AI transcript
0:00:06 Hey everyone Kevin Rose here stoked to be here with my good friend Chris Hutchins Chris welcome back to the show
0:00:11 Yeah, thanks for having me great to have you here because we’re gonna talk about a few things today
0:00:17 Primarily investing personal investing and I would say that I don’t know about you
0:00:23 But with with me when I go to various events or you know different conferences are running into random people
0:00:25 One of the things that people always ask me
0:00:31 I guess there’s there’s two pieces to this one is how do I angel invest and the second is how do you invest your own money?
0:00:37 And so I you know took a bunch of time and finally for the very first time kind of you know
0:00:42 Pulled back the curtain to share my own personal investing strategy that I’ve been using for quite some time now
0:00:47 And I wanted to have you on because I think you’re a great brainstorming partner
0:00:50 Obviously, you have your own podcast that covers a lot of things in terms of finance
0:00:56 But also, you know, you and I worked at Google Ventures together. You ran a successful company that you sold a wealth front and
0:01:00 You know ran a large chunk of wealth front’s product organization
0:01:05 You’ve been heavily involved in kind of this new realm of finance for quite some time
0:01:11 So more than anything, you know, I’m gonna share my personal strategy and again, you know, this is not investment advice
0:01:13 This is just what I do personally
0:01:19 But I would love for you to be a brainstorming partner like tell me what you like what you don’t like and maybe we can just hash out
0:01:24 What yours looks like versus mine and just have some fun with it. What do you what do you think about that?
0:01:27 I like it. I think my only caveat is
0:01:34 Despite that I might give you feedback. It is not gonna be investment advice. It’s just gonna be friendly feedback and my personal opinions
0:01:41 Exactly, it’s a very important to say that because I think when you do finally sit down, you know with a professional investment advisor
0:01:45 Everybody’s gonna be a little bit different. Your needs are different in your different stages of life
0:01:51 You’re you know close to retirement or further away. You might have kids you might not there’s just so many factors that go into this
0:01:53 So this is just two guys sitting together
0:01:56 shooting the shit over a beer even though we have no beers, but
0:02:01 You know talking about what we do, you know, and we’ve worked together long enough
0:02:04 And we’ve been invested enough deals together, you know deployed
0:02:09 Collectively hundreds of millions of dollars, you know via Google ventures and you know now with me
0:02:13 I’ve worked true ventures. So we’ve seen a lot of shit over the last couple of decades. Yeah
0:02:18 It would be good to chat about it. So let’s let’s start at the beginning of of my article
0:02:21 And maybe we can walk through this and then anytime you want to throw in like
0:02:24 Something that is a little contrarian or a little bit different feel free
0:02:30 To to jump in so, you know, I think the first thing that I you know
0:02:35 Stumble pond is like if you’re thinking about investing or for me when I have some type of new
0:02:39 Windfall of money, let’s say I sell a house and all of a sudden, you know, I’ve got
0:02:45 Some extra coin to put into the market often times people think about, you know, how do I time the market?
0:02:50 When do I invest this money? Do I just sit in cash? I have one buddy that has sat in the cash so long
0:02:52 I think we know them we’re not gonna mention who they are
0:02:57 But it’s just like painful because like your cash is eroding and you’re losing that too
0:03:00 obviously to when when inflation kicks in and
0:03:05 There’s just like analysis or there’s analysis process thing that can happen where you don’t know when to invest
0:03:09 For me, you know, I’m a big fan of warm Buffett
0:03:12 one of his favorite books is called the Intelligent Investor and
0:03:19 They speak about something called DCA or dollar cost averaging, which is very simply put
0:03:25 You can’t time the market. Don’t try to and you know, take that at some of money that you want to invest
0:03:31 Let’s just call it $12,000 and invest the same day the same time each month over a year
0:03:36 So you’re not buying the high you’re not buying the low and you’re kind of averaging your way into the market
0:03:44 I know that recently you turned me onto some pretty solid data from Vanguard that advocates for lump sum investing as well
0:03:46 Did you want to talk about that?
0:03:49 Yeah, so here’s the thing the market on average goes up
0:03:55 Like the reason we invest is because the market has historically always gone up if you look at the S&P 500
0:03:58 It’s like, you know, a little about 10%
0:04:03 if you look at a broader market, maybe it goes down because you add some more diversification but
0:04:11 Because the market always goes up and I think on average it’s every if you look at it on different intervals
0:04:15 You could look at it daily weekly monthly annually, but in the whole it always goes up
0:04:22 Or at least historically has so dollar cost averaging on average is going to do worse
0:04:31 Then just putting all that money into the market on the first day because on average the next day will be an update
0:04:36 So the data shows that the best time to put your money in the market is now
0:04:43 And and that data is just based on the fact that on average more often than not the market goes up in a given day
0:04:44 and
0:04:52 So I think where dollar cost averaging can be super valuable is to help with the psychological side of things
0:04:56 That’s right, which is if you go and say gosh, I’ve got this nest egg
0:05:00 I’ve saved up let’s call it a hundred thousand dollars and you put it all in the market and tomorrow
0:05:04 It’s down three percent and you’ve just lost 30 grand. How are you gonna feel?
