Money

I wrote recently about my crypto investing strategy. Shortly after, I noticed this brilliant tweet from Vinny Lingham:

The first step to financial success is figuring out the difference between saving, trading, and investing.

The last step is then knowing how to correctly allocate your resources to each one.

— Vinny Lingham (@VinnyLingham) February 1, 2022

In the past I’ve done each of these three, thinking it was one of the others. That led to a lot of mistakes.

For me, investing is defined as buying and holding assets with a long-term view of them appreciating in value. To be able to do that, you need to have a strong conviction in your overall investing strategy and the specific assets you invest in.

I think the other thing that’s important is to have a set of rules for yourself. Investing with a long term view can be difficult. There will likely be price volatility and shifts in macro trends along the journey. Having a set of rules for yourself helps to keep emotions under control and avoids impulsive decisions.

So, I spent some time working on my rationale for investing in crypto and the specific assets in my portfolio. Interestingly, this led to me selling three of my assets. Either I didn’t understand them enough or didn’t have enough conviction in them for the long term.

I also put together some rules for myself. Whilst I had most of these rules in my head anyway, it was nice to get them out and organise them.

The updated version is below. I hope it’s useful, I know it is for me. If you’re investing in anything with a long term view, I highly encourage you to go through a similar exercise.

Overall Investment Case for Web 3 / Decentralisation

People are starting to tire from centralised banks, government and big tech. Over the next decade, Web 3 and decentralisation will eat Web 2 and centralisation – in the same way software ate the world.

‘Web3 is the internet owned by the builders and users, orchestrated with tokens.’ – Chris Dixon (Why Web3 Matters)

Investing Rules

• Only put in what I’m willing to lose

• Don’t over commit. Avoid a position where I have no choice but to take money out (and therefore risk selling at a low)

• Place bets around infrastructure and fundamentals (which are more likely to endure), rather than specifics (which are more likely to come and go)

• Have fewer, high conviction bets

• Take a meaningful position. Buy more in the dips

• Have a long term horizon (unless something macro materially changes)

• When the time comes, don’t be greedy. It’s fine to take money off the table and reallocate. Things don’t have to be held in full forever

Portfolio / Investment Cases

Asset	Investment Case
Bitcoin (BTC)	Bitcoin becomes digital gold.
Ethereum (ETH)	Ethereum becomes the world’s dominant global banking and financial network. It will be the dominant platform for decentralised finance (DeFi).
Render Token (RNDR)	Render becomes the world’s global rendering engine for the metaverse.
Helium (HNT)	Helium becomes the leader in decentralised wireless networks and 5G infrastructure.
Solana (SOL)	In a multi-chain future, Solana will become one of a small number of dominant layer one blockchains.
Fantom (FTM)	In a multi-chain future, Fantom will become one of a small number of dominant layer one blockchains.
DeFi Pulse Index (DPI)	Diverse coverage of the decentralised finance (DeFi) sector. DeFi will disrupt traditional finance.
Bankless DeFi Innovation Index (GMI)	Diverse coverage of the high growth, early stage decentralised finance (DeFi) sector. DeFi will disrupt traditional finance.
Data Economy Index (DATA)	Diverse coverage of decentralised data-based products and services. These will disrupt the data monopolies built in Big Tech over the past 20 years.
Index Cooperative (INDEX)	In a world where Index funds become a significant percentage of the overall crypto landscape – Index Cooperative DAO will gain a significant percentage of the crypto index market.

Lastly, here is my current allocation for each asset:

---

Get my ideas straight to your inbox. Sign up for my newsletter below:

* indicates required

Email Address *

I’ve been spending a lot of time recently learning about and investing in crypto. It’s been a bumpy ride, but I’ve now settled on an approach that I’m happy with. I hope that by sharing this, it’ll be helpful to others in their journey.

I’ll cover my overall goals, investing strategy, allocation and security.

What’s my goal?

Before I got into crypto investing, my investing strategy was passive, index funds. It mostly still is. Investing in crypto was my way of exposing some of my portfolio to more risk.

My first goal is therefore to significantly beat the market (S&P 500) over the next 5 years. That’s a given, or I wouldn’t be taking the extra risk.

If I was pushed to name an ROI over a defined time period – it would be 10X over five years. I appreciate this is super punchy – especially when you write it out as 1000%. 😉

Even as I write this, I realise I might need to be open to taking more risks to achieve a goal like this. That said, some crypto assets have seen exponential growth in only the last year – so, anything feels possible.

