Is Risk Really On The Investor? – Episode 273

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[00:04] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your host, best-selling author, Kim D.H. Butler. Welcome to another episode of the Prosperity Podcast. Today we’re going to start out with a statement that’s going to be the topic of our conversation. And it’s one that I got, I wrote it down because it was so good as one of those that those aha moments, you could almost put on a picture frame above the desk. And it says, risk is not the investment, it’s on the investor. So Kim, let’s unpack that and talk about it today. Yeah, it’s certainly a surprise statement when you take it at face value. So one of the things that we work with in our environment,

[00:55] especially with the alternative investments. So let’s be clear. We’re talking about investments, not cash value, life insurance, which is savings. Is learning. So we look at the alternative investments with a mindset of learning. And many people don’t have any knowledge about these alternative investments. So that’s awesome. We get to help them learn first on a generic level and then sometimes on a more specific level if a particular investment is appropriate for them or right for them or they’re curious about it or what have you. And when you do that, the more that you learn, the less risk is there. Now, you might not say literal like actual risk. So typically when people look at the word risk, they are going to say it’s the propensity

[01:42] for loss. However, a lot of people, when they typically look at the word risk, think it’s the propensity to knock it out of the park and do it really awesome. And that’s not an accurate definition of risk. And unfortunately, the stock market and a lot of the mutual fund and stock bonding mutual fund and assets under management people have talked about risk as the propensity to knock it out of the park and do awesome so much that people forget that one of the definitions of risk is the propensity for loss. And so we want to, again, approach this with learning and we want to be really clear what mindset we’re bringing to that investment. So talk to me so far. Am I hitting the right things? You are.

[02:33] I think in what we call typical financial world, there’s a lot of quotes that get thrown around and Warren Buffett’s often quoted and probably even misquoted by saying the number one rule to an investment is not losing your capital. And the number two rules to not forget number one, that often happens. But what would be really nice is to help people understand how they can get that education and how they can get the clarity and really detach from the emotion, because I think the emotion is the thing that really scares people and gets them off course. Absolutely. And emotions can really drive our actions around investing. So as an example, a lot of the alternative investments are very much. I’m going to call the medium term.

[03:26] They’re like three to five years, as an example, maybe three to ten. Let’s use that time frame and you have to have good emotional grounding because in year two, when you’ve forgotten the learning that you did a couple years ago and you’re looking at this investment and you can’t figure out what’s going on, it can cause confusion and then fear and then scarcity thinking. And I mean, talk about a downward spiral. So that’s why we talk about the risk is in the investor. How are you learning? How are you maintaining that learning? What kind of conversations are you having out in the marketplace that would then cause you to go back and rethink the learning in a bad way, like question it. Not that learning shouldn’t be questioned, but so often you get your learning and you

[04:20] get real solid and you make a decision. And then a couple of years later, somebody makes a comment to you and then you’re scrambling because you can’t quite remember your learning. And so your second guessing yourself is, I guess, the word that I want to say. So these are aspects of the risk is on the investor that we just need to be conscious of and alert to and make sure that when we’re discussing the alternative investments or when we’re maybe learning about the next one that we’re really clear and grounded on what it is that we’re doing, how we’re learning, even our mantra that we always put out there, which is go slow and start small. All of those things can help get the risk removed from the investor enough

[05:07] that that investor can be smart about it, can be grounded about it, can be objective about the information that’s coming and going as it relates to these investments. So I think there’s a couple of pieces to play in here and hopefully we can work through these. One is the ego. There’s something to be said about us as humans not wanting to be wrong. And so oftentimes we may get information and we think that an investment is better than it is, or maybe we think it’s worse than what it is. Second, I think we need to be really aware of where we are getting the information and the source of it. So for example, if you’re looking to make an alternative investment, it’s something that you found from some website online that you’ve never heard of versus getting

[06:00] some advice or something from Kim that’s real, it’s intimate, that’s been thought through, those should be weighed differently. Yes, absolutely. So in all cases, we want to understand where we’re putting the most important. So, you know, is it that your brother recommended it to you or is it because you did your own learning? Is it that you read about it somewhere or is it because you did your own learning? Is it because somebody said something about it positively or negatively on a podcast or a radio or whatever, or is it because you did your own learning? And so always we want to be looking at sources. We want to be thinking with our brain on and even our abundance mindset on because I know I’ve looked at investments when I was in a little bit

