How much risk are you willing to take in your investment portfolio? This is one of the most important questions that an investor can ask themselves, but it’s often somewhat overlooked. Join me on this episode as I take you through a personal experience that helped me to learn and understand what my true risk profile is. I believe this story is going to make things click and set off some light bulb moments for you… and once you have this kind of clarity, it’s going to make it much easier to know which type of investments are going to best serve you. We don’t want to get involved with investments that are out of alignment and make us worried or add to our stress levels. So jump in and let’s make sure you know what your risk profile is today. Hit subscribe to join the community and let us know: How did you learn your risk profile?
How much risk are you willing to take in your investment portfolio? This is one of the most important questions that an investor can ask themselves, but it’s often somewhat overlooked.
Join me on this episode as I take you through a personal experience that helped me to learn and understand what my true risk profile is. I believe this story is going to make things click and set off some light bulb moments for you… and once you have this kind of clarity, it’s going to make it much easier to know which type of investments are going to best serve you.
We don’t want to get involved with investments that are out of alignment and make us worried or add to our stress levels. So jump in and let’s make sure you know what your risk profile is today.
Hit subscribe to join the community and let us know: How did you learn your risk profile?
KEY TAKEAWAYS
1. Time is key when you’re turning over product.
2. Ask yourself: How much risk are you comfortable with right now?
3. Think back to when you were dealing with uncertainty in the market and think how it made you feel. Were you someone who was looking to exit ASAP, or did you wait and pause to see what was really going on before making a decision, or maybe nothing phased you at all and you stood your ground. This is going to give you a great idea of what your risk profile is.
4. When we’re able to think about things on a longer term basis, we’re able to have a much more secure investment and higher overall returns in the long run.
BOOKS
The Passive Investing Playbook - https://theinvestormindset.com/passive
LINKS
Learn more about investing with Steven at https://theinvestormindset.com/invest
Join the MultiFamilyMBA and get exclusive free training: https://theinvestormindset.com/mfmba
Steven: [00:00:00] This is one of the most important questions I think investors aren't asking themselves. And it's this question of how much risk are you really comfortable with in your investment portfolio? So the answer is it depends and getting to that answer is simpler than you might think. We're going to get into that and more in this episode, so you're going to want to stick with us.
INTRO: This is the Investor Mindset Podcasts and I'm Steven Pesavento. For as long as I can remember, I've been obsessed with understanding how we can think better, how we can be better, and how we can do better. And each episode, we explore lessons on motivation and mindset from the most successful real estate investors and entrepreneurs in the nation.
Steven: [00:00:45] So this is the most important question when it comes to investing, and it's the one that I think is overlooked more times than it should be. And it's as true when you're investing in the stock market, as when you're investing in real estate. So the big question is, how do you end up getting the answer to that question, how do you end up understanding what your true risk profile is, and so rather than trying to tell you how you can figure it out, I'm going to share a little bit of a story, and I think through the process, you might just end up triggering a couple of realizations about exactly where your risk profile is. So once you have this kind of clarity, it makes it easy for you to understand what investments are going to serve you because there's nothing worse than being out of alignment in life, let's not create or add more stress by getting involved in investments that are out of alignment, that are going to end up making you worried or concerned, rather than being able to flow with the investment as it moves through the different cycles. So let's get super clear. So I'm going to share this story with you, and I think it's going to help you understand, but it was back when I was running a single family house flipping portfolio and of course, we were doing high volume. We had flipped over 200 houses before we made the transition. And what was really interesting at the time was we had about 14 houses or so that we had listed that were in renovation or purchased and on each of those houses, we were paying 1000s of dollars, every single month to our investors 1000s and 1000s of dollars of investor returns and we had an operation that was running like a well-oiled machine, we had new properties coming in, we were renovating these properties, and we were selling these properties. You know when you're renovating and selling, flipping 75 houses a year, you've got to stay on top of having those properties move and when you're working with investors, and you're leveraging that those funds in order to go and run this business, it's really important that things continue to move, because time is key when you're talking about turning over product.
