073: Why I Chose to Build My Portfolio as a Business With Christopher Nelson

00:00 - 35:44 | Christopher Nelson: Yes, I believe that working for tech equity and investing it well can get you to financial independence. I'm here, I'm evidence of that. But the challenge is so many people see financial independence as the destination. They see getting into private equity, alternative investments as a great vehicle to generate income to get them there. But instead of designing and building a vehicle with intention, they're just walking around with a box full of car parts. And the reason is, is because they're not building their portfolio as a business. They're just going and getting some investments that are going to take them in some direction. And if you don't move with intention, if you don't build a business around your portfolio, it's not going to get you where you want to go. Welcome to Tech Equity and Money Talk. I'm your host, Christopher Nelson. And in this episode, I am answering questions on what is this deal around running your portfolio as a business? One of the things that I advocate for that I talk all the time about, you know, whether it's on the podcast, whether it's to people that I meet, people that I'm coaching, is If you want to get your money working as hard as you do, if you want your money to work in function as a structure, something that has a structure to deliver your result, you have to treat it and you have to formalize it as a business. And I realize that this is confusing to a lot of people because originally it was confusing to me. is I didn't understand how this works. So whether it's people replying to the newsletter, techequityandmoneynews.com, I have a newsletter, you can join it. As I'm talking about it in the newsletter, people have asked me questions there. People have asked me questions at meetups where I've been giving some talks recently. And then I'm also coaching some people through my Wealth Ops process of how do you actually manage your portfolio in a structured way as a business. getting lots of questions. So today I have taken 10 of those questions and I'm answering those here for you today to bring more light to the situation. So I'm excited. Something I love talking about. So buckle up, let's get after it. Let's get into this. So one of the first questions that I get asked is what inspired you to start thinking about managing your portfolio as a business rather than just personal finance? Because it's always done. And so this started after my first IPO in 2012. So I have been focused on this for the last 12 years from April 2012 to now here we are in 2024. When I went through my first IPO, I had a multiple seven-figure payday. I was managing all of that through personal accounts. So we had a Schwab sponsored by corporate, that was the holdings for Splunk. And so then if we took dollars out of that, that went into our personal bank accounts. And then what happened is we'd start saying, well, we have money for this. We have money for that. And what I observed happening in this was, you know, myself, it was my wife as we were just going through life and we had this money now as it would just leak into our lifestyle. We'd see big bank account numbers and we'd think, oh, we could go do this. We could go do that. And the purpose of the money was losing intention. And that's something that rubbed me the wrong way, because I knew that, you know, being able to have this wealth was an incredible blessing. And we wanted to be very intentional with it. And we wanted to get to financial independence. So at that point I had the idea of setting it aside and creating it as a business, and actually structuring it as an LLC. I wanted to move it to different bank accounts so that if we're going to tap that cash, if we're going to go get it, we'd have to be intentional about it. We'd have to say, well, why are we doing that? And as I actually started studying the ultra wealthy and talking with you know, close friend of mine, Marco, who's been on the podcast, who manages, you know, family, single family offices and has done that for years. As an advisor of mine, he let me know that this is what the ultra wealthy do is that they structure and manage their money as a business. And then they allocate dollars that are going to go to personal expenses. And they want to be disciplined in that because they want to ensure that the business that is there for the family for multiple generations will continue to exist and they put a priority on that. So that was a validation of this idea that I had in its infancy. And ultimately what we did is we started moving our assets into that LLC. Dollars that came out were in that LLC bank account that also had a credit card, and was building credit as well. And that if we needed those dollars, if we wanted those to come to the family, then quarterly we would evaluate what the spending was. And then we would decide to bring those over or not. We weigh that against what was the purpose for the business and what's the purpose for the money. And this is, I think, a valuable perspective that people need to have, which is when you treat your money as a business and you give it purpose in a mission, then you're going to ask yourself a lot of different questions. And I know that there's some questions that help us dig into that a little bit more. So I'm going to be patient and I'm going to wait for that. So the next question is a little bit more detailed, but I think it's good for this is, can you walk us through the process of transitioning from personal finances and wealth management to creating a business entity for your portfolio? This is where I think it's easy to unintentionally step off in the wrong direction because people start thinking