How the Top 1% Build Their Wealth

Listen Here

For over a decade, Sam Prentice has worked exclusively with high net worth entrepreneurs, immersing himself in the world of finance and wealth management. He has a vast and deep knowledge of how to architect wealth strategies for the ultra wealthy.

Today, we had an awesome time talking with Sam about ways to create an alternative wealth strategy like the ultra wealthy.  This is definitely not your average financial advisor approach and you will see why using this approach can exponentially create freedom, security, and abundance in your life.  Sam shares his thoughts on what is not working in today’s financial world and emphasizes how important it is to define what success looks like and to relentlessly  execute that plan.

Sam shares the psychology behind wealth and provides clarity on creating the right mindset about money and explains the importance of having a framework around building and sustaining your wealth.

In This Episode

1. The core beliefs of financial freedom
2. How to build real wealth in a practical way
3. The structural principles of how money works
4. The problems with a lack of transparency
5. What is actually happening in the financial world: Understanding & Perception

Don’t miss out on these powerful insights and fuel your financial knowledge with Sam Prentice!

Jump to Links and Resources

Hey everyone and welcome to another show today. Today on Wealth Strategy Secrets, we have a special guest joining us, Sam Prentice. For over a decade, Sam Prentice has worked exclusively with high net worth entrepreneurs, immersing himself in the world of finance and wealth management and developing an understanding and depth of knowledge that far surpasses any single information source. He is passionate about making sure you have a qualified team in place to allow you to live in a mindset of abundance and leave a greater impact on the world.

Sam works hard to constantly stay abreast of financial opportunities and economic trends so that he can make the best recommendations for his clients. Sam’s goal is to join his team and provide high-level coordination and feedback while working collaboratively to create the lifestyle and legacy individuals desire. Sam, welcome to the show.

Hey, thanks for having me, man.

Yeah, awesome to have you on, Sam. Definitely grateful that you’re here. I think the audience is really going to love some of your philosophy and strategy. So why don’t we kick things off and tell everyone a little bit about yourself, how you kind of got started in this space of wealth strategy, wealth building, and this whole journey? Where did your journey start?

That’s a fun story. I will tell you where it actually started. It’s been, what, 13-14 years now, which is crazy to think. It started off in health insurance. I got into that because I was in college, and I thought that what I needed to do to become more adept at life was to try things that put me outside of my comfort zone. Not a whole lot of people know this story, actually, so this is a fun one.

I went to interview at an insurance agency to make phone calls because I thought, well, what better place to learn how to get out of your comfort zone and be more extroverted than to go call people and sell them something they absolutely hate? So, I went in there and interviewed, and the guys told me, “You’d be perfect for this, but we really think you should be an insurance agent.” I just kind of laughed, like nobody goes in as an insurance agent; that’s just a waste of time. Then we chatted a little more, and they said, “No, no, wealthy people use insurance.” I had grown up in a reasonably affluent household, and I laughed again. I thought, that’s ridiculous. I’ve listened to Dave Ramsey; I know how this works. Like, come on, a little cocky 18-year-old that I was.

The next thing you know, I was in the health insurance world. I kind of had some family health problems, and I liked that. That was right before the ACA passed. From there, I went into the life insurance world because I did actually find some financial benefits there for the wealthy. After that, my life and career have kind of been a constant string of pulling. If you think of all the information about wealth as a big ball of twine, I was pulling that string a little further each time.

I was very fortunate to be in some of the right circles. I was introduced to some things early on, had some patented products and things that really bolstered my position in the industry. I built an agency and had things like that, going from client to client. As I up-leveled my clients, going from lower net worth clients to higher net worth clients, I was up-leveling the problems I was solving. I would constantly be asking, what problems are you seeing in your wealth, and what’s the most efficient way to solve that?

I come from three or four generations of engineers, so I like logical progression for sustainable solutions. That’s just how my brain works, with spreadsheets from point A to point B, and what’s the quickest way to get there. That’s kind of my background. It’s been about a decade. I started off in the insurance world, and as I progressed forward, I went from insurance to running a few different private placement funds. We’ve done everything from real estate to energy to, most recently, e-commerce businesses where we buy minority shares.

In that light, I also spent a lot of time around tax planning. As my clients up-leveled and created more wealth, more wealth meant more taxes. So, we looked for the best ways to mitigate those tax burdens. One way to have more wealth is to make more of it; another way is to keep more of it. Surprisingly enough, it feels a lot better to keep it than it does to make it sometimes. That’s kind of my rough background, condensed from a couple of decades or a decade and a half down to five minutes.

Yeah, that’s awesome, Sam. So what would you say, when you think of the concept of wealth broadly, how would you define it from your perspective?

Oh, that’s a really insightful question. I like that. So, how would I define wealth? In my mind, this is really good. You want to jump right into the core of my beliefs about money really early. One of the things I think I mentioned earlier that I want to do is actually give an impact to your audience because I really like Dave. You’ve been a great friend and client of mine for quite some years here, so I’d love to give back in this way. As far as what wealth means, in my mind, what we really work hard on a lot of times is not so much building wealth for the scoreboard just so we can say we have X amount of money. Most people work really hard around their money and their wealth so they don’t have to think about it.

