How The Top 1% Actually Invest (Not What You Think)

Summary

BiggerPockets Money Podcast

Episode: How The Top 1% Actually Invest (Not What You Think)
Date: October 28, 2025
Hosts: Mindy Jensen, Scott Trench
Guest: Tad Fallows, co-founder of Long Angle

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Overview

This episode delves into the real investment strategies and wealth-building paths of America's top 1%, challenging many myths about ultra-high net worth individuals. Mindy, Scott, and guest Tad Fallows (Long Angle) explore how the top 1% actually accumulate and manage their wealth, revealing what the affluent really do—contrasting with commonly regurgitated FIRE and mainstream personal finance advice.

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Guest Introduction & Background

• Tad Fallows – Co-founder of Long Angle, entrepreneur, and investor.
  • Built and sold a medical research software business, growing it from scratch to 75 employees before selling.
  • Experienced abrupt wealth after the exit (95% of net worth concentrated in the company).
  • Founded Long Angle, a private digital community for high-achieving wealth creators, to share unbiased wealth advice among peers (01:11-05:41).

“I felt like all the good advice for that was kind of coming from Goldman Sachs or Credit Suisse… but I had a lot less confidence in whether that was truly unbiased advice.”
— Tad Fallows, (04:47)

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Key Discussion Points & Insights

1. Paths to Wealth in the Top 1% (07:39-13:32)

• Entrepreneurship is the largest single driver but not the majority (∼40%).
• Members come from a wide array of industries, not just tech: e.g., t-shirt printing, fertility clinics, veterinary roll-ups.
• Other major paths:
  • Executive roles in finance/tech.
  • High-conviction, large investing bets in public equities or unique niche markets (ex: bitcoin arbitrage).
  • Some have backgrounds in “ordinary” jobs but had the courage and research to make outsized investment bets.
• Not all members come from prestigious backgrounds—many from state schools or the military.

“I had one nurse … did deep research on Tesla … took out a second mortgage … to buy deep out-of-the-money call options.”
— Tad Fallows, (10:18)

“People have had very good success by really focusing on a niche that gets less attention.”
— Tad Fallows, (08:23)

2. Education & Professional Pedigree: Does It Matter? (15:07-18:40)

• While overrepresented compared to the general population, Ivy League/elite college graduates are not the overwhelming majority.
• Only ∼5-10% of Long Angle community members went to Ivies.
• Elite jobs (consulting, tech, finance) matter for certain career tracks, but entrepreneurship and niche investing don’t care about formal pedigree after early career.
• Real-world performance and skill trump resumes after about 10 years into a career.

“I try and tell them... that is much less important than I thought it was at the time.”
— Tad Fallows, (15:53)

3. Sources and Structures of Wealth: Carried Interest & Equity (19:37-22:01)

• True “carried interest” (private equity/VC fees) is a small share (5-10%); most substantial wealth is from equity exposure—whether entrepreneurial, investment, or employee stock options.
• Salaries above $1M/year are rare outside professional sports or medicine. Most wealth comes from equity value creation.

“To get a really significant outcome there, it’s almost impossible to get that on a salary basis ... it is some form of equity.” — Tad Fallows, (20:49)

4. Investment Behaviors—How the 1% Invest

a. Portfolio Construction (29:24-32:27)

• High exposure to equities—especially index funds (S&P 500, total market), which comprise 50-60% of portfolios.
• Private market assets (private equity, venture, crypto) are common; real estate (often primary residence) features, but mostly without outsized leverage.
• Bonds are rare—often less than 5% of portfolios, as the 1% seek long-term compounding, not “de-worsification.”
• Self-management is the rule—even at >$10M net worth, most handle their own investments, avoiding 1% advisory fees.

“Most people with more than $10M at least in our community are managing their own portfolio.” — Tad Fallows, (30:55)

b. Portfolio Philosophy & Risk Appetite

• The ultra-wealthy accept volatility for higher long-term returns; they diversify among assets with high expected returns—not just “safe” ones.
• They keep little cash and very little debt (typically 10% debt-to-net worth, mostly mortgages).

“For every $100 of net worth they have, they only have about $10 of debt, and that’s typically just a 30-year fixed on their primary residence.” — Tad Fallows, (39:58)

c. Concentration and Big Bets (33:18-36:15)

• Wealth is typically made with concentrated conviction—whether owning a business, a standout investment, or niche trade.
• Once wealthy, there’s a shift to diversification but not the ultraconservative “half bonds” model.
• DIY/active “sweat equity” in due diligence and investment selection leads to higher returns outside mega-cap stocks/funds.

“If you look at the richest people in the world, [they are] super concentrated…”
— Tad Fallows, (33:39)

“Something like real estate kind of forces you to make a more concentrated bet and it forces you therefore to think about more deeply.”
— Tad Fallows, (34:38)

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Notable Quotes & Memorable Moments

• On bias in professional advice:
  “Should you ask Barbara if you need a haircut? … Same thing, you know, should you ask a life insurance salesman if there’s really a place for whole life in that world?”
  — Tad Fallows, (04:57)

• On risk and reward:
  “The top 1% have seen firsthand that risk equals reward. So they’re willing, because they have the experience with risk working out, they’re willing to take calculated risks.”
  — Mindy Jensen, (44:08)

• On DIY wealth management:
  “It’s probably just who we associate with... but I just rarely come across people who have their money actively managed with like a traditional financial advisor.”
  — Scott Trench, (46:35)

• On stock picking vs. index funds:
  “Overwhelmingly people are believers in index funds. … that’s probably going to represent 50 to 60% of the typical portfolio.”
  — Tad Fallows, (29:43)