0:05:09 Are you gonna say well that Vanguard study said this was a really good idea or are you gonna say man?
0:05:12 I really wish I just deployed this over the next few months
0:05:17 Yeah, and how much worse are you gonna feel if you invest it all at once and it’s down?
0:05:25 10% versus if you invest it over three months and you missed out on some gains. I feel like in our kind of
0:05:29 Psychology we are much more risk averse
0:05:36 Or averse to losses then averse to missing out on gains even though we might say something different. So
0:05:40 Yes, I think dollar cost averaging is great. I think it can manage your mind
0:05:44 But if you want, you know, if you on any random day
0:05:51 The best solution more often than not would be to put all the money in the market in that same day
0:05:56 Yeah, I mean the thing for me and for my own personal psyche and this is a very much a psychological game here
0:06:00 Right for my own personal psyche. What I do is I look at the market and I say, okay
0:06:04 How do I feel about where we’re at? Meaning are we at historic highs?
0:06:10 Like is this a five-year high that we’re at right now in the S&P like where are we market-wise if we’re, you know
0:06:12 Flat to down over the year or whatever
0:06:15 I think I could get a lot more comfortable with a lump sum investment, right?
0:06:20 But if I see that we’re hitting the these all-time highs, it’s really hard for me to and again
0:06:26 Psychologically not data-driven. Just say, okay, let’s plow all this money in so that’s where DCA
0:06:28 For me, maybe I’m a little old-school
0:06:29 You know
0:06:36 Buffett still recommends it the best I can tell Vanguard obviously has fantastic analysts and data that says it’s actually better to do lump sum
0:06:39 At the end of the day, would you agree? This is a psyche based
0:06:45 Decision and not so much like we really have to do one or the other like it’s not gonna make or break you either way
0:06:48 Yeah, I did an interview with some of the other day and they were like, you know what?
0:06:53 I like Tabasco, you don’t like Tabasco like it doesn’t matter like we’re both we if we get the same meal
0:06:58 We’re we’re gonna have mostly the same experience. I think the edge you get is not that different though
0:07:02 I will say like 7% of days are all-time highs
0:07:07 So keep in mind that like because the market goes up on average every day, right?
0:07:10 We expect to have all-time highs all the time
0:07:14 And so that you know there you could go way deeper and look at you know
0:07:19 Cape chiller ratios and all this stuff to try to figure out how the markets priced and are we overpriced or underpriced?
0:07:25 But at the end of the day, you know, there are years where I’ve looked at the market and said gosh
0:07:26 It’s pretty expensive right now
0:07:32 It feels like we’re in a bubble and for three years that bubble didn’t burst and we saw
0:07:37 double-digit growth every single year and the main thing is you don’t want to miss out on those days and
0:07:44 And if you’re gonna wait for the market to drop who’s to say you’re gonna actually be able to invest when the market’s down, right, right?
0:07:51 During the pandemic, do you remember the markets down 20 30 percent and there were people thinking gosh
0:07:56 It’s gonna go down 75 percent and so like in order for you to say if the market drops
0:08:01 That’s when I’m gonna deploy my capital you have to be willing to say wow the markets down 20 percent
0:08:09 I’ll deploy my capital even though the entire media all the press is like it’s the world is ending the markets crashing tomorrow
0:08:11 Could be down 30 more percent and you’re like nope
0:08:16 I’m gonna invest so the easiest thing is to make a plan and say I’ve got a hundred grand
0:08:23 I’m gonna invest it as ten grand a week for ten weeks and I’m just gonna automate that and it doesn’t matter what happens if you have
0:08:25 That system set up great
0:08:32 Yeah, and honestly, that’s part of this strategy will get into here for me is on those dips on those 20% plus drawdown days
0:08:37 Like I actually deploy a downside dollar cost averaging in as well, you know
0:08:43 So that’s we’ll we’ll talk about how I distribute my different allocations in different buckets here
0:08:46 But you know for me, so let’s just get into the buckets
0:08:51 Index funds for me are what I consider to be, you know, insanely well diversified
0:08:58 They’re my sleep at night portfolio insanely low expense ratios, you know, I typically go with Vanguard funds here and
0:09:05 I like them because they are naturally weeding out the the bad companies and
0:09:08 They are the bulk of my diversification
0:09:13 And I can just keep going down here and then maybe I’ll quickly run through them all and you tell me how yours might differ
0:09:15 So for me, that’s 50 to 70% of my portfolio
0:09:20 Bonds and cash management. I know this is a little bit funky, but I kind of put them in the same category
0:09:23 largely because I
0:09:27 don’t really care about bonds outside of hopefully trying to
0:09:34 Hedge a little bit on the short term against inflation and then use that capital as more as kind of like cash reserve
0:09:38 So I think of bonds as very liquid assets and that I do very short-term bond buys and then
0:09:42 When there are drawdowns in the market 20 plus percent
0:09:48 I quickly convert out of those short-term bonds and then go more into equities or single stocks that I really love
0:09:53 So that’s on the cash and bonds that we can we can talk about that and then the high risk investment for me
0:09:55 And this is where I’m thinking, okay
0:09:59 This is the craziest bucket at the mall, but I want outsized returns here
0:10:04 I put that in a angel and a VC a based investing and then also individual stock picking
0:10:11 That’s 15 to 20% of my overall bucket and then I have the crazy catastrophic downside protection, which is 4 to 5%
0:10:13 Which is you know for me
0:10:18 Classic Ray Dalio style like gold and although he wouldn’t say Bitcoin for me. It’s Bitcoin
0:10:26 And so that’s how I think about the big buckets there for you personally. Where do you differ here on on your own personal investment strategy?
