Mastering Alternative Investments with Your IRA feat. Kirk Chisholm

Hello, future billionaires. Welcome back to another episode of your favorite podcast, Invest Like a Billionaire. Today we brought on a really fun guest, Kirk Chisholm. He is a big-time podcast host, Money Tree Podcast. You definitely want to tune into this episode. So Kirk is actually currently a financial advisor and he runs this podcast, but he's got a really unique approach to investing and heavy into alternatives. And so he shares in this interview his story, kind of starting in, you know, the brokerage houses of, you know, 20, 30 years ago and kind of making his way eventually to start his own firm and to really focus on IRA investing in alternatives. So using self-directed IRAs. So this is something you're not familiar with, you definitely check it out. He also shares, you know, some of the alternatives that he's invested in, some of the cool stuff that, you know, they've done for their clients and really just kind of how the whole industry works and why he's shifted to this. And at the very end, we kind of hit on some really cool, just current event stuff, what he's kind of seen in the market, where he kind of sees things going and his thoughts. He's got some great kind of macro thoughts. So definitely want to tune in. And hey, if you're enjoying this podcast, we always appreciate your reviews and sharing this with a friend or two and hope you're enjoying. This is the Invest Like a Billionaire podcast where we uncover the alternative investments and strategies that Billionaires use to grow wealth. The tools and tactics you'll learn from this podcast will make you a better investor and help you build legacy wealth. Join us as we dive into the world of alternative investments, uncover strategies of the ultra-wealthy, discuss economics, and interview successful investors. Looking for passive investments done for you? With Aspen Funds, we help accredited investors that are looking for higher yields and diversification from the stock market. As a passive investor, we do all the work for you, making sure your money is working hard for you in alternative investments. In fact, our team invests alongside you in every deal, so our interests are aligned. We focus on macro-driven alternative investments so your portfolio is best positioned for this economic environment. Get started and download your free economic report today. Hello, welcome back to the Invest Like a Billionaire podcast. I'm joined today by Kirk Chisholm of Innovative Advisory Group, and really looking forward to this conversation, Kirk. You just had me on your podcast a few weeks ago and really enjoyed the conversation. Your podcast is Money Tree Investing. You guys definitely got to go check it out if you're not already listening to Kirk. And just really loved some of the conversations we were having, you know, even after the recording was over and just thought, man, we gotta get this guy on our podcast and just talk about some of his story, his perspectives on investing. And, you know, Kirk, you are an actual wealth advisor, you know, so you're doing the traditional kind of path of this, but you're doing it a very non-traditional way. And so just really excited to chat with you and thanks for coming on.

Yeah, thanks for having me. This is going to be a lot of fun.

So just for those that maybe aren't familiar with you, give a little bit of your background and kind of how you got to where you are and how you kind of view the world differently than maybe most financial advisors.

Yeah, great. So my background is probably not unlike a lot of others, although I think the timing really played a big part into it. So, you know, I was in college. When I was in college, I interned at a bunch of different firms and decided this is really what I want to do. You know, it was at the time it was the late '90s and, you know, this one, everything was easy, right? The markets only went up. And so I interned at a few bigger firms and a lot of the older guys were like, don't ever get in this industry. No one's ever going to, you know, be able to compete with discount brokers. And I decided I really just enjoyed it and wanted to do it. So I started at PaineWebber, my first first month of, of being in the business was December of '99. So I pretty much experienced 3 years of the markets just going down, which a great time to start. I'll tell you, everyone was a financial advisor in December of '99, and by the end of the 3 years, no one was, which was in many ways a good thing. If you can get through the hard times, everything else is easier. But I will say that, you know, if I had started in the mid early to mid-'90s, my experience and vision of how things work would be much different. And for people who just started after basically March of 2009 in this industry, you've not experienced anything hard. Um, going through the early 2000s, going through 2008, um, those were tough periods for people in our industry. And what it did was and impressed upon me very early the value of risk management. Now, risk management is first and foremost a part of our culture here, and we have a concept we call risk management first, which is most people look at performance first and they say, oh, that performance is great, let's do it. Then they do their risk management. We do our risk management first. If it passes muster for risk management, then we figure out if it makes sense from performance. But if you do it the other way, the way most people do it, you end up getting convinced. You convince yourself, oh, this is a good investment because the performance is good.

You got confirmation bias at that point. So you're just trying to look for ways to confirm your previous held beliefs.

Yeah, exactly. Confirmation bias is huge. So we try to, we try to nip that in the bud by doing the risk management first. So, you know, I worked at PaineWebber for a while. They were acquired by UBS, went to Smith Barney. And then struck out on my own in '06 and then really realized that what we wanted to do was very different. So we specialize in alternative assets held in retirement accounts. That's how we started the firm. We're the only advisors that do this. And it was really interesting and fascinating to me, all these cool and interesting things you can do with retirement accounts that people aren't even aware of. So we did that for a number of years and then we started expanding to other areas because we had some success there and, you know, we, we grew our the firm subsequently.

Very, very cool. So you said a lot of things there I want to kind of get back to maybe in a little bit, but first, for those that maybe are less familiar with, uh, self-directed retirement, you know, can you talk a little bit about what that means and how you can invest in different types of assets through retirement accounts?

