Today, I’d like to share a concept with you that you’ve probably never heard from any other financial expert that you’ve worked with.
When it comes to your investment strategy, you’ve probably heard that it’s important to consider your “risk tolerance.”
But it’s also important to consider your “hassle tolerance.”
The other day, I was reading a book by a financial expert who advocated cashing out your 401k, paying the huge penalties, and putting that money into rental real estate instead.
While I understand why he might suggest that to someone, what was missing from the example was taking an individual investor’s hassle tolerance into account.
Having owned as many as 35 properties at one time, I can tell you that owning rental property is a VERY different experience than owning ticker symbols in a tax-sheltered account, like a 401k.
The investment strategy that I follow in my retirement account takes me maybe an hour or two per year to implement. Buying and selling stocks, ETFs, or mutual funds is very easy and can be done in seconds. The hassle factor is EXTREMELY low, which is one of the things I love most about it. This strategy has my money working hard to grow FOR me while I put my time, energy, and attention into growing my business and enjoying my life.
As much as I love real estate, there is a MUCH higher hassle factor involved. It can require a significant investment of time, effort, and energy to find and analyze properties to make sure you’re getting a good deal, then make offers and negotiate, figure out the financing, etc. And once you finally own the property, there’s nearly always a stabilization period where you might need to find a new tenant or do some repairs. After all of that, there’s ongoing maintenance energy, even if you have a property manager.
If you’re flipping houses, the hassle factor is so high that I consider this less of an investment and more of a job.
Not everyone has the hassle tolerance for investing in real estate. Or businesses, for that matter.
And that’s OK! There are plenty of other ways to get your money growing for you.
I’m not making any judgments about a particular type of investment but rather encouraging you to consider your personal hassle tolerance when deciding what types of investments are appropriate for you.