So, in my mind, money is simply just the tool to be able to allow you to have freedom. Money is a trade we make for freedom, and it just is the way our world works. If that were to change—if freedom were to be bought with anything other than money, whether that’s cash, U.S. dollars, crypto, or whatever—we would probably be focusing on that. So, in my mind, money is really just a tool for freedom. When I look at my wealth plan, a lot of that is built around how do I sustainably put practices in place to allow me to maintain my freedom in the largest variety of situations that may come down the path. We’re never going to have anything that is completely devoid of risk, but the more we can eliminate scenarios where we lose our freedom, the more secure we feel. The more secure we feel, the more money does what it’s supposed to do, which is to enhance our lives and allow us to live life on our terms along the way.

Right. I think that’s such a great definition. It’s really kind of around Maslow’s hierarchy, if you think about it. It goes back that far where your financial needs are met, some of your basic needs are met. That definitely resonates with our audience and myself as well, this philosophy of freedom and really achieving more and having a big life. When you’re not thinking about money, it’s kind of interesting how it actually comes to you when you’re not chasing it as well.

Yeah, there’s definitely some principles. You mentioned the hierarchy of needs. Actually, one of the podcasts I spoke on recently was about the hierarchy of entrepreneurial needs. That is such a good point. There are structural principles for how money works that when one understands them, it makes the game so much easier. In the last decade, I feel like I have really taken the time to… it used to be that the more complicated things really attracted my attention, but since then, in the last decade, I feel like I’ve tried to simplify this down to what is a practical way where you can build your wealth but also know that it is sustainable.

If there’s two functions, one of them is what is actually happening because that’s important—the future is based on reality—but almost equally important is your perception of it. A good plan that is well executed and well understood is far better than a perfect plan that is improperly executed and not understood because your psychology around your money is going to be much better when you understand specifically what you’re doing. I’ve tried to make that into a really easy fact pattern to follow. I think that is probably one of the biggest things. Over time, we’ve learned that the more simple it can be, the more genius there is in simplicity in building wealth.

Yeah, I completely agree, Sam. It was actually one of the reasons that led me to writing my book, just to really try to simplify this world. I’d love to get your view on this as well. What happens is you have this $30 trillion financial services industry that is constantly feeding us different information, which is frankly incorrect. Put all of your money in your 401(k), defer taxes—a lot of these kinds of myths. What would you say to that in terms of what’s wrong with typical financial planning advice and education that’s currently out there today?

Sam: Most financial advice has a misalignment of interests. It is aligned with their interests, not with yours. Anytime there’s a lack of transparency in the industry, you run that risk. First off, one of the reasons I think there are very few people in the world that are as well equipped to do what you’re doing, which is shedding some light on these matters, is because after knowing you for whatever it’s been, six or seven years, and watching you have your journey of going through starting on the tip of the iceberg of all this information, digesting it, and then wanting to re-share it back out to the world. What’s great is when you’ve gone through that journey yourself and you’ve been behind the curtain and then on the other side, you are able to demonstrate that and clarify that for others in such a cool, cool way. I really love what you’re doing, and I think that you’re actually very well equipped for that, which is great. I don’t say that to a lot of people because there’s a lot of people who just have podcasts that podcasts are fun.

Yeah, I appreciate that, Sam, and full disclosure, I have been on this journey with Sam and have been a client of his for almost a decade now. A lot of the things I have learned come from Sam, and I am very grateful for that and definitely appreciate those insights.

We’ve been on that journey together, I’ll say. But that being said, some of the problems, like I said, are with the industry’s misalignment and interest. For today, I mentioned this to you maybe a couple of months ago—I’m not in a huge client acquisition mode, I am here to be transparent. So there is no wrong question you can ask me. If you’re like, “Hey, this is a question I think people would like to know,” my background and experience are very, very broad. Everything from fund setup to tax strategy to how accountants work, how translations work, how the financial planning industry works, how the 401(k) and IRA, even on the self-directed side, work. I have a very broad exposure to a lot of things regarding money. Now, I may not set all those things up at an elemental level, but I definitely am aware of them. Knowing that and having that awareness really helps cut through some of the fat and say, well, like, why are there so many problems with what’s going on?

An example would be, you talk about the 401(k) industry. The 401(k) industry is driven by people who want to manage money. People who want to manage money want to have a 30-year time frame or long, long time frame to be able to get your money in the door, have it under their control. While it’s under their control, it can make them money, and if it makes money, it can make you some money as well. The longer the time frame, the more likely they are to have “success” with that money because there’s this thing called positive bias in the economy, where because of the nature of how money works right now, there’s going to be positive bias due to inflation alone.

If you have a long enough time frame, it is going to right and cover any and all wrongs along the way. So they say, “Well, you just give us the money.” You have to think, well, how do you get someone to give you money for 30 years? You say, “Give it to us, put it in this structure, if you don’t touch it, we won’t make you pay tax on it until you get to 65.” It gives a longer time frame, a longer window, and a much greater likelihood of success. Now, if that window happens to close when 65 happens during a downturn, you may be out of luck and have to readjust your plans, but the money manager along the way is going to do very, very well because a system has been created that gives them a high likelihood of success.

What we’re looking to do—and it’s very genius stuff here, we’re crossing new grounds, going way off the radio here—we’re looking to try to put ourselves in the position to have the highest likelihood of success and the least likelihood of losing money, just like everyone else is doing. To do that, knowing your knowledge of alternatives and having a clear game plan is what sets you up in a position to have a greater likelihood of success than a likelihood of failure. I think that that’s what we have to do. First off, we have to define what success looks like. Then secondly, we have to know how we violently execute a plan to go towards that success.