about the tactics. Okay, I want the LLC, I want the bank account, I want to structure this, win. Actually, when you think about a business, it's literally the same thing that you think about if you're creating a startup company that many of us tech employees love thinking about too, which is what problem do I want this to solve? And the great news is, in this case, you're the customer. And that problem that you wanted to solve is usually tied to your why. Why do I want to have an intention for my money? And that becomes your mission and your vision for the dollars. In our case, we wanted to set this up so that we could get to financial independence, and I especially wanted to get out of the W-2 world so that I could be walking alongside my boys. as they grew from boys to men. And this is what I've executed on. This is where I'm at right now. I left the workforce on April 26, 2022. So I've been out for two years. The first thing you wanna do is you wanna set that mission and vision. What's your reason? Because when the going gets tough, when you're learning a lot of new things and you're managing this entity that can have not a level of complexity, but it's a level of work. You want to have a why and you want to have a focus that's going to help move you through those times. Setting it up as a business means you become the founder and CEO or you and your partner become the co-general partners. Like, you know, my wife and I, we do have some roles and responsibilities. I am the CEO of it right now and She is the COO. She does a lot of operations. She does some key roles there. But I am the one who's driving and leading this thing right now. And that's our choice. But ultimately, you're having somebody who's owning and driving the decisions because when you're running it as a business, the goal is not to outsource it to somebody who's not going to, again, align to your vision and meet your goals. And so it takes that ownership as well. And so business mission, vision, CEO, like you're the CEO setting that, then it's going and doing some of the tactical stuff. Okay. I'm going to go get an LLC. It is the best place to start as a pass-through entity. As your business increases in value, your tax advisors may advise you to start changing what that is so you can have it to be more tax advantaged. You want to then get separate bank accounts. And I recommend getting it at a different bank, getting a business bank account at a different bank so that you're making the transfers, you want those to be very intentional. You also want credit cards so that you're building credit for this as well, because the interesting thing is that when you think of life beyond the W-2, life beyond the 9-5 paycheck, It's better to be an owner of a business, have a strong balance sheet on that business, the business is generating income than being an individual without a W-2 and some income. Banks can evaluate and see businesses clearer than they can individuals with investment income. I've heard too many stories that haven't been my experience because I have a business that's bringing in income every single year and has for the last 10 or so years. And then you also have clear defined processes in the way that you run a business, right? The goal of setting it up as a business is this mission vision, being the CEO, creating the structure, and then you literally run it as a business. Because when you run it as a business, you're going to get the efficiency You're going to be able to optimize certain things and then it's going to be more effective. It's going to give you more of the results that you want. And what I found is that the people that I'm coaching, the more they focus and they start shaping it and running it as a business, they get very surprised on how they can get results sooner than anticipated because they're putting it at the same level as making money They're creating this entity where they manage their money and they're owning that. They're owning the result. And they're very surprised that they can get results a lot faster. So that was question number three. Oh, no, that was question number two. Question number three is how does having a mission and vision for your portfolio impact your investment decisions and overall strategy? That's the game changer. This in and of itself is the game changer. What I witness out there when I talk to many people who get on this journey, they build wealth through tech equity. They have $1 million, $3 million, $5 million net worth tech equity, and they're not running it as a business. What I find is that they have a couple of symptoms that I observe. Number one is they're very overweight in the company that they currently work for, or a couple of companies they work for, they're just holding a lot of the stock. that could be growing, could be doing great things, or they're what I call riding the rhino, where they're going back and forth and they're trying to avoid this horn that's in front of them because the market's going up and down. They have so much of their net worth concentrated, or they have started to diversify. They've gotten into private equity. They've gotten into private equity real estate. They're generating some income. And they want to build this vehicle that gets them to financial independence, but they're walking around with a bunch of car parts. So people are either what I call riding the rhino, or they're walking around with a bunch of car parts. They don't know how to get there. And what they're missing is, You know, the mission and the vision of where you want your money to go and what you want to do with it drives down and helps you create a portfolio thesis, which is what do you want in your portfolio and how do you want it to behave to reach those