Yeah, so when Mitt Romney was running for president, it came out that he had a $104 million IRA, right, which at the time was huge until we realized that that's not one of the biggest, uh, that's actually below average. Uh, so the GAO came out with a study in, uh, oh, maybe it was '12 to '11-'12, which actually went through the statistics of, of these retirement accounts, and I think there were 318 retirement accounts that are above $20 million in value. Do you know what the average balance of those retirement accounts are?

So there's 318 over $20 million. So the average of those— I mean, you kind of gave it away. I'll say $200 million.

$257 million is the average. So you can imagine how big some of the largest ones are. And this is a while ago. So Peter Thiel, it came out that his is— I think he has one of those over $1 billion in his Roth IRA. You know, he invests in things like Facebook and PayPal and a few others, which is, you know, why it was large. Imagine that tax-free, $1 billion tax-free. You can invest.

Government doesn't like that, right? Where they can't touch it.

Well, a year ago, a few years ago, there was— there were hit pieces out on these wealthy people, you know, hit pieces because they're going after them politically and they're saying, we're going to get rid of this, we're going to stop this. Like, Really? Like, you're going to stop this for everyone else because of one guy that you don't like? Go, go pick another battle. Like, the rest of us are going to get the short end of the stick. So, but, but yeah, that was it. They picked out a few wealthy people and said, we're going to come after you. And how they got their tax data is, you know, another question altogether, which I guess came out recently that some of these tax softwares were sharing information with, with tech companies and the government's kind of like, Okay, well, I guess the government already has it, but still, it's not something the public should have access to. So, yeah, so, you know, I love the self-directed IRA space. We get in it because it's fun. It's interesting. It allows people to invest outside of the stock market, you know, especially in times like this where the stock market's a little bit iffy and people are concerned. You know, what we do is, is a differentiator. What we do is, is investing, you know, we have people who come to us and say, hey, I want to buy this horse in my IRA. Great, we'll help you do that. I perfectly allowed. Or rental property or private company stock or tax liens, whatever it might be. You can do virtually— you can invest in virtually anything in your, in your IRA. There are a few exceptions. You can't invest in S corps. Life insurance on yourself or collectibles, but anything else you can invest in. And, you know, and there's some rules around it, but effectively I would say less than 6% of the public even knows this exists.

And why is that? I mean, that's something like when I learned about this a few years ago, it was shocking to me because this is, you know, it seems to be common knowledge. The only thing you can do in your IRAs is just go buy you know, the mutual funds or stocks or bonds, and that's about it. You just kind of hope and wait till you're, you know, 62 and a half to be able to have enough to retire. But there's so much you can do, right? There's some restrictions if it's like an employee retirement account and you can't, you know, move from there. But if you're switching employers, you can roll into a self-directed, or if it's not employer kind of contributed, you can have kind of free rein. So why do you think it is that so, so few people know about it?

Well, I'm going to put on my tinfoil hat here for a minute and give you the—

oh man, he came with props.

Look at this. I came prepared. No, I do a lot of shows and I use this a lot to illustrate a point. So if I'm wearing my tinfoil hat, I'm thinking the government's out to get me, Wall Street's out to get me, all these people out to get me. They're not telling me all these secrets, right? That's what you hear, right? That's what marketing is all about.

Sure.

However, reality is a little bit different. And I can't— I can't say that that's true or not true because I can't read people's minds. But if I was a logical person, what I would think is Wall Street is not out to get me. They're not out to keep me away from the alternatives. Think about it this way. There are 50 companies that provide custody for alternative assets in retirement accounts. 50, and you've probably not heard of any of them.

Sure.

You've heard of JPMorgan. You've heard of Morgan Stanley, Merrill Lynch, Bank of America. You've heard of all these companies, right? Well, the reason is, if, if, you know, if I think of the most logical approach, well, these other companies have enormous budgets and they're willing to spend it. And their job is to educate you about investing so you invest with them. They don't have a budget to teach you about self-directed IRAs that they don't provide. Right. They also don't provide advice on buying shoes or, you know, what, what rental property I should buy. That's not what they do. They sell stocks, bonds, and mutual funds. So their job is to educate you on stocks, bonds, and mutual funds in the best way possible. Sometimes maybe a little misleading, but regardless, That's what they're talking about. There's no incentive for them to educate you on, oh, by the way, you can also take money out of your Merrill Lynch account and go put it over this other place and invest in rental property. There's no reason for you to do that, right? These other companies that do self-directed IRAs, they don't have big marketing budgets because they don't make— they don't, they don't mint money like these brokerage houses. These brokerage houses mint money like it's going out of style. These other companies, they have a small margin of profit. And, you know, they're good companies, but they're not minting money like the rest. So their marketing budgets are a lot smaller. So you're not hearing about them. And they make up, I think, the latest, the latest statistic I think was 4% of all retirement accounts are, are in the other category or alternatives, 4%, 6 or 8, probably.

Which if you're including probably a Peter Thiel account, which is in alternatives, right, just buying private company stock. There's some big numbers that are, you know, even included in that 4%. So the average Joe, if you exclude the outliers, is probably a fraction of a percent, right? I mean, it's, it's, it's just so, so small. So, I mean, no, go ahead, finish the thought here.

