If you’ve noticed a recent trend, more and more businesses are promoting the benefits of cutting out the middleman to save more money.
In the world of retail, it’s producers and suppliers offering to sell directly to the consumer rather than having an intermediary bumping up the price before a product or service lands in the consumer’s hands. The “direct-to-consumer” model aims to cut out all the sticky fingers that take their share of the pie along the way of products arriving at consumers.
Opponents of the “direct-to-consumer” trend will tell you it’s necessary to have an intermediary to ensure quality and safety. Nowhere is this more evident than on Wall Street, where advisors and brokers tout their services to investors to “protect” their portfolios against undue risk.
This fear-mongering is what keeps Wall Street in business and what keeps investors from achieving their financial goals because Wall Street middlemen are skimming the profits and producing mediocre results – evident by the fact that 90% of professionals – those paid to manage your portfolio – fail even to beat the market. In other words, you’re better off putting your money in an S&P 500 Index Fund or ETF than entrusting your portfolio to a middleman.
Savvy high-net-worth investors have learned that to generate greater returns, cutting out the middleman is vital. They not only cut out the advisors, brokers, and fund managers on Wall Street, they cut out Wall Street altogether. They don’t trade on public exchanges where stock prices are influenced and clouded by players and factors with their own agendas. They prefer the private markets where they can assess the viability of investment opportunities without the madness of the crowds, the media, talking heads, the internet, and social media clouding their decision-making.
Insulated from herd behavior and market volatility, smart investors can make measured investment decisions and cut out the middleman to invest directly in assets without giving up gains to meddling middlemen.
Smart investors take control of their investments by investing directly in the private markets. They have an affinity for partnering with seasoned experts in a particular asset class, segment, and geographic location to generate passive returns without having to do the heavy lifting. You may think these “partners” are just another form of middleman. Still, the difference is most of these partners don’t pay themselves until their investing partners get paid first – making this a true partnership and not a Wall Street situation where the decision makers make money whether the company is profitable or not and whether investors make money or not.
Smart investors like ultra-high-net-worth investors (UHNWIs) have very specific investment objectives for creating and growing wealth. By cutting out the middleman and investing directly in private companies, these sophisticated investors are more able to control the management of their investment capital and the trajectory of their returns. By investing directly, they can identify and analyze companies and opportunities that align with their own investment objectives and principles.
So what do smart investors seek when screening direct opportunities?
Consistent passive cash flow frees up investor time to do what they want and not what they must do. It also allows them to prospect, evaluate, and multiple opportunities to create multiple streams of income instead of just one to compound wealth.
Tangible assets like income-producing businesses and commercial real estate offer security for investments through the underlying value of these hard assets. Tangible assets ensure that investors can never lose their entire investments. These hard assets also appreciate over time to create another dimension of returns on top of the cash flow.
Investments structured as partnerships offer tax benefits traditional assets like stocks cannot offer. These tax benefits ensure investors keep more of what they make instead of surrendering it to the IRS. These direct investments and associated tax benefits offer greater returns than traditional options.
Shield From Wall Street Volatility.
Illiquid assets such as direct private investments are insulated from Wall Street volatility and are immune from the madness of the crowds. This noncorrelation to Wall Street protects portfolios from herd behavior and market volatility.
Investments in assets tied to products and services (i.e., “Essential Goods”) are ideal hedges against inflation because as goods’ prices rise, consumers will gravitate away from non-essential luxury goods towards essential goods. As a result, the prices of essential goods often keep pace or even exceed inflation – making it an ideal hedge against inflation since returns from investments in these goods can compensate for the loss of buying power. This hedging character of direct private investments insulates portfolios and preserves wealth in an inflationary environment.
Like consumers in the retail space who are cutting out the middleman, more and more investors are investing directly to cut out intermediary fees and commissions to maximize returns on their investments.
Kyle Jones is a co-founder and Key Principal of TruePoint Capital, LLC. Kyle is responsible for the company’s strategic planning, investment decisions, asset management, and overseeing all aspects of the company’s financial activities, operations, and investor relations.
Kyle obtained a Bachelor of Science degree from Texas State University – San Marcos, where he also played Division 1 Baseball.