The Three Investment Buckets
Carl Moore:
Hey guys, welcome to the podcast. I'm Carl Moore here with Brant Greathouse.
Brant Greathouse:
Guys, today we're going to be talking about the three investment buckets.
Carl Moore:
As we talk about the three investment buckets, let's just start off, what do you mean by three investment buckets?
Brant Greathouse:
Well, if you're going to do investments, it's best to not throw mud against the wall and hope some of it sticks. It's best to have a strategy. One really powerful strategy actually, that I got from this book by Tony Robbins, Money Master the Game, read this several years ago. He basically pulls brilliant ideas from some top financial people in the world, really, and he distills it down into something simple. It's a strategy.
There's three investment buckets. The first bucket is called your security bucket. The second bucket is your risk growth bucket. And the third one is for adventure. The idea is you got a bucket, and some of us have leaky buckets. Every time you put some money in there, it's falling out the bottom.
Carl Moore:
It's like my coin jar by my bed. I know I put quarters in it, but because I have kids, it never has quarters.
Brant Greathouse:
Yeah, exactly.
Carl Moore:
What happened?
Brant Greathouse:
What in the world? It's all going away. The idea of a bucket is you want to fill it up and then you want it to continue to produce certain rates of return and ultimately improve your life, improve your lifestyle.
Carl Moore:
Let's start with that first bucket, the security bucket. What kind of growth rate am I looking at? How much of my monthly salary should I put into it?
Brant Greathouse:
Well, those are some really, really exciting questions to be talking about because first of all, your security bucket is supposed to be a bucket that is secure. It's supposed to be investment only in things that are going to produce return, that is passive investment, and that's almost 100% guaranteed. Nothing in life's guaranteed, but as close to 100% guaranteed as possible. And it's going to be stable over a long period of time.
For that investment, and there's a lot of things out there that fit within this category, but you're usually looking for something that's going to make you about 5% to 8% rate of return per year. So you invest a dollar and you want to get about five to eight cents per dollar per year. That's the goal.
Well, with your security bucket, it's ideal to be able to set money into that and then over time be able to live off of that secure, safe rate of return. But in a risk growth bucket, it's a completely different type of a category. This is what's life without a little bit of risk.
By the way, typically you realize that if you're going to make a higher rate of return, you can't have no risk and a high rate of return. At least that's what generally we think. If you're going to put your money into the risk growth bucket, you're going to want to make substantially higher than 10%. I mean, sometimes you can be making 10%, 15% would be a good target to aim for. Shoot there.
Everybody knows that there's plenty of investments out there where you can double your money and all these kind of things. But once you start building that, it's going to be harder and harder to double your money. It's going to be harder to make that really high rate of return. So 15% per year, 10%, 15% per year would be ideal in a risk growth bucket.
Carl Moore:
Monthly, you're setting aside, if your paycheck allows, 20% or 30% of your total paycheck, let's just say 30% for easy numbers. You go 10 into security, 10 into risk growth, 10 into adventure.
Brant Greathouse:
Well, so-
Carl Moore:
Or do you do different amounts based on different ages?
Brant Greathouse:
There's not one right answer. I do think it does have a lot to do with the stage of life that you're in and what your personal goals are. But I also think that you should plan to put more of the money that you earn than you can comfortably afford.
Carl Moore:
Into your investment.
Brant Greathouse:
More than what you can comfortably afford. Yes, into your investment buckets, whether it's the security or the risk growth. You really need to be living off of as little as possible, putting as much as you can into investments so that that can grow and eventually you can scrape some of the cream off the top of what you've built and that can produce an amazing lifestyle. What is it that Robert Kiyosaki always says, and I've heard Dave Ramsey and I've heard multiple people say, they say, "Live today like nobody else wants to so that you can live tomorrow like nobody else can."
When we think about what kind of sacrifices are we willing to make today for a long-term benefit, so many people just focus on the benefits now, but a wise investor is going to think long-term. They're going to be thinking about the long game. That's why you want to have a strategy. That's the three bucket strategy. But we're not just doing it for just making a mountain of money.
Carl Moore:
Yeah. Tell me about the adventure bucket. I mean, if we're making five to eight in security and eight to 15 in risk growth, how much are we making in our adventure?
Brant Greathouse:
Well, here's the thing. The adventure bucket is not about a rate of return in dollar amounts. It's about a rate of return in quality of life. We're not making money so that we can have a bunch of money. We're making money so that we can pour into other people, so that we can have a great lifestyle for ourselves, take care of our family, take care of our kids, and leave a legacy perhaps one day for our kids to have when we're gone.
I think today a lot of people desire to have a call, a higher level of responsibility. Push yourself beyond what's comfortable and really build something that is sustainable and long term. That's why having this three bucket strategy is powerful.
Carl Moore:
I don't really like guidelines and rules, so I hear three buckets and I think, well, I want the security, but I want the growth of the risky bucket. Is there any way to combine these?
Brant Greathouse:
I'm so glad you asked that question because I actually almost forgot to bring it up. Here's the thing, there are special types of investments that are out there that get the type of returns of a risk growth bucket, except they don't come with all the risk.
