Want to Get Rich By Investing? You Need 4 Portfolios, Not Just 1.

Summary

The article suggests breaking up investment portfolios into four categories: Store of Value, Short Term, Medium Term, and Long Term, each with their own purpose and investment strategy.

Abstract

The article argues that instead of viewing one's investment portfolio as a single entity, breaking it up into subcategories can help refine an investor's strategy and make investment decisions easier. The four suggested portfolio categories are: Store of Value, which focuses on preserving buying power and includes investments like precious metals and cryptocurrencies; Short Term, which aims for quick gains and includes speculative investments like options trading and penny stocks; Medium Term, which focuses on conservative growth over a decade or more and includes investments like stocks capitalizing on mega trends; and Long Term, which aims for slow but steady growth over 30 years or more and includes investments like buy-and-hold real estate and blue-chip stocks. The article suggests that the amount allocated to each category should depend on an investor's age, goals, and risk tolerance.

Opinions

The article suggests that Warren Buffet's rule of not losing money is important when investing.
The article suggests that stores of value like precious metals and cryptocurrencies are important in times of political instability and money printing.
The article suggests that short-term investments can yield big wins quickly, but are also riskier.
The article suggests that medium-term investments require patience and time to yield big wins.
The article suggests that long-term investments are slow and boring, but ultimately yield wealth.
The article suggests that an investor's age, goals, and risk tolerance should determine how much is allocated to each portfolio category.

Want to Get Rich By Investing? You Need 4 Portfolios, Not Just 1.

Financial media talks about how to grow your portfolio. From penny stocks to real estate to bitcoin, understanding where to put your money can be a whirlwind of information that’s hard to unravel.

instead of looking at your portfolio as a monolith, I find it helpful to break it up into subcategories that each serve their own purpose. knowing the purpose of each subcategory helps refine your investing strategy, making investment decisions much easier. Instead of following the latest stock tips, you would have a lens for evaluating the information and determining if it’s a fit.

Portfolio 1: The Store of Value Portfolio

Warren Buffet famously has two rules for investing. Rule #1: Don’t lose money. Rule #2: remember Rule #1.

The store of value portfolio is about preservation of your buying power. We all use currency issued by the government because we have decided that we will all use it. Simply put that is a fiat currency. It is used for trade.

Other forms of currency are stores of value. Stores of value retain roughly equivalent levels of buying power over time because they are not susceptible to fluctuations from government, corporations or other agendas. They are effectively out of the system which gives them the power to resist being eroded away over time. With political instability and money printing, stores of value become ever important. Stores of value include precious metals like silver and gold, cryptocurrency like bitcoin and ethereum and even some real estate.

Portfolio 2: The Short Term Portfolio (3–5 years)

The short term portfolio is looking for big wins. This is where you’re looking to turn your money over quickly. The idea with short term portfolio is that you use this sector of your portfolio to double or triple your money in short order.

Short term portfolios could employ a lot of speculative strategies including growing a high cash-producing business, options trading, speculative real estate (flips, investments in the path of progress), penny stocks, and swing trading.

Portfolio 3: The Medium Term Portfolio (10–15 years)

The medium term portfolio is meant to deliver conservative growth that may take some time but will yield big wins in the medium term. It focuses on investments that prevent downside risk while building for something great. This could be stocks that capitalize on mega trends like a downturn in the economy or a owning a small, local business.

Even Jeff Bezos says that it takes about 10 years to become an overnight success. It doesn’t matter if you strike it out on your own or want to have a healthy stock portfolio. It takes time.

The key to the medium term portfolio is giving it time to grow. In the case of stock investing, you have time to intimately evaluate the leadership team, learn their decision making style and align where your ideals are congruent. A number of my former short term plays have matured to the point where they are in my medium term portfolio.

Portfolio 4: The Long Term Portfolio (30 years +)

The purpose of this portfolio subcategory is to be your failsafe method of getting rich really slowly. Think of tortoise and the hare. If all of your other ideas go bust and you never really hit your stride, this portfolio will deliver wealth by default.

This portfolio is slow and boring, but it works. These are ultimate value plays that you feel have longevity as a primary attribute.

This portfolio should focus on strategies that have rock solid fundamentals and have little risk of going out of business. In fact, long term portfolio strategies should only get more valuable over time. Investments like buy and hold real estate, and stocks like Berkshire Hathaway comes to mind. It’s not flashy or exciting but you will get rich — eventually.

How much you allocate to each portfolio subcategory depends on your age, goals and risk tolerance.