408: Boring is Good: The Case for Self Storage

I feel like I am going through another major transition in my life. I turned 50 last September—a fact that I deliberately chose not to publicize.  I hate to admit it, but much of my behavior is stereotypical divorced midlife crisis stuff. I got a Ferrari, I’ve been working out incessantly and…I’ve been considering adding publicly traded equities to my portfolio. The last one might be the biggest surprise to you and to me. For the last decade, Wealth Formula has consistently bashed the stock market. What changed? Well…the last two years have not been particularly kind to me financially and it is because of my 80% real estate investment portfolio. Rising interest rates disproportionately affect the real estate markets because they are so heavily dependent on debt. That’s why economists keep talking about how the economy continues to fare well while we real estate investors feel like it's 2009. Don’t get me wrong. I am not going full-on stocks, bonds, and mutual funds. I have made my money in real estate and that will continue to be my alpha. And despite a down market, I am WAY ahead of where I would be, had I been a traditional investor using a money manager. No doubt about it, real estate has made me wealthy over the last 15 years despite the recent hiccup. I’m just thinking about taking lessons from institutional investors. Perhaps it's middle age, but the idea of a more balanced, less volatile portfolio sounds appealing. Right now, I have nearly zero exposure to publicly traded stocks. Maybe that number should be closer to 25%? Maybe I should be in some kind of “all-weather portfolio?” Remember, personal finance should be personal. You’ve got to think about your goals and where you are in life. You have to treat your investment portfolio like you are deploying money for your own family office. Zulfe Ali knows a lot about risk and managing portfolios. He does that for family offices and high-net-worth individuals like you. He’s different from your usual financial advisor because he recognizes the importance of alternative assets in a portfolio—something he learned from running a multi-billion dollar sovereign wealth fund in the Middle East. On this week’s episode of Wealth Formula Podcast, I speak to Zulfe not only about investment strategy but also get his take on the current economy. Having a guy with his credentials giving us a market update is extremely valuable so make sure to tune in! Show Notes: 13:39 What’s been going on with the economy? 16:15 Why the interest rate increase did not result in a recession 19:02 Outlook for interest rate 26:35 The inverted curve 35:11 Wealth preservation 41:58 How does Zulfe approach high-level portfolios?

In the latest surge of technological evolution, one titan stands out, reshaping our landscape with the silent swiftness of a revolution: Artificial Intelligence, or AI. It's a term that sparks a spectrum of emotions, from exhilaration at the dawn of a new era to trepidation about the unknowns it brings along.  As we stand on the precipice of this bold new world, it's impossible not to marvel at how AI has already begun to weave its threads into the fabric of our daily lives. From the simplicity of asking Siri for the weather forecast to the complexity of algorithms that predict stock market trends, AI's footprint is undeniable.  Yet, what truly fascinates me is the myriad of opportunities it unfurls for us as investors. It's not just about the automation of tasks or the efficiency of operations; it's about the doors it opens to new markets, the insights into consumer behaviour, and the predictive power that can guide our investment strategies with unprecedented precision. Reflecting on this, I'm reminded of a story that perfectly encapsulates the transformative power of AI. Just a few years ago, a startup leveraged AI to analyze satellite images, predicting crop yields with such accuracy that it revolutionised the agricultural commodities market.  Investors who could once only rely on historical data and often inaccurate forecasts found themselves with a crystal ball, giving them insights that were previously unimaginable. This is the power of AI - turning the opaque into the transparent, the unpredictable into the foreseeable. And yet, as we chart our courses through these uncharted waters, questions loom large. How do we navigate the ethical quandaries that AI presents? What does the future hold for jobs, and how do we ensure that this technological boon does not become a societal bane? How do we, as investors, harness AI's potential responsibly and effectively? To delve into these questions and more, I'm thrilled to welcome Professor Russell Neuman, a leading mind from NYU, specializing in media technology and its profound impacts on society. Russell's deep understanding of the digital age and the evolutionary path of media, coupled with his insights into AI, makes him the ideal navigator as we explore the intersections of technology, media, and investment in the AI epoch. So, join us as we embark on this journey, decoding the complexities of AI and uncovering the golden opportunities it presents to the astute investor. Welcome to a conversation that promises not just to enlighten but to illuminate pathways to prosperity in the age of Artificial Intelligence. P.S. I asked ChatGPT to use my “voice” to write this email. Do you think it sounds like me? Curious what you think. Show Notes: 03:40 How does AI work? 09:23 The dangers of AI 14:10 The benefits of AI 19:27 The future of AI 21:48 Singularity

