My motivation and mission:
Google sheet that contains list of all WCD lessons and links to all content:
Lesson reviewing how to use Google sheet:
I think actions speak a lot louder than words. A general life lesson is to watch what people do and not what they say. As such, in Lesson 026, I will be going into detail about my personal portfolio to show you that I’m “walking the walk and not just talking the talk”. I will be discussing my asset allocation strategy in this lesson and doing a deep-dive on the sectors I am invested in during Lesson 040.
Lesson 026 is part 1 of “my portfolio”. I had to split this post in half due to length.
Lesson 026 - Part 1 - (current lesson) My portfolio and asset allocation strategy.
Lesson 040 - Part 2 - Deep dive on the sectors I am bullish on.
Lesson Topics:
Overview of my portfolio
My asset allocation strategy
My high-growth strategy
My Portfolio (September, 2021)
Net Worth Over Time
Notes:
I didn’t fully start using Mint for everything until 2019, so some of the data in the past is incomplete.
I lost about $150k in a month during the first crypto crash of Jan 2018.
My stock portfolio dropped about 30% in March of 2020 due to Covid-19 pandemic scare.
I made some pivotal moves at the bottom of the Covid crash that did very well during 2020.
There was a sharp sell off in stocks in February and March of 2021 for all of the high-growth tech stocks.
Crypto and stocks continue to do well in 2021.
All Positions
Stocks - Fidelity Heat Map - Total % Gain/Loss
Asset Allocation Strategy
I’m sure many of you might have heard of the old 60/40 portfolio (e.g. 60% stocks and 40% bonds). This portfolio no longer is effective due to how low bond yields are.
Even if bond yields were 2x or 3x where they are now, I would still argue that young investors (people under 40) should still have a much higher allocation towards stocks and cryptocurrencies.
Over long periods of time, stocks have been the best performing asset class. This is because it’s hard to underestimate the power of capitalism and human ingenuity.
WCD’s Asset Allocation Recommendations
As you age, your asset allocation should change. The younger you are, the more your focus should be on capital appreciation and the older you get, the focus shifts to cash flow and preserving your wealth.
I am one of the largest cryptocurrency bulls you will find. I’m a libertarian at heart and therefore I was a fairly early adopter of Bitcoin and Ethereum (2017).
That being said, cryptocurrencies are a huge wild card and incredibly volatile. Even if you have total conviction on something, I still don’t recommend a 100% allocation strategy. I do believe in the future of cryptocurrencies and believe they will be the best performing asset class from 2020 to 2030. However, I do feel over-exposed to cryptocurrencies and underexposed to real estate and small and medium businesses (SMBs).
My current portfolio is about 50% stocks, 7% cash, 7% real estate, and 36% crypto. If crypto does what I think it will, there is a potential that the market-cap of the industry rises from $2 Trillion to about $20 Trillion over the next 10 years.
My plan is to take profits in a linear manner until I reach my target allocation. For example, If I expect Bitcoin to go from $50k to $500k, I might sell 10%-20% of my Bitcoin when it hits $100k, $200k, $300k, $400k, and $500k as a means of trimming my crypto position from 36% of my entire portfolio down to my target allocation of 15%.
Why would I do this if I believe in crypto so strongly? It’s basic portfolio allocation and risk management.
I think this quote from Tom Engle captures the sentiment of why I would trim my position:
“If this company is the next great growth stock, as little is all I need. If it’s not, a little is all I want.”
Obviously Tom was talking about stocks and I am discussing cryptocurrencies, but the principal is that you want to manage your speculative position sizing.
Cryptocurrencies are still speculative in my opinion. I don’t think cryptocurrencies are going away, but could there be a 90% drop like there was in 2018?… definitely.
20’s - Asset Allocation Strategy Narrative
Stocks - 70%
Real Estate - 10%
Crypto - 20%
Small and medium businesses - 0%
When you are in your 20’s you want your portfolio to be very aggressive. This doesn’t mean you use a YOLO strategy from wallstreetbets, but it does mean you want high exposure to stocks and speculative assets (that you have researched). The best speculative bets in 2021, in my opinion, are all cryptocurrencies (Bitcoin, Ethereum, Helium, and Solana).
If you don’t believe in crypto, then the 20% allocation can go into high-growth stocks that you like.
