Wealth Podcast Post

Alternative Investments with Fred Hubler

George Grombacher December 8, 2022

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Alternative Investments with Fred Hubler

LifeBlood: We talked about alternative investments, how large endowments invest their money, the problem with traditional stock market investing, and how to get started, with Fred Hubler, Founder and President of Creative Capital Wealth Management Group.

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Our Guests

George Grombacher


Fred Hubler

Episode Transcript

eorge grombacher 0:00
Hey what’s up? This is George G. And the time is right. welcome today’s guest strong and powerful Fred Hubler. Fred, are you ready to do this?

Unknown Speaker 0:22
I am ready. Good morning.

george grombacher 0:23
Good morning. Fred is the founder and president of Creative Capital wealth management, they are the alternative for alternative investments. Fred excited to have you on tell us a little about your personal life’s more about your work, why you do what you do?

Unknown Speaker 0:40
Awesome. Well, thanks for having me personal life married with boy girl twins. My wife would not let me name then Luke and Leia, William James, and Abigail, which I thought looked really cool are really not cool. Like, I don’t know what, you know, what the cool kids are gonna have. Have a business that started 20 years ago, my first day was 911. And so everyone’s answer was their products. I grew up with the X Files, and I trust nobody when it comes to where to put people’s money. So we do our own research, everyone has an angle, and everyone has something to sell. And so we kind of, there’s a lot of that in the industry, if you haven’t noticed that. So we’ve spent a lot of time looking through where people actually with money are going to put their money. And 20 years later, we’re in 28 states, we have a patent on a retainer based planning program. Because right now the industry is give me your money, I’ll charge you 1%, and then you’ll get the advice. And that assumes you have money to give me it might be in your 401 K, it might be in your businesses, it might be in your properties. And those people probably need more help, because they have a lot of moving parts. So four years ago, I trademarked milestone clarification process. And that is a retainer based planning, never have to have any money with us. And you get a CFP, and you get the process that we have one for entrepreneurs, business owners, professionals, so working working people like us, and high net worth retirees, because why not, that’s the low hanging fruit in the industry. So we have a profile and MCP for each of those. And that’s really gotten us into those 28 states, because they’re not no one’s giving us money, or you’re paying and paying us for advice, and it’s quarterly. And then get to the second part of what we do is we make sure that people when they can have as much of money as needed to mimic the portfolio for like the harvest and nails of the world and the institutions, believe it or not, they have about 70 to 80% of the entire portfolio is not in the stock market. So when the smartest kids in the class aren’t even in the casino, maybe you should go look and see where they are going. So that’s kind of been what we did for the last 20 years.

george grombacher 2:56
Got it? Well, I think that that’s I think that makes a lot of sense. And it’s obviously been received well, because you’re still doing it.

