Episode 43: Why Risk Is Often Misunderstood in Investing

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In this episode of Wealth Strategy Deep Dives, Dave Wolcott challenges the traditional idea of risk in investing. Many advisors warn investors to avoid alternatives like self-directed IRAs, private lending, or real estate because they appear “too risky.” But Dave explains that the real question should always be “risky compared to what?” Through his own investing journey, he shares how he evaluated the opportunity cost of leaving capital trapped in a 401(k) versus redeploying it into tax-advantaged investments. When you begin modeling outcomes and considering factors like taxes, compounding, and cash flow, the long-term difference in wealth creation can be dramatic.

Dave also explains how the ultra-wealthy build wealth through a layered strategy that combines tax efficiency, passive income, and long-term upside potential. By strategically investing in non-correlated assets such as real estate, private credit, and energy, investors can create what he calls a wealth flywheel—a system where capital compounds, generates cash flow, and continues to fund new opportunities. Ultimately, the goal isn’t just financial success, but freedom: the ability to focus on purpose, impact, and living an abundant life rather than constantly worrying about the next paycheck.

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How’s going everyone, and welcome to a special solo series of Wealth Strategy Secrets of the Ultra Wealthy. I’m your host, Dave Wolcott. We get a lot of the same questions from our investors about infinite banking, tax efficiency, asset protection, strategy stacking, and how to actually build wealth outside of Wall Street. And we get it, we know you’re busy. So in this series, I’m breaking down complex wealth strategy topics into short, tactical episodes that you can actually use to build legacy wealth. Whether you’re just starting your journey or fine-tuning your portfolio, these episodes are designed to give you high-impact insights in just a few minutes. So let’s dive in.

And that’s what people need to realize is, you know, when they talk about risk or their advisor says, “Oh, self-directed IRAs or private lending, that’s so risky.” Really, compared to what? Like, that’s the thing. It’s just, it’s always, you got to have a baseline to say compared to what. So Chris, you’re going to love this. Okay. So in my journey, in my first five years, I was investing in all kinds of assets, as I mentioned, until what happens? You run out of capital, and you’re like waiting for liquidity, you know, to go do the next deal. So I had all this capital tied up in 401k. So, and again, this is not financial advice, but what did I do? I did a complete contrarian move, which people say, you can’t sell your 401k. Yeah, I can. There’s a 10% penalty, right?

So I kind of worked through this really objectively. I built a pretty comprehensive spreadsheet. And in fact, if anyone wants a copy of it, we have something we can share with you called a 401k exit calculator. So I merely, I literally calculated, I’ll pay a 10% penalty. I’ll even pay my 32% tax bracket or whatever I was in at the time. You can manipulate this. And then I projected out and I made my assumptions. So given the deals I had done in the real estate deals, I estimated I was able to do like a 20% return and no taxes on that, right? So my compounding, because all of the cash flow and everything was very tax-advantaged. So I figured, hey, I would break even in about five years. And then talk about that growth curve. Would you see this on a visual chart, Chris? It’s unbelievable. In fact, we just rolled out a software product called Pantheon Wealth OS, which allows you to model some of these simulations. And you start to compare this about, okay, what is, and in fact, I even know the numbers.

So if you take 100K and you paid 10% in penalty and you paid the 30% in taxes, let’s say you have a net investable 55,000, okay? That 55,000, if you compound that out for a 20-year period that’s tax-advantaged at a 20% rate, guess what the ending value is in 20 years? How much is it? It’s over 2 million. Guess what it is? Taxes back. Guess what it is? The 100K. Had you left it in the 401K, averaging the S&P return about seven-something percent. Six, seven hundred thousand. It’s about three hundred and eighty thousand. Whoa, I overshot. Four taxes, fees, and inflation.

When I make investments like that oil investment that I lost, whatever, and I don’t have the texture in yet, but whatever that $300,000 loss is, people are like, “Oh my God, I knew it. Oil is so speculative. It’s so risky.” Yeah, but hold on a second. I didn’t lose $300,000. You see, under the tax bill, the tax code, there’s all sorts of tax incentives for oil investments, the intangibles and everything else that I got to write off. So I probably, out of that $300,000, I probably received, I’m just speculating here, I don’t know the exact number, 200 and some thousand in deductions, I would guess. I get to write that off and carry forward those losses. Plus, I got some residual value that’ll come back from the assets that the corporation owned. I mean, like, did I really lose $300,000? Absolutely not. But that’s how people would view it. And the wealthy would be like, “Ah, Chris, you didn’t lose $300,000. What was your tax savings? What is that deductibility you’re going to be able to carry forward? Like, what’s that going to be able to be written off against?” So actually, I’m not going to say it’s a good thing, but it’s not a terrible thing. And it’s a heck of a learning lesson.

Yeah, 100%. And that’s a perfect tie-in to the last phase, Chris, which is phase five. This is the fun one. This is all about building massive passive income. And basically, it’s investing in assets that are non-correlated to the stock market, have again that trifecta where we get tax efficiency, passive income today, and some type of upside potential. Our investment thesis focuses on three asset classes: real estate, private credit, and energy. Oil and gas is fantastic. I’ve been investing in that for years. Just like real estate or any other private deal, it’s just super important to do your due diligence and work with an institutional operator. And you can get up to 100% of your investment completely tax-deductible. Especially if you’re an active income earner, this is a fantastic play to add to your portfolio mix.

I love it, man. I love it. You’re speaking my language, and I know a lot of the people listening to this, they’re like, “Yeah, this is great.” But what you’ve done with holistic wealth strategies, you put it all into one system, right? Like you start from the beginning and you go to the end. Now, some people that are reading that, they got the mindset dialed. So, right, they go to the chapter and they just keep plugging it in. But we covered so much just in the short time we’ve been doing this episode. And it’s like, as you start layering this stuff, because we talked about pretty much a straight line, but now all of a sudden you layer in infinite banking. You layer in the equity being used in your house and the tax deductibility of that. You layer in the self-directed IRAs. Now all of a sudden, you really start to create just this incredible tax-efficient strategy that just prints money, creates this massive flywheel, and just keeps building on your wealth.

So then you can start doing the charitable giving. You can start doing the spiritual journey. You can start finding other purposes other than worrying, “Oh my God, I gotta go out and make more money so I can pay for food for the triplets. I gotta go out and make more money so I can make my mortgage payment. Oh my God, the car broke down. How am I gonna pay for the repair?” That is not the discussions you’re having. The discussions are, how do I find purpose that provides enlightenment to me and to the world, and how do I do more for others to solve more problems? That is when you’ve made it. And that is the 5% and definitely the 1% that you’re talking to.

You just nailed it right there, Chris. It’s all about creating that freedom in our lives that we’re all really looking for and living that abundant life so we can create more impact, help more people, and really live our best lives.

Thanks for tuning in to our special solo series. If this episode sparked something for you and you’re ready to learn more, head over to holisticwealthstrategy.com and download a free copy of my book. You’ll also get access to our investor community, where we share exclusive educational content, new opportunities, and resources designed to help you accelerate your path to freedom. And if you want to take it even further, book a call with our team to learn about our virtual family office services or join our mastermind group, where we go deep into building true generational wealth. I’ll see you on the next episode.