← BiggerPockets Money Podcast
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- [00:00]
Scott Trench
Mindy and I are so grateful for the following sponsors who make BiggerPockets money
- [00:05]
Sponsor Voice (Monarch)
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- [01:49]
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- [02:20]
Mindy Jensen
if you've ever wondered how the top 1% are actually allocating their money right now, not what they say on Twitter, not what the headlines say, but what they're really doing with their finances, this episode is going to give you a rare look inside. Hello, hello, hello, and welcome to the BiggerPockets Money Podcast. My name is Mindy Jensen and with me, as always, is my 100% co host, Scott Trench.
- [02:46]
Scott Trench
Wow, Mindy, that was really broken down, that intro. Today we're going to be breaking down the 2026 Asset Allocation Report from Long Angle, a private community of high net worth investors. This is not theoretical. It's real portfolio data across equities, real estate, private credit and alternatives, showing exactly where sophisticated investors are putting capital in today's market. To walk us through it, we're joined by Tad Fallows, managing director at Long Angle. He is a front row seat to how these experienced investors are thinking about risk, return and opportunity in 2026. Tad, welcome back to the Bigger Pockets Money podcast.
- [03:18]
Tad Fallows
Well, thank you so much for having me here today, Mindy and Scott.
- [03:20]
Scott Trench
Absolutely. We're super excited to talk about this. So just as a quick refresher, Tad, can you remind us a little bit about your personal background and journey to Long Angle, knowing that if folks are interested in much more detail on that, they can go back and listen to episode 688 of the BiggerPockets Money Podcast?
- [03:35]
Tad Fallows
I'm an entrepreneur at heart. I started a software company in my early 20s, spent about 10 years growing that. And so in my mid-30s I sold that to a strategic acquirer and that's what got me into Long Angle because I basically went on one day from having very little in the way of liquid assets to then having this one time liquidity event and introduction to a bunch of new high net worth challenges. Whether that's things like we're going to talk about today of asset allocation, whether that is child rearing and raising kids with wealth, whether that's other more, you know, lifestyle, travel, health kind of questions. And the reason I started this group is that I interviewed Goldman Sachs and Credit Suisse, etc. And I felt like they had very good information. But it just was this awkward dynamic of asking the barber if you need a haircut. And I really wanted to make sure I was getting that advice from people in the same situation who did not have an agenda of something they were trying to sell me. So set up a group of initially a couple dozen friends who were other entrepreneurs or guys who'd started, you know, Hedge funds, things like that, and of just looking for peer to peer advice on some of these high net worth questions. Over the past five years, through word of mouth and people referring their friends, we've grown to about 8,000 people in that community. That's my background and how I got here.
- [04:43]
Scott Trench
Can you tell us a little bit about the research you conducted in preparation for today's show? What did you collect and how is it useful?
- [04:49]
Tad Fallows
Yeah, and this is about the fourth year we've done this, so we're now getting a bit of a time sequence, but we just do a survey of all of our members and we say, hey, for own sake. And then we decide a couple of years ago, hey, let's start sharing this information publicly because there's nothing confidential here, but there's a lot of useful information. So we interview all of our members and ask them on this survey across maybe 60 different asset classes and how do you break down your portfolio? So you know, not just what do you have in stocks and bonds, but within stocks, what do you have in US stocks, international stocks, growth, employer stock, small cap, et cetera. And then same thing on different private asset classes of whether that's private equity, venture capital, oil and gas, etc. And then we aggregate all that data together so we have, you know, not all 8,000 people fill it out, but we have hundreds of responses to this. So we're able to get some statistically significant information there. And not just in total, but actually breaking that down by people who are younger and older or maybe, you know, people with 5 to 10 million of net worth versus those with 25 to 100 million of net worth. See what kind of trends you get on those dimensions. And then we wrote all up, we published this on our website. It's free of charge for me, who wants to, to download it. But we'll talk through it a bit here. But there's, we probably have, I don't know, a 25 page PDF that has a whole bunch of analyses. I'm kind of a data nerd by background. So just digging into each of these asset classes, hey, what's the skew on real estate for people who again are of a certain age or have a certain professional background, how much they hold in real estate versus bonds, et cetera.
- [06:10]
Scott Trench
Well, awesome, let's, let's look through it.
- [06:12]
Tad Fallows
Sure. So what we have here, where we try to start is just, hey, what are the top 10 takeaways this year? And I think that's probably the right way for us to start the conversation after these top 10 takeaways, we then basically go into each of the subcomponents here. So we go into stocks and look at, you know, foreign versus domestic or growth versus value, et cetera. But at a high level here, you know, we've got these top 10 here. I don't know if we need to read all 10 out verbally, but I would say there's a couple things here that kind of correlate together that people might find interesting. And at a high level, I'm going to compare this to like your prototypical 6040 portfolio, 60% stocks, 40% bonds. And that really is not what it looks like for people in this demographic. And so again, the people we're talking about here, let's say your median person is somewhere around 15 million of investable assets. So if you look at Some, you know, 4% rule kind of thing, by and large these are people who are in this financial independent, retire early phase because these members also, they tend to be on the younger side, mostly 30s, 40s, early 50s. So it's people who have generated significant amount of wealth early in life. And rather than taking a 60, 40 position or even heavier in bonds, which you might think would be more of a conservative approach, they definitely lead much more toward the equity like and higher return element of things. So we think of rather than 60, 40, we think of 60, 30, 10, which 60% again still being in your stocks, but then rather 40% bonds, people only put about 10% in bonds and cash. And that other 30% there, that is made up of real estate and privates and alternatives, maybe about half of that in investment real estate, and then about half of that in things like private equity, crypto venture capital, and you know, happy to go into more of those. So I think that's the high level takeaway and, and we can get into, you know, more nuances of that. But that's probably the single most important insight from, from my point of view.
