How Will You Diversify a $100,000,000 Portfolio? (Asset Allocation)

If you had $1100 million, how would you invest it? How much of it would go where? Well, as of 2024, according to the Wealth Report by Douglas, Elon, and KN Frank's Flagship Report, there are around 626,000 ultra-high net worth individuals in the world. These are people worth over $30 million, and someday you might join them. So, it helps to understand how they allocate their wealth to make sure they never go broke.

Here's how to diversify a $100 million portfolio. Welcome to Alux, the place where future billionaires come to get inspired. Usually, asset allocation fluctuates with different age groups. The older you are, the more conservative you become. But once you cross into the nine-figure territory, portfolios across the board start to look the same.

Here's a one-chart breakdown of asset distribution across net worth groups, thanks to our friends at Visual Capitalist. You can pause the video here if you want, but looking at the big picture, it becomes clear that the richer you are, the more of your net worth is tied to the primary business you own. If you're looking at billionaires and people with a net worth of over $100 million, it becomes clear that most of them got rich in a single way. They didn't diversify; they went all in on one thing and it blew up.

You cross that threshold once you IPO or the business is acquired by a larger entity, and this is when the question in the title shows up more than you expect it to: What now? We have a friend that recently sold his company for low nine figures. It doesn't even feel right saying the word low next to nine figures, but whatever. After 8 months of back and forth due diligence, the deal finally closed, and so we got to celebrate like with everyone truly rich. It doesn't feel real; it feels like a glitch on the screen of your account.

Then the inevitable question presents itself: What are you going to do with that money? Opinions were all over the place, from starting a new company immediately to retiring on a beach in Southeast Asia, or someone suggested keeping $10 million and putting the rest of it on red just for the story. But the more we thought about it, the more we realized this is actually about something else.

It's not about getting more or increasing your lifestyle, but about never being broke again—not you or if that's what you want your children and grandchildren. Never broke again. Even with inflation and pandemics, and whatever else might come up, $100 million is a lot of money. If you're naive, you'd think you'd throw it all in the S&P 500 and be done with it, taking out 3% every year.

But if the country goes through a depression, it might be decades before you're able to recoup your losses. We are big fans of indexes, but look, okay, here's the truth: the market has cycles. Your entry point into the market is important in the short to medium term. If you entered the market in 1970, it would have taken you 22 years to see yourself break even on your investment—22 years where you didn't earn anything. Actually, your money would have been eaten up by inflation.

The same thing happened in the year 2000. If you put your $100 million in on January 1st, 2000, it would have taken you 15 years to see that investment break even. So, there must be a better way to distribute your funds in order to make the most out of your hard-earned money. So here at Alux, we invented this thing called the five Forever Rich buckets.

So, let's assume that you just sold your company and are sitting on a pile of cash all for investment. Here's a proper distribution for the next 100 years. Let's start off with bucket number one: the "I never want to be poor again" bucket. We like to call it the "I want to be a billionaire before I die without doing anything" bucket, but that would have made for too long of a subtitle, right?

40% allocation here. So, if you're investing for the next 100 years, you don't want to handpick your stocks, so you should still go with an index fund but not with all of your available funds. 40%, almost half of the entire thing, should go to wealth preservation and gains based on the market. You decide how that 40% gets split between the S&P 500, dividend ETFs, and fixed income securities.

This bundle will not only keep up with inflation but historically will self-compound and double about every 8 years. If you want, you never have to touch this again. Since you're not actively in the market, you can look at it as a 50-year investment with little to no intervention required. This is boring investing at its finest.

Okay, this becomes the foundation of wealth for all future generations in your family. Lock it up in a trust, and you've officially won the game of money. The S&P 500 has averaged 11.7% since inception, but since we're going with a couple of lower risk vehicles as well, let's say you're going to get somewhere in the middle—returns between 6% and 11%, 9% per year.

Let's assume you're going to live another 40 years. Your $40 million at 9% compounded will be worth $1.44 billion. Run the math yourself if you don't believe us. With just $40 million in the "never want to be poor again" bucket, you become a billionaire in 36 years. You're not adding anything into the mix; you just set it and forget it. It takes a while to pick up speed, which is why the big returns are seen in the later years.

This is the most simplified way of building wealth and why Albert Einstein said compounding interest is the eighth wonder of the world. He who understands it earns it; he who doesn't pays it. And this is just the first out of our five buckets. Remember, you've got $60 million left out of your $100 million to invest.

But some of you are skeptical, right? You don't trust the stock market, Wall Street, or the government for that matter, which is why we're only doing 40% in that bucket. It's time to move on to bucket number two: the "I want to be able to touch my money" bucket—35% allocation.

This one's about buying income-generating real estate and storing value. The ideal ratio here is 20% residential or a mix of residential and commercial, 10% land 30 minutes outside of where you live, and 5% offshore real estate, meaning owning cash-flowing property in a different part of the world. We'll get into that in a second.

Let's tackle the first one, shall we? The big 20%. Housing will always be necessary for people. The population is going up; demand for housing will keep going up with it. As more and more people work from home, the ability to earn a living and thus the ability to pay rent is a safe bet. Not only will you get a predictable check every month, but the property will appreciate over time.

You're already rich, and bucket number one will make you richer than you need to be either way, so no need to go into debt here. You don't want to be fancy; you want to be smart. The cash flow from this 20% will pay for your lifestyle. That $20 million investment in real estate will make you around $1.2 million in cash flow per year, every year moving forward. You'll have a clear and predictable stream of income. Unless you're a degenerate, $1.2 million should be more than enough to pay for groceries, clothes, and holidays for you and your family.

