Here’s our latest interview with a millionaire as we seek to learn from those who have grown their wealth to high heights.
If you’d like to be considered for an interview, drop me a note and we can chat about specifics.
My questions are in bold italics and his responses follow in black.
Let’s get started…
OVERVIEW
How old are you (and spouse if applicable, plus how long you’ve been married)?
I am 47 and my wife is 45 and we have been married for coming up on 16 years.
I am very lucky to have a supportive wife that has been there every step of the way.
Do you have kids/family (if so, how old are they)?
Our son just turned 12 years old and our daughter will be 11 in August.
What area of the country do you live in (and urban or rural)?
We live in Texas in the suburbs of a larger city.
What is your current net worth?
Our current net worth is $8.42 Million.
What are the main assets that make up your net worth (stocks, real estate, business, home, retirement accounts, etc.) and any debt that offsets part of these?
We are currently debt free and our net worth is made up of the following:
- House – $330,000 (Paid for in cash in 2006)
- Three Cars – $90,000 (Each vehicle purchased new and paid for in cash) (Bluebook Value)
- Cash – $201,000 (Try to keep 18-24 months of living expenses)
- Taxable Investments – $6,255,000
- IRA/401K Investments – $847,000
- Defined Benefit Account – $671,000 (Great vehicle for small business owners to save a lot tax deferred)
- Health Savings Account $26,000
We do not count the following in our Net Worth:
- Charitable Trust – $103,000
- 529 Plans – $18,500
EARN
What is your job?
I am an independent technology consultant and have been working for myself since 2003.
My wife is a stay at home mom who was an elementary teacher prior to our kids being born. She now tells our friends she is retired, and most people think she is kidding. 🙂
What is your annual income?
My annual revenue fluctuates as it depends on the number of customers/projects I win (they typically last 6 months to 2 years) but has been between $487,000 and $1,087,000 over the past 10 years and has averaged $740,000 during that timeframe.
Most of my revenue turns into income as I work out of a home office or travel to visit clients (fully reimbursed) so my business expenses end up only being about 3% of revenue.
Tell us about your income performance over time. What was the starting salary of your first job and how did it grow from there?
I started working in the grocery business in 1992 after graduating with a Bachelor of Commerce (Business Degree) and was making $28,000.
After 18 months of being in a management training program I became an assistant store manager and got a raise to $35,000 with a lot of responsibility as had over 100 employees working for me.
I decided to move to the United States in 1996 (26 years old) as my family had relocated a few years back and thought there would be better career options and I was lucky to be a dual citizen of Canada and US. That said, the only jobs with a decent salary were in retail and I wanted a change, so I took an entry level job in a corporate office of a large grocery retailer for $28,000 so 4+ years into my career I was back to where I started salary-wise.
Over the next two years I got multiple promotions and was making $39,000 in mid 1998. I had worked very hard for many years out of college, yet that hard work was not translating into earnings as the grocery business is known to be lower paying and harder to rise through the ranks as a younger employee. I won’t lie, I was starting to get discouraged when my big break came as I had a networking opportunity through my best friend to meet a colleague of his who was starting an information technology consulting firm and he wanted to hire a few people who could learn the technology.
The interview went well, and he ended up offering me a job for $60,000 USD on the spot and I was ecstatic. I was also pretty scared as I knew nothing about IT, had no computer background and the business area I was going to be working I had no domain expertise but was up for the challenge.
Let’s just say the next 24 months were as hard as I have ever worked, and it turned out I was getting in on the ground floor of an exploding and hard to find skill set. I ended up going from making $39,000 in mid 1998 to $150,000 in 2000 so to call it a life changer would be an understatement and also was lucky enough to meet my wife during that time as well.
Two years later I decided to go into business for myself and shortly after was making 10X what had 5 years previous.
The neat thing in retrospect were the skills I had learned along the way in my slow-moving grocery career (and jobs before that) helped prepare me for when I had an opportunity to capitalize on it in a more lucrative career path. Plus, more than that appreciate and never take it for granted.
What tips do you have for others who want to grow their income?
- Be Smart with Your Money – Save as much as you can, be frugal when it makes sense, research and negotiate the big-ticket items (car, house), spend thoughtfully and not emotionally, buy quality at the lowest prices and avoid impulse purchases. Some might find it interesting that I still call the Cable, Internet, Satellite Radio, Security every 6-12 months to get introductory type pricing (they all do it) for example or that I represented myself when I bought my last house to save 3% (buyer agent fee) but at the same time always try to pick up the check when we are out with friends/family. Being smart and being cheap are two completely different things in my book.
- Work Hard – Work hard every day as there are no shortcuts, try to find something you enjoy (ideally a niche area), and never stop learning. I had many jobs prior to luckily falling into a technology career (with no IT background) and it was a sum of these previous jobs combined with a mindset of hard work, continuous learning, customer service, and trying to constantly improve that have be some of the cornerstones of my success.
- Calculated Risk – Be willing to take calculated risk whether it be to ask for a deserving promotion, join a new company for a better opportunity or start your own business. I left a consulting firm making $150,000 + 15% bonus in late 2002 and people thought I was crazy. I won’t lie, I was a little scared as well, but I had landed a contract for 6 months for roughly my yearly consulting salary, so I figured if it didn’t work out I could always get my old job back. Obviously, it worked out better than I could have imagined but without taking the risk of working for myself it never would have happened, and many other doors would not have opened. I have been fortunate as my wife has always believed and supported me during these times 100%.
- Read/Life Long Learner– When I was in my teens and early 20’s I read 100’s of business books on successful entrepreneurs and always came away with several great ideas many that have become core principles in my career. Each day for the past 20 years I have spent the first two hours of the morning reading about my industry, sports, personal finance and investments (would highly recommend avid web readers to consider an RSS Reader such as Feedly). Reading can be work, takes time and effort, but will save you even more time in the long run and investing in yourself is something that will always pay dividends as at the end of the day. The more you know about your field, career or industry, the more valuable you will become. I can’t stress the importance having a mindset of being a life longer learner in whatever interests you.
- Short/Long Term Goals – I am a big believer that having short term goals (i.e. saving, budgeting) and keeping track helps form a habit and that habit can be the foundation of ultimately hitting your long-term goals. On a side, there is nothing wrong with having big goals and dreams as often it can help create the opportunity for good luck to happen. When it does take advantage of it.
What’s your work-life balance look like?
It is excellent today, as I travel only within the continental US, and am away from home about 30 nights a year with the rest of my work being out of my home office.
I get to see the kids every morning, am here when they get off the bus, get to go to every sport practice/event and see my wife all through-out the day (probably more than she would like). 🙂
I am a big believer that I am a lot more productive working from home and work extra hard to ensure my customers see that value given the trust and flexibility they are showing me.
I can really appreciate what I have now as it was not always that way, as from 1998 to 2013 I was a road warrior, travelled all over the US and stayed in hotels about 200-225 nights a year which was mandatory for the type of consulting career I had.
I had made a pledge when my kids were born that I would stop travelling as much when they were 5 years old and although it ultimately took a few years longer it was one of the best choices I ever made.
In retrospect there were major sacrifices that both myself and family paid over the years with all my travel and while I wouldn’t take any of it back, as it set us up financially, I am very glad my wife and I came to the realization sooner rather than later. I don’t miss frequent business travel at all!
Do you have any sources of income besides your career? If so, can you list them, give us a feel for how much you earn with each, and offer some insight into how you developed them?
We have no additional sources of income outside of my consulting career. That said, I do find it fascinating to read how many of people profiled in the Millionaire Interviews have rental income as an additional source of income and while I like the idea of considering that as an option down the road I would have to build up a lot of knowledge and expertise before I felt comfortable doing it.
SAVE
What is your annual spending?
We used to be aware of every dollar our household spent as it tracked and updated daily in Microsoft Money but when that offering was discontinued.
Over the past few years, I have focused more time on overall net-worth tracking which given the size of my fluctuating income and investment gains/losses a I found the spending portion was a smaller overall component even though I have all the information consolidate into Mint.
The great thing about this article is that it got me focused to see how we were spending and in 2017 it was roughly $132,000 which is higher than I was expecting. Looks like we might be back on a budget in 2018. 🙂
What are the main categories (expenses) this spending breaks into?
- Food/Dinning/Household/Utilities/Misc – $59,000
- Travel/Vacations – $20,000 (Multiple Family trips each year)
- Healthcare – $18,000 and this is a scary one as has been going up 30% a year for high deductible insurance
- Health/Fitness/Kids Sports – $15,000 (Golf Membership, Both Kids play Competitive Sports)
- Entertainment – $10,000 (i.e. Sporting Events, Concerts, Kids Activities)
- Cars/Insurance/Gas – $10,000
Pretty sure we could fairly easily cut 20%-30% from our spending, if we want to, as have definitely become looser with our spending over the past few years as our overall net worth has grown.