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Segment Timestamps

| Segment | Timestamp | |------------------------------------------------------|------------| | Introduction/Guest Background | 00:00-05:51| | Long Angle & Need for Unbiased Advice | 05:51-06:41| | How the 1% Actually Get Wealthy | 07:39-13:32| | Investing Backgrounds (Degrees, Jobs) | 15:07-18:40| | Carried Interest & Equity Compensation | 19:37-22:01| | How the 1% Allocates Capital (Stocks, Private Equity)| 25:24-32:27| | Mental Models: Risk, Concentration, and Return | 32:27-36:15| | Diversification vs. Defensive Portfolios | 36:49-39:53| | Cash and Leverage Habits | 39:53-41:18| | Closing Insights & Takeaways | 41:18-47:17|

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Takeaways for Listeners

• The top 1% often built their wealth by taking concentrated, knowledgeable risks—either in business, niche investments, or public equities.
• Ivy League degrees and elite jobs help, but aren’t required. Execution and conviction matter far more long-term.
• Once wealthy, most still DIY their investment management, with high index fund usage, low bond allocations, and minimal debt or cash.
• They prioritize assets with high expected returns and accept portfolio volatility—eschewing Wall Street's “de-worsification” gospel.
• “Staying rich” often means thoughtful, risk-acknowledging diversification among high-return asset classes—not shifting to “safe” ultra-conservative allocations.
• Access to unique deals and private investments increases with wealth, but the willingness to self-manage and accept risk persists.

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For More

Check out Tad Fallows and Long Angle at longangle.com or connect with Tad on LinkedIn.

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Summary compiled to reflect the candid insights and language of the hosts and guest, providing an actionable look at what separates the financial elite’s approach from conventional wisdom.

Transcript

[A]

There's what fire advice tells you to do with money and then there's what the top 1% actually does. Today we're exposing the misconceptions about high net worth spending habits and the investment strategies that separate the ultra wealthy from everyone else. Hello, hello, hello and welcome to the Bigger Pockets Money podcast. My name is Mindy Jensen and with me, as always, is my investment junkie co host, Scott Trench.

[B]

Thanks Mindy.

[C]

Always great to be here. Bonding. Although that's not what the 1% does, apparently. With you over another money discussion. All right. We are excited to welcome Tad Fallows. He is the co founder of Long Angle, a private digital community of highly successful young entrepreneurs and executives. We're going to talk about the misconceptions of how high net worth people become high net worth in the first place and how they manage their money and invest and how that differs or is highly overlapping with the strategies of the fire community. Tad, welcome to BiggerPockets Money.

[B]

Thank you so much for having me here. It's a pleasure.

[C]

Well, let's start with your story and get a little bit of background about you. Can you tell us about your entrepreneurial journey and how you currently invest?

[B]

So my entrepreneurial journey, I tried to start a number of companies sort of throughout my childhood. I always thought that would be a fun thing to do. More in earnest came in my early 20s. So I worked for a couple of years out of college in consulting and the end of that I was sort of on the fence of hey, the traditional path would be go to business school, come back again, the partner track there. But I didn't feel quite ready for that. I actually loved consulting and I thought I'd be there longer term. But I said okay, you know, I've had a lot of time doing cases and giving kind of general advice. I don't want to do more of that in business school of more analysis. I want to actually try and get my hands dirty and see if I'm able to start a company on my own. So I started a company with a couple of friends. We did medical research software. So that was a very niche thing selling to universities and hospitals to help them manage their high end research equipment. So if you got a mouse colony with thousands of mice or if you've got a 10,000x microscope or some sort of superpowered DNA sequencer, our software helped leading research universities and hospitals manage that shared equipment. It was a great learning experience. So we started a software as a service company before SAS was really a thing. So in addition to trying to figure out, okay, in my early 20s, how do I build a company, how do I open a bank account, how do I get incorporated, et cetera. There was also a degree of trying to talk Harvard and Stanford and Princeton to, hey, you should trust these three guys to manage a lot of your internal accounting and, you know, core enterprise resources on this cloud based software. It took a little while to get them convinced of that, but we were fortunate and able to grow it for about 10 years, got it to about 75 employees before we sold it to a strategic acquirer. And that was a great journey. I think it was one of those where we grew about 50% every year, which at the end, when you're growing say $5 million of revenue to seven and a half million of revenue is really exciting at the beginning. When you're going from 20,000 this year to 30,000 next year, it was a much longer slog and, you know, weren't sure we were going to make it. But we were fortunately able to make that and didn't actually take any outside venture capital funding. So when we had the exit opportunity, that all went to the three of us who'd started as well as our employees. And that was actually really exciting, not just for us, but, you know, to be able to give significant outcomes to the 75 people who'd been with us along the journey there. So that was, you know, about 10 years from the mid-20s to the mid-30s. Then at the end of that, I had a very abrupt net worth change because until that point I had 95% of my net worth in this one illiquid microcap stock. And then on one day, since we sold to a strategic acquirer, there wasn't any rolling equity, it was just a total payout on one day. So added a couple zeros to the net worth and had a bunch of new questions I'd not encountered before. Whether that was things like alternative asset investing, umbrella insurance, estate tax planning. I was fortunate enough to have a couple of very young kids, 0 and 3 and a half by that point of, okay, how do you raise kids with wealth? All those sorts of questions. And that was kind of what led me to what I'm doing at Long Angle, which was basically when I went through that transition. These questions were all new and I'd been sort of a personal finance hobbyist. But I found a lot of stuff that was, was very fairly well covered or very well covered in more kind of general interest things. So like, okay, how do I set up a 529? How do I max out my 401k. Those were things. You can look at a lot of good free resources out there and get very accurate answers. But when you get to this, some of the stuff that is a little bit more nichy, like estate taxes being a great example of that, where if you look at and you say, okay, for a married couple, the estate tax limit is $30 million. So the general advice would be, nobody ever hits it, don't worry about it. But if you're saying, okay, well, I might actually hit that. Maybe I'm not at 30 million today, but if you're at 15 million in your 30s, you're almost certainly going to be above 30 million by the time that you pass away, unless something terrible happens. And so all of a sudden, that general advice is not as relevant. And one challenge I had at that point is I felt like all the good advice for that was kind of coming from Goldman Sachs or Credit Suisse or something like that, and high confidence. They knew the subject matter. But I had a lot less confidence in whether that was truly unbiased advice. So, you know, the famous should you ask Barbara if you need a haircut? Same thing. You know, she asked a life insurance salesman if there's really a place for whole life in that world. You know, of course not. And so that was actually what led us to start Long Angle. My partner, sir, and myself, as we said, okay, you know, we have all these new questions. We want to get advice from people who are personally in the same situation, so who are not trying to sell us anything. Let's just put together a community of people who are either, you know, entrepreneurs, maybe started a hedge fund, maybe successful executives from technology. So going through these same questions, first person. And just as a place to give each other unbiased advice. It wouldn't necessarily always be the right answer, but it would be an answer where somebody is sharing what they actually do as opposed to what they want to sell you. So that's kind of been my, my journey.

