Protecting your capital and investments is just as important as making gains. So, how do you do it?
Promises of high returns on your investment are going to mean little without protecting your investable capital. Of course, being too conservative often leads to negative net yields after inflation, taxes, and fees are accounted for too.
So, how can you invest for appealing gains, while still preserving your wealth?
1. Start With Who You Invest With
By far, the most important factor in protecting your investments is being wise in who you choose to invest with. This is easily the most pivotal factor in not only if you have a chance of really realizing those target returns, but more importantly, ensuring you get your invested capital back.
Some key questions to be asking here include:
- What is the length of experience of the advisor, manager, or sponsor?
- Are their interests aligned with yours, with real incentives?
- Have they proven to be able to handle a crisis?
- What reporting, accountability, and transparency do they offer?
2. Hard Collateral
Few investments being promoted out there today have any real tangible value. There is no collateral should they decline or go bust. Not only can your dividends and nest egg go down, but they can be completely evaporated, with nothing to recover.
Cryptocurrencies and publicly traded stocks are classic examples of this.
It is also important to be sure you aren’t overexposed to low-yielding investments, even if they have tangible value. Like physical gold and currency.
This is why one of the top choices of investing for doctors, lawyers, and ex-Wall Street bankers is real estate and mortgage debt.
3. Overcollateralized Investments
Even better than having some tangible collateral is being over-collateralized. That means investing at a price that is less than the value of the asset.
Real estate investing is a great example of this if you have access to under-valued properties or discounts on a distressed property.
This can be even easier to achieve with private lending and investing in mortgage debt. You may buy existing mortgage loan notes at a discount on the unpaid principal balance. Or you may participate in making hard money loans to professional flippers, at 30% or less of the retail value of those properties. In these scenarios, the worst-case scenario is incredibly profitable.
4. Stay Diversified
Diversification is a key part of protecting your wealth. This can be achieved by investing across multiple investment sectors. As well as further deep and broad diversification within individual investments. Such as multifamily apartment complexes with diverse tenant bases. Or portfolios of mortgage loans on different properties in different geographic areas, with different borrowers.
This provides great strength, consistency, and predictability to your finances and planning.
No one loves paying any type of insurance premium, at least until they need to make a claim. With perhaps the exceptions being tax advantages from reinsurance or HSA investment accounts.
There are many types of potential insurance, which can be layered. This can range from individual asset damage coverage, liability insurance, and umbrella business policies which can cover any interruptions of income gaps you may ever suffer.
Protect your assets. It is as important as making any gains. Fortunately, this doesn’t mean that you have to resort to losing ‘investments’ either. Check out these methods of protecting your wealth and investments, while optimizing for upside returns as well.