What you're looking for is something that's going to be an asymmetrical risk reward that's different than these other high risks. You can go invest in this thing and maybe you can get the 15% or 20% on your money, but you could also lose it all. Or you can invest over here and make 15%, 20% on your money. It's very unlikely that you'll lose it all. It may carry higher risk than your security bucket, but there's a lot of fail safes. A lot of things would have to go terribly wrong for it to not work out.
An asymmetrical risk reward is again, something that Tony talks about in his book. Be looking for something that is going to reduce your risk and minimize that risk, minimize your exposure and maximize the return. Real estate is a huge thing that fits into that category, most types of real estate, but there's other things too.
Carl Moore:
Obviously I think that what we do here at True Star definitely falls into this hybrid investment. I mean, we did 250% in two years for our investors, which is absurd. But we did it in a place that that first property we bought, we were never going to get less than what we paid for it. Why are these investments so hard to get? Why are they so hard to find?
Brant Greathouse:
First of all, I don't know the best way to answer that question, but I would say one answer would be that people don't know how to find the types of deals that work like that, or maybe perhaps they don't even believe that they exist. That's why I think partnering with people who know how to find it and have already got a track record in doing what you're talking about and partnering up with those people is a really good idea.
Carl Moore:
One of the things you just said actually brought to mind something that when we were setting up our very first, what's it called? The SEC-
Brant Greathouse:
Syndication fund.
Carl Moore:
... syndication. When we were setting up our very first fund syndication, we sat with that attorney, and I remember her telling me, "Hey, you're going to have to deal with only accredited investors." I think that's another huge thing. You have this massive barrier to entry. You have to already be worth a million. You have to already be making 250 by yourself or 300,000 with your spouse just to qualify to begin to put money with companies like ours, which I feel like is actually not really something fair, but we don't get to make those rules.
But as we sign the documents and we invest these investors' money, we actually fall into what's considered that risk growth bucket on paper. But if you can zoom out and look at what we're buying, we're buying cash flow assets that if you look at how much they sell for on the open market, when we go out and buy these things, we can virtually not lose our shirts. Even if everything falls apart and we just have to go put it with the broker and sell it on the open market, we're going to get 100% of our original capital back.
Brant Greathouse:
Absolutely.
Carl Moore:
I mean, that's so baffling to me and why I really pushed back when we first started doing this. I'm like, man, I don't want to cut out the small guys. So I think barrier of entry is definitely something that's hard, finding people that are investing in stuff like this that you trust, because I mean, everybody has a story of a friend who put a hundred grand with this good company and then the company went missing.
You do kind of have to do some footwork and some legwork. And often, especially with what we've done, because we've given such great returns, we don't really go pound the street showing our name and investing saying, "Hey, come put your money with us." We open the door until we get enough money and we have to close the door back and say, "We'll be right back." We go invest this because-
Brant Greathouse:
Exactly.
Carl Moore:
... it's kind of a crazy thing. Finding hybrid investments.
Brant Greathouse:
Well, right now, you're seeing an enormous amount of capital in the markets that is not placed. It needs a place. It needs a place to be put. And a lot of people are looking for a place to put it. You want to find asset classes that are going to perform regardless of what could possibly happen over the next couple of years, just on the economy with everything that's going on.
Carl Moore:
There's some great investments out there that you can look at putting your money with different groups. I think we're leaving the investments bucket talk a little bit, but the more competitive the market, the lower the margins though. It's like you could invest in apartments, but you're going to have to pay so much for the apartment that the first few years, you're just barely scraping by paying the mortgage until you can get refinanced in a few years to get your cash back. And then you can maybe start making profits long term. But that's one of the things that we've found in this industry. There are more people coming this direction, but it's not glorious.
Brant Greathouse:
As we kind of wrap up here, I want to ask you a question because we're not here making money just to make money like we talked about. We're here to make money for a purpose that's bigger than ourselves and a purpose that matters long term. What is something that you would say is in your adventure bucket, Carl, that you want to utilize your adventure money for your family? It could be for anything.
Carl Moore:
We actually just got to take a pretty good lump sum out of our adventure bucket and we went with you guys. It was the four adults and eight children, and we went to Israel. Man.
Brant Greathouse:
It was amazing.
Carl Moore:
It was incredible. I really look forward to the one that we have planned for this coming summer. We intend on getting a little motor home that we can pack all of our kids away in the back and drive through the country and just visit stuff. Much more affordable. You can rent the motor home, turn it back to the owner. You don't have to change oil. Basically just fill it with gas. I love adventure. I love to go places. I love to see things.
One thing that long term, long time from now, but my daughter came to me and she said, "Dad, can we ride a spaceship out of the Earth? Can we go to space?" I said, "Yes."
Brant Greathouse:
Yes.
Carl Moore:
Let's figure out how to make that happen. Happen. I want to leave the Earth and come back.
Brant Greathouse:
Absolutely. My goodness. That would've probably been a proud moment.
Carl Moore:
That'd be awesome.
Brant Greathouse:
Just thinking that big.
Carl Moore:
Yeah, absolutely.
Brant Greathouse:
[inaudible 00:15:23].
Carl Moore:
I'm Carl Moore. This is Brant Greathouse.
Brant Greathouse:
This has been Meaningful Capitalism.
Carl Moore:
Thanks.