Unknown Speaker 3:05
Yeah, 20 years to be an overnight success. It was it was a one man shop by myself, finally got an admin in one state, literally in the same zip code as Vanguard. And so everyone thinks I’m a genius for focusing on these alternatives. I did it to survive, because I was never going to be bigger has never going to be cheaper than Vanguard. And 20 years later, I’m working with companies that we know whenever I write a check to off clients don’t write checks us they write it to the big sponsors that are the same places that the Harvard in the hills and the big institutions go to, we just have a different you know, we have a way of getting in there too. And the interesting part is people think I’m a genius. I just did it because it was the only choice to be different. I had to go where they work. And I studied and you know this you probably have other people on your podcast about it. There’s there’s thing called modeling. So if you want to flip houses, you look and see who you know, a successful house flipper is, do you want to be a best surgeon? You got to look and see. Okay, how did they get where they are? Well, investment is no different. So you look at portfolios, and you look at where are the best long term portfolios, not the hot hand, the person that bought apple early on and now that’s their, you know, they they ran the school are up, and institutions tend to be the answer to that modeling question. And when you look a little bit deeper, like I said before, most of their money’s not in the market. And then I did a little bit of research and if you think of all the tickers you know all the little you know, all the all the little letters, you can have the buy stock, there’s only about 3400 in the entire stock market, every stock market. So we picture this gigantic ocean, it is a four inch deep link Lake and all the boats are flat bottom boats. And so when you start saying okay, there’s only 3000 companies total and of the ones that people actually buy Facebook, Apple, Tesla, Exxon Mobil, there’s maybe 800 and There’s more combinations at any one mutual fund company than the things they’re buying you into. And we had a client came over beautiful portfolio, $70 million portfolio, we’ve run it through our, our risk thing, and I needed to get a point across, I didn’t want to insult him. But when you have $70 million in a portfolio, you kind of think you know, it all. You might not say, you know, at all, but we’ve been dealing with this for all the time. So I knew he knew, he thought, and I said, Congratulations on your portfolio, just say, you know, you’re not in anything different than my twins. And then the guys feathers got a little ruffled. Is that what you mean? Like we got the s&p 500. And you basically, with your 17 million, and you’re 64 different funds, our analysis shows you have the same exposure as the s&p 500. Yeah, my kids don’t have 17 million in it. But from a, what you’re owning, you own the same thing. And by the way, if you wanted to sell all of your 17 million, or 14 million, and put it into ES, you know, an SP, y, s&p fund, you’d save a ton of paper, you saved the entire rainforest, because you’d have one fun. Now, I’m not recommending anyone put 14 million in one fund, but the end result would have been exactly the same. So after his feathers got a little rough vote, he’s like, Well, what’s the answer to that I explained to him, you know, looking at alternative investments, you don’t have to use us for it, and we just walked through. And a lot of people get confused. alternatives are just typically they’re almost always not liquid. And that’s one of the things that gives us a superpower. If it’s not liquid, it’s not in a public market. So when everyone’s selling, and you own something that they can, that is that isn’t in that market, they’re not selling your stuff down. So it’s illiquid, which means it’s never a big part of anyone’s one portfolio. And it’s real estate. Sometimes it’s private equity. Sometimes it’s oil and gas commodities, like there’s a ton of stuff. I mean, you could have a whole, you know, their whole podcast just on what alternative investments are. But if someone Googles it, they’ll see a ton of things out there. And I’m not the only one doing this, I think I’m the most vocal person letting everyone say, hey, not everything, stocks and bonds, and this year, both stocks and bonds are down 20%. So you don’t need me to tell you to look for other options, because your portfolio is telling you, hey, something else here. And cash is not a bad option, but you’re never gonna make a ton of money. And

george grombacher 7:25
that makes a lot of sense. And I think that people will be surprised to hear that there are around 3000 publicly traded companies that we can invest in. And when you do peel back those layers that there’s, you know, 100 or 500, right that people are most commonly invested in. So that’s interesting. And then you look at the those big endowments, Yale and Harvard, they have literally billions of dollars. And so if you’re managing billions of dollars, what are you investing in, and you touched on a couple of those things like real estate and private equity and commodities. So I as an individual investor, can access all of those same things. So if

