A wonderful story I once read was of a farmer who went through a succession of farmhands whom he found to be inept. Then, one day he hired a new worker and everything was going well until a terrible wind storm broke out in the middle of the night.
The storm brought torrential rain, thunder, lightning and wind. The farmer was awoken by the storm and ran out to the bunkhouse, where he attempted to wake up the new farmhand as the farmer needed help preparing the barn for the storm. However, when the farmer tried to wake the farmhand, the farmhand would not wake from his peaceful sleep. Finally, the farmhand rolled over and said in a quiet voice, “I can sleep when the wind blows,” and he rolled back over and went to sleep. This obviously did not sit well with the farmer, who angrily left to do the work himself.
Then, the farmer arrived in the barn and found the preparations for the storm had already been done: the animals were safely in their stalls, the barn doors were closed, and the hay was tied down. The farmer had no work to do, and at this point he realized what the farmhand had meant when he said, “I can sleep when the wind blows.”
This story came to my mind the night of the election. As you probably know, social media was ablaze that night, and I saw repeated comments from people of all political affiliations regarding their concern of the effect that the election would have on the market and, more importantly, their investments. In fact, many of these posts included fear of a market crash and people wanting to find out how to remove their money from the market immediately.
As it turned out, although there was a slight drop the night of the election, there was not a catastrophic market meltdown that some had feared. However, it brought me back to an important issue: are we taking efforts to protect our investments from outside influences so that we can “sleep when the wind blows”?
Mind you, the majority of people have their investments in some sort of market, whether it is stocks, bonds, commodities, real estate, etc. The common person’s perception of how investments in these markets work could be analogized to throwing a bottle into the ocean: the bottle rides a wave up, the bottle rides a wave down, and hopefully the bottle does not sink. However, if that is the way that you are investing, you are sure to have a few lost bottles, and many more sleepless nights.
Rather than treating investing like a bottle on the ocean, wouldn’t it be preferable to invest in manner that is not dependent on how a market performs? For some reason, this option is rarely (if ever) shown to the general public, so they do not believe that it exists.
However, this option is right under their noses. “Where are these investments?” you may be asking. They are all around us. Some examples are buying cash flowing rental real estate, buying discounted mortgage notes, or lending money, to name a few.
For example, let’s say you lend out money at 9%, and that this loan is secured by good collateral that you would not mind owning and you receive monthly payments on that loan. In that situation, does the market going up, down, or sideways affect your return? No, you are getting 9%, regardless of market conditions. If everything goes wrong, you foreclose and take the collateral. This type of investment is easy, low maintenance, it can be done with as few as two people, and the elements of the investment and return are simple to understand and obvious to all parties. Furthermore, and this is most important, this type of investment is less risky than the typical investments in the market as outside influences and world events have a MUCH SMALLER impact on this type of investment than the typical 401k investment plan. These simple, low risk investments are the types that I prefer.
Now, some may say that this can also be bad as you don’t get the upside if the market spikes, and this is true. However, in the situation above, you get a really nice return of 9% (which is more than a lot of the market investments that I see) and, more importantly, you don’t ride the wave down in case the markets tanks (like many thought would happen during election week). While the former leads to a feeling of amazing euphoria, the latter leads to sleepless nights and a large loss of money, and I really try my best to avoid the latter.
After watching social media Tuesday night, I got the impression that there were a lot of people not sleeping that night thinking of where their money was and wondering whether market fluctuations would cause their money to be there in the morning. While the election is over and there was no crash, if history has taught us anything, it is that there will be a future event that will negatively impact the market. So, what are you doing today so that you can sleep when those winds blow?
Please comment below as I would love to hear your ideas and I will respond to your post.
One final note, if you are still questioning whether there are investment types that are not greatly affected by market fluctuations and still have AMAZING returns, come down to Irvine this Wednesday, November 16 , where I am honored to be speaking on a panel of mobile home investors. The meeting starts at 6:30. Mobile home investing is the perfect example of the investment class that I discussed above, and the speakers on this panel have a ton of experience and will explain how it works. You won't want to miss this talk. To reserve your seat or learn more, click here. Look forward to seeing you there!!