The economy is trending backward, and things can get even scarier. As if pandemic, inflation, and war hadn’t already taken their toll on Americans’ pocketbooks, the latest layoff trends could make even more dents. But the big question is: are you prepared? Are you protected in the case of job loss? Are you prepared for a downturn?

Did you know that Forbes.com has a layoff tracker? Here is where you’ll find the latest news of the biggest layoffs in Corporate America.

According to the tracker and the latest numbers, 136,000 employees were cut in major U.S. layoffs over the first three months of 2023 – more than the previous two fiscal quarters combined, led by massive headcount reductions at Amazon, Google, Meta, and Microsoft.

Here are some of the biggest layoffs that made headlines in recent weeks:

April 27 –

Lyft unveiled plans to slash nearly 1,100 positions just weeks after confirming a round of layoffs in a blog post and nearly six months after 700 people were laid off from the company.

Vice Media’s layoffs could affect over 100 of the outlet’s roughly 1,500 employees.

Dropbox’s layoffs will affect roughly 16% of the tech giant’s staff.

Gap will cut roughly 1,800 corporate employees as part of a restructuring plan that will cost the company between $100 million and $120 million, following an initial round of job cuts in September that affected more than 500 corporate positions.

April 26 –

Tyson Foods’ layoffs will affect roughly 15% of senior leadership positions and 10% of the company’s roughly 6,000 corporate jobs just over a month after the company announced plans to shut two plants in Arkansas and Virginia and cut another 1,660 employees.

April 25 –

3M, the manufacturing giant known for its post-it notes and scotch tape, announced it was cutting 6,000 manufacturing jobs to cut annual costs, just months after the company cut 2,500 positions in January.

April 24 –

Disney began laying off another group of employees this week, bringing the total number of cuts this year to 4,000 as part of the company’s plan to cut 7,000 positions.

Red Hat, a Raleigh, North Carolina-based software manufacturer, started cutting 4% of its workforce.

April 21 –

Deloitte will cut 1,200 of its more than 156,000 jobs in its U.S. workforce.

April 20 –

Whole Foods plans to cut several hundred corporate jobs.

April 19 –

Meta informed employees of plans to cut roughly 4,000 employees – part of the company’s latest round of layoffs. Zuckerberg unveiled it last month, affecting approximately 10,000 of its nearly 87,000 employees and bringing Meta’s total number of job cuts since November to 21,000.

And the list goes on and on…

Things are obviously not well with the economy, but you don’t have to fall victim to whatever the next downturn brings. You may be asking yourself how you’ll be able to cover your expenses if a nasty recession comes along or how long your savings will last in such a perilous time.

Protecting yourself and your income during the next recession will take doing and not just thinking. In uncertain and difficult financial times, smart investors turn to alternative assets for protection – protection from job loss, loss of income, and depletion of savings. Just as food and water are essential in a natural disaster, passive income and capital preservation are essential in a financial disaster.

And to protect income and capital, smart investors gravitate towards cash-flowing alternative investments like private company investments (private equity) and real estate – assets backed by a tangible asset.

It’s not a surprise that the ultra-wealthy gravitate towards alternatives and that there’s a correlation between allocations to alternatives and an individual’s level of wealth. The high net worth (HNW) and ultrahigh net worth (UHNW) individuals are wealthy because they allocate far more alternatives to their portfolios than average or less affluent investors.

Check out the latest asset allocation report from one of those such groups of affluent investors:

For the unfamiliar, Tiger 21 is a peer-to-peer investing network consisting of ultra-high-net-worth investors from Europe and North America who must show $50 million in investable assets to join. The members of Tiger 21 consistently allocate 50% or more of their portfolios to two specific alternative assets:  commercial real estate and private equity.

Besides the ability to earn higher risk-adjusted returns, the ultra-wealthy turn to alternatives for their sheltering qualities during downturns and inflationary times – including the ability to shelter and protect income and preserve capital.

The value of alternatives like commercial real estate and private equity is undeniable. Still, where private alternatives shine is the ability to generate multiple streams of income through them by teaming up with seasoned teams and experts who do all the heavy lifting, but that allows you to build recession-proof income and inflation-insulated growth.

A storm is coming. Are you prepared? How will you protect cash flow in the face of job loss or job reduction?

The answer might be private alternative investments backed by hard assets that cash flow and appreciate – even in hard times.

The ideal alternative asset generates income and growth that can keep pace with or even exceed inflation. Private alternatives like commercial real estate and private equity seem to fit the bill for smart investors.

Conventional wisdom says the average American needs at least $1 million for retirement. However, most Americans don’t nearly have nearly that amount for retirement. According to at least one source, as many as “80% of U.S. pre-retiree households are financially unprepared for a secure retirement.”

There are many reasons for the unpreparedness of Americans for the golden years, including poor planning and lack of education, but the biggest threat to retirement is bad debt. Think of your retirement as a machine where your wealth is grown. The process for growing that wealth might look something like the machine below. The bigger the machine, the greater your wealth and the more prepared you’ll be for retirement:

The key to growing wealth is relatively simple. You plug cash from your income (purple graphic above) into your machine to acquire financial assets (red asset) that generate cash flow. This cash flow can be reinvested (blue graphic) to feed the machine to grow your portfolio of financial assets to grow your wealth.

The problem with bad debt is that it prevents you from putting any money into the wealth machine to acquire cash-flowing assets, the kind required to produce income that can be reinvested to accelerate wealth exponentially.