“I’m from the government and I’m here to help.” Ronald Reagan described those as the most dangerous words in the English language. I generally agree with the Gipper who I have fond memories of extending back to the 1980 presidential election that I watched with interest as a kindergartener. When the government gets too big, it gets dangerous and sloppy, and it costs too much. And like other monsters, it’s got to eat. It does this through taxation.  Now if that monster was lean, mean and efficient, it would be less scary. But this one is fat and keeps growing. Government begets more government which creates more cost and inefficiency. What’s a better answer? Well, ideally, you would break the whole thing apart and put it back together in a way that makes sense. Instead, a lot of the benefits that we get from those taxes are taxed themselves making you wonder what the point was in the first place. When you take a step back and see what’s going on, it’s pure insanity. And to make you crazy, this week’s guest on the Wealth Formula Podcast exposes this problem with gory details.  Show Notes: 08:03 Robbing Peter to pay Peter 12:33 Where is the inefficiency coming from? 15:54 The origin of the tax and return scheme 17:51 How does this affect behavior? 19:48 How can we fix it? 21:45 The origin of the mortgage market

When I was fresh out of surgical residency and started to make some money, I started looking for advice on what to do with it.  One of the questions I had was about life insurance. I was a newlywed and had a baby on the way (now she’s in high school by the way). So, I started asking the guys I was working with if I should buy term or permanent life insurance. One of the younger surgeons was a bit of a know-it-all. He had a lot of advice about everything and most of it was not good. His facelifts weren’t good either as I started revising them just a few months later. Nevertheless, I listened to what he had to say and he told me quite confidently to “buy term and invest the difference”. In other words, don’t buy permanent life insurance. Stick to term life insurance and, with the money you don’t spend on permanent life insurance, throw it into the stock market. The older guy had very different advice. It was 2009 and he was planning to retire until the financial meltdown kicked his butt. He told me he wished he had bought more permanent life insurance because that was pretty much all he had left.  And while his viewpoint was thought-provoking, I felt like I needed to do the opposite of whatever this guy suggested because I didn’t want to end up like him. So, I ended up buying term and didn’t think about it again until a couple of years later when I had started my own practice and was making a lot of money. At that time, I was part of a mastermind with a bunch of high-net-worth business people. At some point, life insurance came up and several of them talked about premium-financed permanent life insurance policies. It occurred to me that a lot of high-net-worth people actually were buying permanent life insurance despite what that know-it-all young surgeon told me.  So, I decided to look back into my options. What I discovered was that both of those doctors who were giving me advice viewed permanent life insurance as something that it did not need to be: a poor-yielding but stable investment. The reason for that was that most professionals only get to see poorly designed policies that are primarily created to maximize commissions for those who sell insurance. What they think of as permanent life insurance is not the permanent life insurance used by the rich. PERMANENT LIFE INSURANCE MEANS DIFFERENT THINGS FOR THE MIDDLE CLASS THAN IT DOES THE RICH. The policies that the high net worth group had were designed very differently and optimized for investment purposes. In fact, in the high net worth world, these policies have a special name: LIRPs. That stands for life insurance retirement plan.  Permanent life insurance in this world plays a role in not only risk mitigation and estate planning but also retirement income and asset protection. The more I learned about these strategies, the more they became no-brainers for me. The guys who taught me the most about this stuff are Rod Zabriskie and Christian Allen. They designed all my policies and now design policies for many of you as our Wealth Formula Banking partners. I especially appreciate these guys because they approach these concepts with an open mind. Where some Life Insurance Producers push one product or another for various reasons, these guys have all sorts of options that fit different types of people with different goals and objectives. Recently, they have seen a significant uptake in interest in life insurance products. Why? Well, the markets have been hurt by rapidly rising interest rates and people are looking for safe harbors. All you need to do is look at the Great Depression to see that permanent life insurance has been seen as a major safe harbor throughout history. Given the uptick in interest in these products, I decided to have Rod on to remind people of what these products are and why various permutations of these strategies are right for different types of people. As always, I found this to be a very interesting conversation and it left me wondering why I’m not doing more of this stuff right now. Show Notes: 09:12 Wealth Formula Banking 19:03 The Wealth Accelerator 26:55 Battle of the Two Tribes 34:41 Rule of 72 42:20 Does life insurance get more expensive as you get older?