Do you have a budget? If so, how do you implement it?
We do not have a defined budget but definitely talk about any major purchases to ensure we are in agreement and we have keep our spending with a general range for the last several years.
What percentage of your gross income do you save and how has that changed over time?
We have saved about 75% of all our income (after taxes) over the past 10 years and probably 50% before that.
We have always lived below our means and as our income has increased we have put everything extra into our investments as well as avoided lifestyle creep.
What is your favorite thing to spend money on/your secret splurge?
Family travel, sport events and dining out would be the big three.
INVEST
What is your investment philosophy/plan?
I won a stock picking contest in high school and I am unfortunately living proof that it takes more than that to be a successful do-it-yourself investor. For many years my strategy to becoming a millionaire was to find investments that would be 100 baggers and put my life savings in it and to no surprise ended up with a bunch of poor performing stocks. I probably made every retail investor mistake over the years but definitely learned a lot (mostly the hard way) and that knowledge/experience really came in handy when it was time to pick an investment manager many years later.
I can still remember reading this article in 2009 “Trading with the Big Boys” and it really struck home that it was time for me to turn my investments over to an expert after many years of mediocre returns. I interviewed multiple financial managers, investment managers and in general was pretty disappointed with the overall quality in the marketplace as I knew enough to know what I was looking for.
I ultimately found an investment advisor in San Francisco that checked off all the boxes (value investor, deep research, investment approach, long/short, conservative, fee structure aligned with performance, younger in age) and with the appropriate background, education and certifications. He has managed all my accounts since 2010 via a self-directed structure and recently changed to a Limited Partnership (Hedge Fund) in 2017 due to a better overall long-term structure for his investors.
Currently all my investments, defined benefits and charitable trust dollars are invested in the LP. My mother in-law and several friends are also investors as well due to my recommendation.
What has been your best investment?
#1 – Finding a special woman to spend my life with and partner to raise our family together with. I am very lucky to have a supportive wife that has been there every step of the way.
#2 – Spending the time to find a top-notch investment professional that I trust to manage my portfolio. I am a big believer that trust is earned one day at a time and having someone you trust working to grow your investments is a great feeling and takes a lot of weight off my shoulders.
What has been your worst investment?
I spent many years thinking my only path to becoming a millionaire was via investing in long shots (aka Penny Stocks) or gambling (poker/blackjack) neither of which in retrospect I was as good at as I thought I was at the time.
All in all, my worst investments have been “Angel Investments” as have a few that turned into 100% loses and have this article saved “Just Say NO To Angel Investing” if I ever get the urge again (I won’t).
What’s been your overall return?
Over the past 10 years my net compounded returns after all costs/fees/profit sharing has been 11.2% vs the S&P500 over that time of 8.2%. I self-managed the first two years of that but the last 8 have been with an excellent investment manager who has generated the returns above with a risk adjusted approach. Over that time frame, about 50% of the portfolio has been in cash and I think that many people overestimate how “safe” their investments are until there is a market correction and the easiest way to grow capital longer term is to not have major loses.
Most educated folks understand the power of compounding but when you consider that 10% a year for 8 years will mean your investments will double is a pretty powerful thing. I have been lucky to see that first hand over the past 10 years and it has more than made up for many of the poor decisions I made when I was self-managing the accounts.
How often do you monitor/review your portfolio?
I am a real creature of habit and have updated my net-worth every morning for about 25 years as well as review my portfolio multiple times each day as well.
NET WORTH
How did you accumulate your net worth?
I moved from Canada to the US (I am a dual citizen) in 1995 with a net-worth of negative 20,000 as had borrowed money from a home equity line of credit (co-signed by my parents) to invest in a penny stock that went bankrupt. I am pretty proud of the fact that 100% of our net-worth is self-earned with about 5M coming from saving and 3.42M coming from investment gains (all in the past 8 years).
What road bumps did you face along the way to becoming a millionaire and how did you handle them?
My biggest road bumps were self-induced as was always good at saving and living below my means but the “get rich quick” lure tripped me up many times. When the light bulb went off and I realized that following a slow and steady conservative approach would allow me to hit my goals that is when things started to grow more rapidly.
What are you currently doing to maintain/grow your net worth?
There is always uncertainty being an entrepreneur, but my plan is to continue doing what I am doing until I decide to retire.
Do you have a target net worth you are trying to attain?
It is interesting as my “target” has changed from 1M in my early 20’s (which often felt like it would be impossible to achieve), to 2M in my late 20’s to 5M in my late 30’s and now my magic number is 10M in Cash/Investments.
Many people will find this strange, but I didn’t feel like I was free of money worries until I crossed 8M and not sure why it was that specific threshold. I won’t lie though, it is a neat feeling to know that I could retire tomorrow if I wanted to.
How old were you when you made your first million and have you had any significant behavior shifts since then?
My goal from when I was young was to be a millionaire by 30 years old, and it took until I was 37.5 (which is why I am a fan of big goals/dreams) and from there it took 31 more months to hit 2M, 25 more months to hit 3M, 20 more months to hit 4M, 7 more months to hit 5M, 13 more months to hit 6M, 8 more months to hit 7M and more 15 months to hit 8M.
The first million is definitely the hardest!
We have been careful to try to avoid significant behavior shifts with the only one I can think of is buying new cars vs used. After a lifetime of only buying used cars, our last 3 vehicles have been brand new (paid in cash) but I can mentally justify it, as our plan is to own them for 10-12 years, so hopefully that helps reduce their overall cost.
What money mistakes have you made along the way that others can learn from?
The biggest mistake we not being more patient in both in my career and trying to grow wealth.
Slow and steady combined with compounding will work for anyone as the tortoise did beat the hare after all! 🙂
I was very fortunate to grow my income in such a way that I didn’t have to pay for all the mistakes that I made along the way.
If you had to give advice to ESI Money readers about how to become wealthy, what would it be?
I shared quite a few tips above in the career section above that are relevant to this question but would recommend folks read this article on how the top 1% cultivate their wealth as it’s filled with research and I am big believer in many of items it mentions.
Don’t forget to read every ESI Millionaire Interview as they are packed with great insights from folks that have achieved wealth in a lot of different ways. One of them will be a way that you can do it!
FUTURE
What are your plans for the future regarding lifestyle?
No specific plans other than early retirement (date still TBD), additional travel and potentially a beach house.
What are your retirement plans?
Your “If You’ve Won the Game, Stop Playing” article had a profound impact on the way I was thinking about retirement and can’t recommend it enough. I am competitive by nature and that article got me thinking that I have probably already “won the game” as I can retire today but on the other side I enjoy my job, it has a very good work/life balance, it’s lucrative, it’s fairly easy (since I have been doing it so long) and allows me to continue to grow my net worth.
My current plan to continue to work for the next few years potentially until the kids go to college although that is subject to change. I enjoy playing golf, traveling, family time, spending time on the beach so those would probably be my go-to’s in retirement.
Are there any issues in retirement that concern you? If so, how are you planning to address them?
Rising cost of healthcare is the biggest one.
MISCELLANEOUS
How did you learn about finances and at what age did it ‘click’? Was it from family, books, forced to learn as wealth grew, etc.?
I was interested in “earning my own money” from as early as I can remember and started working at 12 years old as a paperboy and babysitter and saved up almost everything I made.
My parents opened a sandwich shop when I was in my late teens and that had a strong influence on me wanting to be an entrepreneur and also got to see how hard you have to work when you own your own business first hand.
I was lucky in that business, investing and personal finance were always extremely interesting topics to me which enabled me to spend the time reading and learning which has really helped me a lot over the years.
Who inspired you to excel in life? Who are your heroes?
I was always very self-motivated and driven but my parents instilled a hard work ethic and the value of money from a young age which I am very appreciative off.
Do you give to charity? Why or why not? If you do, what percent of time/money do you give?
When I was younger I gave a lot of time to various charities such as Big Brothers and Junior Achievement but as I got older I realized that helping financially made more sense all the way around given less available free time. A good friend of mine many years ago said you should “Give till it hurts and you will never regret it and you will get way more back in return” and it really struck a chord (and is very true as well). We have been giving about 5% to charitable or good deed causes and last year started a charitable trust that currently has $103,000 in it.
