The 40-40-20 Formula: How I Invest My Money for Safety, Growth, and Big Wins

0:05Ladies and gentlemen, welcome to a special edition of the Money Mondays, where we cover three core topics, how to make money, how to invest money, how to give it away to charity. But today, we're only going to cover one topic focused on investing. I call it 40-40-20. My investment philosophy, you may have heard me sprinkle in some clips here and there over the last two years of the podcast, but today I want to explain everything about 40-40-20 so you can understand why I've used this investment strategy for my whole life. First, the first 40 % is low risk investing. I want to make between 5 % and 9 % for the year.

0:43The second part, 40%, is medium risk investing. My goal is to make between 10 % and 30 % for the year. And lastly, the final 20 of the 40-40-20 is 20 % into high risk investments. This is where I want something crazy to happen. I'm hoping for 3x, 7x, 12x, something wild to happen or a big return. And if I get it wrong or it takes a long time, I'm hoping that the low risk and the medium risk covers the high risk 20%. I want to have that as part of my portfolio so that I can have some major things happen to shift my financial situation. Now, let's use a real life example of$100 ,000. Again, for you, this might be$10 ,000, you might have$10 million or anything in between.

1:25All the math percentages, they all equate to the same thing. So I'm just going to use the$100 ,000 as the core number. But I want you to understand as who are listening to this, if you've got 10 grand to work with, or you've got 10 million, it's the same concept. We're just going to use 100 ,000 as the number. And 40, 40, 20 is the same math whether you have 10 grand or 100 grand. Okay. I'm very passionate about this topic. I use this as part of my speeches. And sometimes it changes with the time because things happen in the markets. The 40, 40, 20 part does not change. Meaning I stick to the same principle, the same model, but I might be looking at certain things that change within the category.

2:02So there might be some new things in low risk investing, or might be some new things in medium risk investing, or might be some new things in high risk. Right now you're seeing Bitcoin at$119 ,000 breaking records. So you might be thinking about within your high risk, that 20%, maybe you're switching some things around of allocating some extra capital to Bitcoin, or on the low risk side, there might be something new like a CD that's being offered at over 4%. Maybe there's some switches there in low risk. So let me walk you through real life situations, real life investments that I've done over the years.

2:32So you can pick and choose for yourself what might fit for you, or you might do my entire strategy of 40, 40, 20. You can adjust this number based on the type of investor that you are. I like this strategy because it keeps me focused. It keeps me safe. It diversifies me and allows me to make good decisions with my capital as it comes in over the course of time. What I do is as income is coming in, I'm consistently deploying it into one of these three categories and into the sub subjects within those categories to make decisions for myself. And so that I'm constantly investing and deploying the capital.

3:09I'm not keeping some big piggy bank at any given time. You'll often hear real estate investors and a lot of strategic investors that don't keep a lot of cash on hand because they're deploying it into investments on basis because of this one concept. Inflation. Inflation is very, very real. We've been battling with eight to nine percent a year inflation. Some people argue over the numbers, but let's just use those of the general examples. Eight to nine percent a year inflation. So let's say you do have$100 ,000 saved up in the piggy bank. So you've got$100 ,000 in your Bank of America or your Chase or your Wells Fargo account, that$100 ,000 in 2025, next year in 2026, will spend like it's$91 ,000.

3:522027, it'll spend like it's$83 ,000, then$74 ,000, then$65 ,000, then$58 ,000. The numbers can vary even if it goes down to 4, 5, 6, 7%, which it hasn't, or it goes up to 10, 11%, which could be scary. Each year, your$100 ,000 becomes$91 ,000, then$83 ,000, then$74 ,000, etc. And so your physical cash number in your bank account stays the same, right? Let's say you just saved up$100 ,000. It's sitting in your savings account at Bank of America or Chase, for example. It'll still look like you've got$100 ,000, but if you go try to buy a Ford truck and that Ford truck was$55 ,000 and now it's$64 ,000.

4:33Or you go try to pay for valet parking and it was$25 and now it's$30. Or you go try to buy bread and the bread was$4 and now it's$4.70. Or you buy a t-shirt, it was$25. Now it's$28. That is real life inflation. So that$100 ,000 that's in your bank account, it still visually looks the same, but the spending power is less, around 8 % or 9 % a year less each year. That's why you have to deploy into investments. The majority of your capital should be at work. And if you don't feel comfortable when I say that, put into low risk or no risk investments, even if you're just making four or 5 % a year, which is great, at least you're fighting with inflation.

