Investing Based on the Market Cycle

Learn to Allocate Capital According to Your Goals

Picture of by Dr David Phelps

by Dr David Phelps

In Freedom Founders, we have what’s called Freedom Implementation Teams (FIT for short).

Our group is comprised of over 100 couples, so we break them down into smaller groups that meet on Zoom calls every week.

These weekly Zoom calls are where each member gets a weekly pulse on the solutions and challenges we face, receives accountability for their goals, learns how to invest wisely, and creates more of the freedom lifestyle they desire.

We have a specific FIT team Zoom call specific to our newer members (the freshmen group) who go through the same onboarding and training process together. 

I am always amazed by the profound mindset shifts and knowledge acquisition that occur for our new members. Their only experience with real estate has been owning a home or two, possibly a commercial office building; a few have tried some rental properties, and even fewer have invested in syndications.

Even with some experience under their belts, most admit they didn’t understand what they were doing. One of the newer members shared, “David, now I'm starting to understand what you mean by staying away from bright, shiny objects.

The question raised most recently was, “How did our veteran members allocate their capital in investments pre-COVID, and how has that changed now?”

Looking at what our veteran members invest in now, one of the new members concluded, “I don't think what they were investing in pre-COVID pertains to what we should do today.”

That’s exactly right. How you invest today will depend upon several things. The first one is where we are in the market cycle.

Market Cycle Shifts and How Investing Has Changed

Where we are in the market cycle is critical to what assets we invest in, whether they be the stock market, stock options, mutual funds, real estate, or even expanding a business.

Due to our government's vast deficit spending, inflation has increased substantially, which is still felt today by consumers and business owners alike.

The federal government has been trying to fight this inflation, which has increased the cost of capital. This increase has further perpetuated stress in our economy and has caused us to enter a significant shift in the market cycle.

This is not just a short-term detour. It is a long-term shift. You must understand that this market and the successful models today will look different from the last several years, even pre-COVID.

Becoming Your Own Financial Advocate vs Abdicating Wealth to Outside Parties

“Now I'm just starting to get it.” This same doctor has done very well in his business, but as far as investing his own money, he admits, “I never really knew what I was doing. My financial advisor just always took care of it. I realize now how many things I was missing and how much of this I really can understand.”

Investing is not rocket science. It's no more difficult than getting through dental school. Or medical school. Or physical therapy school. Or chiropractic school. It's no more complicated than understanding the Krebs Cycle. Even though it might have seemed tough at the time, it's no more difficult than all that which you’ve already accomplished.

You don't have to take special classes or go to four years of school and GPR to understand how to take control of your life. It is not that hard.

It doesn't mean you have to abandon your strategies in the financial markets or your 401(k) on Wall Street. You don’t have to take your money out of there completely if you think it’s worthwhile to leave it there.

The point is you can learn how to manage your money. You don’t need an advisor or anyone else to tell you exactly where to invest. You can ask for their advice and the advice of other proven experts, but you make all the decisions.

The Market Roller Coaster is Not for Everyone

One of our veteran members shared where his assets were allocated in 2017. He was 95% invested in the stock market, which was not a bad place to be at the time, as there were still several more years of run-up.

Then, the COVID pandemic deflated some of those values, followed by the Federal Reserve and monetary and fiscal policy pumping them back up. 2022 was another bad year; then, beginning in 2024, it started to look up again.

The market has been up and down, just from that example. Most people can't stand this, particularly when they want certainty in how their money works.

You can't “retire” or take your foot off the pedal when the market fluctuates like this. That’s where investing in tangible assets (a business or real estate) can give you some certainty.

Even though real estate and business are affected by recessions and downturns, you have at least close proximity to your capital. Your capital is in your business. It's in your hands or, at most, just one degree of separation from them.

This is in contrast with the stock market, which is far from your grasp. You can only hope that the market, run by emotions and human behavior, doesn’t bottom out when you “retire.” Recent retirees can not stand that kind of loss.