[A]

So your story about creating Long Angle reminds me a lot of Josh Dworkin's story to create bigger pockets. He was a real estate investor. He couldn't find any information from anybody who wasn' trying to sell him something. You know, I'll answer that question if you come to my weekend seminar. I'll answer that question if you give me money for it. So I am a member of Long Angle, and one of the things I really love about it is I don't have to make excuses or apologize for having a level of wealth like everybody's on the same, not on the same playing field, but everybody understands where you're coming from. So you're over that hurdle. I think that's really awesome.

[B]

Yeah, it's funny, I actually got to know Josh because he joined the community. So I think he had started biggerpockets and really with more of that real estate lens. But then he ended up, ended up joining us for a lot of those same reasons that you just mentioned there.

[C]

Tat. I have a question about your journey here. Your journey to wealth is the stereotype, I think, of how people think people get wealthy in America. You went to Harvard. You were the captain of the rowing team at Harvard. You went to McKinsey Elite Tier Consulting firm, graduated I'm sure with top grades. And you had a very highly successful outcome at an early age with a company that you founded and sold. And then you have this great problem of you're super wealthy early in life. You found founded long angle here and you're meeting lots of other people in that top 1% of wealth in America here on a regular basis. And we've met a lot of people that have built a lot of wealth and very few of them actually have your story. There's a lot of, of more interest, not, not interesting but like weird places that, that, that wealth begins to come from. Could you tell us what the makeup of the people that you know in the top 1% in your community? Where do they come from? How do they get there? What are the common themes that propel them into this upper echelon of wealth?

[B]

Yeah, that is a great question. I will correct you. I was, I was not the captain of the rowing team. So whoever was out there is, you know, not going to want me taking his credit. Yeah, it's a great question and I would say we see a diversity of backgrounds. The biggest group is entrepreneurs, although that's not a majority, I'll call that 40%. And of that maybe half is like myself as tech entrepreneurs, but the other half is all kinds of other stuff. So we have people who made, you know, very good outcomes in terms of T shirt printing companies or in terms of running fertility clinics or in terms of, you know, doing a roll up in veterinary space. So there's a lot of different things that one can do in terms of building an entrepreneurial business. And I think there's, you know, there can be pros and cons. If you get into technology, it has these great dynamics where your cogs are zero. You can have these outsized roes. The market is sort of infinitely sized, but by the flip side is you're competing with all kinds of other very talented, very smart people have chosen to go into that. I think if you look at some of these other industries, while the fundamentals may not look as attractive, sometimes there's fewer people trying to execute that strategy there. And so people have had very good success by really focusing on a niche that gets less attention. So maybe 40% of them are coming from entrepreneurs. But then we see a lot of other different paths to wealth. So another of the other two, probably most quote, typical, or if you said, okay, if I'm 20 and I want to really get to a good outcome, what's a predictable path I could follow? The other two are probably being executives. I'd say really working in the finance industry or in the technology industry. And again, this probably isn't surprising to anybody. If you joined Nvidia 20 years ago, you joined Google 20 years ago, any of these, you would have done very well. Or again, in finance, if you go into the right hedge fund, you go into the right private equity fund, there's kind of a path of least resistance there. If you're very smart and hardworking and energetic, you're likely to get a very good outcome there. But then there's a lot of other things as well. So I would say one is people who really, these are very much ordinary people with ordinary levels of assets, but really making big investing bets. So you guys talk on bigger pockets all the time about what you can do with real estate, and I think that's a good example. Probably won't go into too much because you're listening, listeners probably know it a lot. But real estate has these advantages of both tax treatment and being able to really leverage up your equity. And so if you make the right bet, you can get outside returns. But I'd say people who also make big investing bets in one of two categories. One is just in public markets where they don't have any inside information, but they have really do their diligence and really have uniquely high conviction. So I won't put in this category, just, hey, I put a thousand bucks into bitcoin at my first job and never thought about it and kind of got lucky. But the person I can think of an example of, I had one nurse who joined the community and I was speaking with her and saying, okay, wow, this is great. Really impressed with the amount of assets you put together. How'd you manage to do on nurse's salary? And she said, well, I did the deep research On Tesla, I became interested in it, but I wasn't just interested in it. I really modeled all their financial performance and all their potential long term advantages. And this was quite a while ago, not today. Everybody knows Tesla is a trillion dollar company, but back when it was maybe a $10 billion company, did deep analysis on it and then she had the courage of her convictions and took out a second mortgage on her house to buy deep out of the money call options on Tesla. And you know, when the stock skyrocketed, ended up getting, I guess, yeah, 100x return on that. Now I wouldn't necessarily recommend that to everybody, but I do think it was really impressive both that she was willing to roll up her sleeves and do the work and talking 20 hours a week for months at a time to really get that conviction there and then put all of her money behind it. It's funny, you look at Warren Buffett and you think today he's sort of this paradigm of okay, responsible stewardship of capital and retains hundreds of billions of cash and advises people put their money in the index fund. But if you look fairly on in his journey, he would often have a third of his net worth in one individual tiny stock because he really just had done the research and knew it was good and that's how he got those returns. So I think there's a number of people who do that public investing or my partner Sriram, when we sold our company, he really led our kind of technical and infrastructure, has undergraduate and graduate degrees in computer science. And at that point, this is what 2017 was saying, hey, you should really buy this company called Nvidia. I didn't unfortunately listen to him because it had already gone up 50% and was now valued at 20 billion or something. That seemed crazy to me, but he knew what he was talking about and put a lot of his money into Nvidia. And again, no insider trading there. Just pick something he really knew and made a conviction bet in the public markets. And then I'd say the other one that's interesting is really unique niches that are not at all these trillion dollar asset classes like public markets. But an example of a member I've gotten to know who was interested in bitcoin but was not taking a conviction bet on the direction it was going. But he just found that the bitcoin price in Argentine pesos was about 25% different than the bitcoin price in US dollars. Now the thing was at that point, maybe it's still true today, but certainly at that point challenge was it was not easy to get your money into and out of Argentina quickly and conduct transactions there and that sort of thing. So if this has been EAS as a wire transfer, the opportunity would have just been arbitraged away. But he basically worked his network of certain orthodox Jewish contacts where they knew a guy in Argentina and sort of there was a level of trust in this community. So he was able to on kind of one week cycle times, turn around these 25% returns quickly. Ultimately, that opportunity did not last forever. I think there was at some point somebody who broke trust in there and at some point the arbitrage opportunity went away. But while it was open, he was just very quickly turning this. And again, he might have half of his net worth in a single trade there because if you see the opportunity to get a 25% return in a week, you know, the odds are in your favor and would just very quickly turn the wheel on that. I think that's actually how Sam Bankman Fried got his start, was doing the same thing in Korea. So before he became a, a felon, he actually did have a, you know, real arbitrage opportunity. He was leveraging properly there.