Need proof that bad debt is the single biggest threat to retirement?

Check out the latest headlines:

Millennials are sinking under the weight of their debts, adding a record $3.8 trillion to the pile at the end of 2022. –finance.yahoo.com.

Credit card debt is at an all-time high, putting households near ‘breaking point,’ study shows. –cnbc.com.

People who acquire tons of bad debt have it all wrong.

They want to live the good life now, compromising their future prospects. Credit card debt used to acquire toys and non-productive things only drain disposable income as interest payments take away from the capital that can be invested into the wealth machine.

Consumers easily fall for the bad debt temptation because they’re lured into “living their best life now,” as social media touts. Though stimulating at first, it doesn’t take long for bad debt to squeeze finances in the short-term and wreck retirements in the long run.

The problem with bad debt is it will wreck the wealth machine. Without producing cash-flowing assets to keep the machine well-oiled and running, the wealth machine will grind to a halt and break down just like every other neglected machine.

Bad debt not only drains capital in the form of interest payments, but many things bought with bad debt require upkeep, which is another drain on your finances. Things like cars, toys, and recreational equipment require continual maintenance that is a constant drain on your pocketbook.

The middle class is plagued by bad debt, and it’s the single biggest retirement killer.

So what is the solution to breaking from the chains of bad debt? Debt.

Debt may be the solution to breaking the vicious cycle of bad debt. You’re probably scratching your head, but there’s a type of debt that can be leveraged for good and to build wealth instead of tearing it down.

Good debt in the form of real estate loans used to acquire cash-flowing investment properties is a strategy used by savvy investors for years to feed the wealth machine. So, instead of just acquiring financial assets with income from a job, that income can be used to obtain debt to multiply the capital available for acquiring cash-flowing assets.

So, instead of taking $100,000 to acquire assets for cash, this $100,000 can be used as a down payment to obtain a real estate loan to acquire one or more assets at 4-5 times ($400,000 to $500,000) the value of your starting capital (based on 20%-25% down payment requirement).

Of course, there’s a cost to taking out real estate loans. Nothing is free but even when taking into account debt servicing, the benefits far outweigh the costs.

For example, taking out a commercial loan charging interest of around 8% to acquire an apartment building that produces income well over the interest charged is debt worth undertaking because funds used to repay interest and principal come from the investment. In other words, it’s the tenants of your commercial properties that are essentially paying the costs of the loan – a loan that was used to acquire to produce this cash flow.

Using good debt, like real estate loans, can quickly neutralize the effects of bad debt because of its multiplying power. Two income streams can turn into four, then eight, and so on, until your wealth machine becomes a multi-generational wealth machine capable of not only allowing you to retire early but providing for multiple generations.

Fight the bad debt retirement killer with the good debt retirement savior.

What type of investor are you? Do you think long-term, or do you think short-term? The difference can mean the type of risk you undertake in your investments and the type of returns you can expect.

What’s the difference between short-term and long-term investors? Short-term investors covet liquidity and like to move in and out of investments like stocks to profit from timing – buying a stock before an upturn and cashing out before a downturn. Investing short-term is speculative, and most investors are unsuccessful at it. Over 90% of professionals fail to beat the market consistently.

Short-term investors tend to be speculative and hang on every word uttered on social media, cable news, and the internet for news they perceive would give them an edge over everyone else. They’re susceptible to hype and drawn to shiny objects and the next big thing. They’re constantly looking for that home run that rarely ever comes.

Consider the difference between short-term and long-term investors in a stock like Amazon. Amazon has demonstrated spurts of volatility that short-term investors have tried to take advantage of to profit from the upswings and downswings. If they’re like most retail investors who invest this way, they will underperform the market. The long-term investor, on the other hand, is a different story. If you had invested $100 in Amazon stock (AMZN) on the day of its IPO on May 15, 1997, and held on to your shares through the end of 2022, your investment would have been worth approximately $1,636,364.

The Amazon example demonstrates the risks and returns you can expect from short-term and long-term strategies. Investing short-term is risky, and the returns are average or below average. That’s because gains are balanced out by losses when making multiple trades. In the case of long-term investors, investing in the right asset – in this case, Amazon – allows the company to mature and grow along with your investment. Not all IPOs work out like Amazon, but investing long-term is usually the less risky and more profitable strategy.

As I mentioned, long-term investment in Amazon happened to work out because, in hindsight, things worked out for Amazon. With new IPOs, it’s a crap shoot. For every Amazon, there are ten Ubers or pets.com’s. But what if you could invest in an asset where you could predict its long-term viability? That would be the best of both worlds, and that’s why smart investors allocate to certain assets they can rely on to perform long-term to profit long-term and mitigate risk.

​​Here’s why:

When investing long-term, savvy investors focus on time, not timing. The average investor – the short-term focused investor – is locked on timing because that’s what they’ve been conditioned to believe is the only way to make money from investing. They’re taught to latch onto the next big thing, buy low, and sell high.

The timing doesn’t work. Some investors get lucky occasionally, but nobody gets lucky all the time, which is why the average investor underperforms the market. How often have you heard someone say, “If only I had bought it sooner?” “If only I had held onto it longer.” “If only I had sold sooner.” Regret is a regular emotion experienced by short-term investors.