Retirement means “ceasing to work”. In my case, retirement will describe me when I’ve died. I understand retiring from a particular activity. Like how I retired from the practice of surgery about eight years ago. But global retirement sounds dire. It is like admitting that you are of no real value to the world anymore. That your contributions are no longer of benefit to humanity. I’ve always believed that the universe ultimately pays you what you deserve. If all you’re doing is playing golf, you aren’t worth a dime. And imagine all of that knowledge, expertise and wisdom you accumulate over the years. You’re just going to waste that? You’ve got to figure out a way to use it and keep going. At least that’s my philosophy. As you may know, I have a podcast on health and longevity called . I want us all to feel like 50 is just the beginning and I don’t mean the beginning of the end lol. Get inspired. Dreams are not just for the young. As Bill Gates says, people grossly overestimate what they can accomplish in a year and grossly underestimate what they can accomplish in five. Ok…that’s my rant for today. Let’s get back to reality. I know people need money when they get older and social security is one of the sources. To be honest, I don’t know much about social security so I thought I would interview someone on the topic. My guest this week on Wealth Formula Podcast was on the “60 Minutes” show recently uncovering social security scams so I thought he might be a good person to listen to. So… if you’re interested in the money the government owes you when you get older and may or may not get it, make sure to tune into the show. Show Notes: 04:52 How exactly does social security work? 10:56 Social security: a scam? 20:02 Will social security disappear? 21:36 Clawbacks of social security 29:05 Money Magic

The two most powerful motivations for behavior are fear and greed. If you haven’t thought about that before paying attention to the kinds of messaging you hear especially in the alternative asset podcast ecosystem? At the risk of offending gold bugs, how many times have you heard someone who sells precious metals on a podcast talking about the demise of the United States and the inevitability of the Zombie apocalypse? Think that’s just a coincidence? A couple of weeks ago, I had on a gentleman who wrote a book on Ray Dalio, the legendary hedge fund manager whose fund has not beaten the S&P 500 in years. Turns out that Mr. Dalio has been predicting the collapse of the American economy for three decades now. Maybe he believes it. I don’t know. But one thing’s for sure, it works very well for Ray Dalio’s company. Ultra Wealthy families don’t care about big returns. They care about not losing money. Beating the market is just an added plus. If Ray is telling people that the world is going to hell and he manages money then maybe he knows how to best protect it? That’s the logical conclusion, right? There are also people out there talking about the need for a second passport in case the US implodes. After all, we have a divisive political system and enormous amounts of debt.  Again, maybe I’m missing something, but the US is still the biggest economy in the world with by far the highest GDP. We have the best Universities in the world and the strongest military. And if we can get through 1968, we can get through 2024. So, in my humble opinion, a plan B is not going to get you out of harm's way. Because if the US goes down, there will be no place to hide. But, there are certainly other reasons to get a second passport. Maybe you just want to make it easier to travel to certain countries. Maybe you want to benefit from the low cost of healthcare. Or, maybe you just want to diversify your wealth and mitigate currency risk. If you’re willing to move to Puerto Rico (which I am not), there is even a huge potential tax play. My advice…whatever you do, just don’t get scared into it. It certainly sounds kind of fun to be a Jetsetter and maybe there is sound financial reason to do it as well. Consider it, but for rational reasons. With all that being said, check out this week’s episode of Wealth Formula Podcast and learn the ins and outs of foreign citizenship. Let me know if you decide to do it! Show Notes: 08:24 Why consider dual citizenship? 11:17 Benefits of an EU passport 12:48 A second passport for retirement and healthcare 13:54 Financial benefits of dual citizenship 17:10 The challenges 19:17 Dual citizenship by relationship