[A]

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[C]

I think that this is more. This more fits the narrative around how America's truly wealthy families build their wealth, right? These crazy bets where there's very large upside and returns there. Technology, entrepreneurship, the finance industry. Are you finding that there's a significant correlation in your group with people who went to elite private universities?

[B]

There's a correlation, but I would not say is a significant correlation. If you look at the percentage of people who went to an Ivy League university, it's going to be higher than the general population. But if you said, hey, I'm going to randomly pick a hundred of these members, how many of them went to an ivy League? Maybe five or 10. I think there's a lot of people who went to Purdue, who went to a state school, a number of members who didn't go to college. You know, maybe because they dropped out, but maybe because, you know, I'm thinking of a, one of the most successful cyber security entrepreneurs. I know. The company was actually started by two folks. One, he was a cop working in a relatively small town. He was doing their cybersecurity and he realized, hey, what I'm doing here, there's no reason this applies just to my one town. This applies globally. And his partner was a Marine. They found this opportunity and they built on it. I'm not implying that being in the military is not an elite pedigree. It's extremely impressive and a lot of discipline that's built there. But if you think that is not as stereotypical going to an Ivy League school. I think when I was applying to college I felt like this was, was one of those existential things. And I think about this a lot because my son is 14 now, my daughter's 10, so they're starting to think about college. And I felt like when I was that age, okay, if you don't get into a real top tier school, you're kind of going to be off this track and you're off that track for life. And I try and tell them, and I really believe this with conviction, that is much less important than I thought it was at the time. I think of some of my most successful friends and colleagues who I work with every day and they went to a wide range of colleges.

[C]

How about, is there a correlation between members of this group and the kind of elite jobs out of college? Kind of along the lines that you got like at a top tier consulting firm like a McKinsey or a Bain or a Deloitte or one of the big four accounting firms, for example, is there, is there a strong correlation between that, that kind of pedigree?

[B]

I think it really depends what path to wealth you're looking to follow. I think if you're saying, hey, I want to get it, and this applies Both to your question around educational pedigree and professional pedigree. I think if you're looking to follow this path of maybe medicine, law, finance, and maybe to a degree tech, but certainly those professional services there, I think it does make a big difference if you go to Stanford undergrad and Harvard Business School and Yale Law School and that sort of thing, then you will get into the Wachtel or other white shoe law firms, or you are much more likely to get a job at a hedge fund like Millennium. And those are very strong paths to wealth. But I think that is only one path. So I'd say it is most true. There's there, I think, tech. It probably cuts both ways. I think there is a significant amount of intellectual snobbery in the tech community of, okay, if you studied symbolic systems at Stanford, you're going to start the next Google and everybody wants to hire you. But I think there is also, given the lack of supply of truly great engineers, people are going to look past that and say, okay, well, this guy didn't go to college, but he's a fantastic engineer and so still very happy to hire him. I think when you get outside of that and into, you know, really the entrepreneurial world, nobody cares at all where you went to school, right? It's how good is your product, how charismatic are you in the sales process, how good are you at spotting talent to hire on your team? Also, I mean, I'd love to hear what you guys think. My perspective is this matters a lot for your first job. I think it matters much less if 10 years on you're trying to say, hey, should I hire this guy? Whether he got a great score on his sat, whether he went to, you know, a great prep school undergrad, that sort of. Or, and then a great undergrad, I think that's a lot less relevant. You're going to look at what's he done in his last five or 10 years, years working at GE or working at Facebook or whatever it is. I think that's really how people hire. So it might help get you on that right path, but certainly, you know, won't keep you there forever if you're not performing well.