[06:49] of a scarcity mode for whatever reason, you know, some unrelated thing. And I’ve looked at those investments and the risk was all on me as the investor because I was in scarcity mode about them. And I have learned to make sure that I’m not looking at investments when I’m in scarcity mode. And sometimes, you know, it’s kind of like hats. You can literally be like, okay, I’m kind of in scarcity mode. I’m either not going to look at this investment right now or I’m going to take this scarcity hat off and put my abundance thinking hat on and look at it that way. Yeah, absolutely. So I’m going to ask the question that’s behind the question. And that is now we’re talking about risk is not the investment.

[07:26] It’s on the investor. So now let’s ask what is the mindset of an investor? So the mindset to me should be, first of all, one of abundance, second of so I’m like working through the seven principles of prosperity as I do this. So one of abundance, two of seeing the big picture, three of measuring the opportunity cost, four of identifying cash flow, not all investments cash flow, but we always want to be looking out for them. Five, do we have control over it? Six, can we move our money through it? And seven, does it multiply the impact whereby the dollars can go do a whole bunch of additional jobs? That’s how I always think investment should be looked at. Okay. And gosh, there’s a few of those on there that I’m looking at and I’m

[08:11] saying, okay, I fully agree with that. The cash flow might not happen in all of them. Okay, we definitely want to have multiply. Don’t work from abundance because if you don’t, then you could end up having way too much emotion in there. Control, I think that’s one of the, at least from my take, it’s a harder one for people to get into to think like an investor because they often want to have their hands in it too much, or maybe they want to give up too much control because they’re playing from fear. Have you seen the control piece? Absolutely. And part of the reason it’s so hard is because all of the typical investments that are out there cause people to give up control. So when you think about the 401ks and 403Bs and IRAs that people are so

[09:01] conditioned to saving and investing in, it is a complete lack of control. And so it’s something that we really don’t like. And it’s something that we think now, I mean, if you have the money already in there, that’s one decision, but if you’re looking at putting new money in, you really should seek an area where you have more control and people don’t know what those areas are. Very true. Well, Kim, I think that this episode, again, this is a short and sweet episode, but it’s explaining the abundant mindset of an investor. And I know from me, as I talk with other friends that are investors, I’ve got a couple of friends that are venture capitalists, and they think from that perspective. And here’s a strange thing that’s just been circulating over the last couple of weeks.

[09:54] And this is at least Silicon Valley, but I think it’s really applicable for right now. Some of the top investors and funds that are associated with big, big companies that we know, billion-dollar companies, they’re currently saying this. Right now is a great time to be having heavily amounts of cash. And then also on top of having a heavy amount of cash is to be making transactions right now, buttoning things down and everything is really tight. Now, that doesn’t mean that we’re going into a downturn immediately. It’s just saying we need to play smart because I think we’ve been, as a society, it’s been kind of easy overall. And what’s happening is people are forgetting what got us to where we are,

[10:47] and they’re now getting lost in the expensive lunches and the extravagant things and the overpriced salaries and you name it, but they’ve forgotten what got them there. And all of these venture capitalists are saying, hey, get your runway, get set, get ready. And I think that’s important for an investor. It doesn’t mean they’re thinking scarcity. It’s just in a different type of abundance. Absolutely. Well, I’ll happily go on record in the late summer of 2018 and say, go to cash, go to cash and start to build more cash, etc. I mean, it’s been something I’ve been saying for a couple of years. And there’s just so much value and peace of mind and opportunity that you can have when you’re in a position of cash.

[11:35] So as we’re wrapping up, if you want an alternative place to store your cash, please reach out to me. I’m happy to help. If you’re curious about some of these alternative investments, where control is back on your side of the table, I’ll give you a hint. And that is that you need to look in the after-tax environment, not the before-tax environment. And yet, with that in mind, you still have to have a place to invest. So happy to help. The email is hello at partners4prosperity.com. And I love engaging with our podcast listeners. Thank you, Kim. Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you, visit us at partners4prosperity.com. If you liked this episode, make sure you subscribe and leave a review.