Zack: Hey this is Zack Miller and you are listening to Tradestreaming Radio.

We are going to take a little bit of a different twist this time. Normally Tradestreaming is a place where investors learn from experts. We're going to continue along that path but this time we're going to turn it into what I would call a mini-course. We're going to have an expert here going to teach us a little bit more in depth than you are used to getting with the regular podcast. Today I brought back one of our previous guests, Todd Tresidder, who is a wealth coach. You can reach him at FinancialMentor.com. You can also nd the podcast itself on our archives and I'll link to that as well. Todd has developed a course and will be launching a course later this year called Seven Steps to Seven Figures. I wasn't necessary a believer when I rst began speaking to Todd, both in the ability to replicate someone else's success. Todd was an early hedge fund pioneer and sold his company and was able to retire at age 35. He spent the next 15 years trying to be able to teach those same skills. He believes it's replicable. He believes he can teach other those skills. He's been teaching people for the past 15 years. He's an expert at what he does. He continues to hone his craft, hone the ability to help people nd their own voice and nd their own wealth. I wanted him basically to take us through those seven steps which he does in a presentation. You will get a presentation, a full blown video with this as well available for download, and I will continue to add more content to this course as time goes on. Todd: Well, let me give you some history where Seven Steps came from. Zack: Okay. Todd: I started coaching people on how to build wealth and where it came from was I had retired at 35, which was back in '97. I'm just about to have my 50th birthday. Zack: Congratulations. Todd: Thank you. I've been more or less retired now, retired, I'm putting little quotations with my ngers around the word, for pushing 15 years now. Shortly after I did it, people were wondering how I did it. People kept asking me. The problem was, this was back in the raging bull market, going back into the late '90s raging bull market in stocks. They didn't even know enough to ask the right questions. They were just sitting there asking me for hot stocks and things like that, when the underlying question was, "How did you build your wealth?" and "How did you pull this off?" The questions were so off base I couldn't even communicate it. My wife was actually getting a little frustrated with me, and she said, "Well, Todd, why don't you just gure out how to communicate this? People are asking you all this stuff. You could help them" It was friends, family and things like that and I was kind of giving them blow off answers. There wasn't even a starting point of a conversation.

Wealth Blueprint: 7 Steps to 7 Figures!

Around that time, this is before Robert Kiyosaki became famous. He and Laurel Langemeier and some other people were going to put together a coaching program. I was enrolled to be the content provider, sort of the nancial expert if you will. I had never done that, so I took a professional coaching course and learned how to become a professional coach. As a result of that, I started coaching people. The coaching program that Robert was going to put together, his lawyers advised him not to do it, he dropped out of it. Everybody went their own way. That never went anywhere but that was the. . . Zack: Why would lawyers steer away from a coaching program? Todd: There's a lot of confusion between... There's a nancial education exemption that a coach can operate under if you are offering purely educational content. It's much like a publisher like yourself operates under. You don't have to be a registered investment advisor. You can operate as a publisher under the education exemption. It's a very thin line and you have to make sure you stay within it in order to say legal. The problem is, see, for me it's not a problem, because I understand the law and I understand the boundaries, but if you try to get a whole oor of coaches, which is what most big name authors and celebrities do, you have to have very strict guidelines as to what can be discussed and it has to follow specic curriculum. Otherwise you can get yourself in trouble. That's why you see these guys following basically a book when they do these oors of coaches. That's a whole other discussion. Zack: I have one question before you talk about more of the evolution of where you are today. You denitely feel that your personal experiences could be packaged and taught and repeated? Todd: You mean can I put it an electronic format or a systematic format? Zack: It's not the media. It's that you had a personal experience, for whatever reason, you had certain inuences and conuences in your life that drove you toward certain things. Todd: Well that was the challenge essentially, Zack. That's exactly where I'm going with this is that was the question, "Could I actually help people?" Could I actually help somebody who is not a nancial expert build wealth to make that transition over and do the right things so that they build wealth in their lifetime? That was kind of the challenge. That was what my wife put toward me. I'm telling you how I got on this path of guring this out.