I have a couple of thoughts on that. I don’t know if you have any questions you want to ask, but I have some thoughts specifically on wealth building that I would love to share and then dialogue around that. I think that framework would be really, really helpful for any audience that is looking at creating financial freedom. I believe I have one of the simplest ways to approach that mindset, and it is completely product and investment and manager and whatever agnostic. It is not tied to any particular person or strategy, which I think is important. It’s kind of the overall framework behind building wealth.

Okay, let’s roll with that momentum. Go ahead, Sam.

Perfect. In the last 12 to 14 years, I have put together and taken all of that and put it down into one like five minutes of understanding for how money works. I can promise your listeners—and actually, I want your listeners to do an exercise for me. While you’re sitting there, I want you to listen to this for a second. I want you to look around, unless you’re driving, be careful, but look around and notice who else is listening to this with you. Some of you may be listening in a group setting, but more likely than not, this is just you and your ear pod, or just you and your phone, or you and your workout, or whatever’s happening. You’re there; there’s nobody judging you for a minute. So I want you to take a second and think about your wealth, think about your money.

Very rarely do we give ourselves a second to pause when it comes to thinking about our money. It’s always, “What do we do next?” So pause for a second and think, right now, where I sit in today’s world, like right here today, how do I feel about the amount of money that I have? How do I feel about my future in relation to the amount of money that I have? Do I feel excited? Is the first word that comes to mind “When this happens, I’ll be there”? Is it, “If this happens, I’ll be there”? Or is it negative, saying, “I should have done this”? Is it focused on the past? Pause and stay with that for a second. Think about your money, think about your future connected to your money. Pause. Take a breath.

Okay, sit with that for a second. Now everyone will have a different response there. What I love about that is some people will come back and say, “Oh, I’ve just crushed it. I just sold my business.” My routine client, just so you know, Dave, my routine listenership, my routine client is typically going to have a $5 million net worth or a $500,000 income or higher. That’s when people will typically come to me and use my private advice services. We’re looking at tax mitigation and overall wealth structure. I’ve worked with significant amounts of money for a standard period of time here, and a lot of that is money that’s been made relatively quickly.

The psychology around money is really, really important because I don’t have a client who has exited their business and exited for a multiple eight figures who has not had fear surrounding their money. It’s crazy to think of that because along the way, we often tell ourselves that we will be happy or we will feel secure around our money when this happens. So what happens? We give ourselves the goalpost of where we’re going to go, and if we have not hit those goalposts yet, we encourage ourselves to physically and mentally interact with our money in a state of fear. Getting outside of that takes two things: one is giving yourself that permission, but two is giving yourself a framework for how you can enjoy the journey along the way. That journey towards the security that you want, which I think is actually more available than we would think, can be very, very scary. It can be very, very distressing if you don’t have clarity on what that path can and should look like.

A personal example before I get into the structure, just one more thing to give your listenership comfort in the way that it feels when the feelings are uncomfortable around money. I know I’m like a hippie, I promise I will get back to numbers.

This is awesome. Keep going. That’s great.

I have clients who have exited for—here recently, like my client base is—I have a $4 million exit, a $20 million exit, a $100 million exit, and a $4.5 million exit with Evernote. Those are my most recent clients from 2022. Every one of those clients I have had the exact conversation that I’m going to have with your listenership here today, and every single one of them has had fear surrounding what they are doing with their money. My $4 million exit was having trouble spending the money because he was worried that if his account went from $4 million to $3.9 million, that wasn’t sustainable because eventually that runs away. Granted, he’s 32 years old, so there is some truth to that—that’s a pretty young age to start depleting. But that being said, you sit there and think, “Man, if I just had $4 million, my problems would be gone.” Or, “I have a $20 million exit, exact same problem, concerning their lifestyle would not be sustainable if they continued to deplete.”

Having a framework around how you build your wealth is just so important. I’m going to pause for a second. Any questions, Dave, or should I keep rolling?

Yeah, no, I think that’s really so good, Sam. I think what I’ll just do is to really corroborate that story for us as well. The first thing we always talk about with clients is, you know, what is your vision for yourself and your family? Because it all starts with that. I love how you’re talking about the psychology of money because it is really fascinating wherever you are on your journey. It’s really all about your mindset and how you look at that and where you’re heading.

Otherwise, whether it’s 100 million or 200 million, you could still be unhappy. Your family might not be safe, or maybe you’re not healthy. I mean, look how much would Steve Jobs have paid to solve his health problems, right? He had, you know, so I mean, all of these things are really critical as the foundation to the framework. So, love it, keep going.

Sam: Cool, awesome. Well, I am a tactical person and a detail and numbers person, so it kind of kills me to go on this side first because I want to get into the “here’s how you do it” step ABC, which we will. I promise we will get there before the day is out. But this is so important to me for two reasons. One, which you mentioned about health. There are so many investors and entrepreneurs who reach an unhealthy state physically because of the way they mentally and emotionally interact with their money. We can witness that in our own lives when we go through periods of more stress. It brings on more health problems, and we sometimes let our brain run constant loops because we don’t have the right framework around money.

Secondly, for me, I have learned that when driven, good people—people who are philanthropic, people who are good people in general, people who are trying to create this freedom for themselves—typically like to do that for others as well. When we can unlock a sustainable plan for that kind of person, that avatar person who is outward-focused as well, the impact that makes long term is such a cool ripple effect for me. That is my why for why I do what I do.

