030 | Investment Strategy Overview: Safe Plays to Bold Bets

What if you could turn your investments into a steady stream of passive income and secure your financial future, all while avoiding the long-term risks of bad strategy?  

That’s precisely what we’ll be discussing with our guest, Carey Hilburn, Lead Financial Advisor at Vital Wealth. Carey is a powerhouse when it comes to client planning helping guide them towards their financial goals. Together, we dive into the four levels of investing, offering you actionable insights and strategies. We kick things off with building a brokerage account, where we uncover how to build equity, automate savings, and generate passive income. Then, we venture into real estate investing, weighing its pros and cons and identifying key metrics to secure the best deals. 

Next, we discuss financial freedom, covering essential topics like passive income, lifestyle expense, and estate planning for ultimate peace of mind. Finally, we reach for the stars with moonshots—those thrilling, high-risk, high-reward investments. Carey breaks down the challenges, including liquidity issues, and emphasizes the importance of a long-term strategy. Don’t miss this episode packed with invaluable insights from Carey Hilburn, designed to propel your investment journey to new heights with expert guidance from the Vital Wealth team. 

Key Takeaways: 

  • Building Brokerage Dollars: Build equity, automate savings, manage risk, and create passive income. 
  • Real Estate Investing: Understand pros and cons, focus on key metrics, and find the right investments. 
  • Achieving Financial Freedom: Plan for retirement, assess lifestyle expense, pursue passion projects, and implement estate planning. 
  • Taking Moonshots: Embrace high-risk investments, address challenges, maintain a long-term strategy, and be ok with settling in for the long term. 


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Sponsored by Vital Wealth    

Music by Cephas    

Audio, video, and show notes produced by Podcast Abundance   

Research and copywriting by Victoria O’Brien 

Patrick Longergan [0:06 – 1:28]: Welcome back to the Vital Strategies podcast. I’m your host, Patrick Lonergan. And in today’s episode, we’re diving deep into the world of finance with one of our very own. Kerry Hilburn is a financial advisor on the vital wealth team. Kerry has been integral in developing the tools that we bring to our clients. She has helped us crystallize all four cornerstones of the entrepreneur private office. From cash flow, tax strategy, investments and protection, Kerry is thriving as a lead advisor serving our entrepreneur clients. Together, we discuss in detail the third cornerstone of the Entrepreneur private office investing. We dig into the four levels of investing and why each one matters. Stay tuned as we explore why brokerage account is truly a passive investment account. We also discuss why real estate can be a tremendous wealth building tool or can slow down the process if not done right. Kerry’s insight into financial freedom and what it means to our entrepreneur clients is worth listening for just that piece alone. Stay to the end to hear how Kerry’s real life example of the issue with investing in private equity and why it should be approached with caution. Let’s dive in with Kerry Hilburn. Kerry, thank you for joining us today. I’m excited to have you on. You are a fantastic member of the vital team. We’ve been through a lot at vital, just working with clients, going through all sorts of different scenarios. And I just appreciate all the valuable insight you’ve contributed to helping us develop our systems and processes and delivering excellent work for the clients. So thank you for joining us here today.

Carey Hilburn [1:28 – 1:29]: Absolutely.

Patrick Longergan [1:29 – 2:49]: So we’re going to dig into investing today. We’ve spent some time developing some different levels of investing and what that should look like. And I think we’ve really thought through the process and come up with a good methodology for why we’re doing what we’re doing. So I’m just going to outline those four levels of investing and then we’ll dig into each one of them individually. But level one is to build a brokerage account that has a value equal to one year’s worth of income. Level two is, and this is an optional level. Cause I think you could just start at level one and just stay there. But level two is invest in real estate. We think real estate has a lot of value as far as wealth building goes, but it’s not for everybody and there’s some issues with it that we’ll address later. Level three is keep investing in those asset classes, either portfolio and or real estate, until we’re to the point where our assets can support our lifestyle. That means we’re financially free, we don’t have to work anymore. And then level four again. Another optional level is once we’re across this point where we’re financially free, free we can invest in things like private equity. We call them moonshot type opportunities that can either go to the moon or go to zero. And so we’re going to dig into each one of those. So starting with level one, building brokerage dollars equal to one year’s worth of income. I know you’ve seen this with lots of different entrepreneurs, but why do we start with brokerage first?