0:10:32 So first one thing we didn’t mention is I think of my investments as all of the assets
0:10:35 I can deploy minus real estate minus cash. Mm-hmm. So
0:10:40 If I have money in my checking account or my savings account, I don’t really think of those as my investments
0:10:42 Do I want to maximize that? Yes
0:10:50 I did an entire episode on breaking down every bank account to find the bank account that like gives you the most return on cash and
0:10:55 There are a couple great options. That’s separate real estate. You know, we own a home
0:11:00 I don’t consider that like an investment. Yeah, I hope it I hope it makes money
0:11:04 But like it’s not part of my strategy. I’m saying either I it’s weird. It’s funny now that you mentioned
0:11:08 I didn’t even put that in here because for me my home is my home and yes
0:11:13 You hope it goes up, but I’m not like looking to flip my home, right? So I don’t put that in my investment bucket
0:11:17 Yeah, so within my investments, I’d say I’m pretty similar
0:11:21 With a couple changes so index funds for me is probably 90 percent
0:11:24 Not 50 to 70
0:11:33 For me, I just want diversification. I want simplicity. I recently have been thinking about dialing up the
0:11:37 US exposure right now. I think US probably makes up
0:11:45 65 70% of my investments like I could make an argument for it to be 90 or a hundred percent
0:11:52 And what would your argument be there because like, you know, certainly when we look at the some of the political agenda
0:11:56 Is that we’re seeing today? You know, there’s this trend towards de-globalization
0:12:04 Economic nationalism, you know, this idea that we’re gonna bolster our own local economy. Certainly the US is is thinking that way
0:12:10 Politically in some in some ways. Is that your rationale for going harder into US?
0:12:17 So I think and to be clear, I don’t do this, right? So like at its core my strategy is probably like
0:12:21 60 us 30 internet or 30
0:12:26 Developed in like 10 emerging markets something in that ballpark. I don’t know the exact number off the top of my head
0:12:35 but I think that the argument would be one like look at most companies in the world like those companies all around the world
0:12:42 Many of the multi-national companies are in the US. So Apple Google point. They’re not US only companies
0:12:49 Right like a lot of the revenue from a lot of US companies is around the world. Yeah, some of it. It’s like more than half
0:12:54 Yes, I think global stock market like more than half of it is in the US
0:13:00 I could be wrong on these numbers and I actually did a really interesting episode talking about this with JL Collins
0:13:04 Who wrote this old classic simple path to wealth? It’s not out yet
0:13:09 But you know, he kind of pointed out that the trend really started after World War two
0:13:16 Almost every economy was decimated except the US and so the US made up something like 90% of the stock market in that time
0:13:22 And he’s like some time in my daughter’s life. Maybe she’ll need to add some international exposure
0:13:26 But for mine, I’m not even thinking about it. I still have it
0:13:31 You know the the efficient frontier if you will shows that you know that diversification adds value
0:13:33 I like having some of it
0:13:40 But I think if you wanted to go a hundred percent S&P or not, you know funny enough over the last
0:13:44 I don’t know 30 years you like you would have been better off not including the international
0:13:50 But yeah, who knows who knows about the future, but I think if you live in the United States, I don’t think it’s I
0:13:52 think I probably
0:13:56 Thought a while ago. It was more crazy and now less think that it is
0:14:01 Crazy to be all in the US stock market just given how global the US stock market is
0:14:03 I hear you on that front, but also at the same time
0:14:04 I’m just like
0:14:11 Okay, like there’s there’s a there’s a case to be made for the devaluing of the dollar the increasing the increasing rate of national debt
0:14:15 That we’re taking on and you know for me international exposure. I’m just like
0:14:21 How can I get outside of these walls a little bit and give me a little bit more diversity?