[C]

The reason we're so fascinated and enjoyed this conversation and your answers and truly interested, we don't know these items here. We've studied data sets at large, but our podcast Bigger Pockets Money doesn't really talk about or two or four people in the top 1% of wealth, well past $10 million in personal net worth, well past 500 to million in annual income in any given year. I mean, maybe some of our members will have a year like that every sprinkled in every once in a while when they sell a business or you know, something like that. But that'll be rare. That'll be, that'll be a lifetime event for them. And so that's where I think we don't talk to a lot of people that are in this level of wealth and how they get there. And so that's where I think we're more asking these questions and more interested. On that note, one last question in these buckets. How important is the concept of carried interest in this group of non entrepreneurs in terms of their creating large amounts of wealth and joining the community?

[B]

I mean, I guess it depends what you mean by carried interest. If you're looking specifically at the investing terminology there where a typical private equity fund might say we've got a 2 and 20 model. So 2 means okay, if you put in $100, I collect a $2 management fee from you each year and then the 20 is I get 20% of the profits. And so that 20% is the carried interest there's there that really is only going to apply to people who work in private equity, in venture capital, in a hedge fund, in something where they are the general partner there that certainly at least in our community is a very small fraction. I'm not saying those people don't exist, but that is, you know, 5, 10% of the the path to wealth. So in specific, if, if that's where you're working, that's just kind of okay. That's how you make your big upside. You may pay the bills on your 2% and then the way that you hit a home run is, is you get a 10x in your portfolio and you're collecting 20% of that upside. But if you think about carried interest more generally as hey, how much is equity? This the path to root. So how much of it is just coming from I'm making a salary of whatever it is, 50,0001-000002-00000 a year versus how much is I am creating value in some other way and getting to share in that equity value. There's sort of a selection bias of our community where it tends to be first generation wealth creators, often on the younger side, so in their 30s, 40s, 50s to get a really significant outcome there. It's almost impossible to get that on a salary basis. Now, okay, maybe you're a professional athlete. We've got some of them, yes. You know, you can make 10 million a year, you'll get a lot of money after a few years of that salary. Or maybe if you're some special kind of retinal surgeon doctor, you're making millions of dollars a year. But in general, there's not a lot of jobs out there W2 income where they're going to pay you a base salary in the seven figures. It's great for those that exist, but that is not common. It is much more common that to get really millions of dollars of outcome, it is some form of equity. Again, it could be working at a job where my example of Nvidia, if you went to work at Nvidia and you got options worth a hundred thousand and then the Stock went up 100 fold, now your options are worth $10 million. But that is really you're an employee, but that is equity exposure. That's what your options were. Similarly, if you're an entrepreneur, most of them are taking outside venture capital. So you're getting equity exposure and you're having some leverage of other people. Same thing with real estate, as you guys know. So I'd say carried interest. If you really mean I'm driving equity value from the work that I'm doing, that certainly represents the significant majority of it because there's just not that many salaries that are that high.

[C]

All right, this is our final ad break. We've got more than 1% of the show left after this.

[A]

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[C]

All right, thanks for sticking with us.

[A]

My story is a lot like the first one that Tad mentioned. Investing strategic but bigger bets in the publicly traded markets. The specifically the tech stocks starting in the late 90s. And I think with our audience we're going to start seeing people who are Their net worth is growing such that this is going to be something that they have no experience with. You know, people are always coming through Longmont and I'm talking to them, I'm super noticing. So I'm asking them about their money situation and you know, I always give the caveat that they don't have to tell me if they don't want to. But we talk a lot about money and I'm noticing a lot of people with the three, four or five million dollars net worths in the fire community simply because we've had this growth in the stock market since what, 2012, 2013.

[B]

You know what I'd say Mindy though is this doesn't just have to be tech stocks. I think one can look at today and say, well, you know, I didn't study CS undergrad and I didn't go to Carnegie Mellon and you know, I wasn't early in Facebook and so I've kind of missed that TR and while they say history doesn't repeat itself, but it rhymes, I would say it's that same thing in public equities that has been what's delivered really outsized returns for the last one or two decades. But if you look back over the last 50 or 100 years, it wasn't always tech stocks. And if I had to place a bet, it's not always going to be tech stocks. If you look at, you probably know this, but the number one returning stock of all time, if you'd owned this for the past past 100, 120 years, Philip Morris is up something like 200 million percent. And the number two is I think Vulcan Materials, which is like a paving and aggregates company. So it's not all Google and Nvidia. And even if you look more recently, if you look at the stocks that delivered exceptional returns in the 70s and 80s, Walmart, and you think, okay, well that's not a tech stock at all. It's running these stores, it's from rural Arkansas, et cetera. So I think the point is more finding exceptional companies that are exceptionally well run. And I just wouldn't want people to feel like, okay, this was a one time thing or this is a one industry phenomenon. It has been tech, it could well be something else. Nexon, for example. Remember when Russia first invaded Ukraine? I certainly don't want to look at that primarily as a financial thing, but I have this bad habit of having a good idea but not being willing to overpay on it and end up missing it. So I said, okay, it looks Interesting here. I bet those German defense stocks are going to do well because somebody's going to have to pay the bills and and produce the munitions to help defend against the Russians. This company called Rheinmetall, which is sort of the Lockheed Barton of Germany, that stock is up tenfold in the last five years since Russia invaded Ukraine. All you had to do was look and say what's the biggest German defense stock? And kind of think a little bit about where this might go again. I saw it was up 20% so I waited for the pullback that never came and missed out on that 10 bagger there. But I think the point is these things can continue to happen and it doesn't have to be part of some one off bull run. There can be these layers little. I think Jim Cramer, who I enjoy more than most, says there's always a bull market somewhere. So I think that really is true.

