Explore the Financial & Emotional Side of Investing
/My wish for you today is simple: keep the hope alive despite the impeachment debacle, continued killings in our schools, and perhaps personally challenging situations. Yesterday, I attended a funeral of a 38-year-old charismatic man who passed away in his sleep, and I was painfully reminded to take full advantage of my precious time. Sadly, it seems that these reminders are coming more frequently these days. As such, I hope you get something out of the next few minutes of our time together.
Are you investment ready?
It should be no surprise that I love investing, and this passion plays itself out across different venues– stocks, bonds, real estate, small businesses and start-ups, and myself. On the real estate front, my husband and I share a passion for finding good opportunities. We keep our eyes on multi-unit properties to invest in, rent out, and then earn passive income, which allows us to trade less hours for dollars.
Two weeks ago, my husband and I came across a listing for a two-unit property in a neighborhood close to our home. We make a good team because he searches diligently and visits the properties, and then he brings me in to crunch the numbers before we decide on the best path forward. In this case, the listing had only been on the market for a day. We immediately called our real estate agent, who informed us that other potential buyers already put offers on the property. He said that if we wanted to give ourselves a chance, we must move quickly. So, I crunched the numbers that night while my husband went to visit the property. On paper, the deal looked too good to be true – it threw off a significant amount of monthly cash (post expenses), which would pay back our down payment after 3 years, and the property had a high cap rate (which is an effective rate of return). Cha-ching!
There were several problems, however. First, while we were prepared financially to move on the property, we were not prepared emotionally. The thought of having to do a few renovations, though slight, caused an immediate headache. Second, trying to close and fix up a house in the dead of winter (and in Chicago of all places) proved to exascerbate my headache. Thirdly, we thought about the upfront time that it would take in order to reap the benefits of passive income, and it caused my head to explode. The time we would be putting aside to focus on the home meant less family time with each other and our daughter at a moment when all we wanted was to spend more time with each other, especially as the holidays approached. Yes, we chose to forgo the investment as the financial benefits did not outweigh the emotional costs. Upon reflection, I’m overjoyed by our decision.
So, here are my lessons for you:
Are you financially and emotionally ready to take on the work that investments sometimes demand? If yes, go for it! If the answer is “no” to either side, it’s OK to pass on some opportunities. I would suggest you hold onto the criteria that meets your desires, and save it for a future investment opportunity down the line. I guarantee that another opportunity will find itself toward you.
Creating negative wealth is real, and not optimal. You know how much I value the pursuit of wealth. That said, anything that puts a significant drain on your pursuit of wealth creates negative wealth, and you must be sensitive to this suboptimal effect in your decision-making process.
Find someone to hold you accountable. In my situation, my husband and I held each other accountable to stress test the investment opportunity with our goals and values. Who in your life is holding you accountable as you are confronted with investment decisions?
Before I go, here are a few articles worthy of your time:
The $4 Trillion ETF Industry Is Creating More ‘Roadkill’ – A good overview of how the ETF industry has grown, and how the same industry is trying to roll-out new specialty ETFs to attract more of your money.
How Small Habits Can Lead to Big Changes – A must read for anyone looking to improve their everyday productivity in life. These habits are applicable to building wealth. My favorite is “Let yourself be bored.”
Saudi Aramco Sets Its Market Value at Up to $1.7 Trillion – Keep your eye on this upcoming IPO, which is pegged to be the largest in history, eclipsing Alibaba, if it goes through. The IPO is both alarming and fascinating to me.