While short-term investors are focused on timing, long-term investors are more interested in time. To them, the key to wealth is time, not timing. Like long-term Amazon investors who were patient enough to see the company through its growing pains, long-term investors are willing to see their investments through. The most reliable assets they prefer are tangible cash-flowing assets like real assets and income-producing businesses.

With these types of assets, smart investors can leverage time to take advantage of two key investment objectives:

• Cash Flow.
• Appreciation.

By leveraging time, passive cash flow from tangible assets like real assets and productive businesses can be reinvested to augment current income streams or create additional streams to compound wealth. Tangible assets also reliably appreciate over time because they have intrinsic value – value separate from what people are willing to pay for them – to add another dimension of returns.

Long-term investors let their assets do their magic with long lockup windows. Long-term investments take emotions out of the equation by taking the crowds out of the mix through illiquidity. By investing in assets with a track record of success and taking their hands off the wheel, long-term investors let their investments grow and mature to provide the types of returns the ultra-wealthy have enjoyed throughout history to grow and maintain multigenerational wealth.

With long-term investments, there is never second guessing like there is with timing. Investors locked in for a minimum of 3-5 years have no choice but to trust the process. Instead of experiencing the common emotion of regret from timing and volatility, investors focused on time experience the calm of knowing their assets will perform and that their wealth will compound and grow over time.

Investors locked into a tangible asset like commercial real estate that will certainly appreciate over 5, 7, or 10 years don’t have to wonder about the timing. When the investment runs its course, and it’s time to cash out, almost assuredly, the commercial real asset will sell for more than it was acquired for a while, cash flowing in all the intervening years.

What type of investor are you?

​​What type of investor do you want to be?

​​Do you prefer to gamble and roll the dice on short-term investments, or do you want to reap the above-market returns from long-term cash-flowing tangible assets insulated from market volatility?

​​The difference can mean more risk and below-average returns on the one hand and above-market returns and below-average risk on the other.

This week’s big news was the collapse of two major banks.

It all started on Friday the 9th with the collapse of Silicon Valley Bank (SVB) when California banking regulators closed the bank and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver for the later disposition of its assets; SVB’s collapse was followed shortly after when on Sunday, state regulators closed New York-based Signature Bank. SVB’s second-biggest collapse in U.S. banking history was the largest failure since 2008. Signature’s collapse was the third biggest in U.S. banking history.

SVB was a specialist tech lender to Silicon Valley start-ups, including many originating in China. Signature was known for its association with crypto firms. Signature had faced a criminal probe for its involvement with these firms. SVB imploded last week after a sale of $20 billion of securities to mitigate a sharp drop in deposits focused investors’ minds on the bank’s vulnerabilities. They dumped its stock, customers withdrew their funds, and the bank was bust by Friday morning.

The bank failures sent shockwaves through the markets, with bank stocks taking the biggest hits. After initially indicating that it would not bail out either bank, the Biden administration vowed to make depositors whole beyond the FDIC insured $250,000 maximum amount.
 
The main takeaways from the events of this week are:

• Banks are no more immune from chasing shiny objects and throwing money at the next big thing than investors;
• When corporations make stupid decisions, it’s investors and taxpayers that pay the price; and
• Nothing is more panic-inducing than feeling helpless as you watch your money and investments disappear in a puff of smoke due to factors completely out of your control.

The depositors of both institutions are indeed being thrown a lifeline by an administration friendly to left-leaning Silicon Valley and crypto-friendly firms. Still, both banks’ investors are out of luck. Although the collapse of SVB and Signature caught everyone else by surprise, those bank failures did not surprise a segment of sophisticated investors who avoid these types of investments (high-risk tech and crypto) that constantly attract the herds.

Sophisticated investors like ultra-high-net-worth individuals (UHNWIs) avoid the despair of helplessness that rushes over investors when a financial crisis occurs. In 2008, many impending retirees sat in despair and panic as they watched half the value of their 401Ks disappear overnight. Instead of enjoying retirement, many of these 401K owners were forced to continue working to make ends meet.

Smart investors don’t let outside forces control their financial fortunes. They don’t let corporate mismanagement and risk-taking dictate whether they can retire comfortably as if there wasn’t already enough fear and uncertainty in the markets – what with inflation, impending recession, war, and tensions with Russia and China dominating investors’ thoughts – now comes this. This latest bank debacle is another never-ending cycle of market drivers causing ripples and volatility. It’s madness, and it’s only getting worse.

There have always been outside forces and negative market drivers that have moved the needle of the markets for the worse. Still, in today’s connected society, it’s only getting worse where news travels at the speed of light – creating instant chaos in the markets.

How do UHNWIs insulate themselves from market volatility?

They gravitate towards anti-shiny object investments. They allocate boring but tried but true tangible assets that cash flow while appreciating organically over time.

Assets like commercial real estate (CRE) and private income-producing businesses (private businesses) hold one significant advantage over public stocks and debt that insulates their investors from mainstream investors’ financial stress and helplessness when something like the bank collapses this week happens. Because these assets are acquired and sold on the private markets, they’re illiquid – meaning they are not easily disposed of like stocks that can be liquidated at the click of a screen. This illiquidity not only insulates assets like CRE and private businesses from broader market volatility but also allows them to mature to maximize efficiency and returns for their investors.

So, this week, while the public panicked in the face of the latest financial fallout, UHNWIs allocated to private cash-flowing alternatives sat back and yawned – unsurprised by the failure of banks dedicated to risky start-ups and crypto. After all, investors have been losing their shirts since 2022 on the same types of assets on the public markets.