goals, to reach what the mission and vision is telling you. So for myself, I wanted to be able to exit the W2. So I knew that I had to focus on building sustainable cash flow. That's why if you look at how I was investing, I started moving to private equity real estate. I started with multifamily, then I moved to mobile home parks, diversified into self-storage, diversified into private equity businesses, diversified into debt and credit funds, because I knew two things. You make your money in concentration, you keep it, with diversification. And so I knew that I had to diversify. The other thing is that I knew that I had to look for asset classes and operators that were doing phenomenal jobs in asset classes that were able to give, you know, eight, nine, 10% cash on cash return that was going to then replace the paycheck. That's how that all came together and gave me clarity in my portfolio thesis. What were the assets they wanted to invest in? Because I was clear on the mission and vision. So when you're asked like, how does it have an impact? It has a phenomenal impact. It adds clarity. That's what it does. Sometimes I listen to myself using these excited adjectives and it's like, no, get very specific. When you have a business mission and you have a business plan, that's going to give you clarity in what you need to invest in. That's going to help you meet your goals clearly each day. And, and that's what essentially I've been able to execute with that. And I'm continuing to, you know, if you listen to my episode on the 50 50 portfolio, my portfolio strategy, now I'm trying to continue to balance the portfolio, making sure I have good growth and making, I have good income because I want this portfolio to grow in an evergreen fashion, meaning it's constantly growing, constantly producing income, you know, from now to multiple generations. In your experience, what are the most significant psychological advantages to running your portfolio as a business? And it sounds like an obscure question, but I felt like this was very important because managing money, when you move from being an income creator and working in the nine to five to managing money, it's really important that you do look at the psychology, you look at the mindset. And you even do this in the transition, because when you start setting your portfolio as a business, the first thing it does is it gives what I call a first tier, you know, you're putting it at the same level as your job, essentially, you're saying, okay, I'm making money over here. And that's a day job. Now my night job is CEO of this company managing this money that I've created. When you give it this first tier respect and level, then it becomes more than just, oh, I'm putting money in a savings account. It becomes a business that you're managing. And ultimately, it was my main side hustle for many years before I started expanding into private equity and became a general partner and started putting investments together. I built off of this portfolio that I was building to organize investments. But when you set it apart, it becomes at this first tier level. So then all of a sudden you have something that, you know, and I think the way I remember Maurice Fillaging put it this way, and I love the way he put it is when you have this portfolio as a business, That is your purpose. Like I want to build and grow this because this is multiple generations is going to get me freedom. Your day job becomes purposeful. So even if you're not aligned with a company's goals and values, you know that my work there is to generate income that's going into my family business that I'm the CEO of, you know, your family incorporated. you're then the CEO of that business, and that's the business that's gonna get me to freedom. So that mental concept of giving it that first level is super important. Also, if you take that entity and say, the mission of this business is to provide impact, income, a source for loaning money and anything to our family for multiple generations, That's very powerful. I'm building a multi-generational business that can have impacts through time after I'm gone. Think about that for a moment. All of a sudden, that gives this entity a much larger purpose and impact. It means that you're going to be willing to make sacrifices for it. Okay, maybe we won't upgrade the car this year. We'll wait another year. We'll let this have more time to compound or we'll buy another investment. Maybe we'll use the income from that to get something over here, right? You're starting to make sacrifices because you see the value in growing this business. as well. You also then start teaching your kids to be part of it. Like then you're able to talk about, oh yeah, tonight I'm working on analyzing this investment because this is for the families, for our family business. What? Do we have a family business? I thought you worked for Apple. No, I do work for Apple, but I'm building a family business on the side. Let me tell you about it. And when you're ready, I want to bring you into this family business. It's a completely different conversation. And that's one that the ultra wealthy are having all the time. They're constantly educating their kids on, you know, I mean, the ones that want to be successful that see this, you know, perpetrate or to, to, to go on for multiple generations are the ones that continue to talk about it. And, and this is, I think the most important thing is, it happened this way for me is when your portfolio has a purpose and it's a business, your job becomes purposeful, right? It makes the harder days easier because you realize I'm building my freedom engine. I'm building this vehicle that's going to take myself, my wife, my family there, and unlock a lot of