5:13At least you're not making your hundred grand go down to 91 ,000 in spending value. What you're doing is battling it. Let's say your hundred K physically and appearance wise becomes$105 ,000, at least now you've battled with the inflation a bit. You're not covering the whole 8 % or 9%, but you have increased by 5 % in your bank account. All right, let's walk through some real life investments. I think you can hear the passion in my voice because this is such an important topic. The Money Mondays, it came to be because of my passion for this 40-40-20 principle, me wishing and hoping and spreading the message around the world through my speeches, books, and events about this concept.

5:51All right. On the low risk side, again, I'm hoping for that, you know, five to 9 % range, but I'd be taking four or 5 % if I could just for the safety. And if you want to blow your own mind, if you go look at a compound calculator, compound calculator, if you want to really mess with your head after this podcast, Google search compound calculator and just put in your age. So let's say you're listening to this and you're 43 years old. Put in the date of retirement. So let's say you want to retire at 75 years old. So that's 32 years. Put in the interest amount that you want to earn. So let's say it's 8 % a year.

6:28And then put in the amount that you can contribute up front and then you can contribute consistently over the course of time. So let's say you could contribute$10 ,000 up front and an additional$10 ,000 a year for those 32 years. Well, if you put in a compound calculator,$10 ,000 a year, and then you put in the$10 ,000 up front and you put in 8%, it will blow your mind what that number turns into. Like a staggering amount of money, not a couple hundred thousand dollars. Typically, it could end up being a couple of million dollars if you can stay consistent, adding in$10 ,000 year after year after year.

7:06And by the way, if you all of a sudden on year four or five, you could add$11 ,000 a year or$12 ,000 a year or$16 ,000 a year. And you could increase it over time as you're getting older, as you got more savings, as you have more of a career happening, et cetera, maybe you've got some exits or you have an inheritance or you have a dual income with a husband or wife. As things go, you can increase the rate of return at a staggering amount just by going from$10 ,000 to$12 ,000,$12 ,000 to$16 ,000,$16 ,000 to$18 ,000 a year contributed to this pot of gold, to this investment of this 8 % a year. It will blow your mind.

7:43But if you just do it,$10 ,000,$10 ,000 a year without increasing, I still want you to look at a compound calculator and see the magic of compounding interest. Now imagine you do this for your four-year-old son or your nine-year-old daughter, and you're putting in a thousand bucks up front, and you're contributing a thousand bucks a year, right? Let's say you're earning 40, 50 grand a year, or maybe you're earning 80 grand, 100 grand plus a year. Could you contribute $1 ,000 a year to your son or daughter's consistent compound calculator savings account for them. It is staggering what would happen if you did that.

8:20I mean, like actually staggering. Now, again, you can hear it in my voice. What would happen for them when they're 35 years old, you've been putting in for 31 years, for example, and at birthday parties, instead of taking in presents, you ask people to contribute to that investment account and you can do it with Acorn or one of those type of companies, and it's just consistently now, instead of someone buying them$100 present, they're putting$100 into their A-corner account, and you've invited 35 people to their party, to their birthday party, you can imagine what happens over the course of time if you as a family are contributing and friends and acquaintances are contributing into your child's savings account.

8:57When they're 20, 30, 40 years old and they need money for college or they need money for their wedding or for their first house, they could have tens of thousands, if not hundreds of thousands saved up, depending on your contributions. And if you put it in over time, a bit larger amounts, you know, a couple of thousand dollars a year, and you do it over those 30 years, then again, you're going to see something that could be one or two million dollars saved up for them. Not to mention if you did that until their retirement, obviously, now you're talking about, you know, five, ten million dollars, which will, it's again, compound calculator will blow your mind.

9:28All right. So on the low risk investing, what are some things that you can invest into that are safe? Well, your banks are offering CDs right now of 4 % to 5 % for the year. That may not sound that exciting to you, but when Wells Fargo, Bank of America, Chase type major banks are offering that, that is very, very safe. Now, could a bank go bankrupt? Sure. But if a bank goes bankrupt, especially a household name bank, our economy is in complete disarray. something tragic happened in our society. You can think about to the times in 2008 when we had a humongous economic collapse. And so the likelihood of a Bank of America, Chase, or Wells Fargo is pretty close to 0 % of them going bankrupt when you're using a household name bank like that.

