Transcription
Most people don't approach their wealth from an engineering mindset, which is how do I engineer the return I need to make sure I have enough money when I'm ready to retire. So, in this video, I want to break down how you can make three, four, 500% more wealth by using wealth engineering, a simple system that takes you from a traditional horizontal investor, which is never going to make it for you, to investing vertically in an engineered format.
Now, this is all one big piece of what I call the wealth operating system. It's a program that I've taken over 500 high-income earners, professionals, entrepreneurs through, and has completely changed the trajectory of their investing outcome. It's going to do the same for you. You ready? Let's go.
All right. So, let's first start off by where you're at right now. Most people have a financial advisor, you have a plan administrator, you're investing through your 401k through your business, you have some sort of a pension, you have a someone at Charles Schwab, whatever. You have somebody helping you with your wealth. At least hopefully you're doing something with your wealth.
Now, typically what's going to happen, mainstream financial advice, Dave Ramsey financial advisor, is they're teaching you how to invest horizontally, and that's all wrong. That's why most people aren't making it. We want to invest vertically, and I'm going to explain what that means. But, they're teaching you to how to invest horizontally. Let me show you what this means.
So, if you were to take your money, let's call it $100. We're going to take that $100 and we're going to put it into different assets. They teach you how to do asset allocation. Now, if you're following something like Ray Dalio teaches, like what's called an all-weather portfolio, a lot of financial advisors use that. They're going to have you asset allocate up to 17 different what they call uncorrelated assets. 17 different assets that you don't know anything about, you have no expertise in, no edge. I'm going to divide that $100 into 17. Here, I'm going to give you an example only four different buckets.
In this example, your financial advisor's probably having at least 60% of that go into what we call a 60/40 portfolio. That's 60% stocks, 40% bonds. That's been the bread and butter of all financial advisors for the last several decades, and that's to offset volatility. Uncorrelated assets, like Ray Ray talks about. If the stock market goes down, the fixed income in the bonds holds up. Well, as for the old world, that doesn't work anymore.
But, let's go with that. So, let's say that I have my fund administrator, my pension manager is putting me my 401k plan is in that, and I'm making let's say 6.5% return on that. That's about the average return of a 60/40 portfolio. But, then I also have a home, so I'm building my wealth in my home, and my home equity's growing, you know, I've been in this home for a long time. Obviously, that's compounding. And let's say that about 30% of my net worth is in my home. Now, historically, the US median home goes up about 5% a year. Over the last 5 years, it's gone up by about 10% a year. So, we're going to be generous here, we'll put 10% there. So, I have about 30% there, $3 in this example.
Now, one piece before I move on I want to say about this is it's great. Like, you're building wealth in your home. It's like a piggy bank. Cool. But, what do you do with it? Cuz like, you get older, it's worth a lot of money, but you can't sell it cuz you need a home. So, while on paper it shows it's wealth, it's not really money that you can use. We'll move past that.
Let's say that you're you love Bitcoin as much as I do. Well, you don't love it as much as I do because you put 5%, which is a pretty strong conviction for most people that I allocate to Bitcoin. It could be two, three, four, let's call it 5%. Now, Bitcoin has been going up by 30 to 50% per year, depends on when you measure it. Let's just call it 20 here, which is less. Let's be conservative here. So, 5% is in Bitcoin going up 20% a year. And then, of course, I'm holding cash. I need some cash, operating expenses, I want to off offset some risk in my portfolio. So, let's say that I have 5% allocation to cash, and that's growing of course at 0%. So, I have $1 is now split out, it's fanned across, it's invested horizontally across asset allocation that Ray Dalio and everybody else talks about.
All right, so when I add this together, we can see that each of these assets are doing different things. Obviously, Bitcoin is growing faster, my home's growing faster than the 60/40 portfolio, but when I average those returns out from the horizontal stack, I have a blended return of about 8% return, which is great, better than what I'm getting from my Ray Dalio portfolio, I'm getting from my 60/40 portfolio, but it's an 8% return. The problem, the The at the of the monetary expansion is about 10% a year for the last 5 years. That's the real rate of inflation. So, while my wealth is growing at 8%, unfortunately, the money supply is growing at 10%. So, I'm still losing money.