I actually started coaching clients. In the rst few years I did okay, but I made the same mistake everybody else made. I thought that if I just taught them what I did, teaching my path, that would duplicate my success. It doesn't work that way. You see almost all the gurus out there, they're all teaching what they did to build wealth. It doesn't work that way because each person have their own unique path to wealth. It relates to their resources, their ability, their skills, etc. The key is

Wealth Blueprint: 7 Steps to 7 Figures!

nding their path. However, everybody obeys the same principles. There are principles that have to be followed. The specic path is unique to the individual. I fumbled around with this for the rst few years and I had some success, some failure. My clients' success rate was not consistent in the beginning. It took me about four or ve years of fumbling to work the process out. What came out of it was this Seven Steps process. That's kind of the punch line of what I was leading up to. It took me years to gure out the Seven Step process of how to create a consistent, replicable result with a client that gets them what they want. Zack: Before we drill down into the Seven Steps, something interesting came up this week I wanted to ask you about. Suze Orman, who I think has worked hard to create a brand, particularly with women, on personal nance and helping and as a coach. She's got products. She's not doing that personal coaching that you are doing. She created this guru status. She launched basically an investment newsletter, which to me I thought blurred the lines between saying, "I'm helping you with your personal experience," and saying, "I have sort of a stock answer for everybody." Todd: That's a tough one. You are absolutely correct when you say it blurs the lines. One of the premises of me starting this business is to separate the nancial advisor, nancial education component from the investment product sales. That was kind of the vision when I started this. However, as a coach, I've also learned that people really want somebody they trust show them the investment product side of it because they literally don't trust the people that are selling the investment products. There's a huge need or huge desire for that from your client base when you act as a nancial educator. How you do that without blurring the lines, I don't know. I already have a vision of an investment product thing at some point but I'm not doing it because it does blur the lines and it is a difcult dance to follow. I have a whole vision, which we could do in a future interview because it would just distract form the Seven Steps, but it basically is a turn-key position off of the sixth step, which is how to do active investment management on your own. As it turns out, there is a whole burgeoning eld of active ETFs now to where a passive investor, if they understand the due diligence process, can select a well-managed portfolio for very little cost and it can work. How you manage that with conicts of interest, that remains to be seen. Zack: Tell me a little bit more about the distillation process. You have this repository of life experiences that were particular to you. You started out in the coaching industry. You had some wins and some losses. It was sort of mixed is what I'm hearing from you. Before we drill down to the specics of the Seven Steps, tell me a little bit about how you windowed out, give me that process. Todd: First, let me clarify. I actually started out from the investment product side. In other words, I was hedge fund manager. I built computerized trading systems and ran a hedge fund with them. My experience base was the investment side. I was an investment expert. I built my wealth on
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the paper asset side which is highly unusual. Most people, if you look at the statistics on how they build wealth, it's either through a business or through real estate. I had built my wealth through paper assets and compounding my wealth in paper assets, which is quite unusual. Then I transitioned. I wanted to connect more with people. I wanted to get out from behind the computer. That's where I started this whole path down the coaching side. I started working with clients. Now that's leading up to your question. What happened was I started teaching all the investment wisdom and all the how-tos and all the different things, just like everybody else teaches. What I found was that the thing that really holds people back is a plan that is based on sound principles. Most people don't even know enough about the process of building wealth to get a plan that works for them based on sound principles. Then the personal stuff, once you get the plan and you start implementing it, there's so much personal garbage that comes up that you have to get through all that and implement with enough consistency and overcome all your personal resistances in order to actually start achieving the results you want before you ever get to the investment part, before you ever get to the nance part. That's where the Seven Steps came in. I was starting with the nance part like everybody else, all the investment strategy and all that. That only works if somebody already has the wealth. Again, my mission when I started out on this was "How do I help the masses? How do I help a large number of people that really need the help?" Zack: Can you give me an example of some of the personal garbage that gets in the way? Todd: Well, I think what might be more instructive, is if we just go... I could do that if you want, but I think what might be more instructive if we go step-by-step and then you will see how that ts in. Zack: That's good. Todd: Does that work for you? Zack: That works. Todd: All right. Do you want me to start with step one? Zack: Let's do it. Todd: Step one is how to build a wealth plan. There are two components to it. There is step one and step two. Step one is actually the principles and they work together. First of all, you have to understand the principles behind wealth planning. It's going to be concepts like leverage. Nobody builds wealth without leverage, because otherwise you are just trading time for money. For example, if you took a conventional wage earner, even if they're just trading time for money, they still have to put the savings away into an investment that applies nancial leverage.
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You could build it through business with technology leverage and time leverage through employees. You can build it through real estate with nancial leverage. There are various ways in which you apply leverage. That's a principle of building wealth. You have to have that in your wealth plan. Zack: Now, leverage is a double-edged sword, right? That can go against you if not done properly, right? Todd: It depends on the type of leverage. Let's use my life as an example. I owned a sizeable real estate portfolio. I had an interest in a 160-some-odd apartment units and I had a tax lean business in real estate. I had all kinds of stuff. I liquidated everything by the end of 2006. I didn't want nancial leverage in the nancial environment we were in because that cuts both ways. If you look at my activity since, I've been focusing on building my info product business, my coach business, etc. I really started ramping that up around 2006, 2007 because I chose to pursue technology and knowledge leverage which does not cut both ways. That's a one-way leverage whereas nancial leverage, which is the one most commonly understood, does cut both ways. Depends on the specic leverage you are employing in your wealth plan, what the risk prole is of that wealth plan. I'm using my own life as an example where I varied risk proles based on the marketing environment I'm in. Zack: I'm a mid-level manager. I'm sitting in a corporation somewhere in America and looking down the pipeline and seeing my retirements are looming in the distance. Do I have a lot of leverage in the situation that I'm in? Todd: There are three components to building... Now we're getting into step one and step two of The Wealth Plan. There are basically three paths to wealth. Connecting all the dots here, I was giving an example of wealth-building principles that have to be in your plan. Then we go into the actual construction of the plan. In the construction of the plan there are three paths to wealth. There is your business, there's real estate and there's paper assets. When you build your wealth plan, you have to look at the situation you're at. Like you are saying, mid-level manager. What we do is I have a calculator up on the web site I formulated just specically for this process. I've named it the pretentious name of The Ultimate Retirement Calculator. The reason I called it that is I haven't seen anything else like it on the web. What I have done I have formulated where I can do scenario analysis with on the y. What we do is we map a person's scenario right into the retirement calculator. We'd put in their assets, reasonable assumptions, and that's a whole other conversation, we could go into the future about how to do the assumptions properly behind the retirement planning process, which is really wealth building in the end. Retirement planning is really about wealth building.