Do you want to avoid financial helplessness?

Avoid the craziness of Wall Street and allocate to the private markets.

When it comes to the economy, it’s not all doom and gloom. Inflation seems to be slowing after aggressive Fed intervention, and if the latest jobs report indicates, people are getting back to work and play. The January jobs report showed nonfarm payrolls increased by 517,000, far higher than the 187,000 market estimate. Leisure and hospitality added 128,000 jobs to lead all sectors. Other significant gainers were professional and business services (82,000).

The jobs report tells me two things:
 

• ​People are getting back to work, and
• ​They’re getting back to play, as reflected in the hiring numbers in the leisure and hospitality sectors.

​These positive signs reinforce why commercial real estate (CRE) is the smart investment for 2023.
 
The truth is certain segments of CRE perform in any business environment, but CRE is poised to perform in almost any segment in 2023 because of the positive signs reflected in the jobs report. The increase in the job force will require added workspace and housing. And it’s also clear that leisure travel is also in high gear post-pandemic.
 
In 2023, while public equities and crypto experience extreme volatility, commercial real estate can be the ideal calm among the storm and a strong investment opportunity for several reasons, including:
 
Strong Demand:  ​Despite the economic disruptions caused by the pandemic, there is still strong demand for commercial real estate in many markets. While the pandemic and inflation demonstrated the resiliency of certain segments of CRE (i.e., multifamily), most segments of CRE should see a rebound and do well in 2023. This is especially true for properties that are well-located and well-designed to meet the needs of tenants.
 
Rental Income:  Commercial real estate can generate significant rental income that can provide a stable and reliable source of cash flow for investors. This rental income is reliable and consistent by virtue of commercial real estate.
 
​​CRE properties leverage the power of scale. Instead of collecting rent from a single tenant as with a single-family property that exposes investors to delinquency risk, CRE properties spread this risk across multiple tenants. Multi-tenant properties also lend themselves to economies of scale to reduce costs per unit. The multiplier effect on the income side and the economies of scale effect on the expense side allow CRE investors to achieve above-market risk-adjusted returns.
 
Appreciation:  Commercial real estate not only appreciates over time due to inflation, but it also appreciates due to its intrinsic value. Every dinner goose has the same value. The price of the goose will increase over time along with the general price increase of all goods over time, but a goose that lays golden eggs, one that produces income (i.e., has intrinsic value), will be more valuable than the flock and will appreciate in value beyond the general appreciation from inflation.
 
​​CRE is this type of asset – providing investors with heightened returns from significant underlying appreciation. This appreciation is reliable and consistent over time. There may be temporary hiccups from time to time, but CRE has shown long-term reliability and resilience. Take the pandemic, for example. In most markets, CRE values have already rebounded to pre-pandemic levels.
 
Value-Add Opportunities:  Commercial real estate offers the potential for value-add investing. Investors can purchase properties that need improvements or renovations and then make these improvements to increase the property’s value and rental income. CRE is one of the few asset classes where an investor can leverage their experience, knowledge, expertise, and familiarity with a particular market to force the appreciation of an asset by incorporating these competitive advantages.
 
Diversification:  Commercial real estate can be a valuable tool for diversifying an investment portfolio. By holding CRE assets across a variety of segments, conditions, strategies, and geographic locations, investors can minimize overall risk.
 
Inflation Hedge:  Inflation can erode the value of many investments, but commercial real estate can be a strong inflation hedge, as it tends to appreciate in value as inflation rises. Certain segments, including multifamily, demonstrated their resilience in the face of inflation – with rents even outpacing inflation in certain markets.
 
Tried and True:  Billionaire Andrew Carnegie famously said that 90% of millionaires got their wealth by investing in real estate. The top 10 real estate billionaires in America all made their fortunes acquiring, developing, owning, and operating commercial real estate.

So Many Options:  Not only are there six CRE asset classes to choose from, including multifamily, office, industrial, retail, hospitality, and development, but there are also classifications of CRE to choose from based on building condition and location (i.e., A-D). In addition, there are also properties classified by their risk-return profile, including Core, Core-Plus, Value Add, and Opportunistic opportunities.
 
Tax Benefits:  CRE properties also offer their investors significant tax benefits, including pass-through of deductions and depreciation. For smart investors, saving a dollar is just as valuable as earning an extra dollar, so tax benefits are coveted bonuses when investing in CRE.
 
2023 is the ideal year for investing in CRE. Not only do economic and job-related signs indicate steady economic growth, but they also eliminate any excuses for diving into this asset class that has proven its performance, resilience, and reliability time and time again.

The history of pro sports is littered with tales of lost fortunes and ruined lives post-playing days. The NBA is especially rife with stories of squandered millions.

The fact that NBA players now make much more money than their predecessors ever made hasn’t stopped many players from still going broke. Michael Jordan – widely considered the GOAT NBA player – made an estimated $94 million his entire career. In today’s NBA, Golden State’s Andrew Wiggins, who has only made the All-Star game once in his nine-year career, will make that in the 3rd year of his current contract.
 
In discussions of NBA players who go broke, the name Antoine Walker frequently gets brought up. That’s because, despite career earnings of $108,142,015, Walker holds the distinction of having gone broke while still playing. Just one year after winning a championship with the Miami Heat, and while still playing for Minnesota, Walker filed for bankruptcy. Walker admitted that his financial troubles were largely due to awful gambling habits and legal fees after running afoul of the law.
 
