How can you ensure your money is protected, even in a recession? Does the advice of financial advisors work during economic slowdowns? Can you increase your wealth during these times? And is real estate safe, or should you stay in the stock market? Chris Miles will dissect the ideas of a financial advisor’s advice to his client about the stock market and real estate investing and why using that advice could cost your family’s freedom. Let’s join Chris in this episode; together, we will get rich and create a rich life!
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Is Your Wealth Plan Recession-Proof?
I want to talk about, “Are you recession-proof? Is your plan recession-proof?” This is regardless of whether we go into recession or not, even if it’s a flat economy, which is a dead economy. Are you able to be safe at this time? I’m building on the last episode when I talked about the outlook to have on the market there, your key to freedom and financial freedom in 2023. I invite you. If you haven’t done already, go back and listen to Episode 675. There are very important topics that I want you guys to be able to address and ponder on and figure out how to implement your own lives.
I want to talk about this because I’ve had people tell me before in comments. Comments on social media don’t mean we have brilliant people talking, but people bring up points that often are the general consensus. It might seem lacking common sense when you start to look at money with common sense, especially with investing and everything else.
It’s about how we’ve been brainwashed for many years by financial experts, financial institutions, bigger banks and companies like your Merrill Lynches of the world, Fidelities and even your Edward Jones advisors all have been brainwashed by the same people passing this information down to you, which has only cost you your freedom, not them. Do you know what pisses me off? It’s the fact that a financial advisor makes money, whether you do or not.
Did your financial advisor still make money last year even if you lost money in the stock market? If you have a 401(k), you have a financial advisor or at least a financial institution making money on that. There’s probably a representative making money on those assets under management, whether you’ve made money or not. Someone might argue, “The market went down 20%. They got a pay cut.” Not if you kept funding it or if you kept putting money in.
One of these comments I heard said, “S&P 500 is the safest, most diverse place in the world.”I’ve said this in other episodes before, but I want to come back to that because is it diverse? First off, the S&P 500 is controlled by about six companies. The majority of the influences of the six big companies. We’re talking about Amazon, Apple, Google, Netflix, Tesla, and all these huge companies that are affecting the price of the market. If they work independently of the rest of the market, all the different stocks you’re in, this means you could be suffering and vice versa.
What if those big companies suffer more than the rest of America? If those big companies have bigger losses and you’re in the S&P 500, you’re not diverse. Not to mention you’re in equities. In 2022, it didn’t matter if you had money in stocks or bonds, you lost money. Didn’t you? It didn’t matter where you put it. I want to come to a financial advisor’s point of view because I was that guy. I get it.
Financial Advisor Standpoint
I’m not ripping on financial advisors from a character standpoint. The vast majority of financial advisors have very good intentions. They have been taught something that doesn’t work. They’ve been taught this for so long and people have believed it for so long that people accept it as truth. They think this is what it’s got to be. You won’t find it among financial advisors, clients, and among financial advisors. Those of us that created true financial freedom where we’re financially independent. Those of us that have done that, laughed at this advice because it doesn’t work. I didn’t believe it at the time.
As a financial advisor, I thought of all these alternative investments like putting money in real estate and stuff. That was a ridiculous notion. The stock market’s the best place and the highest returning place ever. I’ve had somebody saying, “They’re making 9% or 10%.” They’re not. S&P 500 is making closer to less than 8%. It’s closer to about 7.7% over the last many years. That’s the actual yield average doubt. That’s not very impressive, is it? Not to mention that it keeps pace with inflation. If you look at the real rates of inflation, which have been closer to about 7% per year.
It means you’re keeping up with inflation, which is why whatever you save per year is about what you can live on per year if you focus on these mutual funds. I want to bring up something that’s pretty important here. I have a friend, Dr. David Phelps. He’s a former dentist. Now, he teaches dentists how to become financially free. I’m one of his trusted advisors in this group. I get his newsletter. I’m going to quote from his article. Primarily, the thing I’m quoting is the financial advisor. Understand that this financial advisor was talking to one of the dental members in their community.Whatever you save per year is about what you can live on per year if you focus on these mutual funds. Click To Tweet
They sent them this email, and this is part two I’m taking. I didn’t want to take them all. It’s funny because I see this comic right on the front of this, and it reminded me of a Dilbert quote. Matter of fact, I have it somewhere saved. If you guys remember the Dilbert comic strips, Dilbert was the one that was the financial advisor. He starts yelling at this person saying, “You are a financial troglodyte.” If you know what a troglodyte is, it’s the prehistoric billions of years ago like the little underwater thing that has little scales. You see it a lot of times like fossils and things like that. Basically, it is, “You’re a loser.”
