How the Super Wealthy Allocate Their Money And What You Can Learn

How the super wealthy allocate their money. And I want to start by telling you about a $2.9 billion deal that I had a chance to watch. Okay. Founder, a client, founder of Clif Bar, Gary Erickson. He turned down a $120 million deal back in 2000. He held on. And in 2022, he sold his company for $2.9 billion. Now, I was brought in on the valuation work for the families at that level, and I got to see up close how people with that kind of wealth actually structure their money. And what I found will probably surprise you because it's simpler than you think, and it is more accessible than anyone is giving you credit for. To you, and it applies to you. So today I'm going to break down the real allocation framework and show you exactly how to apply it to your life right now. This is Building Your Money Machine, where we help you master your money, eliminate financial stress so you can live a life of choice. Because earning more doesn't make you free, a money machine does. And I'm your host, Mel Abraham. And after 30+ years as a CPA, an entrepreneur, a money mentor, and someone who's walked this financial freedom journey from nothing to something, then broke it and had to rebuild it again, I've seen what works. And it isn't about bigger numbers, it's about bigger and better choices. So let's do this. How the super wealthy allocate their money. All right, that's what this episode's about. And here's the thing that I wanna say right up front, because what you're not gonna learn isn't, is some exclusive velvet rope strategy. It's not something that's just reserved for people with 9 figures in the bank. And you're gonna see that it's simpler than that, like way simpler than that. So let me really earn the right to say this because some people will say, well, what do you mean? How did you know that? Well, over the course of my career as a CPA, as an advisor, as a valuation professional, I've had the privilege of sitting across the table from some extraordinary people. Not just successful people, but I mean people who have built empires, families who have turned an idea into a billion-dollar legacy. I have been brought in to do the kind of work that only happens when the stakes are enormous. Valuations of companies and estates and wealth structures that most people will only read about in magazines. So one of those situations involved a friend and a client that was, you know, Clif Bar, that energy bar company that you may know of. Gary Erickson. Gary Erickson, who is the founder of Clif Bar, turned down a $120 million deal, walked out at the last minute back in 2000 because he believed in something bigger. And he was right, because when that company eventually sold to Mondelez, In 2022, it sold for $2.9 billion. All right, here's the thing. I, I've had the kind of access that most advisors never get. I've seen it firsthand how people with that level of wealth structure their assets, how they think about investing, and what they do differently. But here's the punchline that even surprised me. The principles they use They are the exact same principles that you should be using right now. Okay? Even if you're just putting away $1,000, $500 a month, that's the big idea today. See, the strategy doesn't change just because the numbers are bigger, because you have more commas or zeros in your bank account. The proportions might shift. The vehicles maybe get a little fancier, but the underlying logic, the framework, It's the same. So today we're going to break it down. I'm going to walk through how the super wealthy allocate their portfolios, how they build them, how they invest, and what the data actually shows. And more importantly, how you can apply it into your life and building your own money machine starting today. All right, so let's jump in. You know, here's, here's the belief I want to challenge right out of the gate. Most people assume that wealthy got wealthy because of some exotic, complicated move with their money, or they have some access to some secret playbook, or they can go through a secret gateway that the rest of us just can't see. All right. Well, you know what? When you're starting out, when you're trying to build, it's easy to feel like you're missing something. Like there's a door somewhere that only the ultra-rich can walk through. But let me be real with you. See, the secret club, it exists, but the secret is that the club is not that complicated. What the data actually shows from studies of high-net-worth investors across the U.S., including some research from, uh, an organization I belong to, the Long Angle Community, they track investors $2 million net worth to $100 million plus and their portfolios and how they operate. And there's some universal principles that are there. And the first one is this: simplicity wins every time. See, the portfolios that grew larger, the investors that outperformed weren't the ones who made the most moves. They were the ones that had the clearest strategy. And the most patience. So, I've seen this literally up close because when you're advising someone that's sitting on $50 million or $500 million, the temptation is to, "Hey, let's do some nuanced things. Let's make it complex." Layer upon layer of products and structures and trusts and all these things. But the ones who actually preserved and grew generational wealth, They came back to the basics every single time. Cash, growth assets, real assets, and time. That's the foundation every single time. So don't look for that magic bullet, because the magic bullet is fundamentals. And, and when we go down deeper into the data— so let's look at the data— you'll see what I mean, because some of these ultra-high net net worth individuals, they look really simple. And this is the story. The first place when I start to look at how they invest is they invest in cash. I know that may surprise people, but the wealthiest individuals, the wealthiest investors hold cash. And we're talking