Carey Hilburn [2:49 – 3:33]: Right. So brokerage is sort of the beginning of it. A lot of times when clients come to us, they’ve really been in the grind and investing in their business quite a bit. And so at this point, it’s like, let’s start to build up liquidity and wealth outside of the business, where it’s not just a business that you own, where everything’s wrapped up in it. And so that’s really just starting a conscious effort of pulling dollars out of the business as you can and setting those aside for a purpose. So I think oftentimes you hear people say brokerage and you’re thinking investing, but it can also just mean additional liquidity there. It doesn’t necessarily have to have a lot of market risk on it. So really what we’re seeing there is just pulling dollars outside of the business in another bucket.

Patrick Longergan [3:33 – 3:59]: I think that’s good, because I think most entrepreneurs don’t think of it this way, but there is a lot of risk in the business. And so we’re somewhat de risking that by pulling some of the cash out and putting it into a brokerage account. And then I think you touched on an important point. Dollars can go into a brokerage account, and that allocation can vary widely depending on what the goals are for the client. Can you walk through a few different scenarios as to why I might have an allocation one way versus another?

Carey Hilburn [3:59 – 5:01]: Right. Oftentimes, I think at the very beginning, when we first get to a point where there’s a surplus of cash within the business and we’re having conversations of, let’s start to pull dollars out and get those in your personal name on the balance sheet. On your personal balance sheet, too. The purpose is just to initiate the transfer, get the habit set up, set up the habit and the routine of making a systematic transfer each month, where eventually you get to a point where you don’t even notice it, and we’re saying, okay, if you don’t notice it, you can probably be saving a little bit more. So that’s really the beginning steps of just starting the habit. Beyond that, we can start to look at, are we foregoing some sort of return on these dollars? Are they beyond some sort of balance where maybe we should start to invest them, whether it be the long term or short term. But that’s really where the whole portfolio construction discussion comes into play of let’s talk about risk tolerance, time rise, all those pieces that people probably hear out there to really construct a portfolio that’s appropriate for them.

Patrick Longergan [5:02 – 5:38]: Yeah, I think that’s good, because I think there’s also a thought around, let’s say there’s a recession and other people are struggling. First off, it can be a tool that we utilize for additional liquidity, but then there might be market opportunities like, oh, I can go buy a competitor for pennies on the dollar, cause they’re not making it. And brokerage account can be a good place to go grab those dollars. I think if we see that, that’s probably the time to maybe consider shifting the allocation. If we’re a little bit on the aggressive side. How about 401K or IRA or cash balance plan? Roth Ira? Are these decent spots for these brokerage dollars?

Carey Hilburn [5:38 – 7:03]: So the 401K IRA cash balance plans typically are invested in the stock market, publicly traded. There are some self directed options out there if an individual is really looking for that. But I would say on average, most of our clients are publicly traded, very liquid. But certainly the time horizon is much different on those dollars. We’re not going to touch those. Those would be the last bucket that we touch if we were in a pinch and needing to tap on liquidity. And so the allocation because of that, really changes quite a bit. I think the other piece, as it relates to the stock market, though, that’s interesting. And the clients that we work with is we work with entrepreneurs. And so typically they’ve spent blood, sweat and tears building up their business, and they’ve had a high return on that business. And so when you talk about pulling back the risk a little bit, not having all of our eggs in one basket, usually the stock market can be a little bit of a foreign concept. It’s scary at times to think of putting dollars out there when they feel like it’s really a gamble. So sometimes we’re having discussions of, if you look back over the history of the stock market, which really dates back to the 17 hundreds, on average, we’ve seen returns of about 10%. And that’s without your blood, sweat and tears in it. So it’s essentially a form of passive income. And so we try to spend time with clients just talking through that, of the importance of having some exposure there in the stock market.