things for us. Let me get back to work and keep building. And then also focus on my business plan and clarity on when that it's going to happen. Because that's, again, the great, the importance of having a business plan around it is then you can understand when your freedom date is going to be. Can you share an example of how treating your portfolio as a business has prevented lifestyle creep or helped you maintain financial discipline? Well, I will tell you a story. So I think it was, I was taking a sabbatical in 2019 At that point, I was living off the income from the portfolio. I was bringing in some of it, quarterly, to replace the check. My wife was working as a real estate agent. She was having a phenomenal year. And I wanted to get a new truck. I wanted to get a Toyota Tundra. I was looking and saw Tundras everywhere. I want to get a Tundra. And then we weighed it up. We said, OK, what is going to be the impact to the portfolio if we go out and we get a Tundra right now, whether we buy it or we actually took some debt on it? I mean, there were some low interest rates at the time. What's that going to mean? What are we going to lose? And at that point, we had been looking to create some space to get a few more investments because we wanted to create a cash flow stream that would fund trips every year. We wanted to accelerate those trips, like we do travel hacking and stuff, but we wanted to be able to generate an additional $6,000 to $10,000 a year off some investments that we could then go and use to take trips to different countries. We love to travel. So what we realized is that if we purchased the car, then we didn't need it. We had two vehicles. It was definitely a desire, not a want. There was no, there was a very intentional moment that said, We want the trips more than we want the car. A car would be nice to have, but we want the trips. And we did another, we had another scenario like that too with furniture, where we said, hey, we want to refresh our furniture. We decided to wait because we wanted to actually build an outdoor kitchen. We ended up doing a little bit more of a remodel. We said, hey, let's stick with the old furniture. Those are just a couple of quick examples that come to mind. But I have to say that we have a list of ongoing things that we want. And it's not that we deprive ourselves of things that we want. We just want to weigh that up against what's really this want, desire, possible need. Sometimes, I mean, we do take some dollars if we need to help our family, we need to do some other things. are not afraid to make those moves. But I think when answering this question saying, okay, when has having a portfolio set up as a business prevented lifestyle leak? Those are some of the examples that just quickly come to mind. Now, I mean, the good news is, since we executed last year, we were able to take the dollars from those investments. And we've been taking some different trips. We had a phenomenal summer in Spain and France because of those dollars and because we made the decision to wait. So it turned out to be worth it. How does the tax efficiency of a portfolio business compare to traditional personal investment approaches? I thought that was a good question. Somebody typed in. So businesses are taxed less than people. If you look at the corporate tax rate it is 21% Top individual tax rate is 37%. And I'm not trying to say that your business coming out the gate is going to be taxed as a business, but it's important that when you start working with tax strategists, certified tax planners, they do have this vision that as you grow this business, it may become an S-corp, it may become a C-corp because there's more advantageous ways that you can manage your portfolio as a business. And so I'm not sitting here trying to say that I'm a tax advisor and this will save you money immediately. It won't. The reality is, when you first start your portfolio business, the first thing you can do is you can start moving some non-deductible expenses to becoming deductible. Okay, I'm getting some education around real estate, private equity, and getting some coaching. Now I can deduct that from my business. Oh, I'm buying a laptop. I can deduct that from my business. Like you can start moving some small things over as you grow that business. And as you start working with sophisticated tax planners and strategists, they can leverage those to run a lot of different plays that can help you over time, slowly reducing your tax burden. And so I think then to answer that question is, yes, there are tax advantages. You need to make sure that you bring on a tax expert on your team that I talk about. You know, you want to make sure that you have a key tax person that's driving that, but there are tons of tax advantages that come up in and around that as well. And I go, go in and so, so my, my advice, my recommendation, I left some notes here for myself. I just, the last note was, you know, just go in slow and steady knowing and the way that I thought about it is every year, if I can make, if, if this portfolio business can get two to 3% more tax efficient in, in meaning that I'm paying two to 3% less because I'm running this business around my investments. over time, and I keep reducing it over time, that will then pay dividends in the long run. And that's how that's playing out. So like anything else with investing, you want to think about compounding, you want to think about slow and steady wins the race. So number seven, this one's a big one. So can you elaborate on the systems and processes you've implemented to run your Portfolio business efficiently. So when you think about running a portfolio business, and this is what I like about this question is that the person said efficiently, is