about 7 to maybe 10%, 12% of their portfolio. If their portfolios over $100 million and above, they still hold cash. And you might sit back and say, "But wait a second, Mel, why would someone with $50 million keep $5 million set aside in cash?" Two words: optionality and protection. See, they realize that cash is not lazy money when it's used intentionally. And it's the very reason that the Wealth Priority Ladder that I built and I talk about in my book, "Building Your Money Machine," starts off with creating an unshakable foundation, and liquidity and cash is part of it. It's the buffer that lets you say yes to the right opportunities. It's the foundation to your comfort fund, your emergency fund, your peace of mind fund that keeps you from, from being forced to sell assets at the wrong time because life just happened to happen. See, the cash isn't there to invest and grow. It's there to protect what you're investing and growing. And here's what I've seen. The people who get into financial trouble, they're not usually the ones who ran out of income. They're the ones who ran out of liquidity. They had assets, they just couldn't get them fast enough. They couldn't liquidate them or couldn't liquidate them without taking a loss. It's what happened in 2008. So the wealthy keep cash, maybe not a lot, but enough strategic, intentional to take care of the foundation, to take care of the emergencies, and to take advantage of the opportunities. That means that before you invest a dollar, you've gotta have that foundation in place, the comfort fund, your destructive debt being, being taken care of, and then the emergency and peace of mind fund. 3 to 6 months to start, and that's not being conservative, that is being smart. The second place that they invest is public equities, not private equities. We'll talk about that in a moment. And this might surprise people too, but the super wealthy still own stocks, lots of them. I mean, we're talking their portfolios are 30 to 50 to 60% parked in public equities, and their wealth is growing. The composition inside the bucket might shift depending on where they are, but they have the same ETFs, index funds, mutual funds. Why? Because they're great tools, because they've been proven. They're not necessarily picking individual stocks. Now, some of them will, and when you look at their portfolios as they get bigger, they will take a sliver of their portfolio and start buying into specific stocks. But at the beginning, which is what I recommend, you don't do that because you are, you are focusing way too much risk in a single company. If that single company drops, you lose. But when you go into a basket of ETFs and index funds, just like the super wealthy do, You've got 500, 3,000 stocks, companies, publicly traded companies. Most of them, some of them are good, some of them may be bad, but overall they will grow. And that's the thing that I want you to start to, to start thinking about. The wealthiest investors will do the exact same thing. ETFs, index funds, and then as they grow, they'll start adding more individual stocks and they'll go global with the equities, but not because because the ETFs or index funds have stopped working, but because at scale they want more control over their tax exposure or their sector concentration or their ability to manage specific risks. Okay, and here's the part that when you look at it, this is the part I love because this is directly relevant to you. When researchers— when I looked at the data, they They looked at and said, who got better returns in the public market, the ultra-wealthy or the everyday investor? You know what they found out? Absolutely no meaningful difference. The stock market is the one arena where a $1,000 a month investor or a $100 a month investor or a million dollar a month investor, if there's such a thing, They're playing on essentially the same field. They're playing with the same rules. A low-cost index fund held long-term with consistent contributions, that's the game. And that can match or beat the most sophisticated portfolio managers in the world and beat the returns they're getting from the same asset class. And that's not me trying to be inspirational, that's the data literally being rude to, to rich people to sit back and say, look, Look, the playing field is level in the equity game because now we can get in it for $50. An ETF, an index fund, and now you own a portion of the same thing that the super wealthy own. And that matters for you. That's the game I need you to play to get in the game, to build wealth like the super wealthy. Now, so that's cash. That's public equities, the next asset class that they will invest in is real estate. Now, the, the data here tells an interesting story because it's a story that I think nobody wants to talk about. The research shows that wealthier investors, they hold more real estate as a percentage of their portfolio. And I get that the wealthier though, they get more deliberate with their purchases into real estate. And they'll buy real estate through funds, they'll buy direct property holdings, they'll buy private placements. And we'll talk about alternatives in a moment. But here's the twist that most people don't get. The wealthiest investors often earn a lower percentage return on their real estate than the less wealthy ones. And you might say, well, Why is that, Mel? Because when you get to a certain level, you're actually not always buying for ROI. Sometimes you're buying for control, for tax efficiency, for legacy. And sometimes, let's be real, a little bit of it gets the ego involved. You know, that person that buys the 40,000-square-foot home in Aspen, Colorado, probably isn't hitting the same cap rate as the modest rental in Tulsa. But the guy who owns the 40,000 square foot home doesn't really care. But for you, real estate done right is still one of the most powerful wealth builders available to a regular investor. Buying for cash flow, not just appreciation. Owning assets