The Agenda Of Your Portfolio

Great. You’re finally on your way. You can count yourself among the ranks of “investors” now.

Just sit back and watch the money pile up you’re thinking to yourself.

I don’t have to do anything else right? You’re just doing what everyone else is doing. Everything should be just fine. After all, what can go wrong with putting money in a 401(k) or with an investment advisor?

PLENTY!

Investors want investing to be easy. They want to be able to put their portfolios on autopilot. The problem is, that many investors don’t know where they’re going and most are getting on the wrong plane, so autopilot may just be a road to nowhere.

Investing through a 401(k) or an investment advisor can be hazardous. And if 2020 is any indication, investing through a 401(k) can be heart-attack-inducing.

In the early days of the COVID-19 pandemic, investors saw their 401(k)’s shed as much as a third of their value in March. During the Financial Crisis, investors saw their 401(k)s lose as much as half their value.

Depending on the timing and the state of the broader markets, banking on your 401(k) to provide a specific dollar amount for your retirement can be perilous. Those who had hoped to retire in 2008 relying on their 401(k)s were doused with cold water when the markets tanked in the aftermath of the housing crisis and mortgage-backed securities debacle.

I knew many individuals who had to continue working and delay their retirements because their 401(k)s were wiped out. Even when 401(k)s perform, much of their values are diminished by mutual fund management fees. I can’t think of many things worse than putting your portfolio in the hands of a financial advisor.

I recently had a conversation with a friend whose father passed away 10 years ago and left his estate in a family trust. The oldest sibling, his sister, was appointed trustee. She decided to put the family trust on autopilot by hiring a Chase financial advisor to handle the trust’s portfolio.

My friend hadn’t paid attention to the periodic statements sent out by the Chase advisor and neither did any of his other four siblings.

When the Dow hit a record high back in February, he finally decided to look at the annual reports to see how much the trust had grown – assuming the portfolio had grown with the Dow.

He was shocked to find that the portfolio had grown exactly 0%. Turns out, the financial advisor was taking advantage of the heirs’ ignorance and had been churning the account and pocketing all the gains in the form of commissions and fees – with his only apparent investment objective to not to let the portfolio fall into the red.

My friend’s experience is not unique. The financial advisory industry and its compensation structure are in direct conflict with investors’ needs. Even when financial advisors try, they’re still lousy at their jobs.

It’s a proven fact that 90% of investment professionals can’t consistently beat the market. That’s because they’re not trained to be sophisticated investors, they’re trained to push financial products that will maximize their commissions and income.

If you don’t have an itinerary or agenda for your portfolio and where you want that portfolio to take you, chances are the 401(k) or financial advisor you’ve entrusted to pilot your portfolio will run it into the ground.

I have an itinerary/agenda for my investment portfolio. The agenda for my portfolio is having freedom. What kind of freedom?

  • Time freedom.
  • Freedom from being required to work.
  • Freedom to take on new ventures, new investments, explore new opportunities, and take advantage of trends.
  • Freedom from the typical constraints of “retirement”.
  • Freedom to spend time w/ my family on my terms and not my work’s terms.

I’ve learned that the person most qualified to carry out this agenda is me. How did I prepare to pilot my portfolio?

First, I started by investing in myself. I invest time and money to learn how to go against the masses – against having to rely on 401(k)s or financial advisors I did not want to be part of a mob and be beholden to that mob.

I didn’t believe that what they taught you in school was the only path to freedom. What they taught you in school was the wrong path. Getting an education, getting a job, and saving money from that job was not a path to freedom, it was a path to mediocrity – just getting by. That’s why early on in my investing career, I decided to buck the trends – refusing to fall prey to groupthink.

I didn’t have the time and energy to learn everything on my own. Why reinvent the wheel if someone else has already gone through the learning curve in a specific investment class or market segment? Why not learn from the best? That’s why I invest in myself by investing in learning from others.

Next, I invest for income – passive income. I can’t work 24 hours a day, but my money can. It’s well documented that having multiple streams of passive income is the key to getting wealthy and to avoiding catastrophic events from market downturns.

As the ultra-wealthy and self-made millionaires have established, passive income streams are vital to achieving financial freedom because unless you create a stream of income that makes you money while you’re sleeping, the only way to make more money is to work more hours and many of us are already overworked as it is.

Last but not least, I avoid any assets correlated to Wall Street. I’m not interested in riding the Stock Market roller coaster.

Institutional investors like university endowments, private foundations, family offices as well as ultra-wealthy individual investors have long gravitated towards passive income investments for wealth building. And for wealth building, they look to alternative assets not correlated to Wall Street that not only generate short-term passive income distributions but long-term passive income from appreciation as well.

Here’s how Warren Buffett explained the importance of income-producing assets:

“The ideal business is one that generates very high returns on capital and can invest that capital back into the business at equally high rates. Imagine a $100 million business that earns 20% in one year, reinvests the $20 million profit and in the next year earns 20% of $120 million and so forth.”

Set an agenda for your portfolio. If your destination is financial freedom, you need to set out a plan for achieving that goal.

Invest in yourself, invest in gaining from the experience and knowledge of others, and invest for passive income streams that are non-correlated to Wall Street volatility.

Setting an agenda will be the surest way for you to reach your destination.

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