Unknown Speaker 8:04
you’ve ever felt the rich get richer, because they know things the rest of us don’t, it’s not only true. It’s a government program called accreditations. So there are alternative investments. But we’ll talk about today that you don’t have to be accredited. The big boys like the private equity and the owning, you know, real estate as as real estate, they are under a category called accreditation. And the rules are, are meant to protect, like I understand the rules are meant to protect the investor. So you have to have a million dollar worth not counting your house, or if you’re married, make 300,000 of income. For some reason, if you are one of those two, the government says that you’re smart enough to know better. And so now we’re gonna let you see this. And I think the real thing is, number one is very ill these investments, the good ones, are very illiquid. There’s not a public market form. So the analogy I use for almost every alternative investment is my job is to make sure that we’re going on the right plane, because you’re not flying the plane, because it’s passive. And you’re not getting off the plane until they land. And I need to make sure when the plane lands, landing in Jamaica, if you don’t go there versus Texas. And so that seems that you know, if you think of it, of that as an analogy, that’s a perfect analogy. And it may stay in the air more than they thought there might be a storm and so they circled the airport. So there’s a lot of good, you know, that analogy works multiple levels. The the real estate part, the interesting thing with with real estate, is real estate can’t go to zero. And if you are an accredited investor, most of the times you get into real estate in like a syndication so a bunch of investors get together. And what you’re getting into is an investment and the investment happens to be real estate. Well, that’s not how the big dogs do it. And that’s not how we do it. There’s a structure, a legal structure called a DST Delaware statutory trust, that basically that’s the wrapper but you can still get a group of people in and each invest their own little bit of money that they have. And accredited investments. The other misnomer is that you need a ton of money to go into it. Some of these are 25 and $50,000. minimums, but they’re not, you know, you got to be a millionaire and put 900,000 No, it’s not, it’s not crazy like that. But if you own real estate through that DST, you actually own the underlying real estate, you’re not an investor in a fund, you are a point 000000, no investor in the underlying real estate, which is great, because when that airplane does come down for a landing, when they do sell that property five to seven years from now, and you have the choice to get out, you can get it out and pay your taxes, because again, this is real estate, or you can use a 1031, which is again, these are old tax codes, these are things have been around longer than you’ve been alive. And they are, you can exchange your money out of the DSD into another DSP pic. So if you do that, just as if you were doing it with real estate, you’re doing it you’re partial owner of these DSPs. But it’s still real estate in the IRS world. You don’t have to pay the taxes, because you’re just moved into another piece of property. So the technical term is swap until you drop. So if you keep doing this, some point, you’re not going to be around because you die, and your family gets a data death step up. So suggest that there’s no mutual fund in the world that has any of those. It is illiquid while you’re in it. So again, he does not have an answer to everything. But it is a cool way for the rest of us to have a piece of a multifamily a $300 million multifamily mere mortals do not own those. It is always a big company. The things that DSTS has in common, the property is already built and already has tenants in it. So we’re not we’re not doing development when when people show up, you get cashflow the very next month. So that’s just one category. It’s a huge piece of our business, because there’s two types of people, people that are selling their real estate because they wanted to get out of being a landlord, but they don’t want to pay the taxes. And they like the passive income. Well, they contend 31 into a DST from the real estate they sell as long as it’s an investment property. We’ve for those professionals as working professionals that that we work with the doctors that they don’t have the they might have the money, they don’t have the time, or the patience to be a landlord, well, you can put cash into a DSP and from that moment forward, that’s real estate. So either way, you know, when I get in, you’re getting into something that’s real estate. And because it’s real estate, that third option, so you can get, you know, when it comes when the plane lands, you can get out and pay taxes, you can exchange into another DST, which is great for us because we get paid again. And the nice thing is, if you’re too polite to ask me, Jordan, you should be asking me this. How do we get paid? The companies we use require us to be the fiduciaries to make sure that you are on the right plane, because it’s not they’re not going to take the plane out because George put money in that he shouldn’t have. So we’re on the hook, frankly. And so they pay us. So someone’s first statement, if they put 50 grand, their first statement is 50 grand, we got paid by the sponsor. And we always let clients know what we’re getting paid. Usually it’s 5%. It’s not a crazy number. But it’s built into the transaction because nobody other than us wants to talk to you like you know, these big companies or real estate companies, they don’t have an 800 number. You know, they have a call center. They’re requiring, you know, licensed offices, I guess. And then the third option of the DST just to close that is you can exchange out of a DST back into a property that you own personally, you can go from a DSP into an individual property, you want to buy a bed and breakfast and your airplane comes for a moment you can get into a different airplane, it could be an airplane that you do drive. That’s just one of the alternatives. But that’s been a huge piece of our business. And the little thing that’s scary. None of us I don’t think so 2008 Coming. Whatever’s storms on the horizon, we kind of feel it. I don’t know what kind of storm it is probably going to be a little bit longer, a little bit sharper, sharper down than 2008. And a big piece of that is we’ve never had an everything bubble everywhere. Like that’s global. Usually it was tech stocks or house housing. Were very defensive. So real estate’s you know, cash flowing real estate is defensive cashflow in businesses, I think this last couple of months. Oil and gas as a commodity needed in the world is not going anywhere. We can’t go to solar tomorrow. We don’t need the structure don’t have the people to work on and have the people to build and I don’t know where the money is gonna come from because we don’t have the money to pay back. We don’t have the way of taxing the money we’ve already spent. So there’s some real decent headwinds challenging headwinds that the market I don’t I don’t think that people in the market are necessary. They’re very, very poor. Thinking which is great until it’s not because then that’s when everyone runs to the doors into the windows. I just spoke way too much in the ICU drinking there. And that’s not fair. So I’m going to get your next question.

george grombacher 15:11
You you enjoy some caffeine as well. So when when you think about time horizon, how how do you coach clients through that when you have money today? I need money. 10 years from now I need money. 30 years from now?