that generate income whether you're there or not. That's the money machine at work. And so we, we will look at this. Now, it doesn't mean that you all have to be real estate investors. In fact, I'm a real estate investor, but I do it through real estate funds because I don't want to be a direct landlord. And that's just a lifestyle choice. And I've managed to build plenty of wealth without owning direct ownership in a bunch of properties. All right. Then the other class that I think you see them invest in is this overarching thing called alternatives. And this is where I think the gap opens up a little bit. This is where the wealth creates access to more wealth where we may not have access because a lot of this is for sophisticated investors in their eyes or accredited investors in their eyes that have requirements. Now, what are alternatives? And you'll hear this all the time. Well, they're non-traditional investments. Private equities, meaning private companies, venture capital funds, hedge funds, direct investments in smaller companies, angel investing. Now, because of the nature of these, the data isn't easy to find. But for investors under a few million dollars in net worth, Alternatives typically make up less than, less than 5-8% of their portfolio. That's about it, max. But for those at $100 million and above, we're talking that they're probably in the 20% range. It becomes significant. But there's a challenge here. One, why is there such a gap? One is because the price to get in for alternatives is high. Some minimum investment to get into alternatives is literally a million bucks. And so you don't even have access to it. And if you're gonna put a million dollars into one investment, you need to have a substantial net worth so as to not take on the concentration risk. So a lot of times we don't get access to it. And when you look at investments, in alternatives, the challenge is that your investment is typically— your money is going to be locked up for as much as a decade or more. The wealth that you put into something like this is completely illiquid, and the wealthy can afford to be illiquid if they've done the other things right. The rest of us, we often can't. And here's what I want you to hear about this. This is not about feeling like left out or locked out. It's literally about sequencing. As your money machine grows, as your freedom number becomes a reality, as your financial independence increases, you gain access to these vehicles. And this is where the game might get bigger, but you have to build the foundation first. See, right now your alternative investment might simply be a rental property. It might be a side business, a side hustle, an investment in your own expertise. And those are legitimate alternatives and they compound. Because the thing to think about in alternatives is that they're the ones that you enter into last, not first. They may be the sexy things, but when you start to break it down and look at it, there are a lot of risks associated with it. And this is the thing that I think we need to be careful about, whether it's private equities or venture capital or private credit or real estate funds or crypto. You know, you don't put a substantial amount of your net worth into those unless you have a substantial net worth. And this is a thing that I think much of the financial content out there gets wrong. See, the wealthy use alternatives to scale and protect wealth that they've already built, not to build it from scratch. And the nuance that people don't get is that you get into alternatives and they can be powerful tools, but they come with costs and risks that sometimes we don't think about. And this is why you need to be ready for it before you get into it. And the biggest risk is illiquidity. You lock your money up, like I said, for 5, 7, 10, or more years. There is no easy exit. There isn't a market. I can't call up or log into my Schwab account and sell it. And if your life changes, and life always changes, your money's trapped. It's trapped in a fund, it's trapped in an investment, and you can't get at it. And that's a serious problem. That's not a theoretical risk. It's a real risk. And I've seen it create real hardship because on paper you look really good, but you have no access to it if you didn't do the other investing part right, the cash and the other liquidity. Now, there's also access risk. See, the wealthy don't just invest in alternatives. They invest in the top-tier alternatives. See, the first, first tranche, the first deals, the institutional-grade deals, the really good deals, they go to the, the big players. And what do we get? We get what's left over, the deals that didn't attract the sophisticated money, if you want. And those deals come usually with higher fees and worse structures. Okay, same category but very different outcomes. And The last piece of the alternatives that I think we need to be aware of is the fee structures are very different. We talk about investing in ETFs and index funds, low cost, low fee, but a lot of these alternatives, they come with a 2% management fee, and on top of that, they take 20% of the profits or something like that. On a modest deal, those fees literally will destroy your actual return. So When you look at the ultra-wealthy, here's the framework I want you to walk away from. Alternatives make sense when you have a stable foundation underneath you, when your cash flow is consistent, when your emergency fund and reserves are in place, when your public portfolio has real critical mass, and when you have the margin to lock up money without affecting your life. Okay. If those conditions aren't met, then you're not investing like the wealthy. You're taking wealthy-level risks without the wealthy-level stability. So you need to build each layer right in the right sequence. So the next one can actually make sense. All right. So now let's look at this because I can hear you right now saying, huh, this makes things and makes sense, but