Invest Like the Top 1% with Justin Donald

to everyone here. Thrilled to be here, thrilled to really just be part of this web series. And I think when we can get to the point that we're investing like the top 1%, investing like single-family offices, multifamily offices, what do the billionaires do? And I've had a goal and a mission to really democratize that style of investing. And so, you know, this message is not just about specifically investing, it's about what does the asset allocation look like? What are the tax playbooks that are used? What are the mindsets that actually build wealth today? And I'm excited to spend some time. So I wrote a book that I never really thought was gonna take off the way that it did. This is actually the update and expanded version of The Lifestyle Investor. Bob Fraser. And when I put it out, I didn't have a big following. I didn't have an email list. I didn't have a social media presence whatsoever. I just put this out there because I thought, number one, I had a friend finally talk me into writing a book and he's like, "What if you died and you never got to share all these things that you've learned with your daughter?" And that just hit me deep in my soul. And, you know, I've been kicking the can down the road for, I don't know, probably 10 years or so with people saying, hey, write a book, you know, teach some of the stuff that you're doing. I had been very comfortable being kind of in the shadows and not really telling a lot of people what I've been doing. And so after that meeting with my buddy, the next day I started writing this book and I just found myself kind of dictating into my phone, walking around outside. We eventually put it together and I had a friend say, "Hey, if you could sell 10,000 copies of this book in the lifetime of the book, you're in pretty good shape." And so, that was my lifetime goal. And it was either on day 2 or day 3 that we hit 10,000 copies sold and it just took off from there, became a number 1 Wall Street Journal and USA Today bestseller. As of today, it's the top 1% of all books sold. All the proceeds go to fight human trafficking. Through Tim Tebow Foundation, through Love Justice International, who we're so proud to partner with. The podcast is now a top 1% of all downloaded podcasts in all categories. And so, this book really kind of changed the game. And this is where we opened up our community, a Lifestyle Investor Mastermind, to those that wanted to kind of learn the game that the ultra-wealthy play. And this article here in Entrepreneur Magazine with a very kind shout-out linking me to Warren Buffett, which is way too kind, you know, went viral. And the book itself went viral. And I was no longer in the shadows. I was in the spotlight way more so than I'd ever been or ever even, quite frankly, wanted to be. But this kind of put me on the map and gave me access to amazing people, stages. I got a chance to— spend a week with Richard Branson, take the stage with Robert Kiyosaki and Ron Paul and many, many others, you know, over the years, which has been really cool. And so I love kind of starting things out talking about like your network. What is your network worth to you? And I've found that most people are not really intentional about their network. Their network is kind of by default. I find entrepreneurs often do a little bit better job than the rest of the public. You know, most people who are in corporate America, their network is whoever they're working with. And entrepreneurs, many of them join these groups of other founders, other entrepreneurs, and they network that way. But what I have found is very few people network with those that are playing the game of wealth creation at the highest level. And my challenge today, my intention today is to really press upon you the importance of what this has done in my life. You know, I've, I've now spent, um, over 20 years, uh, with at least, um, one meeting per week, and sometimes it's more, with someone new that I can learn from, where I take them to coffee, breakfast, lunch, sometimes dinner. It's a lot more dinner back in the day when I was, uh, more actively running a business. And, um, and, and those hours have just added up. They've compounded that my network is— has really grown, and I've able to learn from many of the best in the world. And I just challenge all of you, anyone here, uh, to do the same thing. So one of the most commonly asked questions that I get, uh, when I speak, when I, um, you know, keynote, uh, is what's the best investment that I've ever made? And, and over the years, by the way, I've gotten some great answers. Um, I've gotten, you know, investing into your education. Which I think is incredible. Investing into your marriage. Yes. And investing into your faith. Yes. Um, but I actually mean this literally, like technically what is the single best investment I've ever made? And I guess what I would say to you is, uh, if I had an investment