In this article, I’m going to lift the curtain on my simple and straightforward investment strategy.
No meme coin recommendation that is (isn’t) going to 100x. No financial jargon that leaves you confused (okay maybe a little financial jargon, but only when it’s actually necessary).
Just a no-nonsense investment strategy from a minimalist small business owner.
Let’s get started!
I think it’s not worth trying to beat the market
I am a believer in the efficient markets theory with very few exceptions.
Only two people have ever convinced me they have the ability to beat the markets in the long term. Both were immersed in the markets on a daily basis.
And unless you’re sitting on a fortune, why bother trying to beat the market?
Let’s say you earn $50 an hour in your career or business, and you have $10,000 to invest. An additional 10% return per year, which equates to $1,000, is the same as working for 20 hours. If you spend a very reasonable four hours a week generating that alpha, you basically earned around $5 an hour for your efforts.
Even with a larger investment amount, the time spent trying to outperform the market could probably be better spent working on your business or career – and that’s even IF you are one of the very few with the ability to beat the market.
So my philosophy boils down to this: instead of trying to be one of the very few and get a very meager reward, I keep my investments as simple as possible – while still generating strong expected returns – and focus my time on my core competencies.
My philosophy on volatility & cashing out
As a small business owner, I want the flexibility to pounce on opportunities to invest in myself & my businesses.
At the same time, I want to save for rainy days & retirement.
So, this leads to a discretionary approach with funds “peeled-off” as needed, with an eye towards accumulation over the coming decades.
And for me, a 100% allocation in stocks (70 US & 30 non-US) provides the best balance of risk and returns.
There are higher-risk, higher-reward investments, like individual growth stocks and crypto. But these types of investments might be down 70% when I need the money.
There are lower-risk, lower-reward investments, like Treasuries. But returns are low – even in the long-run.
Here’s the thing:
I can live with peeling off 10% of my stock investments when they are down 20%.
And I know that some withdrawals will work to my advantage. Things even out over time.
Thought exercise: if I peel off 10% of my stock investments every 3 years until retirement – while investing my surpluses – I’ll probably do pretty well.
The key is only taking the money out for good reasons & NOT panic selling during a bear market.
My investment formula
Here is my investment formula:
I have a fixed number that I keep in cash that equates to around 12 months of personal expenses. I invest anything above that number in stocks (70% US stock fund and 30% non-US stock fund).
That’s it.
Why not diversify?
I used to invest in A LOT of other things besides stocks.
Crypto, treasuries, real estate funds, basketball cards (yes, really!).
But here’s the deal:
My net worth isn’t high enough where diversification really matters. The treasuries and real estate funds weren’t worth the mental real estate (no pun intended) they were taking up.
In my opinion, a lot of people get too “cute” with their investments. It’s important to consider if you actually need another investment category.
Final thoughts
The best investment strategy for you is one that is objectively good and allows you to sleep at night.
Only consider options that fit both criteria.
Hopefully you can borrow parts of my strategy, but don’t try to force it!
Consult with a professional if you feel it would be helpful.
Good luck!
