“You don't need to take huge risks to achieve great returns; you need to take calculated risks and plan for contingencies.” - Alex Hormozi

Protect Yourself as a Passive Investor:

Passive investing is AWESOME - getting that mailbox money every month, "becoming the bank" as a private money lender, and the means to significantly grow your wealth. It's a great avenue toward Financial Freedom without the day-to-day grind. BUT, there's always a catch (and don't let anyone tell you otherwise...). Yes, there are risks involved, and no they're not always obvious or apparent until you're up to your eyeballs in an investment gone Tango Uniform. So how do you correctly identify and pounce on the RIGHT opportunities to keep yourself and your hard-earned capital out of trouble so that you can fully reap the passive returns you seek?

1. TRUST

We put this one at the top because really even if all else goes sideways, a good and truly trustworthy partner will make things right and prioritize taking care of their investors.

Do you trust who you're investing with not just as a professional, but also as a person? Their integrity can significantly impact your investment, particularly in times of crisis, uncertainty, or unexpected market shifts.

That's not to say that their track record isn't also important - have they done successful investments before? Speak with their past investors, as experience often translates to lower risk.

2. UNDERSTANDING

As the Oracle of Omaha, Warren Buffett has said, "Never invest in a business you cannot understand."

This quote resonates heavily when it comes to passive investing - make sure you fully comprehend the deal and the business plan and exit strategies.

Ask as many questions as needed until you are completely comfortable that you - (and more importantly, the sponsor) - truly understand the deal's ins and outs, and it passes the sanity check.

3. STRATEGY

As mentioned above: is the investment strategy, taken to its logical conclusion (i.e. the exit strategy and any backup exit strategies), clear to you? A good, conservatively underwritten deal should have multiple/backup exit strategies to ensure resilience to market uncertainties or unexpected events (like, say, a global pandemic...).

Do you believe in the fundamentals of the investment vehicle and niche, and are you confident in their potential for success?

Even if so, still also make sure that these strategies resonate and align with your own investment goals.

4. KNOW YOUR METRICS

...and STICK TO THEM religiously!

An informed investor is a successful investor. Even though it's called "passive", if you're just blindly throwing your money around without the proper research, knowledge, and due diligence you will likely run into trouble sooner rather than later.

Know what's important to your own personal investment strategy and goals (such as rate of return, lockup period, return cadence, the potential for capital calls, and my personal favorite: the time value of your money), then make sure the deal you're investing in aligns with and supports these.

5. RISK VS REWARD

This is the balance beam that all investors walk.

Before diving in, do some good introspection and figure out where your own personal level of risk tolerance lies.

Then, assess whether the risk/reward profile of the investment you're considering falls within your own risk tolerance range.

If you're unsatisfied with the answers you're given, or simply uncomfortable with the deal, don't be afraid to simply walk away and pass on that one - there will be other opportunities!

The real estate market is vast and there are always more fish in the sea so don't risk bankrupting yourself for promises of lofty returns that sound too good to be true.

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In the world of passive investing, protecting your investment is all about staying informed, being vigilant, and balancing your risk to be able to maintain resilience in tumultuous times. The path to Financial Freedom is never perfectly linear, but if you equip yourself with the proper knowledge and savvy, you'll be able to navigate it confidently and successfully!

What are some concerns you have when considering investment vehicles?
Please share your questions and your own investment evaluation & protection strategies on Instagram at @18AlphaInvesting or by email at support@18alphainvesting.com - we'd love to have ALL of our audience benefit (and of course we'll give you credit)!

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