I’m not going to latch too hard onto the 10X over five years. I’ll let things play out for at least a year with my current strategy and will evaluate from there.

Crypto Investing strategy

I wish there was an S&P 500 equivalent for Crypto. Instead, I’ve had to stumble my way towards building a diverse portfolio that I can mostly forget about.

And I do mean stumble…

From investing in Bitcoin only, to also picking up some Ethereum. I then drifted into taking on a lot of small positions in stuff that I didn’t understand properly. I also went through a stage of getting lost in memecoin land. I’ve tried a lot of things and made plenty of mistakes. But, I’ve finally come out the other end with a clear strategy that I hope will be effective over the long-term – and importantly, one which suits my personality.

Bitcoin and Ethereum make up over half of the global cryptocurrency market cap – so I’ve made them nearly half of my portfolio (47%).

I have 15% allocated to other major layer one blockchains. 18% is allocated to specific assets that I’ve researched, understand and am bullish on. The remaining 20% is allocated to a number of indexes which give me broad exposure to DeFI (Decentralised Finance), Metaverse and Data (data and storage services) crypto assets – aswell as a small bet on the DAO (decentralised autonomous organisation) that runs these indexes.

Below is the more detailed breakdown of each asset as it currently stands:

The only further changes I might make is to get better coverage of some other layer one blockchains (Avalanche, Polkadot etc.) and some layer 2 blockchains (Polygon etc.). This will have to wait until I invest more into crypto because I don’t want to re-allocate and mess with the allocations I currently have.

I also now have a minimum amount that I invest in each asset. I don’t want a large, messy portfolio with alot of smaller positions. I would prefer less positions, in which I have a lot of conviction in. A minimum amount to invest in each asset helps me stay true to that.

My crypto allocation

As I mentioned above, before I got into crypto investing, my investing strategy was passive index funds (70% S&P 500, 30% FTSE UK All Share).

Over the last few months, I’ve gradually reallocated funds towards the following allocation:

• Passive Index Fund – 75%
• Crypto – 25%

This feels about the right amount of risk to take for now. It’s a decent jump into crypto investing – whilst still maintaining a strong position in my core investing strategy (passive, index funds).

The other metric I keep an eye on is what percentage of my net worth is in crypto. Currently, it’s 7%. This also feels about right for now.

I can see a scenario where these allocations are larger, but for now I want to let things play out for a while, whilst I continue to educate myself.

Security

As I’ve moved more funds into crypto, I’ve become more sophisticated with my security.

I used Coinbase when I first started investing in crypto. Coinbase is a centralised exchange which makes it very easy to buy, sell and convert crypto.

As I wanted to invest in assets that were not available on Coinbase, I started to use other centralised exchanges too – Gate.io, Bitmart and Binance. Whilst perhaps not as slick as Coinbase, they’re all fairly easy to use.

I think using centralised exchanges is fine for most people. They’re easy to use and with two factor authentication, they’re pretty secure. The one drawback is that whilst technically your crypto assets are on the blockchain – you do not have full self custody of your funds. The exchange does.

So, the next step for me was to start holding assets in a software wallet (often referred to as a hot wallet). I chose Metamask as it’s one of the most popular and easy to use. This acts as your private key for your address on the blockchain (where your assets are). It gives you full self custody of your funds, but it’s also a big responsibility. You’re more susceptible to a hack and if you’re careless with or lose your recovery phrases, you stand to lose everything.

As I shifted more of my investment portfolio over to crypto, I started to learn about hardware wallets (often referred to as cold wallets). These store your keys on an offline device (so they are never exposed online, reducing the chance of being hacked). All transactions are done on the device itself. Of course, you still have the responsibility of self custody, but there’s a much higher level of security.

Recently I finally took the plunge and went for a Trezor Model T. I’ve now moved over 95% of my assets to it. I still use Metamask, but purely as an interface for doing transactions and to be able to view assets that aren’t supported by Trezor Suite (the software that comes with the wallet).

Conclusion

Hopefully the above is helpful if you’re considering your own crypto investing strategy, allocation and security.