0:14:26 I understand historically over the last 30 years you didn’t better than the S&P 500
0:14:30 But I just can’t believe that is always going to be true, you know
0:14:34 And it’s like I will be kicking myself if 10 years from now
0:14:39 I look back and you know emerging markets or another you know sector on the international space
0:14:42 We can talk about about broad-based international funds, which is one that I’m in
0:14:48 I kind of want to have some of that exposure, but that’s that’s you know, that’s just me and by the way
0:14:52 I say this when I’m looking at my portfolio right now and
0:14:55 you know a
0:15:00 Decent portion of it is international like over like 40% of my portfolio is international
0:15:04 So I’m not saying I have all mine in the U.S. But more lately
0:15:12 I’ve been thinking it’s not as crazy as I used to right when it comes to bonds as long as I am in a state of saving
0:15:19 And and building wealth. I’m all in on stocks hundred percent. I have no bonds in my investment portfolio
0:15:25 Are treasury funds good alternatives for storing cash? Yes
0:15:29 But just the general idea of if you have a big portfolio, how much can you take out each year?
0:15:31 right and
0:15:36 one of the biggest impacts maybe the biggest of whether you have enough money to
0:15:42 Successfully sustain whatever your retirement is whether it’s 20 years or you want to retire early and make it 50 years
0:15:44 It’s kind of the sequence of return risk
0:15:47 It’s like is the year you retired the year
0:15:53 We had a gigantic crash or not because we didn’t really say this but like I expect a crash
0:15:57 Like I expect to see my portfolio drop 30%
0:15:59 Multiple times in my lifetime
0:16:06 Already seen it right. We’ve got the in our days. We’ve probably seen it. We’ve had the dot-com bubble. We’ve had cobit 19
0:16:08 We’ve had the financial crisis
0:16:15 I wasn’t like as avid of an investor in the dot-com and the great financial crisis as much as the cobit crash
0:16:20 So I don’t feel like I’ve emotionally seen like 30% of my wealth go away
0:16:24 But definitely saw it during during cobit, but it was very short and
0:16:28 But it was like that’s normal like I don’t need the money now
0:16:32 But if I was if I was like I’m gonna retire next year
0:16:39 I would make a case for in the year one or two years before you want to stop working and stop contributing
0:16:42 maybe a handful of the years after
0:16:48 adding a little bit of fixed income bond exposure to just
0:16:55 Reduce the volatility of your portfolio during those really really important years where if the market’s down 50%
0:16:58 And you need to take money out of your portfolio to live on for five years
0:17:03 It’s gonna have a really big impact on your, you know, likelihood of success. Yeah
0:17:08 Yeah, I mean for me right now, you know rates have looked attractive. I’ve stuck on the more, you know
0:17:14 Shorter term I’ve done for for cash. I just really don’t need to touch anytime soon
0:17:19 I’ve done six-month duration bond ladders, you know, just to lock in kind of some of these higher yields
0:17:23 And then as you mentioned for cash, I don’t know which fund you use but I use
0:17:31 V us xx, which is the Vanguard Treasury money market fund and you know, that’s been a great place to park cash
0:17:34 Is that where you’re currently parking your cash as well right now?
0:17:42 I would say in the leaving both me and my wife leaving jobs to run a podcast full-time
0:17:45 We do not have a lot of uninvested cash
0:17:50 And so it’s it hasn’t been worth the hassle of putting it in a fund. We just leave it in
0:17:53 You know a 5% plus earning
0:17:58 Savings account that we can operate out of there. They’re a handful of good options for
0:18:02 You know ditching the checking focusing on savings cash
0:18:08 Management or other accounts where you can operate your life and still earn a high yield. So that’s what we’ve been doing
0:18:16 I think where we differ a lot is, you know, your 25% ish in other stuff for me
0:18:19 That’s probably five maybe 8%
0:18:25 And and that’s I think the the big difference so I mentioned single-stock investing, you know
0:18:28 Grow stocks and then also venture capital and angel
0:18:32 When you think about your super high-risk bucket, what does that look like for you?
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0:19:11 Everyone wherever they are in their journey. Thank you so much and see you over at Kevin Rose comm
0:00:11 Yeah, thanks for having me great to have you here because we’re gonna talk about a few things today
0:00:17 Primarily investing personal investing and I would say that I don’t know about you
0:00:23 But with with me when I go to various events or you know different conferences are running into random people
0:00:25 One of the things that people always ask me
0:00:31 I guess there’s there’s two pieces to this one is how do I angel invest and the second is how do you invest your own money?