The wealth operating system goes off of a completely different method, one that you've probably never heard of. Instead of investing horizontally, we want to invest vertically. What we want is our money to work way harder than we do. The reason why most of us don't have enough money is that our money's not working hard enough. Not you. You don't need a second job or side hustle. You don't have to start a new business. Just get your money doing multiple jobs. Let me give you a visual example of how we do a vertical investing strategy or investing in layers.
So, as you can see here on the screen, the same $100 as we had in the horizontal example, the same $100, but now I put the $100 into real estate, a productive asset. That real estate is giving me tax depreciation, it's giving me leverage from the loan, it's building wealth, no different than I was on the horizontal side, but the difference is I put the $100 there, and then I take 50% out of that. I issue credit against the home, and I take $50 out, and I put that into Bitcoin. Now, I also have Bitcoin, but not horizontally, vertically, and it also grows at the same 20%, no different than it was on the other side. In this example, I'm now going to issue credit against my Bitcoin, 50%, and that means I'm taking $25, and I'm going to put it into the Nasdaq. Why the Nasdaq? Well, the Nasdaq is the tech stocks. The Nasdaq gives me exposure to the AI boom that's going on right now. I want exposure to that, and so now I have $25 in there, and that's going at 15% a year. I could keep going. I could issue 50% credit against that, move into asset four, five. I can engineer whatever return I want. But, let's just stop here. Three different layers, the same $100 is now growing three different assets at the same time.
I would do want to let you know that I have my team, they run these free audits where they can go through your portfolio and find out where the risk is and help you prevent the risk before it happens like it happened to me. If you want to book one of those calls, I'll put a QR code here on the screen. We'll put a description down below. Go ahead and grab your spot, and let's uh keep going in the video.
Now, when I look at the blended return of this, same returns I showed you on the horizontal side, we can see our engineered returns are now 24% instead of the 8%. Now, hopefully that's shocking. Hopefully that sounds like a lot of money. But if you see what happens when that amount compounds for 5, 10, 20, 30 years, you wouldn't believe me. You'd think I'm crazy. You'd think I'm a psychopath because you can't understand our human brain can't understand compounding. We think linear. But the the return difference from 8 to 24 over long periods of time is the difference of generational wealth where your grandkids never think about money to you struggling and hoping that you die before you run out of money.
Now, I'm sure that you can see this example and I've walked you through it. It's easy enough to understand. But I can already hear what's going on in your head and I can already feel the comments filling up below this video and you're saying, "But Mark, that's risky. You want me to leverage my assets? You want me to take loans or issue credit against assets? Are you out of your mind?" Let's address this. I've already told you that 8% is losing money to the rate of my traded basement. You want to talk about risk? You're guaranteed to end up broke. How's that for risk? You want to take that risk.
Now, if you want to increase those returns, you have to do what the traditional path is, which is go way out on the risk curve. Now, I have to start doing day trading or option strategy I don't know anything about. I have to find crypto pump and dumps. I have to go into meme stocks like GameStop or something like that to try to get some returns. Maybe I lock my money up for 10 years in venture capital and I hope and pray. That's what you have to do. You have to take on way more risk to get that return up.
On the other side, we're just using traditional assets that you know, like, and and trust. You have knowledge on. You have edge on. And yeah, sure. We'll issue credit against them. Are you so adverse to that? We talked about you owning a home. Did you buy your home cash? Or did you get a loan for your home? Most people think that buying rental real estate or short-term property short-term rent rental properties This key to building wealth. Are you going to pay cash for those apartments in that rental property or do you get loans for those things? Do you pay cash for your car or do you take loans for those things? You see, we use leverage in every area of life. The problem is for most of us, we use it completely wrong. We didn't really learn what Robert Kiyosaki told taught us 25 years ago in the Rich Dad Poor Dad, which is there's a difference of good debt and bad debt. Good debt is productive debt. Good debt makes me money. Good debt buys assets that compound over time. Bad debt is what gets me in trouble. Bad debt on vacations and clothes and cars is what gets me in trouble because the asset or the money disappears. You see, I don't have to worry about being out of money because I bought the asset. So, if I borrowed money and bought an asset that's compounding and I can't afford it, well, I have the asset.