that was not limited to any single person, meaning anyone could, could do it. Um, you could have compounded wealth on this return that could actually create a like million plus dollars in return. That has no risk, would you want to do it? And the answer that I tell people is the best investment I've literally made from a technical standpoint outside of my own education is world-class tax strategy. It's finding the best of the best. And, and, and keep in mind here, there's a big difference between a CPA and a tax strategist. So I want to make sure that I'm, you know, very clear on that. Most CPAs, the vast majority, they're paid based on returns filed. They're 99% of the time compliance officers. They comply to get a return done. They're compensated based on how many returns they file. So they're not incentivized to actually be proactive and help you save on taxes because that takes them time. Most of them don't know the tax code. Most of them don't know, um, many of the strategies that are out there that the ultra-wealthy use, and then they have to spend time learning it, which they don't want to do because they're not compensated for it. Uh, and so this is where a world-class tax strategist comes into play. So I have several that I have hired, um, for our family and, uh, many preferred vendors that we provide, uh, inside of our Mastermind community and These individuals coach the CPAs on how to file returns. And I'm telling you, I mean, in our community, we have a running list of over 70 unique strategies that the ultra-wealthy use on tax strategy. And most CPAs have never heard of any of them. The best CPAs out there that I found have maybe heard of like a small handful of them. And these are things that people are readily using that are available in the tax code. This is not stuff that's like on the fringe. This is straight down the fairway, outlined very readily for anyone that actually knows and understands the tax code. And I learned early on, the tax code is not telling you what not to do. It's actually telling you what to do because there are certain things that the government needs. And if you partner with the government and you satisfy what they need, meaning affordable housing— well, housing in general, but especially affordable housing, renewable energy, and in some cases any type of energy. Agriculture. I mean, the list goes on and on. So, if you can help the government with what they need, then there are tax breaks available for you. And so, I like doing, you know, some examples here where I can show you just in dollars that if you save $30,000 a year for 10 years, you're talking $300,000. Now, our investments, when we invest, and I'll get into some of the specifics of this, we're generally far outperforming the stock market or the S&P 500, we're generally 15% plus a year on the things that we do. And historically, I can show you some data that really tells what the S&P 500 has done over the last century and what money managers do comparatively to that S&P 500 index versus alternative investments. And so, I just have a 15% return compounded over that time, and that equals $1 million on that $30,000 a year. And many of you listening to this, you could save a lot more than $30,000 a year. So that number can go way up. But what happens over 30 years? You're talking $900K in straight dollars, but compounded at a 15% return, you're talking over $13 million. This is life-changing, legacy-changing, family-changing wealth, um, to be able to do this with dollars that otherwise would go to the government. And I think many of us would agree that, uh, They're not the best stewards of our money, but we can use the tax code to our advantage to keep these dollars and let them compound for us, not just to build wealth, certainly to build wealth, but to have impact in the world as well. And so, you know, here's a little chart that I made that is basically a dollar doubled every day inside of a tax-free vehicle versus a taxed vehicle. And obviously capital gains change. You've got short-term, you've got long-term. So I just split the difference in here, um, as well as other states have certain taxes. So, uh, doubled in a tax-free environment, you're talking over $1 million. Um, doubled in a taxed environment, you're talking $28,000. So you've got more than a million-dollar delta here, uh, over these 20 years. And, and, um, I, I tell people all the time, financial freedom just Totally Eats Net Worth for Breakfast, Lunch, and Dinner. And I just find all the time that, um, people put too much emphasis on net worth, um, and, and not enough emphasis on financial freedom. And, and net worth is a little fickle. It's subjective. Um, you know, someone's business is valued at a certain amount in their mind, but what they sell it for is likely a lot different than maybe what they have on their personal financial statement. And often, times. Net worth is not giving utility today, whereas financial freedom is. And