Should Investments Be Risky? – Episode 283

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[00:00] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your host, bestselling author, Kim D.H. Butler. Welcome to another episode of the Prosperity Podcast. Today, Kim Butler and I are going to be talking about how risk is not the investment, but it’s actually on the investor. It’s a little strange play on words, but we’re going to unpack that so that you walk away and clearly understand the role of the investment and the investor. So Kim, take it away. Let’s hear what you’ve got. Thank you, Spencer. Yeah, this is a fun subject because so often everything that we are reading, that we’re hearing about from the media talks about whether an investment is risky or

[00:58] not. There’s even risk tolerance questionnaires that supposedly help you figure out your own risk tolerance as a person and then your point of view on riskiness as an investment. Over time, I’ve just come to realize how not helpful they are. Did you have a thought? Yeah, I was going to say, what do you mean, Kim? No risk, no return? Come on. That is the parroted statement, isn’t it? As if taking on extra risk automatically gets us extra return. When the statement no risk, no return or with risk comes return is made, it implies that taking on risk gets us a higher return and yet we know that’s not accurate. Taking on risk gets us the chance to lose that money more and so these risk tolerance questionnaires that try to generally define a very indefinable aspect of working with

[02:02] our money, I think lead us down a very false sense of peace of mind environment and I know they lead advisors down a false sense of peace of mind. So let’s play this out. You get on the computer and you can just Google one risk tolerance questionnaires. There’s plenty of them out there and you answer 10 questions and then you come up with a number and then your advisor uses that number to identify how they’re going to make investments for you and then supposedly when the investment fails, the advisor is able to turn back to that risk tolerance questionnaire and say you were OK with a 10 percent loss or a 20 percent loss or whatever your number came up with. And so now everything’s OK. I mean, that makes no sense at all.

[02:50] It’s kind of like it’s almost just setting this up of answer this so we can see how mad you’re going to get at me when I lose your money. Exactly. And believe me, I’m not saying that we’re perfect in terms of never, ever losing clients money. And yet what has become clear to us over time is that what is very, quote, risky for one investor is not risky at all for another investor. And so that over time, you start seeing that that just leads me to believe that the risk is on the investor’s side of the table, not the investment’s side of the table, because absolutely every investment out there has people in it that know how to buy and when to buy and they know how to sell and when to sell in such

[03:43] a way that they’re massively able to reduce the risk for that particular investment and consequently get not only better results with their money, but better results for their mind. And that’s a really important aspect of this discussion, because what investments can do to people’s minds and their mindsets is amazing. So as an example, if you know how to do a particular type of investment where you can protect your principal, then that mindset gives you additional confidence. It gives you additional peace of mind, that perspective that you know your principal is protected, but somebody else might do that same investment and not know how to protect their principal. And so their mindset is going to be one of scarcity and one of fear and

[04:35] one of constantly looking at the investment so that they make sure that they don’t lose money and being trying to be aware of other outside factors that might impact the investment so that they can supposedly do something about it. So many people don’t really have control over their investments in the way that they think they do. A quick example, I’ve got a client right now with a lot of money in a 401k qualified plan arena and their particular company does not offer a cash or guaranteed contract position. So all of the money in the 401k is subject to risk that is not easy to protect against. And that’s a really unfortunate thing to me. So here you have an investor that has the ability to mentally know that

[05:27] they should be controlling their assets, protecting against the loss of principal, but they can’t do anything about it because the space that they’re operating in is not able to give them the fixed account or the cash account that would provide the control and the protection. So when we think about this role that we have as the investor, the more control, because in this example, this person controls essentially zero of this asset, the more control that we have of our assets, the more as the investor, we can identify and pick the investments that will protect our principal. And so the less control, then the investment is subject to risk and we can’t do anything about it. So again, that’s why I’m circling back to the risk is truly on the

[06:25] investor side. It was this person’s choice in their past to put all their money in their 401k. Arguably, they may not have known that they had other choices at that point, but that’s a function of their decision for locking all their money up into a 401k, losing control. And now consequently, that risk is back on them as the investor because they lost the control. Anytime we can keep the control, we can control the risk. Yeah, absolutely. I see control as one of those pieces. Now in our world of complexity, I’m jotting down some notes and it has my mind thinking and some of the language that you use and our listeners know by now that you’re very intentional with your language. And for listeners, there’s something that Kim often mentions, which is

[07:14] the contrast between these two words, which is traditional and typical. Do you want to give a quick definition of that? And then I’m going to jump to my question. Absolutely. So traditional to me is something that has been around for a long, long time that works and is continually around because it’s effective. And typical to me is just something that everybody does. And so tip, if we go back to our definitions, traditional on the investment side would mean something like real estate as an example that’s been around as an investment. You can do it with bridge loans. You can do it with apartment buildings. You can do it with single family homes. You can do it with office buildings. You can do it with a whole variety of different ways, but it’s

[08:00] a very traditional investment. It’s been around a long time. It’s very effective. It’s very efficient. It works. Typical is a 401k that’s only been exam around as an example since I can’t remember when for like 1970, I think is about when those started that’s a very typical investment, everybody does it. And yet it really hasn’t been around that long. And it has a lot of issues with it because of its inefficiency. That is a great definition. So as I was listening to you talking about control, it made me think that a lot of the complexities happen when people are navigating in the waters of typical investments. So you hear about cryptocurrencies or the next.com company or the 401k or whatever do da thing that could be.