It’s very early days for my crypto strategy and portfolio. In the three months it’s taken me to build this portfolio, there’s been alot of volatility and a couple of big crashes. To give some context, Bitcoin is down 31% over 90 days.😬 I have a well thought out strategy and a long term horizon on my side though, so I’m fine to hunker down and play the long game.

But why invest in crypto in the first place? For me, it was two fold.

Firstly, the potential return. Whilst it’s higher risk and more volatile than more traditional assets, I believe the returns will be higher over the long term.

Secondly, I’m bullish on Web 3 and decentralisation. The technology and use cases need time to mature, just like any other disruptive technology. But over the next decade I think it will eat centralisation, in the same way software ate the world.

Lastly, I just want to thank a few people for helping educate me over the last few months.

Thanks to Barry Avraam for continuing to push me to take risk (I’m naturally risk adverse) – but not for persuading me to buy FLOKI 😂

Thanks to Thomas Hepner for his excellent articles, and for patiently answering many of my questions around investing strategy, crypto indexes and decentralised exchanges.

Thanks to Henrique Olifiers for letting me pick his brain when I was trying to understand new concepts.

Thanks to everyone in the INDEX DAO who has helped answer my various questions on their decentralised crypto index funds.

Thanks to the awesome content creators who have helped me educate myself on everything web 3, decentralisation and crypto – Bankless, Kevin Rose, Chris Dixon, Naval Ravikant, Balaji Srinivasan, Fred Wilson (in particular his Buying Crypto Assets article) and the Coin Bureau have all been super helpful.

---

Get my ideas straight to your inbox. Sign up for my newsletter below:

* indicates required

Email Address *

I’ve been keeping track of my net worth for about five years now. It’s been so useful and I just can’t imagine not doing it now. It’s helped inform many decisions around my finances.

Money isn’t everything. But, you need a baseline to ensure a certain amount of stability in life – a roof over your head, food, clothes etc. Without that, life is very stressful.

Ideally, you also have enough to enjoy life too. This is where a lot of people get into trouble and end up living above their means. I’m not talking about that. I’m talking about taking a trip, having a nice meal at a restaurant or being able to buy things that add value to your life.

And lastly, you want to be moving to a position where you are financially free and have a lot of freedom for how you spend your time. This is what we call retirement, but I hate that word. It assumes you work for most of your life and then you stop so you can take walks and do gardening. What it’s really about is being able to have the freedom to spend your time how you want – and if that’s continued to work because you love it – great. If it’s to stop and travel the world – great. And if it’s a mix of both – great!

Tracking your net worth shines a light on exactly where you are. You can’t hide from the numbers. It also makes it clear if you’re going backwards, treading water or moving forwards. That’s invaluable, because it helps to make better financial decisions.

When I first started tracking my net worth, I made it far too complicated and checked it too frequently. Over time, I’ve simplified it and made better decisions on how I classify certain things. I now update it on roughly a quarterly basis.

I won’t go into lots of detail here, but I’m always happy to have a chat about my approach with anyone.

I use a google sheets spreadsheet to track my net worth. It’s not fancy and fits on one tab.

I have the following sections that I track:

Cash

• Emergency fund
• General savings

Investments

• Vanguard – FTSE U.K. All Share Index Unit Trust – Accumulation
• Vanguard – U.S. Equity Index Fund – Accumulation

• Cryptocurrency – Coinbase
• Cryptocurrency – Binance

Property

• House equity (approx.)

Assets (anything we have that is of significant value that can be liquidated)

• Watch
• Car

Owed to us (anything that’s owed to us)

• Hardly ever contains anything!

We owe (anything we owe)

• Credit card

---

It’s worth noting that I also break out the percentages of each investment, so I can understand my allocation at any one time. If you’re interested in the details of that, see here.

I also have a summary section that summarises the total amount and the percentage of cash, investments, property and assets.

CASH – 1%
INVESTMENTS – 32%
PROPERTY – 61%
ASSETS – 6%
OWED TO US
WE OWE

I’ve put in my real percentages to help show you how this type of visibility helps you make better decisions. Ideally I would like to see less of a weight on property, more weight on investments and a touch more in cash. So, right now we’re looking to build up a bit more in cash and we’re continuing to invest aggressively. That should help shift the weightings over time.

Every quarter I check the accounts and update the numbers to see where things are heading. The exception is property and assets, which I look at yearly. I only make an adjustment to these if I believe things have materially changed. Importantly, I try to be super conservative here, because I never want my net worth to appear higher than it is. I’d rather have a pleasant surprise, than be disappointed.

