The Holy Grail of Investing: How I’m Making My Investment Portfolio Bulletproof

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Everyone knows that I love investing in real estate, both through my own property portfolio and more passively in syndications and funds. I’ve been fortunate to acquire cash-flowing real estate that covers my expenses and lifestyle—but I was once in the situation where 90% of my portfolio and net worth were tied up in those assets. 

While I still believe real estate is the best vehicle to create wealth and financial freedom, I also believe that every asset class—whether real estate, stocks, or bonds—goes through cycles. If recent history has shown us anything, it's that we cannot rely on the past as an accurate sign of future potential. 

Thinking about all of this brought up an important question: is it wiser to invest more deeply in specific channels for maximum profit or should I look to spread the risk by investing in a broader range of assets? 

According to Ray Dalio, a billionaire hedge fund manager (and arguably one of the most successful hedge fund managers of all time), having 13-15 uncorrelated and low-correlated assets in your portfolio helps you control the downside and mitigate your risks while still being able to achieve consistently good returns. 

In other words, having a broader portfolio significantly reduces your risk because you don't need to worry as much about any single investment going bad at any given time. He calls this the “Holy Grail of Investing.” 

So, I took that as a personal challenge and looked at my current portfolio to see if it reflected that strategy. And I realized that even though I had deep investments in real estate and business, I had very little in other asset classes. 

With that in mind, I sought my own Holy Grail and went broader this past year to create a portfolio of uncorrelated assets — some were for cash flow, some for future appreciation, and some for downside risk mitigation. Within my portfolio itself, some of these assets are smaller portions, while some have become sizable over time. 

Here are examples of some of my other investments outside of real estate:

#1: Stocks

In the past, I've done the bare minimum to invest in stocks as part of my 401K. But over the last year, I've slowly increased my stock portfolio by investing primarily in index funds, as well as in a few single stocks I believe have long-term potential. I plan to hold these for as long as necessary.

I've found it preferable to hold my stocks in a tax-efficient account, like a 401(k) or an individual retirement account (IRA). However, I have been growing my stake in a taxable investment account because it allows me to access the capital quickly if necessary. I'm also building it up to set up the possibility for sizable margin loans.

#2: Commodities

Commodities are one of the asset classes that is known to be a hedge against inflation (the other is real estate). Considering the times (inflation), I've been looking to increase the commodities I have in my portfolio.

I've invested in gold, primarily through gold indexes. The logistics of buying physical gold seems daunting to me, so holding GLD stock shares is much more accessible.

While I've invested quite a bit in sustainable energy (more on this below), I've also invested in mineral rights through fractional ownership. Oil & gas are also considered commodities that rise with inflation.

One way to invest in that asset class is to receive royalties from oil and gas extracted from areas in which you own the mineral rights. If the price is high, so are your royalties.

#3: Cryptocurrency 

While there are differing opinions on cryptocurrency, after watching what some of the smartest entrepreneurs are investing in and cryptocurrency being adopted by countries and even respected endowment funds, I've become a believer in it as an asset class.

There's obviously a ton of volatility and it remains to be seen whether it's truly uncorrelated or not with the stock market, so I invest in the coins that I see being around for a while, bitcoin and ethereum.

I'm invested in crypto both by holding these coins but also by investing in bitcoin mining. Mining is the process by which bitcoin is produced, and if you can produce it at lower than your cost, then you net a profit. So I've slowly ramped up my investment in this area and have seen a good amount of cash flow from it.

#4: Sustainable Energy

On top of our current energy needs as a society, we need sustainable energy development in facilities like solar and wind farms in order for us to continue to grow. So, I’ve invested in venture funds that are trying to solve the energy issue and the storage of this energy.

I've also invested recently in electric car charging stations because I believe they'll be the new gas stations in the not too distant future.

#5: Debt

Though I haven't been that successful investing in debt through peer-to-peer lending, I have invested in real estate debt funds. Here, your investment acts as the bank: when money is lent out, you make money through interest and fees. 

#6: Businesses

As an Angel Investor, I've invested small amounts in a few select companies to help accelerate their growth. While chances of success investing in any one individual company might be small according to the statistics, I believe if I invest in 10 of them, the chances are good that something will pan out.

I've also launched several businesses over the year that produce steady cash flow. As the net operating income of these businesses continue to increase, so does the valuation of these businesses.

#7: Risk Mitigation Fund

Investing in a s risk mitigation fund is like having insurance if the stock market suddenly takes a sharp nosedive. It protects your portfolio from the market downside. These are essentially insurance products that kick in with sudden 10-20% drops in the stock. Considering the times, I felt it was worth investing in this type of product as well.

To bring it all together

Just like Ray Dalio, I strongly believe that staying diversified is the best way to protect against downsides in any situation. I am always looking for ways to diversify my cash flow as much as possible so I can thrive, no matter what the economic conditions are. 

While I am not yet at my target of 13 or 15 uncorrelated assets, I believe the range of assets I’ve already invested in will create a robust portfolio, which can provide stability for my future and that of everyone around me. Ultimately, I believe this is the way to bulletproof my investments so I can continue to live how I want to live.

How many uncorrelated assets do you have and what are some different things you're investing in?

1 COMMENT

  1. I agree that diversifying your assets is a good idea. However, why do you need “sizable margin loans” to accomplish that goal?

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