Breaking Down Investments: How And What We Invest Our Money Into

A lot of times, great founder, great product, but they are bad at raising money. We've lost on startups where it was a great product, great founder, but they just didn't know how to raise money. They didn't know how to keep their Runway going. And that'll be the death of a good company and a good product every single time.

And we're back with another episode of He Said, she Said.

We are road warriors right now, babe.

We are on our way back to Wisconsin because we spent July and August at our lake house in Wisconsin. And we are on a stop. We are actually in our Arizona house. So we went from California, did a road trip yesterday. It only took us like five and a half hours, which is crazy. We kind of left at the right time to Arizona, and we are spending one day here for business meetings and just kind of catching up on emails and things like that.

Pick up the sprinter van.

Pick up the sprinter van and pack it so that we can go across the country to our Wisconsin house.

I'm so excited. I mean, I freaking love summers up at the lake. It's like what I grew up with is what I want our kids to grow up with one day. I just. I'm like a giddy child.

I love it because we are. We decided to live now, meaning it doesn't mean that we go up there and we play the whole time, but it can feel like that if you set your life up the right way. Meaning, yes, we work Monday through Friday and still some weekends, but for the most part, we try to make sure that we. If it's a nice evening, we. We're like, get out on the boat. 6pm Yep. Go take those three hours. Go wake surf. Go do all the things. And what it does is it makes us pack a lot more work into the day. Like, I am so excited to work more efficiently because I have something excited to look forward to in the evening where if I don't have that, I kind of just let it leak into the evening and have my laptop on my lap or my phone in my hand. And I feel like this just makes me work a lot better because we said, what would it look like if we actually started living the life that we want right now instead of waiting like, I don't want to be 60, finally getting my dream lake house and starting to use it when I can't even wake surf anymore, even though I'm going to be wake surfing when I'm 90.

We always knew that we wanted one. We always knew that this was in the Plans. But we moved that investment up on the timeline, so to speak, because we wanted to start living now and because we had a really solid investment plan overall, like our investment thesis overall, and, you know, was solid enough. We're like, okay, let's just pull this thing up in a timeline when maybe normally we wouldn't have.

Let's talk about that. Because yesterday on the road trip, I was going through my DMs, answering some messages, and in a couple of them, I got from people saying, I finally have a little bit of extra money. What should I invest in first? And why don't we start from the very top, though, what that looks like, and the hierarchy of our investing plan, you guys. And we're just sharing from what we personally have done. Not necessarily advice for. For you, but this is what works the best for us.

I get this question all the time, too. So the fact that you get it all the time, I get it all the time. It's a fun thing for you and I to talk about. I think it's important for us to make it crystal clear. We're not financial advisors. We're not giving you advice. And that's not just a disclaimer, literally, like, I hope you take that to heart. We're not giving you advice. But if you want to peer into our investments and see what order we make them in and see what our theory and our thesis is, we're happy to lift the curtain and share that for you. So you can maybe model what you want or go learn about what you want or dig into what you want. So we kind of break our life up into six levels of risk, and it goes from least risky, as I share it, to most risky. That least risky and most important first level will probably surprise you. It's not some fund. It's not your 401k. It's none of that stuff. That first level that you have to be investing in is in yourself and in your own business so that you can turn yourself and your business into a lean, mean money printing machine, because then that gives you more money to invest.

You know, something that we saw go wrong all the time, and we did it wrong too in the beginning, was you get that extra money and you start getting things you want. So guilty of this. We did this for sure when we were younger quite a bit. And instead of putting that back into the business or in the beginning, especially in your business, you're like, well, that's too expensive to grow my list. Well, I don't want to hire that person because I don't really know if that'll help. Like, you don't see the payoff for three to six months, sometimes a year with these investments into your business. And a lot of times investments into your business looks like a person to scale it. It looks like another employee. It looks like ads, it looks like having somebody come in. It looks like a business coach. Right?

Yep.

So these are the things that you and I. Oh my God. If I could go back and reinvest some of the money that we took just spent on things because we're like, we're working so hard, we deserve this particular house or condo or trip or bag. I wish we could go back and just take a little bit of that and reinvest it back into our business and be more patient knowing that businesses aren't really going to grow until that almost like fall, five year mark. You're really going to start to see.