So, so basically, if you think about it that way, the reason you don't know about it is because no one's talking about it. The people who talk about it, people like myself, you got some newsletter writers, you got people that sell this stuff. And you hear about it because someone's selling something. Oh, you should do this. You should put money, you should put a, you should put an LLC in your 401 and you can shield it from the government. I hear that one a lot. You don't need an LLC in your 401 or IRA. You don't need it. You can have it. You don't need it. But they're selling you the LLC or they're selling you the 401 wrapper, which is why they're telling you about it. I really don't care if you put an alternative in your IRA or you put stocks. I really don't care. That's not my job. My job is to help educate people that it is possible. And if you want to do it, great. If you don't, I don't really care. Right? My job is not to sell you anything. Like, I'm not a— I'm not a sales guy. So, you know, the way I look at it is, look, you have a great opportunity to utilize this in a way that benefits you. It doesn't work for every asset and it doesn't work for every person. But there's a lot of great benefits if you do it right, like Peter Thiel did. Mitt Romney, I think, actually kind of messed up. I still don't understand why he did it, because if he did that outside of the retirement account, he would actually have better tax treatment. But, but there's, there's a lot of things like that that just, you know, when you really think about it, like you have to, you have to think about like, what is, is this going to work for you or is this a shiny object that, that you're just trying to chase down? Because most retirement accounts in the self-directed space that are open at these custodians are empty. There's nothing in them. Because people get excited about doing it and then they're like, all right, what am I going to invest in? And that's where it stops.

And then crickets.

They have nothing to invest in. They get excited about the idea of doing it. And now it comes to, it's like, now what? It's like, how about you come up with the investment first, make sure it's a good idea, and then figure out how to put it in there, which is most of the people we get is like, hey, I want to buy this rental property. Can you help me? Absolutely. I can help you. So that's the kind of thing that that, you know, that really we're kind of chasing down.

I love that. I mean, it's funny from my side of it as an operator that, you know, has investment offerings working with self-directed IRA companies, you know, they're doing a great service. You know, I love that this exists, but because of compliance reasons, they're just a custodian. They're not advisors. They can't promote you, right? They can't say, hey, here, go talk with Aspen. You know, it's here's your account and you got to go find it. So you're kind of being this bridge showing what's available, what's an option, and helping facilitate that, which is a great service because you're a fiduciary, you have client suitability standards and other things that you have to abide by that the custodians don't and can't share. So take a step back because I think you, I think really interesting to hear what was the kind of critical point for you to make the decision like, hey, I want to do more alternatives, right? Because that's very contrarian thinking. As much as you or I are in this world and space, we see it all the time. It doesn't seem as abnormal, but for most of traditional financial planning, it's stocks, bonds, mutual funds, and that's all it is. How did you get exposed to it? And what was the kind of critical point for you to realize, wait, why am I not doing more of this? And then it actually became a key part of your business. I mean, that's a pretty big you know, transition that I want to hear the story about?

Yeah, it's a great question. So this actually started back when I was at Smith Barney. So I had a client come to me and says, I want to buy a company inside of my retirement account. And I said, I don't think you can do that. He's like, I'm pretty sure you can. And like, okay, how are you seeing this? Because they don't teach you this, right? This is the point. It's not that I'm against him doing it. It's that I didn't even know it was possible. So he mentioned it to me and I go to my manager, I'm like, hey, like, this client wants to do this. Can I do this? He's like, no, no, no, no, it's not possible. Like, no, I'm pretty sure it's possible. I looked into it, this and that. He's like, well, it's possible, but you can't do it. And I was like, oh, okay, now I get it right now. So, you know, he's lying to me and saying, oh, you can't do it. Okay. All right. I get that. Point taken. So I still helped him because he's going to do it and it made sense. So I helped him through it. I walked him through it, kind of I talked to the custodians and, you know, he was a client, but he's basically taking money out of my hands to go put it in this. And I was like, well, great, it's the best thing for you. So if you want to do it, great, I'll help you. So we talked to the custodians, did some research on the concept, said you should think about this, you should think about this. So I really got to know the topic and the strategy, and he went and did it on his own and worked out for him. And I got really intrigued. Because then 6 months later, another client say, hey, I want to take some of my money, invest it into private mortgages. And I was like, okay, I don't know much about that, but tell me about it. And he's like, yeah, I'm getting 16% and loaning it to some person doing X. I'm like, okay, great, here's what you do. And we just kind of started, you know, I started talking through the process of how to, how to go make the right decisions. And it just got me thinking. I'm like, wow, this is such a great strategy and no one is doing it. They don't even know you can do it. And I had a lot of clients invest in real estate. It's like, hey, how about you invest this real estate in your retirement account and, you know, you get all the tax benefits. So we started going down this road and then right around 2007, I met up with my current business partner and we started talking about this. He wanted to do the same thing I did, which was how do we invest in real estate? Because we had access to a lot of good deals, even in the middle of the bubble, we were still getting access to some great deals. And, and so we started looking at it like, why don't we just do this? Like, why don't we just team up and start to provide advice for people in this market? Because there's tons of people want it. No one legitimately— there are two other advisors who are, in my opinion, competent enough to do this, and they don't want this business. Like they've told me, like, we don't tell us that. Don't tell anybody about us. Like, we're doing it for existing clients that they ask. We're not doing it for anybody else. We don't want to do this business. So we're the only advisory from the US that I'm aware of that actually does this, provides advice, and is a fiduciary. We're not selling anything. So we, we kind of took the concept, said, this is great, let's become the, the experts, the foremost experts in this area. And so now when people want to do stuff, they come to us and say, hey, you know, you can do this, you can't. And we'll kind of talk them through it. And if we can, great, we'll work together. But the— but we find so many creative people that are doing really interesting things like fishing rights, airspace rights, you know, water rights. You've got, you know, cows, horses. You've got all sorts of weird, interesting stuff that I've come across over the years. And I love the idea generation that it gives me. So if somebody wants to buy a horse in their IRA, great. I'm not going to go sell it to my other clients because this one client is an expert in horses. I'm not the expert, right? But I'll help them facilitate the transaction because to me it's like if you're making 100% return on your horse investments, who am I to tell you to invest in mutual funds or ETFs or stocks? Doesn't make any sense, right? Somebody is a real estate investor and they do it for a living. Why am I going to tell you to put your money in tech stocks? Right. And Warren Buffett says this and Peter Lynch said this, invest in what you know, right?