The challenge with investing is that you can do everything right and still lose. Unfortunately its supposed to be that way otherwise everyone would take the biggest bets possible all the time and always win. That’s just not reality. In good times, it is very hard to anticipate what could happen if the unexpected occurs. Over the last 24 months, we saw interest rates rise at a slope never before seen in the US economy. This was just a few months after the Federal Reserve called inflation “transient” signaling that it would not raise rates. In hindsight, the subsequent rise in interest rates to curb inflation is all clear now but I don’t remember hearing anyone talking about the scenario before it happened. As a result, many including me lost money and continue to hold our breath as rates start to level out. As much as we hate it, this is the way the system is supposed to work. The thing is, all of what we are experiencing is going to happen again in one shape or another. Over the next few years, those with ice in their veins will buy when everyone else is scared. And hopefully, they will remember what this feeling we all feel now feels like and sell when things feel too good to be true. As Sir John Templeton put it, the most dangerous words for an investor are “this time, it’s different”. It would be easier to accept this fact of investor life if it applied to the big boys as well. But it doesn’t. 2008 was the extreme example. The big banks lost big bets. Had those bets come to fruition, they would have made lots of money. But they didn’t win those bets. And the taxpayer paid for their losses and all of the lawmakers said it would never happen again. But it did. In 2023, the taxpayer stepped in to bail out multiple regional banks. This time, those banks weren’t even being irresponsible. They were investing in a way that would be deemed conservative. Yet, they too were the victim of unparalleled rate hikes by the Fed. Lucky for them, they were banks and not individuals like us. What happened with those regional banks and is it likely to happen again? My guest on Wealth Formula Podcast this week is a brilliant Professor at Stanford who was brought in to investigate the regional bank failures in Silicon Valley. When she talks, the government and people like Jamie Dimon listen. See what she has to say about the current state of the banking system and how it affects you. Show Notes: 08:29 What is wrong with the banking system? 11:34 What went wrong in Silicon Valley? 13:58 How do FDIC rules work?  24:20 What should have been done in 2008 to prevent this from happening again? 28:28 Will what is happening to Silicon Valley happen to the rest of the country? 31:44 Is it still risky out there?

My social life sucks. I moved to Montecito in 2017 from Chicago a married man with 3 children. When we got here, I didn’t know anyone.  Luckily, I had my family and was plenty entertained by my three little girls. My now ex-wife also served as social coordinator to make sure we had things to do. Then with beginning of Covid, my marriage came to an end. Since moving to Montecito, I had been working from home on businesses that had become very successful but I hadn’t worked on my social life at all because that had been outsourced. So I entered Covid isolation with almost no community or life outside of business. Needless to say, it was lonely. The only good thing that came of it was a lot of success in those businesses that occupied my time. I used Covid as an excuse while it lasted but the truth is that my social life still sucks. I have not been successful in that aspect of my life. So, I’m not a good person to tell you how to create a successful social life and will not be writing a book about it anytime soon. So why am I telling you this? Is this some kind of suicide letter? No. I’m too busy with my longevity podcast for that. What I’m trying to do is to simply illustrate that you can be wildly successful in one aspect of your life and an abject failure in other parts. The funny thing is that for anyone successful, it is very difficult to truly assess what they are good at and what they are not from the outside. Take a look at Tony Robbins. Is he a success? He’s a great communicator. He’s helped a lot of people and made a lot of money. But he’s been married multiple times and who knows how his relationships are with his children. But if Tony Robbins wrote a book on marital a bliss, it would be a New York Times bestseller. Why? Because he’s Tony Robbins and he is a successful guy that people want to listen to. But, like the rest of us, he’s far more successful in certain parts of his life than others. Similarly, hedge legendary hedge fund manager Ray Dalio has written multiple books on “principles” for investing and for life. Dalio is certainly as qualified as anyone else to talk about money. But why would we assume that his success translates over to anything else? In fact, there are plenty of people who have worked with and for him who consider his principals outside of investing to be a failure at best and downright fraudulent at worst. So why would people buy books by Ray Dalio that don’t involve money? Because, again, he’s a hugely successful person and people want to learn how to be successful. The challenge for everyone is to look at any of these god-like figures and to understand that they are human with all sorts of flaws. And while we may be able to learn some things from them in which they excel, we shouldn’t translate success in certain parts of their lives to suggest that they’ve got it all figured out. My guest on Wealth Formula Podcast today wrote a book on Ray Dalio that tells the story of a man who may be quite different that the image he has created for himself. It certainly has pushed a button for Ray Dalio as he has threatened to sue the author and has thrown back fiery accusations about him. It’s a fascinating story that you are not going to want to miss. Tune in to this week’s Wealth Formula Podcast as I interview Rob Copeland, the author who has thoroughly pissed off Ray Dalio! Show Notes: 00:08:29:06 Who is Ray Dalio really? 00:13:15:03 What made Ray Dalio a successful hedge fund manager? 00:14:53:09 Alpha vs Beta returns 00:18:05:22 The Dark side of Ray Dalio 00:22:42:19 Can Ray Dalio really predict the zombie apocalypse? 00:27:12:16 Getting sued by Ray Dalio

