097: Avoid These Common Investing Mistakes When Architecting Your Wealth

00:00 - 23:50 | Christopher Nelson: The difference between a hobbyist and a professional is somebody who is just investing with no plan and somebody who has a clear plan and is then investing. Hello, I'm Christopher Nelson. Welcome back to Managing Tech Millions. This is the third part in our series on how you architect your portfolio as a business. We started off in episode 95 with my friend Marco Quevedo, who is a chief investment officer for a multi-billion dollar single family office. He broke down to us how they use an investment thesis to drive their multi-billion dollar business. Last week in episode 96, I gave you the simple framework of how you execute the architect phase inside of WealthOpps. I'm going to review that today, but then I want to cover off. This is now sort of an advanced episode. Now that you understand the basics of how it works, how do you actually now not make some simple mistakes? And what are the things that you want to focus on so you can save yourself time, energy, and effort? Let's be honest. Discipline is hard for people. It's hard for me. I know that there's days that I get up and I don't like to work out, right? You hear David Goggins talk about the fact that he'll sit there and look at his shoes for 30 or 40 minutes before he goes on his run. Like discipline is hard, but when you architect your portfolio first and you have a clear design for it, you are going to be able to build faster. You're going to build more efficiently, and you're also going to clear away the noise. of what you're looking for. So, I wanna take a step back. Where are we? We're in the middle of WealthOps, right? WealthOps, the proprietary framework of how you architect, build, and run your portfolio as a business. Stage number one, phase number one, architect. You need the design. Before you're going to put a hammer into that structure that's gonna be your home, you're going to have a blueprint. You're gonna have a design. That's what this is. We covered off last week. If you didn't listen to last week, episode 96, go back. I'm breaking it down, but it's a legacy statement. You're documenting on one page your why and what for your one, three, five, and forever goals. Number two, what are the asset categories? How much income growth? In capital preservation do you need it in your portfolio? Number three is you want those growth metrics and goals. Like how do you, your performance goals, you know, what, how much growth do you want every year out of your portfolio? How much do you want to see your net worth grow, your income, how much do you want to see coming in, you know, and then how do you want your capital preservation to perform? All of those are documented. And then when you have those three things done, guess what? Then you have, what are the assets you start reverse engineering? Then what do I need in my portfolio? That's going to achieve all of those things. That is the core of an investment thesis. You now have in your head the same knowledge that the people that are running billion dollar portfolios have. That is the foundation of basic stewardship and education of wealth. You've got that. And I would argue that there's probably a lot of fast food financial advisors that don't know or understand that. And they just want to take you through the script that they got from the parent company may not include that. So. Now that you're empowered, now that you have that knowledge, let's talk about where things can go sideways, right? Where can things go off track you don't want to do? Well, number one is skipping the legacy statement. I've seen this where people, oh, I want to go now, here's how much income I want. Here's how much. Here's some of the asset allocations that I want. And they go and they start building their portfolio, but they don't have a why. And it's like many things that I've seen before where if you just have money as a goal, at some point, you're going to lose heart. At some point, you are going to lose motivation. And you're going to ask yourself, why am I doing this? And you're going to get lost because things are going to get hard. Things are going to get challenged. The other thing is, if you don't have a clear reason, then sometimes you're gonna actually put more risk in your portfolio than you want, right? Because it's when you have this why, and you're like, when you think about, for myself, once I had the why and I was clear that, okay, I wanna get to financial independence, and I need those checks to be there, I'm gonna be walking away from a W-2 job, this is what many people can do, but then you're going to say, then that check has to be rock solid. That check has to be showing up on time because I am then now related, you know, taking my position as an earner and my family off the table portfolio is going to do that. So then I'm looking at where do I now look at investments where it's not somebody who walked in off the street and said, Oh, I'm buying an apartment building, invest with me. I'll make sure you have checks. What bro? I'm going to go to the guy who's been doing this for 20 years, runs a boring business that is printing money. I'm going to go to that guy because I need my check showing up. Does this make sense? Right? You need to have the legacy statement in your why front and center. Don't skip the step. Arguably I get it. It's the hardest step. I probably don't want to do it, but it's the most important step. The next one is when it gets to the goal setting, what do I want? When either you're setting vague, like, Oh, I