[Editor's Note: I knew that my WCI Network partner Passive Income, MD was eventually going to send me this post for republication. It's a bit of a con post to a post I wrote a while back. I'm a big fan of a top-down portfolio design approach–i.e. choose an asset allocation and then choose investments to fulfill it. That's super easy with index funds and not that much harder with real estate investments. PIMD prefers a bottom-up approach, where you choose good investments first without worrying so much about the asset allocation. Today you get to be the judge on an area where we obviously disagree.]
A while back, I was reading through the White Coat Investor’s blog, as I do often, and I came across this post. In it, he warns against becoming what he calls an “investment collector.”
He likens this collecting of investments to someone who buys things at a flea market or garage sale and places them on a shelf to be admired. Eventually, he warns, you’ll have a “hodgepodge” of investments with no strategy or overall plan.
Well, I do a review of my portfolio every so often. I do it more frequently now that I have this blog and end up talking about it quite often. Upon my most recent evaluation, I realized that I have what might be called a jumble of investments.
I was concerned. Had I become the investment collector that he warned about?
Becoming an Investment Collector
To give you an idea, here is a quick flyover list of my current investments:
- Broadly Diversified Index Funds (Total Stock Market, Bond Funds, International Funds)
- Individual Stocks (Tech – FAANG, Blue-Collar)
- Money Market Account
- Single-Family Rental Properties
- Multifamily Properties (Apartments)
- Crowdfunded Debt Deals
- Crowdfunded Equity Deals
- Private REITs
- Syndications – Student Housing
- Syndications – Multifamily
- Syndications – Retail
- Real Estate Equity Funds (MLG Capital)
- Real Estate Debt Funds
- Real Estate Tech
- Website (Blog)
- Website (Science, Innovation, & Entertainment)
- Italian Restaurant
- Rare Paper Money
When it’s laid out like that, it looks like a wide assortment (and that’s because it is). So have I become what the White Coat Investor says to avoid?
There’s a Strategy Here
Well, I may have all sorts of investments all over the place, but I do have a strategy. I did think about my investor statement and plan–especially after taking the Fire Your Financial Advisor course.
Without getting too far into the weeds, my overall plan is to create as many solid streams of income as manageably possible, each producing cash at different points in time. Most of the cash I want is immediate, meaning that if I invest in something, it produces monthly cash flow starting next month or quarter. All of this must be on a consistent basis. I want positive cash flow, even if it takes a year or two to become consistent.
A smaller part of my portfolio is made up of investments that will continue to grow over time and will be there for me later. But I consider these investments a bonus. My expectation is that I won’t ever need this, but I still do it for the sake of diversification.
I also look for investments that are tax-efficient, using tax deduction and deferral strategies. Real estate is one way because of the many tax benefits. One method I have yet to utilize though is by investing in opportunity zones. I’ll let you know when I do.
Finally, I don’t like to keep cash. The idea of it eroding due to inflation bothers me. I feel like it should be put to work. I still work hard as a physician (although not as much as I used to) and I want to make those hours as valuable as possible. If I made “x” amount on a shift, then I want to take those funds and create more capital with it. That’s not going to happen with it sitting in cash. In fact, crazy as it sounds, I don’t even have an emergency fund.
Investing in Education
My problem is that I have an insatiable curiosity when it comes to most investments. If there’s a potential, for cash flow in particular, and there’s diversification in terms of strategy, then I’m interested.
I also feel the best way to learn is by doing. Sure, I will read up on it and educate myself before taking the leap, but I don’t dwell on it for years. Ultimately, I fear the consequences of inaction. I don’t want to be in the same place five to ten years from now.
Jumping right into an investment gets easier over time. The first few leaps, like the first $5,000 I put in a crowdfunded deal, are scary. But in some ways, it was less scary than the $50,000 investment I made in a real estate fund last year. I’ve learned so much since then.
I invested and I made money and I got an education at the same time.
Don’t you wish we could all say the same thing about our medical education? I realize I could’ve lost those funds, but I was prepared to do that for the sake of the education.
I also don’t put myself in a position to get crushed by any one investment. I diversify like crazy. Again, some might say I diversify too much. But it helps me sleep at night, and I enjoy it.
At the end of the day, I think everyone’s trying to get to a very similar place, at least those that read this blog. They’re looking for a life of financial freedom, which means being able to choose how and with whom to spend your time.
That freedom doesn’t come right away. Unfortunately, it comes with some trial and error. But I don’t advocate blindly picking one without knowing much about it and crossing your fingers, hoping for good things to happen. You need a baseline level of education, but you should immerse yourself in it as much as possible to speed up that education.
Find mentors and take courses.
Learn by doing.
All that’s left is to make it happen.
These days, it seems like everyone is waiting for the next crash. I’ve been hearing solid predictions by very knowledgeable people since 2014. But here we are, five years later.
Yes, the stock market is showing more volatility in some ways this year than it has for quite a while, and the real estate market is showing signs of slowing.
But I believe that my hodgepodge of investments are going to be able to manage what comes–all while providing my number one goal of reliable cash flow.
What do you think? Top down or bottom up? Is it a financial “sin” to be an investment collector”? Comment below and weigh in on the poll!