Acquisition Vs. Application
Never in the history of the world has there been more information available to more people than today.
With so many sources of information, training, and education – many of them free – the world is literally at your fingertips. Whether through Audible, YouTube, Ted Talks, Wikipedia, or any of the other of the many sources of knowledge, there aren’t many subjects a person can’t learn about if they take the effort to look.
There is endless information out there, but what use is all that knowledge if it isn’t applied? It’s like giving a financially irresponsible person a million dollars. The chances are that million dollars will go to waste. The same goes for knowledge. The acquisition of knowledge isn’t the same as application. In the same vein, access to money isn’t the same as putting that money to use.
One particular area of knowledge is becoming more and more accessible to the public, and that field has to do with private investing and alternative assets.
It used to be that private investments were exactly that – private. Education about alternative assets was sparse, and access was even more scarce. Access to alternative assets outside of Wall Street was exclusive to the wealthy, who often came across opportunities through friends, family, advisors, and professional contacts.
In other words, unless you knew the right people, you would be hard-pressed to come across these opportunities.
Private investment opportunities in alternative assets like commercial real estate (CRE) and ownership in private companies (private equity) are no longer the domain of the rich and connected. Thanks to the internet and recent SEC regulatory changes that have relaxed the solicitation and advertising rules associated with private offerings and private placements, investors now have access to knowledge and opportunities involving private investments like never before.
You’re probably wondering why I singled out CRE and private equity when I brought up the discussion of private investments. I singled these two assets out because commercial real estate and private income-producing businesses have long been favored by the rich for building wealth.
The combination of cash flow, appreciation, and tax benefits is a lethal triple threat for achieving financial independence through the power of compounding.
It’s for this exact reason that the wealthy typically allocate more than half of their portfolios to CRE and private equity. Compare this with the average investor who allocates more than half of their portfolios to stocks and bonds.
All this access to knowledge about alternative investments and private investing will serve no use to the investing public if it’s not applied. Private investments are valuable because they offer the opportunity to do better than what the average retail investor is doing. What’s wrong with average? Because the average retail investor is losing money. And with retail investors estimated to account for 25% of all stock trading, that’s a lot of investors. And the data shows that the average retail investor loses money when taking into account inflation.
The rich are rich, and the poor are poor because one group takes advantage of their opportunities while the other is stuck in their ways.
The poor spend money to be seen while the rich spend to invest. The rich apply their money and knowledge to make more money. The poor ignore education and continue and are content with how things have always been done.
Here’s a twist… Not everyone who is rich started out rich. Many started out poor – some even in dire poverty. The difference is, the ones who escaped poverty were the ones who took advantage of opportunities to learn and to apply what they learned to improve their financial circumstances.
“Give a man a fish, and you’ll feed him for a day. Teach a man to fish, and you’ve fed him for a lifetime.” – Chinese Proverb
I would add to that Chinese proverb that unless the man who is taught to fish applies what he’s taught, all that education and knowledge will be for nothing.
Now more than ever, investors have the opportunity to learn about investments that offer alternatives to Wall Street.
On top of access to education, investors also have access to the opportunities themselves. They just have to apply what they learn instead of sticking to the status quo.