0:00:37 And so I you know took a bunch of time and finally for the very first time kind of you know
0:00:42 Pulled back the curtain to share my own personal investing strategy that I’ve been using for quite some time now
0:00:47 And I wanted to have you on because I think you’re a great brainstorming partner
0:00:50 Obviously, you have your own podcast that covers a lot of things in terms of finance
0:00:56 But also, you know, you and I worked at Google Ventures together. You ran a successful company that you sold a wealth front and
0:01:00 You know ran a large chunk of wealth front’s product organization
0:01:05 You’ve been heavily involved in kind of this new realm of finance for quite some time
0:01:11 So more than anything, you know, I’m gonna share my personal strategy and again, you know, this is not investment advice
0:01:13 This is just what I do personally
0:01:19 But I would love for you to be a brainstorming partner like tell me what you like what you don’t like and maybe we can just hash out
0:01:24 What yours looks like versus mine and just have some fun with it. What do you what do you think about that?
0:01:27 I like it. I think my only caveat is
0:01:34 Despite that I might give you feedback. It is not gonna be investment advice. It’s just gonna be friendly feedback and my personal opinions
0:01:41 Exactly, it’s a very important to say that because I think when you do finally sit down, you know with a professional investment advisor
0:01:45 Everybody’s gonna be a little bit different. Your needs are different in your different stages of life
0:01:51 You’re you know close to retirement or further away. You might have kids you might not there’s just so many factors that go into this
0:01:53 So this is just two guys sitting together
0:01:56 shooting the shit over a beer even though we have no beers, but
0:02:01 You know talking about what we do, you know, and we’ve worked together long enough
0:02:04 And we’ve been invested enough deals together, you know deployed
0:02:09 Collectively hundreds of millions of dollars, you know via Google ventures and you know now with me
0:02:13 I’ve worked true ventures. So we’ve seen a lot of shit over the last couple of decades. Yeah
0:02:18 It would be good to chat about it. So let’s let’s start at the beginning of of my article
0:02:21 And maybe we can walk through this and then anytime you want to throw in like
0:02:24 Something that is a little contrarian or a little bit different feel free
0:02:30 To to jump in so, you know, I think the first thing that I you know
0:02:35 Stumble pond is like if you’re thinking about investing or for me when I have some type of new
0:02:39 Windfall of money, let’s say I sell a house and all of a sudden, you know, I’ve got
0:02:45 Some extra coin to put into the market often times people think about, you know, how do I time the market?
0:02:50 When do I invest this money? Do I just sit in cash? I have one buddy that has sat in the cash so long
0:02:52 I think we know them we’re not gonna mention who they are
0:02:57 But it’s just like painful because like your cash is eroding and you’re losing that too
0:03:00 obviously to when when inflation kicks in and
0:03:05 There’s just like analysis or there’s analysis process thing that can happen where you don’t know when to invest
0:03:09 For me, you know, I’m a big fan of warm Buffett
0:03:12 one of his favorite books is called the Intelligent Investor and
0:03:19 They speak about something called DCA or dollar cost averaging, which is very simply put
0:03:25 You can’t time the market. Don’t try to and you know, take that at some of money that you want to invest
0:03:31 Let’s just call it $12,000 and invest the same day the same time each month over a year
0:03:36 So you’re not buying the high you’re not buying the low and you’re kind of averaging your way into the market
0:03:44 I know that recently you turned me onto some pretty solid data from Vanguard that advocates for lump sum investing as well
0:03:46 Did you want to talk about that?
0:03:49 Yeah, so here’s the thing the market on average goes up
0:03:55 Like the reason we invest is because the market has historically always gone up if you look at the S&P 500
0:03:58 It’s like, you know, a little about 10%
0:04:03 if you look at a broader market, maybe it goes down because you add some more diversification but
0:04:11 Because the market always goes up and I think on average it’s every if you look at it on different intervals
0:04:15 You could look at it daily weekly monthly annually, but in the whole it always goes up
0:04:22 Or at least historically has so dollar cost averaging on average is going to do worse
0:04:31 Then just putting all that money into the market on the first day because on average the next day will be an update
0:04:36 So the data shows that the best time to put your money in the market is now
0:04:43 And and that data is just based on the fact that on average more often than not the market goes up in a given day
0:04:44 and
0:04:52 So I think where dollar cost averaging can be super valuable is to help with the psychological side of things
0:04:56 That’s right, which is if you go and say gosh, I’ve got this nest egg
0:05:00 I’ve saved up let’s call it a hundred thousand dollars and you put it all in the market and tomorrow
0:05:04 It’s down three percent and you’ve just lost 30 grand. How are you gonna feel?
0:05:09 Are you gonna say well that Vanguard study said this was a really good idea or are you gonna say man?