That payoff, I think faster than that. But you make a really good point. You make two really good points. One, you know, we had to pay the price. We had our day of reckoning in 2009 when we had to get rid of everything and start over from below zero again. Because we didn't do that and we didn't have a solid thesis on investing. Right. And we didn't invest in ourselves and our businesses first. We just spent everything and had fun doing it. And so like it comes back to this lake house because now we have a solid theory and thesis on investing. We felt comfortable pulling that thing up in the timeline. But look at our age. We are, I won't say your age.

But I'm 42 and proud of it.

Yeah. Okay, so you're a hot 42. I am 45. We bought this thing last year and we had already gotten a lot of our businesses really up and rolling before. We felt comfortable going and splurging on an extra house like that. So that's the first level of risk. The least risky, most important thing that place you can put your money is in yourself and in your business, making yourself a lean, mean, income producing machine. And the last thing I'm going to say about that level is I just want you to think of it this simply for all the people who are like, no, you got to start investing in this and that early and time is your best friend. Yes. When it comes to compounding interest, time is your best friend. But if you only have an extra few hundred dollars a month to invest right now, then time ain't going to make up a whole lot for that you're better off putting that into a few strategic things in your business, like ads, getting more leads, and then taking a business from 100 grand a year to 200 grand a year. And now you've got a whole extra hundred thousand dollars a year that you can do some catch up investing and then some every single year. So that's why that's the most important place you can put your money first. So then the second one, and many times simultaneous to what we just said, many times at the exact same time to the first one that we just said, is things like your really boring set it and forget it foundational investments that are going to help build your retirement and your future. And that would be, in our case we just have Vanguard low fee index funds that we just set it and forget it automatic deposit every single month. And what that allows us to do is take a look at how they've performed over history and have a really accurate idea despite some years will be way up and some years will be way down. Have a really accurate idea of how much money that'll be when we are some advanced age down the road. And so for example, if you look at just the S and P index or your average low fee index fund, they've averaged over 10% from the time that we've started tracking them all the way up through today. Now remember, some years they've crashed, some years they've exploded, but they average 10%. So that means that as you're putting money in there, it's going to double every 7.2 years. I won't go into all the calculations, but that shows you the importance of contributing to those things on autopilot over time. So in your case it might be your 401k, it might be a Roth IRA. We don't qualify for those things anymore, the Roth IRAs, so we choose the low fee index funds. But the point is it's any one of those vehicles where you're setting it and forgetting it, contributing a little bit every single month and then being able to predict within a certain varying degree, you know, when you're 60, when you're 70, whatever it is that you want to retire when you're 50, how much money you're going to have sitting there to be able to start drawing off of the third level of risk. And remember, as I share these in our thesis, they're getting riskier and riskier. So those first two, those are no brainers. The third level for us though is picking individual stocks. Like this is fun for me, this is where they say, hey, invest in what you know. And we've done a really good job of investing in individual stocks. So you can go use platforms such as Robinhood or once again, your Vanguard, your E trade. They've made it really easy now for you to invest in individual stocks. But here's the catch. I do not believe that you should be picking, you know, individual stocks until you first fully funded what you need to get your business up and growing and until you first fully funded what you need to hit that retirement goal that you have.

This is really where our theory on not investing until you have money that you don't mind if you lose. Yes, now that sounds crazy because people are like, what do you mean I'm always going to mind if I lose money? There is a spot that you will get to that you should start just getting into a mindset and this is going to be cultivated that you say, this is going to be money that I know I am going to put aside, that I'm going to pretend like it's not even here and let that add up. Because obviously the reason why we invest in some riskier things is because a lot of times the riskier the thing is, the higher the reward is if it hits. Now that is why we want to be in the game in order to potentially have that payoff. It's like, okay, everybody would like to win the lottery, but you're never going to win unless you play. It's kind of that idea.