I believe that when you run a business efficiently, it's then going to be more effective, meaning you're going to get better results, right? And so Being a technoid and a nerd, I created this system and I call it WealthOps. And it's truly what it is, it's based off of, you know, the DevOps framework is it's a way to operate your portfolio as a business, you know, in a very crisp and concise way. So you start with architecture, build, and then run. So architecture is where you create a legacy statement for your portfolio, you create a portfolio thesis, you assess where you are, then you build, you start building out your structure, you start building out your teams, you're moving your assets in, and then you establish your processes that you get to run. Now, the run or the you know, this this operations phase is then it's assess, you want to always assess where you are, then you want to plan your next moves, you want to divest. So you want to make sure that you're removing any concentration, then you go and you invest, you divest, then you invest, then you monitor, right, the monitoring is monthly, quarterly, annual monitoring. Then you're doing operations, so you operate, meaning that you need to make sure that your accounting is working efficiently, any type of systems you have, documentation and processes, right? A portfolio business does have documents and paperwork, so you want to make sure your operations are tight. And then you want to take everything when you're at those thresholds, like monitoring monthly, you want to then consolidate your learning. So you're taking notes around what you're learning from investing, what you're learning from divesting, what you're learning from tax strategies. and succession planning, a lot of these things, and then you optimize, okay, how do I fold that back in? And iterating through this process is literally what I do every month, every quarter, and every year. And this is what I'm coaching people on right in my WealthOps coaching program. If you're interested, yeah, hit me up with an email at info at wealthops.io, info at wealthops.io. And so that's what I do is I have this systematic way that I operate the portfolio. And the more that I continue to run it in the way, the more efficient that it gets. And this is where I'm understanding that you can run a business that's a portfolio, but your money is really working hard. And you just need to make sure that you're keeping everything in play. You need to be an active manager of it. But that doesn't mean that you have to work 40 hours a week or like we're working now or you're working now when you're in tech, which can be many more hours. So in what way does running your portfolio as a business make it easier to hand off or transfer wealth to the future generations? And this is a huge value add when you have a clarity around a mission vision, you've architect this thing, you have a clear structure in a way that you run it, you got a playbook. So to me, I don't even know how somebody who's got a bunch of parts or this oversized thing that doesn't have any type of system or process in the way it would function, like how do you transition that? But generally speaking, what I see is people carve it up And they'll give people, they'll give their kids money. I want to give my kids a business and say, look, this business can continue beyond you, beyond me. This is something that I've started. We want to pass on to you. But here's the way that you operate the business and you can get benefits. Your kids can get benefits. The grandkids can get benefits. you know, and that's documented in our state plan very thoroughly how it should operate. We want to, you know, definitely reward contribution and creation, not just raw consumption. That's something that's important for us. But I think that, you know, it's huge because you have a clear plan and purpose in the way you operate it, it's much easier to transition. Have I encountered any challenges or drawbacks in structuring your portfolio as a business and how did you overcome them? Yes, definitely. And what I've encountered is because I'm not a decamillionaire yet. I'm not. I aspire to be a decamillionaire and beyond. I know that I can live off of my wealth and continue to grow my wealth. in a very strategic way. But what I've realized is that the people that the, you know, there's people in service providers that I am going to deal with, some are going to understand what I'm trying to accomplish, some are not. So when I brought this to an asset protection attorney and said, hey, here's how I'm moving my assets. I have a holding company for passive investments. I have some holding for active investments and how I'm structuring it. They got it right away because they're asset protection guys. So they understand some of the buckets, how it's going to flow. My first, the tax person I was working with was sort of saying, hey, are you ever complicating this? As I moved on to my current tax team, they were very much in favor and said, wow, this is great. Now you have this set up, let's run some different plays. Let's work on lowering your taxes because of what you have in play. Okay, that worked out well. So I started to get some friction. but I also knew that I was getting ready to, I was outgrowing that tax person and they were sort of shutting down their business because of just age. They were getting to a point where they were getting ready to retire, made a strategic move to somebody new and they got it. And that was part of my, you know, my criteria when I went out to look for people is here's what I have going on. The people that didn't get it, I knew that they were playing small ball. I wanted people that were helping to take me to the major leagues and