Yep. Pretty simple.

So it kind of comes back to your earlier question of, you know, traditionally, if we look at traditional risk management, portfolio management metrics, what typically you would see is, well, you should have 5 or 10% in alternatives because they're really risky. But are they risky? So we've had conversations with regulators in the past. We're like, because they said, well, how much of your assets are in alternatives? This is like, I don't know, 10 years ago. And I was like, I don't know, like 40, 50%. And I mean, you could have heard a pin drop. Like, their mouth was on the floor. They couldn't believe we had that much. Like, oh my God, isn't that risky? They said, well, define risk for me.

Right?

Is Enron risky? Is WorldCom risky? Is AIG risky? You know, are all these companies risky? Well, yeah, they were extremely risky and they were publicly traded. I mean, AIG was one of 5 AAA-rated companies and yet they had problems. So is that risk? Or how about the rental property down the street that I can go walk up and touch? I can go to the registry of deeds, know I own it. You know, I can, I can talk to the tenants, know if they're good tenants. Is that more or less risky than WorldCom, Enron, AIG, you know, Lehman Brothers, Bear Stearns? It goes on and on, right? And so the question is, how do you define risk? And that's really the open question. I think most people just don't even think about it. They think, well, it's publicly traded, it's not risky. No, I'll give you a good example. Look at the news. Coinbase. I hate to pull out individual stocks, but Coinbase, right? Coinbase was approved— or I shouldn't say approved because technically they're not approved. They were— they were allowed to proceed by the SEC. SEC says, yes, you're good enough to go public. What happens a month ago? The SEC says, yeah, we don't, we don't like your model. We don't think you followed the rules. And they're like, well, we weren't following the rules before you agreed to allow it.

You approved.

You approved it. We approved our business model and now you're saying you don't approve of it. That's kind of a contradiction, right? So, you know, whatever it is, what it is. But the point being is like, Risk is, is, is a, is defined in different ways. And the more complex the entity, the more potential risk there is. If you're investing in a, you know, in a widget, you know, if I'm investing in a hunk of gold, I know what the risk is. The risk is somebody steals it, the government seizes it, I lose it. Those are my risks. You know, it's not, you know, it could go to zero. Sure. If, if my grandma stops wearing gold jewelry and we start— stop using gold wedding bands, maybe it'll go to zero. But until that happens, gold still has value. So that's a simple risk metric. If you're talking about an entity, there's a whole bunch of risks. There's employment risk, there's, you know, liability risk. There's all these risks that come into play. It doesn't mean it's more or less risky. It just means there's more things to think about. So when people look at risk, you have to understand, like, how are you defining risk and what, what is more or less risky? I mean, we do private mortgages. We've had less than 1% of them have any issue at all. We've done hundreds and hundreds of these things. Less than 1% have had any issues. You know, the metrics speak for themselves. That is low risk based on those numbers, right? Are there risks? Absolutely. There's, there's definitely risk in those, but if you do it right, if you do your research, you do your homework right, you can reduce the risk significantly. Same with publicly traded stocks. If you do your research and do the homework correctly, you reduce your risk significantly. However, if you just take somebody's word for it that it's a good stock, then it's probably riskier, you know? I mean, so it just depends on how you define it.

Now, I think that's such a, such a big— that we could do a whole episode just on that. And it's, you know, from my background, I used to be a commercial bank underwriter, right? And my whole job was to understand and try and quantify risk of making loans to certain businesses. And it's funny coming into the investment world, you know, many years ago, and investors, you know, talk about, well, it's risky. And I ask the question, well, what is risk? How do you define risk? Because risk isn't just one thing. And what's so funny to me, it seems that, you know, perception is reality. Whatever you perceive to be the risk, that is you know, how you view everything. And when it comes to the, you know, private markets and alternatives, what I've kind of seen is the liquidity, you know, or lack of liquidity is the biggest risk. But the question is, well, how much, you know, what should be the premium that you're paying for having liquidity, right? And should you even have liquidity? Is liquidity actually your friend, right? If you're in a down market, if we're emotional, buyers and sellers, like that actually could be a double-edged sword to have too much liquidity, right? And so it's such a good concept to kind of challenge your frame of what is risk. And it's usually pretty obvious, right? If you like with gold, for example, like there's pretty limited amount of what the risks are and are you comfortable taking those? And you know, that's a great way to say it. Kind of go back to an earlier point, but you know, to put the tinfoil hat back on, I mean, it seems like there's a lot of reasons why financial advisors don't even know about these things. And, you know, it's risky and all this kind of stuff. But you said something kind of offline and maybe you want me to say it on the air, but I'm going to anyway, that you said a lot of financial advisors are kind of lazy, right? And so it might not be this big conspiracy, but it might just be, to your earlier point, the way that the financial system is set up it makes it really easy just to gather assets and to stick them into your model portfolios and just rinse and repeat a cookie-cutter kind of approach for every client that you have with a little bit of nuance and grow to $1 billion AUM and just charge fees off that. Right. So it's a lot easier to do that than what you're doing. Right. Which it is a lot of work. I mean, I've worked with some of these self-directed IRAs. It's, it's not as easy as it should be sometimes. And You know, why, you know, is that really the reason? And why are you said you have other FAs that, you know, that say, I don't want to do this business and why is that?