Patrick Longergan [7:04 – 8:01]: Yeah. And I think you’re touching on a super valuable point. Like, if we think of truly passive income and being able to project out with a certain degree of likelihood that an outcome is going to happen, we feel like the stock market gives us that best chance to do that. So somebody can go sit on a beach, they can collect checks, and with a high degree of likelihood, if we set all the parameters correctly, they’re not going to run out of money. If they’ve built up enough assets. That’s really hard to say in with the real estate portfolio or investing in private equity or their business itself. It’s like, geez, who knows what the future holds? And so that’s the reason why this is level one. And we’re okay if people just keep plugging money into this and don’t touch anything else until they get to financial freedom. Because again, if we’re trying to give people a level of certainty that they can be financially free with truly passive income, this is about the only way we know how to do it. So I love that you bring that point up, because I think it’s a really important one.

Carey Hilburn [8:01 – 8:30]: I looked up not too long ago, I think we were having that discussion with preparing for a client meeting, and it was, I think 60% of adults in the US are invested in the stock market in some form or fashion, which is almost an all time high. I think the peak was before the great Recession, but. So it’s down a little bit and has been recovering since then, of course. But anyway, 60% of the us adults are invested in the stock market, which is interesting. So if you’re not technically, you’re not with the majority.

Patrick Longergan [8:31 – 13:41]: Good. Moving on to level two. Again, this is optional, but we think buying, investing in real estate is one of the best wealth building tools available to us. We’ll get to that in just a second. But I’d like to talk about why we don’t like it as maybe the number one reason so real estate illiquid. If I put money into this thing and I need it back quickly, can’t get it back right away. And the other piece of it is like if I go down the street and I’m buying myself a five unit apartment building, this is very much like owning a small business. It’s going to take my time, energy and attention, where the 70 30 allocation in stocks and bonds is not going to take my time and energy. I can come back a year from now and I’m going to have whatever the market did for me on the five unit apartment building. I’m going to have to extract the value out of that. I’m going to have to make sure that the tenants are doing what they say they’re doing. You know, the building’s being maintained and all those other pieces. So people talk about investing in real estate, and I’m like, really? What you’re doing is buying a small business. And just as a recap, we’ve been in the real estate game, my wife and I, for over 20 years, and it’s been an adventure. We’ve done all of it. We’ve made money in things, we’ve lost money in things. We’ve had everything from single family homes to large industrial projects. And I’m speaking from experience there. And again, I love real estate estate. That’s where I hold the majority of my wealth. But it’s not as simple as just buy it, forget about it, like a share of Amazon stock, and I’m going to have more money sometime down the road. And we also think, like, you know, as entrepreneurs, keeping the main thing, the main thing is super important. Like, just stay focused on your business. Don’t get distracted by going out and managing real estate. That might add a few thousand dollars to your bottom line, maybe a few hundred thousand, where you can increase the enterprise value of your business, and it can mean millions of dollars, too. And one thing to just sort of throw out there, we haven’t discussed this with non clients, but we have a real estate opportunity that people can invest in. We’ve made available to a few clients we think is a good fit where it really does fit into that passive investment category. We’re managing it. They don’t have to think about it, worry about it. They get the tax benefits, cash flow, all the benefits of ownership without having to spend a lot of time managing the thing. And I think the problem with most real estate investments, the, the average real estate investor invests in a deal and then they’re out within three years. And the problem is they don’t know how to analyze a deal. A realtor will show them a property and say, hey, this is a good deal. They’ll trust them. And generally they’ll look at it and go, oh, hey, this generates $2,000 worth of cash flow every month. My mortgage payment’s only $1,000. And so I’m going to have $1,000 of cash flow after I pay some tax. And insurance, I’ll have some dollars left over. And really what happens is all of the expenses associated with the property, deferred maintenance, vacancy, that type of thing, aren’t factored in there, and it quickly gets to be a negative cash flow situation. And people are like, it’s taking my time and energy, and it’s actually not putting any money in my pocket. I got to get out of this thing. And then when you first get started, you don’t really have any systems or processes for how to, how to manage real estate. So people just get worn out. So I think the thing that’s nice from our end is we share all that experience. We also look at the deals, help them analyze it, help them structure the financing, and negotiate the financing in a way that can make deals work for people. So, all right, now back to why we think real estate works. There’s sort of four components to real estate that when you start getting a deal first, what most people think about is the monthly cash flow. You know, generally, we like to see about 10% cash on cash return. So if I buy a million dollar building and put 20% down, 200,000, I want to see 10% on that. So about 20 grand a year coming back to me. And that’s, those are real dollars I can put in my pocket after all of the expenses. Then there’s the amortization, so the tenants are paying the payment, and this is money that gets put on the balance sheet, but the loan value goes down every year with the amortization. And so that’s equity, and then coupled with that is the appreciation. So the property goes up in value just because inflation, increase in rents, cash flow, all of those things. So every year, my spread between property’s worth and what I owe gets bigger and bigger, which is nice for the balance sheet. And then the last piece is just all the tax benefits. And we’ve had people on the podcast, like Kevin, Jerry, that help us, like, optimize all of those deductions with cost segregation, study asset partial asset dispositions and that type of thing, where all of the income coming to me is tax free from the property. And if I am real estate professional status, I can accelerate a bunch of those losses and offset my active income in the business, which is really, really pretty cool. If I had to design a perfect structure, I have somebody that is a business owner that creates tremendous cash flow, and then the spouse is a real estate professional that is growing the real estate portfolio and wipes out most of the tax bill there. My wife and I have sort of stumbled into that a little bit. It’s worked out nicely. And then the last tax piece is just utilizing a 1031 exchange. You know, I can sort of take that capital gain and keep rolling it forward and not have to pay tax on it. Buying my next property, which is pretty cool, and if I time it right, I could pass those assets on to my kids and they could get a step up in basis we never pay tax on it. Not that we won’t have an estate tax problem, but who knows what that’s going to be. So those are all the reasons why we think real estate makes a lot of sense. But again, it’s relatively illiquid and takes a lot of time and energy. So that’s why it’s not in our, our number one spot. It fits nicely in number two, and it’s optional. People don’t have to put money there. Any questions on real estate?