- [08:06]
Scott Trench
Do you believe that this, these investors portfolios reflect best practices? We're distinguishing between what people actually do and what is the right asset allocation prescription. How would you opine on that?
- [08:17]
Tad Fallows
I mean, I'll say I don't know if this is controversial or not, but I would say there is not a single best practice. And that sounds like, you know, kind of easy lawyerly thing to say. But I think there is a fundamental question. Again, if you get to a point, you have a significant amount of money and maybe you're also still earning money, but you have enough money that you could take Two different approaches to this one. You could say, hey, I've got $20 million. I can afford to take a lot of risk. And if you think of risk and volatility as sort of synonyms, I don't think they're perfect synonyms. But for the moment, let's sort of use that. Say I could afford for my portfolio to go down 50% next year because I'd still have $10 million. I can still cover my expenses, I can wait for it to recover. So the thing that I may care about as somebody who's 45 years old is what's my portfolio going to look like when I pass away 45 years from now? And so I'd lean much more to stock like allocation. I think somebody could, with equal logical rigor, take the exact opposite approach and say, hey, if I've got $20 million, I can just put down safe treasury bills. I'll make 600, $800,000 a year and take zero risk and have zero volatility to it. And so there's no reason to have anything in stock like instruments. So I don't know that there's actually, quote, a right answer to that. I think it really comes down to two things. One is, what are your personal goals? Is your goal just to have some level of baseline level of spending? You calculate that, you say, as long as I can cover it, then I just want as little risk as possible and I don't care about any upside from here. Or again, is your goal maybe, hey, I'm perfectly fine spending a hundred thousand dollars a year. I'd rather spend a million a year. I'd rather fly to Paris first class all the time, et cetera. And so I want my portfolio to have the chance to compound. So it's personal goals. And then I think there really is this risk tolerance, I think is not a bad way to put it, but I think it gets a little more nuance than that. But it's just kind of what is your behavior going to look like? You know, I am my mid-40s, I've been through a few of these market cycles now, so I know what Covid felt like. I even remember what the great financial crisis felt like, which I think was a much more challenging era for investors. And you know, I was in college during, you know, the dot com crash, so remember that as well. And so I think there are some people who see that as, you know, it's not pleasant for anybody, but some people will just find it unpleasant and basically stay the course and stick their portfolio Allocation and then there's other people who just won't do that. They will end up saying, oh, this time is different. I'm no longer a believer in stocks. I'm going to sell everything the bottom. So I think it's got to be that combination of what's your risk appetite or risk tolerance and then what are your long term goals?
- [10:39]
Mindy Jensen
Tad, number five says fire puts faith in stocks. Fire movement investors have the highest public equity concentrations. And number six says financial advisors love private equity. Advisor led portfolios focus more on diversification than self managed. Do you think the lack of diversific that fire investors have is hurting their growth?
- [11:01]
Tad Fallows
If you look over the past probably 10 years, you probably couldn't have done any better than just putting all your money in the s and P500. Maybe you put it all in NASDAQ. So I think it's been a bet to basically say, hey, I'm going all in the US stock market and that bet has paid off. So you know, I'm somebody who's been a little bit more disciplined, for example, about continuously rebalancing into international equities. That's been a terrible move for the last 20 years and I feel like I'm just throwing money away. But I don't actually think that was necessarily a mistake. It's kind of like I bought life insurance last year, I didn't die. So maybe you could argue that I wasted money by having term insurance or maybe it was a smart thing. I think it's similar and this idea of being all in in stocks versus being diversified, to my mind, your ideal world is a place where you can be diversified and so you take down the tail risk of something going wrong. Whether that is, you know, as we talked about a great financial crisis, whether, you know, if you were an investor in Argentina 100 years ago, that looked like the growth market of the future. It was almost as rich as the US that turned out to be a bad place to have your money for the subsequent hundred years. There's a variety of things you might want to diversify away from, but if you can do that without sacrificing your potential returns. And I think that's what again this point of saying, hey, don't do a 60 40. If you're doing a 60 40, you're just saying I am giving up return in order to reduce my volatility. But I think the investors who are not so heavy on stocks and more heavy on these other alternatives are saying I want diversification, but I don't want to sacrifice what I get to the long term. So I think they probably are hurting themselves not in terms of the actual returns they've received, but terms of the amount of risk and volatility they're taking on versus what they have to to get those returns.
- [12:32]
Scott Trench
Let's talk about private equity real quick here. Because private equity is extremely expensive way to invest 2 and 20 is the lowest fees you're going to see in a, in a private equity investment. Private equity companies typically concentrate and if they're not concentrating their in their investment thesis, then you're a fool to invest with them frankly. Because the entire thing you're paying 2 and 24 is concentrated expertise in a specific type of investment thesis. I also think that there's a pretty heavy conflict of interest in many advisor led portfolio private equity allocations where the advisor is getting paid to place money in a private equity fund. To me, when I look at this data set, I would say, wow, there's a big error being made. There's a big mistake being made by these fairly wealthy people who are supposed to be sophisticated if they are investing in private equity through their financial planner rather than a directly led private equity thesis, where they have a thesis, they exploring it, they're finding the deals and placing their own capital. How would you react to that and how would you defend this allocation of these, these wealthy people who seem to know what they're doing?