Wealth Blueprint: 7 Steps to 7 Figures!

We put in this mid-level manager's net worth, his debt. We go through the whole nancial picture. Plug it into the calculator, the timeline by which he wants to do it, and then we put in the assumptions for a savings rate, which is the conventional approach, savings with paper assets. Typically they will see they get nowhere close to their goals. It's very common they get nowhere close to their goals. That leaves them with business or real estate to augment it. I'll give you some examples. I've worked with people who really don't like their jobs and they have an entrepreneurial dream. We work on a transition plan where they start working the business as a sideline until it generates income and they have condence that they can go out into a roll-out strategy and compound it an actually pursue that entrepreneurial vision or their entrepreneurial dream. I've also worked with people that love their job. They want to stay in their job. They enjoy their career. What they do is the augment it by adding rental properties, investment properties to their portfolio, and they shift or they up their savings rate. Or they plan for the wife taking on entrepreneurial vision after the kids go out to college or something. There are a lot of different life scenarios you can plot to make it work. What you got to do is you got to start with the person's life, their vision, what they enjoy, what their life is about and then you start matching it back in, given what the principles are of building wealth. Am I making sence? Zack: It is. I guess, this may be off the mark, I have a question about looking at real estate as an asset class for building wealth. Traditionally, historically if you look over the long term, it hasn't really done that, on the average. Todd: No, that's not true at all. Zack: That's not true? Todd: That's actually a common myth. Zack: Okay, so tell me why that's wrong. Todd: I don't want to put words in your mouth. The studies that typically make that point will try to say, "Hey if we look at real estate and we match it against stock, stocks have out grown real estate. Therefore, real estate's not a good wealth building asset class." Right? Is that kind of where you are coming from on that? Zack: Again, I'm talking more even just objective numbers. I think historically, again, I don't know the time period, real estate was something like a 4% return, like a bond return. Todd: Yes. See, that's a common mistake because you are matching return-for- return on a cash holding basis, but that's not how real estate is purchased. That's actually a myth. What it is, is real

