A Beginner’s Guide: 5 Key Investment Principles

One of the things I find fulfilling about medicine is the constant learning. Like many physicians, I’m a lifelong learner. However, it took years of making my own mistakes and carving out wins to get to where I’m at today. In navigating my investing path and lessons learned, I developed several key investment principles that I follow as I look at investments.

One of our most precious commodities that we cannot put a price tag on is time. If I can share what I know and it helps you move closer toward reaching your financial and lifestyle goals…I consider that a huge win!

By sharing my key investment principles, I hope it encourages you to consider developing some of your own as we begin to unpack this investable universe together. However, before we get started, I’d love to briefly share with you a little bit about my “whys” for starting my own path toward becoming financially free.

Guiding Principle For My Financial Future

In 2013, I went through a life-changing event.  After losing vision and going through several tests, I was diagnosed with an autoimmune condition that would prevent me from practicing anesthesiology for the rest of my life.  The news had a profound impact on me and my family and I knew life would never be the same. 

I was still young and had a lot of life ahead of me. I knew I had to find a way to provide for my family since medicine was likely not going to be that avenue. During this time of searching, I came to realize something that would be a guiding financial principle for me moving forward…

Regardless of the path I chose, I would not let a job or situation dictate my, or my family’s, financial future. Jobs can be transient and they can be taken from us without warning. However, hard assets that generate cash flow can last for generations.

Robert Kiyosaki said it best in Rich Dad, Poor Dad:

“Most people fail to realize that in life, it’s not how much money you make, it’s how much money you keep.”

In short, jobs help us make money but investing in cash-flowing assets ensures we keep it.

Now, this is likely a bit of a mindset shift from what many of us have been taught our entire lives. Still, working on a mindset shift, from the “employee mindset” to an “investor mindset”, is the most important step you’ll take on the path to becoming financially free. 

Once you achieve this mindset shift, you will open yourself up to learning new methods and strategies. You may even obtain a new perspective and outlook on what true financial freedom can be for you and your family. Most importantly, this mindset shift will support you as you learn new strategies to build wealth and develop your own investment principles.

Let’s take a detailed look at the five key investment principles I follow when looking at investment opportunities.

Five Key Investment Principles: #1 Only Buy Assets

To be more specific, this is technically a two-in-one investment principle.  Allow me to clarify.

The main statement of this investment principle is to “only buy assets”.  However, to truly understand and follow this principle, you need to have a clear understanding of what makes something an asset and what makes it a liability.  It may sound simple but some people do get confused about what makes something a true cash-flowing asset.

In simple terms, the difference between assets and liabilities is that one puts money in your pocket (an asset) and one takes money out (a liability). 

This next part may be difficult to hear but bear with me. 

Now, your house, car, boat, and your vacation home are not assets.  Even if they are paid off, they’re still not assets. The way you make them assets is if you are able to cash flow them!

For instance, you Turo your car or you Airbnb the vacation home. Now you have assets because they generate cash flow. 

Remember, if it doesn’t put money in your pocket every month… it is not an asset.

Before we move on to the other investment principles…

I’ve often been asked if stocks, bonds, mutual funds, ETFs, 401ks, etc…are considered assets. This is actually an excellent question but what I always ask a question in return is… does it cash flow? Some do (covered calls, selling options i.e.) but most of them don’t generate monthly cash flow.

To me, the stock market is more speculating than investing.

If it’s a down market, my real estate continues to cash flow and I’m not concerned about what the Dow or S&P did today. However, I cannot say the same thing for those depending on “paper assets” for their income.  

Investments are when your principal is safe and there’s an expectation of a return.  Speculation is when your principal is NOT safe and there’s an expectation of a return.  

In my opinion, the safest investment is where your principal is the safest, which is why I choose real estate. 

Real estate has the lowest volatility, best Sharpe Ratio, and highest risk-adjusted returns of any asset class, which equates to it being a very safe place to invest. In short, real estate fits my definition of investing much better than the speculative stock market

Think of it in another way…

How often does real estate go to zero? How often do stocks go to zero?  Remember, companies go out of business all the time.

Five Key Investment Principles: #2 Let Every Investment Stand For Something

The next investment principle is to “let every investment you make stand for something until you’re financially free.” 

