Bill’s Blog July 14, 2021
In my last blog, I verified by stats how hard it is to build sizable Wealth for most people (less than 3%). However, for those who have achieved over 1.5 million or more in assets in Canada, you would be considered wealthy, and it would be slightly higher in the USA. So you have built your net egg, or you are in the process of building it. So what should be your number one objective on the wealth journey beyond building? It should be to protect your assets and not take significant hits to your Wealth.
Back to my original question, “How do I protect my Wealth?” Many of the insights I share come directly from my new course, “Wealth Foundation Series,” or from decades of personal experience. So let’s get started.
- It would be best if you recognized that all asset classes have risks and often significant risks. To be clear, I am not saying one should not take risks (calculated and well researched) as this is vital to create Wealth.
- Never fall in love with any asset class.
- Keep the majority of your Wealth in defensive and cash-flowing assets. The percentage will vary based on your risk profile and age.
- Avoid the 50% plus stock market crashes like 2000 and 2008 (also in many parts of the world, real estate crashed over 50%). It can take over a decade to recover or longer with these types of losses!
- Proven active portfolio management is often superior to passively managed funds, especially late in a cycle as we are currently.
- I recommend you fully grasp the impact of fiscal (government) and monetary (central banks) stimulus on your Wealth (both the good, the bad and the ugly!).
- There is a time to buy an asset and also a time to sell it. Remember, you cannot take it with you to the grave! Timing is critical when to buy, but equally when to sell. No one times buying or selling ideally, so don’t sweat it. If you are in sizable profit and you sense the time has come to sell your business, real estate, stock, collector car or vintage wine or whatever, do it. Procrastination can be very costly to your Wealth!
- All asset classes operate in market cycles. It would help if you learned the market cycle of the asset class you are considering purchasing. Market cycles generally are not like the cycles of the sun or moon (precise) but are approximate. As an example, real estate has an 18 to 20-year cycle from trough to peak. I have also observed that cycles can be distorted due to the central bank and government policies (prolonged or shortened). I would encourage you NOT to purchase at the top of a cycle, as this can devastate your Wealth with significant losses.
- I encourage clients not to “GOING ALL IN” on any investment or asset. Going all in is a classic error that most investors fall trap too. As humans, we can all become tempted with greed and get starry-eyed over an investment. I, too, have been a victim of this in my early years of investing. So don’t beat yourself up if it has happened to you. DO NOT REPEAT and move on and chalk it up to learning.
- Avoid “get rich quick schemes and hype stories” like a plague. Get rich quick schemes are one of the main ways to lose your Wealth! Enduring Wealth usually takes a lifetime to build.
- Be a contrarian as an investor. Following the crowd usually leads to considerable losses. Instead, find unvalued assets (THIS TAKES STUDY) and take a position before they become euphoric and sell into the mania.
Proper diversification of your assets can protect your Wealth. What do I mean? Many investment advisors will tell you; your Wealth is well diversified in different markets, sectors, bonds, etc. The problem is you are 100% in the stock and bond markets and NOT diversified as they claim. Stocks and bonds are highly correlated now, and when we have the next market crash, both stocks and bonds go down simultaneously! Here is a real example of proper diversification:
- You own a profitable cash-flowing business or have a stable career.
- You own a rental property in positive cash flow and shrinking debt or a well-run apartment REIT.
- You have a sizable position in physical gold and silver vaulted in a world-class vault. Private vaults protect your assets and provide liquidity when needed.
- You have a whole life policy with growing cash values. A few life insurance contracts can make sense to protect and diversify some of your Wealth.
- You own a rare coin collection or some other valuable collectible. Learning about collectibles will take lots of studying to be successful.
- You have a defensive dividend-bearing stock portfolio (no bonds) in several undervalued regions.
- You have a small portfolio of Bitcoin and a few other cryptocurrencies (2 to 5%).
- Your home is almost paid off after years of discipline and putting lump sums against the principal.
- You have a small speculative shock portfolio of 5% of your assets that you are actively trading in.
- You have a vacation property that you share with family and friends (even rent out when not used).
- Raw land or a farm are great assets.
I cannot emphasize the importance of proper diversification to protecting your Wealth. Have multiple baskets of non-correlating assets (5 to 7).
- I have left the most significant till last. What will protect your Wealth the most is ongoing financial education from trusted and respected wealth mentors and decades of experience. Knowledge without application means little to nothing. As you study and learn, you will need to take a small amount of capital and deploy it. We also will need trusted mentors to stay on track and bounce things off them from time to time. Invest in your wealth knowledge first. Learn one asset class at a time is critical before you ever deploy any capital. Most significant financial losses come from a lack of wealth knowledge and not understanding asset and market risks.
Please consider taking my new course as part of your wealth education. You will learn many foundational principles and strategies that create Wealth that lasts a lifetime. Also, I was hoping you would take advantage of my current $100 discount for the first 100 students. https://fivefoldfinancial.ca/wealth-courses/
All the best in 2021,