Wealth Blueprint: 7 Steps to 7 Figures!

estate is typically purchased on leverage and it can be anywhere from 4- 1 to 5-1 leverage. What you've got is a xed component. There is operating leverage involved in real estate and there are multiple streams of return that come out of real estate. You've got the depreciation, which creates the tax advantages which can apply within a person's wealth plan because tax advantages can reduce the total taxable impact of their W-2 income, their earned income. There are a lot of ways in which real estate has return ows. The thing that's really commonly missed and the reason why real estate is a great wealth builder and it shows up as a major source of how people build wealth and yet on the surface it doesn't look that way is because the return is leveraged. If you look at a cash-on-cash basis, and it grows at 4% but you've got it leveraged of 4-1 or 5-1, the return is magnied accordingly. Real estate is a tremendous wealth builder. Zack: Great. That claried. I always looked at historical numbers and didn't put into context with leverage. Todd: Again, that's coming back to the principles of building wealth. This brings up a whole other concept, which is the principles of investments apply universally. You've got principles of risk management, but then you have to match them to the investment that you are using them on. Each investment has its own unique characteristics and principles. For example, how do you apply risk management, which is an essential investment principle, to real estate? Real estate is not liquid, so you use different risk management techniques for real estate than you would use, for example, with commodity or stock trading strategy. All this stuff, these are universal principles that you apply within your wealth plan and yet you have to match them very carefully to unique situation of the individual. Zack: From a practical standpoint, again, let's harken back to that mid- level manager. Is real estate really a pipe dream for him? Or do you have ways to nd opportunities there accordingly? Todd: It depends on the client, where they are located. There are some areas of the country now where real estate produces really nice positive cash ow and it's not a pipe dream and they happen to have an interest in it. For example, maybe I'm working with a school teacher and the school teacher has summers off and they actually really enjoy the handyman work. That may be a good strategy for a school teacher who has trouble building wealth basically at the income that they're producing. Because they have summers off, they have a month or two each summer. They can buy xer-upper properties. They can add value through that process and through the selection process during the school year to nd a good property to work on in the summer and consistently add rental units to their portfolio return at a positive cash ow. Within a reasonable period of time, they can retire with wealth. It is a workable strategy for somebody with low income as an example.

Wealth Blueprint: 7 Steps to 7 Figures!