For example, one investment can stand for a car payment.  A second investment can go towards paying off school loans or building up funds for your child’s college education. 

When each investment you make stands for something, you will begin to slowly chip away at your expenses and liabilities by using the income from your current job to create assets.

Thanks to our financial system, most of us have been taught our entire lives to take on liabilities to pay for expenses or assets.  You take out a loan (liability) to buy a new car (expense) or you take out a loan(liability) to pay for college tuition (expense), and so on. 

When you invest in cash-flowing hard assets, you can pay off your liabilities and expenses with those assets.  Not your W-2 income.  

Soon, your assets will be paying for your liabilities and expenses, instead of using your W-2 income. This is what I call the “virtuous cycle”. 

Instead of using your W-2 income to pay for liabilities and expenses, you can use it to buy more hard assets. Then, before you know it, your passive income will outpace your expenses enabling financial freedom.

For this investment principle, remember to “let every asset you buy stand for something until you’re passive income outpaces your expenses.” 

Once you have covered your expenses with passive income, you’ll be even closer to becoming financially free!

Key Investment Principles: #3 Capitalize On The Velocity Of Money

My third investment principle is to “capitalize on the velocity of money.”

In general, I want my principal returned to me within a 24 to 36 months period while simultaneously spinning off cash flow. No matter what the investment vehicle is, I want to be able to capitalize on the velocity of money. 

By getting my principal back as quickly as possible, I’m able to reinvest that money in other cash-flowing assets while, at the same time, riding the upside of the initial investment.

Some of the methods you can use to get your equity back within this timeframe are… to invest in real estate with a plan to strategically refinance within two to three years, invest in debt and equity instruments that have favorable distribution horizons, or invest in syndications with a plan for a principal return that meets your goals.

The quicker you get your principal back, the quicker you can put it to work in other assets generating even more cash flow. This will help you take advantage of the velocity of money

Key Investment Principles: #4 Have An Exit In Mind Before Purchase

The next investment principle is “whether it is a passive or active investment, always have an exit strategy in mind before purchasing.” It’s vital to have as many exit strategies as possible when you’re considering an investment opportunity.

You don’t want to take on any problems that will make disposition difficult. Even though you, your general partner, or your sponsor can handle it, it’s very likely that the next buyer or investor might not be able to.

You want the asset to be as ubiquitous and attractive as possible to bring in as many buyers as possible.  This way you’re able to exit when the time comes.

Key Investment Principles: #5 Don’t Get Emotional About The Assets

Last, but certainly not least, the fifth investment principle is to “never get emotional about assets.”  In short, always look at the numbers and always do your due diligence. This is very very important.

If something doesn’t add up, walk away. If you don’t feel good about it, walk away. Don’t worry about the time that has been spent on it. Only think about the amount of time you’re going to spend trying to get rid of it!

Personally, some of the best deals I’ve been involved in were the ones I walked away from because we didn’t inherit someone else’s problem.   

All in all, never let your emotions, pride, or momentum influence you into taking a deal. Don’t let your emotions drive the process.

Only take a deal that’s based on proper due diligence and sound financial underwriting.

I’ve seen this a lot with short-term vacation properties. People will talk themselves into the deal because they either love the area or it’s where they’ve always wanted to vacation. Now, there is nothing wrong with investing in a location you vacation at… as long the asset cash flows!

Always always remember… Vacation in the places you love to vacation. Invest where you make money!

Assets Can Last For Generations, Jobs Do Not

Many of us have financial and lifestyle goals that we have set not only for ourselves but for our families too.  The best way to put these goals on solid footing is by investing in hard assets that generate cash flow.  

You probably caught on that I’m very bullish about cash-flowing hard assets. However, what I hope you always keep in mind is… Assets that generate cash flow can last for generations. Jobs do not.  

Wouldn’t you like to live a life full of purpose and generosity now rather than potentially “someday” when you retire? Are you tired of working for insufficient compensation? Would you like the freedom to practice medicine and live on your terms? Are you ready to take back control over your time and money?

To learn about the multitude of investment strategies you can implement to achieve your financial and lifestyle goals, Click Here to schedule a one-on-one call with me today! Together let’s take the next steps toward becoming financially free and winning back your time!

Leave a Reply

Your email address will not be published. Required fields are marked *