The Cost of Inaction to Your Investment Portfolio
Updated: Aug 31, 2019
“Our trouble is not ignorance, but inaction.” -- Dale Carnegie
A high net worth asset allocation should have cash reserves, but primarily the money you’ve earned should be working for you. Excess cash in a portfolio is opportunity sitting on the sidelines.
As you climb and reach greater levels of success, the need for challenge and growth never leaves. You may have built a successful business, had an exit or an IPO. In many ways, you’ve reached peaks you never thought possible. Yet, the feeling of “arriving” doesn’t come.
It’s not that you want or need more, it’s that you are competitive, driven and wired for continual improvement and growth. Your eyes are not focused on successes of the past, but always looking ahead.
Before thinking about the future, let’s take a quick glimpse at your past. How did you get to where you are today?
You’ve gotten here because you’ve been intentional with your actions. You’ve made decisions, taken action and built success. Now that you’ve achieved a level of success, you’re an investor.
If you’re like many investors, you probably have a decent portfolio of investments. You have cash set aside because you aren’t really excited about the investment options in front of you. While your stocks, bonds, mutual funds, and other types of assets have the opportunity to grow, your stash of cash isn’t moving you forward.
To continue compounding your successes, inaction must be avoided at all costs.
In our last blog post, we covered the importance of diversifying your investment portfolio, and how to do that with commercial real estate syndication. We discussed how having all your investment capital in a single investment vehicle, like stocks, is putting your portfolio at risk and wasting its potential.
In this post, we’re going to explore what happens when you don’t utilize the capital that’s in your investment portfolio and why should commit to changing that as soon as possible.
What happens when I leave a significant amount of cash in my portfolio?
Every portfolio is different. What percentage of yours is comprised of cash? Is it more than 2-3%? More than 5%? Is it even greater than 10% of your entire investment portfolio?
While diversifying is extremely important, so is growing your investment portfolio. After all, you’re investing, not hiding your cash in a mattress.
Cash earns little to nothing in your portfolio. Because of this, this portion of your portfolio falls behind the rate of inflation. Let’s look at a quick example of how this can hurt your portfolio.
If you had $50,000 of cash in your portfolio 10 years ago and earned interest for having it in a money market account at 1.5% with compounded interest annually, you would now have $58,027. Earning $8,021 in interest over the course of a decade might not sound that bad, but this doesn’t take inflation into account.
Inflation is the decrease in the value of cash over time. A dollar today isn’t worth as much as it was 10 years ago. So, although your account shows that you made over $8,000 in interest when adjusted for inflation, you actually lost money. That $58,027 today, because of inflation, is equivalent to $48,715 in 2009.
It gets worse. Not only did you lose money in terms of inflation, you also lost the opportunity to invest that capital in something other than cash. For example, putting that same $50,000 in a stock index fund would have resulted in a gain of over $100,000. Take that, inflation!
But tying my money up in investments won’t allow me to use it in a “just in case” situation, right?
We spend much of our lives preparing for the worst, and for good reason. Our brain is wired for survival. This need to survive causes us to delay taking hold of what we want.
This thinking often separates successful investors from the average investor. Refusing to make decisions and hiding your cash will not move you closer to your goals.
A cognitive bias referred to as declinism could be at play here. We often look back and remember things going well and look forward and imagine the worst-case scenario. This bias can make us play defense instead of offense.
While we’re not advocating being reckless, there are ways to keep moving forward without putting everything at risk.
You must invest to gain returns. And there are select investments that could provide you with a new pool of “just in case” money or a passive stream of income to help you reach your future goals.
The Best of Both Worlds: Investing + Passive Income
At Madison Investing, we believe in letting your money work for you. We help investors accomplish their investment goals, diversify their investment portfolio, and earn a passive stream of income.
Madison Investing does this through commercial real estate syndication. A syndication allows investors to pool their capital together to buy commercial real estate properties that yield ongoing income. From apartment complexes to self-storage facilities, syndication investors will own a portion of these properties and receive passive income from the fees that are paid by renters. The best part of it all is that they don’t have to manage the properties. They can sit back and receive cash distributions (passive income) while watching their investment grow over time.
Passive streams of income allow you to achieve financial freedom and can provide you with the money needed to get a step closer to achieving your dreams.
How do I qualify to become part of a commercial real estate syndication?
Madison Investing makes it easy to invest in commercial real estate syndication. Learn if you qualify to join a syndication here.
Ready to move closer to your goals and put your money to work? Our process includes four simple steps outlined in detail here on our homepage:
1. Sign Up
2. Let’s Chat
Don’t let inaction cost you your dreams. Join our investor mailing list today to get started!
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Under no circumstances should any material at this site be used or considered as an offer to sell or a solicitation of any offer to buy an interest in any investment. Any such offer or solicitation will be made only by means of the Confidential Private Offering Memorandum relating to the particular investment. Access to information about the investments are limited to investors who either qualify as accredited investors within the meaning of the Securities Act of 1933, as amended, or those investors who generally are sophisticated in financial matters, such that they are capable of evaluating the merits and risks of prospective investments.
Disclaimer: This article is intended for educational purposes only and does not constitute investment advice. You should always contact a registered financial professional before acting on this, or any advice. I am not a tax advisor or financial planner. This article represents my opinions.