10:14Is there some risk? Sure, but it's very, very much, much less than 1 % chance. So I look at that more as a no risk investment than even a low risk investment because highly unlikely that a household name bank is going to go bankrupt and there would be signs and situations ahead of time that you could pull your money out along the way. So think of that as a no risk investment as close to it as possible. Now, four or five percent a year may not sound like a lot to you, but just a few years ago, typically CDs were one percent, two percent or three percent on specials. It was very rare that you would ever see something like this.

10:49And now it's being consistent at four to five percent for the year. Another one is gold. Again, gold might seem like a high-risk investment, but if you go look at the last 30, 40, 50 years, gold has been very consistent. Have there been some drop-offs along the way? Of course there have. Drop-offs can happen during economic turmoil, war, recession, etc. But look at the consistency. Over the decades, gold has consistently gone up and it is pacing, outpacing the stock market and so many different things people can be investing into. And you can physically have gold at your house or in a safety deposit box at the bank.

11:27And it's something that you can see, feel, touch, or you can invest into it as a commodity. But gold has just been one of those things that has been tried and true for many, many years. The next thing is, people are surprised when I say this is in the lowest category, is the S &P 500. I mean, how dare I say S &P 500 in a low-risk category, when this is betting on the top 500 stocks on the stock market, people hear stock market, this should be medium risk or high risk, but it is not. Here's why. It has been 91 years of the S &P 500, which has gone through recessions, depressions, and so much craziness, and it has averaged 11 % a year return if you dollar-cost average, or you just look at the investment over the course of the last 91 years.

12:15That number has been extremely consistent. If you look at the last few decades, there's only been a few losing years. Just go look at S &P 500 or Google search it or chat GPT. S &P 500 returns the last 25 years, for example. You'll notice there's only been a few losing years over the last few decades. Decades. That is a very rare thing in most investments. Typically, investing, you're hoping to win here, lose there, win, win, win, lose a couple times. You're thinking about ups and downs. S &P 500, if you look at it, has only had a few losing years in the last few decades. And those few losing years were nothing in comparison to the consistency of growth.

13:00So when you think about 11 % a year and go back to that compound calculator that we talked about, oh my gosh if you were getting 11 % a year return and you were putting in 10 grand a year for example you would have millions and millions of dollars at the end of the rainbow if you go look at it after 25 30 years what would happen at 11 % return it is mind-blowing so the S &P 500 is the top 500 stocks in the stock market and it is very easy for you to invest into you don't need an investment manager you don't need a wealth manager to do this you can handle this on your own All right. So the lower risk investing, CDs are around 4 % or 5%, which is amazing.

13:40You can do them on 6-month, 12-month notes. You can do them longer if you like. Gold, you can buy physically. There's typically gold pawn shops and gold stores and gold things. You can go to those stores in your area if you want to buy physical gold, or obviously you can buy it online and buy it as a commodity. The S &P 500 is something you should be taking very seriously. If you could be contributing capital to S &P 500 year after year, there can be losses along the way, right? There could be a bad quarter, a bad year, etc. It just hasn't happened very much over the last few decades. And so I look at that as the safe category.

14:15All right, medium risk investing. There's three core topics that I like. Again, there's other categories. There's lots of options, if not infinite options for you to be an investor into. But in the medium risk category, I look at three core topics. Real estate, the stock market, individual stocks, and cash flowing businesses. On the real estate side, there's obviously lots of options. There's long-term investing, there's fix and flips, there's Airbnb rentals, and so many different options. You could try to look at section eight houses. You could try to look at short-term rentals. You can look at vacation rentals.

14:52You could look at fixing and flipping cheap houses that are 100K, 200K, 300K. You can look at fixing fancy houses that are a million dollars, two million dollars. You could look at multifamily, storage units, commercial. There seems to be so many options. I like to study as much as humanly possible or co-invest with someone that's really good at real estate. So there might be someone in your local market or there might be someone that you've been following online that accepts investment capital. Think about people that are experts in the category. You might want to co-invest with them. That could be co-investing into a real estate fund, right, that has fixed returns or that has average returns over the course of time.

