096: How to Architect Your Wealth - Build a Portfolio Like a Business

00:00 - 26:19 | Christopher Nelson: What if the secret to managing your wealth had nothing to do with investments or the generic financial advice that you find online, but had everything to do with building your portfolio like a business? Hello, my name is Christopher Nelson. I am the host here of Managing Tech Millions. Welcome back. This is week number two, where we're talking about investment thesis and how do you architect your portfolio like a business? Like you would not go build a business if you didn't have a business plan, an idea or a design. The same thing, you wouldn't go build a building without a design or an architectural blueprint. We talked with Marco Cavedo last week in episode 95, he's the chief investment officer of a single family office worth billions of dollars. And we discussed the fact that that business is run through an investment thesis, which is the architecture document that describes what and how they're going to invest. And so for WealthOpps, WealthOpps is a proprietary system that you can manage your portfolio, just like the ultra wealthy, and you can leverage everything that they use at your scale, whether that's one to $30 million net worth. It's made up of three phases. Architect, where you design your portfolio business. Build, where you go in and create proven structures and systems and processes to go hire, build and run this particular business. The third phase is run. That is where you're running the wealth management side of your business, the business operation side, so that you can grow and scale your wealth. This week, we are talking about the architect phase. because you're not going to go build if you don't have a design. And so what we're going to do is deconstruct and tie together the way that we're building out the architect phase for WealthOps to how single family offices do it for families that are worth billions. You're gonna walk away from this episode with clarity on what are the four steps that you're going to take to be able to answer questions, to be able to build your own investment thesis that will allow you to architect your portfolio business. Let's dig in. So what is the architecture phase inside of WealthOpps? The architecture phase is the blueprinting process that walks you through a series of steps so that you can go from your why, why are you building wealth, what do you want to do with it, to walk you through a series of steps that then helps you understand what are the investments that you need to meet those particular goals. So let me break it down into four steps. The first step is creating a legacy statement. Now, as fancy as that sounds, the easiest thing, the thing that you need to understand that you're going to be writing down is you're just going to be documenting your why. And the why has to be more than just, I want to make a lot of money because you're in the management phase. It's different because you're going to be spending a lot of time. It takes a lot of discipline. So you have to have a reason that you want this financial independence, this financial freedom. That's going to be very motivating because sometimes you're going to have to be doing this at late hours. The second thing is based on your why, right? So if you do want financial independence, financial freedom, you're going to want income. You're going to have to then say, okay, for the wealth that I have, how do I want to drop that into three major categories? There's growth investments, investments that are going to be long-term, that are going to grow. Their job is to just expand the capital, to take $100 and turn it into $200 over time. Then there's income. These are investments that the nature of what they are is to give you some type of cash exhaust, whether it's off of a dividend, a distribution, interest, you name it. Then the third is capital preservation. These are, you know, highly, highly liquid. And those usually have much lower returns, but they're going to protect you against inflation. Think savings accounts, certificates of deposit, those that's capital preservation. So you've created your legacy statement. Then it's okay. How do I then look from the top down and say, where do I need to allocate all my dollars into growth, income and capital preservation? And then the third thing is the goals. Like how much do I want it to grow every year? How much do I want it to, you know, how much income do I want it to give me every year? And then the fourth step is then you start saying, what are the assets? What are the actual individual investments that are going to get me there? That in and of itself is the fourth, the four step process for end to end. It's important that you understand that. Now, I think the other question that, like, why does that matter? Why do we need these things? And I think the important thing to understand is that this prevents reactive investing. One of the biggest challenges that investors have in this type of market, right, is people are coming at them with investments all the time. You look at LinkedIn, LinkedIn now, you can get a lot of exposure to private equity investments sitting there on LinkedIn. Well, how do you not get stuck into FOMO or how do you know it's for you? Well, it's the same way that you would know that you would want a square window versus a round window in your house design is that you've determined that in the design. The design is gonna determine what you need, so you're going to look for what you need and not make a knee-jerk reaction. That's why you architect, so you don't have this reactive investing that can waste time, money, and lose you money too. It also eliminates decision paralysis. Many people can get stuck and they don't know what to do next because it's the same thing. They're designing on the fly. Well, do I need this? Do I want this result? When you have something written down and you have that clarity, you're then going to know what you need and be able to execute on it. All of this mimics this structure, the way