| Let’s Get Real About Returns
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01 Aug Let’s Get Real About Returns

In my daily conversations with investors, most people generally fall into two camps:

1) Those who actively manage their own investments and make short-term decisions to capitalize on market opportunities
2) Those who make long-term investment decisions, independent of daily or even yearly market noise or swings

At the end of the day, we all simply want our investments to work as hard as we do to earn the highest risk-adjusted returns possible. Right? But whether you invest with the short or long-term horizon in mind, there is a REAL difference between holding investments that earn “paper gains” and those that earn real returns today.

Paper gains increase your net worth but not cash in your pocket. These typically result from an increase in the value of your stock and bond holdings, real estate appreciation, or any other asset (tangible or intangible) that the market values more now than when you originally bought it. These gains look great on a monthly statement, but are not real until the asset is liquidated.

Real returns are cash paid now. They most commonly arise from either the liquidation of an asset, dividend earning, or in the form of interest earned on an investment or loan. These gains can be spent or reinvested immediately. Wahoo!

So let’s get real about returns…

The biggest concern I have when talking with investors is not whether they understand the difference between these two types of investments. Rather, it’s the fact that too many investors have exposed themselves to a great deal of risk by predominantly being invested on the paper side in traditional investments – most notably in stocks and bonds. While these investments appear to being doing quite well as of late, in effect, they have become “speculative” in nature because any dramatic market shift will lessen or destroy much of these gains.

As astute investors trying to earn the highest risk-adjusted returns possible, we should account for this risk and diversify our portfolio with an appropriate mix of alternative asset classes that earn real returns. These investments can include income producing real estate, private lending or notes, mortgage pool funds, gold and silver, and many other non-traditional asset classes. And if invested properly, these investments will not only dramatically mitigate the risk in your portfolio, but often earn higher returns than their more traditional peers.

And isn’t it more fun to get a check in the mail?

If you’d like to learn more about adding real returns to your investment portfolio, please feel free to contact us at 626.788.9700, click here, or stop by for a drink at one of our Happy Hour Investing events if you’re in the Los Angeles area.