Yes, it is realistic. Again, it depends on the interest. Some people absolutely don't want to own real estate. I wrote a piece on my site about how anyone can retire in 10 years or less and it has to do with extreme frugality. That's one of the methods I used. I lived on roughly 70% of my income. I'm sorry. I lived on 30% of my income. I saved 70% of my income. That sounds really harsh, but it's not because I had a fat income back then. Living on 30% shortly after coming out of college was a piece of cake. It was actually quite luxurious. There are different strategies for different people, not everybody can live on 30% of their income, save 70%, and retire in 10 years. Not everybody wants to do real estate. There is a way to nd a t for each unique individual. It's a matter of understanding the principles, understanding the strategies piecing them together. That's what we do in step one and step two. In step one and step two, we map that strategy and we actually put science behind it. We put hard numbers behind it in the calculator to see if on an ination adjusted basis they will really get to a point they want by the date they're seeking to do it. Zack: How does that segue into point three, step three? Todd: Well, step two, once you're through step one and two, you've got your plan. The next step is you get into action. There's no point in having a plan unless you're going to take action. That's one of the key points here. This is not a retirement plan or a wealth plan or an investment plan like you would get if you went to a brokerage house or a nancial advisor. Basically what they're going to do is they are going to take your situation and they are going to map it into paper asset portfolio using historical returns. You take that and it looks really pretty. It's got all kinds of pie charts and different charts and it shows the growth with all these built-in assumptions. Then you take it home and you put it on the shelf and you never do anything with it. With this plan, it's an action plan. Then we take and we convert it into the actual actions you must do in order to implement it. We break it down into timeframes and everything. Then step three is you get into action. As soon as you get into action, you learn that it takes time and it takes energy to produce wealth. Step three is all about commitment. How do you commit to building wealth? How do you build that as a structure within your life? Zack: Is this the hardest step for some people? Todd: It's funny. It varies from person to person. Some people will come to me and they are already fully committed and it's nothing for them. Other people, it is the toughest step because they literary have to rearrange their thinking process and how they got their life organized in order to create it. It varies from person to person how tough any individual step is. Some people have the hardest time with planning. For some people, steps one and step two are really difcult. Other people, they get it, I just snapped my ngers you probably can't hear it on the recording, but other people get it that quick. It's like a snap of the ngers. They hear the principles, they see where I'm going with it, and they come back to me within one or two
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coaching calls and they've got it. Other people, we have to just extract it from them. They don't have the planning mind. They don't have the analytical mind to plan it. Yet then those people just sail right through commitment, so it varies from person to person. I got a piece of my website called, I don't even know the title of it, but it's all about the cause and effect chain to wealth, so if somebody could search for that. What it is, is each one of these pieces is like a link in a chain. Your wealth chain is only strong as the weakest link. That's one of the reasons so few people actually succeed with wealth. Almost everybody is weak in one of these points. We can't be strong in all of them. We all have strengths and weaknesses. Everybody does, me included. The weakest link is what causes people to hang up and it's getting through all these links in the process is the key. Zack: Do you have levers as a coach to help people get over those humps? Todd: Yes, I have specic exercises, specic processes. Again, I've been doing this for many years and I've worked with so many people through each of the steps that I've developed processes to help them through. Zack: How intimate is that process? Todd: Very. Zack: Do you sit down at the table with them with lawyers and help on the closure of property? Todd: No, no, no. Zack: Are you getting into bed with them and pushing them out to do what they need to do? What are you doing? Todd: Well I'm denitely not getting into bed with them. That would cross boundaries. No, no, it's all done on the telephone. I'm never interfacing with lawyers or anything, no, no, no. It's personal from the sense that you are working deeply with somebody to help them overcome their issues once they're into the process. Obviously as you build a wealth plan, there's a very personal aspect to that as well because it's got to result in happiness. The end game here is happiness. It's not money because money's just a tool. Money is a tool toward happiness. You've got to design your vision for your life as part of your wealth plan, otherwise you'll climb the ladder of success and it's leaning against the wrong wall. Anyway, step three is commitment, which is an essential step. Then once people commit, once they have a plan and they're doing regular actions, then the next thing that comes up, I'm going to call resistance, to borrow a term from Steven Presseld from "The War of Art." Are you familiar with that book? Zack: I am not.

Wealth Blueprint: 7 Steps to 7 Figures!