Steven: [00:02:45] And so what ended up happening was there was this moment in the market where there was a huge freeze and that freeze was really caused because interest rates went up much higher than they had in the past five or six years, and what that caused was people to really sit back and overnight it went from a seller's market into a buyers’ market. And I would even describe it beyond a buyer's market, it was just a frozen market because we were heading into the holidays, things were already slowing down, but we ended up just having the market freeze. And there's nothing worse when you're trying to move product, when you've got this inventory and you've got to continue selling it and you've got expenses that are going to continue to pile up and you need to get those houses moving. So you can have that income to continue running that machine because if you think about the house flipping business, like a gold sifting machine, we've got all the dirt coming in. We're sifting for all this gold and we've got to pull out those nuggets to keep the operation funded. Well if we get something jammed in that machine, and we're not able to continue sifting gold everything gets messed up. Steven: [00:03:53] So that ended up triggering a feeling inside and because it's a practice that I had done for many years. I partnered, just like I partner today with experienced operators and my partner had lost a ton of money back in 2008, because he was heavily into real estate and he was highly leveraged. And he was in a position where again, short term money and the market shifted and he didn't shift quick enough with the market, and what I loved about learning this experience was I did something called fire-walking; I dove deep into the emotional feelings that he was feeling in those moments, I asked him questions to understand what were the triggers? What made you feel that way? How did that feel and really went to that place with him, felt that feeling so that when those kinds of triggers came up, I could have the same kind of lessons without necessarily having that same experience. So grateful that I was working with him, so I was able to confirm that trigger inside of me with a feeling that he was having and what it ended up reminding us of was what happened back in 2008. The market interest rates went up the market prices froze or started to fall and many people just chased the market down, they dropped their price but not enough to sell, and they kept doing that. So we left our houses on the market but then we made that decision that we were not going to deal with another one of those. And so it was in that moment, not the fact that things froze, it was not the fact that property wasn't moving, but it was in that moment of realizing how much risk am I really comfortable with right now? How does this feel to have this level of uncertainty in front of me and here's the important question, is it worth it to push forward in order to potentially have a higher return but there's a lot of downside, if I don't make the decision to reduce that income, reduce that return, and be able to move forward in a much more secure position.
Steven: [00:05:55] So it was at that moment that I realized that I was actually much more conservative than I thought. And so from that lesson, I want to encourage you to think back to when you yourself, were dealing with uncertainty in the market, when you yourself are dealing with the stock market crash or unknowns that were happening within your portfolio, what signal did that send to you? What did that feel like to you? Were you somebody who was looking to figure out how to exit as quickly as you can? Were you somebody who was going to pause and take a second to really understand what was truly going on? Were you somebody who understood what was going on and said, no matter what I'm pushing through, it doesn't matter? Were you somebody who said, I'm not worried at all about any risks that are going to come up? Now everyone's going to be at different places, and there's no right or wrong, and everyone's going to be at different places at different points in their life, but depending on that answer, you're going to know where your risk profile really sits. So let me know down in the comments below, or shoot me a message on your favorite social media app and let me know what risk profile do you think you have and tell me why? I'd love to hear that from you.
Steven: [00:07:03] So to summarize that entire experience, it was incredible. I'm so grateful for that happening because what it did was it reminded me of the importance of cluing in and checking in on exactly where you're at. It reminded me about the importance of checking where you're at in the real estate cycle, and understanding how you can reduce risk, while also increasing returns. It's actually part of the Genesis that ended up leading us down this path in a commercial real estate and realizing that when we think about things on a longer term basis, instead of a six month loan or a 12 month investment, that we're able to end up having a much more secure investment and honestly have higher overall returns in the long run. So super grateful for you guys listening up, if you're just joining us, make sure you hit that subscribe button down below so you never miss another episode, and I look forward to getting to serve you guys on the next episode.
OUTRO: Thank you for listening to The Investor Mindset Podcast. If you like what you heard, make sure to rate, review, subscribe and share with a friend. Head over to theinvestormindset.com to join the insider club, where we share tools and strategies from the top investors and entrepreneurs and how to take it to the next level.