With tangible assets, like real estate and other alternatives, you can have that close proximity and more direct control over the success of your investments.

This, however, requires access points—access points that can help you find the real opportunities in real estate.

Opportunities in real estate and other alternative investments come from the marketplace’s inefficiency. The real estate marketplace is inefficient, meaning there are gaps to fill, space for improvement, and problems to solve. This means there is opportunity.

But to take advantage of such opportunities, you must do more than passively hand your money over to a money manager or financial advisor. That is the significant difference between the traditional retirement model and Freedom Founders.

We empower you with the knowledge, guidance, access points, and community to be your own financial advocate. You can seek counsel and advice, but you will ultimately make the decisions.

Perspective is Everything

We all need more perspective, and that’s what we provide our members. Every week, we have trainings for them to review and frameworks to work through. Veteran members who have gone before volunteer their time to help solve problems.

We dive deep into our market position and the pivots we need to make, both for the operators in our group and as passive investors.

Sometimes, the perspective comes in the form of provocations or questions. “What changes should we make in our strategies? How do we move our capital to higher ground and wait through this market downturn? When is it the right time to go back into equities?”

Right now, equities are on a downslide in the financial markets and in certain real estate sectors. I've been there, done that, and seen this for over 43 years in my investing experience. I know how this works and what will move the needle.

It’s not about trying to time the market. It’s remaining aware of what makes sense based on where the market cycle is.

Operational Efficiency Will Determine Success

The other pieces of the equation are your career stage, age, and family dynamics. You must consider these when seeking investments that advance you toward your specific goals.

For example, implementing a growth strategy early in your career will look vastly different from a cash flow strategy later on in life that is meant to replace income and free up your time.

If you plan on being hands-on in a business or practice for several years, then taking a little more risk makes sense. Growing the value of your asset will carry some risk as growth will be difficult for most in the next few years.

Success in the next few years will be determined by operational efficiency and (borrowing from Jerry McGuire) the “show me the money” paradigm. How will it make me money? Where’s the proven consistency?

Don't tell me about back-end returns. Don't try to convince me using recaps and refi’s. In today’s market, I'm not interested in making big profits on the back end. Show me the money today.

What is your current operational efficiency? Most syndicators and most people in alternative investments have yet to focus on this aspect, managing the asset for profit instead of flipping or refinancing.

Today, economic headwinds are causing many operators and syndicators to have major difficulties. The cost of capital has increased substantially, decreasing their capability to refinance the debt that they have had for several years.

The opportunity that came with a low cost of capital is vanishing as refinancing will cost at least twice as much as what they could obtain even a year and a half ago.

That is where equity is experiencing its downturn. So, where on the capital stack can you position yourself for higher ground and be ready to make some pivots?

That's what we do at Freedom Founders. The mentioned doctor was excited to see that he was getting ahead of the game. Will you do the same?

It's all about your freedoms. You have to stay on top of it. It's up to you to do what's right for you.

– David


P.S. Whenever you’re ready, here are some other ways I can help fast track you to your Freedom goal (you’re closer than you think) :


1. Schedule a Call with My Team:

If you’d like to replace your active practice income with passive investment income within 2-3 years, and you have at least $1M in available capital (can include residential/practice equity or practice sale), then schedule a call with my team. If it looks like there is a mutual fit, you’ll have the opportunity to attend one of our upcoming member events as a guest.

2. Become a Full-Cycle Investor:

There are many self-proclaimed genius investors today who think everything they touch turns to gold. But they’re about to learn the hard way what others have gained through “expensive” experience. I’m offering a free report on how to become a full-cycle investor, who knows how to preserve and grow capital in Up and Down markets. Will you be prepared when the inevitable recession hits? Get your free report here.

3. Get Your Free Retirement Scorecard:

Benchmark your retirement and wealth-building against hundreds of other practice professionals, and get personalized feedback on your biggest opportunities and leverage points. Click here to take the 3 minute assessment and get your scorecard.

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