[C]

Let me ask you about a mentality item here because I think Mindy's spot on. We have plenty of people in the biggerpockets community who have gotten to that 3, 5, maybe even 7 or 10, maybe even approaching 10 million. We've met a few people worth well more than that. Typically when we find folks who come through the W2 earner path who make that much money, it's because they were at a fence, a fang or they invested in a fang very early on and, and really saw that carry through. But there's been, there have been exceptions even to that in this world of very high net worth individuals who got there fairly early in life, typically self made to some degree. You're talking a lot about stocks. Like here's an idea for this concept and I'm putting a lot of money into that. Is this a common theme? Are folks really spending a tremendous amount of time looking for that next high leveraged investment position? And if so, are they doing this with major portions of their net worth or is there a very defensive core portfolio and small allocations with a lot of brain power dedicated to these types of investments?

[B]

Yeah, that's a fantastic question and I want to make sure I'm not giving the wrong impression. I think partly the reason I'm talking about these, hey, big bet on Tesla or big bet on Nvidia, something like that is that is how you could make a 100x return and with a lot of money that there. But that is not the typical portfolio we actually do. Once a year we do this asset allocation survey where we ask all of our members across 60 or 100 categories. Hey, you know, how's your money invested here? And I'd say a few interesting things there. It is first, very heavily in stocks, certainly not entirely in stocks. There's a lot more in the private market assets among our community than there is in the general population. So things like private equity, but stocks being the biggest component of, of it. But actually most people are not heavy stock pickers. Overwhelmingly people are believers in index funds. So an S and P index fund, a total world index fund, et cetera, that's probably going to represent 50 to 60% of the typical portfolio is going to be an index fund. And as you know, as of today that is probably more technology heavy than I'd be comfortable with. You've got 30 or 40% of that coming from your top tech company. But also one other interesting thing there which you might not expect is the significant majority 60 to 70% of members totally self manage their portfolio. I think there is this sort of narrative probably coming from the wealth management industry that if you get over a million dollars or over $10 million, it's just not responsible to manage your own portfolio anymore. You need professional help. And one thing I can say definitively is that is definitively not true. Most people with more than $10 million at least in our community are managing their own portfolio. And largely they're doing the math and they're saying okay, you can call it 1%, 1%, $10 million is a hundred thousand dollars and that's not tax deductible. So that's a hundred thousand after tax. That's the same as earning almost 200,000 if you're in a high tax bracket. So they say, well that is well worth my time to do. And also I have, you know, I can be responsible, I can do the research, I can figure this out. So maybe an interesting aside. And then you know, outside of public equities, probably the thing that is most different from conventional 6040 portfolio sort of advice price is going very light on the bond and other credit type instrument sides. So I would say bonds represent probably 5% of the total portfolio. Because I think people look at and say okay, with stocks I don't know what the returns will be. That's the nature of equity. But historically 8 to 10%. If you look at the US market, maybe you say the US has been unusually good. But saying 5 to 10% is probably not crazy there. With bonds I do know what it will be. It really can't exceed the interest rate. Unless I'm talking about some distressed Argentine bond that might recover but it just conventionally buying a Treasury that pays, pays 4%. If I hold that to maturity, I'm just going to make 4%. And most people just saying, hey, that is not an attractive way to go. And so they're only holding a few percent there heavily in stocks. And then outside stocks, real estate equity, primarily in the form of their primary residence. And then a lot of private market investments, whether that is in private equity being the biggest one, crypto, venture capital, wide variety of other more esoteric private market things. Be happy to talk. Talk about.

[A]

What I heard you say a moment ago when you were talking about those German defense stocks is that there's always opportunities out there, but you have to be willing to take the bet. You have to be really willing to, you know, take that, that risk on. And you know, you're thinking outside of the box. I didn't look at the start of that war and say, oh, let me take into account where German defense stocks are going. I looked at it and said, I hope this ends quick, quickly. It's a, it's a different thought process. But on the other hand, I have taken outsized bets on technology stocks because that's what my husband knows. And he, he will bring up. What do you think of this stock? What do you think of this stock? However, my Chipotle stock is returning great. I mean, I think, I think it's a 400% over the last five years or something like that.

[B]