The next 10% should go to land acquisition. You should buy land because they're not making any more of it, right? In the developed world, historically, there has never been a better way to immobilize value than land. If you live in South Africa, you might want to look at alternatives. Land will not only safeguard your wealth but it'll make you richer than you expected. Go outside of the city border, take a 30-minute drive, stop, and buy as much land as you can. This is your wealth capsule; it becomes more and more valuable every single year when the city inevitably reaches its natural extension to your plot.

20 years later, you can sell pieces of it for $10 million each. The last 5% of this bucket should go outside of the country you live in. Visit a city that you love and seems like it's thriving. Set up a company and buy a city center residential unit. Not only will you have cash flow, but this 5% represents a safe haven. $5 million will buy you a golden visa anywhere in the world, including the United States.

This means not only are you parking wealth outside of your home country, but you're effectively acquiring another nationality, a new passport, and that comes with some perks. If anything happens at home, you've got an escape hatch, and at the level you now operate at, you don't want to mess it up.

All right, so now let's move on to bucket number three: the "I still want to have some cash on hand for opportunities" bucket—10% allocation. $10 million in easy liquidity outside of obvious cash. Money market accounts, certificates of deposit, or all-time deposits are all-time favorites. These are easy to turn into cash as you need it.

Let's say the market is going through a downturn; everything is on sale; buildings are selling at half their previous acquisition cost, and it's just too good—too tempting—not to make a play right now. Well, this is why these reserves are important. You never know when a great business opportunity will present itself, and you don't want to touch anything else in your life to take advantage of it.

You might be scared you're losing too much of it to inflation, but since it's just 10% of your portfolio, you can easily bear it. Because the cost of opportunity of missing out on something great is just too big. Poor people often stay poor because when opportunities present themselves, they're just unable to access them due to a lack of funds. Rich people get richer because they have money on standby to take advantage of these opportunities. If you're rich, you better start acting like it.

Then there's bucket number four: the "I trust the professionals" bucket—another 10% allocation. Once you've got the money, you'll be targeted by others who want to manage your money on your behalf. Don't trust a word they say. What you want to do is talk to older, richer folks in your network about who their managers are.

$10 million is enough for you to be taken seriously, enough for you to get an elite Swiss bank account with management associated. The best of the best funds have minimums, usually lower than that. 10% in a hedge fund with historically great performance will get you into some very interesting rooms, although past performance isn't an indicator of future performance. Decent ones will not lose your money and will provide access to other people who have similar wealth.

All of a sudden, you're having dinner with people who made it past the threshold. These are the biggest hedge funds in the US right now, based on assets under management. Take Citadel, for example. Since its launch in 1990, Citadel's flagship Wellington fund has returned 19.6% a year on average. Renaissance's flagship Medallion fund generated 62% annualized returns before fees, and 37% annualized returns net of fees from 1988 to 2023, and you'll find similar stories with many of them.

10% buys you access and supplemental income for a luxury life. If the real estate makes sure your current lifestyle is taken care of, the funds will pay for luxury cars, watches, and other toys. But be warned: very few funds are able to outperform the S&P 500 over 20 years, and almost none of them can do it over 30 years.

So, let's recap your $100 million portfolio distribution so far: 40% in the first bucket that's going to make you a billionaire before you die because you're not going to touch it; 35% in real estate for lifestyle costs paid by cash flow, store of value, and a nest egg outside of the country; around 10% in high liquidity cash or similar-to-cash for quick plays if you want to get back in the field; and 10% goes into a hedge fund or a wealth manager for access and expertise.

You'll build trust in time and you'll make adjustments accordingly, so that leaves you with 5% left over, right? And that is bucket number five: the "screw it, let me have some fun with it" bucket—5%. This is money you deploy toward investments that are either a hedge against everything else, or have the potential to lead to extraordinary wins.

What if you allocated 5% of your portfolio to Bitcoin, early-stage startups, or art? You would enter this new world, a new community, where you could go through some extraordinary rabbit holes into how society is evolving. Crypto as an alternative to government fiat; art as a timeless hedge against inflation. Or you could go back to the next big AI company, hoping the robot overlords might spare you.

If you want to be surrounded by tech geeks, you go for crypto or startups. If you want to be surrounded by beauty, you go to art. Either way, it might prove to be one of the most profitable decisions you made outside of selling your company for nine figures. Art, for example, moves at a different speed than any other asset you could get your hands on.

The old school way is to become a wealthy patron of the arts and commission the next Picasso, but you could do it a lot quicker with our sponsors at Masterworks. Masterworks gives you the potential returns of art collecting without the million-dollar admission ticket. Instead of paying $5 million for a single painting that guests might lean on, you could take a safer approach.

Masterworks allows you to invest in art the same way you would build a stock portfolio. They've generated over $55 million in total art sales and distributed the proceeds to their investors. And because their offerings include legendary names like Picasso, Basquiat, Banksy, and Koons, which can sell out in minutes, over 900,000 people are already on board.

And when big-name artists hit the market, shares can sell out within hours. The wealthier members of our community love Masterworks, and you can still skip that waitlist and start investing today. Use the QR code on screen or go to masterworks.io to think about your future Alux.

Or, what is your current distribution? Because it'll look different at $1 million versus how it'll look at $10 million or $100 million. Once you've hit the billions, you clearly know something the rest of us don't know, don't you? And since you've watched this video until the very end, we'll share a little bonus with you about our journey to the first $100 million.

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Okay, if you think you're going to be one of those 1,000 millionaires, if you think you'll be worth more money than you'll ever know what to do with, then write the words "Alux Club" in the comments. Let's see if you've got that desire in you.