so, for me, and I love sharing this, I had financial freedom before I was ever a millionaire. All right? So, I had all of our lifestyle costs covered with surplus income to be able to invest before I ever had $1 million in net worth. And so, again, financial freedom can come at any point. But I do believe that when you are financially free, you make better decisions for your business, uh, professionally in general, uh, and then for your family. So, um, I had a, a situation where I really got screwed by my broker and I learned really fast that, um, most financial advisors and money managers are not actually investing their dollars in the things that they're recommending us to invest in. So there are commission structures where they can make more that they recommend oftentimes over what they put their own money in. And I found that I was being taken advantage of. I found that the financial statements were manipulated to tell me average rates of return, not actual rates of return. So there was a situation for me where I had this aha moment where my— what I had invested, the statements all told me positive returns on average. But my actual dollars were less than what I put in. So it means I was losing money. And that's because I outsourced my financial literacy and education to someone else. And I chose not to in-house it, uh, and take it upon myself to learn these things. And so I just really want to encourage everyone, uh, this is an area, tax strategy, investing, that there are certain things you should probably know and learn for yourself. And then the other thing that I learned is that, um, over the last 15 years, only 5% of money managers have outperformed. S&P 500 index. And then over the last 30 years, it's less than 1%. Okay. And it's, it's actually much, it's much closer to 0% than 1%. So what I'm trying to help you understand is in the long term, you, you pay less to invest in index funds on your own than what you pay someone else. And 99%, closer to 99.9% of people are paying more money to have someone manage their money than if they just invested it on their own. So they're paying more money for a worse return than if they just did it themselves. So I love talking about goals, and I think that's important that everyone figures that out. Investment criteria are one of the first things that we do inside of our community. And I think everyone should, should know what are the reasons why you want to do an investment. Uh, what are, I mean, the goal should be to say no as quickly and easily as you can. Um, because there are more bad deals than good deals. Uh, asset allocation. What do the wealthy do? What do the billionaires do? We're going to talk about that. Your freedom number. What does it cost you to live your current lifestyle? Uh, and, and what is that per month? And then, you know, world-class tax strategy is kind of the game changer to it all. And so I like giving this comparison on, on like the, in the stock market, You know, mutual funds, most people put the majority of their net worth in, in the stock market, uh, which is interesting because the wealthiest people, um, in the world, uh, also the wealthiest people in the US put the majority of their, their wealth in alternative investments. And so we're gonna walk through a couple of examples, but, uh, in US mutual funds, the top quartile or top performers perform at, perform at about a 9.3%. Bottom quartile about a 7.4%. So that spread is only about 1.9%, just under, uh, 2%. Not a huge delta, but global private equity, um, you've got top quartile at 25%, bottom quartile at 4.3%. So on the alternative investment side of things, your spread is over 20%. Uh, and by the way, it's even bigger in, in US venture at 25.1% between top and bottom quartile. Uh, and so I want to give you a little bit of a behind the scenes of the stock market. I'm not anti-stock market. Market, but I'm most certainly anti-majority of your wealth in the stock market. And you'll see why. So, uh, out of 400 million small private companies worldwide, uh, and, and 400,000 large private companies worldwide, uh, you've got only about 40,000 listed companies in the world. Only 4,000 of those, uh, are listed in the US on our stock market. All right. Um, and, and so like, think about that from a percentage standpoint. So under 1%. 