- [13:32]
Tad Fallows
I mean, I would say, I think there's a lot of truth in what you're saying, but there's a few things I would disagree with. The first is that the net returns that you have seen historically on a lot of these alternative asset classes, and it's not just private equity, it's also the other ones, they have actually met or exceeded what you see in public markets. Now I think we could quibble with how they get there. Are they getting there by managing the companies better or is there a lot of internal leverage and internal embedded borrowing in these private equity portfolios that's leading to those outsized returns? There is a reason that the Harvard Endowment, the Yale Endowment, the Duke Endowment are putting so much money into private markets. And it's not that they are getting sold by some, you know, financial advisor who's convincing them to do something that's irrational. I think there is a real fundamental long term risk adjusted returns that you get out of those. That point I would probably disagree with. I think the devil is certainly in the details there. The thing that I would agree with you at about is that there is this financial advisor conflict of interest. And this is probably one of a hundred different ways it rears its head. We actually often see the very opposite conflict of interest in that within the long angle community there's a number of kind of investment opportunities that people explore of saying, okay, here's a potential again private equity in your example, potential private equity opportunity we've got access to maybe is the traditional profile. And I have noticed the people who put, you know, some comment in there, hey, I'm going to talk with my financial advisor about this. They pretty much always come back with no, he said it was a bad idea. And I think the, the even bigger challenge than maybe the guy from JP Morgan being incentivized to put money into a JP Morgan private equity deal is anybody who has paid a percentage of aum. If you put that into a private market investment that that person does not manage, he has just lost his AUM. And there is, I think it was H.L. menken who said there is nothing more difficult than making a man understand a thing that's in his personal self interest not to understand. And so they will always say it's a bad idea to put your money into some investment that they don't control. And this is not just private equity. I mean, I think another example is if somebody think about buying, if we think the bigger pockets world. If I'm thinking about buying an investment property, maybe I want to buy a warehouse myself, I have enough money to do that. My financial advisor is going to see, okay, there's now 3 million that I was collecting 30 grand a year on. That's now just going to own this building and I'm not getting 30 grand a year on that anymore. And so it's going to advise against that investment. So I think it's absolutely critical, as you're saying, to really understand where their motivations come from. I would ask my financial advisor directly, hey, are you only getting paid the 1% of my money or say 75 basis points that I'm paying you or do you have any other form of marketing, fee, promotion, kickback, incentive structure, threshold? There's, you know, it's like a hydra where it keeps popping up, some other version of them getting paid. But I think that's absolutely critical to understand. I don't think that's the primary driver to these financial advisors clients being more there. I am inclined to believe that they are sophisticated enough to kind of see through those conflicts of interest. But you're absolutely right that if you have a financial advisor, you got to dig deep. I will say Most of our members do not, probably 3/4 of them self manage their portfolios rather than working with the ria.
- [16:33]
Sponsor Voice (Monarch)
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- [17:27]
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- [17:51]
Mindy Jensen
is there tomorrow morning is knocking.
- [17:54]
Tad Fallows
Stock your fridge now. How about a creamy mocha Frappuccino drink? Or a sweet vanilla smooth caramel maybe? Or a white chocolate mocha? Whichever you choose, delicious coffee awaits. Find Starbucks Frappuccino drinks wherever you buy your groceries.
- [18:09]
Mindy Jensen
Ted, is the inflationary environment that we've been in affecting how these high net worth individuals are investing or are they kind of ignoring that?
- [18:18]
Tad Fallows
I think it probably is a reason why. You know, we talked about people only having 10% of their net worth in a combination of bonds and cash. And I think a lot of that comes from this inflationary environment of somebody saying, hey, if I'm guaranteed a headline return of 3 to 4% before inflation, that means I'm basically treading water after inflation. And so it just does not look very interesting for somebody who says I've got a 30 or 50 year outlook on my portfolio to put money into something that's basically just going to track inflation. So I think that's probably a big part of the Reason that people are in either public equities, private equities or crypto energy real estate stuff that tends to at least meet, if not beat inflation.
- [18:58]
Mindy Jensen
I found it a bit interesting that a little bit further in the report, the higher up your net worth goes, the lower amount of investment real estate you have.
- [19:06]
Tad Fallows
I also found the private real estate interesting where not surprisingly, people with more money end up buying a bigger house. But it does not scale nearly with the amount you'd expect that, you know, somebody with 25 million having maybe a two and a half million dollars house, so really becomes a relatively small proportion of their net worth as they move up the asset ladder. I think in terms of why people, let's say somebody who has 50 million, most of them don't have as much of the investment real estate. I basically put those people in two categories. One, there's the set of people who made $50 million by being real estate investors, which is relatively small. And then there's the people who made 50 million by a whole variety of things. You know, I worked in tech, I started a company doing X. I had a very successful, you know, banking or consulting career. For any of those people who fall in the other category, I think beyond a certain point, real estate becomes a relatively time consuming and challenging asset for them to manage. Where you know, I' got two private rental properties and you know, that's fine, they've given me very good returns. They're not that hard to manage. But if you told me, hey, you woke up tomorrow with 10 times as much money and now you're managing a portfolio of 20 properties, that's going to be a giant pain, right? Every day I'm going to be dealing with a plumber, I'm going to be dealing with a property manager. There's just only so much money you can put to work there unless you go into a truly passive, My money's in a reit, my money's in some fund and I don't do any of the hands on management. But when I think when you get to that level, the ability for those funds, I think real estate can significantly outperform. When you're doing it yourself, you're putting leverage yourself. But when you're just a passive investor in these funds, it's not necessarily that much more attractive than, you know, other private equity type asset classes.
- [20:36]
Scott Trench
How much of that do you think is selection bias for long angle? Does long angle attract certain types of investors there versus real estate? Investors who are successful hang out on bigger pockets.
- [20:47]
Tad Fallows
That certainly could be the Case, you know, we, we do attract people who have tend to have significant success earlier in their careers. So I'd say our median member again is prob $15 million and maybe 40 years old. My impression is that it's a little bit easier to hit those kinds of net worth 15 years into your career if you're doing something like being an entrepreneur or having a very successful career in tech or finance. I think real estate may be more of a kind of compounding game where you'd get to that $15 million mark maybe a decade later in the career. So I think that that may be part of it and maybe just the quality of the biggerpockets community has kept those people excited.