Yep. So to recap for you, you nailed it, Laurie. The first one, invest in yourself and your business so you can be a lean, mean income making machine that gives you a bigger shovel, so to speak, than to do the work going forward. The second layer of risk, or level of risk is your low fee index funds, your 401ks, your Roth IRAs, fully fund those things. Then the third thing you can be taken look at is those individual stock picking. The fourth and little bit higher risk bet that you can make then is real estate, individual real estate, real estate funds, some of these passive income funds. Now this is where you might start to disagree or say, wait a second, I've heard that this is really stable. I heard this is a great place to put your money. Lori and I are investing in a real estate fund this year that we're excited about. We own three properties, three homes, but we don't see them as investments per se. We see them as places that we want to live in that may or may not go up. If you remember, just for full transparency, we Bought a home in 2020 that we sold just 10 months later for over a $2 million profit. Now, you'd think that that would make us really excited and bullish on real estate and real estate funds, but the answer is that was just luck. That was not our skill. That was nothing more than perfect timing and perfect circumstance. So don't get blinded by this whole, you know, go out and buy as much real estate as you can and leverage everything under the sun to buy it. Yes, there is a place for it. Yes, it's a good investment. Yes, we invest in real estate and real estate funds and passive income funds. I love passive income funds. But know that on this totem pole, this is our fourth highest risk of investment. Yeah.

And it's easy to get swept up by that. Like, I remember I was like, oh my God, what other houses should we find? What can we do? We even looked at a couple to be like, maybe we buy something around the same price range and we fix it up just a little bit. And I'm like, we are, Chris, we are not home flippers.

No, not.

We don't have the time for this. We're not putting patience, skills, definitely the skills and the research. So if you're going to do that, it takes a lot of education, it takes a lot of time. And it's also a very high risk thing. Right. Because then right after that, a year later, we saw people who invested in a ton of these homes because of the market, and we watched them lose a lot.

A ton. A ton. And now they're stuck with all these homes that are kind of upside down or at least flat, and they're having a hard time making ends meet on those. Now remember, in this fourth category are passive income funds. And the reason why I lump these two together is most real estate funds that you invested in are passive income funds. You also get a little bit of tax depreciation. That's what makes them attractive. But there's other versions, too. Every year we invest in huge tranches of ATM funds where the ATMs kick off profits and we get both tax write offs and a nice monthly return on those funds as well. And it compounds over time. We also did this with some other things like this Clean Carbon fund. And that one ended up starting out as a legitimate business and getting busted as a Ponzi scheme. A huge $150 million one that had been.

Lost a lot of money on that.

Yeah, we lost multiple six figures on that. So that's why I share this transparently. And that's why I say, hey, this is the fourth level of higher risk here is a lot of times these look stable and shiny and they've been around forever. It doesn't mean that they will be around forever and that you should go all in on them.

I think if I was listening to this right now, because I asked you this question, I would say, where do you even find investments like that and how are they vetted? Like, that's so confusing to people.

You want to have a professional on your side, a professional fiduciary. You don't just want to hear about it from your friend. You want to have a professional fiduciary who has legal best interest in your mind, your legal best interest in their mind to give you the best advice possible when it comes to your investments. And you want them to either vet these opportunities or to bring these opportunities to you. Matter of fact, more than 50% of the people who are investing in Frelo right now. And I'll get to startups a little bit, but you know, that's my peer to peer lending app. They send it through their wealth management firms and their fiduciaries first, even though we're friends, to say, hey, I need you to vet this thing. So when you start to get up to that level where you come across those things, you better have a fiduciary or a wealth management firm to run them through.

Cool.

All right, so if that's the fourth highest level of risk, what's the fifth one? This is Web3 Investments and Exotic Opportunities. What do I mean by this? I love these things because for me, it's like gambling. Right. For me, this is my equivalent of going to the casino. And you can win big and you can lose big. And I'll give you examples in crypto. We have invested a lot of money, we're down in crypto right now, but it's doing pretty good again in NFTs, which is also web three, we got our tails handed to us, right? So we just know when we go into these things, we could have possible huge gains and we could lose on these things as well.

There was one night we were sitting on the couch and we had invested in an NFT that went up like crazy.

We made 30,000 bucks in a night. Yeah.

We were holding on and we're like, oh my God, if this keeps trending, like, this is gonna be amazing.

Yep.

Nope. I think it was one night.

Yep. Yep, one night. We call that a one night stand.

Yep, one night NFT stand.

It was great.

