Most average investors want to “grow their portfolio” or “get a good return on their investment.” Those goals (if you want to call them goals) are a little fuzzy.
So maybe that’s why the average investor is fine earning a half a percent of interest on a CD – or why most investors earn an average annual return of just 3% on their stocks… they’re getting a return (albeit a horrible one!)
But professional investors, those who make a living investing, talk more about doubling their returns – that’s the goal.
If you’ve ever listened to Jim Cramer of Mad Money, you’ve probably heard him talk about it…
It’s an important concept because it’s ultimately about taking your money off the table but continuing to get a return on the return. In other words, the capital you originally invested comes back to you and now your investment is making money based exclusively on profit.
Let me use a stock as an example.
Let’s say you invest $10,000 to buy a stock currently trading at $20/share. So you buy 500 shares. (500 shares @ $20/share = $10,000). Well, your capital is doing all the work and is at risk in that investment until the stock reaches $40/share… but if it reaches that point – it’s doubled.
Then a professional investor would probably sell 250 shares, which would give them their $10,000 back (250 shares @ $40/share = $10,000) and that leaves another 250 shares, worth $10,000 in their portfolio, to continue working for them.
Doubling your money is an important concept because it means you can take out your invested capital but still have the money working for you.
- The money you leave in the investment is “risk free” because you never had it in the first place.
- And the money you take out (your original amount) can now be used elsewhere, so in one sense you can think of it as “leveraged” (in that you’re using the same amount multiple times).
Doubling is important.
Now let’s talk about the second piece of this puzzle – time
When it comes to doubling your money, time is a factor: the sooner you double your money, the better. Professional investors want to get to “risk free money” as quickly as possible. The sooner they take their original money off the table, the sooner they have risk free money working for them and the sooner they can use that original money elsewhere.
So speed is a factor.
But here’s where Wall Street is broken
Doubling your money sounds awesome. But doing it with Wall Street stocks is hard (and risky) for a few reasons:
- The lower the stock price, the more likely it can double: a penny stock can go from 5 cents a share to 10 cents a share much more easily than a blue chip stock can go from $100 a share to $200 a share. Unfortunately, the reverse is true: those cheaper stocks are way more volatile and can halve in a heartbeat!
- Stocks go up and down a lot each day. So you can see a rise in your value and then a decline – it’s not always a steady growth upward.
- Share prices are highly dependent on the temperament of the market and how the market perceives news about your stock or the industry it’s in. That’s why a rumor about someone buying Twitter can drive the stock up by 9% even though the rumor was false… and the same rumors can drive other stocks downward.
Let’s say you can average an annual return of 10% a year on your stocks. Is that good? You bet. (Hint: it’s closer to 3%-6% but let’s use 10% as an example).
How long will it take you to double your investment? Roughly ten years… assuming no anomalous recessions occur to screw up those numbers. So if you put money into stocks now, then they’ll have doubled by 2026 and you can take your money off the table and finally start investing with risk free money.
But what about turnkey real estate?
This should make you sit up and take notice. While stock returns are lucky to get 3% to 6%, and 10% would be amazing, turnkey investments can get 15% or more (often more).
Let’s say you invest $25,000 for a property that gets you $500/month in income. That $6,000/year in returns, which is 24% annual returns. Same if you picked up a property for $30,000 that brings in $600/month in income.
And at 24% annual returns, what’s the time to double?
Just over 4 years. Let’s round it off and say 5 years, just to be conservative.
This is because…
- The returns are predictable and consistent.
- The returns begin right from day one.
- The returns are cash flow, not tied to the price you buy and sell at.
- The returns are not dependent on market perceptions and news.
And perhaps the most important piece that you may not have even realized: the returns are paid to you regularly so you actually GET YOUR MONEY BACK without having to sell the investment (like you had to do with your stocks).
You still own the full investment outright but now it is entirely “risk free” in the sense that you do not have any of your original capital in the deal anymore.
If you invest in stocks, you’re probably looking at doubling your money so you can take your original capital off the table by 2026 (but probably 2030 if you’re lucky) and to do that you have to sell half your holdings.
If you invest in turnkey real estate, you’re probably looking at doubling your money by 2021 and then you’ve got all your money back without having to sell your investment.
Which makes more sense to you?
It’s a no brainer. Turnkey real estate is a solid way to build your portfolio and double your money sooner to get to a risk free investment sooner.
Your AWB Team