Carey Hilburn [13:41 – 15:08]: I don’t think so. I think what we see most often is twofold. There’s kind of two scenarios. You’ve got folks who are interested in kind of stepping into the real estate area, and if you think about it, if you’re just going to get your toes wet, what’s the easiest spot? It’s probably a single family home. And then you’re dealing with tenants, updates, upkeep, whatever. The list goes on and on there. You can probably use your imagination and guess what could be on that list. And so I think it either goes really poorly or it can be decent. And you say, this is easy, let’s do it again. And the likelihood of that, take your guess. But the flip side of it is maybe they’ve already been there and you’re starting to analyze more deals. At that point, it’s worked well, and we want to do a repeat and maybe it’s larger than a single family home. In today’s interest rate environment, I think what we’re having to caution folks on is reviewing those pro formas and saying, just because it’s worked out well the first time, and maybe you are the underlying factor, which is great. There’s key metrics that matter on the front end to make a decent deal. You can’t turn a decent deal into a great deal. Right. The acquisition cost, the underlying loan terms, the potential cash flow on that drive it, too. And so I think oftentimes we see investors getting antsy, really to get into that next deal, and we’re really having to caution them of, let’s pump the brakes. This deal is different than the first one and really break that down and remind them of why.

Patrick Longergan [15:08 – 15:45]: Yep, absolutely. We’ve also seen to clients that are running a very successful business, the real estate portfolio grows to the point where it’s sort of an afterthought. And they’ve got properties sitting vacant. They don’t feel like there’s enough to, like, hire somebody in to manage the assets, and so they start to underperform. And so I think having a. An infrastructure in place, too, that you can manage is good. We’ve also seen clients that are successful real estate investors start to consolidate things down, just less properties, less hassle, less states. You know, we’ve had clients that have properties spread over multiple states. And, like, I don’t need this complexity in my life. Let’s make it simple.

Carey Hilburn [15:45 – 15:54]: So, yeah, finding the appropriate size and scale seems to be where they eventually get to is needing some advising on what that is for them.