According to Sports Illustrated, 60% of NBA players go broke within five years of retirement. The reasons for this financial downfall all boil down to a handful of common causes, including:
 

• Lack of financial planning.
• Excessive spending.
• Bandwagon family members and friends who come out of the woodwork asking for money once an athlete makes it to the pro levels.
• Divorce and child support.
• Buying into the myth that a career will last forever and the money made will last forever.

 
One of the biggest mistakes pro athletes make is spending money on things, people, and activities that don’t last. These things drain the pocketbook and leave athletes broke faster than they can imagine. The athletes who suffer the most are the ones who squander their early years’ earnings only to have their careers cut short by injury.
 
Lost in all this talk about athletes blowing their fortunes are the tales on the flip side – tales of athletes who could avoid the same financial problems that plagued their contemporaries.
 
Interestingly, the athletes who successfully navigated their post-career financial lives had similar traits – mainly that they allocated much of their earnings to investments that other ultra-high-net-worth individuals (UHNWIs) have been using for years to grow and maintain wealth. And the two asset classes preferred by successful athletes and UHNWIs have been commercial real estate and owning or investing in income-producing private businesses (i.e., private equity).
 
Hall-of-Famer Grant Hill is a shining example of one of these athletes who transcended financial disaster through wise financial planning and investing. After playing for Duke in college and winning a national championship with teammate Christian Laettner, Hill was drafted third overall by the Detroit Pistons in 1994. From the very start, Hill went against the grain of every other freewheeling rookie NBA player.
 
One of Hill’s most notable decisions was electing to forgo a sports agent to negotiate his contract and endorsement deals. Hill didn’t see any sense in paying an agent a percentage of his contracts to negotiate on his behalf. Basketball agents can charge 4%+ of a contract’s value to negotiate on an athlete’s behalf. Hill, who played for four teams throughout 19 NBA seasons, signed an eight-year $45 million rookie deal in 1994. Eschewing a sports agent who charged a commission, Hill went with an attorney who charged hourly. That attorney was Lon Babby, who had experience as the Baltimore Orioles general counsel and became Phoenix Suns president of basketball operations.
 
Besides bucking NBA conventions, Hill also bucked investing conventions. Instead of flocking to stocks and get-rich-quick schemes constantly presented to athletes, Hill stuck to tried and true investments. Hill says he has always been paranoid about money and that paranoia has driven his investment choices. He said he first became “paranoid about money and losing money” after watching athletes struggle with money after their careers ended. Hill’s father – former Dallas Cowboys running back Calvin Hill – played in the NFL from 1969 through 1981, so he saw some players deal with financial woes up close.
 
Asked about what type of investments he preferred, Hill responded, “I believe in hard assets, real assets.” Hill credits his parents for piquing his interest in commercial real estate. He made his first investment in the commercial real estate (CRE) segment in 2000, during his time with the Magic. Hill invested in multifamily units and office space buildings in central Florida, a region he described as “prime for growth, and has been growing tremendously since that time.”
 
Through his marketing and management company, Hill Ventures, the former NBA All-Star invested and developed over $200 million in projects throughout Florida and North Carolina. His current net worth is estimated to be around $250 million.
 
Athletes are just one of many high earners that can face financial difficulties due to bad financial decisions. Doctors, lawyers, and other professionals have all been known to go broke because of bad financial choices. The bad patterns mirror those of broke athletes: overspending, chasing get-rich-quick investments, and excessive debt.
 
If you want to build and maintain wealth:
 
​Buck the trends like Grant Hill did and go against the grain. While everyone else chases shiny objects, stick to what’s tried and true – commercial real estate and income-producing businesses.
 

Modern society is one of instant access and gratification. We want everything now.

Technology has been the obvious catalyst of this “I want it now” mindset. With everything available at the touch of a screen on our mobile devices – entertainment, lodging, transportation, finances, schooling, business, relationships, etc. – patience is no longer in our vocabularies.
 
Remember the days of waiting until next week to see the next episode of our favorite TV show? Many people don’t even remember those days when you couldn’t watch TV on the phone, let alone being able to watch an entire season in one day.
 
It’s no surprise that the world of investing has mirrored society in general. You no longer have to call your broker to check the status of your investments and make trades. You can do it all on your phone, and if you have the Robinhood app, you can do it for free.
 
The result of all this instant and free accessibility is extreme market movements and volatility. When the herd moves, it moves, but that’s the cost of liquidity.
 
Not all investors are enamored with liquidity. There is a segment of investors who understand the price of liquidity is extremely volatile and investment bubbles. This volatility was on full display during COVID when millions of novice investors hit the equity and crypto markets armed with stimulus money and free trading on Robinhood. The liquidity and accessibility of the markets turned investors’ cell phones into their personal Vegas, where they would rush from investment to investment, looking for the next jackpot.
 
Throw into the mix social media, online forums, cable financial news, and talking heads, and you have a recipe for disaster. After hitting records in 2021, the markets crashed in 2022, where the S&P 500 shed 19.44%, and Bitcoin (reflective of the crypto market) shed 65%.
 
Not every investor fell for the hype buzzing in the stock and crypto markets over the past few years. One segment shunned the liquid markets and the enticements of shiny new objects by sticking to tried and true illiquid investments.
 