For those that have some stock that has appreciated and give to charity yearly, I would highly recommend looking into setting up a charitable trust as it some real tax advantages (in the year you set it up) with a requirement to give away 5% a year. The neat thing is that I have the charitable trust dollars in the Limited Partnership investment vehicle mention above, and it is neat to see it growing each year even after my yearly charitable contributions.
Our plan staring this year is to have the kids research a charity every year and present it to my wife and I why they would like to support it and we will make a donation on their behalf out of the family charitable trust. We are hopeful this will help spark the desire to give back as they get older.
Do you plan to leave an inheritance for your heirs (how do you plan to distribute your wealth at your death)? What are your reasons behind this plan?
Currently we have a very simple will in which everything goes to each spouse and if something were to happen to both of us than it is 50/50 to each of the kids. Depending on how/if our net worth grows we may revisit our overall inheritance plans as important to us that the kids turn it self-sufficient adults with a “make it on their own” attitude and we wouldn’t want anything to impact that.
I have been hearing a lot about the advantages of a living trust so that is definitely on the to-do list as well.
The power of a high income where you actually save. You’ve done quite well. You do take the opposite approach that I do in many ways by checking everything every day. That would lead to too many changes if I were to do that. I intentionally accept the market return and ignore my portfolio for months at a time. This allows me to focus on my main gig being a husband, dad, and doctor.
That said, youve clearly done quite well for yourself. Really impressed.
TPP
Thanks for the kind words and to be honest I would NOT recommend other keeping track as close as I have as monthly is a good cadence and for others quarterly as seeing some of the negative daily swings can be painful and everyone knows that losses often feel a lot more painful than gains are positive 🙂
I am a creature of habit, work all day on computer in my day job, so monitoring things doesn’t take away from family time and keep track closely I believe helped in my goals and at times sure it helped reduce spending.
Given that all my investments are being handled by experts (there was a change since I sent this article in ~3 months ago as the very good investment/hedge fund manger I referenced above decided to shut down his fund) I am unable to make any changes based on daily information anyways and in some cases there are 60 days and 1 year lock in agreements. All in all its a good thing as protects me from myself 🙂
Great interview! Would be curious to know if the kids have any sense of your net worth?
This is something that my wife and I have struggled with to a certain degree and I would love to hear insights from folks on what they have done in this area.
We definitely don’t want to be one of those families that keep money and those conversations secretive as a great learning opportunity for the kids but at the same time we want to ensure the kids growing up hungry and want to make their own mark on the world and anything that could negatively influence that really scares me.
Given the age of our kids (12 and soon to be 11) we have told them our net-worth more recently and often show them my monthly checks from client but also use every chance we get to explain hard work, value of $, what the “norm” is especially when they want to buy something. I say….do you realize that someone making minimum wage would have to work X for this. I also started an “investment account” (just a spreadsheet) for the kids with a 1% return each month (mom/dad) paying and I am showing them the power of compounding and also what a purchase now is costing them in 20 years (even though 12% for 20 years is unrealistic) 🙂
All in all not sure they have real sense but parents overall dont always do a good job of teaching their kids about money and we dont want to make that mistake.
Funny side note, two years ago my son saw a check for $75,000 on my desk for a month of work at two clients (great month!) and told his friend my dad makes 75K a month in front of his friends dad. His dad said….sorry little guy that is 75K a year and my son thought he was wrong. Lets just say every $ talk now ends with us saying….this is only for our family to know and not to share 🙂
One of the reasons I partnered with ESI Money to write this article was to show my son/daughter when they get a little older.
Again….would love to hear some ideas on this as not a topic I have seen a lot written about.
This is a very interesting question and difficult topic for all successful people. I struggled with this for years. My kids would ask me all the time what I made and what we were worth and I would blow them off. When I was interviewed and appeared on a national finance TV show, it came out as my kids watched the interview. I felt relieved and it has since opened up excellent communication about money and teaching opportunities between me and my kids (ages 13, 14, and 17). My 17 year has since become very entrepreneurial and astute with money, earning her own keep while being a high school student and athlete. She tells me she’s modeling what she sees me do (proud dad moment). My top priority besides overseeing their educations is teaching them the finance skills that I didn’t learn until my mid 20s.
Thanks for chiming in and can imagine tough to blow them off after you were on TV 🙂 That must have been a great feeling to hear your daughter say that as well.
Definitely agree that teaching kids about credit, investing, compounding, spending are all extremely important and something that is not typically covered in any depth in K-12 + topics that sadly many parents are not in the position to teach due to lack of expertise.
One of the reasons I want to be open with the kids is why should money topics be “taboo” as if they were there would not be 73 Millionaire Articles (and more coming). Have open conversation helps with learning and the key is to be aware of who/how/when you share.
What is your philosophy to raise your kids? I don’t have any yet, but plan to soon. I have a professional degree, which has helped given me the means and base to be an entrepreneur much more easily. But I always think and wonder if I will even encourage my kids one day to pursue health care b/c of diminishing wages and increased regulations w/growing dissatisfaction of work.
So that leads me to wonder how I will guide them. When they are young, I think I will instill hard work ethics (e.g. school and studying) to build those qualities. And then as they get older introduce entrepreneurship and outside the box thinking and show that traditional linear thinking of education and job isn’t what leads to higher success.
What are your thoughts?
It is an interesting conversation Millionaire58 and I thought like you to a certain degree before I had kids but you quickly realize that having a healthy child is the most important thing you could hope during their early years. After awhile you start to realize that every kid is different and while I have tried to focus on things that I believe will help them be successful (hard working, competitive, learning, success/failure, being a good person) some of which they learn in school and some in other areas (one of the reasons I am a believer in the good things from competitive youth sport) it is something that you never totally know how much is sticking with them.
One advantage many of the kids have of the folks reading ESI Money’s blogs is they have parents with a strong understanding of finance or willingness to learn and that is one area that is not taught in K-12 so must come from parents/family/mentor.
I tell my kids all the time “They are lucky to have a great foundation and it is up to them to make the most of it”. Since they are soon to be 11 and 12 it will be interesting to see what the next 7-10 years bring for them.
What an amazing and awesome story! When I first saw $8 million (net-worth) I immediately thought business owner in a lucrative field from Day 1. Although you eventually became a business owner in a lucrative field, your journey didn’t begin there. It began far from it! Speaks to the power of investing/believing in yourself, and how far that alone can take a person.
I also love that you constantly mention your wife as one of your best “investments.” People have no idea what a supportive and loving spouse does for a person and their family. That value simply can’t be replicated.
Great interview and I wish you and your family continued success!
Thanks Sean and while I have worked very hard I am also extremely lucky to fallen into a niche field with very lucrative compensation which I have tried to maximize to the fullest but I can still remember when I graduated from college at 22 until 28 wondering how in the world I was going to ever get ahead and at time got discouraged but never gave up and when the opportunity came I was definitely ready. I always encourage folks to continue learning as you never know when opportunity is going to come.
On a side, I have always loved this picture as it is so true as success is a windy road for most of us.
http://www.businessinsider.com/what-success-looks-like-2012-4
Having a supporting spouse that was the CEO of the household earlier in my career definitely allowed for sacrifices to be made that got us to where we are today but to say it was easy and smooth sailing (even with a high income is an understatement). It is one of the reasons I so love ESI’s blog
https://esimoney.com/if-you-want-what-i-have-you-have-to-do-what-ive-done/
Great story! One question – why the heck are you still working full-time?
That is a question I ask myself from time to time and wont lie ESI Money “Your “If You’ve Won the Game, Stop Playing” article had a profound impact on the way I was thinking about retirement and can’t recommend it enough for folks that haven’t read
https://esimoney.com/youve-won-game-stop-playing/
Knowing I can retire today is a good enough feeling at this point as I enjoy my job, it has a very good work/life balance, it’s lucrative, want to be a good role model for my kids since they are still impressionable (12 and 11), it’s fairly easy (since I have been doing it so long) and allows me to continue to grow my net worth. I do think if I am fortunate enough to hit my goal of 10M I will shut it down though.
M73- you have a great story. It is wonderful how you were able to prepare for and to exploit a business opportunity that became the foundation for your business during all of these years. Well done.
Tracking your expenses is important so you can plan for retirement.
With $6M in assets you should be able to either index invest or self invest in a basket of dividend paying stocks- only if you are comfortable with this of course. How much are you paying your adviser each year? A 1% fee would be $60K per year, and that could be used for additional income in retirement. Of course having it in pre-tax investments means that you will face taxation as if it were income so you wouldn’t want to draw on this until you start working.