Patrick Longergan [15:54 – 16:16]: Absolutely. We’ve even seen clients, like, have quite a bit of luck operating in some niches. We found senior housing works well for us. We’ve seen other clients with some warehouse space. I think you’ve had some examples of data centers or data centers, like the hot thing that people can invest in, and it works well, so. All right, good. Anything else on real estate before we move on to level three?

Carey Hilburn [16:16 – 16:18]: I don’t think so.

Patrick Longergan [16:18 – 17:28]: All right, so let’s talk about level three. Level three is financial freedom. So we think about those first two categories, our investment portfolio, our real estate. Now it’s kicking off enough income, or has the potential to kick off enough income that I don’t have to work to maintain my lifestyle. Now, I think it’s important to be clear, like, this isn’t necessarily retirement. This is almost a state of mind, like, cool. I’m now to the point where I don’t have to work if I don’t want to, but I can keep showing up and keep building this. And a lot of entrepreneurs aren’t necessarily doing it for another buck anyway. There’s a purpose and sort of mission there that they’re excited about in their business. And so it can just give people the opportunity to think about their role a little differently. Think about the projects they want to pursue, the things they want to look at in their business, also, just give them a peace of mind, like, okay, you know, I’ve got these assets outside of this business that will take care of us. So if the business I don’t say goes away, but if I don’t maximize the value out of this thing, we’re all going to be okay. This is one thing I think you do a fantastic job of with our clients is just walking through the different scenarios for financial freedom. Can you talk through the things that we typically look at for clients in our financial freedom analysis?

Carey Hilburn [17:28 – 20:17]: Sure. So this is essentially, you’re spending all this time accumulating, right. Getting money out of the business, like we said, and diversifying your portfolio. And it’s like, how long do I have to accumulate for? So if we sat down with any of our clients and said, tell us what retirement looks like, they would probably look at us like, you know, we had five heads, because that’s just such an ancient term. Now you start to go down and really try to visualize this with them. Could you step back into more of an advisory role? Would your lifestyle change? Your kids are grown. What does it look like? What are your goals for your family? And so through those questions, what we’re essentially trying to peg is really the lifestyle cost and how the income could change realistically as they envision it today. Certainly a moving target. So what we ended up doing and deciding was more useful is essentially running scenarios that say, okay, if you, let’s say today, you have a day at work, and you walk out, throw the keys on the roof, we’re done. We’re not selling it for a penny. We’re just walking away. What can my assets support? What sort of lifestyle could my assets support that I’ve accumulated in my portfolio? The next thing is, what if we sell the business for something? We usually say, give us a conservative but realistic value for your business, and let’s plug into the scenario that you sell it for something instead of throwing the keys on the roof. So we’ve got your portfolio, assets that you’ve accumulated, and then we’ve got equity in the business coming in. With those two combined, what kind of lifestyle can that support? And then we’ll do the same two scenarios further out at maybe age 50 or 60. Or, you know, we’ll talk through that with the client and see what’s most appropriate. But what we figured out that does is it really starts to give parameters, because oftentimes clients come and they’re like, I didn’t take a penny out of the business for years. I essentially lived on nothing. And now, you know, we’re thriving. We’re at a point where I can support my family, and maybe we’ve moved into a dream home or something like that. Something’s expanded. I’m sending my kids to the school I always wanted to send them to. Or, you know, it could be anything. I’m doing the trip every year that I want to do, but they don’t know how it could change, right. Because it’s already been a drastic change from where they started. And so running these scenarios we figured out really starts to give them parameters, because they say, I could be fine spending $10,000 a month, but I could think of a few scenarios where I’d spend 50,000 a month, but I don’t think I can do that. And so by essentially saying what we need to accumulate and backing into what the assets need to be for them to support that lifestyle, it really, I feel like it empowers them to start to decide and drive that of what do I want my lifestyle to look like or what I want the flexibility for my lifestyle to be.