Liquidity is what sets the average investor apart from successful ones. So, while the general investing public prizes liquidity, smart investors avoid it because they know only bad things can come from liquidity-induced volatility. In contrast, good things can come from patience.
 
What type of investor are you – one that prizes liquidity or one that values illiquidity?
 
Know the difference:
 
TEAM LIQUIDITY:
 
Liquidity is everything for most investors because of their main investment objective: appreciation. They are only concerned about profiting from the increase in the price of something. The stock and crypto markets aim to buy low and sell high. You can also make money from shorting a stock if you think it will fall. It’s all about timing; without liquidity, none of this would be possible.
 
Investors on team liquidity are a manic bunch. When the goal is to get a jump start on everyone else, there’s never peace because these investors are constantly hanging on every single clue social media, the internet, cable news, and talking heads have to offer regarding the movement of particular stocks or cryptocurrencies.
 
A clear profile of the modern investor who treasures liquidity has developed in recent years.
 
They are:
 

• Indecisive. They’re never really sure about their investment choices because nobody can guess the markets – not even the pros.
• Neurotic. They are prone to acting on their emotions instead of looking at the facts and numbers, resulting in irrational decisions based on what the herd is doing and from a fear of missing out (FOMO).
• Check Their Investments Constantly. They are constantly checking their phones to check on their investments to make sure they’re not missing out on any groundbreaking news that will affect their investments.
• Speculators Chase Shiny Objects. They are constantly seeking the next Google or Amazon to make their fortune.
• Gamblers are Seeking the Next Home Run. They’re willing to take big risks for that big payout, even if logic and the numbers indicate a bad investment.
• Traders, Not Investors. Investing is expending money with the expectation of achieving a profit or material result by putting it into financial plans, shares, or property or by using it to develop a commercial venture. Investing implies putting money into something productive that will generate a return in the future. What the modern investor does is more akin to gambling, not investing. They’re traders, not investors.

 
TEAM ILLIQUIDITY:
 
Smart investors don’t speculate. They invest. And when they invest, they have specific goals that center around time and not timing. The profile of this investor is also clear.
 
They covet:
 

• Illiquidity. These investors invest for the long term. They invest in productive tangible assets that generate income. Time allows these assets to mature and grow. Investments in commercial real estate and productive private businesses (private equity) are two of the most popular assets among this group. These assets typically involve long lockup periods that these smart investors covet because this illiquidity insulates these assets from herd behavior and market volatility.
• Passive Income. Passive income is the key to wealth. It can be generated in your sleep, and you can create multiple streams to accelerate your wealth.   Passive income is how you can cut the cord of your job.
• Leverage Expertise. Why reinvent the wheel? Smart investors would rather lock up their money to partner with seasoned experts with valuable knowledge who can generate reliable and consistent returns than try to do things independently.
• Multigenerational Wealth. These investors invest with an eye on future generations and the current ones. As a consequence, speculation has no room in their investment activities. Tangible income-producing assets like real estate and private businesses are ideal for generating income for current needs while maintaining their value over time to provide for future generations.
• Tax Benefits. A penny saved is a penny earned, and private investments structured as partnerships are ideal for saving significant amounts in taxes from the pass-through of deductions and depreciation as well as the lawful avoidance of other taxes such as self-employment taxes so that investors can save more of what they earn.

 
On the side of what team do you fall? Maybe it’s time to ignore the crowds and consider all the benefits illiquid alternative assets have to offer.

Humans can be irrational beings, and nowhere is this irrationality more on display than in investing. There’s a whole field of psychology dedicated to the subject. Traditional economic theory says that people make rational decisions, but the relatively new field of behavioral economics says that rational behavior goes out the door when it comes to investing.

Behavioral economics combines elements of economics and psychology to understand how and why people behave the way they do in the investing world. Behavioral economics starts with the premise that investors are irrational and make investment decisions based on factors that have nothing to do with well-informed decision-making.
 
The proof is all around us in the form of herding behavior in the markets and the continual appearance of investment bubbles throughout history that have devastated portfolios in the wake of these bubbles bursting.
 
It’s irrational behavior that leads to bubbles and massive investment losses. In the absence of bubbles, even on a day-to-day basis, irrational behavior leads to speculative behavior that is akin to gambling. With gambling, we all know the house wins every time.
 
In his book, Misbehaving: The Making of Behavioral Economics, Richard H. Thaler traces the development of behavioral economics and explains how irrational investor behavior is often driven by behavioral biases that lead to bad decision-making. However, by understanding these biases, investors can learn to avoid them or compensate for them to make more rational investment decisions.
 
So, what behavioral biases/investment misbehaviors can investors recognize and learn to avoid in their own investment activities?
 
Perception Bias: The perception bias drives the price of an asset more than its actual and practical value. The perception of value is a bigger driver of price than the actual value. Perception is how crypto and meme stocks reached astronomical heights in 2021, during the stimulus-induced investing frenzy that saw investors snatching up crypto and worthless stocks on the perceived value of these assets based purely on the speculation that investors would pay more for them down the road. What people are willing to pay depends more on perception than the actual worth of the asset.
 
Loss Aversion: People have an aversion to losses. The fear of loss is usually greater than the joy of gain. As a result, they tend to make irrational decisions. Investors playing into the loss aversion bias buy into the traditional risk-return tradeoff that says high returns can only come from high risk. The problem with loss aversion is it causes some investors to be too risk-averse. It prevents them from considering alternative investments that may not follow the traditional risk-return paradigm that can deliver higher risk-adjusted returns than traditional investment assets.
 