- [21:23]
Mindy Jensen
I want to move to this page which shows private company equity allocations, net worth increases, and more importantly, I'm looking at the investment real estate and the home equity. The investment real estate goes down between the 2 million to 10 million net worth and the 25 million net worth. Does that investment real estate include privately held rental properties and REITs? Is it all investment properties?
- [21:49]
Tad Fallows
Yes, it's all investment properties, but it tends to be very heavily in the privately held. People have some REIT holdings or some, you know, various kinds of real estate fund holdings, but it's much more people owning, you know, whether it's a fourplex here or you know, small multifamily things like that.
- [22:05]
Scott Trench
And does private company equity imply private equity or can I own a business and that's my private company equity?
- [22:13]
Tad Fallows
It's both of those. Or a third category may be that you work at a company and have stock in that privately held company that you work at. You think over the next 12 to 24 months you're probably going to have SpaceX, OpenAI anthropic companies like that going public. And they will create thousands and thousands of people with tens of millions of dollars. And so there's also, I think, a significant chunk of people who are in that situation. So it can be all three. I would say private equity in the traditional sense. If I'm going to KKR and giving them a million dollars and they'll use it over five years to buy companies, usually people put their money there once they have money. You don't usually become wealthy that way because there's very high initial buy in. So you'll often become wealthy by starting a company or working at a company and then later you will stay wealthy by private equity of diversifying it across these different asset classes here. You know, it's a very interesting dynamic of these people who, you know, my journey, as I mentioned, was that I started a company, then sold it. So one advantage I have is I had in full liquidity and then could allocate my portfolio, you know, to the best of my abilities. The person who is, let's say they are at SpaceX right now and SpaceX goes public, they're all of a sudden giving this situation where on day two of that maybe they've got $20 million and $18 million of it is in this single SpaceX stock. And then they'll have these questions of okay, well, how do I diversify that holding? Even if you get past these mandatory SEC holding periods, if I sell it all today, then I'm going to have a massive tax bill. And so how do I think about how much should I take the tax hit and slowly or should I diversify more slowly? Happy to get into that a little bit, but that's a dynamic that a people cover is whether it's from, you know, making a smart bet on crypto or something else. People often end up much more concentrated than they expect when they first get wealth and think about different ways to diversify that concentration. Yeah, we're going to do a deep
- [24:00]
Scott Trench
dive on how to think about the problem, good problem of having a very concentrated position in company stock and how to bridge from that position to a target portfolio tax efficiently. With all those, the various considerations, it, it matters how big the pile is. It matters how big your net worth is. It matters what your income tax brackets are. It matters where the net investment income tax threshold is for your tax bracket. Depending on how big this pie is, sometimes the number is so big that you have new problems being kind of crushed through all these tax bracket issues. But yeah, it's a fun problem to have and pretty interesting topic. On the topic of this net worth, how would you describe the conservatism or aggression of private asset valuation by your community? And what I mean by that is when I was CEO of BiggerPockets, you know, I have my net worth over here and then I had Biggerpockets Equity and I literally counted it as zero. It never even showed up in my net worth statement. It was clearly not worth zero. And I do that with many assets today. In my position, my personal net worth statement reflects a very conservative interpretation of my net worth as a result. Is that common in the community or would you say that people are aggressive or real?
- [25:10]
Tad Fallows
I would say that's incredibly common. Most people who start a company basically value it at 0 until the point where they actually get liquidity. And so their net worth may appear to just go up tenfold the day that they sell it. I think if you look at people who are investing in private companies or private equity, then you also have this question where if I made some seed stage investment in anthropic, well, certainly that's worth a lot today, and I can look at their series E and put a valuation on it. But there were probably the first five years there where that was actually generating a lot of economic value. But I had no way to put a number on that. So I would say most people tend to just carry their investments at cost, at least until there is some meaningful third party exogenous event that allows them to put a valuation on that. And then they might still discount it a bit for the fact that it's not totally liquid. But people who are working at company, Australian company in general, will carry that zero pretty far into it. You know, again, it becomes unreasonable at a certain point. Like if you look at, you know, Cargill is still a private company 100 years later, and all the Cargill heirs are getting millions of dollars a year in distributions. Clearly Cargill is worth something. But, you know, if you're talking about your random AI company out there, probably the right thing to do is to carry out zero, because it could turn out to be great. But at this point, you still have a lottery ticket.
- [26:21]
Scott Trench
So would you say that for some of these positions, especially those with more allocated to private company equity, that that net worth is dramatically understated and that the rich are far richer than they appear in survey data or net worth statements?
- [26:35]
Tad Fallows
I think that is probably fair. I think we could argue about the degree to which it's understated, but the direction is certainly true. Now, what often happens for a lot of these people, if you are selling your company, you can basically do two things. One is, you know what I did? I sold it to a strategic acquirer. So they said, okay, we own 100% and you get a pile of cash, and it's a very clean transaction. If you're selling to a private equity acquirer that is pretty rare, usually they will say, okay, we'll buy 70% of the company, but we want you to roll a third of your equity. So even though somebody's getting a lot of cash, they still have a significant amount of exposure to this company. And that's the reason the private equity firm does it, is they want to make sure that the management team is still incentivized to continue to drive value there. And I think That's a significant amount of what you see in these private company equities. It becomes easier to value because there has been transactions. So I know it's worth something, but it will continue to be a big part of my balance sheet. And a lot of those people, to your point about understating it, I've met many members of the community who've gone through this path. And almost to a person, the money that they rolled into their private equity deal ended up being worth as much or more. That 30% they rolled was worth more ultimately than the 70% they got in cash. And I didn't believe this initially. Remember, when I was selling my company, I'd have private equity firms pitching to me, this to me, and I thought they were just totally talking their book. I discounted that. But I've now seen it time and again. And this is part of the reason probably that I, you know, Scott, gave you a little pushback on this idea of private equity being overpriced. Because when I've seen these people and they roll a million dollars in their PE deal, there's one thing these PE firms are very good at, and that is continuing to drive high returns and make good money. And I've seen enough times to kind of have a little more conviction in their ability to do that. So I do think that that is probably a level of factor, both in your saying of understating and then also in terms of this general divergence of, you know, wealthier people having higher returns than less wealthy people. There's probably a lot of factors in terms of, you know, efficiency, in terms of ability to stick through with hard times. But I do think exposure to some of these higher return asset classes is like. Private equity is probably a factor in that as well, I believe.