To put it in perspective, I’ve built a portfolio using after tax money of about $2.1M of fresh cash, 2.4M with reinvested dividends and that has a market value of about 2.6M and it is on track to send out $90K in dividend income this year. With your portfolio you should easily be able to retire and still have a good lifestyle and continue giving to charity. If you do go that way I’d recommend to take a few years to ease into it as you get more comfortable.
Thanks for sharing your story! It is very inspiring.
-Mike
Thanks Mike for the kind words and while I agree your approach is definitely a good strategy for a lot of folks and I will explain my logic on why I went in a different direction.
To answer your question I had an arrangement of 0% fees and 20% of profits with the investment adviser/hedge fund manger that I referenced above which definitely aligned our goals and he was very conservative as well so did not take excessive risk and was hedged (long/short) which doesn’t help returns when the market goes straight up 🙂
I found out shortly after the interview with ESI (in April) that the Investment Adviser that I speaking glowing about above had a great opportunity to manage a very large Family Office and was shutting down his fund. It came as surprise but at the same time it was a once in a lifetime opportunity and I was very happy for him.
So I spent the month of May researching 100’s of different options and briefly considered a basket of ETF but I am personally of the belief the market is due for a correction (have thought that way wrongly for two years though as well) :-). As I mentioned above investing and understanding everything I could on that industry has been a passion of mine since I was 15 so consider myself have above average knowledge. I believe that finding the top 5% will outperform the overall market over time so I had multiple interviews with various hedge funds and financial advisors and asked them 40-50 questions and out of that came up with 3 I was extremely comfortable with, that said, there are SO many weak/poor advisor/funds out there so due diligence is the key.
I also realized that I needed to diversify my risk so I did the following
30% Cash/Bonds (Muni bonds with short duration)
20% Hedge Fund 1 (Long/Short)
20% Hedge Fund 2 (Long/Short/Quant)
15% Hedge Fund 3 (Long only….Buffett like approach)
15% Stocks (Took the top 6 ideas from my current hedge fund and will sell over next 2 years)
I know that 95% (I think that is the number) dont beat the index over a long duration but I believe with a strong conviction (perhaps naively) that I can identify the ones that will do that. Time will be the ultimate judge 🙂
I should have included that I am self managing the 30% and 15% (with guidance from my old investment advisor) so there are no fees there and the hedge fund vary between 0 and 1.5 fees and 20% performance of the overall profits. All three have a hurdles which mean they have to make $ to make the performance and that carries over years.
If anyone is curious the 3 Hedge funds are Kerrisdale Capital, Aristides Capital and JDP Capital.
Thanks for sharing that. I’m sure you will do just fine. You have a large enough sum to start with so have a lot of margin of safety. Just make sure they are working for you and stick with your strategy for many years.
The worst time to change strategy is when there is a big downturn. As long as you have free cash flow continuously coming in then you should be able to weather all sorts of storms. Rental income and some additional REIT income helps keeps income continuously flowing in. Eventually it becomes automatic enough that you can learn to trust it as a retirement stream.
Best wishes,
Mike
Thanks Mike and would like to consider myself a sophisticated enough investor to stay the course and actually invest more during a downturn although wont lie when the numbers get bigger it is not as easy as it seems.
If they are outperforming the market, are they realizing gains from trades? I’ve found it’s better just to buy and hold, never sell. Otherwise you lose half your profits to taxes, which would result in performance well under benchmarks.
Thanks Joe for chiming in and my long term goal is to bet the overall market after all fees and tax implications. Definitely understand the impact of short term trading and taxes but since the market has been on an extended bull run there is also some risk of being long only and no guarantee the stock market is going to return at an historical rate in the future.
Great interview and very inspiring. I am a big believer in teaching my kids about being smart with their money and career choices, so I will be forwarding your interview for them to read. You mentioned an investment advisor you use in San Francisco. Do you mind sharing who this person is, as I am from the area and would love to explore this option.
Thanks BVT for the kind words and I found out shortly after the interview with ESI (in April) that the Investment Adviser that I speak glowing about above had a great opportunity to manage a very large multi billion dollar family office and was shutting down his fund. It came as surprise but at the same time it was a once in a lifetime opportunity and I was very happy for him.
As far as your kids I think that is so smart and plan to do the same when mine get a little older. I read hundreds of books on entrepreneurs/CEO/business when I was in my early mid 20’s and think they really shaped me as well as books like Millionaire Next Door.
I told ESI that I thought this blog series was a 21th century version of that book 🙂
This is something that my wife and I have struggled with to a certain degree and I would love to hear insights from folks on what they have done in this area.
We definitely don’t want to be one of those families that keep money and those conversations secretive as a great learning opportunity for the kids but at the same time we want to ensure the kids growing up hungry and want to make their own mark on the world and anything that could negatively influence that really scares me.
Given the age of our kids (12 and soon to be 11) we have told them our net-worth more recently and often show them my monthly checks from client but also use every chance we get to explain hard work, value of $, what the “norm” is especially when they want to buy something. I say….do you realize that someone making minimum wage would have to work X for this. I also started an “investment account” (just a spreadsheet) for the kids with a 1% return each month (mom/dad) paying and I am showing them the power of compounding and also what a purchase now is costing them in 20 years (even though 12% for 20 years is unrealistic) 🙂
All in all not sure they have real sense but parents overall dont always do a good job of teaching their kids about money and we dont want to make that mistake.
Funny side note, two years ago my son saw a check for $75,000 on my desk for a month of work at two clients (great month!) and told his friend my dad makes 75K a month in front of his friends dad. His dad said….sorry little guy that is 75K a year and my son thought he was wrong. Lets just say every $ talk now ends with us saying….this is only for our family to know and not to share 🙂
One of the reasons I partnered with ESI Money to write this article was to show my son/daughter when they get a little older.
Again….would love to hear some ideas on this as not a topic I have seen a lot written about.
Hi, congratulations on the life and lifestyle you have built. Wow what a career change, well done! My career was in high-tech with an electrical engineering degree, how you’ve succeeded in making a transition like that is amazing – I’ve never met someone successful in high tech who didn’t have a high tech pedigree.
I deal with many of the same issues you do and so have some questions.
You didn’t mention any numbers related to taxes, which I think would be a big concern for you, as that’s probably your largest expense? You are invested with a hedge fund, do they trade actively and hence eat up a lot of returns with tax liability (that huge cash position implies market timing techniques)? Is your business structured to take advantage of the large business tax cuts starting this year? You mentioned health insurance as a large expense and concern for you – are you buying it through your business and receiving a huge deduction for it?
Why have you decided to put all your investments with one hedge fund? What makes you comfortable with that risk (other than recent performance in an up cycle)? A lot of blow-ups during the last two decades come to mind. Hopefully, they at least keep your assets on an independent brokerage platform which you can yourself view at any time.
Have you considered hiring employees to do your job similar to how you were hired as a consultant initially? You could potentially increase your income while doing even less of the grunt work yourself.
What influenced your decision on starting a charitable trust vs DAF? I use DAF, but I was under the impression that charitable trust incurs a lot of fees and more suitable for donating millions?
Put together a living trust. The will won’t avoid probate, you probably don’t want your family to go through that.
As for informing the kids, my 5 year old has no idea how much we have, she just knows we have enough. I don’t really plan on telling her, it’s not that important. I think having security is what’s important. However, I am educating her to manage money one day – she already understands saving, delayed gratification, where the future jobs will be, relative costs of things, and how certain choices affect financial outcome.
Thanks Joe for the kind words and you might find it surprising that I had taken one computer course in college (and dropped it 6 weeks in) so you never know where life is going to take you. At the time the grocery biz was my future and computers were a fad 🙂
In all seriousness I think my lack of IT background and strong business background has definitely helped in my consulting career as have compassion towards the difficulty of learning and implementing a new IT Enterprise Software solution as I learned from scratch.
As far as your questions here you go:
Taxes
1. Definitely important and the defined benefit plan was a huge tax saving vehicle + it has allowed me to play some “catch up” on that side of things. The great thing about it is I can contribute ~225 to 250K a year (fees total 2,500 for 3rd party admin etc) and at one point can easily transfer to an IRA.
2. As far as the hedge funds I have tried to align with ones that do not actively trade as you are correct on the potential short term gains tax implications.
3. The 2018 tax changes could not have worked out better for us personally we are set up as a pass through business and were paying AMT. That said, the quarterly tax payments are still a very big number that is painful to send 🙂
4. Health care expense is through business and we currently have a high deductible HSA plan that we pay ~$1,100 a month and the almost everything is out of pocket and the limts are 10K per person and 20K per family. The scary part is has been going up 30-40% a year for last 3-4 years.