One of the biggest misconceptions when it comes to building wealth is that complexity drives better outcomes. If I could just find the secret, I could get the outcome that I want. But, the reality is different. The reality is that most financial outcomes are driven by just three variables. That's it. Three levers. Capital, time, and yield. And that works out to how much capital can be deployed, how long can I allow that capital to compound for, and at what yield is it compounding at. Every investment strategy, every portfolio, everything that you're doing to try to achieve your goal is built off of the combination of those three levers. The problems are twofold. One, most people don't know where they're trying to go. And number two, they don't know which lever they should be pulling in order to reach that goal in time. So, they over optimize for yield without realizing the value of time. Or they fail to realize how much lazy dormant capital they have and how that can be activated. So, today we're going to fix that. I'm going to walk you through all three levers. I'm going to show you how you can use each one specifically to help you achieve your ideal goal in the fastest amount of time possible using this. You ready? Let's go.
All right. Now, I don't want to spend too much time on this part, but I have to to about this because I want to talk about the three levers to help you achieve your goal, but how do you achieve a goal that you don't know what it is? So, it all starts with trying to figure out exactly where I'm trying to go. It has to be specific. When you set a goal, it needs to be smart, s m a r t. Google that. Figure out how Maybe we can link it down below. You'll figure out what that is. A smart goal, specific, measurable, actual, right? So, how much do I need and by when? Not like more money, not like, I don't know, a million dollars. No, no, no, no. How much income do I need, exactly? Like $4,769, $14,700? Like, how much do I need specifically every month and by when? I want to replace my income. Okay, how much is your income? When do you want to replace it by? Your mind works off of specificity, not generalities. Just like a GPS. If you open up Google Maps, you would first put in where you want to go. And you don't say, "Take me somewhere cool." You don't say, "Take me to some beach." No, you put in a very specific a GPS coordinate. Then, once you put that in, Google asks you the next question, which is, "Well, where are you?" Which again has to be specific, a specific GPS coordinate. So, once you figure out where I want to go, this much revenue per month by this time, the next question then is, "Where am I at? How much assets do I have? What's my total assets that I have? The value of those assets, the equity of those assets, and how much income do I have?" Once I know those two things, then we can use the three levers, which again is time, yield, and capital to achieve our goal. So, start there, understand where you're going and where you're starting from, and then let's dig into the three levers.
Okay, let's go through these three levers cuz you need to know how to use each one of them. And let's start with the first one, which is time. A lot of people don't think about time when it comes to money, but of course they've all heard the saying that time is money, money is time. It all comes down to time. As a matter of fact, in one of my coaching programs just this last week, someone was asking me, "Well, I could get credit from these two sources, but this is what the yield is on each one of these. Which one should I choose?" And I said, "Well, typically I would choose the lower yield. But, what I want to optimize for more is is the time. You didn't tell me the time. What is the time duration of the loan? Is one marked to market on a daily basis and is due in a year? Is one of them against the home and it's a 30-year fixed for 30 years with no mark-to-market or liquidation risk. So, we want to focus on the time.
So, what do I mean by this? Your money is doubling as it compounds, right? Compounding is it compounds on top of the compound on top of the compound. Now, we use something called a rule of 72. The rule of 72 says that I take the yield, 10% return on my asset, divided by 72, and it tells me how long it takes for my money to double. So, if I'm making a 10% return on my money, divided by 72, that means every 7.2 years my money doubles. So, right off the bat, it's time. So, I have a million dollars, I want to have five million dollars. What is my yield? 10%. Well, how much time do I have? Well, if it compounds at 10%, then I'll reach my goal. I have enough time. Great, I don't need to do anything. But, let's just say that, well, I'm not going to achieve my goal. Based off of that rule, I'm going to achieve it in 12 years, but I want to achieve it in seven years. Okay, then we have to pull another lever. What other lever do we have? Well, I need to increase the yield that I have. So, instead of 10% yield, what happens if I get a 20% yield? Well, 20 divided by 72 is about three and a half, 3.6. That means that every three and a half years my money doubles. So, I've cut that in half. So, now, that means a million goes to two, goes to four, goes to eight, goes to 12. Three and a half years each clip. So, now can I achieve my goal? Yeah, I can. Perfect. Then I need to engineer a 20% return.