0:05:12 I really wish I just deployed this over the next few months
0:05:17 Yeah, and how much worse are you gonna feel if you invest it all at once and it’s down?
0:05:25 10% versus if you invest it over three months and you missed out on some gains. I feel like in our kind of
0:05:29 Psychology we are much more risk averse
0:05:36 Or averse to losses then averse to missing out on gains even though we might say something different. So
0:05:40 Yes, I think dollar cost averaging is great. I think it can manage your mind
0:05:44 But if you want, you know, if you on any random day
0:05:51 The best solution more often than not would be to put all the money in the market in that same day
0:05:56 Yeah, I mean the thing for me and for my own personal psyche and this is a very much a psychological game here
0:06:00 Right for my own personal psyche. What I do is I look at the market and I say, okay
0:06:04 How do I feel about where we’re at? Meaning are we at historic highs?
0:06:10 Like is this a five-year high that we’re at right now in the S&P like where are we market-wise if we’re, you know
0:06:12 Flat to down over the year or whatever
0:06:15 I think I could get a lot more comfortable with a lump sum investment, right?
0:06:20 But if I see that we’re hitting the these all-time highs, it’s really hard for me to and again
0:06:26 Psychologically not data-driven. Just say, okay, let’s plow all this money in so that’s where DCA
0:06:28 For me, maybe I’m a little old-school
0:06:29 You know
0:06:36 Buffett still recommends it the best I can tell Vanguard obviously has fantastic analysts and data that says it’s actually better to do lump sum
0:06:39 At the end of the day, would you agree? This is a psyche based
0:06:45 Decision and not so much like we really have to do one or the other like it’s not gonna make or break you either way
0:06:48 Yeah, I did an interview with some of the other day and they were like, you know what?
0:06:53 I like Tabasco, you don’t like Tabasco like it doesn’t matter like we’re both we if we get the same meal
0:06:58 We’re we’re gonna have mostly the same experience. I think the edge you get is not that different though
0:07:02 I will say like 7% of days are all-time highs
0:07:07 So keep in mind that like because the market goes up on average every day, right?
0:07:10 We expect to have all-time highs all the time
0:07:14 And so that you know there you could go way deeper and look at you know
0:07:19 Cape chiller ratios and all this stuff to try to figure out how the markets priced and are we overpriced or underpriced?
0:07:25 But at the end of the day, you know, there are years where I’ve looked at the market and said gosh
0:07:26 It’s pretty expensive right now
0:07:32 It feels like we’re in a bubble and for three years that bubble didn’t burst and we saw
0:07:37 double-digit growth every single year and the main thing is you don’t want to miss out on those days and
0:07:44 And if you’re gonna wait for the market to drop who’s to say you’re gonna actually be able to invest when the market’s down, right, right?
0:07:51 During the pandemic, do you remember the markets down 20 30 percent and there were people thinking gosh
0:07:56 It’s gonna go down 75 percent and so like in order for you to say if the market drops
0:08:01 That’s when I’m gonna deploy my capital you have to be willing to say wow the markets down 20 percent
0:08:09 I’ll deploy my capital even though the entire media all the press is like it’s the world is ending the markets crashing tomorrow
0:08:11 Could be down 30 more percent and you’re like nope
0:08:16 I’m gonna invest so the easiest thing is to make a plan and say I’ve got a hundred grand
0:08:23 I’m gonna invest it as ten grand a week for ten weeks and I’m just gonna automate that and it doesn’t matter what happens if you have
0:08:25 That system set up great
0:08:32 Yeah, and honestly, that’s part of this strategy will get into here for me is on those dips on those 20% plus drawdown days
0:08:37 Like I actually deploy a downside dollar cost averaging in as well, you know
0:08:43 So that’s we’ll we’ll talk about how I distribute my different allocations in different buckets here
0:08:46 But you know for me, so let’s just get into the buckets
0:08:51 Index funds for me are what I consider to be, you know, insanely well diversified
0:08:58 They’re my sleep at night portfolio insanely low expense ratios, you know, I typically go with Vanguard funds here and
0:09:05 I like them because they are naturally weeding out the the bad companies and
0:09:08 They are the bulk of my diversification
0:09:13 And I can just keep going down here and then maybe I’ll quickly run through them all and you tell me how yours might differ
0:09:15 So for me, that’s 50 to 70% of my portfolio
0:09:20 Bonds and cash management. I know this is a little bit funky, but I kind of put them in the same category
0:09:23 largely because I
0:09:27 don’t really care about bonds outside of hopefully trying to
0:09:34 Hedge a little bit on the short term against inflation and then use that capital as more as kind of like cash reserve
0:09:38 So I think of bonds as very liquid assets and that I do very short-term bond buys and then
0:09:42 When there are drawdowns in the market 20 plus percent
0:09:48 I quickly convert out of those short-term bonds and then go more into equities or single stocks that I really love
0:09:53 So that’s on the cash and bonds that we can we can talk about that and then the high risk investment for me
0:09:55 And this is where I’m thinking, okay
0:09:59 This is the craziest bucket at the mall, but I want outsized returns here
0:10:04 I put that in a angel and a VC a based investing and then also individual stock picking
0:10:11 That’s 15 to 20% of my overall bucket and then I have the crazy catastrophic downside protection, which is 4 to 5%
0:10:13 Which is you know for me
0:10:18 Classic Ray Dalio style like gold and although he wouldn’t say Bitcoin for me. It’s Bitcoin
0:10:26 And so that’s how I think about the big buckets there for you personally. Where do you differ here on on your own personal investment strategy?