I have seen entrepreneurs go from closed and concerned and uncertain to having clarity, efficiency, and optimization around what they’re doing. In that clarity, once we get the permission because we’ve taken care of the basics, it unlocks the ability to go from being a level two, level three, level four influence to having that level nine impact that I think some of us are motivated to have.

The transition we all go through is security, then lifestyle, and then impact. This is kind of getting back to the sustainability. The first thing before we can start worrying about our big impact outward, we first need to feel secure for ourselves and our family. Anybody who says they can only focus on their outward impact is probably doing some sort of coping. I get it. I can talk to you all about my personal development, but if your only focus is outward on others, there’s probably something that you’re neglecting. More likely than not, some childhood traumas we should deal with, but we’ll come back to that later.

That being said, we have to progress this. Getting secure around our money takes both understanding and reality. We have to actually be secure in reality, and we also have to understand how it works. Because you can be as secure in reality as possible, but if you don’t understand it, it’s almost irrelevant for how it affects our psychology.

Next is lifestyle. We say we want to live life on our terms. There’s usually a number that you say, “Well, if I have this much money coming in, I feel safe. If I have this much money coming in, I live life on my terms.” Once you’ve hit that goal, it’s kind of like we hit that level and we plateau there. After that, every dollar that comes in above what we need to live life completely on our terms is then used for impact. Whether that’s impacting a small circle around you, friends and family, or impacting a larger circle, kind of like what you’ve done if you want to impact a larger circle with an audience, or even larger past that with things that are multi-generational, those are all things we can talk about.

I think that’s the progression we go through as investors and entrepreneurs: security, lifestyle, and then impact. My goal is to say, how quickly can we move people into that third quadrant by creating the things that are necessary to give you security and confidence in quadrant one and two? Any thoughts on that? Any feedback?

No, I know. I think it’s right though, Sam. I think that’s, you know, I think it’s really prescriptive. I think it talks through kind of, I like the framework and the approach, right? Because that provides flexibility for people wherever they are in their stages to be able to apply that framework, you know, and make it unique to them and then be able to actually implement it, you know, take action and start to implement.

Gotcha, perfect. Okay, so that’s good. So I was going to give them homework. I wanted to make sure I had buy-in before I did. So, audience, your homework is to take a second. There’s those three numbers—you only need to know two of them. Know number one and number two: your security number and your lifestyle number. Think about that for a second. Pause to think: how much money do I need for me to feel like I’m not going to go broke tomorrow? If there was a magic fairy in the sky, you know, or whatever, and you had somebody who was going to guarantee—which there’s no guarantees in life—but if there was a guarantee that was going to guarantee X amount of money, what would you need to feel secure?

Don’t give me some “buy a Lamborghini every month” kind of number, but a real number you look at. If you live in the Midwest, your number probably shouldn’t be more than like $150,000. If you live on the coast, maybe a quarter million. But that’s usually a security number that most people would look at and say, well, if I had this, I’m not going to be poor. I may not live, I may not be able to travel every week, I may not be able to take my friends and family, I may not be able to live in the multi-million dollar house, but I am going to live comfortably if I have this amount of money coming in securely.

Know that number. Know the number that says, okay, if I want to live life on my terms and not have to think about money, because there’s a number where you think about money but you’re secure, there’s a number where you don’t think about money and you live life completely on your terms. Think of those two numbers, and I’m okay with those numbers being pretty far spread apart, but have those two numbers and know them. Because without knowing the end goal in mind, it’s very difficult to feel confident with the steps you’re taking. It’s also difficult to enjoy the journey and give yourself the ability to relax along the way without knowing what your end goal is and seeing progress towards it.

Because it’s very easy to get demotivated when you feel like you’re not making progress towards your end goal, especially if your end goal is boxing with a phantom because you’ve never really given yourself permission to set that. So, know what those two numbers look like. What does security look like? What does lifestyle look like?

Like I said, for most people who are in the Midwest or non-super expensive cities to live in, maybe $150,000 and $350,000 is probably a normal number a lot of people think of when those go together. What you can then do is you can take that number, which I’m gonna get into how we sustainably get there, but you can take that number and divide it by like six to eight percent if we’re using real estate as your primary cash flow and give yourself a pretty good idea of what amount of money you need to be able to make that happen.

For some people, that number is daunting, but for some people, that’s really encouraging. It says, oh, we have a sustainable way to make sure our lifestyle can be maintained. If we need $150,000 a year to feel secure and we have $4 million in the bank, we can start to let ourselves feel that way. It’s just a good litmus test to know which direction you are or are not heading in relation to what you want to have. So I highly recommend that.

We’ll get into where those numbers come from, but homework number one is to think about what is your number of annual cash flow at which you feel secure? What is your number of annual cash flow at which you live life on your terms and do not think about money and worry about what you spend money on? Okay, piece number one there. Now, when it comes to building out sustainable wealth, and this is like I said, this is a decade condensed down to like five minutes, maybe seven minutes, who knows? I get long-winded sometimes.

But this is trying to make it be really, really practical. The reason this works and the reason this works consistently is because everybody who has built wealth sustainably has used this form or used this structure in some form or fashion. There are many people who have built wealth by accident or luck or whatever else, those kinds of things. Not luck, I hate to use that word, but many people have gotten into it in a different way, but it is not sustainable.

