“Wealthy investors know: income comes first, growth comes second. Build the base, then swing for the fences.”

Rise Capital Investments

Wealthy Investors Know This Secret that Most People Take Too Long to Figure Out

Most investors who first foray into private market investing start with a friend's company, someone you know who's smart, ambitious, and has a great idea. You're not sure if it will be the next big thing like your friend swears, so you invest just a little to try this new thing out.

A few years later, you (hopefully) get your K-1 on time showing yet another loss for taxes that year and wonder what you were thinking. It doesn't cash flow, there was no hockey stick growth, and progress seems bogged down despite cheery annual shareholder reports.

You may have done this several times and maybe even given up on private market investing as especially lately your public stock portfolio is making every other investment look bad!

You've probably been told that equity investments and startups are the best way to build wealth, and that's mostly true. But there are some key details that must happen first that most investors miss.

The Risk of Equity Investments: Are You Gambling With Your Portfolio?

✅ What truly wealthy people know that what even they likely took awhile to figure out and didn't take off until they did, is that income comes first before growth.

It's the same with your job: that steady paycheck when you live a little below your means provides extra money to invest in your friend's now obviously crazy startup idea.

To retire early—or ever—we need to replace our steady job income with steady passive cash flow. And private equity isn't going to replace your income. That comes later in the journey to build wealth.

What happens when those startups don’t cash flow—or worse, lose everything? I learned this the hard way. My investment in a sports startup gives me a nice loss on my taxes every year. It's fun to watch the matches and network with the owners and other investors, but it was a "fun" investment rather than an income move. I also invested in a tech startup incubator that sometimes pays distributions, but not reliably. Very little cash flow, and of course more tax losses most years.

Even worse, a $50K investment into an apartment real estate deal was completely wiped out when the lender foreclosed on the operators. The bank took the property, and all the investors were left with nothing. For you math-minded readers, that was a negative 100% return! What does that do to my overall portfolio blended returns. That investment was backed by real estate, but was it really when the lender had first dibs?

I had a wakeup call. Those sexy high returns I was chasing actually hurt me, and even those that survived weren't helping our goal of retiring before 50.

These investments weren't going to replace our active income until we had a LOT of money invested to live on the meager distributions. Same with public stock dividends. We needed to shift focus to cash flowing investment and stop investing in long-term or empty promises.

CONS of Equity Investments:

To be sure, there are pros of private equity investments, and we do have some in our portfolio. But we focused on lower-risk cash flow investments first relying on compounding to match equity-like returns until we were ready to start taking distributions.

• If you are chasing high returns, equity investments often carry more risk and volatility than you think.

• Even real estate private equity with hard assets behind the investment are last in line when things go wrong.

• Equity often carries risk of paused distributions, market swings, and total losses from lien holder foreclosures and happen more than most investors realize.

The lowest risk investments, extending credit or debt, usually has the most cash flow with the least upside and can form a solid foundation of income to build on.

THERE'S ANOTHER WAY

The Case for Cash Flow Stability: The "Unsexy" Strategy Wealthy Investors Swear By

• If to cover your expenses with less stress, start with stable cash flow investments.

• Rely on the power of compounding on 10-12% loans by reinvesting gains before you retire to approach or exceed private equity returns of 12-15%+ over similar 5 year holds.

• Don't draw out gains before retirement to maximize compounded returns, and after retiring live on the same or less than the interest rate to continue compounding, albeit at a slower pace.

• Bonds are loans to public companies. Private loans typically offer better returns.

• Hard money lending: 10-12% returns and first lien holder security.

• Hard money loans are named that because they are backed by a hard asset rather than a personal borrower. Borrower experience matters, but the property matters more!

• Don't hope for equity growth, lock in reliable cash flow from earning interest and compounding private loans.

One multifamily equity investment we took part in as minor passive partners ran into trouble when interest rates went up, it set off a chain of events until eventually the worst happened: the lender took the property back. I had a NEGATIVE 100% return!

That lesson taught me that the less risky and less sexy return I was getting on my 12% hard money loans far outstripped a huge loss like that. We mitigated the damage by not over investing into that one project, having diversification not just across assets but also across our multifamily portfolio specifically, and relying on our cash flow from more stable loans than long-term growth plays that might or might not perform.

Once I added in compounding of our loan money by taking out as little of the gains as possible, our returns on those "lower returning" 12% loans over the same 5-year period as that apartment investment if successful would have yielded about the same at 15%+ IRR!

Why did I take that risk when with the power of compounding I could do just as well in safer investments?

The loans have less risk, more liquidity and flexibility, better cash flow if we need to pull some out to live on, and similar returns when locked up for the same amount of time.

That was a real eye opener and shifted the way I was investing even more toward cash flow and risk management.

Balancing Your Portfolio: Are You Set Up for Success or Set Up to Fail?

PROS of Equity Investments

• Equity plays have a place for appreciation and growth—but only after your income foundation is secure.

• Real estate pros know: Depreciation can offset taxable income and capital gains, but only if you’re actually making money!

• First, create cash flow. Then, take smart risks.

Conclusion: Build Your Base, Then Swing for the Fences

Everyone wants to hit grand slams. But you can’t win if you’re constantly striking out. If you have steady cash flow, you can take bigger swings when it makes sense. The key? Building a reliable income stream FIRST.

Let’s Invest Together

We help investors stop hoping and start cash flowing. If you want to create a stable foundation so you can invest with confidence, let’s talk.

Click here to start securing the income portion of your portfolio with us today.