Great, Mel. When I have $100 million, I'll revisit this. That's not the point here. Here's the point. I want to take this and break it down to a framework that you can replicate right now, whether you're doing $100, $500, $1,000 at any asset level. And here's how I break it down. Level 1 investing, layer 1, protect and stabilize. This is your cash foundation. The comfort fund, the emergency fund, the peace of mind fund, the 3 to 6 months, the 9 to 18 months, as I, as I talk about, that never gets touched for investing. It is there for protection. And anything in excess of that can be there for opportunities. It's liquid, it's accessible, it's insured. It's not working hard for you. That's okay. That's the, the job is to protect you. The wealthy call this liquidity for optionality. I call it peace of mind. Same thing. Then you go to layer 2. Layer 2 is building the core. This is your stock market exposure— ETFs, index funds, low-cost, broad market, consistent, simple, and in there. Always be buying. Keep in, in the game. This is the layer that proves you don't need complexity to, to build real wealth. It's how I built my wealth. And the research shows that even the ultra-wealthy don't outperform here. So why are we trying to beat the market? The best, best fund managers long term cannot beat the market. So let's just buy the market and stay in it. Here's the deal. This layer, you keep it boring, you let it compound, you keep it consistent. That's the move. That's it. It doesn't get any easier than that. Layer 3, add real assets. Real estate, when done right, is one of the best inflation-protecting, income-generating assets available to regular investors. But it has to be done right. It doesn't have to be huge. One rental property, cash flowing, bought the right way, can be the beginning of something significant. Now, the wealthy hold real estate because they generate income without requiring daily involvement. Sounds familiar, right? The money machine in action. That's the kind of game I want you to play. Now, those are layers 1 through 3. Layer 4 is when you might start to expand into alternatives as you grow. Private businesses, real estate funds, the angel investing. These become accessible because now you have the foundation that's growing. But you won't start here, but you build towards here if it makes sense. And right now I hold very minimal alternative investments because I don't need it. Okay, my biggest alternative is a couple of funds and my own business and my own work. That's it. Your side hustle, your own business, it's actually an alternative investment. I don't own private equities. I just don't. That's— I don't need it in the portfolio. Now here's the thing that I think ties all of this together for you, because it's the same strategy. Whether you're at $100 a month, $1,000 a month, $5,000 a month, it doesn't matter. The proportions adjust, the vehicles maybe evolve, but the logic is this: protect first, grow consistently, add real assets down the road, and expand as you grow. The wealthy didn't make this up. They just stuck to it and it worked. Okay? That's the game. That's the game that you're playing. So, here's the thing that I think we need to consider as you go through this. If there's a theme in anything I've done here, it is this. There's one principle throughout. And that principle I mentioned at the beginning is the Simplicity Principle. Because I want to make sure you hear this really clear. When I've sat with people whose estates I've helped value or structure, when I've seen behind the curtain of real generational wealth, here's the one thing that stood out more than any asset class or allocation percentage out there. Complexity is not sophistication. Simplicity is. The most elaborate investment portfolios I've seen weren't the ones that were creating the most wealth. They were often the ones that obscured it. They buried the real performance under layers of fees and structure and hedges and legal fees and professionals and made everyone feel smart, but it didn't actually move the needle. See, the families who built lasting generational wealth, they had clarity. They had a small number of strategies that they understood deeply and they executed them with patience. You don't need a dozen asset classes to build wealth. You need the right few executed consistently over time. And that's why I push hard on the idea that wealth is complex. Not because the numbers aren't real or the strategies don't exist, but because most people who try to leap into the complexity before they build the foundation, they end up losing both. They miss the compound growth of the simple strategy because they were chasing the allure of the complicated one. It's how I got into a Ponzi scheme and lost 1/3 of everything I own. Bottom line is this: a portfolio with 14 asset classes and a cocktail party explanation is just a spreadsheet with a personality disorder. It doesn't work. Build the simple foundation first. Do it well, do it consistently. And then as your wealth grows, you add the layers. You don't start with the layers. This is the principle that the wealthy apply, and it's a principle that you can start with Today. All right. I hope that this helps. I hope that you start to see that you can actually make the decisions that the super ultra wealthy make because they're not making any different decisions than you are. Okay. That's the game I want you to play. So hopefully you found this helpful and that you'll go out there and make a shift, a shift in the way you see things, a shift in the way you see yourself, and a shift in the way you make investing. Listen, I would love to hear what you think of this, what you're doing in your portfolio. Send me a DM, drop me a comment. Let's have a conversation. All right. Until I get a chance to see you in the next episode or on your journey and your path to financial freedom, as I always say, always, always strive to live a life that outlives you. See you in the next one. Cheers for now.