It’s kind of like, I’ll give the example, back in the day I used to play a lot of baseball, big baseball guy, used to teach private lessons. I love the mechanics of a baseball swing because it is such a unique thing to be able to take a round bat and hit a round ball and drive it a few hundred feet. The physics, the accuracy, the precision are just so precise, it’s amazing, which is why mechanics are very, very important. So I love mechanical things that require high levels of precision. An example would be, typically when you’re hitting a baseball on the outside part of the plate, you’ll see they will normally hit that to the opposite side of the field from the side of the plate they’re on. It’s just mechanically, it makes the most sense.

Mark McGwire, who hit, you know, pre-roids, was still a good hitter. Mark McGwire was known for doing the opposite of what 80 to 90 percent of other good hitters did. He would pull that outside pitch over the center field fence. He would be what we would call a freak of nature because most people are not able to replicate that because he had practiced and utilized a non-replicatable strategy that worked for him. So my example would be, there’s a lot of people in the world who you hear about because they’re public, because they have this unreplicable or not mechanically sound strategy.

You know, examples may be, maybe they were the first in on Bitcoin, or they were the angel investors and they had nothing, and then had everything, had nothing, and then had everything. That is not common, nor is that easily repeatable, nor does it have a high likelihood of success. So if that is your game plan, this is not the structure for you. What this structure is for is for the person who says, I want to roll the dice, and I want to win every time I hit a one through five, and I want to get to roll the dice three times. Like, oh, I play that game. That’s the game we’re gonna play. We’re gonna play a game that has a very, very high likelihood of success and has the ability to create that high likelihood of success, will create your future that also creates your sustainability and your security because we know it’s going to be successful in the building as well as successful in the maintenance and distribution. That’s what’s really important about what we’re doing.

So the structure I call it the wealth pyramid. Very, very simple, and not a pyramid scheme. That’s another story, but that’s on episode 10. Joking. [Laughter] So the wealth pyramid, the reason it works is because it’s structurally sound, and what we do is there’s three levels. There’s going to be liquidity at the bottom, cash flow, and then speculation. I’m going to talk through each one of those levels, but the idea behind this is that you don’t go to the third level of speculation until we’ve worked our way up from one and two, from liquidity and speculation. We’re constantly widening those two bases of the pyramid out until our cash flow has exceeded the security number and potentially the lifestyle number as well that we just did in the exercise before.

The reason that’s important is because most people will want to jump. When you learn about the different ways you can invest and try to create and grow wealth, you may say, well, I want to jump straight into the highest return possible. So maybe I want to go up here and buy Bitcoin. Hopefully, my Bitcoin will become worth a million dollars, and then I can use my million dollars to go buy real estate. Then I can use my cash flows on the real estate to fill back up my liquidity buffers. Well, that all sounds good in theory, if, if, if, but there’s a lot of variables along the way that may not go in your favor. Versus if you say, I’m going to build up liquidity before I go buy my real estate investment property.

The reason I build up liquidity and build up liquidity in excess of what I need for my down payments is if I buy this cash flow and my cash flow is interrupted or there is a challenge, I need to have liquidity to mitigate my risk. So what you do is you build liquidity wide enough, you stimulate part of liquidity by tax flow, cash flow then stacks on top of your liquidity. Every time you buy more cash flow, you’re always increasing your liquidity wider. This is so important. It’s as simple as on your personal balance sheet, you keep three to six months of expenses so that way you can mitigate challenges that may come up. On your personal side, you would do the same thing for every asset you buy where you keep a cushion for those challenges to be able to deal with them as they come up.

As well, liquidity lets you take advantage of new opportunities. If we’re liquid when we go through a downturn, we can buy more things. I’m going to pause for a second because I know a lot of the listenership is big into syndications. That’s one of the beauties of syndications is they do some of these things internally, so you don’t have to think about them. I’m telling you about the structure because I assume, like I said, this is all completely product and investment type and asset class agnostic, which is why I think that this is so, so important to understand.

No, that’s why I like when somebody raises money to go buy an apartment complex. They don’t raise exactly the amount of money for the down payment; they raise the down payment plus some cushion plus some money for rehab. So that way, if they have something they need to repair or expand or whatever else, they’re never in a position to be illiquid. Illiquid people are the ones who fire-sell the assets that we try to buy at a discount because they’re having to sell equity for liquidity as opposed to having liquidity available to them to reduce their risk. Any paused questions on that, Dave, before I go on?

Completely tracking, Sam. Makes sense.

Awesome. So that’s that, and I know you track all of this, but if I say something that sounds like it’s a little off the wall, you’re welcome to reign me back.

I’ll let you know for sure.

No, we’re good. So this is what’s so, so important. If you build this structure this way, you protect yourself from a lot of the challenges where people go astray because most of the time where people lose money, it’s not necessarily picking the wrong asset class. Sure, some people invested in JCPenney and Sears right before Amazon came out, but that’s not the majority. The majority is people who did the same things that you’re about to do or you’re currently doing with your wealth and didn’t have a sustainable plan for maintaining things in a variety of different market conditions.

In my mind, wealth planning looks like this. I want liquidity, and I want to make sure I have enough liquidity that I always have that cushion for both my personal life as well as my assets above it. Liquidity can be housed in a variety of sources, and we’ll go through a quick overview of each section. The goal with liquidity is to check: can I get to it in 30 days or less? If you can’t contractually get to it in 30 days or less, then it’s not really liquid; it’s going to be one of the buckets above it. It also needs to not be significantly volatile. If you think you’re going to put your liquidity in the stock market, like in the S&P 500, the challenge is, well, what if that’s when the market crashes, and then you want your liquidity, which is usually when people need liquidity?