I think your 20’s is also the perfect time to take advantage of house hacking (hence the 10% allocation to real estate). Even if you don’t house hack, I think a realistic goal is to try and purchase your first home in your 20’s.
30’s - Asset Allocation Strategy Narrative
Stocks - 60%
Real Estate - 20%
Crypto - 15%
Small and medium businesses (SMBs) - 5%
When you reach your 30’s, it’s time to start trimming back on some of the speculation and rotating that capital into higher cash flowing assets like real estate and SMBs.
This will likely be a busy time during your life. You might be starting a family or getting a lot more responsibility at work. That said, you still need to try and scale the real estate and SMBs.
Lazy people will just buy dividend stocks and bonds for cash flow… but that’s why they get a 2% yield instead of a 10-20% yield.
40’s - Asset Allocation Strategy Narrative
The trend continues in your 40’s, you continue to slowly scale out of speculative assets, stocks, and rotating the capital into high cash flow assets.
Stocks - 50%
Real Estate - 30%
Crypto - 10%
Small and medium businesses - 10%
50’s - Asset Allocation Strategy Narrative
The trend continues in your 50’s, you continue to slowly scale out of speculative assets, stocks, and rotating the capital into high cash flow assets.
This will be the final trim to crypto as I think a 5% allocation is suitable.
Stocks - 40%
Real Estate - 40%
Crypto - 5%
Small and medium businesses - 15%
60+ - Asset Allocation Strategy Narrative
This is the final steady-state of your portfolio. You still will maintain 30% allocation to stocks and 5% to crypto as a means to maintaining some capital appreciation and purchasing power.
The 45% real estate and 20% SMBs should be able to provide you all the cash flow you need to sustain your life style for the remainder of your life.
The goal is that your real estate and SMB portfolio manages itself. You should have property managers and business managers that take care of day to day things.
Stocks - 30%
Real Estate - 45%
Crypto - 5%
Small and medium businesses - 20%
Stocks - High Growth Strategy
If you look at my stock portfolio, you won’t find one “dividend” stock. Most are small to medium market-cap, tech companies that have high growth rates (30% to 100%+).
In my opinion, the purpose of allocating money into the stock market is for capital appreciation. You get this by using a growth stock strategy. It was the Motley Fool that eventually convinced me that purchasing a large basket (25-50) high growth stocks is the best strategy.
This is similar to venture capital investing. Effectively, the strategy is betting that your basket will contain a couple mega-winners that 20x-100x. A lot of your basket might slightly underperform or slightly outperform, but the mega winners will make the entire basket out-perform the S&P 500.
Think about it this way. If you have 50 stocks and 1 does 100x and the other 49 all go to 0, this is still a 2x for your entire portfolio.
Probability of 49 stocks that you have researched all going to 0… small
Probability of 1 stock in the basket of 50 becoming a mega winner… high
This strategy comes with a caveat though. The reason I am able to use this aggressive, high-growth strategy is because I have good income and little debt.
In Lesson 037 I will discuss this in more detail.
L-37 - What can Football Teach us about Investing?
Summary
I am truly blessed to have had very strong portfolio returns over the past 8 years. Part of it was luck, but part of it was doing the research and having the conviction of holding onto my mega-winners (I had a lot of friends with a much lower cost basis on BTC and ETH sell way to early).
Asset allocation is the first step in building a portfolio. My asset allocation strategy and growth-stock strategy might seem aggressive, but it comes with the caveat that you have a stable income and little debt.
Your 20’s and 30’s are a great time to be allocated to “high-capital-appreciation-potential” assets like stocks and crypto. As you age and your portfolio grows, it’s good to rotate some of your capital to more stable assets that have good cash flow. Once you reach retirement age, a majority of your portfolio should be cash flowing assets, but you should always have some exposure to capital-appreciation assets like stocks and crypto.
Reference Material & Social Media
In Lesson 030 I cover how to navigate and utilize the Google Sheet I have built for all WCD lessons. This Google Sheet contains a worksheet for each WCD lesson. Each sheet has all of the Excel calculations, tables, graphs, and charts that I have posted in the respective WCD lesson. Additionally, the Google Sheet has a master “Index” worksheet that has links to all of the content associated with each lesson.
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