Patrick Longergan [20:17 – 20:44]: Yeah, no, I think that’s great. And I think these are some of the most fulfilling conversations as an advisor that you can take a client through and sort of see their reaction to, like, okay, cool. Like, actually, we’re at a very healthy spot from a financial perspective, and we’ve been stressing out over all these things for all these years, and now it’s sort of paid off. Like, we can do the things we want to do and we don’t have to worry about going back to, for lack of a better term, eating beans and rice, living in a van down by the river, so.

Carey Hilburn [20:44 – 20:45]: Right.

Patrick Longergan [20:45 – 20:45]: That’s good.

Carey Hilburn [20:45 – 20:47]: Those are the best conversations.

Patrick Longergan [20:48 – 21:29]: So one thing that I think we look at is it can give them permission to go pursue passion projects. We’ve seen clients get to this level, and they’re like, okay, I don’t need to allocate new dollars to my asset column. I can be excited about something that may never generate a penny worth of revenue, and it’s okay, but it’s going to have impact in the world that I can be excited about. Might be legacy, could be change that we want to see. It could be a cause that I’m passionate about because of my background or history, things like that. We think that’s pretty cool, too. Clients get pretty excited about those opportunities to go do things that they’re excited about, but they’ve maybe put on the back burner for a few years just because they’ve been so focused on building their business. So.

Carey Hilburn [21:29 – 22:45]: And I think that even trickles down into estate plans and, you know, plans for your heirs, kids, grandkids, whatever it might be. But I feel like this level three is really usually the sigh of relief for some clients, which, these are the fun conversations, but they’ve been in you know, this rat race of work. Work. We’re in the grind. Earn money, save money. And you’re like, I know I’m saving for something down the road, but I don’t know how much I need. So once we run these and they start to visualize, like, okay, I’m at this threshold, and I’m happy with it. If I get here, I feel really comfortable. And then it’s always, I feel like we circle back to that estate planning discussion. At times of, previously, you knew there was estate tax problem, but you’re thinking, I don’t have those dollars yet. How do I have an estate tax problem? And what does it matter to me? I’ll be dead and gone. To now it goes to, okay, now I might have sufficient assets for my lifestyle throughout my life. Now you can start to think of, what do I want to happen next? And so once you’ve seen those projections and really started to visualize what it looks like for you, I think sometimes it helps those conversations for back to the estate planning discussion that we’ve talked about previously, and you start to really realize how that sets in and then start to make it your own.

Patrick Longergan [22:45 – 24:35]: Yeah. And I think you’re bringing up a very important point about how all of the planning we do is it’s all integrated. Like, it’d be really nice to talk about tax in its own little vacuum and estate planning in its own little vacuum and cash flow and investments. But, like, it’s almost impossible to discuss these things without taking all of those pieces into consideration, because they all impact each other. And we think that’s one of the reasons why clients find a lot of value engaging with us. It’s like their CPA is not necessarily talking to their attorney, who’s not talking to their investment guy. And so it’s like, you know, there’s all of these things, sort of, there’s a central point of contact that all of it’s being managed. We know what the client’s goals and outcomes are and can help drive the implementation of all of that to have it be successful. So good. Good stuff. All right, this leads us to level four. And level four is probably one of the things I feel like we have to do, maybe the most education on, because we have clients really excited about level four, but we have to work through the first few levels first. And now that we’re totally opposed to it, but we feel like sometimes clients come to us and level four is investing in, we’ll call a moonshot or private equity opportunities that really can go to the moon. They can be tremendous return or they can be zero. They’re very illiquid. And I think from our experience, we’ve had a number of clients that have been invested in a number of these opportunities. You never know when they’re going to pay out. You don’t know if they’re going to pay out. And the fact that you can’t get any money out of them is, can be an issue at times. And so the reason we like it after financial freedom is because we feel like it can just slow down the process of getting to the point where you’re financially free. I can’t go to my moonshot private equity opportunities and turn on an income stream. Like, I’m just at the mercy of the deal. I can’t decide when I sell it. I can’t get any income out of it. And so those are some of the challenges that we see with private equity.