Yeah. So I'll get into that and don't, don't worry about that. I'm happy to, you know, I'm pretty transparent in my thoughts. I'm not, I'm not shy. So I'll get into that for one second. I want to, I want to touch on a point you made about commercial lending and how they don't adjust risk. And I always found it interesting that Like a friend of mine who's got like $2 million cash in the bank wants to get a house for his mother and wants to get a mortgage and can't get one because he started his business a year ago and he— and the bank won't lend him money even though he's got cash, even though he's got huge income. They won't lend him money because he's not W-2. It's crazy how banks look at risk. It's, it's, it's annoyingly so. One of my friends told me at one point he was a lender and he said, there'll be a point sometime in the next few years where if you own a business, you probably won't be able to get a loan, period. Like it was going in that direction. So that to me is just ridiculous. But anyway, getting back to your point about advisors being lazy, you know, the, the reality is everyone's lazy, right? We're all trying to make our lives easy, right? I'm not going to lie. I want to— I'm lazy, too. You know, it's like my goal is to make my life easier and to be able to be lazy. I mean, if I could flip a switch and it would crank out $1 million a year, I'd just go sit on a beach. Why wouldn't I? Right? I mean, I could work harder, but what's the point? Like, why? How much money do you actually need? And apparently, no matter how much you have, the number is always 30%, by the way. So if you have $1 billion, you always need 30% more. If you have $100 grand, you need 30% more. I don't know why that's true, but across the board, every, every hierarchy of wealth, they always feel like, how much money do you need to feel okay? 30% more. It's a weird number. But anyway, so getting back to your question, though, if you consider the profession, financial advisors, investment bankers, whoever, their job is to make money, right? Their job is not to help you and make your life better. That is a part of what they do to get to the point where they're making money, right? We all do this. We all have a job. We all make money in some way, shape, or form. Now, the problem with the financial advisor industry is there are some really great advisors out there, and I don't mean to disparage the whole industry. There's a lot of great advisors. They're typically fiduciaries. They typically have a designation. They're people who take it seriously. They're honest. They're honest people. They are true fiduciaries. They're trying to do what's in the client's best interest. They are a godsend for the industry, and I wish there were more of them. Most of the advisors in the industry are brokers, insurance reps, people who just want to make a buck. And frankly, a lot of new people who are just trying to put food on the table. The challenge in the industry is when I started, I was in the, I was in the broker-dealer channel and, and basically the theme was hit the quota or hit the streets.

Wow.

Which is really a crappy way to start your profession. You know, I had 7 months to get up and running and start hitting quotas. 7 months. I just got out of college. I don't know anybody. I don't even have networks. I don't have any wealthy friends or family. I was dialing for dollars. I call it character building because that's basically what I was doing. And I figured out something and I was able to make it happen. Most people are successful at that stage because they have wealthy friends or family and that's how they make it through. It's hard. I'm not going to lie, it's hard. And most people don't make it. So what ends up happening in the industry is most advisors who are successful, they're successful because they're good salespeople. They're really good at sales or marketing. They figured something out and they're good at it. What they're not good at is being a financial advisor. Right?

Right.

In order to be a good financial advisor, you're more or less not a good salesperson. And I don't mean that they're— that they're not. But they're completely different skill sets, right? Sure. Being good salespeople is like personable, outgoing, like, you know how people work. You can kind of manage a conversation. A good planner is more detail-oriented. They're, they're, they're good at thinking, you know, they're good at being really thoughtful. You know, they care about people in a different way than the salesperson does. But the point is, is there are certain skill sets that they have which aren't necessarily aligned with sales. So I know a ton of really good planners that just stink at sales. That's all it is, right? You're talking about two completely different skill sets that are not aligned. So what ends up happening— so when I was starting out, it was mainly salespeople. The industry has changed now so that they've become more team-oriented. So you have a salesperson, then you've got planners, you got portfolio manager, you've got all these different people doing it. Which is the better way to do it, frankly.

Right.