Todd: I'm calling it step three but it's actually step four. Originally, step four was all about how to construct your life to literally pull you toward wealth. It was never quite cohesive and I was missing a piece until I ran into Steven Presseld's book called "The War of Art." That was the glue that held all of the exercises together. I had put all these exercises, all these specic actions people had to do so that literally they built their life and designed their life to pull them toward their goal. Zack: Todd, I sorry your voice had cut out a little bit. Can you say the name of the author? Todd: Yes, I'm sorry. Is that better now? Zack: Yes. Todd: Steven Presseld, "The War of Art." Not to be confused with Sun Tzu, or whatever, "The Art of War." Zack: The Art of War, right. Todd: Those are different books. This is "The War of Art" and it's by Steven Presseld. He wrote it originally as a book about creativity and the challenges artists face in looking at a blank canvas. As it turns out, the issue of resistance, as he calls it, with a capital R, giving it almost a spiritual connotation, is a problem across the board for anyone trying to move their life forward in a positive direction. It's this strange phenomenon that people experience, which I didn't understand at rst, but it's across the board. I experience it too. Any time I'm moving my business forward, I'm amazed. Here, I teach it, I work with clients on it, and yet I experience it myself every time I get to a crucible point in my business moving it forward. It's just stuff comes up and you get in your own way, and you create obstacles. If I didn't know stuff, you just have to work your way through it, it's an incredible phenomenon. Zack: Very interesting. Todd: That's step four, how to structure your life to pull you forward through this stuff and what is resistance and understanding it. I'm giving you a resource on this interview so that people can go lean about it. I structure the whole thing and then rebuild it all around the wealth building process. Then I have all kinds of specic exercises to literally rework a person's life set. It pulls them forward with the least hassle as possible. Zack: We focused on resistance. What's the next step? Todd: Well, once you're through commitment resistance, now you're through a lot of the personal stuff. You are making regular progress, you're moving forward, you're getting results so now we go to the nancial part. Now nally we hit step ve and it's actual nancing. That is passive investing done right. So many people have nancial professionals that are helping them. There is a known approach to passive investing. If you are going to do passive investing, there is a proper way to do it. That step is probably going to be quite simple. It's just going to be an e- book, I
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think. It's not even going to be a full coaching program. It's just so simple. I can't even make a coaching program out of it if I tried. Zack: Why is it so simple? Todd: It's just well documented, well proven. There are multiple portfolios that a person can put together for 20 basis points or less. If you are going to take a passive investment approach, there's just very little to it. You're basically in a position with passive investing where you are saving as much as you can and you're contributing to your investment on a regular basis. You're just balancing the portfolio on a regular basis and there is known ways in which to do it. It's very straightforward and simple. It can all be implemented with low cost DTS now with minimal tax hassles with any brokerage platform. It's very straightforward. Zack: I ask because there are lots of nuances there, right? Like the right allocations, the right type of securities to get that type of exposure. You can spend now and until eternity sort of nitpicking at some of the nuances. Todd: You could but it's not statistically signicant and that's the point. The nuances, if you go into and look at what I'm going to do in a book, again, I said I'm going to just to this in an ebook, is rather than me say, "What is the ideal portfolio?" I'm just going show what other people have researched to be the ideal portfolio. Take very high qualied investment professionals, show their efcient frontier of their theoretical portfolio. You will see that they are extremely closely correlated. In real-time practice, there's not going to be that much variation in returns. Here's the thing. The difference is even though they're small, there's no predicted value in any of them. You don't know what's going to be the efcient frontier in any given year, ve-year or ten-year period. That's well documented. The efcient frontier varies over time. It's not stable. There's a false assumption in the modern portfolio theory which is they plot a theoretical efcient frontier based on historical returns. Yet the only efcient frontier you care about on this static portfolio is the efcient frontier for the next 5, 10, 15, 20 years of your investment horizon. That is not the same thing as what was in any historical period that you base it on. The variations in the portfolios are basically a crap shoot. You don't know where the exact efcient frontier will be. All you know is there is some validly to that versication concept of asset classes and even that is getting reduced with time as correlations rise. That's a whole other conversation. We can talk about correlations. Anyway, is that making sense, Zack? Zack: It is making sense. I guess what I nd so compelling about your description of the steps and the description of your process is that, you're taking seemingly very overwhelming and very complicated issues and you're simplifying them to a way where it's like, "Here's the data, here's what you need to do, just do it." I think people, people I know myself, sort of bump up against the depth and the size of some of these issues. There is a lot of noise out there. I just nd that the way you're describing the program, the way you are describing the steps, is able to just cut right through it.
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Todd: Yes. Thank you very much. You couldn't have given me a better compliment because that is my mission. That's what I'm trying to do is simplify this stuff so people can implement and take action and actually do it and not get caught up in the noise. One of the problems right now is there's just so much information out there. It's so overwhelming. I spent a lifetime learning this stuff. Most people don't have the time to do it. I did well. I became wealthy early on. I spent a lifetime on it because for some crazy reason I'm passionate about it. I'm entertained by it like a kid playing Monopoly. It's just my little freakish characteristic so I spent a lifetime learning stuff. I distilled it down where it's simple and I'm trying to teach it. I'm trying to get it out there to where people can actually benet from it. One of the problems right now is there's so much noise. Everybody is portraying . . . I have another piece on my web site where I talk about the Indian folktale. Are you familiar with it? The three blind men and the elephant. Zack: No. Todd: Oh, it's a great story. It's relevant so I'm just going to spend a couple of seconds on it here. There blind men are given the task to describe the elephant, explain what an elephant is. The rst blind man walks up and he wraps his arms around the elephant's leg and he says, "Oh an elephant is like a tree trunk." The next guy put his hands around the elephant's ear and he says, "The elephant is like a great fan." The third guy grabs the elephant's tail and he says, "The elephant is like a rope." Each man is partially true. Each guy's got a partial truth, a half- truth, and yet none of them are seeing the whole elephant. That's one of the problems right now. Everybody is out there putting out this fragmentary knowledge that is all these dangerous half-truths. You have to have the context. You have to see how to t it together to create the whole elephant, to have the whole vision of how this t together. Does that make sense? Zack: It does. I guess the ip side of that and sort of that the signal going off in my lizard brain is saying it's hard to trust somebody that says it's that easy. The noise and the deluge of information and false promises that are hitting us constantly and consistently, we have to decipher whose trust worthy and who's not. When somebody has seemingly an answer that's able to slice through all the slosh and really just distill it for what it is. In some way, I have to push back a little bit and say, "How do you have the answer? How are you so smart?" I know you've lived it and I know you've done it but I guess it just keep coming back to that question is that replicable? Todd: First of all, let me clarify something. I am not sitting here saying it's easy. I'm saying I'm simplifying the process so I make it actionable, so people aren't caught up in confusion, so people aren't . . . I am not going to tell you this is easy. That is the last thing I'm going to do. It's hard work to build wealth. It's hard work to implement all this stuff. If you want to know, I'm adapting a slogan out there which is "one of the great paths of personal growth is to become wealthy." In other words, it's not the money, the money is kind of the carrot, but it's who you