The guy is like, “When do I start getting advice?” He’s like, “Not until I’m done with you.” Financial advisors for the most part aren’t this bad and I can tell that this guy is not this way. I would guess based on my experience being a financial advisor, this guy has been a financial advisor for ten years or less. The guy is saying, “I’m looking at doing alternative investing, like real estate.” and so forth. They talked about inflation. It was one of the things brought up. The financial advisor said, “Can we control this? What are the alternatives? What gives you the confidence that the alternatives referring to alternative investments will be insulated from inflation?”
Stocks Are Not Supported By Inflation
I love this question because it’s a great question. The truth is stocks are not supported by inflation. Sometimes they can rise with inflation as long as people keep buying, but once we come to a head like we saw in 2022, it goes down. He’s looking only at real estate, thinking of real estate prices going up and down. Here’s the truth of the last several recessions only was it into the 2008 crisis, the financial crisis there, which was a big exception to the rule. That’s when we saw real estate prices go from a price that was lower from the start to the end of that recession.
Most of the time, even in recessions, real estate either holds their value or even goes up in value. That’s been the case for many of the previous recessions. The last one though, that’s when people remember because it hurt badly, and stocks, bonds, and everything got hurt. The people that were safe though were the other thing he didn’t address. 1) It is a protection from inflation. Real estate values do tend to rise with inflation, especially if you have real assets. 2) The one thing he didn’t mention was cashflow. I get it because as a financial advisor, I never even considered this option.
Is the cashflow coming in? When there’s inflation, that also can mean rent costs go up. You get to rise with inflation. Are you protected? 100% no. Are you protecting more than the stock market? 100% yes. You’re more protected than the stock market doing those things. I had to bring that one up. Here’s another quote from his email that he said to the client. He says, “You do own real estate. You own the most highly profitable real estate companies in the world. I’ll show you also. Applebee’s owns their locations and you own shares of Applebee’s. Therefore you directly own real estate by owning them.”
Real Estate Investment Trusts
There are two things. 1) He’s talking about you do own real estate because companies own it. McDonald’s owns it. Maybe he has his REITs in his portfolio. I don’t know. REITs being Real Estate Investment Trusts. Many times we’ll have people come to us saying, “I have real estate. I have REITs.” It does not count. Do not invest in REITs. I put a disclaimer here. I’m not giving investment advice, but if you think buying REITs means you’re buying real estate, you are incorrect. That is false. Owning REITs is not owning real estate.
You are owning essentially a paper asset tied to real estate properties. Many of these companies had REITs and bought properties bottom at horrible prices and horrible values. They didn’t buy them wisely. They were trying to fill their portfolio because people had money to spend. When people have money to invest and put somewhere, those fund managers feel pressured to find more things even if it’s crap. They will throw it in there so they could take more people’s money. It’s a supply and demand thing that you do not want.
You do not want to buy anything willy-nilly. Why would you buy any real estate property for that matter like that? Personally, you don’t want to do it in a fund either. That’s why REITs also can lose money. They can lose a lot. There’s no cashflow associated with those REITs. You’re not getting it. The second point is this. He says, “With Applebee’s, they own the land and restaurants like McDonald’s does.” You own zero real estates. There’s no recourse. All of it’s based on market values. Someone else, even if it’s emotional, high or low, feels that company is valued.
It doesn’t even have to have logic behind it. You do not own real estate. You have no real tangible assets. You are simply in a share of something and it’s such a minor share anyways. You have zero power and control, nothing. You are helpless. You can never ever be truly financially free if you have no control over your investments. You will always worry and scared about the what if scenarios because you can’t do anything about it. You feel helpless. At worst times you become hopeless. Do not ever think that owning stocks is the same as owning real estate. You do not own a real asset that way.
The next point is this. Here are the other cons of real estate and investing he brings up. He says, “Large fees because you have closing, selling, management and repair costs, et cetera.” Let me address that one. There are some fees and costs in there. Where are the costs in his fund? What are the costs that he has? Doesn’t he charge fees whether you make money or not? A lot of these costs can already be factored in. Even when I talk about a 10% cash-on-cash return, understand that’s net after you’ve paid those costs. That includes closing and seller costs. Selling costs are on the back end. That’s if you sell. Management costs and property management fees? That’s true. There is management there.
You can have repair costs. If you have somebody doing a good job understanding how to make sure that the property is rent-ready, some of those repair costs can be minimized. Also, having good property management can ensure that you have a good tenant and cashflow coming in all the time. That’s not something you ever address. Real estate is well outperforming the stock market over these many-plus years. Not to mention it’s been proven by the 25 million millionaires in the country. The one thing they all have in common is real estate.Having good property management can ensure that you have a good tenant ensuring that you have good cash flow coming in all the time. Click To Tweet
Even look up what they have, even if it’s their own property or house, they all own real estate of some sort. You don’t see many of those millionaires also having stocks. It’s usually not the stocks that made the millionaires in the first place. The second thing he said was, “Illiquid. How do you get your money out of the investment? You have to sell a property and incur all those fees mentioned above.”