Carey Hilburn [24:36 – 25:51]: I usually associate it with lack of control. And the reason I say that is because folks might try to argue, well, I have no control in the stock market. I would say, actually, you do, because we can tailor your allocation to control the risk there, to hedge the downside. That’s how we take control in the stock market. In real estate, let’s say you’re invested in a deal and in a property directly, you hold the asset, and maybe the management company is doing a poor job or, you know, it starts to take a downturn. You can drive to the property, fly to the property, boots on the ground. It takes your time and effort, but essentially, you as an entrepreneur with invested interests can get involved and start to turn that around. Obviously, your financial freedom, you have the best interest at heart and your own financial independence. And so on these level fours, you know, if you’re invested in a private equity deal and another company of some sort, someone else is typically running that, and they may not have the same skill sets that you have as a successful business owner. And so that’s typically why we put really all of these in the moonshot category. Even if it’s your best friend’s business or something like that. It’s the lack of control factor that we really see that causes it to kind of be in its own level.

Patrick Longergan [25:52 – 26:45]: I think that’s fantastic distinction because it really is the number one issue. And it could be an owner operator that you know really well that has a great track record, and then, heaven forbid, life happens, right? It could be anything from an illness to relationship issues. All of a sudden, they’re just not focused on the business anymore. And there’s nothing you can do about it. I think that’s great. And I think that’s why we like this. After we’ve sort of hit the financial freedom piece, if we want to, we’ll say, roll the dice and see if one of these opportunities can go to the moon. That can be great. Now, Kerry, I know you’ve got, like, an example of a client that came to us that had lots of assets tied up in some of these private equity opportunities, and it posed some challenges. Can you walk through, like, some of those issues that they were facing? And just as a little bit of a sort of cautionary tale for why we shouldn’t necessarily be looking to put majority of our assets in these types of investments?

Carey Hilburn [26:45 – 29:29]: Yeah. Yeah. There are folks out there who essentially pose as an advisor and help structure and review these deals. And so sometimes then individuals, investors can start to view them as an advisor. But taking the full scope of your entire picture isn’t necessarily what they do and it’s not what they’re promising to do, for that matter. But anyway, sometimes we see where clients might come to us and say, can you look at my portfolio? Maybe they’re starting to have some, you know, red flags or whatnot. And oftentimes it’s because liquidity is the underlying challenge. They’re now in a portfolio. All of their portfolio assets are essentially illiquid. Some might be debt deals. So it’s cash flowing a little bit, but still, like, we went back to the ability to go sell it in the open market or put a real estate property on the market. That’s not an option in this scenario. So I think the most disappointing case that we saw as it relates to these level four investments, she was a widow, came to us, obviously was in distress afterwards, and had somebody say, you know, I can allocate your portfolio, we’ll get you your portfolio growing, which was the main thing. She realized she needed to outpace inflation to live off of her portfolio. And when she came to us, everything was tied up. So this is about a $15 million portfolio tied up as it went on. And we started then going down the rabbit hole of trying to see if we could get out of any of them. A few of them started turning south, which would be detrimental to a widow. Right. And so that was certainly the last one we’ve seen. So a lot of this now goes back to just our investment philosophy of what we want to structure to try to alleviate any of these pit holes. So if a client wants to invest in some sort of shoot for the moon deal, we are certainly not opposed. Now, we will review the deal, advise on it, give our input. But if it’s a buddy, let’s say, and maybe the numbers don’t look great to us, but you’re like, I really want to do this. That’s fine. It’s your dollars at the end of the day. So from there, what we try to do is outline an investment policy statement and try to put some parameters on it, some targets where we don’t get into the situation, where we’ve had one successful deal, we’re going to the next one. You know, it’s like Vegas at that point. So we try to set target allocations on it and kind of set an investment policy statement that we live by and say we are going to allocate, you know, maybe 810 percent to shoot for the moon deals. But we’re not going to see that. If we get to the point where we’re exceeding that, we’re coming back to, to the meeting table and let’s talk through these and look at our global allocation to make sure we don’t get in a position where we’re too illiquid or we overstretch our assets in that asset class.