[08:51] And that’s where people typically get stuck. But when you are working in the traditional arena of real estate or insurance, then if you’re working from a traditional point, you’re usually basing it off of values, not speculation. And when you base off of values, you don’t give up that control. So that’s just my business brain thinking in those terms. What do you think of that, Kim? Well, I think you’re absolutely on the right track in terms of what people can do because it’s so easy to just fall in with the masses, do the typical and figure that it’s going to work out because that’s what everybody’s doing. And so I have to make sure that we get our facts right here. My husband, Todd Langford of Truth Concepts, walked through

[09:43] the offices I’m recording. He says 401ks are 1978. And it’s funny because you’d think they were 1908. I mean, we talk about them as if they have been around forever. And I think I’ve heard somewhere too, that people have like a financial, like how long we remember mistakes and it’s only seven years or something like that. And so here we have these people really losing control, following the herd, if you will, and not doing things that will prove themselves out over time. Whereas there are so many things. If we just look a little bit longer, we dig a little bit deeper. We can find things that have been around forever. Real estate, of course, is a great example. Life settlements, 1911, life insurance, two, 300 years.

[10:38] Now I wouldn’t call life insurance an investment. It’s a place to store cash. But life settlements, kind of the opposite side of life insurance, again, court case 1911. So why aren’t we turning to these things? And I’ll tell you why it’s because the media and the financial institutions don’t want us to. The media in particular would rather have us doing the typical things that they have fun talking about because it’s more of a up and down lack of control, supposedly Wall Street knows how to control it. Although I don’t think that’s accurate either. Environment that the media can get all excited about because there’s changes going on all the time. Whereas the more traditional investments like real estate and life

[11:20] settlements are boring and there are not changes going on all the time. No, that’s so true. So Kim, you’re a voracious reader. You read a lot of books. How about, help us understand what are some of the similarities that you see in some of the traditional thinkers? And maybe that makes us go way back to, you know, Alexander, you know, like to times far, far away, even further back than like Buffett or whomever that may be. What are some of the traditional things that you see that people are basing their decisions off of? I think one of the most important is the understanding of your own passions, your own skillset and potentially looking to invest in yourself first, whether that investment is helping you get set up in

[12:08] business or helping you get clear on how to use your God given talent out in the marketplace. Those types of things are investments that pay off in dividends much, much greater than any individual stock or piece of real estate. And I just use an individual stock because the word dividend or any of the other even traditional investments that we talk about, because if you can get clear on how to make more money then and also on how to increase your value, which then enables you to make more money, then you have essentially an unlimited supply of investment opportunity. And if you go back even to, for example, the founding fathers in our country, a lot of their work was very entrepreneurial and a lot of their

[12:58] work was really investing in themselves and their own education. I don’t mean always education in a formal sense, as in like going to school, but apprenticeships and mentor programs and environments where conversation was supporting their education and their increase in knowledge in how to make themselves better and also in how to make their community better and their family better. And then the things that they already owned and controlled better. Be it a business or a piece of real estate. Really interesting to think about that from the, from the investment in themselves. So I think for our listeners, the call to action that would be applicable for them today is for them to invest in themselves, to turn on the

[13:51] financial hat of traditional and shy away from the typical. Now I think typical is enticing. It’s something that excites me. And the only way that I’ll ever get involved with typical is if I bring my knowledge up to that level, but it’s still, I look at my track record and that’s when I’ve, I’ve got the marks against me on the typical, so I don’t want to go down there. Well, it’s easy. You know, the typical is the easy route because you just sign the form at your 401k. You just go ahead and do what everybody else is doing. And yet we know that for people to get different results, they have to do different things. And oftentimes those different things are, if not different, exactly opposite of what everybody else is doing.

[14:47] And so it’s super important for us to stop and step back a little bit and just not do what everybody else is doing before we really think about it for ourselves and think about the long-term ramifications of whatever decision it is that we’re making. Is that really the best for us? Are we going to get more confidence? Are we going to have more control of our money? Are we going to be thinking from a prosperous mindset? In fact, one of the things that I think is helpful to do is to use the seven principles of prosperity as an opportunity filter for any investment that comes your way. And it will very quickly help you figure out whether it’s a typical investment or a traditional investment. And most importantly, whether that investment is right for you.

[15:33] Absolutely. Do you have maybe a PDF of the seven principles of prosperity that one of our listeners could just print out and put on their wall or keep handy? Yes. The seven principles of prosperity are available as part of our prosperity accelerator pack, which is on the website, partners number four prosperity.com. And there’s a link right on there that says, get the pack now. And a PDF of the seven principles is included in the pack. There you go. So I think for our listeners today, if you’re looking for ways to guide throughout all of the chaos, to finally debunk the, you know, taking risks is going to get you a better return and you just want to base your decisions off of traditional thinking.

[16:22] Print it out, get the seven principles of prosperity, put them in your office, put them next to your bed. I don’t know, put them in your car or wherever you want to put them, but that would be incredibly helpful. So that place again is partners for prosperity.com. And I think that’s the best way to start today. What do you think, Kim? I do too. I know people that have the seven principles on their office billboard and literally as I identified, use it as an opportunity filter and it works not only for investments that you’re looking at, but you can actually even expand it out like all good principles can be and apply it to relationships, your health, other financial decisions that you’re making, your business, et cetera.

[17:04] It’s broad enough to be able to make that kind of impact. Well, thank you for sharing that with us today, Kim. And we will be putting out another episode soon. Thank you for listening to the Prosperity Podcast to take control of your money and have it work for you. Visit us at partners for prosperity dot com. If you liked this episode, make sure you subscribe and leave a review.