- [28:33]
Scott Trench
Yeah, for stuff bought, you know, 10, 20 years ago. But I'm more skeptical about how, like, we're seeing all these private debt funds, funds blowing up. If they're blowing up, guess what's happening to the equity side on that. These guys are all lending to private equity companies. So I think that's where my skepticism is.
- [28:52]
Tad Fallows
I think there's a lot of private
- [28:53]
Scott Trench
equity wealth that's rolled in the last 20 years. And I think that one of the challenges going to happen now is I think that the liquidity for that market has compressed a little bit. It's coming back, I think. But I think that folks are going to. If you have a loser, you don't mark it down until you absolutely have to. And when that happens, that's when at some point those losers will be marked down and that will change the return profile for private equity, I think in some capacity. But that's a whole different rabbit hole to dive down.
- [29:20]
Tad Fallows
The only thing I would say on that point there is I think that gets exactly to this idea of diversification. I don't think that just adding private equity to your portfolio now makes you diversified. And in some ways it's probably the least effective diversifier of the private markets. Because if you look at the name, stocks are called, quote, public equities and then private equity or private equities. And they're close cousins of each other. Right? There are similar kinds of companies. In general, the private equity companies are a little smaller than the public companies, but in some cases they're gigantic. They're not necessarily smaller. So I think they're actually relatively close cousins. You know, as a little bit of an aside, but you know, for your listeners, to my mind, the things that add maybe even more value in terms of being still giving you your, your double digit returns but having much less correlation are things like litigation finance, for example. That is where you basically, if somebody, you know, let's say they're generally B2B lawsuits. So one company is suing another company, the small company has been wronged, but they don't have the deep enough pockets to sue the larger company that's wronged them. You basically can fund their lawsuit and then you get a portion of the payouts that has had absolutely phenomenal historical returns, probably absurdly good, like 30% per year over a long period of time. As the asset class matures, I'm sure those returns will come down. They won't stay in the 30s, maybe they'll come down to the teens. But your correlation to public equities is just completely different there. You know, it's not based on the economy or the stock market going up and down whether a company is going to win or lose a lawsuit. It's how good is the manager you're investing with at picking which lawsuits are valid. You know, another example might be oil and gas investing. This is something I've been very hot on for a long time. You know, it's easy to say, okay, well right now with the Iran war, those guys are minting money. And that is true. But the returns have been very strong, not always consistently strong. On average they've been strong in these. But then they tend to have a bit of inverse correlation with the stock market, where if you think something like Covid was probably bad for everybody, although people all came back quickly. It's not totally abnormal, something like the current state with the Iran war, which is very bad for most companies, but it's great for the energy industry. That's kind of happened more than once. So I think there's a variety of these other asset classes that are not just private equity, which give you a little more diversification there. And you may not have these exact risks you're talking about. Okay. There's a sort of fundamental mispricing of that or in aggregate private equities or maybe gain stretched on valuation.
- [31:34]
Scott Trench
Let's go back to the allocation by net worth. I asked you earlier if you thought that many of these high net worth individuals are conservative in valuing their current portfolios, especially private company equity and private equity investments that they've made. On the flip side of that, a common challenge I think that happens at this level is going to be that your net worth is overstated because components of it are pre tax or have not. You know, there's a large capital gain to be realized in some of these investments. So in that 2 to $10 million net worth range, I wouldn't be surprised if a big bucket of the stock or the public equity portfolio is in a pre tax 401k or various components of that. I wouldn't be surprised if a lot of that is gains from early investments. And I wouldn't be surprised if a lot of that company equity, once it is mark to market is pre tax. And at this point you have pretty substantial marginal tax bracket challenges. Right. If you're in the 10 or $25 million net worth range and you've got a several million dollar gain, that's 20% marginal federal taxes, that's in Colorado, 4.4% state tax, that can be much higher depending on what state you're in. And then you've also got net investment income tax on top of that. So you could bump it up to the high 20s, approaching 30% California.
- [32:50]
Tad Fallows
You're almost 40% in California. You got 13.3 there. So certainly true.
- [32:54]
Scott Trench
Do you think on the flip side of this that a lot of these net worth positions are overstated by some of these folks because they're heavily pre tax positions?