think I want about this much here, vague or unrealistic. I need to be making $200,000 of income next year. Whoa. It's a lot like you can't, it's hard. Try to explain this to people that when you want to build up streams of income and you've never done it before, it is hard to securely and safely deploy $2 million, 10% cash on cash return to get $200,000 a year. That's hard. It's hard work and a lot of time and effort goes into that. So that would be what I would consider an unrealistic goal. This is why it's important that people understand that they need to have realistic goals. You want to start building your portfolio, how you want it to behave in the next five years, or you need to have that type of time horizon because you don't know the market cycle when the investments are going to be there, et cetera. So that's where you want your goals to be specific and you want them to be realistic because when you don't, things go sideways. The third step is just ignoring risk management. Just ignoring it. What is risk management? Risk management is investment allocation size. So I personally would never take a quarter of my wealth and put it in a single investment. I would not do that. Why is that? Because I'm putting too much of my wealth at risk in a single investment. I try to look for, to me, I manage risk between 1% of net worth and 5% of net worth, and maybe even lower, right, depending on the risk of the investment. But that's where it's important that you get educated on what risk management is. And then you're also always looking at what the investment is. If you're in the stock market, are you just all in micro caps, these small stocks? Are you in some broader index funds that give you downside protection? But if you just ignore risk, oh, I'm going to push all in, right? It's easy to lose money when you're investing. That's why Warren Buffett says rule number one, never lose money. Rule number two, never lose money. So your investment size, and then also looking at who you're investing with on the private equity side, it's so easy to lose money. because there's a lot of first time investors out there that want to convince you that, okay, I've been successful at something else. Now I can be successful at this. It's hard. Real estate can be a hard business versus the people that have been doing it for a long time. And you can see their track record. You can understand their commitment level, the team that they've built, the structures that they have. It's a whole different ball game. So you cannot ignore risk management. Don't make that mistake. And then the fourth one is just not documented like your investment thesis, meaning, you know, that last step, that number four is I'm going to allocate and create a mock portfolio of these investments to get this result. This is an important point to articulate. You want to remove emotion from the process. So how you remove emotion when you're looking at an investment is you have a state in time when you've written this all down, where you're calm, cool, and collected, and you're thinking with your strategic brain of what I want versus your animal brain of what you're coveting, what you're lusting after, right? You want to try and separate those two because then when you look back at that written document, you want your executive brain to then overwrite that and say, okay, no, I was, okay, that's why I made that decision. No, that doesn't fit my investment thesis. No, thank you. It doesn't fit. And I think if you go back to episode 95 with Marco, that one, he really breaks down like, what are things? He looks for reasons not to do an investment upfront and he tries to really try and put that risk management at the front. He gives some great perspective there. So I'd encourage you to go back and listen to that. I know it's a lot to take in. I know that you're on this journey. How do I become, How do I go from being a moneymaker to being a money manager? Well, the first thing you do is you go and subscribe to managingtechmillions.com. You get a sub stack, you go subscribe to the podcast, you get the newsletter. I'm breaking all this stuff down because I'm putting out blog posts and newsletters. You know, I also run the Wealth Ops Collective where we give monthly masterclasses. If you're on the email list, we send out notifications. These monthly masterclasses, we go deeper. into everything that we're talking about here so that you can understand what it really takes. Because I'll tell you, the reality is, all of the challenging work that you've done to get into tech, all of the hard math that you've had to study, the problems that you've had to solve, this really isn't that hard. It's not, there's some concepts, basic fundamental concepts you need to understand. You need to be able to calm your emotions and be able to manage those effectively, but it takes a lot of discipline and it just takes being consistent. And then once you get, once you actually leverage something like WealthOps that has, you know, a structure in the system with it, then it doesn't even take a lot of time. but it does take that consistency and it takes that discipline. And it's always better to do it with friends. So I think community is helpful. Let's talk about why this approach of leveraging this architect's phase in the way that I describe saves you time and saves you money. The thing is, this is a systematized approach that was leveraged from using the single family office method so that day one, if you just follow it and you just execute those details, you're going to start saving yourself time and money from