Analysis Paralysis: The Cost of Not Investing

I was recently on a phone call with a potential investor who is a friend of mine. He had recently come into some significant funds, and I was offering a ground-floor opportunity to invest in a great multifamily real estate fund. His response was a typical, scared approach to money. He had been listening to the media about how we are about to go into a recession and are on the verge of World War III with China and Russia. Every investor he knows is selling everything and buying gold.

Now, I don't have anything against gold — I own some myself just for diversification — but it is hardly a good “investment” and really not even a great safe haven. The conversation reminded me of how difficult it is for some people to take the emotion out of investing.

Warren Buffett famously said: “We attempt to be fearful when others are greedy and to be greedy when others are fearful.”

The True Cost of Waiting

Take cryptocurrency. A couple of years ago, it was all the rage. People had no problem buying Bitcoin when it was at $68,000 and going up every day. People pile in at sky-high prices, only to watch it fall, then sell when it hits $28,000. There is a common notion that investing your money in real estate means you are “taking a chance.” In fact, the opposite is true.

By not investing, you are 100% guaranteed to LOSE money. The difference is that the money lost will be invisible. Opportunity loss is money missed by not investing.

Let's say you decided to play it safe and placed $100,000 in a high-yield savings account yielding 4% over 20 years (the chance of a bank holding that rate for 20 years is almost impossible). At the end of 20 years, you will have saved $222,258.

Alternatively, placing that same $100,000 into the Grand Vision Capital Wealth Fund, which has a targeted yield of 20% per year with regular distributions — the investor would receive their initial $100,000 back in 5 years. The 5 shares that the initial $100,000 purchased would still be owned by the investor, resulting in infinite returns. In 20 years, you will have $3,833,760. The opportunity loss in this case is $3,611,502 — and that's not even factoring in the tax benefits of depreciation.

The Worst-Case Scenario Still Wins

Let's play devil's advocate. Say the worst-case scenario happens. We go to war and the economy crashes. The fund doesn't even come close to projections and only yields 5%. In 20 years, you will have $265,329.77 — still $43,071 more than throwing money in a savings account, again not including any tax benefits. And should this worst-case scenario happen, the Federal Reserve is almost certain to lower interest rates, leaving savings accounts earning much less than 4%.

Now, the exciting part: if the worst-case scenario does happen, assets go on sale. Properties that previously cost $7 million can now be bought for $5 million. We are in a position to “be greedy.” A recession is actually the best-case scenario for a well-positioned fund. People will always need a place to live, and Midwest properties on the lower end of the rent spectrum become more desirable when times get tough, not less. You can't do any of this with a savings account, where you're at the mercy of inflation eating your idle money while the Fed reduces the interest rate you earn.

It could be beneficial to save money now and then buy assets that go on sale when bad times hit. But with such a risk-averse attitude towards investing, the chances of pulling the trigger on a distressed asset in bad times are almost nonexistent. Most likely, the investor will wait until everyone's attitude has changed, bad times have passed, and asset prices have already recovered. They will suffer from analysis paralysis.

The best way forward is to constantly save money and then put it to work with an experienced management team. When times are good, we acquire solid properties where we can add value through streamlined management. When times are bad, we hit home runs from distressed sellers. All the while, our investors sit back and collect returns while benefiting from tax-advantaged real estate.

The biggest risk of investing is to NOT invest.