How a Market Professional Invests his Money [and it’s not picking stocks]

Wall Street’s dirty little secret is that real investing isn’t what you see on TV

 

Listen to all the experts, all the investment professionals on TV, and you’d get the impression the way to success is picking stocks. Every show needs at least one or two equity analysts pitching their favorite stocks.

 

The problem is, it’s all for show.

 

Most equity analysts aren’t investing in the stocks you see them recommend. Just look at the disclosure analysts are required to make about their personal holdings and investments held at their firm.

 

I spent nearly a decade in this game. As an analyst for wealth managers and as the director of a sell side research department, I pitched stocks on a daily basis but rarely invested in the individual names.

 

How do Wall Street analysts really invest?

 

I’m going to show you exactly how I invest my money, how wealth managers and analysts put their money to work.

 

How Analysts Really Invest in the Stock Market

 

There are two reasons most analysts and wealth managers don’t invest in the individual stocks they pitch on TV.

 

Often, they’re prohibited by the investment firm because of the conflict of interest. It looks suspicious if a firm is recommending a company in which it has a big stake. Is it making an impartial call or just trying to find a bigger fool?

 

Most investors are surprised to hear that analysts don’t invest in individual stocks because of the risk as well. The analyst’s income is tied directly to the stock market. Investing actively in individual stocks means that a market crash might not only destroy their portfolio but also put their income at risk.

 

Instead, most analysts invest broadly in exchange traded funds and other diversified investments. This means the analyst can still benefit from the market upside without the appearance of a conflict of interest since they aren’t picky the stocks in the fund.

 

How I Invest My Money to Limit Risk and Max Returns

 

Even when my professional life revolved around the stock markets and managing others’ investments, I actually had more money outside the stock market in other assets. This is another surprise for most investors, that equity analysts usually invest more in other assets and less in stocks.

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Not only does investing outside of stocks avoid that potential for a conflict of interest but it also diversifies their wealth from stock market weakness.

 

I started my professional career as a commercial real estate analyst before working in the equity markets and property has always held a special place in my portfolio. No other asset has created as much family wealth as real estate.

 

Real estate is a great way to diversify an equity portfolio because it cash flows even when stock prices take a nose dive. Property prices keep up with inflation and you get a special feeling of pride developing an underappreciated asset into a cash machine.

 

Some of my favorite real estate investing strategies include:

 

  • Buy-and-Hold Rentals are the most popular strategy with individual investors. Start slowly with a duplex or triplex to get the feel of property management before buying more houses. 
  • Wholesaling is like the contract equivalent of house flipping. You contract to buy a house and then line up another buyer to purchase the contract from you within the month. You’ll need to be active in real estate investing groups to find quick buyers but this can be a great strategy for part-time investors. 
  • Investing in tax liens is a more hands-off approach to real estate investing and can produce returns of 18% or higher a year. You pay the property taxes owed to the county. The owner either pays the back taxes plus interest that usually accrues monthly or you take possession of the property.

 

One of the first lessons I learned in real estate is the importance of starting slow and taking the time to learn. Too many investors buy into the get-rich-quick plan of buying lots of rentals quickly. They get overwhelmed with the property management and the business suffers.

 

Start slowly with a couple of properties and in one or two investing strategies to learn the ropes for long-term success.

 

Investing is about Making Your Money Work for You

 

Analysts and wealth managers know that investing isn’t just about stocks and bonds, it’s about making your money work for you.

 

Understand that and it opens up a world of opportunities investing in businesses and other assets. Besides stocks, bonds and real estate, I invest in managed futures, p2p lending and am in three business partnerships.

 

Of course, few have the time to manage so many different assets and investments so some of these have to be passive income sources. Investing in a passive income business involves more risk than traditional stocks and bonds but also diversifies your money away from the market and can produce returns well above stocks.

 

Don’t buy into the hype around stock-picking you see on TV. Feel free to invest in individual companies but understand that investing is about more than just finding that next hot stock. Diversify your money in different assets like real estate and invest in passive income sources like business partnerships.

 

Joseph Hogue worked as an equity analyst and an economist before realizing being rich is no substitute for being happy. He now runs five websites and a YouTube channel on beating debt, making more money and making your money work for you. A veteran of the Marine Corps, he now makes more money than he ever did at a 9-to-5 job and loves building his work from home business.

 

 

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