- [33:01]
Tad Fallows
I don't think so. And my reason for that is if you have $50 million, you are not going to liquidate that portfolio probably ever. So if I have 50 million, maybe I put half a million into Nvidia 20 years ago, made a great bet. So now I've got, let's call it 50 million of Nvidia stock? Well, I'm actually probably making a lot of dividends as it is on Nvidia. To take a step back, as you know, there's two kinds of income. There's your earned income and then there's your capital gains and your investment income. What I have seen in the community is there are a lot of ways to mitigate the tax impact of investment income or capital gains. There's very few legal and ethical ways to mitigate. You know, people try and do it and the IRS keeps catching them. They people still think it's a good idea to try and mitigate their W2 income. There's a few legal things and you know, most of them are in the real estate world, but by and large that's hard to mitigate. But if you look at these untaxed capital gains, you know, I think you said you're going to do maybe a separate episode on that. So I don't want to kind of steal all the thunder there. But just as a few examples of the kind of things that you see people do. One is the classic buy, borrow, die portfolio. You've probably heard of, you know, this concept which is say, okay, I bought this asset again. Now I've got my 50 million of Nvidia stock. If I need to spend $5 million, well, I'll just borrow $5 million secured against this Nvidia stock. And whenever I pass away, then my estate will get a free markup. On the basis of that they can sell as much as they want to, they can pay it off, and that gain is never realized in the Nvidia stock. Other examples, you know, you can make a donation to charity and you don't ever have to realize the gain when you donate to charity. You certainly have lost the money. So that's not a quote tax strategy. But you know, that's another example. And then there's things like direct indexing and tax loss harvesting or exchange funds. And so I'd say my general takeaway is there are quite a number of ways that people can reduce or mitigate that. There's also a bit of timing of when you take your gains. If you've got a $10 million of gains in your portfolio and maybe you quit your job because you're financially independent, so next year you have no earned income. Well, you say, okay, maybe I'll sell enough that I have a quarter million dollars of gain. So I'll use up my low tax brackets and I'll have relatively small tax hit on this. And then the next year Again, I'll use up small tax brackets and then if I get a job again, I'll stop selling. So you can kind of manipulate the timing of those sales to reduce the tax burden. So it's certainly true if you wanted to turn it all into cash today, you'd have a problem. But I don't see most people turning most things into cash without following one of these sort of more creative strategies to go about it. And then you also get into which I've ever talked about a bit on these sort of trust structuring and insurance kinds of strategies, which can also provide some real tax benefits at higher net worth levels.
- [35:35]
Scott Trench
One hypothesis I'd have here is that for this demographic, 10 million to $25 million or more in net worth, this will be the lowest tax environment they're ever going to see for the rest of their lives. Like, I think that's the bet you'd have to make if you're rational at this level of wealth. Would you say that many of the people in the community agree with that and does that inform their tax strategy at all?
- [35:56]
Tad Fallows
I would say most people agree with that. We have a role of no politics in our platform. We say there's not another place where we need to debate whether Donald Trump is a great or a terrible person. You know, you can find whatever self validating opinions you want on that online. So we try and keep that the community. So that probably mitigates some of these discussions about where tax rates going. But I think you're right. You know, if you just look at the kind of structural deficit we have, I don't really see how we could have another round of massive tax cuts. You know, nobody's going to cut the social safety net. So there's only one realistic direction in my mind, unless it's just inflation. But does it inform behavior? I don't think people are saying, hey, I'm going to go ahead and pull forward my tax bill today to reduce the risk. I mean, have a bigger tax bill tomorrow. I think people just, you know, that's against human nature. Nobody likes seeing their tax bill today. You know, I could have said the same thing to you before George W. Bush came into office. They would have been bad idea to cut taxes. And then he went and cut them a lot and then Trump cut them a lot more beyond there. While I agree it seems like they ought to go up, I'm not sure that history has shown us when that's going to happen. So we don't see that. You do see people though. You Know, trying to be just say, okay, given the tax environment as it does exist today, what are the things that I can do to keep the portfolio I want but kind of put it in a structure so that is tax efficient? You know, I'll give you another example which is private placement life insurance. I'll say I'm the first person to tell you that whole life insurance or that, you know, 99% of permanent life insurance is a terrible deal. It's sort of pitched by these salesmen who confuse a whole bunch of things and have a lot of hand waving and you don't understand what's happening, but they're getting very high fees. I will say that private placement life insurance is a bit of an exception on this where it's one where it tends to be for very high dollar values. But for things like private credit or multi strat hedge funds that make 10 or 12% ordinary income each year, it can protect those from both capital gains and ordinary income. And you only have about 1% a year fee drag on that. So I think there's some kind of more complex strategies like that that people will employ.
- [37:52]
Scott Trench
We've made it through net worth so far. What are some other interesting segments of this? Do you want to flip through and show off some of the data?
- [37:59]
Tad Fallows
Yeah, I mean, I think something else that's interesting is the flip side of people not being willing to take a lot of risk, as you might say, and not hold a lot of bonds is they don't take a lot of risk. On the borrowing side, the total aggregate amount of debt is much lower than you might expect. So 40% of members don't owe any mortgage at all either because a few of them just don't own a house. But then, you know, a full third of people own their house free and clear with no debt. And then even beyond that, if you look at things like borrowing against a portfolio, most people just don't take on nearly as much debt as they could. And if you look long term returns, you say, well maybe it would be profit maximizing to take on more leverage and have higher returns. But in practice people seem to say, okay, I've got enough money, I don't need to take this sort of silly risk that could risk a total blow up. I'll invest my money on the more aggressive side in the spectrum in equities, but then I won't take out a big leverage position and risk being a, having a margin call and being a forced seller in a bad environment. And, and frankly I think that's A pretty smart move and one that I probably take more debt than most people on here because I've got a lot of real estate backed debt. But most people being conservative on that front.
- [39:04]
Scott Trench
Tad, has that changed in the last couple of years? Did you have studies before interest rates started rising?