that these family offices that have 30 plus or more million dollars operate. So it's important to understand that this is a tried and true process. So you're leveraging something that you know works at scale and that people that are managing a lot more money than you are leveraging. And ultimately this creates a scalable framework. So as your wealth continues to grow, you know that you have a lot of upside and you can use this. So I wanna dig deeper into each of those phases and break it down for you. But before I do that, I wanna tell you my story about how I discovered that going through the architecture phase, why that's so important and how that affected me personally. So in 2012, I saw myself at this major crossroads that I didn't see coming. I had never planned to win at the game of tech equity. I had had a failure before. And in 2012, I had an amazing seven figure IPO and all my equity was sitting in a single stock. And I was stuck. I was suffering from analysis paralysis. I did not know what to do next. And so as I started picking up the, you know, answering the emails and picking up the phone and talking to some of the traditional wealth managers, I was frustrated and disappointed to find that they were continuing to feed to me this generic fast food wealth management growth portfolio. And you know, this whole concept of the drain and pray 4% rule. I didn't know what to do. And so I was stuck. It was at this point that, you know, Marco, who I interviewed last week, if you go and listen to episode 95, you'll get a chance to hear from him. He's been, you know, in my life for many years, went to college together. He shared with me what the ultra wealthy do. And it blew my mind. Because they don't start with picking investments first. They start with creating a legacy statement. They start with documenting their why and what for. Why do you want to manage this money in this way and for what? I have to say that when he told me that, like, I didn't have an answer right away. Like I was stuck again with, okay, where do I go from here? I knew the answer. I knew what to do next. I had to find my why. So one day when I was watching my boys and I have three sons and they're 18 months apart, older son, identical twins, so three boys, very close in age. I was watching him play. And it came to me that, you know, if in the next five or seven years when they got to be, you know, 9, 10, 11 years old, I would love to be at a point where I did not have to work a W2. And I could walk with them alongside them and be very present in their lives as they walk from boys to men. That really struck my heart. And then I thought, well, after that, then they we send them off to college, then my wife and I, you know, can live this life of impact where I know she and I love to help people we love to serve, educate and connect, we would then have the opportunity to, you know, live wherever we wanted to globally and really pursue projects of impact that were important to us, like this podcast. That gave me clarity. All of a sudden I had my why. I knew that I needed to replace my paycheck in the next five to seven years. So I had a clear goal that allowed me to then understand I needed income in my portfolio and to help me start choosing investments that were going to allow me to meet those goals. And in those goals, you know, we're translated into, okay, what percent do I need cash on cash? Everything started getting very clear. So it's important that you understand that as we start going through this process, the same way that it happened for me is you're going to be stuck at first with the why and what for, because we may, when we think about money, we may not have answered those questions before and that's okay. Not many people have. And so I'm gonna walk you through, in the next phase, I'm gonna walk you through, you know, thinking through some of those questions. I wanna give you some of those questions, some writing exercises, but I wanna take a minute and wanna thank you for joining. I know we're gonna be covering a lot more in this episode. Right after this, we're gonna be deep diving, but I wanna let you know that everything that we're talking about here, I'm gonna be writing down into a detailed blog post. I'm gonna be posting it on our new sub stack ManagingTechMillions.com. You can use the URL. You can go there. You'll find this blog post. Look through this. The questions are going to be there. You can actually comment on it. You can get on the email list, subscribe to it, and then reply because we're building a community of portfolio managers that want to get to financial independence, and want to manage their portfolios together. So come join us on Managing Tech Millions. We'd love to see you there. Look, let's get real for a moment. Let's get real. You know, WealthOps and what's built here, these principles are truly around, you know, taking charge of your financial future and transitioning from a moneymaker to a money manager. And that journey isn't easy. In fact, it's hard. And there's many times in my journey where I did not feel qualified. You know, there's so many people saying, I'm an expert. I've got the certification. How can you do this? Why should you be doing this? You know, and especially if you go up against the financial services industry and you're going into private equity, they'll, you know, be screaming the whole time, like, ah, risk, risk, risk. But the reality is, I wanted more than anything to get grounded out in fundamental principles of stewardship of wealth. The ultra wealthy, they pay for this. They pay for people to surround them with this. Many families have been doing this for years, for generations. So more than anything, I wanted to go find this and understand it because I wanted to build my own qualifications. I didn't want to be defined by what a company said in their structure and what they were doing, but I wanted to find my own truth and my own journey to wealth through people that had been there and done that. Because many times, you know, I found that the fast food wealth