0.016% of US businesses are served by capital markets. So tell me, in what world is having 0.016% of anything, like a reasonable thing, you know, drinking water, electricity, internet, vehicles. I mean, this is, this is investing we're talking about. We're talking about the long-term livelihood and sustainability of of families. And so if you go back 10 years, there were over 10,000 publicly traded companies. And just keep going back in time and you'll see publicly traded companies are dying because they're overregulated. Current regulations require 4 years and $40 million to create a traditional security, so to go public. And then once regulated, once you get listed, Well, now all of a sudden you have all these additional hoops you have to jump through. And so it becomes really challenging for a lot of these people, a lot of these companies to stay listed or to actually perform the way they were when they were private. So I read a book by Robert Kiyosaki called Cashflow Quadrant. That was a game changer to me. And I'm not going to go into the details of this, but this quadrant literally changed my world. And now I kind of view the world and view investing through quadrants. Quadrants. And so, on the left-hand side here, you've got the employee side. The one below that is self-employed. That is your highest tax brackets on either side of those. Those two categories pay the most in taxes. Business owners and investors pay the least amount in taxes because the tax code is built for them. And so, most people kind of graduate through this the way that you would move from kind of quadrant one with employee down to self-employed to business owner to investor. And I had this wake-up call that— Wow, I thought I was a business owner, but really, to be a business owner, I'd have to be able to leave my business for at least a year and have it continue to perform at or above the level of when I was involved. And I realized, no, I'm on the hook. If I left, my business would crumble. My business is me. I'm actually not a business owner. I'm a slave to my business. And so, that's when I started putting technical systems into place, SOPs. To become a business owner, to have a more self-sustaining business without me. And then, I moved into that investor quadrant, which is what my goal was. And so, most of your wealthy people, they create their wealth via concentration. So, think about an entrepreneur that has an exit. But the wealthiest families actually grow their wealth via diversification, and most people in specifically the United States, are over-concentrated either A, in the stock market, or B, inside their business. And many times it's both. And so I want to talk about the asset allocation of the wealthy, and I want to do it in this quadrant again. And so, you know, generally you've got private equity that's going to be somewhere between 20% and 30% of the net worth of a, you know, a high net worth individual. I'm sorry, you got public equity, which is going to be about 15% to 25%. You got private equity, that's 20% to 30%. You've got real estate, that's usually about 15% to 25%. And then you have everything else. And I'll break this down in more detail. So if you look at these asset classes, you know, some that I didn't mention over there would be private credit, because that's a little bit smaller of a percentage. You've got fixed income, so bonds. You've got cash, you've got cryptocurrency, you've got hedge funds, precious metals, collectibles, commodities, infrastructure. And what I want to do is I want to show you an actual chart of what the single-family offices do, so billionaires. And that's what this whole podcast is about. This is what Bob Fraser's new book is all about. And so, I really want to kind of lay out the details here to help everyone understand what that looks like. So on the left here, you see the spreads. So again, public equity, you see 15% to 30%. Right now, you're seeing it closer to 15% to 25% based on the new data that just came out. Private equity, so private companies is 25% to 35%, real estate 10% to 20%, private credit 5% to 15%. So private credit's like the private side of bonds. So banks are tightening up a lot more of what they do and they're lending a lot less. So private companies have come in to fill that void. Avoid. Fixed income, 5% to 15%. So again, bonds. You've got cash, 5% to 10%. Cryptocurrency, 1% to 5%. You have kind of the who's who. You've got Larry Fink of BlackRock, the largest wealth manager in the world. I think they have over $12 trillion, maybe it's over $13 trillion in assets under management. And he has come out on record saying that people should have a minimum of 2% of their net worth in Bitcoin. And at Davos, at one of the recent meetings, he said that realistically it probably should be closer to 5%. Hedge funds, 2 to 4%. We're actually seeing hedge funds tick down as alternatives have ticked up. You've got commodities at 1 to 2%, so think oil and gas. Precious metals, 1%. Collectibles, 1%. And infrastructure, 1%. So bridges and water systems and, and, you know, towers and, and cell, you know, that sort of thing. I'm not sure if I did say bridges. So roads, you know, all those sorts of infrastructure items. Okay. So if you add this up, the wealthiest people in the world, your billionaire class, generally have 50 to 60% of their net worth in alternative investments. Okay. That, that's a, a significant number because Wall Street, um, has labeled it alternative investments to get people to think that the stock market is the primary and everything else is an alternative or smaller