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become as part of the process if you implement it properly. You're going to have to grow and learn a lot to do it. If I sounded like I was saying it was easy, that was a miscommunication. I'm not going to claim it was easy. It's hard work. It takes effort and commitment, obviously, if I put a step in there called commitment. I got another step about how you are organizing your life to pull you forward. These are all making statements it's a challenging process and there's a specic way in which you've got to do it. If it was easy, we wouldn't have these horric stats out there showing that... The stats I've seen are something like less than 5% of the people retire with nancial security. Zack: And everybody would be a millionaire. Todd: Yes. I am not saying it's easy. What I'm saying is I'm simplifying the process so that it's actionable, so it cuts through the clutter, cuts through noise and says, "I did this to my own life. I've been doing this with clients for nearly 15 years now. I've developed a step-by-step process that works." To claim it's easy, no, it's not. The person is going to work at it. This is not get rich quick. It's not synonymous with that at all. Does that help? Zack: Great. I'm glad you veried that. Where are we at? Step six now? Todd: Yes. We are at step six. I'm trying to think of how to explain step six. Step six is active investment management. The concept here is that passive returns, which is step ve . . . there's passive investing done right. Passive investing, there's nothing wrong with it. Traditional investing advice as it's taught is correct and there is nothing wrong. I'm not going to claim that they're wrong. However, it has specic risk-reward characteristics which at certain points in market valuations are undesirable. We just happen to be at one of these points at the time that you and I are doing this recording. We've been at points like this relatively frequently in the bubble history of Greenspan- Bernanke era. That is when you get very high valuations, the risk-reward expected return characteristics of buy and hold returns is not desirable. There's the concept of active investments management. There's a variety of viable strategies that are proven the work and they operate on different timeframes. Just to give a quick nutshell of the premise behind this, buy and hold returns have a valid positive expectation over a 15 to 30 year time horizon depending on valuations at the starting points of the holding period. I know that's kind of a mouth full. Was that simple enough to understand? Zack: Can you explain it one more time? Todd: Well, your expected return for buy and hold portfolio is a function of valuations at the beginning of the holding period. The higher the valuations, the lower the expected return, the higher the risk prole. The higher the valuations, the lower the expected return, the higher the
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risk prole. Then vice versa obviously. The lower the returns, the higher the expected return. I'm sorry. The lower the valuations, the higher the expected returns. Was that simple enough to be confusing? Zack: No, I understood. Again, actual returns may not mimic expected returns, right? Todd: Let's just go through this. There are really three valid concepts in investing. You've got the traditional model which all characterizes buy and hold. That has a 15 to 30 year time horizon to realize the valuation on it. That's supported by all the data out there. You can go to [inaudible 40:21] center anywhere and you'll see the buy and hold portfolio where it turns positive over X period of years and all that. It's kind of the 15 to 30 year time period again. A great study on this is Ed Easterling in the book "Unexpected Returns." He has excellent charts in there showing the relationship of valuation to expected return over most of the market history. There are other great sources to use, global nancial data etc., etc. Anyway, that's one model. That's a longer time period and a higher risk prole than I was willing to tolerate. I developed other models. The next model down in time horizon is valuation. Valuation, you are kind of in the 7 to 15 year time horizon. You've got retired time horizon and it has a slight value added stream through buying better valuations of stocks. It can still have periods of difculty as any value investor knows. There's valuation. Then you get into what we'll call price base models or active risk management and those have expected positive returns anywhere from one to seven years. There are ways to blend those models based on investment characteristics, market characteristics etc. That's where step six comes in. It teaches the essence of active investment management from the standpoint of somebody who doesn't want to spend their life being a pro investor. They don't want to have to become a great hedge fund manager. They can't watch the markets all day. They've got a career. They take kids to soccer practice and that kind of thing. They don't have the time to spend all that's investing and yet they don't want to tolerate the risk-reward of buy and hold. That's what's step six is for. Zack: Tell me about step seven. Todd: Step seven is kind of the punch line of the whole process which is now that you are a millionaire, so what? That bridges back to what I said at step one, which is the goal here is happiness. One of the myths that we go to build wealth under is that once we have nancial freedom, suddenly our life becomes okay. It's really about personal freedom, living true wealth. It's the step I'm currently walking right now. It's actually not fully written. I'm writing it as I live it. That's part of what my blog is about is people seeing me develop a lifestyle business through the blog which builds my community, my connections, my contribution and is part of my step seven. Step seven is now you're a millionaire, so what? Zack: Have you taken clients through to this point?