Investments
1. I started with my investment advisor (that has recently closed shop) with $1M (all I had at the time) and over time continued to gain more trust + saw the investment approach (was a managed account until last year so I saw every trade) + I saw his conservative approach and deep research. As I got new $ to invest it was a no brainer to stay with him + over time there were strong returns. That said, since I recently had to consider new options realized that it was smart to diversify and as mentioned above moving forward I am in 3 hedge funds, have some individual stock (6 companies) and muni bonds and cash so definitely have removed the all the eggs in one basket. With that I may give up some potential returns but also a reduced risk profile.
2. An interesting side note is I self managed in 2007 and 2008 and actually made money (6%) and one of reasons that I am 30% in bonds and 40% in two hedge funds that are long/short and have net exposure to the market (difference between long and short of about 15-30%). Personally it would not surprise me to see a major correction in the next 2 years (although I also thought that 2 years ago as well which is why I stick with my day job 🙂
Hiring Employees
1. Have giving passing thought from time to time on hiring employees but I am at a stage in my career where customers are looking for me personally and would take a lot of time and effort and travel to build a consulting company (plus risk) and not something I am entertaining though a very prevalent business model in the consulting world but not as easy as it seems.
Charitable Trust
1. Not familiar with a DAF (what is that) and the charitable trust was recommended by my accountant. There are only minor accounting fees on the trust ($600 per year).
Living Trust
1. Thanks for the recommendation on living trust. Curious on if you set up yourself or got a 3rd Party and if so how much did it cost. Is it a painful exercise? Are there any lessons learned I should be aware off? Would love to get ideas from anyone out there on this. ESI….maybe an idea for a future blog if you could find a volunteer.
Kids
1. It is interesting that the approach with the kids seems quite different but ultimate the goals seem to be the same ….saving, delayed gratification, value of $ and many other things
Thanks for the great comment and questions and what I love is we are all learning from each other.
Hi, thanks for the thoughtful reply. Haha, dropping computer class 6 weeks in just adds to your story. And I can totally understand that empathy and people skills added to your business. Technology is often dominated by some fairly arrogant folks who maybe are not the most pleasant people to work with. And you learning everything from the bottom up without a formal background probably gave you a lot of insight in how to teach others on the outside.
As far as taxes on realizing gains, I was referring to both long-term and short-term gains. I think TX doesn’t have income tax, so that’s very helpful. CA does not distinguish between LT and ST, all gains are taxed the same. The max state tax rate is over 13%, which makes the over all tax rate close to 38% even for LT gains. That’s why I find it very painful to realize gains and don’t use active managers anymore.
I hear you on the health insurance concerns. As an early retiree, I purchase insurance through ACA with no subsidies. My family’s premiums have also been increasing by 30-40+% per year with no end in sight. I wouldn’t be surprised by a 100% jump next year. Trump is trying to kill ACA, but oddly did not kill the Obamacare taxes on investment income, a double whammy.
On investments, your interview mentioned a 50% cash position in the hedge fund which I found surprising. I had assumed they built up the cash position by realizing gains and incurring taxes. My thoughts have evolved on this issue, it makes more sense for me to just pass on highly appreciated assets to charities or heirs. Heirs would get the automatic step up in basis and avoid the capital gains taxes.
Glad to hear you are diversifying, I’d be pretty nervous having all my eggs in one basket like that. When you’ve won the game, why keep playing right? The only thing about switching advisors is, again, having to realize gains if their strategies are different.
DAF is a donor advised fund which you can donate highly appreciated assets to and realize immediate tax deduction while allowing you to specify the charities at a later time. I think ESI has an article about it. I knew about it, but an article by Physician on FIRE convinced me to use it. No fees associated with it unlike the charitable trust, other than the asset management fees for the DAF holdings which you probably also have for the charitable trust.
I used a lawyer to set up the living trust. Lawyer fees vary a lot, anywhere from several hundred to several thousand dollars, also depends on the complexity. It’s not painful, most of it is boilerplate. The parts requiring more work are the good parts. You specify a Trustee (yourself when you are alive) to control the assets, so it bypasses the courts, and specify how the Trustee is to disburse assets. It gives you a lot of control and avoids probate. Everyone is in a different situation so everyone will learn something different. In my case, my wife was not a US citizen at the time, so going through the process of writing up the trust was very educational. It can be setup to minimize estate taxes, protect your individual estate tax exemption (you’d lose it otherwise if the assets just pass to your wife), setup the process for passing the estate to a non-citizen spouse, etc.
Well, I think we just turned a few comments into a full-blown blog post… best of luck to you in your endeavors, and have a great retirement when you decide to go that route.
I don’t think I’ve done a post yet on a DAF, but I do have one and have mentioned it.
And now that I think of it, I do need to write a post on it…
Thanks Joe and I love how some of these comment discussions are filled with additional insights and learnings for everyone (including me)
Spot on regarding the empathy and people skills regarding my IT career and right place at the right time played a big role as well. Side story…..I had to take some intensive 5 week training in which the pass rate was under 50% for people that had 1-2 years experience (and I had none). I remember the first two week being so lost and calling my dad and he said “Son….everyone has to eat” which was some tough love if I didn’t figure it out than my low paying grocery career would be waiting for me. I studied every waking hour (when I wasn’t in the training class) for the remaining 3 weeks and ended up walking out of the test in 45 mins (it was 3 hours) and got 100%. Gave me a sense that carried with me that anything was possible if I set my mind to it.
Bit lucky being in Texas when it comes to taxes but your point is valid on advisors that actively trade as something that can definitely eat into the overall returns. I posted below on the 25 question that I asked each new hedge fund manager during the interview process + several more based on their responses. That said, the black box nature of the LP Hedge Funds + the initial minimum investment (between 250K to 1M for most) make it something I would only recommend for a more sophisticated investor. Many will say….if you are sophisticated why no invest yourself but realized after many years of self managing that my gambling/risk taking/never give you gene that serves me well at times in business did not translate to investing 🙂
I sure hope your 100% prediction on healthcare costs is not accurate. Health insurance is something that is mandatory if you have a high networth to protected it.
Interesting on the DAF as I was able to do the exact same thing on the charitable trust as I funded it with appreciated stock. Are there any IRS reporting requirements for a DAF? Great to see you giving back as kudos!
Thanks for the insights on the living trust and that is on the to-do list for sure.
Best of luck as well!
This is an excellent interview, and congratulations on your good fortune (literally!) Your involvement in a niche field was obviously a great foundation for your current status and is certainly testimony for entrepreneurs reading this blog.
Having the ability to do certain things that few others can do, as well as the ability to monetize them, is an outstanding goal. Congratulations!
Thanks for the kind words MI45 and definitely have had some good fortune/luck and think the key for many is that when that luck break happens can they see it and have the skills/background to take advantage of it.
Being in a niche high paying field definitely help in increase lifetime earnings.
It’s proof that as your income increased you didn’t allow lifestyle inflation to creep up as you mentioned. It looks like you are able to enjoy life to the fullest and continue to build your nest egg, kudos! Your story is especially inspiring to people who would like to cut their travel and work in an environment that allows a better work-life balance. You can have both! 🙂
Thanks for chiming in Simple Money Man and the kind words.
Lifestyle inflation can be a killer and one of the reason I think Millionaire Next Door had such an impression on me as showed how many Millionaire did not fall victim to “Keeping up with Jones”. My guess is not one person we know has any idea that we are even Millionaires which makes it a lot easier as well and I am sure there are few that think I am unemployed as I am walking around in shorts and a t-shirt unshaven a lot of time (joys of working from home office) 🙂
In all seriousness, my work life balance was not always there as I traveled for almost 15 years being away from home for 200 nights a year but it was a necessary sacrifice (in my line of work) to get to a place where I could be more selective in my customers that were flexible to allow me to work a majority of my time remotely.
I am impressed that you are still working full-time. I had a boss that retired at 47, when he hit $4 million in net worth. I think you are concerned about what kind of lessons you would be teaching your children if you retired early. At the time, my boss had daughters in middle school but he used the ‘time off’ to guide them well through college, grad school and into careers. I am curious what line of IT pays so well? I am 49 and I have been through three career changes, so I am not making any moves here but interested in what to tell my boys on what fields/careers they should consider investigating.
Thanks Bhavani and appreciate your perspective on your boss as that totally makes sense. I think the fact that I am working 95% from home gives me the flexibility to see the kids in the morning, when they get off the bus, to take them to their sports practices and be there to guide them all while have a lucrative career so it is not an either/or decision for me at this time.