The key thing you're saying there, and I think this is equally true in public stocks and also private things like real estate or private companies. Companies is making a bet in something you actually know about. And I do think that's a big part of the reason that if you look a lot of people who've made a lot of money, it may be in real estate or in company they started because they were heavily concentrated there. So if you look at the richest people in the world, Elon Musk super concentrated in Tesla and SpaceX, or Mark Zuckerberg super concentrated meta, same thing. Larry Ellison super concentrated in Oracle. You know, part of that is, okay, they picked a great tech stock, but a lot of that is just their concentration. And so I think that's the reason you've got people who can make millions, tens or hundreds of millions in real estate is effectively they're taking a very high conviction bet where if I'm buying a single family house, nobody just reads a 10k, thinks about for an hour, chats with their spouse and says, okay, you know, I'm going to buy this house here, they're really doing deep diligence. They're looking at the comps. They're trying to, you know, they're building a model about what might the, the rental returns on this property be? They're trying to think about, okay, what's the property tax structure here? Is it California with Prop 13 treatment? When was the roof put on? People generally don't do that level of research on public stocks, right? They're just kind of, hey, I like the look of it. I'm going to put some money there. And then they're making smaller bets. But I think something like real estate kind of forces you to make a more concentrated bet and it forces you therefore to think about more deeply. And same thing. If you're going to start a company, you're not just going to think about it for an hour one evening, talk with your spouse and decide to start a company. You're really going to do research, you're going to talk with potential customers, you're going to figure out who you want to hire for it, you're going to have to justify it to investors, et cetera. So I think a lot of the reason that you see wealth outside of the public markets is because it does force those big conviction bets. And again, that's certainly been true for myself. Most of the money from starting a company, because that was all I did for 10 years, was just building this one company here. But that could apply across, could apply to crypto, could apply to almost any asset class. If you're willing to do that much research, you'll probably never understand Apple better than your average analyst because there's so many smart people trying to understand Apple, Apple. But if you get to, you know, things smaller than that, like you spend a few million dollars to buy a piece of real estate, you're not competing with some hedge fund in Connecticut where they've got all these PhDs and warehouses full of servers writing algorithms, trying to understand what's the proper price for that house. Or even if you look at microcap stocks, what's interesting is that I've got some friends who've done very well running hedge funds for micro caps. And they say part of the issue is there's a stock that has a $40 million float. They just cannot invest enough money in it to make it worth their while to do the research there. So if you as an individual, for us, $100,000 is a very big investment and the market can easily absorb it. But if you're running a billion dollar fund, at most you can put a couple million dollars to work in this thing, it's just not worth your time to do so. I think if you get outside of really the large public companies, that's a place where putting in the sweat equity of really trying to understand what the good investment is or if you look at private markets, something like private equity, really doing the research, okay, how do I build the right relationships or how to get access to the fund I'm really interested in in there, you can kind of see the returns for that effort.

[C]

We've talked about a lot of things around the investment approaches of this. I'm going to call it the top 1%, maybe even a little bit higher than that on average in this community, the average of the 1%. And it sounds to me like the theme is almost all of these folks got there through entrepreneurship or some form of carried interest, likely relating to technology or finance. And once they're there, they almost all go to a more defensive, diversified approach with the index as a major part of the portfolio. And that's a theme. It's not a rule, but it's a theme that I've heard you, you observe today. Is that correct? Is that the way we're going to take, take away from this?

[B]

I think everything says right. It's funny though to hear you say it that way because I wouldn't have thought of this as defensive because I think if I compare it to if you go to a typical financial advisor and I know I had this exact conversation with Goldman after I'd sold my business, said, okay, you know, this is how much money I have. And they said, okay, great, here's what we can do for, for you. We can get you half of the market return for a quarter of the risk. And I was saying, well, I'm in my 30s. Like, why does that make any sense? How about you give me four times the return for twice the volatility and you know, clear. They looked at me like I had two heads. I looked at them like, why would anybody ever want this? So clearly we didn't have the same objectives and I didn't hire them. But I do think, you know, there's a spectrum of defensiveness. I think you could say, hey, I, you know, made all my money a T shirt printing company. I don't want all of my money in perpetuity in one T shirt printing company. But I think the flip side is what conventional wisdom would say with these, or conventional financial management advice with these Monte Carlo simulations, et cetera, is to have a portfolio that is not optimized for maximum long term expected return. It's optimized for Sharpe ratio which is expected return divide by volatility. And so I would say a lot of our members are less concerned with the volatility. They might say hey, if there's a crash tomorrow, there's another Covid and general markets fall 50%. They're willing to accept that 50% drop drop to be in asset classes that have the maximum long term expected returns. So it is diversified, but it's not. Peter lynch, the famous guy from Fidelity, called it deworsification of buying stuff that is no longer your best three or four or five ideas. So they don't really deworsify into things, as I said, like bonds that reduce volatility but are almost guaranteed to drag down returns. They diversify among things that all have high expected returns. And so again some of the stuff I've mentioned mentioned public stocks, private equity, crypto venture capital, real estate with appropriate leverage if you want credit, maybe private credit, all these things have somewhere from call it 8 to 20% expected returns and you're not able to get probably as much dampening of your volatility as if you just went into cash or if you went into bonds. But you get some reduction of your volatility because you're finding things that are less correlated but you're not sacrificing your long term returns. And you know, not all can't make generalizations about everything. But most of our members say, hey, I'm willing to accept continued volatility because maybe If I got 10 million now and I'm still earning money, I'll be fine if that goes down to 5 in the interim, if I know that 20 years from now it's going to double to 20 as opposed to a very linear path from 10 to 15.

[C]

It makes perfect sense, right? Why would someone who got very wealthy in their 30s, 40s or 50s have a high concentration in bonds in 2025 when the yield curve is inverted and they're looking likely still in a high income tax bracket and likely don't have access to large amounts of taxable retirement funds. Like you're just not going to put your money into a 4% safe yielding bond fund that's going to, then you know, you're going to get taxed at 30 or 40% for most of these people. It would be ridiculous, right? It's a, it's a form of insurance. So surely an alternative to that in your community will be cash. Do these folks have larger cash positions.

[B]

Than you might otherwise expect no, probably smaller than you expect. It's interesting, their investments are high, high, high on the that risk end of the risk curve. So you know, low on cash, much more equity like exposure. But I think what they do do to mitigate that risk is they're also very low on the amount of leverage that they're taking on and debt where your typical member for every $100 of net worth they have, they only have about $10 of debt and that's typically just a 30 year fix on their primary residence. So what they're not doing is saying, you know, with the exception of maybe that's how they made their money. As I said, you know, taking out the mortgage to buy 10 Tesla. But the typical thing is saying hey, I'm going to put into stocks but I'm not going to take out big portfolio loans to be 150% long. I'm just going to buy straight up stocks there. They don't carry much debt and then flip side is don't carry much cash. And I think you could make arguments of hey, you want to have a cash and when I say not much if you're carrying 5% cash but you're worth $20 million, well then you have a million dollars of cash. So it's a large and absolute number but not large in a percentage number. You do then probably miss out on some of the opportunities to opportunistically say okay, if there is something that I think is a flashc crash like a Covid now I can't quote go all in on buying stocks there because I was already all in but I think people look and say private equity venture, any of these things on average they go up over time. So rather than trying to time the market, they just try and be invested in the market or the markets, plural, these multiple markets that are expected to go up.