But there are still a lot of really good planners that are independent and they're— they just have to market themselves differently. So what ends up happening is if you have a good salesperson, they really— most of them are not good at portfolio management. They're like, oh, you should have these 5 mutual funds, these 10 ETFs, and they're great and they're going to do this and they're going to, you know, you know, they're going to dazzle you with their intellect. But the reality is, is most of them aren't portfolio managers. They're going on some model that somebody else told them. They're saying, hey, this works. Oh, great, let me just do that. And it's usually because they're trying to sell them on something. So the whole industry is— it's really not designed properly because portfolio management is hard. The best and the brightest have a tough time in it. How is, you know, Joe Salesperson going to be great at portfolio management? They're going to follow Bogle's, like, indexing approach. Well, you can, but then why do you need this guy? You can go do it yourself. So they don't— they don't want to tell you that approach. They got to— they got to, you know, spit shine it and make it look good. Polish the turd, you know, hey, this portfolio is great. So the whole industry is not really well designed for the client's best interest. When I started, there was a great quote that I saw, and I wish I captured this. It was a kind of a cartoon at the time. It was like, Wall Street is the only place where people take the subway to give advice to people who drive up in limos. You know, it's like, that's so true. Um, you know, so it's— the industry is hard. So I think the, the people who I've found who are the best are people that specialize. So we've specialized, other people have specialized. There are generalists who are good, but if somebody's like really good at, at, you know, like self-directed IRAs or really good at 401s or really good at M&A work or whatever it is, or you're a specialist in Raytheon employees, whatever it might be, there's something that you're the best at. Those people are worth working with because they've, they've perfected their skill and knowledge and expertise in a certain area and they're the go-to guy or gal that, that you want to talk to. And, you know, if you need a general advisor, find somebody who's truly looking out for your best interest. If they're not the smartest person in the room, make sure that they can find the smartest person in the room. People call us, we get calls from advisors all the time. They're like, hey, my client wants to do this. I have no idea what I'm doing. I'm like, I love you, man. Like, you're the kind of guy I want to work with because you're actually looking out for your client, not yourself. So, you know, finding an honest, honest advisor, like somebody who's truly looking out for your best interest, it's worth its weight in gold.

Yeah, that's really interesting to hear and understand. Shifting kind of more to the investment side of it, you know, what do you find? A lot of it sounds like the alternatives you do are kind of, you know, pushed from clients and, hey, I want to do this. I'm already in this business. How do I, how do I do this? But for those that come to you with a blank slate of saying, hey, I like the idea of alternatives, you know, what's kind of your, you know, approach to that, right? Is, you know, a lot of the study we've done of the ultra-wealthy, there's pretty big allocations a lot of times to alternatives and private alternatives. But at a certain net worth, maybe doesn't make as much sense, right? Because you do need liquidity and some of these can have long lockup periods. But Do you kind of have like certain rules of thumb of here's kind of the, you know, things that you want to be looking at, you know, percentages, you know, types of assets, you know, just obviously you're not giving any advice here, but just kind of at a general level, what's, what's are some things that you kind of look at when you're talking with people?

Yeah, I mean, it's definitely situationally dependent. I mean, every client's different. You know, somebody comes in, they own like, you know, they're worth $1 million and it's all in real estate. You know, I'm not going to tell them to— I mean, you talk to— if anyone— if you talk to any real estate investor, every nickel they've ever earned goes back into real estate. They will never put a dime into anything other than real estate. I'm not going to convince them otherwise. I'm not even going to try. I will— I will raise it to them because some people are open-minded to the idea of like spreading things around. But their idea of diversification is just buying another property.

So, right, a different property.

Yeah. Or a different state or a different type or whatever it is. And I'm all more than that. I love real estate. I think it's great. But I think ultimately, you know, you need to invest in what you know. So if people are coming to me with something, I'll give them a cursory conversation around risk management, how they should think about it. I'm not going to try to convince them to do something else. My job is not that. My job is to advise them, give them the best guidance and say, you know, if you want to put it in IRA, here's how you do it. Here's how the math works. It does or doesn't make sense based on the math. And then when we, when we start looking at other things, say, look, here's what I would think about. How you handle that information is up to you because it's really them coming to me. I can't really give them advice on it. I can give them guidance. But if I give them advice and technically, you know, I'm a fiduciary in that asset and it's not really mine to do, it's just more like I'm giving you general guidance. Here's how you think about it. What you do is up to you. Now, there are other people come to us and say, hey, I want something alternative. And we do have alternatives that we work with that we vetted. We've worked with investment sponsors for like over 20 years. We know them inside and out. They know us. We've been through up and down cycles. So, you know, we know how they handle it. And, you know, we, we have faith in their risk management in part because we're, we're doing due diligence on all the deals that they provide. So they'll bring us deals and say, hey, we have this, are you interested? We'll talk to our clients and say, hey, you know, we got XYZ. So we do have that as a part of portfolio. And that has historically been a big part of our practice. Now, in the last— things really started to slow down in 2017 up till 2019. It got, it got a lot slower. And then COVID hit, courts froze up for 2 years, couldn't do anything. Like we got a handful of stuff that went through, but almost nothing because the courts are frozen. Any sort of foreclosures or fire sales or anything like that couldn't use the courts. So nothing was getting done. So it really dried up and it's been dried up since COVID and it's start— we get a trickle here and there. Like we had some yesterday, but, you know, a normal year we might do 100. This year we might have done 3. Like, that's, that's the degree of, of that. That on top of the fact that everything across the board is expensive. Real estate across the board is still expensive. People are overpaying in— I mean, some parts of the country is coming down. But, you know, look, last year interest rates went from zero, you know, for Fed funds rate went from zero up to 5%. I guess that's including this year, went up to 5%. Real estate last year went up, median real estate price went up 10%. In what world does it make sense for real estate to go up 10% when interest rates are climbing, climbing really quickly? And yet that's what happened. And this year it's the same. Real estate is not declining. It is in some areas, but not declining the way people think. So I think what's, what's interesting in this market is the alternative assets are a great way to invest in the right way. As you talked about the illiquidity premium, you can, you can take advantage of that if you're patient. In 2009, people were, people were rushing to the door when somebody's yelling fire. And these, all these non-traded REITs, people were trying to sell at any price and I could go on these marketplaces, pick up really solid REITs for $0.10 on the dollar, and it was ridiculous. People just couldn't wait to get out of them and they weren't worth 90% less. There was nothing wrong with them. They just, you know, real estate prices went down for a few years, but so what? And they were still viable properties, but people just couldn't wait to get out. And if you were sitting with a pile of cash, you just kind of walk up and just take these deals left and right and put them in your portfolio and sit in them for 10 years and make, you know, 5, 10 extra money. That stuff happens if you're patient, you have cash. But I think a lot of people get so anxious, they need to be in something. They've got the shiny object syndrome. Oh, I need this, I need crypto, I need gold, I need real estate, this. And they don't have a long-term perspective. And what ends up happening is they make a bad decision and they're like, oh crap, I made a bad decision. And it's too late because it's an illiquid asset, right? A lot of these are illiquid. So the illiquidity premium is really important. You need to make sure you're investing right. And when you're buying it, if you're doing like private equity, there's a liquidity premium built in. But you know, you can't get out if we go into recession like 2008. You got to sit on the stuff, right? You got to wait until the market comes back before you sell it. A lot of venture capitalist friends said in 2008, they were like, I was like, what are you doing? Like, We're not investing anything new. We're just supporting the existing ventures. And I was like, really? Like, now would be the perfect time to go around with a bag of cash and invest in everything. They're like, nope, we're just supporting the ones that we have and making sure that they're viable and they're staying afloat so we can exit at some point. And I'm scratching my head thinking, what am I missing here?