15:35So there might be someone that has a$50 million fund. You could put in 50 grand, 100 grand, 25 grand, 500 grand, for example, depending on their minimum. And then in that fund, those funds are typically five years or 10 years. You could be earning return on that. That same person might also have individual projects, right they might be buying a house for 600 ,000 putting a hundred thousand dollars into it so now they're in for 700k and they're hoping to sell it for 840 or 900k for example after they pay commissions and fees and things like that they're hoping for a return of 12 18 22 14 etc so you might be able to co-invest with someone into a real estate project like a fix and flip if they are a seasoned expert i don't mean your cousin or your friend from high school that's doing their second or third flip.

16:23I'm talking about someone that has done it dozens of times, if not 50 or 100 plus times, that is someone that you can safely co-invest into. Now, when I say safely, we're still in the medium risk category. Can someone that's done 80 flips lose on the 81st flip? Of course they can. However, their likelihood of messing up is much less than someone doing their second or third flip. They have so much experience doing 80 flips, they have so much knowledge in their area. They probably know the county officials. They know the contractors. They know the people at Home Depot by name and face because they go to Home Depot so often.

16:59They know the people and the things. They have the experience. They know the real estate agents. They know the market. They know a lot of the things because they're doing their 81st flip. Can they lose on flip number 81? Sure. Can they lose a lot a little bit? Sure. But ultimately, you could feel safer, someone doing their 81st flip, that they are likely to win or break even. and most of the time they're going to win. And you typically aren't just going to invest into one fix and flip with them. You might be wanting to invest in three, four, five, six with them. And then the likelihood of them failing is tiny because again, they've gotten experience doing this 80 times in the past.

17:34So on the real estate side, you can research for yourself to try to do it yourself, which I would consider more high risk if you don't have the experience or you could consider co-investing. What you're going to want to research also is, do I like short term? Do I like Airbnb in this city? Do I like multifamily or fourplexes? Or do I like storage units? What is the type of real estate that you'd like to invest into? What is the type of return you're looking for? Again, in the medium risk, I'm hoping for that 10 to 30 % range of return. All right, businesses, cash flowing businesses. So an example for you is I invested into a company called Everbowl.

18:13I put in$500 ,000 back in 2018 when there was around 13 locations. Then they got to around 17, 18, 19 locations to help them raise$5 million for the company to help them scale. So it's helping protect my investment. It's helping the business by adding gasoline to the fire. And I believed in the company watching their growth. Then I invested more buying some locations in 2020 and 2021. So owning physical locations of Everbowl, which is an acai bowl chain. Now, if there was only one or two locations, that would be high-risk investing. No matter how much I like Jeff Fenster, the CEO, if he only had one or two locations, that would be a high-risk investment.

18:53But the fact that they were at 17, 19, 22, 24 locations, etc., that became a lower and lower risk. Can any individual ever both close down or have a bad year? Of course it can. But again, over the course of time, they're going to learn, get better, better menus, better experience, better staff, etc., better marketing. Now, fast forward to 2025. Remember, I invested when there was around 13 locations. Now there's 103 locations, right? It has grown by over 800%. There's eight times as many locations as my investment back when I put in 500K back in 2018. And they're opening one new location every six days.

19:34Now, think about this for a second. It's a cash-flowing business. These restaurants can do$600K,$700K,$800K,$900K, maybe even a million dollars, some of them more, out of a location that only costs around$160 ,000 on average to open. And so the risk rate of return is, let's say it costs around$160 ,000. Again, this number changes based on your market, changes based on the size of location. Let's just use it as an average for this Everbowl. And you guys can look at everbowl.com. And if grosses, let's call it$600K,$700K,$800K. let's say it makes around 20 to 26 percent you know profit that becomes interesting that means after about a year and a half or so i'm starting to get most of my money back if not all my money back on investment where other franchises could take three or four years and cost more than double the investment meaning another type of restaurant could cost 350 000 on average and it might take three or four years to get the money back that i invested into that franchise and so i like this model and I look at it as a cash flowing business.

20:36I've invested into gyms. I've invested into other types of businesses that are cash flowing businesses. And so look for yourself. Is there someone opening their ninth hair salon or their ninth pizza restaurant or their 14th dry cleaners? Right. Think about someone that has experience. If they have their first or second location, that is considered high risk investing. If someone that has nine locations, 14 locations, 25 locations, that becomes medium risk to low risk investing. Can it fail? Of course, I have to keep saying that. Yes, any one location or any one situation can have a bad quarter, a bad year, etc.