this trial and error process, right? What I've described to you is the fundamentals. I've distilled out the fundamentals of how you know, people with a hundred million plus more, or actually 30 million more, cause there's their shared family offices at that level, how they manage their money. And so this process is systematized for you. So it's going to save you time and effort. All you need to do is understand the steps that I've broken down for you. You're going to then, when you have that clarity, it's going to make you more efficient. What does that mean? You then start having a no list. Time is your most valuable asset. Time. It's more valuable than even money because you can't make more of it. This architecture phase provides you with it will save you years and it will save you tears. Now I'm joking about that, but the reality is, it was going to save you time because it is a very simple, straightforward process that once you execute and you build it, you will have something that will guide you through a lot of decisions, it will remove a ton of noise. And especially when you're working in tech and you're busy and you don't know, okay, I only have an hour or two here because I want to make sure I'm having time with my family or I'm having time with loved ones, right? You need to be laser focused. This is your compass. This is your design. This tells you what you want and what you don't want. So this is where this, you know, having a, a, something that's systematized, something that is built off of a structure that we know works because it's, it's used for, for people that have billions of dollars, right? This is the same system that works. I do not want to sell that lightly. I don't want to tell you that lightly. That's so, so important. This clarity that you have with the system creates much more efficiency, right? And all of the motions and all of the things that you're doing You know that you're going to be aligned to your why you're going to be aligned to your allocations. You're going to be aligned to your, your metrics. And then that's where you're going to select. Like all of this stuff gives you clarity. It allows you to be much more efficient. And again, this is saving you time. And it's also going to save you money as well, because you will then make less bad decisions. And that's honestly a big part of investing is defense. And the saying goes, many times the best investment that you will ever make is the bad one that you passed on. That's right, because too many people get caught up. I have seen and witnessed people's portfolios get devastated for two reasons, because they did not address risk and they pushed all in on a single investment, or because they pushed all in on a series of very high risk investments. Devastated their portfolios. People worked hard, 3 million down to 1 million, 3 million down to 500,000. I mean, I've heard a lot of those stories and talked to those people that are just very remorseful. But this process is going to save you that time, money, and make you that much more efficient. And more than anything, it will give you your priority so that you focus on what matters, right? This is where having that goal, of financial independence, spending time with family, working on your impact project that is going to unleash your heart, it's going to set your soul on fire. Those are the things you want to keep in front of you because it's going to help you make a lot of different decisions. Maybe it's the company that you're working for. Okay, instead of an early stage startup, I'm going to work for a public company where I'm harvesting equity now, right? This is where the fact that you're focusing on your wealth and you have an architecture diagram for your wealth is going to influence family decisions also. Okay, do I want to spend $50,000 on a home renovation or do I want to make another investment that's going to get me $5,000 a year as your stacking income? Which is one of the places to build it up. Ultimately, having a clear system that is based on something that works, that's streamlined for you, for your situation, is going to be much more effective and save you time, money, and energy. I know that it did it for me. So what happened, my story was, was I was building this income-based portfolio. And like many people, as I transitioned into private equity, I was smitten with multifamily real estate. It truly is the meat and potatoes, the very common one that is out in front of you, because it's literally scaling single-family homes. It's residences for people. But what happened in late 2019 is that a lot of the yields from those investments started moving from 8, 9, 10% cash on cash return to 6% cash on cash or 5% cash on cash. And I realized that Those investments, because I had a clear thesis, all of a sudden, where I had these, oh, I'm going to be investing in multifamily real estate to get to where I wanted to go, which was financial independence, which was replacing my paycheck, which was income, it stopped meeting my goals. So I had to then change and start looking, okay, what other asset classes are there? And that was very educational. I started looking and understanding, Oh, wow. Mobile home parks started keying in on mobile home parks, looking at opportunities where there's, you know, nine, 10% cash on cash return. And, you know, the numbers worked out and. I really started deploying capital in that direction because I knew that that would then start getting me to those numbers that I needed. If I did not have an architecture diagram or an architecture document, I would not have known that