The only thing I haven’t mentioned is my pension. I track that also, but for some reason I don’t include it in my net worth. I seem to have a bit of a weird relationship with pensions because of the fact that money is locked away and then accessed later in life with some restrictions. That said, I should probably include it in the total net worth number. I’ll think about that.

If you don’t already track your net worth, I’d highly recommend sitting down and mapping it all out. It’s eye opening when you see it for the first time. I think you’ll find it an inflection point for taking more ownership of your finances and making some different decisions.

---

Get my ideas straight to your inbox. Sign up for my newsletter below:

* indicates required

Email Address *

There are two reasons why everyone should invest.

The obvious first one is to build wealth for yourself. Albert Einstein once described compound interest as the “eighth wonder of the world” for a good reason. If you invest £300 a month at an average of 8% growth per year, you’ll be have more than £1M after a 40 year period (£1,047,302.35 to be exact).

And here’s the kicker, your contributions would only total £144K. This means over £900K is interest!

The less obvious and second reason is that it teaches you to prioritise and focus on the long-term. And it teaches you in the best way – incrementally, by making mistakes.

I bought bitcoin in early 2017, but sold it in early 2018 because it started going down. Yeah, that was fucking stupid. I also bought and sold some tech stocks in that same period, for the same reason. Yep, stupid again. I sold on the dip because I let my emotions get the better of me. I was too focused on the short-term.

I’m incredibly unlikely to make the same mistakes again. I can’t even imagine it. I have 30% of my net worth invested at the moment (mostly index funds, but also some growth funds / stocks and cryptocurrency). If it were halved tomorrow through a market crash, I wouldn’t flinch. I truly believe that. I would just see it as turbulence towards my long-term goal. In fact, I would go as far to say that it might well be the best investment opportunity I’ve ever had. I would remain calm and continue to invest as it recovered (which history tells us it always does).

Investing helped me develop that mindset. When things go wrong (not just in investing, but in life and work), I’m now quite good at remaining calm and taking a step back. I look at the bigger picture, which helps give me the right perspective. And from there, you can decide how to move forward – which might mean doing something different, but also nothing.

---

Get my ideas straight to your inbox. Sign up for my newsletter below:

* indicates required

Email Address *

I’m a conservative person by default. I tend to take a position of more risk slowly and incrementally. The positive is that it protects me against a loss. But, obviously my upside is capped.

I’ve had three things influence how I’m thinking about risk recently.

1. Seth Godin’s recent post on Appropriate Risk. I really like how he describes appropriate risk as two fold – 1. the odds of it working out being in proportion with the benefits and 2. the consequences not being so large as to wipe you out.

2. Fred Wilson’s recent post on Diversification, reminding me that having all of your eggs in one basket can end in a mess.

3. Being friends with Barry Avraam. I’m so impressed with how he takes risks. It often serves as a nudge for me to shift another increment on the risk taking scale. 😉

The reason this has been on my mind is because I’ve been thinking of taking more risk with some of my investments. Right now, it looks like this:

• Index funds (S&P 500 and FTSE All-Share) – 77%
• Growth stocks and funds – 18%
• Crypto – 5%

Crypto being 5% is too small to give me a decent sized upside if things go 5X for example.

So, I am going to re-allocate to the below (essentially shifting some investments from index funds to crypto):

• Index funds (S&P 500 and FTSE All-Share) – 69%
• Growth stocks and funds – 18%
• Crypto – 14%

14% feels a bit high. But I have to remind myself that whilst it’s 14% of investments, it actually still represents under 5% of my net worth. Overall, that feels like an appropriate risk to take.

Crypto is a volatile world and I’m not interested in trying to time the market. So, I intend to take a dollar-cost averaging approach and move it over a four month period.

Here weeeeee gooooo.

---

Get my ideas straight to your inbox. Sign up for my newsletter below:

* indicates required

Email Address *

Whenever anyone asks me for advice about investing, I always give the same response:

Invest in indexes. Contribute regularly, hold for the long term and rarely check.

Then I point them towards two bits of reading — JL Collins Stock Series and Warren Buffett’s $1 million bet. These do a great job of outlining the above approach, with some proof that it actually works.

[Read more…] about High risk investing & cryptocurrency