The risk that most people take here is they think in order to get a higher yield, to go from 10% to 20% yield, I have to go way out on the risk curve. So, now I have to buy something that's going to go up 30, 40, 50, 100%. I got to get into venture capital, private equity. I got to buy meme stocks like GameStop or I have to get into some crypto pump and up token or something like that. And so, they're all over Reddit and message boards and they're on Twitter and YouTube trying to find the next hot stock tip. Insane amount of risk and the things they don't even know about try to increase that return cuz they realize they're behind. Now, a better way to do this is a wealth operating system way where we engineer the return that we need using traditional assets that we know and have edge against. So, we instead of vesting horizontally like most people do using asset allocation, we invest vertically getting each dollar to compound multiple assets at the same time. By doing something like that, we can take traditional assets, real estate, NASDAQ, things like that, and and generate a 20, 30, 40% return. If you want a whole video where I break down that entire system, I'll put a link to it down below where you can watch that in more detail. But, you understand we do need to increase the yield that we're generating if we need to compress the amount of time.
And then finally, we move on to the third lever that you can pull, which is capital. So now, let's say that we have gone through the time and like, "Shoot, I don't have 20 years. I need it done in five." And in order to get that done in five, I've tried to increase the yield, but like realistically getting above 20, 30, 40% takes an enormous amount of risk, and I don't know if I'm okay with that much risk. Well, then the third lever you have is capital. So, you have to put more money in. Are you still working? Can you generate more capital, more gasoline to dump in the engine? So, if I can increase the amount of capital that I need, I can take on lower yield, and I can compress the time. Now, if you're 78 and you can't work anymore, that may not be an option, which in that case, maybe you have to either take on more risk to get a higher yield, or you have to increase your time. If you're younger, maybe you can still add go back to work or you can add more capital to that. But, those are the three levers that you have. It's math, it's physics. Like, I can go on to Google Maps back to that example, and I could see what my routes are to get to my destination on the time that they've allotted for me. At the end of the day, there's reality. So, if I wanted to get to London for dinner, well, it's not physically possible without some Star Trek teleportation machine. Like, it's not going to happen. So, you do have to be realistic. But, you know the three levers that you can pull now. You can wait longer, time, and allow compounding to work. Two, you can increase the yield that you're generating. Three, you can shorten the compounding time from seven years to three years. Or, you can add more capital into the machine, more gas onto the fire, so you can shorten both of those at the same time.
Now, you have three levers, but how do you know which one you should pull first? Well, it's not about first, second, or third. You can pull all of them at the same time. So, first of all, if you're still working, keep working. Keep putting more capital in the machine. If you can increase the amount of capital you earn, great. If you can decrease the amount you spend, great. Continue to try to add to that faster. Number two, the time. You can't really change the time. I guess you could change your time preference. Do you need to retire in 5 years? Could you wait 6 or 7 years? And then finally is the yield. Now, the yield really comes down to engineering the yield that I need. Now, the truth is anytime I'm sitting outside of dollars, there's risk. And actually, sitting in dollars is risk, too. I'm guaranteed to lose to debasement. So, there's risk in everything that we do. But, the question is how much time, effort, energy do I want to put into this? How hard do I want to work at this? And then how much risk do I need to take in order to get to the goal that I need by the time I need it. So, what I want to do is only push as hard as I need to push. I don't need to push harder. The goal is not more. The goal is how do I get to my desired goal at the time frame that I've allotted for or I've desired to achieve it by and how hard do I need to push or work to achieve that. So, I use a combination of the three. If I can put more capital in, put more capital in. If I can't, I expand my time. If I can't expand my time, I need to get more yield. But, I can only push so much and at some point, maybe you need to readjust your goals. But, of course, I don't want anybody to readjust their goals. I don't want anybody to settle in life. I want everybody to achieve the life of your goals and your dreams. And so, if you want to learn how to build an entire wealth operating system through three wealth engines working together to build a wealth flywheel that builds wealth faster and faster and faster forever, you might want to watch this video right here where I break the entire system down. You can follow along right here and I'll see you over there.