Rental Real Estate
You don’t always have to get out. Even if you do, and this is only if you’re looking at rental real estate. That’s always focused on. That’s all he knows. Even with rental real estate, you don’t get out of it unless you know you can take those funds and use it somewhere else to make more money. There’s all the appreciation and everything else. Think about it. With a stock, you don’t get paid income, but you can get dividends off of stock.
The best-paying dividend stocks, which aren’t that great, usually don’t see a big increase in price fluctuation. There’s not a lot of price fluctuation there. It stays more steady. The stocks, you see a lot of price fluctuations, don’t pay so many dividends. You don’t often get something that pays good high-paying and double-digit dividends like you talking about with real estate. Even if it’s high single-digit dividends still, you don’t see that, and you’ll see the values go up and that property.
I don’t think you should bank on property values increasing, but historically, that’s what they tend to do, especially if you hold it for more than a few years. I’m talking about liquidity and stuff. It’s a ridiculous point. If you are investing in syndications, they again may not liquidate it unless it makes sense to sell, unless there’s a bigger profit payout. Even after the fees incur, you still end up making more.
To his point, he can’t compete with this. He can’t compete with what he’s talking about here. This is ridiculous. He says it’s undiversified. It’s the exact opposite of owning thousands of companies with many properties around the world. Granted, thousands of stocks that you could be owning in, but every time there’s a market swing, most of those stocks go down. They tend to follow suit.
There are some that go up and down, but the truth is that at best, even if you get a good mix of different types of stocks that go up or down at different times, you get this muddied return. You don’t get very big highs and lows. You get this muddied, cruddy return, a mediocre return at best. To say you’re undiversified is completely false.
There are many more places to invest other than rental real estate. I mentioned syndications. You can be invested in apartment buildings in different parts of the world. Even if you can buy rental properties, you understand that you can buy them in different geographic regions creating more diversity in different marketplaces. I often recommend that is that you don’t buy it in one location. That’s ridiculous.
You buy it in places where they tend to be more boring. They don’t have big market swings. They tend to be places where they have higher cashflow but maybe not as much appreciation. That’s awesome. You can have it in different markets. You can diversify right there. If you buy syndications, you can invest in those. You partner with other people and pull your money together in those investments. You’re buying anything from apartment buildings. It could be commercial buildings, self-storage units, oil and gas, and land that way. There are many different markets you can be invested in to smooth that out.
In 2022, I made a lot of money on raw land where they’re able to sell it on terms. My average portfolio increased by 49% last year on that portfolio. That’s no small potatoes. I can be diversified in many different ways. Even if I have one deal that might go south, even if there’s one rental property might go south, I’ve got the others to help offset it. I have better diversification in my opinion. I don’t have real estate.
I also have my business. I invest in Money Ripples. I do that on purpose. I have multiple revenue streams coming in through Money Ripples. I recommend multiple streams of income, like you can do personally. Otherwise, I diversify. I keep cash on hand, not in a bank where I make 0.0%, but I have my infinite banking policy to build and have more cash, especially for 2023 and 2024, preparing for some of the best opportunities.
I’m building more and more cash inside my policies than ever before. I’m saving and building it. I’m keeping a place where it’s tax-free, protected from lawsuits and creditors, and make a much better return than the bank account. I’m keeping it diversified. I want to have that. I can guarantee this guy has not had them ever diversified because if you’re in the S&P 500, it’s one asset class, just paper assets only. Ven if you put them in bonds, those are still paper assets. It’s not truly diversified. You’re not in multiple asset classes. You can fall or fail.
My life insurance is a paper asset, but it’s got guarantees. My real estate has something that’s real tangible, backing it up in multiple areas around the country and in multiple types of investments with multiple people. That’s how I stay diversified. I love this one. He says, “Side job. You are in one of the most profitable industries on the planet, referring to dentistry. Why take on a side job owning real estate and getting much smaller margins?” I believe that your business can be your number one investment. It can be a great place to invest, but any business owner that’s been in business for a while knows there are also a lot of diminishing returns.
You can invest too much into a business and get very little returns. That’s why I always recommend, “Get some of your profits back out of your company. Get it back out. Invest in other places to diversify your streams of income.” When he says that you have a side job, he doesn’t understand passive income. He’s thinking again, somebody who buys that property in their backyard or maybe multiple properties are plunging toilets, cleaning, and doing repairs themselves. That’s what poor people do.
Maybe if you’re got very little capital, that’s what you have to do in the meantime. Maybe that’s how you’re making your money. You’re putting a sweat equity because you don’t have financial equity put in. That’s fine if you choose to do that. The vast majority of you, my clients and people that we work with in Money Ripples have at least a few hundred thousand dollars to utilize to use that to put into better use. That’s passive.