I would have gotten off course. I could have continued investing and not reached my goal. This is why having a document like this is so important. So I want to take the last few minutes of this episode and I want to give you some real actionable steps. Like what can you do right now to take the first step? And I gotta be honest with you, I'm not gonna give you the easiest step. I'm probably gonna give you the hardest step. I'm gonna give you the hardest one. And it is my family mantra. We tell our boys, Nelson, do hard things. I do want to swallow the frog first thing in the morning. I wanna do the hard things first because I do believe that comfort is a slow death. And I think that the more that we challenge ourselves, the more that we're going to find that we can do things that we think are impossible. Becoming the CEO of a generational wealth management company. So for you, what are we going to do first? Let's talk about you reflecting on legacy and big picture goals. I want to give you some questions that you can go journal about, that you can write down and you can answer. I know you're taking a deep breath like, oh man, where are we going? Well, so if you could design a life without financial constraints, so money is no object, what experiences, relationships, and contributions would define its value? That I think is the biggest question that you have to answer. Now you may say, well, it's not important. No, I just want money. And I just want my time. Well, let me, let me tell you like the statistics, you know, now there's people that are in retirement, retiring early, you know, they're finding that people who stop working divorce rates are skyrocketing. Right. And this is happening even among the silver tsunami. Right. I was reading an article the other day where people are getting divorced. They're, you know, just living life. They have money, but they're divorcing because they don't have any purpose. People are struggling with a loss of purpose in depression. This is why older, you know, the senior generation is starting to go back to work and your social life starts crippling because you realize your social life was built around work. So then all of a sudden you're not working anymore. Where's your social life? I'm bringing this up because these questions are very important because you want to think about your lifestyle design. You want to think about if money is no object, where is going to be your purpose and your contribution to the world? I know for myself, I think about it, I want to serve, educate and connect. This is exactly why I started this podcast. You know, 18 months ago, or I guess it's getting closer to 24 months, 20 months. I really wanted to start educating. I had something off my chest. I wanted to go and help my people, technology employees, people who didn't come from wealth. They came into wealth. How did they learn how to become wealth managers? That's why I'm here. But you have to find your reason, your purpose. Answer that question. What would you spend your time on? How would you spend your daily priorities if your portfolio generated enough income to match your current salary? Write down what your day would look like. I know my friend, Maurice Filajin, but I can't remember the episode. I interviewed him early on. Lifestyle design, he's like, you want to write down those days, like you want to write down hour by hour, what would you be doing? What would that ideal day look like? What would it be like? Where would your purpose be? Those are a couple of questions that I wanna have you answer. So question number one is if you could design a life without financial constraints, what experiences, relationships, and contributions would define its value? That's probably gonna be the hardest one to answer. What would you spend your time on and how would your daily priorities shift if your portfolio generated income matching your current salary? Write out what that day would look like. Write out what that week would look like. You know, you don't have to write it, go, you know, download Otter, you know, transcribe this, put this on a voice memo, and then, you know, put it up to chat GPT and have it organize your thoughts and say, okay, what helped me answer this question from my ramblings, right? Get it on paper. And I want you to go, you know, go subscribe to managing tech millions.com. And when you get that email reply and put that in there, like, I want to know what are you thinking? Or you can put info at wealth ops.io and send me an email. Like I want to know what's going on, but start drafting that out. This is the impetus of your legacy statement. What do you really want? What do you want the freedom for? Whose life do you want to impact? What do you want to do? Spend time thinking about this because later on, right? I mean, you don't want this to just happen to you. If you, you know, choosing not to do anything is a choice. It's a choice, but sometimes that comes with unintended consequences. You know, what I try to say here is you want to manage your millions to define your legacy. You want to choose who you're going to be. There's a lot. This is the end of the third episode where we covered this. Please go subscribe to Managing Tech Millions. We're here for you. We're here for you along this journey. We're going to be breaking this down. We'll have the writing prompts and some of the suggestions that we have of how to get this spun up, but get your ideas on paper. Look at these things clearly. I'm excited to be with you on the journey. Thank you for tuning in this week. We'll see you next week. Talk soon.