slice. When in reality, your wealthiest people are generally just 15 to 30% in the stock market. All right. So, uh, inside of these asset classes, um, we can get specific. We can talk about direct investments, funds, angel seed. So early, early stage. So actually let me break this down a little bit for you. The wealthiest families put, uh, generally no more than 1% of their net worth in early stage investing in seed, pre-seed, that sort of thing, because it's so high risk. Generally it takes, um, you know, at least 50 companies, usually about 100 companies to be able to get a return, meaning you're losing on 99%, and then you make it big on one. So it's a very small allocation. Whereas it's funny to me that entrepreneurs often put, because they're successful as an entrepreneur, they're like, well, I know how to invest in companies. So I'm gonna invest in these early stage companies. And they don't even know, you know, I call it an interest-free loan for an extended period of time. Um, where they don't even know that it didn't work out for 10, 15, 20 years. And then they learn way down the road after it's too late that that strategy, uh, doesn't work. Um, unless you have scale, uh, generally it takes 412 early-stage company investments to get a unicorn, a billion-dollar company, a billion-dollar exit. Uh, we can move down to venture capital. So this would be part of private equity. So this is earlier stage. Under that category. And usually this is 4 to 10% of the net worth. So think Series A, Series B, that sort of thing. So beyond that seed angel round, you've got secondaries where you can buy other people's interest. You've got senior secured debt, which I love being in first position. So that would be a lot of your private credit. You got junior or mezz debt, which is riskier than senior secured. Senior secured means you're first in line. Junior means you're second or third in line. Um, and then for real estate, um, I've done well, uh, in, in really all these categories at one point in time or another. Uh, the top two I've listed here are mobile home park and industrial. They're still the top two performing asset classes, um, you know, over the last decade or just shy of a decade. Uh, multifamily, uh, had a huge boom for a period of time, but it's, it's, uh, really taken a beating, uh, the last number of years. Self-storage, uh, has become a lot more I mean, all of these from, from multifamily down, you have a lot more institutional investors. Industrial has less, and then mobile home park has the least number of institutional investors. So it's the least consolidated real estate asset class. So that's really why I put a lot of my primary resources early days into this. Then you've got single-family rentals, you've got retail, hospitality, office land. And so another quadrant I like to look at is, I mean, most people aren't even on this quadrant. Most people aren't even good at making money, but once you become good at making money, you kind of enter that first quadrant. Uh, from there it is really hard, uh, to manage money. Most people who are good at making money are horrible at managing money. And so that's why you see a lot of, uh, very successful entrepreneurs, high-earning, uh, corporate America types like, um, executives and, um, lawyers and doctors. Making a lot, but maybe not knowing how to manage it. I think you have the smallest percentage that's actually good at multiplying money. And this is where I believe my gifting has been, is helping other people, helping our family and helping others to really multiply and have really large returns, and inside of vehicles that produce a lot of tax-free growth. So, you keep a lot of that money. And then ultimately, I think we're all looking to make money matter. Uh, and so something I love sharing is that rich people have a lot of money, but wealthy people have a lot of time. And I think it's important to figure out which category you want to be in. I know a lot of rich people who don't own their time, that have a business that owns them, um, that have to keep up with the Joneses, that have to, um, you know, they kind of get, um, stuck in consumerism. And the wealthy people that I know, uh, they do well financially, but they own their time. And that's, that's a big difference maker. And so we've talked a little bit about private deals, and the reason why the wealthy do more private deals than anyone else is the difference between efficient markets and inefficient markets. So if you look at an efficient market, the stock market is the, the quintessential efficient market that we have. It's It's— if you've read the book Flash Boys, you'll understand it is really hard to make money in an efficient market. And so day traders— there are way less day traders today than there ever have been because the stock market is so darn efficient. You've got quants that create algorithms and use AI to be able to do 1,000 trades in the same amount of time that