Skin in the Game: The One Question Every Smart Investor Should Ask

Not all private investments are created equal. Before you dive into alternative assets, there’s one critical question you need to ask: How much skin is in the game? Here’s why alignment, trust, and the right fit matter more than hype.

If you’re thinking about private investments, let’s get one thing straight: they aren’t for everyone.

A recent Wall Street Journal article highlighted the growing demand for alternative assets. And sure, private investments—especially real estate—can offer serious returns, a hedge against market volatility, and opportunities to create long-term value.

But here’s the thing: just because something is a good investment doesn’t mean it’s a good investment for you.

Private Investments: The Trade-Offs No One Talks About

The pitch for alternative investments is everywhere—diversification, higher returns, wealth-building potential. But what’s often left out? The trade-offs:

• Illiquidity – Your money is tied up longer than in public markets.

• Longer horizons – Returns don’t happen overnight.

• Fee structures – Sometimes, they favor the managers more than the investors.

That’s why I use a simple but crucial litmus test before making or recommending an investment:

How Much Skin Is in the Game?

This question tells you everything about a deal. When the manager has as much at stake as their investors, you know incentives are aligned. It’s a principle I live by in my own deals—because when I invest, I want my investors to know we’re in the same boat.

If someone is asking you to put your money into a deal, but they don’t have their own on the line, that’s a red flag.

Not Every Deal Is the Right Deal

I believe in playing the long game, which means sometimes, I even advise people not to invest with me.

Yep, you read that right. Just this week, I told someone their money would be better off in equities—because based on their goals, they needed liquidity and flexibility, not a long-term hold.

A good investment isn’t just about the numbers. It’s about the right fit.

The Bottom Line: Alignment = Trust

Alternative investments aren’t one-size-fits-all. The best investors know when to say yes—and just as importantly, when to say no. So before you invest, ask yourself:

• Is my risk tolerance aligned with the deal’s structure?

• Are my goals in sync with the investment horizon?

• Does the person leading this deal have their own skin in the game?

When the answer is yes to all three—you’re on the right track.