manager that I was talking about, they hadn't made their money. And I think that there's a, you know, a phrase or colloquialism out there where they talk about, you know, hey, the guy, you know, who's telling you that he's going to manage your money is really going to make his money off of your money. And I felt that way. I did. And I didn't feel qualified. But now after doing this for 12 years, and growing my portfolio, generating, you know, hundreds of thousands of dollars in income, I realized that I can do it. I'm doing it. And I want to show you where to start right now. Okay. So you can do this. You can, I know it's, it's a journey and money is incredibly personal. And I know that like, you know, we, in this transition of moving to managing tech millions, like I want to make it personal. This isn't about managing tech millions, rah, rah, rah. It's about, wow, I just got, you know, a couple million dollars in the IPO. I don't know what to do. What comes next will come here. Let's talk about it. Let's be real about it. Let's be humble about it. Let's look at the foundational principles of how we build wealth and grow wealth together. So let's start with the architect phase. Okay. We got to start with a design and it really starts with your why. And this is where really wealth management does need to be infused with who you are as a person and where you wanna go in life. And you're gonna have to answer some big questions around this. You are, there's gonna be some soul searching in this. So buckle up, cause we're getting into it right now. So the first thing that you do when you're building out in the architecture phase, step one is building a legacy statement. A legacy statement is a one-page document where you define and you put on there your why. Why are you managing this wealth? Why are you doing this? What is your destination? Where do you wanna go? And what do you want the wealth to do over your lifetime in future lifetimes? What do you want that to provide? So this is going to keep you focused. When you have your reason, it's gonna keep you focused on whether there's market fluctuations, whether there's new investments and new things in FOMO, It's going to, when you start really digging into this, you're going to become more conservative. And you do conservative with your investments that you don't want to be throwing 100% of this into one single thing because you're starting to think about the legacy. You're starting to think about what's next. And this is really important. So my personal legacy objectives, as you know, was to be able to get to financial independence, to walk with my sons to manhood. So that's why one of the things that was really important to me is that I was diversifying outside of the market and buying real estate that we owned. Owning five single family homes is a key part of our portfolio that we get solid cashflow from month over month. Also investing into larger private equity funds that, you know, these managers have been around for 20 plus years. They're getting consistent six, seven, 8% cash on cash returns. And we know that those checks are going to come because they're managing market fluctuations. Those types of things are very important to us and are driven by a legacy statement. So, You want to be asking questions like what is the ultimate goal for your wealth and who do you want to impact? That goes into your legacy statement. You want to break it down into short terms. You know, so I always talk if you want to have your one, three, five and forever goals. One, three, five and forever. You want to be thinking about what do I need to get done this year? Later on the wealth ops process that gets translated into an annual business plan that you're managing year over year. Then there's three year goals. There's five year goals, right? That's it was in my five year goals that I was setting, you know, to get to, okay, I want to get to 150 K in income, tax protected, et cetera. Like those, those things are really important that you get crisp with. And this legacy statement, you want to revisit it annually to see if anything has changed because you know, things can change, you may actually have more kids, right? That does happen. Surprise, all of a sudden, 18 months later, we had twins, whoa, that happens fast, can happen to you. Or you can also have aging parents, you can have inheritance, you can have parents you know, moving in with you, lots of different things can change. So it's really important that you understand and look at this year over year, your legacy statement. So that's number one, the legacy statement, the why, the what for. From there, when you're really documenting in your one, three, five year goals, you're saying, I'm going to need income or I want this money to grow. That's where then the next step that you're doing is this asset categorization. You're going to have a pile of money that you're going to have to invest and it's going to be spread around investments today. So you may be somebody who says, let's just say for argument's sake, you have $2 million. You have $2 million in stock, in tech stock. And so then if you're looking at your five-year goals that you want to have $150,000 in income, well, that's $1.5 million at a 10% cash on cash return. You then have an income target in your asset categorization. And maybe, hey, in five years, I want a hundred grand. I actually don't have a family. I'm single. I want to be traveling. A hundred grand can give me the lifestyle I want. Okay, then that's $1 million. And then do you want to allocate the rest for growth? Do you want the rest in capital preservation? Like these are the decisions that happen next. And again, I'm trying to give you the step-by-step fundamentals of how you build this. legacy statement, goals, asset categories, right? That's where you start. Then the next thing is, if you want to talk about your performance goals. So if you're saying, hey, I want to allocate $1 million to income, $1 million to growth, let's just say for argument's sake, for this example, that then you're