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Todd: Yes. I have not taken clients through the completion of it because I personally haven't completed it. I've worked with clients on this. Zack: It is some sense, this step is probably never completed, right? Todd: I think you're right on that. That bridges another topic which is the idea big goals versus small goals, which is a whole other conversation. The idea that is certain types of goals that are process goals versus goals that you can accomplish and cross off a list. Finding happiness, living with happiness and true wealth is a process goal, so it's probably never crossed off the list. At some point, I hope that I've mastered it. I certainly am not a master in it yet. Because I'm still completing the process or living the process, I can't tell you that there's any dened ending. I'd love to believe that I've reached some Buddhist accelerated level that I feel complete in the process. Right now, I really don't know. I'm living the process right now. If I had to take a guess, I believe no it's not. It's always a work in process. Zack: Great. Does step seven never end? Is there something that people, I guess, a graduate of the program, what do they look to next? Todd: I think where step seven really came from the essence of it is to give people a vision of the end game. I'm really trying to paint a vision of the end game so that people don't labor under a myth. I labored under what I called the millionaire myth, which is I thought that if I just reached a million, my life would suddenly be okay. Suddenly I reached it and my life wasn't okay. All it did really was it took away the excuses that I had had about the various problems in my life. Once I had nancial independence, and it didn't occur at a million obviously, I realized that there were other levels to what was not working in my life and it took away all my excuses and caused me to start dealing with them. I work with clients up front on that so that they don't labor under the myth. That bridges back to where I talked about step one which is it's all about happiness and what serves you in life. By sharing with people what step seven is, they don't labor under the same myth. They can play the end game as they build their wealth so when they do build wealth they're actually reaching a point of personal freedom as well. Zack: Understood. Todd, this has been a fantastic and engaging conversation. I appreciate your time. Todd: Zack, it was great talking with you. I enjoy your questions. I enjoy talking with you. Thank you for the chance to share my thoughts.

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