- [39:09]
Tad Fallows
The biggest thing that's changed is if you looked during COVID people were just much more bullish on buying real estate. I think it was a fairly simple analysis to say, look, you've got the government spending like a drunken sailor. You can borrow money at 2, 2.5% which is where most people actually locked in their mortgage. And so it's almost guaranteed that inflation is going to be higher than paying on this debt and I can lock it in for 30 years fixed. And so I think at that point people were very heavy on the real estate acquisition spree. Today I think people are much less. They're not so selling their real estate, but they're not putting fresh capital to work there. They say it's a very different analysis. If I have to spend four and a half percent and I don't think inflation is going to exceed four and a half percent, I can get better returns elsewhere. So that's really what we've seen is that, and I think that's probably a good takeaway to think about from this is you can have a pie chart in any given day of what the allocation looks like. But some of that is legacy of, you know, as you were saying with private equity, maybe it was a, you know, you thought was a better deal 10 years ago. People may still be holding those holdings they built up then. I think real estate, a lot of it is people are holding the real estate they bought then. But that doesn't mean that they're putting new dollars to work at the same ratios as they were historically.
- [40:11]
Mindy Jensen
As a real estate agent, I know that a lot of my investor clients have significantly dropped off their acquisitions just because the numbers aren't making sense at a 6% mortgage in my market.
- [40:23]
Tad Fallows
Yeah. And I think, you know, I don't need to explain to you you've got the flip side is I think the seller is also being rational because the seller's saying, well, I'm locked in at a 2 1/2% mortgage so I don't need to take a haircut just to make your economics work and you don't need to pay up to make my economics work. And so, you know, we can both be totally rational looking at the same deal the same way and both agree that there is no Market clearing price, my local market here, that's the same thing that I'm seeing. I'm not selling. I moved to a new house. I didn't sell the old one because I could get much more money renting it out. But it's not like I'm going to buy three more rentals.
- [40:52]
Scott Trench
I don't know if I'm. If I'm common or unusual as a member of this cohort here, but I find it to be very advantageous to reduce all fixed costs in my life as much as I possibly can because that allows me to realize very little income. So having no mortgage means that I can live the lifestyle of a neighbor that, you know around here that, that might have a very pretty, pretty expensive mortgage. I got a nice house. That's a huge, huge advantage for me. And because I will be in a high income tax bracket most years, not the highest, but in a high tax bracket, that's a pretty big advantage for me. And so not having a car payment, same deal, right. Very little income. You have to realize if you drive that thing for the next seven to 10 years, then there's lower insurance because I can have a high deductible because I've got a strong cash position and those types of things. Do you find that attention to not necessarily discretionary spending? Maybe I'll go out to the nice restaurant, maybe I'll go on a nice vacation. But. But is there a shared obsession in this cohort with reducing those fixed expenses for that reason?
- [41:53]
Tad Fallows
I would say that there is on the specific thing of fixed expenses, like, hey, should I have a mortgage or should I not have a mortgage? I think that really just comes down to personal preference. Some people will say, I think I can make 10% investing that money in stocks. So if I can borrow it from the bank at 3%, there's no reason to pay down my 3% mortgage and sacrifice the 10% returns. Other people, and a lot of them take the exact philosophy you're talking about of I care about my cash flow. I don't care about the theoretical 10% gain that may or may not materialize, and I may or may not crystallize. I just want to have, you know, my cash flow be more attractive. We see that both ways. What I do think is very consistent is this idea of you could expect that somebody with $25 million is not really going to care about the pennies. They're going to be, you know, indifferent to costs and variety of functions. But it's much more exactly what you talk about. They're willing to spend a lot of money for something they really want, but they are going to be thoughtful about their spending for something that they think should be a commodity. So I think at the beginning, you know, you probably let your card show in your perspective of financial advisors, and I think that's very common in our community. If somebody's saying, hey, 75 basis points, you know, three quarters of a percent, that may sound like a small headline number, but if you've got $10 million, that's really $75,000 a year. That's a ton of money, and that's after tax. That's the same as earning $150,000 a year. That the reason that probably 3/4 of members don't have an RIA is some combination of this concern about conflicts of interest and then just, frankly, not wanting to spend that much money on it. And I think the same thing could go across a lot of different spending categories. So I think even though people are wealthy, that doesn't mean that they ignore the costs. But the flip side is if there is some fancy, you know, there's some trip they want to go on, there's some restaurant they want to eat at, they're perfectly comfortable writing the check, provided it's a place that. That, yeah, they actually think is fair value for money.
- [43:36]
Mindy Jensen
Tad, not all of our listeners have a net worth of $25 million. I don't think Scott or I have a net worth of. I don't think we have a net worth of $25 million combined. So I'm not throwing you listeners under the bus, but how can they read this report and take action that would work for them? How could they apply this to themselves?
- [43:59]
Tad Fallows
I think almost everything in here applies, you know, partly because a lot of these things don't have as high of minimums as you might think. Like, if you listen to this and say, okay, there's a certain kind of, you know, this litigation finance sounds interesting. There's ways. And actually, we do a lot of this in the community of trying to kind of get these economies of scale, because again, our average member doesn't have 25 million either. As I said, the median person may be, you know, 10 or 15 million. And so they might say, well, litigation finance sounds interesting, but I'm not going to put 2 million out of my 10 into this one litigation finance deal. That I think is interesting, but I don't know if I have that much conviction. We do syndicate investments there. Well, that'll bring the minimum down to maybe $100,000. So they say, okay, well, now I need to just put 1% of my net worth. I can actually try it out, see how I like it, and that this goes well, I can scale it up from there. So even the bare minimums, I think, tend to be a lot of this, I'd say, is probably less relevant for somebody maybe with one or two million dollars. But I think when you get to a point where you're talking $5 million or more, it's really just scaling everything by percentage basis. And from an absolute perspective, I think it's almost all relevant and even things that you might not think are that relevant, like estate tax being a great example where, you know, the limit on exclusions from estate tax today is $15 million for an individual or $30 million for a couple. So you might say, Mindy, you know, I don't know how much money you have, but let's say you have, you know, you're 40 years old and you have $10 million. You're actually almost certain to break that $30 million threshold by the time you pass away. And so, you know, these things become rele. Sort of reach a certain escape velocity if your passive income and your appreciation is exceeding your spending. And then the kind of people who made a lot of money often tend to keep working even if they don't have to. And so the net worth tends to go up quickly. So I do think it's actually quite relevant. And these same ideas about like, hey, how much debt should I take on? Should I really be borrowing against my stocks to try and juice a couple extra points? Or should I not take that risk so that the next time stocks fall 50%, I'm not risking a margin call. All that is equally applicable, sort of no matter how much money you have.