So what do I mean by other ones that went really well. Well, recently I invested in somebody's launch. I said, hey, your funnel is so good and you've proven that this launch works, that I'll invest in your Facebook ads to drive more traffic to your launch, but then I want to split your profit on this thing. And we ended up 4xing our money in a couple of weeks. That was a big investment turn huge. Right. So that's a really cool exotic opportunity. So the web three the exotic opportunities. My business partner recently invested in a movie where in just four months time he was able to double his money. As these things start to come across your plate, you really better know that you are gambling and having fun with it and you're excited about the upside, but okay with the downside.

I just want to point out, you know, when you invest in a launch, that is because you understand launches and you also understand the person who is launching, meaning this is somebody that you had worked with, someone you had coached. You already saw this major winning streak. So when somebody is thinking of an exotic opportunity, try to make sure, don't try. Make sure it's in something that you know really well that is in your wheelhouse. It's not just like, oh, that looks good, that seems like it's good. The odds are definitely in your favor when you do it.

Yep, totally.

And you know it.

Totally. And that brings us to our sixth and highest level of risk in Lori's and my portfolio that we invest in. And that is we invest in five startups, right? Other people's startups, other people's companies. And I love pre revenue, early seed round startups. So we invest in five startups every single year like clockwork. And we're very systemic. We have a system around it.

So for startups, you know, because you and I both have a startup, this is definitely highest level of risk because so many of them do fail.

Most fail.

Yep. So many of them do fail. But man, I have quite a few people in my life who've invested in a lot of startups and when they win, they typically win pretty big.

Yes.

And not just that. And Chris will go into more reasons why we do it, but startups for me are so exciting because it's somebody's ground level dream. And oftentimes this is a place where Chris and I feel like we can.

Help move the needle.

So it's a very exciting like mentorship possibility as well. And we get to learn. So I think the learning factor is also so cool about what they're doing, what Worked what didn't work. And like I said, for me it's really about being able to be there on that ground floor and invest in somebody's big dream.

Well, you nailed it. So if this is the highest level of risk in our portfolio, why would we invest in five of them every single year? Part of it is what you just said. The multiples when they pay off are so big you can 10x20x50x your money pretty easily. And that makes up for the other losses. That's why we have a system around it. We assume even though we're really good at picking startups, we assume that four out of five are going to fail. That means in theory, each year down the road one out of five should hit. So we get this nice big seven figure check or whatever each year from somebody else's effort. Now remember, four out of five failed. But if you're investing about the same amount in every single startup, then what happens is if you 10x1 investment and lose on four others, you're still ahead by 600% when you look at that year's investments as a whole. Hopefully you guys followed my math there. That's one of the reasons that we love startups. I mean, we have one. I won't say who it is, but they're going to do an IPO next year. We're probably going to 50 or 100x our money, which is rare. Unheard of. It's rare, unheard of. But that's why you got to be in the game to win. You can't hit any home runs if you don't ever step up to the plate.

And I want to talk about that because this isn't just things that we stumbled across. These are people that we worked really hard to network with. And if you want to know where deals come from, it's your network. So if you're not simultaneously, this did not happen overnight. This is Chris And I, after 15 years of investing in coaches and in masterminds to meet other people who are successful and be in these rooms of successful people. So it's not like we're. You just get these opportunities. In fact, most of these possibilities of funds that end up hitting, they are over subscribed a lot of times. They're tough to get in. You have to beg to get in because people want to give them their money because they know they're going to be successful. So you guys, this is because Chris and I work really, really hard and I would say that this is one of our biggest goals for our entire future is to make sure that we are getting in the rooms of high level people and working hard to ask them out to dinner. Working hard to figure out how to spend a little time with them and add value in their lives. This is so important. We're working overtime to figure out how to add value and put time into people's lives of the people who we think are of high value in so many ways. High value of their circles, high value of their wisdom, high value of what they add to the world and how they're making an impact. Those are the people who are in these rooms getting what they call deal flow, getting these deals. And this is how you get around that to even get the opportunity to invest in them. So this is not an overnight thing. This is like a invest in your future thing with your relationships and your network.