Most people who are in the cyclical investment cycle or environment are going to buy things at the top of the cycle because they have more cash, their businesses, their jobs are doing well, they’re getting bonuses and dividends. They’re buying things at the top of the cycle, and then when the market crashes, their income is hurt, their liquidity is hurt, and they have to fire-sell assets. That’s why more people exit assets at the bottom of the market than at any other time. It makes sense; that’s usually when most people sell, when there’s the least demand and things are lowest.

The question is, how do we get outside of that cycle? Without planning, you’re not going to, because you’re going to have more money when you have it, you’re going to spend it or invest it at the top, and you’re going to sell it at the bottom because you didn’t count the cost of liquidity. Liquidity is both safe, accessible, and counter-cyclical where it’s not going to be tied to the same cycle that everything else is flowing because we use that liquidity to mitigate our risk during a down cycle by either fixing our current assets or maintaining our current assets, or potentially and most likely buying things during that downturn. Liquidity is a very big piece of the structure behind this.

I know it’s easy to want to cheat that liquidity cycle and say, I’m going to skip liquidity and get cash flow, and then in a couple of years, I’ll build liquidity back up. Just know that you expand your risk every time you do that. So to be sustainable, as you grow your cash flow, your liquidity grows wider each time.

Cash flow—I personally favor real estate. This is not just because you’re here, Dave. You can ask any one of my clients. I wouldn’t be recommended, but I’ve encouraged hundreds of millions of dollars of real estate ownership because it is sustainable and especially because of the economic environment we’re in right now. There’s so many reasons why this makes sense. I encourage real estate because real estate is hedged against inflation. We’re getting to use cheap debt with the environment we’re in right now.

The positive buyer for the debt should work really well there. Plus, it has a cash flow component as well. We might get six to eight percent cash flow on our property, which is great for our whole security and tax planning, having our lifestyle and security numbers met. But it also allows us to continue to compound that wealth due to appreciation and principal pay down as the tenants are paying down the mortgage.

It also allows us to take advantage of some pretty impressive tax benefits. There are some things you can do where potentially paper losses can offset ordinary income if we have the right fact pattern behind that, like a real estate investment professional and those kinds of things. So there’s some really attractive things in that light where real estate builds a lot of other equity values, but the cash flow alone is very, very attractive along the way. I like that for what it brings and how it helps the planning.

One other note I would make is it has counter-cyclical components when you are not forced to sell at a bad time. Let me explain that because that was a lot of big words and not useful to the average person. I criticize myself as I say those things. My point is, if you buy into real estate and you have a long enough time frame that you can hold it for seven to ten years, you’re much less likely to have major challenges with the asset. Typically, rents and sale prices are inversely correlated.

It makes sense; think about it. If more people are buying homes, fewer people are renting, so there’s less demand for rent, so rents go down. But if the market changes and fewer people can buy homes, sale prices go down, but rents typically go up or maintain.

As long as your primary focus is cash flow and you’re not saying, I need this property to double in value due to appreciation, if your primary focus is the cash flow, you can hold during a downturn and maintain cash flow. You may not be able to sell it for anything or refinance it, which is one of the risks you have there, but you don’t necessarily have to take that loss. If you have another five years, more likely than not, that property is going to recover back up with the rest of the economy overall. Because we know long term, like we mentioned, positive bias does work in our favor.

That’s really key, and this is why liquidity is important. The person who we go buy assets from in the downturn is the person who is not liquid, their asset crashed, and they had to sell it because they were planning on the refinance as their savior, not their bonus. Again, watch anybody who’s done well successfully; they do it this way. They build liquidity first, use liquidity to buy cash flow, refill the liquidity, have a widening base of liquidity before they buy more cash flows, continue to widen their liquidity out, and widen their cash flow out until that cash flow number has exceeded their lifestyle. At that point, then we jump up to the third block, which is our speculation.

The beautiful thing here is, say your number’s $250,000 a year of cash flow. We’ve created that passively, and you’re actually creating $300,000 a year. You can then take $50,000 a year and dump it into whatever speculation, whether that’s land or angel investments. Speculation is any asset you buy today and hope to sell for more tomorrow. By nature, that’s the definition of speculation. Anything that doesn’t have a cash flow component is speculative, and I personally like to use those assets after we’ve used our cash flow to create our security.

Because the mindset when you walk out the door and say, my $50,000 I put over here into this speculative asset—crypto, gold, land, angel investment, etc.—you list the gamut of things we can go into there. When you do that, you don’t do it thinking, I need this to work. You do this where you’re treating speculation like the gamble that it is, and it does not psychologically affect you when things don’t work out the way they need to.

Also, when you have built up that recurring cash flow, if you’re a business owner or you’re playing in that game where you are impacting people through your work, holy cow, it changes the game a lot when your passive cash flow pays for your lifestyle. You’re not gambling with your future, with your family’s future, with your lifestyle, with your family’s lifestyle. You’re then able to say, well, maybe I take the business and go this direction that potentially has more risk, but the impact potential is so much greater. I’ve literally seen that transformation take shape from someone who did not change their net worth at all but changed the structure and built out the liquidity of the cash flow.