I am working in Enterprise Software (SAP) but even my niche areas is not “hot” anymore but still lucrative due to my experience (20 years). Hard to chase the hot IT career (ie Cloud, Security) as you never know how long they will last but better to be a life long learner and hopefully when opportunity comes you will be ready to pounce.
What are you doing in SAP that you can bill out on average 740K per year for yourself? Thats some hourly rate!
Hey SAPGuy
Typically it has been 3000-3500 hours at a billable rate of $200-$250 but lots of moving parts.
As you know being in the industry a Big SI Partner or SAP Platinum consultant can charge clients $300-$400 an hour so clients actually save money 🙂
Obviously certain industries are overpaid (IT being one of them) but since I am an economics major have a good sense of supply and demand (especially in niche area) + the area I specialize in gives me unique insight into what millions of folks are paid which helps as well 🙂
Good luck with things
I agree that reading ” If you won the game stop playing”. After I read that article, I decided to retire at the end of 2017. It was time to stop playing and time to start enjoying life.
I am not sure ESI Money realizes that impact that article had on people and really got me to look at things in a different way. Being competitive at heart the title was great was well 🙂
This interview was fantastic and very timely. I have an opportunity I’m exploring to create a consulting practice. I have done very well making it to the c-suite by 30 with a household income of almost $500K at 31.
However, this opportunity sounds intriguing, and I think I could quickly create a multi-million Dillard practice in a short period of time.
This has inspired me to take an even closer look.
Dom
^dillard should be dollar (obviously).
Stupid iPhone typing!
Thanks Dom for the kind words and beyond impressive to have that type of income at your age. Congratulations and I for one would love to hear more about your path out of college to get there so quickly.
Starting your own consulting company can be lucrative especially if you have a niche area you are well know in but it is very competitive, you have to constantly be winning new work, depending on the size and number of consultants there is risk (especially if they are not billable) and there are all the normal challenges of running a business. I managed a grocery store when I was 24 that had 100 employees and it was challenging (not only because I was 24 and didnt know how to manage people) 🙂 but realized it was a lot easier to manage myself only and one of the reasons I chose to remain a small 1 person consulting firm.
If you can leave your job and try to build a consulting firm and if it doesn’t work out in 2-3 years still go back to a high paying job at your age it seems like a no-brainer.
Hey M73,
I’m glad I subscribed to the comments. As I mentioned in my initial comments almost 18 months ago now. This was a very inspiring interview and one that resonated with me very much.
Great update! A $2M gain in 18-months is fantastic!!!
I did end up starting that consulting business about eight months after I read this post. I spent the next 6-8 months doing my due diligence. I had contemplated doing it under my employer at the time and had convinced the CEO and our private equity (PE) investors to back me financially after I pitched the idea to them.
However, I ultimately decided that I didn’t want to give up 80%+ of the upside and be told how to grow my business. To me, PE makes a lot more sense when you have an established business and you want to create a liquidity event. I started as a sole proprietor and filed for a DBA in February of 2019. I didn’t actually begin any billable work until March 25th of 2019.
I initially dipped my toes in the water and pursued this business as a side hustle to be sure it was the right direction for me. After completing a few engagements and realizing how much business there was, I decided I was committed to doing this full time and gave notice in June 2019. I gave six months’ notice as I built the business.
We are on track to do between $500K and $600K in revenue for the partial year we have been in business this year and I’m already projecting $1M for 2020. I do have one business partner who I gave 25% equity too as I knew I would need him to be successful. We have since created an S-Corp to formalize our ownership and create a more tax-efficient entity.
My six months noticed was effectively a quazi-severance payout as I continue to get full-time pay while working minimally in the business. And actually, my last day of fulltime pay has now been extended until February of 2020, and in March I will convert to a consultant/advisor with an annual fee of $70,000/year for up to eight hours a week.
My former employer has actually become the client of my new consulting business and their software agreement is now my relationship to manage (with ongoing residuals).
My business has both the consulting side to implement the specialty finance and accounting software, but I’m also a reseller of the software I implement that comes with very generous upfront commissions in year 1 of the software agreement and residuals for every year that client remains a client (I’ve already created about $60K/year in software residuals).
My business partner and I are fully billable and we just made a full-time hire in September. I also have two part-time folks that moonlight with me. All are people I have worked and trained over the years at previous employers.
We should personally earn about $720,000 in income. The business will have contributed about $220,000 of that gross amount above. I’m confident we will earn seven-figures in 2020.
Anyways, I just thought I would provide an update, since it was your interview that really inspired me.
If you’re open to it, I would love to connect outside of the comments. If so, shoot me an email at [email protected]
Congratulations and very impressive start to going off on your own. Great to see!
I thought I would drop by and provide an update since it has been almost 2 years since my last comment. I ended up selling 60% of the business to a $350M consulting firm at a valuation of $6,750,000 which was a 5X multiple on TTM profits at the time of the sale. I and my partners still retain 40% ownership and the acquiring company is contractually obligated to buy the remaining 40% on the 5 year anniversary at a pre-defined formula.
I built the business with the intention of selling it and from start to sale it took 32 months to achieve that goal. In order to accelerate the process I gave 40% of the company to my partners (force multipliers) prior to the transaction.
I was personally able to extract $2.7M from the sale and when you include the salary and profit distributions over the 32 month period I extracted $4,540,225 in total. I still personally own 20% for that next bite of the happy on the 5 year anniversary. I’m still running the business and have negotiated a very nice compensation package on top of the 20% profit share I get based on my retained ownership.
I’m sharing this because your post was a huge inspiration for me to take the leap to do this in a big way.
Cheers,
Dom
Congratulations Dom!! What an incredible success in such a short period of time. Really appreciate your sharing as it made my day and thanks for the kind words as you very often don’t get to hear when you positively impact people and have been fortunate to be on the receiving end over the years to get where I am today.
I still remember being at a conference 13 years ago and hearing a story about Muhammad Ali on his 70th birthday saying “ Service to others is the rent you pay for your room on earth.” It moved me as very powerful if you think about it and started to prioritize giving back more professionally and personally. Those words were foundational to me doing more and hope my doing more motivates others to do so.
After that, I dedicated about 12-16 hours a month to giving free help to customers, colleagues, complete strangers, software executives, and Wall Street analysts which built up an incredible amount of goodwill and made me feel good “paying it forward”.
Will be looking forward to reading your future Millionaire interview so you can pay it forward 🙂
On and aside you might want to check out https://millionairemoneymentors.com/ as something tells me you would enjoy it and get a lot out of it.
I’m a married engineer/nurse making an estimated combine gross of 130k annually. We have one child that is almost ten months and getting wilder and more fun everyday! I plan on talking to a financial specialist very soon about a 529 account. We save an average of 11% of our net income plus 10% each of our gross to 401k plans. Besides 401k the only investment I have is a Betterment account which I’m up about 100 bucks right now. The only debt we have is 20k in student loans and a mortgage at 213k @ 3.25%. I plan on having student debt paid off by end of the year since my new job got rid of my truck, insurance, and gas payment. My real question is whether or not I should invest in a financial advisor. That doesn’t seem like a popular option based on the posts that I have read on this site. I don’t know alot about investing and only chose a Betterment account because it seemed an easy way to get started. However, I am confident that I can learn it if I ever have the time to invest in it. Right now my PE license is first priority, but I don’t mind paying someone who is honesty trying to make my investments grow.
There is no problem IMO hiring an advisor if you can find a competent, honest one who doesn’t try to sock you with a ton of fees — and that is the rub: how do you find one like that?
Your best bet is to get a personal reference from someone you know and trust who is doing well financially and has used the advisor they are recommending.
The next best option is to look for reviews online, pick out a handful, and interview them about how they work, what they charge, etc. You will need some basic knowledge to successfully do this though — or you could bring along a friend who does.
Thanks NeedHelp for chiming and the challenge will be finding a GOOD financial advisor if you do not have the background or knowledge to interview and ask the right questions. I would highly recommend spending a few hours each week over the next year to research how to pick a financial adviser before you start the process as it can be one of the most important decisions you can make.
In my experience about 50% are extremely bad and will push you into high fee products (annuities, mutual funds etc) and about 35-40% are varying spectrums of average and your goal is to find the top 10%. Hint, fancy offices, slick talk and return promises are some of the tell tale signs of the 50% to avoid. I interviewed 50 people before I found the investment advisor above and at the time had 20+ years of self investing and knowledge but the process was a real eye opener.