21:15But over the course of time, companies with experience, people with experience, businesses with multiple locations are less likely to have failure. There is going to be and there can be failures in investing. I reduce my risk, if you notice from the kind of the theme and the trend of my topics, I reduce my risk by investing into experience, by investing in something that's been a proven track record over and over and over. So if someone has their 13th location of something, I know going in, I could lose some of my investment on a location 14, but it's unlikely because of the experience, because of the things that have taken them to get to their 13th location.

21:58Now they're opening number 14. I like co-investing to something like that. That's a cash-flowing business. You can study people like Cody Sanchez, Pace Morby, and people like that, Marcus Limonis, that are showcasing small businesses and creative financing in ways you might be able to even buy cash-flowing businesses, but you gotta make sure that you study and really understand that cash-flowing business. Really understand what is it doing, what is the profit, what is my risk, who is going to be the operator, how can I help scale this business, the marketing, the ads, the efficiencies, etc. On the other part of medium risk investing is the stock market, but individual stocks.

22:41These individual stocks are companies that you believe in or that you like or that you're a customer of. So I'll use an example. there is thousands of stocks to choose from i'm not looking at penny stocks i'm not looking at the next new shiny thing i'm investing in the companies that i believe in for the long term and or i'm a customer of and i know that a lot of other people are so netflix netflix you've been paying 15 bucks a month for example for the last 10 15 years but you're listening to this and you probably don't have even$10 or$15 worth of Netflix stock. That is one of the best performing stocks in the history of the world that you've been paying for, that you've been spending hours a week watching, and your kids, your friends, or your parents, or your neighbors, all of them are watching it too, and you hear about Netflix all the time, and you could have invested in their stock.

23:36You could have thrown in a few hundred dollars here and there into their stock, and a few hundred dollars, it would be a few thousand dollars now. If you would have invested a few a thousand dollars, you probably have 10 or 20 ,000 now. If you'd invested 10 or 20 ,000 dollars, depending on the year, you'd have hundreds of thousands of dollars now because Netflix is one of the best performing stocks in history. And you've just been sitting idly by watching it. You're paying for it under your credit card. You're watching it, consuming it. You know about it. Everyone talks about it and you're not investing into it.

24:03Just like the Apple iPhone, the Apple laptop. You might be listening to my podcast right now, the Money Mondays. You're listening to it on Apple AirPods. Do you know that if AirPods were their own company, they'd be one of the biggest companies in the history of the world? The AirPod has done hundreds of billions, billions of dollars in revenue. And it's going to keep growing year after year because people lose AirPods or they want the newer version, etc. Sometimes AirPod does a launch and does like$13 billion on a launch of just the AirPod itself. Just one little category, one little product inside of the Apple portfolio.

24:42You might be listening to this on your AirPods or on an iPhone or on a laptop, and you don't have Apple stock. Think about this for a second. You could afford to buy an$800 phone, a$1 ,200 phone, a$1 ,400 phone, so you cannot tell me that you couldn't afford to buy$800 of Apple stock,$1 ,200 of Apple stock,$1 ,400 of Apple stock, for example. There's a fun fact. Do you know that if each time that you bought the iPhone, right, there's been 15 iPhones, let's say they averaged for$1 ,000, right? They were$800,$1 ,200, and everything in between. Let's just call it$1 ,000 times 15 iPhones. If each time the iPhone came out and it was$800, that same day you bought$800 of Apple stock.

25:31The next iPhone comes out and it's$920 and you bought$920 of Apple stock. If the 15 times that the iPhone came out on the exact same day, you bought the exact same amount of stock, so you can't tell me you didn't have the money because you bought that phone that day, do you know what would happen if you spent that$15 ,000-ish on stock? You would have over$1 million of Apple stock for$15 ,000. It's a really fun fact. You can go research it. It will blow your mind, and it will keep growing up. That number will keep rising year after year because Apple has been consistent year after year. It is staggering, the revenue that they do, the market share that they have.

26:12It is super impressive. And so if you like a company like Apple, research it and buy some Apple stock. And oftentimes people say, this is not investment advice. This is investment advice. I want you to do your research, choose companies that you like and make an investment that you can afford to do. If it's a few hundred dollars, fantastic. I don't want you to go put all of your capital into any one thing. I don't want you to put your life at risk. I don't want you to put your finances at risk. That's the whole point of this model of 40-40-20. Diversifying your investments into small, bite-sized different amounts so that no one investment can hurt you.