The speculation that happened within their business and the way that they play the game now is so different. You’re not playing the game because you need the business to win to survive, you’re playing the game because you want the business to win so you can make an impact, and it’s just such a cool shift to make. I 100% categorically believe that when you structure and build your wealth pyramid out correctly, you operate in the fullest and best version of yourself going forward. That’s something I highly encourage people to get into, and I’ll go into a little bit more detail on what assets I would use in each one. That’s something I believe in strongly.

No, and Sam has been helping me out with this for a number of years, and this has tremendously helped my liquidity in the bottom up of my triangle for all the different opportunities—getting into different real estate opportunities, leveraging it for buying a business, and that’s why we actually added that to our portfolio of solutions so we can help clients do the same and realize those benefits.

Tell us, Sam, in conjunction with, say, a real estate syndication or some type of syndication-type investment, how powerful you can amplify your returns by using the policy in conjunction with one of those investments?

No, I mean, this is exactly what I do with my money all the time. I own very little personal real estate; I do a lot of it through syndications, and it’s very straightforward. What I do is, for example, this last—during COVID, I bought real estate, I bought oil and gas stuff because I live in Oklahoma, and so I just did what it is. So I took the policy I have here, I pulled out a decent chunk of money, and I went and bought—oh yeah, this is not stock advice—but there’s an oil pipeline stock that’s based in Tulsa, Oklahoma, like an hour and a half northeast of me.

So I bought some of that because it historically added a six percent dividend. When it crashes, like when oil crashes, it crashes at the same time, and so it’s just easy to go pick it up and buy the dividend at a very big discount. As long as we continue to have oil flow through the pipeline, the price of oil is somewhat irrelevant.

That being said, I bought it up. I knew COVID was going to interrupt our consumption, but I didn’t think that it was going to be a long-term, permanent thing, so I was willing to hold it for five or six years and wait for that to recover. Well, I go buy it here at $20 a share, it recovers back up to $50 a share, I sell 30-40% of it, pull my original principal back out, pay my policy back off. During that time, remember I had the policy, I pulled the money out, I paid three percent to use the money. This was right before March, during March. I still had it allocated from the March to March bucket. From March to March of 2020 to 2021, the policy itself actually credited 25%. I literally have a credit on money that I had loaned to myself at 3%; I made a 22% spread on my money.

Granted, I waited as much as I could; when March of 2020 happened, I waited as much as I possibly could into it because I thought this was a freebie to have upside without downside. But that being said, there was a pretty significant spread that was made there inside the policy. I paid 3% to use the money outside the policy, I was able to double that, put it back in, pay off the loans, and then have these holdings continue on here that are still paying me a dividend.

I was able to use those moving back and forth to add to my cash flow because I felt there was a period of significantly more value. I was liquid over here in the policy loan, buy at a discount, as it recovers, refinance or in this case sell, put money back over the policy.

Real estate did similar things. I haven’t gotten to go full cycle and refinance the real estate yet, but I did buy a couple of things during that time when everything was all compressed, and there was all this fear. I literally took a loan out of the policy; the loan rate for that size of it was actually like two and a half percent. So, there’s a true two and a half percent loan. Pulling $400,000 out, $10,000 for the year to get to use that, so it’s very inexpensive money. I now have access to $400,000, it’s still earning in the policy.

Say it averages six or seven percent, I’m still making $30,000 off to the side. I’m paying $10,000 to use it, so I’m making a spread during this time the market’s going up, or if the dividend’s still there, I’m taking that $400,000 and buying things that I think have value. The goal is to buy cash flow. I’m going to hopefully buy six or eight percent cash flow. I’m going to have $30,000 a year of cash flow coming in over here too. So, cash flow from the policy, cash flow from here, I’m paying $10,000 for the loan.

My hope is that $400,000 buy-in, in three to four years, may be able to refinance and pull that $400,000 back out and maintain the same cash flow. Then I get to go repeat this process again and again. That’s how we can accelerate faster than just saving $100,000 a year and buying real estate. We can accelerate that because not only are you working for the money you put into your future, your money is doing that as well. You create the cash flow, and if you don’t need the cash flow to live right now, that cash flow can buy more assets.

The refinances can buy more assets, the tax savings you make can buy more assets, and the appreciation you get when you refinance down the road will buy more assets. As you keep building this out, it really just flows and builds really, really well. The insurance piece is just one extra driver of return.

But back to go into—I went into all technical mode here—but back to go into hippie mode, we talked about how we feel about money. This is really, really important because when you don’t have a place to put your money and it sits in a bank account earning zero percent. Pause again, remember, nobody’s looking at you, nobody’s judging you. Sit there for a second and think about the last time you had a lot of money in your bank account. Hopefully, that’s happened.

Say you had a lot of money sitting in your bank account. How did you feel? I literally sat there with a client here two weeks ago, husband and wife just sold their business for $20 million, and asked them the same question. She had a little warm fuzzy cat, actually feels pretty good. He had this look like somebody just asked him to staple something to the carpet. It was like a caged lion.

If you are an acquisition-minded person, sitting with idle money is frightening. It sucks, nobody likes that. Having a place to put money that gives you the permission not to have to go rush into a bad deal because you’re earning six percent is so, so key because you sit there, you wake up and say, do I need to go do this questionable real estate deal to make seven percent? Why would I go risk to make seven when I could take little to no risk and make six? When you raise that bar up, it makes you such a better investor overall because you know if you do nothing else, at minimum, that’s going to make sure your money continues to double every 10 to 12 years.