0:10:32 So first one thing we didn’t mention is I think of my investments as all of the assets
0:10:35 I can deploy minus real estate minus cash. Mm-hmm. So
0:10:40 If I have money in my checking account or my savings account, I don’t really think of those as my investments
0:10:42 Do I want to maximize that? Yes
0:10:50 I did an entire episode on breaking down every bank account to find the bank account that like gives you the most return on cash and
0:10:55 There are a couple great options. That’s separate real estate. You know, we own a home
0:11:00 I don’t consider that like an investment. Yeah, I hope it I hope it makes money
0:11:04 But like it’s not part of my strategy. I’m saying either I it’s weird. It’s funny now that you mentioned
0:11:08 I didn’t even put that in here because for me my home is my home and yes
0:11:13 You hope it goes up, but I’m not like looking to flip my home, right? So I don’t put that in my investment bucket
0:11:17 Yeah, so within my investments, I’d say I’m pretty similar
0:11:21 With a couple changes so index funds for me is probably 90 percent
0:11:24 Not 50 to 70
0:11:33 For me, I just want diversification. I want simplicity. I recently have been thinking about dialing up the
0:11:37 US exposure right now. I think US probably makes up
0:11:45 65 70% of my investments like I could make an argument for it to be 90 or a hundred percent
0:11:52 And what would your argument be there because like, you know, certainly when we look at the some of the political agenda
0:11:56 Is that we’re seeing today? You know, there’s this trend towards de-globalization
0:12:04 Economic nationalism, you know, this idea that we’re gonna bolster our own local economy. Certainly the US is is thinking that way
0:12:10 Politically in some in some ways. Is that your rationale for going harder into US?
0:12:17 So I think and to be clear, I don’t do this, right? So like at its core my strategy is probably like
0:12:21 60 us 30 internet or 30
0:12:26 Developed in like 10 emerging markets something in that ballpark. I don’t know the exact number off the top of my head
0:12:35 but I think that the argument would be one like look at most companies in the world like those companies all around the world
0:12:42 Many of the multi-national companies are in the US. So Apple Google point. They’re not US only companies
0:12:49 Right like a lot of the revenue from a lot of US companies is around the world. Yeah, some of it. It’s like more than half
0:12:54 Yes, I think global stock market like more than half of it is in the US
0:13:00 I could be wrong on these numbers and I actually did a really interesting episode talking about this with JL Collins
0:13:04 Who wrote this old classic simple path to wealth? It’s not out yet
0:13:09 But you know, he kind of pointed out that the trend really started after World War two
0:13:16 Almost every economy was decimated except the US and so the US made up something like 90% of the stock market in that time
0:13:22 And he’s like some time in my daughter’s life. Maybe she’ll need to add some international exposure
0:13:26 But for mine, I’m not even thinking about it. I still have it
0:13:31 You know the the efficient frontier if you will shows that you know that diversification adds value
0:13:33 I like having some of it
0:13:40 But I think if you wanted to go a hundred percent S&P or not, you know funny enough over the last
0:13:44 I don’t know 30 years you like you would have been better off not including the international
0:13:50 But yeah, who knows who knows about the future, but I think if you live in the United States, I don’t think it’s I
0:13:52 think I probably
0:13:56 Thought a while ago. It was more crazy and now less think that it is
0:14:01 Crazy to be all in the US stock market just given how global the US stock market is
0:14:03 I hear you on that front, but also at the same time
0:14:04 I’m just like
0:14:11 Okay, like there’s there’s a there’s a case to be made for the devaluing of the dollar the increasing the increasing rate of national debt
0:14:15 That we’re taking on and you know for me international exposure. I’m just like
0:14:21 How can I get outside of these walls a little bit and give me a little bit more diversity?