We’re not teaching you how to create another side business, wholesaling, or flipping properties. We’re helping connect you with those real estate deals. Educate you first so you know what you’re looking for and connect you to those deals that will help generate passive income for you each and every month, quarter or year, depending on how it’s paying out. That’s the difference. Great and cons that he gave for real estate.
Sadly, those cons never apply much to what we’re talking about here. Here’s the thing I thought was interesting to wrap this up. I talk about bonds as a safe haven. What I love is that bonds can be part of your strategy, especially if you’re scared of the stock market. He says this quote, “I can personally tell you that I will most likely never own bonds in my portfolio in my lifetime, but my portfolio won’t ever be for sale hopefully, as nothing is guaranteed.”
First off, bonds lost money. What if somebody going to say, “I put in conservative bonds,” and they lost money still? We’re never going to be saying that. He still got paid even though he told them to go into bonds. He says, “Never go into bonds.” Where’s his downside protection? If he’s always playing offense, where’s his defense? He doesn’t have it. His defense in his mind is time. He thinks that with time, things will eventually go up and work out.
From my experience of being a financial advisor twenty years ago, I’ve been seeing people’s portfolios and also, since that time, I’ve been out of that profession. I’ve been seeing thousands of people’s portfolios. I have yet to define somebody who would be financially free, saving in these mutual funds out of thousands. It’s not because like somebody’s like, “I have millions of dollars.” There are people with millions of dollars still not financially free. That’s if they have millions of dollars and they have to save hundreds and thousands a year to get to that point. It hasn’t worked. This is why. He says he’ll never own bonds in his portfolio in his lifetime.
I guarantee that if it weren’t for him getting paid on his assets under management, he would not be financially free. I know this because I have friends that are financial advisors. Guys that get paid $500,000 or millions every year managing people’s portfolios like yours. They have lots of assets under management. Some of my friends have like hundreds of millions of dollars under management. If they get paid 1%, let’s say it’s $250 million they have under management, 1% means they get paid $2.5 million a year to let your money slip there. They don’t do anything.
They might say they rebalance your portfolio. You still lose money in those market losses. In many cases, you might end up losing more than the market would’ve been. You probably would’ve been better off in an S&P 500 fund, which means you’ll still lose money. Understand that these guys have told me, “I want to learn how to do what you do. I want to have passive income because I’m stuck being a financial advisor. I can’t quit because I don’t want to lose that $500,000 or $2.5 million a year income that I’m getting even if I didn’t get another client.
Do you understand what I’m saying? Their pocketbook is keeping them trapped. That’s their golden handcuffs. Their golden handcuffs are the money that you’re keeping in those funds. They can’t even get out of their profession because of that. They could’ve done what I did and bailed out, but I bailed out pretty early in my career. I wasn’t making millions of dollars with assets under management. It was a little easier jump for me than for those guys. They readily admit that they’re not financially free. They’re not creating passive income. They’re stuck with their income coming from their business.
Whether you make money or not, they’re the ones making money. If you want to be able to make money in this stock market, you become a financial advisor and take people’s money and tell them it’ll be all fine. That’s how you’ll become rich with the stock market. Become a financial advisor and make money on the commissions, not making money in the market.
The bottom line is that I want you guys to become financially free. I don’t want you guys to gamble and lose money in the stock market, but because of all this misinformation, the things that have been taught for so long and because 1 billion people might believe something to be true, never ever make it true in real life. We believe that it only took two weeks to flatten a curve and look what happened. Three years later, where are we? People are talking about the triple dynamics and things like that. It didn’t happen. Just because we all believed to be true didn’t mean that’s reality. It doesn’t mean that that becomes truth. This is the same thing taught in the financial advising space. They’re teaching things that they’re taught by companies.
Why do financial companies want you to keep your money there forever? The same reasons financial advisors do. They get paid whether you make money or not. They’re going to tell you to keep putting money in. That guy’s taught about never cashing out on his portfolio. Why can he say that? It’s because he’s getting paid commissions to say that way. He could be getting paid commissions on the assets center management. He doesn’t need his mutual funds, but you do if that’s all you’re focusing on. Look for an alternative. Look for another answer. We have that answer.
I invite you. You want to do something different. You want to create more wealth in your life and not live the status quo, not become like the average American who’s struggling paycheck to paycheck, wondering in the silent thoughts in their head in the middle of the night how they’re going to be able to stop working and how they’re going to be able to take care of their families for good and how they can have any amount of freedom. You don’t want to be in that category. You want to be doing something different by breaking that status quo. It requires you to take the alternative path. That’s why I challenge you to do for questions. Reach out to us at MoneyRipples.com. Make it a wonderful and prosperous week.