Most recently, I had a really good recommended, highly recommended estate planner that didn't get it, didn't understand. Well, wait, no, when you go away, you want to carve up pieces and you give pieces to your children. It's like, no, I want to actually have a business that will then can give, allocate benefits to them, but the business still operates. And so, It was very challenging. We had a couple of conversations that my wife would probably say were contentious. I thought it was just a healthy conversation, but that's just me. And so, but we got through it and I helped her understand and see and we got to a point where I think it's helped her business. Now she realizes what you know, people who have a higher net worth, who may have different aspirations than carving up and just giving their kids money, like how she can serve them. And we're still actually working on a few things. So it wasn't easy. And I do think that when you start leveling up and thinking of a different level, you'll find that there are service providers that are playing small ball and they will tell you, oh, no, that's too difficult. And the reason is because that won't qualify for their services. They don't understand how to level up. It seems too complex for them, but they also don't have a why. Because they also, I would argue that they don't have that level of wealth and they don't understand how to treat it. So this is where it's so important that when you start maturing your thinking and you know, here I am, you know, I don't have $10 million net worth, but I'm looking at people who have $35 million net worth and saying, okay, how do I start operating like that? What do I need to do to start leveling up? And again, I'm not trying to spend what they spend, but I'm trying to help understand how I can execute plays to move me up the board. You're going to talk to service providers where that's way over their head. So that just is what it is. But this is also why we're here having this podcast so that you can help get education and understand how to have these conversations. And then number 10 was how do you balance being the CEO of your portfolio business with other professional personal commitments? And this became my side hustle, right? Until I started WealthWord Capital in 2017, I was mainly focused on standing this up and running it and scaling this business. And it has never stopped being my first priority. I realized that running this family business in our portfolio is critical to reaching our goals as a family. I realized that the goals that we had were not going to be met by me being a money maker, making money all the time, like earning it and spending all my time, trading my time and talent for salary and equity was not going to help meet our goals because we wanted time freedom. So I had to figure out how to become a money manager. how to actually manage the money so it's working as hard as we do. That's now what I've done. And I did that by prioritizing it on the side. And this is where I think for many of you who are out there, you know, you don't have to find another side hustle where you're trading more time and talent for money. I think when you launch your portfolio business and you start moving to financial independence, can you find when you're running that business where you have more time where you can start making incremental income? Of course you can. But making incremental income, for me, it was not as important as learning to manage my money, which I knew was going to be infinitely more scalable because whenever I stop working completely, there's no more podcasts, there's no more books, there's no more coaching, there's no more whatever I'm going to do. This business is going to take care of me. And I'm going to continue to do that because you can see like being a great investor, you know, you think of Warren Buffett, I mean, spends a ton of his time reading. He's got a lot of infrastructure in place. Like it's a very scalable business to have. And so. So those were the questions from the audience. I'm not going to go back and repeat them. There's a lot to sort of roll up there, but I think, you know, here's what I would say. If you just crossed over to, you know, getting a million dollars in, in net worth, or you're getting close to a million dollars and you're thinking about starting this up, number one is just be slow, be patient. You know, there's a lot to learn. And this is where there's other episodes of the podcast. I would recommend the newsletter tech equity and money news. talk about this a lot. I'm gonna start doing more, you know, guides to really sort of break this down and make sure these concepts are there. I'm also starting up the, you know, as you know, the WealthOps coaching info at wealthops.io. Be slow, be patient. When you start getting into private equity, focus on the fundamentals, focus on the math, and then focus on understanding what great operators look like, what conservative investments look like. I think we As tech employees, we always want more and more risk, which I don't think we need. And when we start investing, we want less risk. Then find your why, like really document your why and have clarity on why you're going on this journey, because it is, it's going to take time and effort. And you want to have that in front of you and make sure it's big enough. And last one is to get educated in the community. This is why I'm here at TechEquity and Money Talk is to start creating a community. It's just starting a conversation, but I'm here. Feel free to reach out at info at techequityandmoneytalk.com. If you have questions, we want to answer them. But thank you so much for joining us this week. We'll see you next week. Yes, we're on YouTube. We see people. Bye.