Unknown Speaker 15:22
Yeah, so we caught buckets. If you need money in less than two years, that money should not be invested. There’s really nothing unless it’s a CD or something or cash book, which isn’t really an it’s not investing. Sometimes it’s an investment. So we bucketed it under two years, absolutely no way. That’s an anything that could go up or down. Because if it can go up, it can go down. That’s how it works. If it can go up a lot. Yeah, it can go down CDs, we actually just got an it’s interesting. I’ve never been so excited for a cash account, like an FDIC a cash account, we found one that we have access to for our clients. It’s FDIC insured up to 25 million. So for these big foundations, or just people that have payroll, and they have over 250, they’re either not insured, or they’re playing the game where they’re, they’re moving the money around just so they only have to 15 on bank. This satisfies that, you know, you don’t have to shop around unless it’s over 25 million, and not many people should have 25 million in cash anyway, that’s a whole other whole other concept. 3.2% It’s not a crazy number, but it’s cash. And it’s not with us, you know, it’s just an account we have and I, the funny thing is after we got access to it, like can anyone be on there, like, Yeah, as long as they usually email, I’m like, okay, so they don’t have to be clients of mine, like I have friends and family that you know, their work. And they have the 401k I tell them where to stick it. But they’re not clients of mine, but they could use cash. So it’s, it’s interesting in this world that a cash account is very exciting. That’s the world, we’re just just having this array can’t lose. That’s, that’s been there. And that’s just like, wow, this is really comfortable cycle. So definitely blocking two years or less cash, two to five years very, very conservative, you know, and then you start to invest five to 10, the alternatives are in the seven to 10 bucket, I know most of the alternatives have a five to seven. And I believe in Scotty from Star Trek, I under promise over deliver, and I assume the returns are less than they’re going to make and the liquidity is going to be less than they’re going to say. And that’s really a function of you set them up for what what it should do is up here, but you tell them it’s going to do this, when it’s somewhere in the middle your hero. If you tell them it’s gonna make 10 And it makes nine, you’re not a hero, if you say seven to eight, and you make nine on that. So so we, we here’s the ranges. And we always want to be very conservative, because money is a weird thing. It people act. As we all know, there’s all books on that. They act different because it’s funny. And if it goes down, it’s personal. We deal with both money and family like most of our clients give us their parents give us their kids give us their best man or their best friend. So there’s a lot of pressure there not to screw up because we’re screwing up the entire family, which is why everyone in my office, we’re all salary, we look at things three times we have a committee on what’s in our playbook. Because I don’t want to say I like shiny objects. But if something’s new and making money, I’m interested. And that’s not just, you know, that’s just the beginning of getting it on our radar. It’s, you know, checking out the players, and the sponsor and what kind of track record and they all have, if they’re old enough, they all either were around 2008, or they’re around even longer. And you want to know that how much money they made. It’s what did they did do when things really went sideways. And it was unexpected? Did management, eat some of their fees? Did management pony up more money just to make something work? And that’s historical, like they’re You can’t lie about what they did if they did it. So we look at that really important. The current investments important. It’s the history of the person putting that current investment out on the market. To me that matters, you know, almost as much.

george grombacher 19:15
Yeah, that makes a lot of sense. Well, Fred, thank you so much for coming on. Where can people learn more about you and how can they engage with you?

Unknown Speaker 19:23
Yeah, so our website is cc wmg.com, like cat cat, William Mary greg.com. A lot of informations there. They can schedule a second opinion service, which is a complimentary look at where you’re at. You’ll have someone from my team, there’s no sales pitch, we’ll just you know, have a conversation. If you’re comfortable sharing us information. After the conversation, you send us your info, we’ll do some research, and then we’ll give you at the second meeting our you know, what’s working what I would what we would fix if you you know if we were you and it doesn’t need to be without success. Here’s the thing just look at it. If there’s a good fit there, you know, we’ll be the first ones is do it. Being in the business for 20 years, we’re here to help people not to, you know, bring people in if there’s not a good fit, so CCW mg.com. George, thank you so much for having me.

george grombacher 20:14
It was it was a pleasure. If you enjoy as much as I did show, Fred your appreciation and share today show the friend who also appreciates good ideas, go to ccwmg.com. Take advantage of that second opinion service, then you will know there’s a lot of benefit to another set of eyes, maybe even several sets of eyes and find out if it’s a good fit for you. Thanks. Good. Thank you. Thank you. And until next time, remember, do your part by doing your best

Transcribed by https://otter.ai

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