Herd Behavior. This bias is probably the most common behavioral investing bias, and it goes hand in hand with the fear of missing out. Herd behavior says investors will make decisions according to what the herd does not only because they think it’s comfortable or safe but also because they don’t want to face the shame of missing out. The problem is herd behavior has been the root cause of every investment bubble that has ever existed.
 
Availability Bias. Availability bias says investors go with what’s convenient and easy. They’ll take everyone else’s word at face value on investment instead of doing their own research. They will make decisions based on what’s convenient and immediately grabs their attention – whether it be social media; the internet; their friends, neighbors, and colleagues; or anything else showing up on their phone screens.
 
Status Quo Bias: Status quo bias says investors will stick to what’s familiar, traditional, well-known, or common. They are unwilling to try anything new.
 
We’ve all been guilty of behavioral biases that have led to less-than-desirable investment results and returns in our portfolios. Successful investors have been the ones that recognize this bias and either has trained themselves to overcome these biases or put their portfolios in a position to buffer the impact of these biases by taking human error out of the equation.
 
What Smart Investors Do to Avoid Investing Misbehavior
 
So what do smart investors do to overcome behavioral biases to combat irrational investment behavior? Education.
 
Investors who educate themselves and open their portfolios to investment possibilities outside of Wall Street give themselves the best chances for bucking investment misbehavior and winning the investment game.
 
Taking the first step of educating themselves and exploring alternative investments allows smart investors to avoid multiple biases, such as the status quo bias, availability bias, and loss aversion biases, right out of the gates. Then, once opportunities arise, investors can avoid perception bias by doing their homework and doing their due diligence to evaluate deals based on the actual value, not the perceived value.
 
Finally, smart investors deal with herd behavior by taking it completely out of the equation. By investing in the illiquid private markets with long lockup periods, these investors take the herd out of the equation altogether with no effort required of themselves. These illiquid investments would prevent investors from acting on their impulses even if they wanted to. Either way, herd behavior does not affect a private investor’s investment decision-making.
 
Do you want to become a successful investor?
 
Then become rational by avoiding the behavioral biases/investing misbehaviors plaguing the average investor.

This is the story of two brothers. Their parents divorced when the boys were young, and a single mom raised them. With their mom constantly working to make ends meet, the boys were left on their own, with the older brother (by two years) caring for, the younger brother most of the time. They got to school on their own and, once back home, were on their own with their school work and meals. There was little parental attention or supervision, but their mom instilled in them the value of hard work. They did well in school, both earning scholarships to state schools.

 
The older brother went into accounting, and the younger brother went the MBA route. The older brother graduated in four years. After undergrad, the younger brother put in the requisite two years as a financial analyst before starting the MBA program at a prestigious Midwestern program. The MBA degree was financed with hefty student loans.
 
After graduating, the older brother took a corporate job, but after three years, he decided to branch out and start his professional services firm. He also met and married his wife and started his family in that time period. His firm provided a good living, but his family’s arrival shifted his perspective. Did he want to go through the grind of professional life and miss out on so much of his children’s lives? No.
 
The older brother decided that he had to find a way to generate income that didn’t depend on him being at the office. He could delegate a lot of duties and bring on a partner to run the firm, but to live the life that he truly wanted to live with his wife and kids – one in which he could do anything with them any time he wanted – he would have to find a source of income that could make him money in his sleep.
 
After extensive research and opening up his mind to alternative investment opportunities, the older brother was attracted to commercial real estate (CRE). After all, many billionaires and millionaires had made their fortunes from real estate. There must be something to it, he thought. But, with his already busy schedule, he did not see a way for him to climb the steep learning curve of commercial real estate investments in a short amount of time. Also, the types of properties he was interested in would require capital he needed help to come up with.
 
But then he discovered the world of passive investments and the opportunity to invest passively in private companies that invested in CRE, offering investors the chance to reap the financial rewards of CRE without the time restraints of financial limitations of doing it on their own.
 
With the transparency and access to management offered by private companies raising capital, the older brother could latch onto a local private offering for his first investment. He parlays the cash flow from that investment into other investments to generate multiple passive income streams. He eventually reached the point where his passive income matched his professional income, and he could theoretically walk away from his career if he chose. He had achieved financial independence.
 
After graduating with his MBA, the younger brother jumped head first into the corporate world – working his way up the ladder and becoming an Executive VP by the time he was 36. He was making half a million dollars a year. He, too, got married and had a couple of kids. To compensate for his absence, he spoiled his wife and kids – giving them carte blanche with credit cards to buy and do what they chose. They lived in a huge house, drove the nicest European cars, ate out, and spent extravagantly. Between his student loans, debt and expenses, he had little in the way of net worth.
 
Both brothers are millionaires, but their lives are very different. One has freedom, no debt, peace of mind, less stress, and even pays fewer taxes. The younger brother burns the midnight oil, is constantly stressed, brings his work home, and, other than the two vacations he takes a year sees little of his family. He has no financial freedom. If he stopped working today, it wouldn’t take long for the money to dry up.
 
