going to be putting emergency savings into a liquidity fund so that we can give quick notice and go woop! and then pull it back out.
So those are the, it's important for us to talk about the harm of liquid investments, because we're building this, and we don't want everybody to think, Hey, throw all your money in here because it gives you quick access to it, should things you know, things change or something happens or whatever. And so today's topic is very much about, we're about to launch something that's going to serve you, but we're going to give you some parameters on how it should serve you. Right. So I'm gonna let Flip share some of his stories that he shared in the past about liquid investments, and what happens when you have liquid investments, and potentially the harm it could do, because you know that they're liquid.
Well, first of all, I want to let you know that you did the wrong sound effect or when you take money out of something it's not woop, it's doink! By the way, just making sure you know that. But as far as liquid investments, what happens with liquid investments is your emotions. If they take over, and you freak out, you're like, I need my money right now. You know, and I don't think my money needs to be there. And it needs to be over here. And I need it now. And that's the hard part is you know, it's you're letting your emotions take over something where they shouldn't be anywhere. That you know, doing investments. But then that's the other thing too, is people will take out money when they should have left it in, and then they get back because they should have left it in. They took it out. So they put it back in, but they put it back too high like ughh if I would have only you know, ohh. Yes. It's a never ending, you know, never ending cycle. And then, you know, and what you talked about in yesterday's episode, the "FOMO '' the fear of missing out and you know, putting the blinders on. You'd need to do it with this too. Yes. You know, because you're like, Oh, but wait, what about that one over there? And oh, what about crypto? Yeah. Those of you not watching and for those of you listening. That was me with wide eyes going no. But, you know, and all you're doing is you're just damaging yourself. You're damaging your investments, you're damaging, you know, your retirement. Yeah. You know. And so that's the downside.
Yeah, absolutely. So there's been studies done about people who invest emotionally and always invest. Because the stock market is what a lot of people know. Like, it's the big thing that people know. What very, not very well, very few. I'll just say very few people know about alternative investments like real estate, that you can invest with real estate. It is illiquid. It's illiquid for a reason, right? Because you should leave it, it's a stable and lower risk investment class that provides very high returns. But people who are afraid of not having that liquidity, they end up losing and these studies will show the people that go in, out, in, out, due to fear and the fact that it's liquid and they can, they lose and in the end compared to the investors, even in the stock market who put their money in, and then keep it for the entire time.
Because the ups and downs are going to happen typically when Flip mentioned in his example, when you take it out and when you put it back in is typically the wrong times. So I think it's really, really important that everybody just nails into their psyche that it is for the success of your future or for your future success. It is important that you create buckets in your investments. So we talked about buckets all the time, when we're figuring out our expenses, you know, you've got your expenses bucket for your family, you've got your vacation bucket, you've got your whatever, I'm gonna call it a Flippy bucket because he likes to buy stuff. But lots of buckets, right? For you, personally, one of them for you, as a family should be an investment bucket. And in that investment bucket should be smaller buckets. And there should be what do I want to have liquid? For whatever reason, right? What do I want to have long term? What do I want to have at high risk?
And we've talked about this in previous episodes, about those buckets and how we've kind of partitioned them off. I think 40-40-20 was something that we learned from Dan Fleyshman. And so 20% of our investment is for the, you know, homeruns, you know, it probably won't work, but we have fun taking 20%. And we feel like we can afford to take 20% and throw it at the homeruns and see if it works. And if it does, woohoo! And if it doesn't, you know, who cares? Because we have 40% in a very safe bucket, we have 40% into a medium risk bucket, which you're gonna have to go back to the episode to learn more, but that 40% safe bucket is more of our businesses, because we're involved, we know how safe that is, if we are in control of it, the secondary medium risk is real estate. And real estate is only medium risk. I say that because it's the highest return I can get with the safest amount of, you know, dependability, reliability, lowest amount of risk possible for that particular return. But we can't predict the market, right? The market is going to change. But that bucket is long term, we're not planning to take it out, so we can endure a market shift. And you know, this potential recession that might come, this inflationary environment, higher interest environment, does it change the way we buy, it absolutely changes the way we buy, it doesn't change the fact that our investments are in things that we want them to stay in, because this market will change. And there will be a time in which we sell those assets. And we will sell them according to the market when it is the right time. And I think it's really important that you divide those buckets. And you know, these are my long term investments, this I don't mind, I don't care if it's in there for six years, or 10 years or 20 years, whatever it is, depending on where you are in life and when you want that eventual capital back.
Because, honestly, a lot of what we invest in Flip and I, it's going down to our family or teams anyway, right? Most of the multifamily assets are going down to our team because we're buying and investing within the framework of the company. And we're using life insurance and personal assets that were to go to our family. So you need to think about that and just stop playing the liquid game of you know, I don't know what's going to happen and I'm too scared, you know, look at history. Things happen, you know, markets change, but in the end markets go like it's a roller coaster, there will be, if it goes down, it's going to come back up, and it will go back down. And if you understand that cycle, you can invest confidently and, you know, preserve and grow your wealth way better than you could when you allow your emotions to be in control.
Right, unless you invest in crypto, it just goes down. Hahahaha! It doesn't go back up. No, we don't know that yet. We haven't invested in that long enough. That's why I keep on telling you, leave it alone. Well, there's only one way for it to go at this point.
Well, we hope you enjoyed this episode, make sure you head on over to our website www.FreedomCapitalInvestments.com to join the investor club. Keep saying it every time but again, we got a lot of stuff going at the end of this year, and already the beginning of next year, so make sure you're talking to Ben and or CJ to get into that investor club.
But we like to end all of our episodes with Invest Smart, Live Happy. Bye everybody!
Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions and information on this show are not guaranteed, all investment strategies have the potential for profit or loss.
Transcribed by https://otter.ai