going to look at, okay, what, what is the return that I'm going to want on both? What are my target returns? You know, for my growth, let me put 6%. Let me put a realistic goal that I know that I can hit for growth goals there. Then let me put it for income, maybe I put 10%, 10% is considered higher risk, higher reward. Like you may need to look at some higher risk investments. Maybe you want to ratchet that down to a nine or 8% and you're going to blend that. You may have some investments that are higher risk, higher reward, some are lower risk, lower reward. But this is where you are again, this is this funnel that you're building that's taking you from a why and giving you the clarity on, okay, income versus growth. And then you're looking at performance goals. How do you want that to perform? You're bringing risk into this picture of, okay, how much risk do I want in my portfolio? And it's so important because, you know, the mistakes that you don't want to make is you don't want to push all in on a single investment. I've heard those horror stories coming out of the last couple of years when there were apartment buildings that were being turned over to the bank of, you know, the IT employee that took, you know, 1 million out of 1.5 million and put it into a single asset. Now all of a sudden that was gone. That's like when you're thinking through a process like this, this should prevent you from doing that because you want to also make sure that you're looking at good, portfolio structure, and you don't wanna put more than one to 5% of your net worth into a single investment. Again, those are the fundamentals, those are the basics. So you're defining your performance goals and your risk profiles, right? So this is the goals of what do you want to achieve in what amount of time, and what's the risk that you're gonna take to get there? Again, you're doing this over the one, three, five years, And you want to really ask yourselves those questions of how much volatility you can handle. Um, how much money do you want to put at risk into a single investment? Those are very important decisions that you need to make. And then the last one is then you're going to get to your asset allocation strategy. If you've done these one through three, and you now have clarity on you know, what are these goals that you have, your asset allocations, you have a legacy statement. It's here, then you start putting together, you start mocking up, what does a portfolio look like? Okay, I'm gonna have, of my growth portfolio, I'll have 50% of it split across index funds, I'll have the other 50% in individual stocks, and maybe even 5% of that is my current company stock that I hold. I've divested down to that percentage. That's what that looks like. On the other side, I'm going to be in private equity real estate and I'm going to have 30% in very large, well-established debt and credit funds. I may have some in mobile home parks that are higher cash on cash returns or industrial assets, self-storage. This is where then you put that together. So then you understand where you are in your portfolio construction, what you need to add next. Right? This is architecture. You now have clarity. If you go through all those four steps and you do those in detail, you will then know and understand what you need to build. That was a lot to take in. I know, I know. And I want to just sort of rewind that because this is the actual process of how do you create an investment thesis, the same type of investment thesis that runs billion dollar family offices, I just laid out for you. Okay, so number one is the legacy statement where you're writing the one pager, you're documenting your why and what for, you're writing down your one, three, five and forever goals. That is so important to get that on paper. Because from there, you're then going to drive and say, what asset categories do I need? How much income, growth, or capital preservation do I wanna allocate based on the goals that are driven by my why? And then from there, you're also gonna then put performance goals and metrics. How do you want this to perform over time? How do you need to? And it's the combination of one, two, and three that then get you to asset allocation. Okay, what do I need in my portfolio to achieve those goals? That is a lot. And that's very technical. And I know not everybody listening is going to do this. And that's okay. There's no requirement. But for the people who are listening, who you really want to transition from the money maker, like I've made the money, but now I want to, I want to transition and manage my own portfolio. I know that there are some crazy people just like me, right. That is out there that you really want to do this. You envision yourself managing your family's money in a portfolio as your full-time job. And you know that you can do it much better because of the experience that you've had working in tech than a wealth manager who's going to spend, on average, 16 hours a year on your portfolio. And it's just going to put you in a cookie cutter thing. And all they want to do is just keep your money coming in. You know you can do a better job. If that's you, then you need to go right now and subscribe at managingtechmillions.com. Subscribe to the podcast, follow the podcast, get on the newsletter. I want you to read this when this comes out. Now next week, I'm gonna be doing another episode where I'm gonna talk about what are some of the mistakes that I made? What are the things that I did wrong? But I need to give you time to digest this, because I know it's a lot. And then I'm also gonna be walking through how this can save you time, money, and energy, and how important this is. I'll be sharing some more, you know, stories and things that have happened with me along the way, because the reality is that your wealth will grow and can scale if you have a very clear design and vision for it. This is a discipline and it takes time and effort, but these are the fundamentals of stewarding wealth. You want to learn more? Listen next week. See you then.