Yeah, 100%, Sam. I hope everyone really caught that. There are a few really valuable points on that. Number one is that you actually have this plan or strategy in place. That way, when you have a liquidity event—maybe you have a crisis event or whatever the event actually is—you know you have a plan for what’s going to happen. The third piece of that is to actually create a system around it because this is really a rinse-and-repeat type of strategy.

Then you get out of the mindset of when you do have a lot of money in your bank account or some event happens, it really becomes more automatic. That could be a good thing to facilitate with your spouse as well.

For example, we have this liquidity event, here’s what we do. This is what I do with my wife. We have some liquidity event; it goes right into the policy. There’s no questions asked—that’s where it goes. Then we have dry powder to be able to do other opportunities and everything from there. Really, really well said, Sam. I think that’s going to give folks just a ton of value, the framework, and the plan. It’s really all the things that we love to talk about as well.

I guess, in the interest of time here, maybe just one last quick question. If you could give listeners just one piece of advice about accelerating their wealth trajectory, what would it be?

Oh man, one piece of advice. The first thing that came to my mind, and maybe I’ll think of a better one, but the first one that came to my mind was that it’s difficult when you’re going into a world to know how to approach things. There are actually a lot of really good ways to get to the same end goal. There’s a lot of real estate, a lot of insurance policies, there’s a lot of this and that. A lot of this is giving yourself the permission to analyze things, but two is to have those gut feelings and actually respond to them around what you’re doing.

When it comes to investments and those things, a lot of times people get into this over-analysis setup, and then it just leads to who happens to catch them at the right emotional time. I think that as a whole, we are reasonably intelligent creatures when it comes to these things. If you’re already on the path of listening to podcasts, you’re already on the right track. You’re not just the average person who’s walking into Edward Jones and getting surprised—no offense to Edward Jones, but you know how it is. That being said, you’re not just getting surprised. You’re already an intelligent person who’s doing the research, doing the work.

So, the way to approach this is to recognize that sometimes the way we feel about decisions is often more impactful than what decision we’re actually making. You can pick three real estate properties, and they won’t be identical, but if one of them is with a group that you think, well, they had this particular approach and it didn’t really resonate with me, but it sounded the smartest. If you’re sitting there for the next four years wondering if that is going to work, it’s not nearly as helpful as if you pick things that fit squarely in alignment with what you think makes sense going forward.

Always look to expand your scope so you can better understand things and not be closed off to opportunity. But on the flip side, be willing to give yourself permission to do what works. I see this over and over again, and this is where I have a lot of compassion and motivation to say this. People are always chasing the next better thing. If you don’t give yourself permission to execute well on the good thing, you will never catch up for the lost time you made while you keep trying to chase better, and better, and better.

A lot of times, the things that sound better lead people in the wrong direction. The things that work, if you will live in and focus there—and this is coming from someone who doesn’t have a dog in this race, this is just me wanting you to succeed because I haven’t pitched a product, I haven’t fixed anything, I have nothing I want from this decision to see entrepreneurs and investors succeed—if you will live in that world of finding great places to store liquidity, finding good places to grow cash flow, and you will do that until you hit that goal piece and promise yourself that you’re going to enjoy the journey along the way to the goal, you’re going to live a really awesome life.

You’re going to enjoy yourself, and more opportunities will find you following that structure than the person who is wondering, well, could I have gotten eight percent instead of seven, or nine versus eight, or those kinds of things.

My point would be to realize that you are both intelligent and capable as a listenership, and that a good plan well executed is much better than a perfect plan that we acquire in a decade and have a decade of lost time to make up for it.

Excellent, excellent. Really sage advice, Sam. I really like that. I think that feeling and experience about money is so important, and that’s kind of why we started off with that—what is your concept overall of wealth? This is your vision, how you are experiencing it for yourself. One of the things I’ve noticed along my journey, which is really powerful, is once you get more crystal clear on your vision and what that is, and how you can start to instantiate that, you’ll actually start realizing results before you’re even at the numbers and the goals and the targets you set for yourself.

Because it’s all about shifting your mindset around achieving those things. I think that’s the trajectory we as humans want to be on. We want to be on a growth path all the time because that’s where the reward comes from.

Sam, I can’t thank you enough for coming in today. So much value for folks. I know everyone’s going to love this. I know I’m going to go back and listen to this again and take some more notes and review this with my wife as well. If folks want to follow you or get in touch with you, any best ways to do that?

Certainly. I’m the world’s worst at social media, so I honestly still do things the old school way. I quit being cool when Facebook quit being cool, so there’s that. I’m pretty easy to find on Facebook, and then my company for my private advice and those things is mywealthceo.com. The Wealth CEO program is kind of like when you hire a CEO for your business to bring some structure, you hire a CEO for your wealth.

Anybody, though, if they’re part of your listenership and they have anything that they need, I do respond to emails. I even respond to texts and stuff on occasion. I’m not perfect because I do miss things, but if someone has a question and they’re just like, “Hey, what about this?” I’m more than happy to answer anything that somebody needs. So mywealthceo.com is my company, and I’m Sam, so [email protected] is probably the best way to get a hold of me if you need something. Like I said, anybody who is part of your listenership, Dave, is a friend of mine. Don’t send me like 15 deals and ask me to analyze them because I can’t charge for it, but I’m more than happy to help anybody that I can.

Awesome. Thanks so much, Sam. Really great having you on.

Thank you, Dave. Good to see you again, dude.

Yeah, bye.

Important Links

Connect with Pantheon Investments