On a side note, here are the questions I asked during my hedge fund interviews but may are relevant for a financial advisor as well (with a key one being…..how do you make $ so you understand if your interests are truly aligned)
Questions
1. What is your repeatable edge in any market conditions
2. How do you source your short ideas
3. Overall view of Market
4. Decision Making Process Internally
5. Average Investor Size
6. Investment Minimums
7. Long/Short/Gross Exposure
8. Level 1/Level 2/Level 3 assets (and priced)
9. US Based vs Global
10. Report of Net % long/short over past 3 years
11. Return vs S&P (Long % vs Short % impact)
12. Fund of Fund Investment %
13. What are your Performance Fees and any hurdle
14. Size and plan to close fund to new investment
15. Performance Information
16. Position Size strategy
17. Tax Deferred Accounts option?
18. Size of Firm/Turnover/Analysts
19. Do you have Dual Cash Controls
20. Lock Up Info – Redemption terms
21. Monthly performance info shared
22. Activist investing approach (if any)
23. What is your largest draw-down
24. Insights on trading and taxes
25. Please provide DDQ (Due Diligence)
If you need someone to take over your business with no consulting experience whatsoever, I’m your man! Very impressive article BTW.
Thanks DG for the kind words and will keep that in mind 🙂 That is one interesting thing about my business given the nature of consulting there is no value in it once I retire (unlike most small businesses).
Your interview and comments have been insightful and so eye opening for me. I’ve re-read it a few times now. I also work in healthcare IT – I’ve been in implementation at a large EMR company in WI for 6 years. I also never took a computer science class in college ☺️ But worked my tail off since starting and haven’t looked back!
I’m so grateful for my experience at my company thus far, and reading your story has made me think that I’m capable of achieving even more. I’d love the opportunity to learn more about your business, how you offer so much value, and working for yourself. Would you be willing to exchange emails or chat? I’ll also be in Dallas next week visiting a client if our stars align and that’s where you’re located?
Congratulations again on building such a successful career and balancing it so well with your family!
Thanks Molly for the kind words and neat to see you got an opportunity in IT without a computer background as that is definitely not the norm.
Sure on exchanging emails and if you provide yours below I will ping you.
Exciting Interview! Have read it three times already. Congratulations on your success!
The $75K check story made me chuckle, would love to seek your opinion on Technology Sales Career versus Business/Domain versus Project management career graph if you’d be open?
Thanks FeistyFire for the kind words as much appreciated.
It is interesting as in my current role I am doing all 3 to various degrees with business domain being the larger portion. My sense that if you are coming from sales background than Tech Sales can be the most lucrative but very stressful (have to make the Q numbers) followed by business/domain consulting (but most always be learning) followed by project management (different type of stress as managing people).
I have done all 3 but realized I am more wired to do #2 and think there are high barriers to entry if you have specialized skills in a special IT area than project management as well.
Hope this helps and let me know if you have any additional questions.
That salary is amazing. I’m in IT myself, but I’m just over 100K annually. Can you share more about what field or niche has that type of salary potential and what it would take to break into it? I’m in my early 30s and have been contemplating a job change.
Thanks ThinkingAhead and it’s in Enterprise Software Consulting with a specialization in a niche area and I am well known as one of the foremost experts with 20+ years experience (the offering was released a little over ~20 years ago as well). Lets just say I got lucky as when I started I was hoping this area of consulting would be hot for a few years 🙂
But let me provide a little more context. The average salary range for a FT employee with a 5+ years of experience is 110-140K + bonus , for a Senior consultant 120-160K + bonus. The consulting firms bill out consulting resources at the $200 to $275 per hour and being on my own and being well known in industry (put a lot of time speaking, social media, articles etc pay off) allow me to bill directly to clients at the low end of the range above (since my name is still not Accenture or Deloitte) 🙂 Having done this for so long I am able to work on multiple billable clients at the same time hence the income mentioned above. That said, if I dont find a billable client my income is zero (actually negative due to small biz expenses) so have to be the jack of all trades at times.
On a side, the technology area I am working in, started a huge technology shift about 5 years to the cloud so I had to relearn and start again as a newbie (first project worked as shadow/learning consultant for free) which is why a stress the importance of being a lifetime learner.
There is a always a risk in any career of chasing what seems to be the “hot” career as by time you get some experience often it is not as “hot” anymore. I would recommend if you are doing something you like try to continue to become an expert and look for ways to make a name for yourself in that respective area.
Hope this helps and look forward to any follow up questions.
I actually started off with Accenture out of college and went from 48K per year to 95K before leaving. I loved what I was doing but they promoted me to management which wasn’t what I wanted, plus were starting to cut some benefits. I’m doing well at my current position and it’s extremely stable, but there isn’t much growth and learning for the future. I feel like I’m stagnating, so exploring other opportunities.
I am a fan of folks joining a big consulting firm out of college if they have an opportunity as a great way to learn but at one point you have to decide if you want to do the Manager, Senior Manager, Partner route as that is ultimately the only way to make larger $ although you to be able to manage people and sell business in order to make it in the high ranks.
Good luck and always good to be exploring options/opportunities and would highly recommend ensuring your Linked In profile is up to date as that is commonly looked at for IT roles.
This is excellent by ESI Money and thought I would share as don’t believe on the website (if so I missed it)
https://amp-businessinsider-com.cdn.ampproject.org/c/s/amp.businessinsider.com/challenges-downsides-early-retirement-advice-2018-6
Really enjoyed this interview and was impressed with your courage in taking the big leap by starting your own consultancy.
I’ve been looking for an intelligent and savvy financial advisor to set up a charitable trust but haven’t found one I like yet. Any recommendations or lessons learned on this process?
Thanks Lucas and the charitable trust/foundation was an idea recommended by my accountant and they helped me set it up (very inexpensive) and from there I used my own financial adviser (hedge fund) to manage the $ but as I mentioned above that situation has changed so currently the account is made up of a 5 stocks and cash. Sorry I can’t be of more help but hopefully someone else reading this can chime in.
Thanks for the following comment: “My goal from when I was young was to be a millionaire by 30 years old, and it took until I was 37.5 (which is why I am a fan of big goals/dreams) and from there it took 31 more months to hit 2M, 25 more months to hit 3M, 20 more months to hit 4M, 7 more months to hit 5M, 13 more months to hit 6M, 8 more months to hit 7M and more 15 months to hit 8M.”
I’m at just 38 years old and at 1.3 liquid. I’ve wondered roughly how long it takes to get to 2 and so on. My goal is 5 mill at 50 to retire if I want. Guess I’ll aim for more 🙂
Thanks for the comment Millionaire58 and think ESI Money hit the nail on the head with this article (and some great comments)
https://esimoney.com/the-first-million-is-the-hardest/
In my case the combination of continuing to save + consistent investment gains (easier in a 8-9 year straight up bull market) were like Jet fuel to my Net Worth.
Will say, that something I have not totally come to grips with is the daily or monthly ups and downs. Who am I kidding….the ups are easy 🙂 but the downs of 1-2% on a larger portfolio have become very big numbers and for some reach I equate that with what I could have bought with it (i.e a car/vacation) yet do not do the same with the gains. Crazy I know 🙂
Since there was a lot of discussion about kids and $ thought I would share this article which I thought was very well done
10 Money Revelations From Being a Parent
http://awealthofcommonsense.com/2018/07/10-money-revelations-from-being-a-parent/
I love your idea of reading 2 hours a day first thing in the morning. I end up doing that, but it’s crammed into many parts of the day. Would love to be able to just focus for 2 hours first thing and be able to think, take notes, etc.
Curious what type of IT you do. No need to give the exact details but I get the impression that it is a niche area that you’ve developed expertise in. Curious if you have any further advice on how to find that niche and what potential areas are going forward.
Thanks for the comment BigLaw and think reading and self learning is like exercise….doesn’t matter when and how you put it the time just that you do it 🙂
Do large scale enterprise software consulting for mostly Fortune 500 companies so long story short, it is the software that runs the back office and I specially in HR/Payroll.
The areas that are “hot” right now in my space are anything to do with cloud computing but since I figured my area of expertise would be “hot” for 1 year after I started (and that was 20 years ago) not sure my “psychic career” would be that lucrative 🙂
I like the part where you say the best investment was your wife – can’t get better than that. Texas I just wrote about that state as the best place to retire.
Thanks for the kind words and would love to read your article if you have a link
Hi – When you bought your house in cash in 2006, was it the peak of the market? Why did you decide to go all cash? How much did you have in the hedge fund/investor at that time? How much in cash? Are you still 50% cash? Thank you!
