How and why I invest, and so should you.
Here are my thoughts around investing to help you get started on your own journey in setting up a financial plan!
Disclaimer: This is not financial advice, more of my current thinking which is subject to change as I learn more. When it comes to financial planning, you may want to consider talking with a fiduciary financial advisor as they are legally obligated to provide advice that is in your best interest.
Why do I Invest?
I want to invest in things that matter.
I want to be able to invest in companies that are working on solving problems that I care about and delivering value to this world. The areas I want to focus my money on specifically are around climate change, health, space, artificial intelligence, reducing wealth inequality, and mental wellbeing.
I want to be able to grow my money.
Making money work for me rather than the other way around. Another way of thinking about this is that by being a shareholder of a company, I have some of the world’s smartest individuals working for me and other stakeholders (shareholders and other interested parties).
I want to be able to preserve a portion of my money.
This would allow me to have a financial foundation that helps me focus even more on work and investments that matters since there is a pillar of relative safety (nothing is certain in life) in the advent that the investments do not pan out.
How I approach investing?
I have high-risk tolerance
I am currently 25, with high income and low expenses, which allows me to have a 10+ year horizon and take larger risks.
I aim to have a ownership mindset
When buying a stock, I am owning a part of the company rather than the price I paid for it. The price of a given company at a given time is like a popularity contest, while in the long-term, the true value will come out. This means that when a stock that I own drops in value, it’s more like it is on sale rather than me losing money.
I focus on tax-advantaged investing
Every year, I max out my Roth IRA (using the rollover backdoor), max out the Roth 401(k) at work (using the mega-backdoor), and max out as well pay out of pocket with my Health Savings Account (HSA). Nearly all of my investments are focused on the Roth component rather than the 401(k) component. This is because I anticipate that I will make more money in the future than today and that taxes will continuously go up overtime and would therefore rather pay taxes now for tax free growth later.
I dollar cost average my investments
I focus on dollar cost averaging as time in the market beats timing the market. This helps reduce the emotion of investing as transactions are done consistently and automatically.
What do I invest in?
I allocate 80–90% of my investments into Growth
The focus of the Growth allocation is to focus on companies that are working through some of the biggest problems that we have today, and as part of this also have a large opportunity for outsized gains. When there are large market swings, I may end up allocating heavier towards 90% as I focus in on companies that I have the most conviction for.
Potential Generational Companies
Generational companies, coined by Dave Lee on Investing, are companies that have the opportunity to have a huge impact to the world and change the way we do things. Therefore, investing in these companies at the early stage of their journey can help the companies grow faster, which in turn, provide outsized gains.
For me personally, Tesla comprises nearly the entirety of this allocation as despite recent stock performance, I believe there is still much opportunity. More information about why here. I also do have some position in companies such as Lemonade, Square, CureVac, Moderna, and AMD.
ARK Invest ETFs
ARK Invest provides ETFs that are focused on disruptive innovation and I have found their research to be very high quality. We live in a time of a lot of technological innovation and many of the companies are being disrupted, as seen by Amazon disrupting retail, or going to be disrupted. This is exacerbated as many of these traditional companies continue to focus on short-term share buybacks or dividends rather than actively investing in the company itself. What all this means is that traditional passive indices may underperform historical performance. This can be seen by the fact that the average tenure of a company in the S&P500 has gone from 60 years in 1950s to under 20 years in 2017.
I own some ARKK, the flagship ETF, and ARKG, which focuses in the genomics space.
I allocate 5–15% of my investments into Preservation
This component of my allocation focuses on more diversified and tried and true methods for long-term gains. I treat this generally as cash as well as my safety net fund and during large market corrections will sell some of this to buy more into the Growth allocation.
“Blue Chip” Technology Giants
These are the large generational companies that are more mature and already dominate our daily lives today. In my opinion, some of them do have questionable business models and practices which is why I invest in some more than others.
I own Microsoft (disclaimer: I am a employee at Microsoft) and Apple.