Yeah, what's that? I was reading an article today actually on continuation funds are like this big thing right now in private equity where basically these private equity funds are just rolling all the assets to a new fund at a new value that they can charge higher fees on, but they're not doing anything new. I mean, they theoretically created more value so that they should be, you know, mark to market. But it's just we're doing the same old thing and now making more money off of it and kind of forcing our investors to have to keep rolling. It's really, really an interesting— whole other side topic. But we're kind of running to the end of the time here. I wish we had a little bit longer, but give us kind of your you know, 3-minute thoughts on the market right now just as a whole. And, you know, are you, you know, waiting for an impending recession? Are you sitting on a lot of cash personally? I mean, maybe you can't say all this stuff, but just what's kind of your take on investors positioning right now? Should they, should they be bullish? Should they be bearish? Should they just be sitting on cash? What's, what's kind of your thought?

Yes. Everything. Everything. Just, I mean, in all honesty, the market, we're in a new paradigm. We entered a new paradigm. You know, I would say probably in COVID, but realistically it didn't start to pan out until last year. So we're in a new paradigm. And the old paradigm was drop rates to zero, print money and go into tech and, and growth stocks. That was the paradigm pretty much. Value stocks, no one cared about. You know, why do I invest in a value stock when my growth stocks go up 30 to 50% a year, right? It's just a price. So that was the old paradigm, which was also stupid, but it was what it was, right? Can't argue with price. Price is the final arbiter of the truth. And so what ends up happening is, as you get into last year and things go down, everyone's scared. And then all of a sudden, January 2nd, People like, oh, it's all better now. And stocks, the market has just gone up. So if you look back at history, if you look back in the '20s, you look at the '70s, especially the '70s, there's a period of time from like the late '60s till about '81, '82 where the stock market went nowhere for 10+ years. Nowhere. Went sideways. I mean, it went a lot of places, right? It's like the 2000s. 2000s, stock market crashed, came back up, crashed again, came back up. 13 years. We had a negative return for 13 years if you started in January of 2000. Now, if you look at the '70s, much the same way, right? Started, stopped, start, stop. It went a lot of places. A lot of things happened, and yet it went nowhere. So what tends to happen in periods like this is you get a lot of inflation, you get a big boost, everything's expensive, and then the stock market tends to grind sideways, right? It just goes up and down, but it works off this expensive nature. So, and then once it's cheap enough, it'll start to rise again. So what we're seeing now is a period of time, much like the '70s, where what happened in the '70s, if you had to put one theme on it, it was mass confusion. No one had any idea what was going on with the stock market, with bonds, inflation. I mean, that was the theme. It was massive. It was mass confusion. And you had stagflation, which people hadn't acknowledged until then. They coined the phrase at that point. All this stuff happened and people didn't know how to phrase it. Now you've got another period. People have no idea what's going on. We should be in recession, right? Are we not in a recession? Inflation is high. Interest rates are high. Fed funds rate's high. You know, we should be going to recession and we're not. Why not? Well, if you're in the old paradigm, you would think, yeah, we should be in a severe recession right now. But we're in a different paradigm where people look at things differently. Now, I would argue that asset prices are based on interest rates, which is a theme that the whole financial markets are based on. They're based on risk-free rates and other rates. But basically that's how you price valuations in many ways. So if we have higher rates, it means it's going to cost me more to, to support debt in my household. It's going to cost me more to buy a new house because mortgage rates are going to be higher. If I run a company, it's going to cost me more to borrow debt. If I own real estate, commercial real estate, it's going to cost me more, which effectively it's going to cost me more, which means the prices are worth less to accommodate it. Right. So if I look at 2021, let's say, let's say I want to buy a property for $500,000. Right. I think it would have cost me about like $3,800 a month for for like 2.5% mortgage rates, something like that. Okay. Now, if that's the case, the next year, median home price went up 10%. So $550,000 and mortgage rates went up to like 7.25%. I think they hit 8% at one point, like 7.25%, 7.5%. We hit 7.5%. That means the mortgage payments you make every month double. So I was paying $3,800 a month. Now I'm paying— was that $7,600 a month? I pay double the amount every month for the same house because mortgage rates went up. People can't afford to pay double the amount of monthly payments. It's just not feasible. So what do you do? Well, either the price has to drop to equalize or you have to buy a cheaper home, which you can do. The problem is everybody's buying cheaper homes. They go up in price and so they're not cheap anymore. So, you know, and the people, you know, see, if you think of the