you can do one trade. So think about that. From the time you click a button to buy or sell, they can do it 1,000 times. All right. So it's very hard to make money in efficient markets unless you are playing the index, you're playing the long-term growth of the whole market. Inefficient markets, this is, you know, where you have a lot of alpha or you have a lot of opportunity for outperformance. So why do I love real estate? Well, because it's inefficient. You can buy from baby boomers. Who, you know, they, they don't have systems in place. Oftentimes they're often still, you know, pencil and paper on a ledger, as opposed to like, you know, using Excel or using software. Uh, you could look at the same thing in private equity, buying private businesses, shares of them, or just buying companies outright. You know, I bought a number of companies over the years and, um, and, and we've had outsized returns there because They're inefficient. It is easier to make money. The reason you want to get into them is because they're inefficient. The reason you started your business is probably there was some inefficiency in the market. Okay. So, you know, we'll dive more into, you know, this. I talked a little bit about investment criteria and I just again want to hit on that because it is so important that you have your own investment criteria in place, meaning questions I ask: How long has the sponsor or general partner been investing? How many deals have they had go full cycle? How was their actual return versus their pro forma? Are they an industry expert where they specialize in one asset class? You know, have they lost money? How much money? When was the last time? Have they been through a recession before? How did they perform during that recession? Does this investment cash flow? For me, that was the most important thing at the beginning. I only invested in cash flow deals. Deals until I got our, our financial freedom number. And then I started diversifying into other things and the list goes on and on. But once you realize most deals are bad deals, the game changes. So entrepreneurs are the ultimate optimists. They can find a way, no matter what happens, they're going to figure it out versus the investor. Uh, their mindset is totally different. Okay. Um, an entrepreneur generally enters an equation saying, this is really good. I think I'm gonna invest in it unless I can prove otherwise. However, a great investor is gonna say, this is a bad investment. I'm gonna start on a no unless I can prove otherwise. And just that one distinction I think can be a game changer. So, you know, I have a, a number of commandments, 10 Commandments of Lifestyle Investing, where I walk through my 10 investment criteria. For the investments that I do. And, uh, and these for me are just, uh, kind of what has helped me build, um, the wealth that we've been able to create and, and build the financial freedom that we have. And so, you know, I'm not gonna spend time going into this. I'm outta time. Um, but you can dive into this in, in our book, uh, The Lifestyle Investor or on the podcast. Um, and if you go to lifestyleinvestor.com, we have tons of, uh, free resources available. Um, uh, you know, whether it be, um, tax strategies, whether it be questions to ask, you know, the top 25 questions to ask your CPA. Um, we've got a roadmap to passive income. We've got a calculator so you can actually calculate and enter in the asset allocation that the wealthy do. Um, so all this is at lifestyleinvestor.com. Uh, you can go to lifestyleinvestor.com/roadmap. And for anyone that wants a consultation call, we do these strategy sessions that are generally $500, but we'll actually do a strategy session for free for anyone from this community if you go to lifestyleinvestor.com/consultation.

Justin, you're the man. Grateful to have you on here today, man. And I believe Justin also, guys, has shared an incredible bonus to go along with, along with the package. So again, if you go down to resources and check that link, Justin, real quick, all that you included in the bonus, I mean, there's video courses, there's training in there. Thank you so much for adding to that. Anything you want to speak to that as well?

Yeah, I mean, so I'm not actually sure what our team has in there, but I mean, we have courses on vetting deals. We have the Tax Advantage, which is our tax strategy masterclass. You know, we have so many things that we want to give to the community. We've started working recently with pro athletes. I got a chance to go to the ESPYs here just recently and do a session with a bunch of pro athletes and then attend the ESPYs this year. And so it's cool seeing like how eager people are to get this information because instead of trying to sell or pitch a product, we are actually trying to give away education, right? We want to teach you how to do it so you don't have to rely on anyone, uh, and you have the skills yourself to be able to do it.