- [45:56]
Mindy Jensen
I love that you think I'm 40. Thank you, Tad. You're now my favorite person. Is there a way that a non member can read this report?
- [46:03]
Tad Fallows
Yes, it is totally freely available on our website. You just go to longangle.com and we've got this. We've got a number of other reports. We also have an income and spending one does a similar breakdown and people, okay, how much of their money do they spend on travel? How much do they save? What do they spend on insurance? Etc. We also have one on professional service providers of in terms of how much are people spending on their lawyer and their gardener and their nanny, etc. And how happy are they? We try and publish as much as we can of the data from our community to everybody Publicly.
- [46:30]
Scott Trench
Well, Tad, thank you so much for coming on back on the BiggerPockets Money podcast. We'll have lots more to talk about I think in future episodes as well, because we do want to cover this. We feel like, you know, the goal of BiggerPockets money is to help people get to like kind of this two and a half million dollar net worth target. Goals in the community often range from 1 to 5 million, but as a byproduct of to that point, many folks will happen to get much wealthier than that. And so we actually find that we have a pretty good overlap with the Long Angle Community among our listeners. So that's been a place where several members have joined up and had great things to say. So thanks for coming back on and sharing that data with us. And I think it's aspirational for a lot of folks. Hopefully you listen to bigger Pockets money for long enough, you'll have this problem one day of, of needing to figure out how to invest like the wealthy because you'll have a portfolio that reflects a lot of wealth.
- [47:16]
Tad Fallows
Yeah, no, thank you for having me. I think we actually have almost 100 members who are overlap, you know, both, both BiggerPockets members and have joined Long Angle Community. And one other thing I would mention just didn't come up here, but our community is there's no membership fees. So I think people may say, oh, this seems like something's going to cost ten grand a year. But we decide not to charge anything for membership. So if people have heard this and are interested in being part of the community, you can click Apply now and that will set you up basically for an interview or live discussion with a current member who will just tell you more about it. You can see if it seems interesting to you and you can tell them more about yourself.
- [47:47]
Sponsor Voice (Monarch)
Awesome.
- [47:48]
Mindy Jensen
Yeah, I am a member and I love this community. It's so refreshing to be able to speak to people on a higher level about problems that I am having that, you know, maybe somebody isn't having without the same level of wealth. And that seems like such a snotty thing to say. I don't know how to say it any better, so I'm just gonna leave that in. Tad, thank you so much for joining us. It was a lot of fun and we will talk to you soon.
- [48:10]
Tad Fallows
Well, thanks so much for having me today, Mindy and Scott.
- [48:13]
Mindy Jensen
All right, Scott, that was Tad Fallows from Long Angle and that was quite the interesting look into how high net worth individuals invest. What did you think of this report, Scott?
- [48:23]
Scott Trench
I thought it was an acute take. Sorry, I couldn't resist. On the patterns and behaviors and actual data of the top 1%. So I think there's probably a little bit of confirmation bias in the survey because the community probably attracts people of certain dispositions there certainly younger people in the net worth range. But I still think it's a very fascinating view into how wealth is managed by the ultra wealthy in America, especially those in the younger cohorts, 30s to 50s.
- [48:48]
Mindy Jensen
Yeah, I was particularly surprised at the bonds because you keep hearing 60, 40 bonds, 60, 40 bonds in there. That's not represented in this group. Although on the other hand, bonds are to protect your portfolio. So if your portfolio is so much bigger than you will ever need, it doesn't really need that much protection. So I guess it makes sense. It's just weird to see like people who have high net worth in my opinion, are super knowledgeable about financial everything. So clearly they should be doing everything right. And the reality is, you know, like Tad said, some people had a rather modest net worth and all of a sudden they have a high net worth. So they're trying to figure this out, which is what long angle is all about. It's a space where you can go to ask people questions who are in a similar situation. If our listeners want to read this research, this report is really, really interesting. You can find it@longankle Single.com you don't need to have a membership to read this report. You just go to the resources tab and look at all research and studies this is available, as well as several other studies that they have done that are really, really fascinating all around. Money.
- [49:56]
Scott Trench
Absolutely. Mindy, should we get out of here?
- [49:57]
Mindy Jensen
Yes, Scott, we should. But I want to remind our audience that if they want more financial independence information, they can head over to our website, biggerpocketsmoney.com you can sign up for our weekly newsletter. You can also find free resources, calculators and templates, all designed to help you accelerate your fi journey.
- [50:16]
Scott Trench
And one of the new things that's coming out on the BiggerPockets money website is ask a question. Go to the community tab@biggerpocketsmoney.com and fill out a question for Mindy and I and we'll try to answer it to the best of our ability. Free only for entertainment purposes only, of course. As a note, Mindy and I have answered questions from listeners for many years. We're going to continue to do that, that we just hope to do more of that on the BiggerPockets money website so that other people can benefit from that experience. And of course we will anonymize that as a default unless you prefer to have your real name or are willing to have your real name and numbers shown on the website there. So please feel free to ask us questions through the Ask a Question format on the website on a go forward basis and we'll look forward to hearing from you.
- [50:59]
Mindy Jensen
All right Scott now that wraps up this episode of the Bigger Pockets Money podcast. He is Scott Trench. I am Mindy Jensen saying stay keen Lima Bean.
- [51:08]
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