The difference between the elite investors and the average retail investor is that the right time to invest is always now for elite investors. The retail investor is preoccupied with timing the market. They are always questioning whether there is a good time to be investing.
Take the current Wall Street investing environment, for example. One group of investors is investing with reckless abandon – driving the price/earnings (PE) ratio of the S&P 500 to more than double (currently 40.45) the historical value (16).
A reliable barometer of the overvaluation of the stock market, the current PE ratio is screaming bubble. Can you guess the only other time the S&P has traded at this high a PE ratio? At the peak of the dot-com bubble.
Experts everywhere are warning of a bubble, which brings us to the other group of investors not contributing to the stock market feeding frenzy – the benchwarmers. The benchwarmers sit on the sidelines, waiting for the right “time” to get back in the game.
The difference between elite investors and the benchwarmers is elite investors are less preoccupied with timing and more preoccupied with time. To them, time is a valuable commodity that can be leveraged to compound wealth. By sitting on the sidelines, you’re only depriving yourself of this compounding power.
So, how could two groups of investors have such disparate approaches to investing – with one group focused on time and the other on timing?
That’s because the two groups are focused on two different types of markets. Investors preoccupied with timing are investing in the public equities where the general investing approach is speculative. It’s about timing the market to beat it – getting in low before everyone else hops on the bandwagon to drive up prices and jumping off before the train derails. Timing the market is a fool’s errand. Nobody’s consistently good at it. Long-term, even more than 90% of professionals fail to beat the market.
While retail investors allocate more than 60% of their portfolios to public equities, elite ultra-wealthy investors allocate more than 50% of their portfolios to real estate and private equity. For instance, the 800-member strong investment club Tiger 21, whose members have a minimum of $50 million of investable assets. These members consistently allocate almost 50% of their assets to real estate and private equity.
The following chart illustrates the asset allocations of the members of Tiger 21:
For the ultra-wealthy, the right time to invest is always now. That’s because the assets they favor – private equity and real estate – are illiquid. With long lockup periods for these asset classes, elite investors don’t think about timing; they think about time.
Time allows cash flow private equity and real estate assets to build and compound wealth by reinvesting. With the added tax benefits of the passive income rules, private equity and real estate investments add another dimension to the bottom line that public equities do not.
To the elite investor, sitting on the sidelines means missing out on leveraging the benefits of time. There are always private equity and real estate assets that thrive for elite investors – even during downturns.
Even during the COVID-induced downturn of 2020, there were commercial real estate sectors (e.g., affordable multi-family, industrial, and mobile home parks) and certain industries represented by private equity (e.g., mobile technologies) that thrived.
While timing-based investors ask, “Why now?” elite time-based investors are asking, “Why not?” While retail investors are constantly making excuses not to invest, the ultra-wealthy are constantly finding reasons to do the opposite.
The stock market is attracting investing newbies and renegades while scaring others away. Neither group is enviable right now. One group will likely suffer devastation from a crash while the other group deprives themselves of valuable time they can be used to build wealth like the ultra-wealthy are doing.
Like any other valuable commodity, if you don’t leverage time, you’re letting it go to waste and setting yourself back further and further from achieving financial freedom. Like with a farm, if you neglect it, you have to wait until the next growing season to restart – pushing your financial goals further and further back.
When is the right time to start investing?
Yesterday for the ultra-wealthy.
For everyone else? NOW!