[C]

Tad, this has been really fascinating to get a glimpse into the practicalities of at least one group of very high net worth individuals. How they got there, there, what they're doing differently now Obviously I have some assumptions you challenged and changed some of those assumptions today and I learned a lot and I really appreciate it. So thank you very much. Where can people find out more about you and Long Angle?

[B]

Well, really appreciate you having me here. It's a very fun conversation. If anybody wants to learn more about long Angle they can go to our website, longangle.com I should mention it's a totally free community, we don't charge any membership fees. So anybody who thinks this sounds interesting to them. Would love for them to check it out and then apply there online. And that would put you in an interview with a current member where they could tell you more about it and see if it seems like a fit. I also am pretty active on LinkedIn, so Tad Fallows, if you want to follow me or connect with me there, it's a real pleasure to speak with you here today.

[C]

Well, thank you for all you're doing for the the community here and, and congratulations on a wildly successful career. Can't wait to see what happens next for you.

[A]

Thank you Tad and we will talk to you soon.

[B]

Thanks, Scott. Thanks Mindy.

[A]

Okay, Scott, that was Tad Fallows, founder of Long Angle and that was a lot of fun. I really enjoyed that conversation especially really right at the end. What did you think of our chat?

[B]

I thought it was great.

[C]

I had a number of of biases and assumptions about the top 1% based on our time doing bigger pockets money that I think were to the large part validated with a couple of really fun surprises that that are going to change my worldview and evolve it around there. And I think some of the things that that that were confirmatory for me were things around, hey, there's a large number of ways that we can get into to the top 1% here in America. It's not exclusively private schools or these kind of elite careers or whatever, although there is a bias towards entrepreneurship and opportunities that allow you to get access to equity as a form of compensation to some degree. I was expecting a very concentrated bet to get somebody into that top 1% and I was expecting a shift in mindset to a more defensive strategy for folks that are in the top 1% to begin defending keeping that wealth right. There's a getting rich and staying rich and I imagine that all these folks had to take some kind of risk or have some kind of really outsized economic outcome concentrated in one area to get there. What I think is interesting is, and I want to dive into this in the future is how are folks applying to that concept of staying rich in this community? I imagine imagine that my question around bonds and cash was not a satisfying answer to many people in that community and they're trying to get that safety somewhere else. Right? Unlevered real estate perhaps. Those are questions that I want to dive into more with this community and surprising to me that a larger percentage of that population is not more safely invested, for lack of a better word, in a way that I could instantly pro that.

[A]

Scott, you said the word risk multiple times during this conversation. And so did I, and so did Tad. And I think that's the key there. The top 1% have seen firsthand that risk equals reward. So they're willing, because they have the experience with risk working out, they're willing to take calculated risks.

[C]

Absolutely. And so that's, that's the piece that I think I need to continue to wrap my head around around is 50 to 60% allocation to stocks makes perfect sense, right? Very, very consistent with a lot of things that we talked about in a retiree or, you know, a financially independent portfolio. What Is that other 40%? What are the rules that people apply to that and how do they think through it? That's what I'm really interested to learn from more people that are, that are at that level of net worth over time.

[A]

Well, I think that there's a lot in private equity, private opportunities that, that may not be available to somebody with a lower net worth or just aren't available to people who aren't willing to take those risks.

[C]

I'm not surprised to hear that a lot of that wealth is in index funds and that most of these portfolios are actively managed or at least self managed by the investors. That makes perfect sense to me. And I think you're going to see very small percentages of elite wealth in America giving that money to other professional managers to manage as a portfolio portfolio outside of specific small allocations, at least in each individual instance, to private equity funds or targeted bets that they're making in a specific category.

[A]

So Scott, I was surprised that people of this net worth are not giving their portfolio over to a professional manager. There's the idea. Work on your business and you know, make the use your time where it has the most return and you're only returning spending, you know, a hundred thousand dollars on 10 million, so you could just hire that out. So I was, I was actually surprised that, that that isn't being hired out. On the flip side, Carl and I manage our portfolio 100% by ourselves. Do you manage your, not your real estate part, but your stock part? Do you manage that yourself?

[C]

I manage all of my investments myself other than a small percentage of my portfolio that I've handed off to syndication sponsors or, or funds in that regard. And that's, that's for very targeted specific theses in the real estate space space.

[A]

And I don't know why I'm so surprised that other people just like me are not acting just like me.

[C]

It's probably just who we associate with in the, in the world of finance and the groups that we join or whatever. But I just rarely come across people who have their money actively managed with like a traditional financial advisor because I think that, that, you know, I guess the folks that we associate with are largely DIYers, largely, you know, big savers, big long term investors, those types of things. And, and the math is just so not compelling to hand it over to these active managers for folks of that mindset. So I think that that's, that's, that was not surprising to me. I would have been much more surprised to hear that, hey, we've all got these, man, this, get this manager over here who does this. That would have been news to me and caused me to change my worldview a little bit more.

[A]

I see what you're saying. All right, Scott, should we get out of here?

[C]

Let's do it.

[A]

That wraps up this episode of the Bigger Pockets money podcast. He is Scott Trench. I am Mindy Jensen saying we're on the run, Skeleton.