Patrick Longergan [29:30 – 31:09]: Yeah, I love that you brought up the investment policy statement, because I think it’s some guardrails that are foundational in the sense that we’ve taken a look at solid investment principles, we’ve thought through it with a clear mind, and we go, okay, how do we want our assets to look like? And you talk about the bet in Vegas, and I just read a good book recently from Annie Duke called thinking in Betsy. And one of the things she talks about is we can have bad strategy that in the short term creates good outcomes, like just get super lucky, actually. But that strategy is not going to win over the long term. And sometimes we could have a home run early in some of these private equity deals and be like, look, this is going to be my path to long term wealth. But unfortunately, we’ve not seen it play out that way like you were just discussing. And the other side of that equation that she talks about is we can have really good strategy, that in the short term creates bad outcomes. We can have bad luck, but over the long term, good strategy. And that’s where the investment policy statement comes in. It’s a good long term strategy that we’ve outlined that we all agree on. That makes sense, and it’s going to guide our decision making in those emotional times, like, oh, the market’s doing something crazy. What should I do? Well, let’s look back to what our foundational investment principles look like, and let’s just do that because it’s easy to go. Our irrational brain kicks in, and when the market’s going down, it sort of feels like a bear’s chasing us. And so we want to run away from those scenarios when actually it might be a fantastic opportunity to buy. Like, hey, let’s actually move dollars into this scenario versus run away from it. So the investment policy statement can help us to do all of that. So thank you for reminding me of that. I think that’s fantastic. Anything else on Moonshots investment policy statement that we should talk about?

Carey Hilburn [31:09 – 31:26]: I think we use that and just try to reiterate that a successful investor is an emotional investor and you can’t lose if you’re not selling when you’re down. So if we take that into account with all of our asset classes, all four levels, it all remains true.

Patrick Longergan [31:26 – 32:57]: All right, so let’s just do a recap. I’m going to start up one level. So we think about the four cornerstones of, we’ll call it the entrepreneur private office. First is cash flow. Like, let’s understand our cash flow really well. Second is let’s pay the least amount of tax possible. Then what that does is it gives us clarity on how much money we can move into investment opportunities. And you talked about automating earlier. I think that’s probably the number one tool that is underutilized. It’s the reason that so many people have millions of dollars in their 401k. It just gets there automatically. So the sooner we can set up automatic distributions to investment account, the better. So investments are the third cornerstone. And then the fourth piece is after we’ve built some wealth, then we start working on protecting it. And so when we look at that third cornerstone of investing, level one is build portfolio assets equal to one year’s worth of income. Again, it just creates liquidity and flexibility. Then optional. Number two is invest in real estate has lots of benefits from a wealth building perspective. Then level three is we achieve financial freedom. We get to the point where our assets will support our lifestyle. And then level four is, if we desire, we have the option to take some moonshots because we sort of got over that financial freedom piece. So, Kerry, I just want to say, like, I appreciate all the value you bring to vital and helping our clients plan from all these areas. We talked about the tax, legal investments, insurance, cash flow. You do a great job helping the clients clarify their goals where they want to go. And then I’d say, most importantly, just helping implement the strategies that we outlined. So thank you very much for joining us here today, talking about investments and being a critical part of the vital wealth team.

Carey Hilburn [32:57 – 32:59]: Thank you, Pat. It’s been fun.

Patrick Longergan [33:01 – 33:51]: Thank you for listening to the Vital Strategies podcast. If you want help building wealth outside of your business and a framework to help you do that successfully so you can live life in financial freedom, visit vitalstrategies.com client. Again, that is vitalstrategies.com client. I want to remind you to rate and review the Vital Strategies podcast on your favorite platform. Your feedback helps us spread the word toward our goal of saving our clients and listeners over $1 billion in taxes. Those dollars are better used in your hands versus the government bureaucracy. Again, thank you for listening and for being a vital entrepreneur. Entrepreneur, you’re vital because you’re backbone of this economy, creating opportunities for your employees and driving growth. You’re vital to your family, fostering abundance not only financially, but in all aspects of your life that matter most. Finally, you’re vital to me because you strive to build wealth, make an impact through your business, and live a great life.

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