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Exactly. And that's like you ever hear the phrase the rich get richer? A lot of that phrase comes from once you're in these circles, you know what the really safe bets are you and I just sent out a wire this past week about an investment that I'm so excited that we are in and we had to beg to get in because like you said, they were oversubscribed. Over subscribed simply means they have more investors than the size of the fund. And you know, it's telly where they're giving out free 55 inch flat screen TVs, but then there's force placed advertising on them and they had over a million people sign up for like the first 24 hours for their free TVs to be installed in their home for free. Genius, right? In other words, they've made the hardware free and they're making it up in first place advertising along the bottom of that tv. Now, the idea is good, but what made me excited was the founders, the founder, the lead CEO in this thing is my friend Ilya, who already built and sold Pluto tv. Right? It's like Netflix. Most of you probably have watched Pluto TV before to Paramount. And so he's already been there, done that, and then his partner in this is Elon Musk's business partner in Hyperloop. So when you get into these circles and these people have already had this many proof of exit, proof of concepts, then it makes it easier to say yes. And you're begging to get into those type of funds there. Now, there's a few ways and I think this is very important. There's a few ways that Laurie and I know for sure if we are going to invest in a certain startup or not. We already told you, we do five of them every year like clockwork. Because four out of five are going to fail, one out of five is going to hit and multiples are going to make up for the other four. But the other things that are important is just like I explained, despite how good of an idea might be, it's always the founder first. The founder has to be a proven winner. They win all the time and hopefully they've already been there, done that, had an exit in the past. Then the second criteria when we choose a startup is the product. The product has to be exciting, innovative, disruptive, but in an already rising tide. And it has to be easy to talk about or word of mouth can't help power it. And so what do I mean by a rising tide? If you're going to invent some brand new technology and the industry isn't even there yet, it's too hard to invent a company and an industry at the same time. Some people have done it like Steve Jobs, iPhone, but most people won't. So that's why I say it already has to be in a rising tide. Industry already has momentum. So that's the second one. Is the product being innovative, exciting, easy to talk about in an already rising tide. The third criteria for us to invest is how good are they at raising money? What is their path to an exit? How strong is their Runway? Can they go back and raise more money again if needed? Do they have experience raising capital? Guys, a lot of times, great founder, great product, but they are bad at raising money. We've lost on startups where it was a great product, great founder, but they just didn't know how to raise money. They didn't know how to keep their Runway going. And that'll be the death of a good company and a good product every single time. And what is their path to an exit as part of number three, who are their likely suitors, who's going to buy them and when? And then four, the number four criteria when we pick a startup is can Lori and I help move the needle in one way or another? Do we have contacts that can help experience that can help or do we can? Would people in our audience love this particular product? Those are the four criteria. And all four out of four must be there for us to Say yes to that startup. And when it is, we know that we likely have a winner. That's probably a lot to digest, but you have to have a system around your investing in, a system around why you move your money around the way that you do. So if I could recap for you real quick. The first place you invest, at least in our thesis, is in yourself and in your business so that you can become a lean, mean money making machine so you have more to invest in the other things. Second place, and almost simultaneous to that are your set it and forget it future retirement investments, low fee index funds, 401ks, Roth IRAs, fully fund those things. The third level of risk, remember these are getting riskier as I go is individual stock picking. The fourth level of risk, a little bit riskier are these passive income funds, individual real estate and REITs. The fifth level of risk are web3 and exotic opportunities. All these, oh my God, I can't believe this thing's happening. I could double my money, right? We've lost on a lot of those and won on a lot of those. The sixth level of risk then is other people's startups. And if you have a system around it, then of course it's a good bet to make if you're making that bet consistently. And by the way, if you're an accredited investor, we do have a little bit of room left in my startup Frello, which is the peer to peer lending apps like Uber for small personal loans, pairing those who have an urgent financial need with those who would lend to them and have their loan protected and make a nice quick little return. If you're interested in checking that out. And if you're an accredited investor, that means by law and by definition, you've made more than $200,000 a year for the past two years as an individual or more than $300,000 a year as a couple for the past two years. Or you have a million dollar net worth, not counting the equity in your home. If you're an accredited investor and you want to check that out, go nose around a little bit@frelloapp.com invest and if you want to invest in it, fill out the application. We'll have a chat again. That's frelloapp.com invest f r e l l o freloapp.com invest. Check it out, get nosy and I'd love to talk to you if you're an accredited investor.

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Bye everyone.