Diversified ETFs and Robo-advisors
S&P500 ETFs are approaches that are quite diversified and is likely one of the best choices for most people. This is because based off historical returns, the S&P500 has basically outperformed any actively managed funds, after factoring the expense ratios of said funds. I will note that there is risks in terms of whether or not this will continue in the future as explained in the ARK ETF section above.
To address some of these issues there are robo-advisors that invest in multiple diversified ETFs to include companies not within traditional indices as well as companies all around the world to be more diversified and can potentially better capture the upside compared to the S&P500.
I have some funds in Wealthfront which automatically allocates money to multiple ETFs (risk score 10).
Real Estate
Real estate is a tried and true method for not only preserving wealth, but for those who are willing to put in the effort, to pretty quickly build up wealth as well. There are also Real Estate Investment Trusts (REITs) that investors can put their money into for exposure as well as services such as Fundrise who do this privately (more potential upside but also limitations on withdrawals compared to REITs).
I don’t have any allocation to real estate at this point, this is mostly due to the fact that my job already does provide quite a bit of income and so I am more interested in other projects than working on real estate. I do anticipate investing more in REITs or Fundrise for more diversification.
Bonds
Bonds are another traditional wealth preservation asset which typically provides a fixed percentage of income until maturity.
At this point in time, I don’t have many bonds with exception of the few percentage points that is automatically allocated as part of Wealthfront’s Roboadvisor service.
I allocate 5% of my investments into Speculation
The focus here is about potentially large gains but with extreme risk and volatility.
Cryptocurrency
Cryptocurrencies as a whole has a lot of potential to change how the global financial systems would work in the future and the role of government but is very much speculation at this point as practical implementations have been limited and there are concerns around security and energy usage.
I own primarily Bitcoin and some Ethereum, with a very small position in Dogecoin and am interested in starting a position in Cardano. I do think there is long-term opportunity here for crypto and decentralized finance broadly but definitely not an expert in this space.
Startup Investing
Repbulic.co is a platform that allows non-accredited investors (most people, including myself) to invest in highly-vetted private companies. A side benefit of this is that you can get perks for investing in the company, akin to Kickstarter. Money invested here can potentially go a very long way for these private companies as compared to more well established companies that are already in the public markets.
I have bought some positions in some of the startups on the platform. Overtime, I do plan on acquiring accreditation and participating in syndicates in order to invest in a wider selection of private companies.
Personal Business Ideas/Projects
I may end up bootstrapping certain ideas and business ventures, which definitely would fall into the speculation category.
How will this change overtime?
Within the next 5 years I anticipate purchasing a car and may consider buying a house. In addition, there are also potential scenarios such as a significant other, marriage, and potentially having children. Longer-term, thinking about concepts such as retirement. This means that while I do right now have a long investment horizon, my risk tolerance will shift as more potential expenses come in.
I may end up buying a car and potentially a house
Now for “smaller” expenses, such as a car purchase could be done through a payment plan to reduce upfront costs. For larger expenses such as buying a house, rather than going strictly for the lowest rate through a 20% down payment, going for the minimum possible, funding this potentially with margin, and paying overtime would reduce the upfront cost. Of course, this does mean that a significant portion of incoming cash flow would have to be directed for these payments, which means significantly less to invest in.
I may end up starting up a family and thinking about retirement
Based off the EPI’s estimated family budget, the average cost for a family of 4 (2 parents and 2 children), would be at ~$100,000. Operating on a more conservative variant of the 4% Rule, with 3% withdrawal, then that means that a total of approximately $3.3 million required in the Preservation allocation to pay for this, assuming zero other income streams (which would unlikely the case in the next 10 years).
Therefore, I would employ a more diversified strategy than what I would do today, such as directing remaining income after expenses to ARK Invest ETFs rather than individual companies. Also, I would increase my contributions to the Preservation allocation, with the goal of reaching ~$3.3 million so that I could later focus more on growth.
