Changing Our Investment Strategy – How We’re Investing Going Forward
Over the last 6 months, there has been a shift in my investing mentality. Actually, now that I type it out it has been shifting for the last 10 years constantly. I started out buying individual stocks thinking I was going to be some “great trader” then I shifted to real estate, then index funds then crypto, and back to index funds. It’s been a long journey and a great learning experience but I believe I have settled on how I plan to invest for the rest of my life.
That’s a bold statement but I think I have found the right balance of risk/reward and time/effort. But what is making this shift for me?
Well, there are a couple of things happening. First, my time has become limited. There are a ton of things I have to do and want to do and that leaves no time for active trading of stocks or crypto. I’m also not very good at those things so let’s just cut them out. Because of this lack of time (let’s call it interest also) I want to be a more passive investor. This is something I suggest everyone become and why I’m a fan of index fund investing on platforms like Wealthfront. Anything you can do to set it and forget it then I want to be a part of and I think you should be as well.
But there’s another shift that I’ve felt recently and this has stemmed from conflicts going on around the world. As someone who lives in the U.S. I never realized how easy we have it with the U.S. dollar being the world’s reserve currency. What this means is it is not only recognized but also accepted almost anywhere in the world. In the back of my mind, I knew this was a thing but didn’t realize how much easier it made my life until we went to Tanzania (Africa) and everyone wanted to be paid in U.S. dollars.
Now let’s think about the flip side of this. What would happen if the U.S. dollar fell out of favor around the world and another currency took its spot? This is something that takes years if not decades to happen but is not out of the realm of possibility. Russia and China, which are world superpowers, first come to mind as nations that could attempt to establish a new world currency and this would have severe negative effects on the U.S. dollar.
Again, this is unlikely but not impossible.
But what does all of this have to do with investing for us personally? Does this mean I’m going to just buy funds that are abroad because I think the U.S. economy will collapse? Of course not.
What this means is I’m going to continue to diversify where I’m investing. Currently, we invest a set amount of money per month into Wealthfront accounts that hold mostly U.S.-based index funds. Based on our current account balance, the amount we invest every month, and historical returns these accounts should add up to over ~$2M by the time we are 65. While nobody knows what the future will hold we will continue to do this.
But instead of investing more, we are going to look into other areas where we can buy assets that will cash flow in the future. For those of you that have been reading this blog or watching my YouTube videos over the last couple of years then you know what I’m talking about. It’s this simple: I don’t think investing in the common market (index funds) will ever make you wealthy. Wealthy is a weird word because it means a hundred different things but in the context of this article what I mean is that it won’t give you financial freedom fast (usually). I’m not trying to wait until I’m 65 to enjoy my life.
Call me impatient but I want financial freedom as quickly as possible. I want to be able to do what I want, when I want, and not have to worry about money. That’s a dream for most but I plan on making it my reality. There is an argument about what happens when you get there and if this is just another case of the grass being greener on the other side but this is one I want to find out for myself.
Circling back… we currently invest every month in low-cost index funds, I think this is a good plan to build a base nest egg, but I also don’t want to bet on it because I don’t think there is a quick enough reward and I think the U.S. economy might fall out of favor in the next 10 years so what are we going to do?
The answer is to take some asymmetric bets on more risky investments. One of my goals for this year was to make two larger investments into funds as a limited partner. A limited partner is someone who passively makes an investment and lets the general partner make the financial decisions. If you invest in any stock, mutual fund, index fund, or whatever then you are in some ways a limited partner in that fund. Your money is there, you are planning on a positive return, but you don’t make any decisions at the companies that you own stock in.
So how is what I’m doing different than just buying an index fund? The answer is the risk. These are investments into things like developing a neighborhood of duplexes, buying a poorly managed apartment complex, investing in radio towers, funding oil well drilling, investing in a tire recycling plant in California (yes, I’ve seen the prospectus for this). There are thousands of people trying to raise money for investments that are extremely risky.
It’s important to remember that high risk does equal high reward but it also means that 9 times out of 10 it will crash and burn and you’ll lose a large portion of your investment if not all of it. Then why do this? Well, I think that the way to build wealth fast is to make these bets and that’s what we are planning to do. That is why I made a large bet on the cryptocurrency $ALGO last year. While I do believe in that bet still at this point it has been a flop and down ~40%. I told you this was risky! This year we’ll make two of these investments and then every year on we’ll evaluate our financial situation to either make more of these bets or make larger, more concentrated bets.
The thought process of this is if 9 times out of 10 these investments fail (I think I’m being a little pessimistic here but just look at $ALGO) then when that 1 time it doesn’t it will make up for all the rest exponentially.
This brings up the whole conversation of how do you find these investment opportunities? When should you invest in them? Can you invest in them if you’re not an accredited investor? Lot of questions that I want to answer and take you through but that will have to wait for another post.
Thanks for reading.