The market in Texas never got “frothy” like FL/CA and other areas so there was very impact with the correction in 2008 (nor rapid appreciation gains) and the house I paid 330K for is probably worth $420K but we have put on a custom patio (25K) and totally redid our bathroom (22K) but we plan to live here for many years and don’t see it as an investment.
Purchasing in all cash was partially due to owning the house we had before (sold for $250K) and the great feeling of not having a mortgage payment which was always on my checklist as wanted to be debt free.
When I bought the house in 2006 I had 692K total networth and the house was 330K of it and had a year of living expenses and was investing the rest with not very good results as was still in a “get rich quick…taking huge and not very smart investment risk as had most my $ in a smaller gold miner (that ended up going bankrupt) and a small biotech (that I got out for zero gain after a 10 year investment that also went bankrupt). The light bulb went off to have experts manage my accounts in 2009.
Currently I have 4% in assets (house/cars), 25% cash (CD’s/Max Interest), 17% (2 different hedge funds that are long only), Self Manage 8% (Long only right now) and 46% in two hedge funds that are Long/Short with a net long exposure of 20%-30%. Since I feel the market is close to the top and would not surprise me if there was a recession in the next 1-3 years it is slight more total long (25% + 12% to 15%) than I would like but not that far away either and could easily raise case 8% if I sell what I self manage.
Let me know if you have any more questions.
Thanks – this is helpful. It seems most people paying cash for a home are not necessarily taking money out of the market to do so. It seems they have proceeds from a previous sale and then taking cash holdings to make up the difference. I really appreciate that you took the time to reply. Thank you so much. I don’t have the stomach to do anything with my investments beyond low-cost indexing.
Thought I would give a quick update as doing the “numbers” this morning.
What is your current net worth?
Our current net worth is $10.43 Million.
What are the main assets that make up your net worth (stocks, real estate, business, home, retirement accounts, etc.) and any debt that offsets part of these?
We are currently debt free and our net worth is made up of the following:
House – $330,000 (Paid for in cash in 2006)
Three Cars – $90,000 (Each vehicle purchased new and paid for in cash) (Bluebook Value)
Cash/CD’s– $3,070,000 (Huge increase from before as think market is going to correct)
Taxable Investments – $4,565,000 (now in 4 different hedge funds)
IRA/401K Investments – $1,011,000
Defined Benefit Account – $1,337,000 (Great vehicle for small business owners to save a lot tax deferred)
Health Savings Account $31,000
We do not count the following in our Net Worth:
Charitable Trust – $101,000
529 Plans – $18,500
Most of the above as been fueled by a very strong stock market although have continued to save at a healthy % as well.
Feel very fortunate and weird to be in the stealth wealth category as since I work from home mostly and always unshaven and wearing shorts sure many of my neighbors think I am unemployed 🙂
Awesome! Thanks for the update!
Congratulations! As of this writing, I believe your net worth should be 11M+ thanks to the strong market.
After hitting your original goal (10M), what will be your next goal? Another higher number? Do you start to make some adjustments to your retirement plan? Would love to hear your thoughts on post-goal changes.
Thanks for the question and its current 10.8M and was a great 2019 NW wise (and all the way around). I still remember when 1M seems like it was going to be near impossible (the first 1M is DEFINITELY the hardest) and 12 years later closing in on 11M almost feels like a dream.
Don’t really have another milestone number, still working as have a great work/life balance as only working with customers that allow me to work from home (so under 10 days of business travel a year) and very fortunate to be be a lucrative career. I still enjoy work (and making $) and am not planning on making any changes in 2020 but love the freedom and feeling of knowing that if I wanted to I could stop anytime I want. I love the ESI retirement series and have been reading a lot on early retirement as being informed and having lots of information is always my first step in making decisions but I could see me working for 2-3 more years as long as it on my terms (which it has been for the past 2-3 years) or until the kids finish high school (4 and 5 years respectively) but neat feeling to know I could change my mind tomorrow 🙂 and that is what the quest to build NW has always been for me is the feeling of freedom.
So long story short……no changes for me yet.
Great story! To go from a $39K salary at 27 years old to amassing a net worth of $2 million by age 40, to $11 million by now, is impressive by any standard. It took a lot of courage to take on a job at a startup company, in a field in which you had no experience. This illustrates well how a combination of hard work, taking calculated risks and setting goals can lead to the achievement of great results. I wish you continued success in all of your pursuits!
Thanks for the kind words and I realized (in retrospect) that having experience outside of IT made me a lot better consultant than had I graduated with a computer science degree once I learned the technology but luck played a big role as well as now days with my background I would not even be able to get my foot in the door.
I hit the 11M mark for 1 day but fell back in March due to the market correction and am currently at 10.78M and at the worst point lost 1M (which was extremely painful) even though I have more than I will ever need.
Hey M73 – how’s the pandemic treating you?
ESI- This is one of my fav interviews!
Thanks for reaching on J and the kind words.
Like everyone else, trying to get used to the new “normal” and live in a state that was initially lightly impacted but now is one of the worst in the country. Family is healthy and kids (now almost 13 and 14) a little stir crazy and most of work is remote/from home so that side was easy. All in all very lucky as a lot of folks are really hurting out there.
From a financial standpoint, in a blur I lost $1M from the peak and that is even with a fairly conservative investment approach which was painful as you start thinking of what a 1M can buy or how long it took to get our first 1M (Almost 38 years) but a good portion of that has come back and I am 40K from my all time highs, which I still religiously track daily (crazy I know).
Do you have any employees/contractors and how do you price your services? It’s a massive accomplishment to achieve your level of hourly income in IT consulting. Most guys I know peak out in the $200 an hour range and the only way to go higher is add employees/contractors to also provide the work.
Incredibly impressive, especially the NW gains the last couple years.
In my case my billable rate has averaged $200-225 (if I am direct to the customer) which is my goal and by working multiple clients at the same time (often not that difficult in IT) i have been able to average 3,500 to 4000 billable hours a year. My advantage is I have been doing the same thing for 22 years as the technology has not changed so luckily it is pretty easy to solve complex issues or new implementations.
I have been approached several time about growing my business and making $ on labor arbitrage but in a good situation now work/life balance wise and dont want (or need) anything to disrupt that.
It’s nice to hear that you have really good work/life balance with juggling sales, delivery, multiple clients and billing all the hours. I have always taken a different path with being a business owner and working on the business and trying to not work in the business whenever possible. I was co-founder of an IT consulting firm in 1999-2002 specializing in e-procurement and ERP implementations. We grew to about 100 billable consultants in a couple years. It’s crazy how billable hourly rates have not moved that much over the years. My perception is you offer your clients an amazing amount of value for the dollar due to your depth of expertise. Great job building the life that works for you.
Thanks for the comment and kind words and I have had several opportunities to partner to build a consulting firm with multiple consulting team members and follow that path but purposely turned it down. While there is the potential of more $ and less work if everything works I have always found it easier to stay small, nimble, and easy most days to manage myself 🙂
It is amazing to me that the rates for enterprise software consulting have stayed as strong as they have for as long as they have as well.
Really enjoyed your Millionaire interview as well and since I am in the enterprise software space since 1998 I am familiar with the consulting firm you started as well. “Escalator up and the elevator down” was and excellent and very true quote + the skiing at 20 vs 50 was spot on as well.
Hey M139,
Yes, I do have three full time employees in addition to myself – but I’m only billable 50-75% (trying to get consistently at 50% or below over time as we grow).
Our hourly billing rate on jobs range from $150-$200 per hour. To date, I price everything time and material (T&M). I’ve sold one job at $225 an hour and hour average billing rate is running about $180/hour.
I also just started sub-consulting some work offshore to the Ukrain. I pay my guys $75-$100 per hour but it is variable based on the billing rate (they are W-2 with employees but effectively 100% commission – I share 50% of billable rate and pay 100% of health benefits and PTO). The Ukrain folks only cost me $40/hour with the same billing rate (so my margins are almost double on them, but I just started that in September).
The real play with this business is on the software reselling side as it comes with residuals and is all margin besides my time.
Dom
Software sales is the holy grail of profitability and companies are glad to pay the residuals for the long term clients. Congrats on making the Ukraine labor work so far.
After my 1998 to 2001 IT consulting firm I tried the resale model a couple times and never found the right product/sales team. I looked at building a software company a few different times and never found a sector/team that I liked enough to invest the needed money into.
Really enjoyed your interview —- thanks for sharing the details of all you’ve done in the last and I really appreciate you sharing the quick updates on MMM.
Impressive!
Thanks Razorback and it is great getting to know you better on MMM and hearing your insights, past and advice.
Loved this quote and your commitment to learning
“Being smart and being cheap are two completely different things in my book.”