The younger brother is an income millionaire. He makes a million dollars in income every two years. The older brother is a net-worth millionaire. The value of this brother’s assets exceeds the value of his debts. Besides that, the type of assets each brother owns is very different in their utility. The younger brother has assets that only drain his pocketbook – cars, a home, and toys that need constant upkeep and expenses. These are diminishing assets – assets that deplete wealth. The older brother has productive assets that make money 24-7. These assets generate passive income, which is reinvested to create additional income streams and grow wealth exponentially.
 
The lesson from these brothers is that being a high-wage earner doesn’t automatically secure financial freedom. That independence can only be acquired through generating income streams, not dependent on a time clock.
 
You must find a way to put your money to work to avoid being in the younger brother’s position of having to trade time for money. However, if you can generate passive income like the older brother, you can buy back your time and live the life you have always dreamed of.

How do you define wealth? Do you belong to the old school that defines wealth one way or to the new school that defines it another way?

​​One perception of wealth is espoused by those who possess it, and another is espoused by those who aspire to it. Both are very different, but only one road leads to true wealth. Which camp do you fall under? Look at the descriptions below and ask yourself which group you identify with most.

Priorities.

Camp 1: They spend to impress over meeting their obligations. For this group of people, wealth is defined by what the neighbors can see: the big house, fancy cars, toys, expensive clothes, suitcases in the driveway getting ready for the next exotic trip, etc. The #1 priority for this group is to accumulate “things,” not assets. Things devalue. Assets appreciate and add value. Because accumulating things is the priority of this group, these people will often ignore their obligations and accumulate debt to the detriment of their net worth.

Camp 2: They spend to invest after first meeting their obligations. This group is not interested in accumulating things that add no value. They are interested in investing in assets that will grow their net worth, not take from it. To that end, they will meet their obligations first not to accumulate debt that diminishes net worth from interest payments. After meeting their obligations, they would rather save to invest in productive assets that make them money in their sleep than spend it on toys and trips that do nothing for their portfolios.

Goals.

Camp 1: They have no idea how much they need to be financially independent. This group has no idea how much they need to retire. Their retirement plan is to hit it big with the next big investment, unlike winning the lottery. They’ll invest in speculative assets like high-risk stocks and crypto, but these investments are justified because Wall Street, cable news, influencers, and celebrities endorse them. These assets are just a form of institutionalized gambling, and any investment strategy incorporating this type of speculation is bound to fail.

Camp 2: They know the exact number that will allow them to walk away from their jobs. This group knows the exact amount of money they’ll need to retire and the exact amount of passive monthly income that will replace their work income that will allow them to walk away from their jobs. Beyond the raw numbers, these sophisticated investors also factor in fluctuations in expenses and macroeconomic factors like inflation to give themselves a buffer for achieving their targets.

Emotions.

Camp 1: They are driven by emotions. This group is driven by what’s buzzworthy, fads, and what’s attracting the most attention in the media, the internet, and social media. They’re driven by the need to fit in with everyone else and the fear of missing out. They will follow the herd to invest in assets to the detriment of their portfolios – case in point. Everyone was jumping on the crypto bandwagon last summer because it’s all their family members, coworkers, and neighbors talked about. Fast forward to today, and crypto has crashed and burned.

Camp 2: They take emotions out of the equation. Instead of following fads and letting their emotions rule their investment decisions, this group would rather follow the path of wealthy investors who came before them to achieve true wealth – even if that means investing in what everyone else considers yawn-inducing. When exploring the habits of successful and wealthy investors of the past, what this camp discovers is that the wealthiest individuals in history built their wealth from productive assets like commercial real estate or income-producing businesses with one thing in common – cash flow that could be reinvested and compounded to generate and maintain wealth. Boring? Yes. Reliable and sustainable? Also, a yes.

Beyond The Numbers.

Camp 1: All about the numbers. The end game for this group is money. It’s all about the bottom line and the balance in their bank accounts that they can show others. It’s all about impressing others.

Camp 2: Beyond the numbers. This group values something more than money for the sake of money. They pursue money to achieve higher goals. To them, time is more important, and money is just a means to the end of buying back their time – time to engage in pursuits for a more complete and round life. These pursuits can involve their physical well-being, mental health, relationships, serving their communities, and giving back to their favorite causes.

Losses.

Camp 1: Willing to take big losses. Go big or go home is the mantra for this group. So, they’re willing to risk big losses for the chance for a big win. Unfortunately, the house always wins, and big losses are more common than wins regarding speculative investments and assets.

Camp 2: Better to avoid losses. This group has a healthy relationship with risk. They would rather avoid losses than have to recover from them. That’s because the road back to ground zero requires a bigger gain than what was lost. For example, a 50% drop in a portfolio would require a 100% gain to get back to ground zero. The losses give you less to start from on the road back to your original spot. This group isn’t afraid to take risks. They understand there’s risk in everything we do and invest in, but they gravitate towards assets where risks can be mitigated through skilled management. That’s how they are able to minimize losses and avoid the long road to recovery that mainstream investors are constantly experiencing.

Camp 2 is composed of savvy ultra-wealthy investors who approach wealth differently than mainstream investors, and it all starts with their mindsets. They define wealth differently than everyone else. Wealth to them is freedom. Those addicted to money become slaves to it and never achieve the type of freedom they seek.

Smart investors have higher and loftier goals than just having money, and they pursue the assets that will offer them the best odds of accomplishing those goals. That’s why boring investments appeal to them and not the highly speculative assets everyone else is chasing. They ignore the noise, focus on what works, incorporate financial habits and conduct their daily lives to maximize their chances of achieving and maintaining wealth.