0:14:26 I understand historically over the last 30 years you didn’t better than the S&P 500
0:14:30 But I just can’t believe that is always going to be true, you know
0:14:34 And it’s like I will be kicking myself if 10 years from now
0:14:39 I look back and you know emerging markets or another you know sector on the international space
0:14:42 We can talk about about broad-based international funds, which is one that I’m in
0:14:48 I kind of want to have some of that exposure, but that’s that’s you know, that’s just me and by the way
0:14:52 I say this when I’m looking at my portfolio right now and
0:14:55 you know a
0:15:00 Decent portion of it is international like over like 40% of my portfolio is international
0:15:04 So I’m not saying I have all mine in the U.S. But more lately
0:15:12 I’ve been thinking it’s not as crazy as I used to right when it comes to bonds as long as I am in a state of saving
0:15:19 And and building wealth. I’m all in on stocks hundred percent. I have no bonds in my investment portfolio
0:15:25 Are treasury funds good alternatives for storing cash? Yes
0:15:29 But just the general idea of if you have a big portfolio, how much can you take out each year?
0:15:31 right and
0:15:36 one of the biggest impacts maybe the biggest of whether you have enough money to
0:15:42 Successfully sustain whatever your retirement is whether it’s 20 years or you want to retire early and make it 50 years
0:15:44 It’s kind of the sequence of return risk
0:15:47 It’s like is the year you retired the year
0:15:53 We had a gigantic crash or not because we didn’t really say this but like I expect a crash
0:15:57 Like I expect to see my portfolio drop 30%
0:15:59 Multiple times in my lifetime
0:16:06 Already seen it right. We’ve got the in our days. We’ve probably seen it. We’ve had the dot-com bubble. We’ve had cobit 19
0:16:08 We’ve had the financial crisis
0:16:15 I wasn’t like as avid of an investor in the dot-com and the great financial crisis as much as the cobit crash
0:16:20 So I don’t feel like I’ve emotionally seen like 30% of my wealth go away
0:16:24 But definitely saw it during during cobit, but it was very short and
0:16:28 But it was like that’s normal like I don’t need the money now
0:16:32 But if I was if I was like I’m gonna retire next year
0:16:39 I would make a case for in the year one or two years before you want to stop working and stop contributing
0:16:42 maybe a handful of the years after
0:16:48 adding a little bit of fixed income bond exposure to just
0:16:55 Reduce the volatility of your portfolio during those really really important years where if the market’s down 50%
0:16:58 And you need to take money out of your portfolio to live on for five years
0:17:03 It’s gonna have a really big impact on your, you know, likelihood of success. Yeah
0:17:08 Yeah, I mean for me right now, you know rates have looked attractive. I’ve stuck on the more, you know
0:17:14 Shorter term I’ve done for for cash. I just really don’t need to touch anytime soon
0:17:19 I’ve done six-month duration bond ladders, you know, just to lock in kind of some of these higher yields
0:17:23 And then as you mentioned for cash, I don’t know which fund you use but I use
0:17:31 V us xx, which is the Vanguard Treasury money market fund and you know, that’s been a great place to park cash
0:17:34 Is that where you’re currently parking your cash as well right now?
0:17:42 I would say in the leaving both me and my wife leaving jobs to run a podcast full-time
0:17:45 We do not have a lot of uninvested cash
0:17:50 And so it’s it hasn’t been worth the hassle of putting it in a fund. We just leave it in
0:17:53 You know a 5% plus earning
0:17:58 Savings account that we can operate out of there. They’re a handful of good options for
0:18:02 You know ditching the checking focusing on savings cash
0:18:08 Management or other accounts where you can operate your life and still earn a high yield. So that’s what we’ve been doing
0:18:16 I think where we differ a lot is, you know, your 25% ish in other stuff for me
0:18:19 That’s probably five maybe 8%
0:18:25 And and that’s I think the the big difference so I mentioned single-stock investing, you know
0:18:28 Grow stocks and then also venture capital and angel
0:18:32 When you think about your super high-risk bucket, what does that look like for you?
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The following podcast is a conversation with my friend and colleague Chris Hutchins. In this episode, we discuss a long-form article I just published on my investing playbook. The title of the article is “The Calculated Contrarian: Extreme Security, Extreme Risk, Extraordinary Returns.”View the full article hereMore on Chris and his podcast here.
Remember, this is my personal playbook. I’m sharing it for information purposes only, not financial advice. You should always consult with a professional financial advisor before making investment decisions.
The article is broken into several sections:* Timing the Market* How I think about investing bucket allocations* Where I Invest* Index Fund* Bonds and Cash Management: My Financial Shock Absorbers* High-risk* Stock Picking* Risk Management and the Importance of a Moat* Angel Investing: The High-Stakes Poker of Investing* Gold and Bitcoin: Your Financial Apocalypse Insurance* The Importance of Self-Custody and Physical Redemption* Retirement Accounts* When to Buy More* Conclusion