The Alternative Investing Podcast

#126 Do You Have a Proven Model for Building Wealth in Uncertain Times?

October 31, 2022 Salena Kulkarni Season 1 Episode 126
The Alternative Investing Podcast
#126 Do You Have a Proven Model for Building Wealth in Uncertain Times?
Show Notes Transcript Chapter Markers

Welcome to the 126th episode of the Alternative Investing Podcast!

In this episode, I'll help you understand whether your wealth-building model is proven to protect you through uncertain and high-volatile markets.

We cover:

  • Client Case Studies
  • My Story
  • My Wealth-Building Model

If you're an investor who wants to give yourself the highest probability of success three to five years from now, then make sure to listen to this episode!






In a bull market, everyone can talk about how genius they are.

But does your wealth-building model work when uncertain times come, and we’re experiencing high volatility?

Legendary investor Warren Buffet became famous for saying that you discover who's been swimming naked only when the tide goes out, and it's such a great metaphor. 

In the last couple of years, many people have congratulated themselves for making significant investment decisions.

But they find out they’ve put themselves in a dangerous position.

It’s because of a pullback in the market, or the assets they chose didn’t have good fundamentals.

Right now, the news is riddled with doomsday headlines.  

There's a lot of talk about mortgage stress, financial distress, rising interest rates, skills shortages, supply chain issues, inflation, increasing government debt, and threatening wars. 

The list goes on and on. 

The media are very talented when it comes to perpetuating those doomsday headlines.

Now, more than any other time in your life, is the time to be aware of your actions. 

Financially, the model you use to build and preserve wealth has to be proven.

The attitude you have to adopt right now is that you cannot afford to make big mistakes. 

0Putting your head in the sand, which is on the other end of the spectrum, doesn't work either.

If those two things are true, I want to pull apart some ideas about what you should be thinking about.

Several studies over the last five years show that investors incorrectly attribute their trading success (aka luck) to their abilities.

Therefore, they tend to be more overconfident than they should be in a bear market.


Client Case Studies

Today, there are two case studies that I want to share with you. 

One is a high-income earner who decided late in life to start diverting some of their premium income into investing.

They started buying real estate in a massive way between 2000 and 2022.

Although they feel they bought well, they’re currently experiencing service difficulties. 

They are saddled with huge cash flow burdens around these rising interest rates that have caused significant negative cash flow. 

The prospects for the next two to three years look pretty grim.

The second case study is about another high-income earner who is also late in investing.

This person is a lifestyle spender who started to allocate $10,000 a week during the COVID period to share trading.

He kept giving money to a broker who would accumulate shares for him. 

He was constantly congratulating himself that he had nailed the wealth-building piece. 

He didn't want to be involved in any proactive investing decisions and had no desire to control the decision-making.

Unfortunately, the share broker eroded a lot of the capital. 

So we have two different scenarios here. 

 One invested heavily in the property during a bull run, and the other did the same in the share market.

I’m sharing these case studies because they’re similar to what many people have felt over the last couple of years. 

 There was very little evidence of inflation at the beginning of this year. 

 Supply chain issues were causing price rises, but it was not enough to change people’s investing behaviours. 

 Many investors are starting to hand money back after making so much over the last couple of years.

 For some investors, it comes at a time when they cannot afford to do that.

 I don't care what stage of investing you're at.

 You should never be going backwards if you've got a sound model. 

The preservation of capital is important. But that doesn't mean you can't have losses.

Everyone's going to get some cuts and bruises along the way. 

 But with so many uncertainties and volatility, you must have a wealth-building model that can carry you through the bull and bear markets.

My Story

 When I started as an investor, I was very much like the case studies I've just described. 

 I spent a reasonable period trading shares and found that too hair-raising.

 I didn’t like it because using leverage in the share market didn't appeal to me. 

 Plus, I couldn't wrap my head around the lack of control and the fact that sentiment drove those markets.

 Long-term investing is probably valid for some people, but I wanted more control.

 I wanted a risk-adjusted approach to leverage, which I couldn’t get with the share market.

 I've always been passionate about property.

 When I first started, I was looking for investments in property real estate that I could afford and that wouldn’t put me in a situation where I had a house of cards. 

 One of the models discussed in real estate investing is to get a bit of growth, refinance, and go again.

 I understood that model, but my husband and I were conscious of the dangers of that model, especially if the market were to turn. 

 I was conscious of only doing deals where I could afford to carry the cost of holding those deals.

 I was looking for deals with the highest probability of delivering growth over the medium term. 

 This model is where most people should start. 

 When you start out, you need to look at opportunities to grow your wealth using assets that will most likely deliver you exponential capital over the medium to long term. 

 This model is exhausting, and it's pretty depressing when you look at the cash flow generated from this model. 

 You have to hold real estate for a substantial period of time, and I'm talking 25 to 35 years before it delivers any meaningful cash flow. 

 When I found alternative investments, I realised I had developed a much greater immunity to volatility.


My Wealth-Building Model

 Let’s talk about my wealth-building model.

 But first of all, it is a proven model and not just a hypothesis. 

 I've been surrounded by and have become great friends with people doing this model for decades.

 They are people who are completely financially independent, and they don’t care which way the market moves.

 They have access to A-grade deal flow that will sustain them for the rest of their lives and for generations to come. 

 My model is that I’ve spent enough time building wealth through traditional means, and I also have a portfolio of traditional assets that gives me a good fallback position. 

 I haven’t given up on traditional property. It’s just my Plan C in terms of a safety net. 

 I'm now putting all my surplus capital and cash into alternative investments backed by real property. 

 Alternative investments are low-risk and boring bread-and-butter deals, but they deliver consistent returns that will outperform the market more than any other asset class. 

 I don’t have to look for those one-off killer deals.

 I can put small amounts into different liquidity and dealmaker-wise deals and get a solid outcome. 

 My model requires me to invest in diversified deals with strong and predictable cash flow. 

 I’m looking for better protection than almost any other asset class during uncertainty and volatility.

 My model also requires that I only work with deal operators who've been through multiple market cycles, who know how to assess risk, who know how to create multiple exit strategies with good downside protection, and who have a track record of producing solid returns even in a market that’s not rising.

 Regarding wealth building in the current environment, I'm relaxed about the volatility regarding the impact on my returns. 

 My traditional assets have a huge equity cushion, and my alternative investments are diverse and structured so that the risk-adjusted return is still far beyond what most investors could hope for in a bull market. 

 Again, ask yourself whether you have a proven model.

 If you don't have, ask yourself again about what you need to do to have the highest probability of success over the next three to five years.

Clients Case Study
My Story
My Wealth-Building Model