What to Do When Crossing $1M in Net Worth -- Part 1: Investment Strategy

Hello and welcome again to our Fundamentals of Investing series. These videos are designed to explain important investment concepts that you need to know as you work to grow your retirement nest egg and build your personal wealth. I'm Brian Duresse, Director of Research here at Left Brain, joined as always by our CEO and Chief Investment Officer, Nolan Lang. Nolan, thank you for joining us.

Excited to be here. Thank you, Brian.

We've got an important topic to discuss today. At Left Brain, we specialize in working with rising affluent and high net worth investors. As people generate high incomes from their employment or their business, a number of financial issues do tend to arise. As the saying goes, more money, more problems. We wanted to put together a checklist for people who are rapidly growing their individual wealth. This is a primer to setting a strong foundation as you continue on your wealth building journey. And today we're talking about what do you need to do when your net worth reaches the million dollars. In our view, there are 3 areas you need to focus on when you reach a million in net worth. But first of all, we want to define what net worth means, what a million in net worth is. You know, a lot of people think a million in net worth means do I have a million dollars in my savings account ready to invest? Actually, it's a little bit more broad than that. You know, we count your equity in your home, your cash on hand, cash value of insurance, retirement accounts, and anything else that comes along with your net worth. So you may have $1 million in net worth and not even know it. So that's what we're trying to address today. And again, there are 3 areas you do want to focus on when you reach that, that area of net worth. First of all, is investment strategy. Secondly is protection. And third is tax efficiency. So we'll jump right into our first topic, and that's investments. Nolan, the first move we think for investors in this group of $1 million net worth or higher is do a financial checkup and an investment review. So in doing so, what would that entail?

So thank you, Brian. Thanks for bringing it up and teeing up this very important topic. So first off, for you, the viewer, if you've reached $1 million in net worth, I'm going to say congratulations. This is a huge, huge accomplishment and we want to celebrate you here at Left Brain. Our job is to help you see how quickly you can get to $2 million in net worth. So as you begin, a financial checkup, we think, is, is really, really important. Basically, it's taking a look at all of your financial resources. Not only that, but it's taking a look at where you're headed. The example that I like to give is think about you in a car. If somebody blindfolded you, you're on the side of the road, they unblindfolded you, you're in the driver's seat, and now you press the gas and you're going. The first thing you want to— you're going to want to know is where am I headed? What direction am I headed? And is that a direction that I'd like to go? And then you're going to have some decisions to make. Either A, I can speed up to get there quicker. B, I could turn around and go the opposite direction, or I can adjust my course. And it's the same thing. Once you do a financial checkup, it's important to find out where you are. That's to create a financial model with your individual situation in mind, your income, your tax bracket, your family status. How many kids you have, how much income you're earning, and then to find out, hey, if I continue doing what I'm doing, where will I likely end up in 10 years, 15 years, 20 years? And then you can decide that's a good pace. I'd like to stay on it. Or B, I'd like to make some adjustments. So maybe you can do some things to go faster, get higher returns. Maybe there are things that is causing drag to your net worth. And so this would give a great opportunity to discover what those things are, to determine how you can get to where you want to go smoother and/or faster.

That's a good start, Nolan. Let's drill down a little bit. Investments. Again, the first topic we're going to cover here is investments. Can you speak to the importance of an investment strategy for this group of investors here? And then drilling down a little bit further from that, what types of strategies do make sense for the newly minted millionaires out there?

So first off, I'm going to say this is a really big accomplishment. Most of the investors that we find that get to their first million in net worth, it's kind of just happened. You know, generally they've received some bonuses from work. They've been prudent and frugal enough to save and invest. Maybe they have some company stock, maybe some stock options or restricted stock units. They'll have money in a current 401(k), maybe a prior 401(k). Maybe they've got some investment accounts here or there. They've started an IRA. They have accumulated money. In a money market. And so the first thing to think about is just a coordinated strategy, taking stock of the type of investments you have and to find out what those investments are built to do and to see whether they fit your needs or not. What type of accounts they're in? Are they mutual funds? Are they individual equities? Do I have too much of one, not enough of another? And are all my investments that I currently hold Are they poised to succeed, or am I just holding them because I've already had them? Where we like to start is a little bit on education and us all getting on the same page as far as what type of returns we could expect. So we like to have a discussion to think about the rule of 72. These are my investments. Here's historically how these investments have performed, and here's how much time it's probably going to take these investments to double. And that's really a good place to start.

I agree with that, Nolan. And it's all always about having a cohesive strategy. The younger clients that we work with, we often do see, like you said, a very disparate setup of where their money is and bringing it all into one place and, and bringing it into a cohesive strategy does really make sense when you do reach this level of wealth. How can investors go about finding the right type of investment professional to set them up with the right strategy here?

Yeah, so this is another really important decision that investors are gonna make on their journey to going from $1 million to $2 million to $5 million. There's multiple types of advisors, or I'm gonna say investment professionals, that one could associate with. And I hesitated to use that term advisors cuz prior to a couple of years ago, you saw the term bandied around no matter who you were working with. They called themselves some type of financial advisor or financial consultant. Even if they weren't, there was a big to-do about this in the, the government changed the rules on who actually can use the term advisor or not. So now you're going to hear if you go out, whether it's a bank or an insurance company or one of the big brokerage firms, and if you take a look at titles, you'll notice you don't see titles that say advisors an awful lot. But we generically mean any other person that's helping me with my finances. And so let's start there. There's 3 broad categories, and I'm being very general here. There's 3 broad categories of helpers that somebody can associate with. The one type is what we call the broker or the traditional broker who's really an investment salesperson. And if you think about the banks or the big brokerage firms whose names all of us have probably heard, those people do investments but they're salespeople and they get paid accordingly. And they're just— they are selling investment products that they think are appropriate to you, but their job is to sell things to you that they think that may work for you. So that's one type of investment professional that an investor can associate with. There's another type which I think is probably just as common, which is in the insurance realm. And a lot of us had our first exposure to an investment professional through an insurance person. We understand that we need protection for our loved ones if something untimely were to befall us. We want protection for our loved one and for our family so their standard of living is protected. So it's not uncommon to see somebody approached right away, even without much savings or investments, and have some sort of policy, either a permanent policy or more commonly a temporary or term policy. So a lot of these insurance agents also now do creative things with insurance, and they can approach investors to do some sort of retirement planning or college planning or other things. And generally the solution is insurance. So insurance can be used in very creative ways. So another type of financial professional that somebody could be associated with is an insurance firm, an insurance professional telling themselves that they are helping them with their, with their finances. The third type is an investment advisor. That's the type of firm we are, a registered investment advisor. These advisors are fiduciaries, which means that they're obligated to be independent, objective, and unbiased, to minimize and disclose conflicts when they have them, and to act in the investor's best interest. That's what a fiduciary is, and that's what a registered investment advisory firm is generally, but not always. A lot of these professionals will be certified financial professionals, which just means that they had a certain amount of education and experience and they're certified or licensed through the CFP Board, which means they're going to have a broad knowledge of really 6 categories of investments and finances to help an investor along their wealth creation journey.

There's a lot there, Nolan. Definitely kind of an introduction for everyone on how investments play into it. If you're, if you're newly at $1 million net worth, we're going to cut off part 1 of the video here. We're going to move on. We have a part 2 as well where we're going to cover protection and taxes. So if you have interest in those topics and how that relates to you, if you just come into a million-dollar net worth, definitely click through to the second part of the video.