economic spectrum, like the wealthy are buying cheaper homes, the next tier down, the less wealthy buy cheaper homes. Everybody's buying cheaper homes. But at some point you can't buy a cheaper home and you got to live where you want to live, right? If I have 4 kids I can't go buy a 2-bedroom house. I was in a 5-bedroom. Now I'm going to buy a 2-bedroom. I can't do that. So that doesn't work, right? So the whole— and I'm using this as an example for the whole economic system— the way you have to think about high interest rates is that they're going to be— they're going to mute performance of everything, not immediately, but over time, because real estate doesn't get impacted right away because I'm not selling my house this year. I've got 2.5% mortgage rate. Why am I going to sell my house and get a higher one? I'll just wait. So everybody's waiting. So no one's selling, which means the price doesn't go down. So there's all these factors that just take a while to work through. Real estate down cycles typically take 5 years. So if you look at that, that and implement— you take that model and implement it on a company. Companies are rolling over debt now. They have to pay more, which means they have less cash flow. They have to shrink and it just totally shrinks the economy. So if you think about like the '70s, the economy was this size. Now, as, as you dropped rates from like 20% down to 2%, you know, you went from 20% to 18%. It allows you to do more leverage because your payments are smaller. So the economy grew this big right in the end of 2021, and then interest rates are going up. So now it's starting to shrink the economy because You know, you can't borrow as much. And so these are the factors that implement, that integrate into the economy and cause the changes at a big macro level. Now, you ask me, where's the market going to go? It's going to go up, down, or sideways. I mean, I don't know. I can't tell the future. But what I can say is in the market like this, you have to be good at being tactical. You have to be good at risk management. If you're a buy and hold investor, you're going to end up losing a lot of money over the next 5 years. It's just going to happen because you're riding out the waves. You're not making progress right now. It feels like, hey, everything's great, market's going up, there's no problems in the world until something happens and the market's going to crack again and go down. And people are like, oh, the world's ending. It's like we were here last year.

Yeah, we just did this cycle, right?

Yeah, we've been here, done that, you know, got the t-shirt. So I think the way you have to do it is in my opinion, you have to find ways to generate income. Right now you can get 5.25%, 5.3% in US Treasuries. Hard to argue with that. If you can get 5% in Treasuries, why wouldn't you for 2 years? If you can find dividend stocks that are actually paying a dividend yield that you want to earn, that have a solid dividend, that's a great, great alternative. Or you can trade the markets. You can ride the trends. Market's going up, buy the trend. When it's going down, you get out or, you know, short the trend, whatever you want to do. It's not for everybody. And I don't think everybody should go be a trader, but that's the mindset you should have is you should be tactical and focused on risk management, you know, have some risk management procedures, whatever they may be, and use that as a way to mitigate the risk of the volatility. And so when the markets do finally start to break out and go higher, you'll be on board.

Yeah, I love that. Being tactical. I mean, your investors are in a conundrum right now because if you're just sitting on cash and we have higher inflation and I think you and I both agree that's probably going to be higher for longer for a lot of the reasons you said, it's eating away the value of your dollar. But if you're just buy and hold kind of, you know, head in the sand, don't, don't, you know, pay attention, you might just end up kind of where you were when you first started or a little bit worse because you got fees whenever you do transactions. Right. So being tactical, being opportunistic is, is probably your best approach in over the next several years. So, yeah, a lot to unpack there. I wish we had— wish we had more time. But Kirk, what's the best way for folks to kind of plug into what you're doing? And you have the podcast, you got your advisory and all that. Give us some ways to get a hold of you all.

Yeah, thanks. I'm pretty easy to find. I'm everywhere. I have a podcast, MoneyTreePodcast.com. You can listen to the show. You know, you were on the show earlier. It was a great episode. You should all listen to that episode. It was awesome. I'm on there twice a week. Once we have interviews with great guests, another one we just do more like just, you know, you know, shoot, you know, chewing the fat about what's going on in the markets and easy to find there. InnovativeWealth.com is my company's website. So if you want to look at our wealth management services, you can go there. Frankly, I'm everywhere else. I'm pretty easy to find. So it's just Kirk Chisholm, MoneyTreePodcast.com or InnovativeWealth.com is the easiest way to find me.

Awesome. We'll put those in the show notes and really appreciate you coming on the show and sharing the thoughts and went a lot of different directions, but I think we, we pulled it out in a good way here and really got a lot of good stuff. So thanks so much.

Yeah, happy to be on your show. Thanks for inviting me.