As you may know, I have three daughters aged 14,11 and 8. The oldest, Camilla, is now in high school. For those of you who have been listening for me for a while, yes, that was the little girl who did an introduction for episode 100. We are all getting older by the minute. Anyway, recalling that it was at around her age that I began to think about the world in a greater context than simply ice hockey and food, I have begun trying to have more meaningful conversations with her. Recently, I decided to talk about the political science definitions of conservative and liberal to help her start understanding the basics of political theory. I told her that conservative ideology values the individual and advocates for small government. I quoted Ronald Reagan who once said, “The nine most dangerous words in the English language are ‘I’m from the government and I’m here to help’.” Liberal ideology, on the other hand, puts greater value on the collective whole of a people over the individual. In such a belief system, the emphasis on equality trumps individual achievement and focuses on the redistribution of wealth via government services to serve everyone. While you know that I have a bent toward conservative ideology, I did not try to persuade her one way or another. I was just trying to teach her the difference. My goal for her was to simply think about her own opinions and share them with me. But she wouldn’t. She got very uncomfortable. And, when I pushed her on why, she admitted that it had to do with the fact that her mother and I don’t agree on some of this stuff. The funny thing is that while her mother and I certainly do disagree on some political issues, we never fought about it and it was never an emotional issue. But these days, it seems that political disagreement means that you can’t be friends or family anymore. Disagreement has been replaced by disagreeable. That’s a shame because these discussions are incredibly valuable for people to discover their own true values rather than to simply cling to tribal political party instincts. Sure I’m a conservative, but I have plenty of disagreements with the current “conservative” Republican Party. For example, the party has shifted away from fiscal responsibility, free trade, and civil liberties—all of which are tenets of true conservative ideology. Having more open discussions about politics without emotion would be good for everyone. It would also help people to understand what is happening on the global stage.  While America has been the Mecca for the individual since its inception, it is starting to move in the direction of a more liberal global arena that values personal achievement and success less than the whole. The growing popularity of political figures such as Bernie Sanders in the last election cycle supports that. My guest on the Wealth Formula Podcast is a best-selling author who has been sounding the alarm on the coming of this new world order where you will have everything you need but nothing will be yours. Is she being an alarmist or is this a real concern? Decide for yourself on this week’s episode of Wealth Formula Podcast. Show Notes: 00:08:52:20 Movements that are trying to stop personal wealth creation 00:12:18:02 Players in the financial world war 00:14:56:08 Private ownership = wealth creation 00:17:16:01 How is Wall Street working against us? 00:24:13:18 Thoughts on the wealth tax

For those of you who have participated in our self-storage offerings in the past with Reliant Real Estate, you know that you can make a lot of money in this space. One of our deals, while not planned this way, nearly doubled investor equity in less than a year. Those kinds of returns are sexy but self storage itself is NOT sexy at all. It’s just where people keep there stuff when there’s no room for it in the house. But in times like these, boring is good. In fact, when it comes to business, boring is a very good quality in all seasons of the business cycle. Self-storage facilities have historically shown resilience during economic downturns. Unlike other real estate investments, they often experience steady demand even in challenging economic conditions, as people downsize, relocate, or seek temporary storage solutions. Everyone needs storage space whether in urban areas where living spaces are smaller, or in suburban and rural areas for personal or business use. And from the standpoint of the owner of these facilities, it takes advantage of one of the major characteristics of mankind—inertia. Do you have stuff in storage? I do. How badly do I want to move that stuff to another storage facility in order to save $10 per month? Not nearly enough. That’s why those rents creep up over time without losing much in the way of occupancy. It’s a great business model if executed well. has done it well for several years and, although I am not partnering with them on their , I am investing in it and promoting it for them as I think it represents a really good opportunity with minimal risk. This week on Wealth Formula Podcast I wanted to make sure I got Kris Benson, Reliant’s Chief Investment officer on the show because there are just a few weeks left before the fund closes and I wanted to remind you of that while reviewing some of the key elements of this unique real estate asset class. Show Notes: 00:04:04:09 The story of self-storage 00:06:56:17 The inertia behind the self-storage business 00:13:51:17 How has the run-up of rates and inflation affected self-storage? 00:16:55:15 How does debt work in self-storage 00:19:51:02 Institutional vs. mom-and-pop 00:23:12:10 The current reliant fund opening: https://reliantfund4.com/