Note: The above video is a conversation with my friend and colleague discussing the following article.
Two decades in the investment world have taught me that success lies in both boldness and historical battle-tested financial wisdom. This philosophy guided my journey from a novice index fund investor to an angel investor and, eventually, a General Partner at Google Ventures and True Ventures. Today, I still serve as a General Partner at True Ventures, where we currently invest in early-stage startups and manage $3.5B+ with 350+ companies.
It's been a wild ride. Along the way, I've developed an investment strategy that's weathered bull markets, bear markets, and everything in between. Today, for the first time, I'm pulling back the curtain to share my personal playbook—a carefully crafted approach that balances growth potential with calculated risk-taking. Whether you're a seasoned investor or just starting out, I invite you to explore the investment philosophy that's shaped my financial life for the past 20 years.
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.
I've broken this article into several sections
Timing the Market
How I think about investing bucket allocations
Where I Invest
Index Funds
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
Timing the Market (when to invest)
"Time in the market beats timing the market" is an old Wall Street adage, and for good reason. Trying to predict market peaks and troughs is a fool's errand, even for seasoned professionals. Instead, I prefer a method that Benjamin Graham, the father of value investing, called the ultimate formula for investing success: Dollar Cost Averaging (DCA).
Here's the gist: Instead of trying to outsmart the market, invest a fixed amount regularly, regardless of market conditions. It's like buying a little piece of the market's roller-coaster ride at every twist and turn.
Why I love DCA:
It takes emotion out of the equation. No more "Is this the right time?" anxiety.
Dollar-cost averaging means investing a fixed amount regularly (e.g., weekly or monthly), regardless of market conditions. This strategy naturally results in buying more shares when prices are low and fewer when prices are high, potentially reducing your average cost per share over time.
It aligns with most people's income streams (regular paychecks).
All that said, DCA isn’t the only method worth considering. Lump sum investing technically wins out mathematically in some scenarios. However, I prefer the psychological comfort of DCA, especially when markets are frothy.
How I think about investing bucket allocations
My approach to investing bucket allocations is designed to balance growth potential with peace of mind. At this stage in my life, I prioritize a well-diversified portfolio that allows me to sleep at night while still pursuing significant long-term growth. Here's how I think about each bucket:
Index Funds (60-80% total portfolio): The Foundation
Index funds form the cornerstone of my portfolio. This substantial allocation reflects my belief in the power of broad market exposure and passive investing. By putting most of my assets here, I ensure that I capture overall market growth while minimizing fees and reducing the risk of underperformance due to active management mistakes.
Bonds and Cash Management: My Financial Shock Absorbers (0-20%)
I view bonds primarily as a tool for short-term cash storage and flexibility. This bucket serves two purposes: a safety net that helps reduce overall portfolio volatility, but more importantly, it acts as a reserve that can be tactically deployed into other buckets when opportunities arise, such as during market dips.
The size of this bucket can vary based on market conditions, potentially shrinking to near zero during significant market downturns as I reallocate to equities.
High-Risk Investments: Stock Picking and Angel Investing (10%)
This bucket is where I seek outsized returns:
Angel Investments (0-10%): These are high-risk, high-reward opportunities that have the potential to outperform the market dramatically.
Individual Stocks (0-10%): Carefully selected growth stocks that I believe have the potential to beat market averages significantly.
While I expect (and hope) that these investments will outperform, I size this bucket conservatively, in aggregate never exceeding 10%. This ensures that even if these high-risk investments underperform or fail, my core retirement goals remain secure thanks to my substantial index fund allocation.
Catastrophic Downside Protection (3-5%)
A small but important allocation to gold and Bitcoin serves as insurance against extreme economic scenarios.
Where I Invest
Index Funds (60-80% of total portfolio)
In 2007, Warren Buffett challenged the hedge fund industry by wagering $1 million that an S&P 500 index fund would outperform a portfolio of hedge funds over a 10-year period.
After 10 years, Buffett's index fund choice significantly outperformed the hedge funds. The S&P 500 index fund returned 125.8% cumulative return (about 8.5% annually), while the hedge fund portfolio had 36.3% cumulative return (about 3.1% annually).
This bet strengthened Buffett's long-standing argument that low-cost index funds are better than high-fee active management for most investors. It also demonstrated that even sophisticated investors often struggle to beat the market consistently over long periods, especially after accounting for fees.
Index funds are the cornerstone of my portfolio, with 50-70% of my total capital going into them. Here’s why:
I like to sleep at night; index funds are well-diversified.
The S&P 500 naturally evolves, removing underperformers and adding rising stars (the same applies to international index funds).
International Index funds provide geographical diversification.
Their low fees can significantly impact long-term returns (especially Vanguard funds).
We could argue geographic allocations all day, U.S. vs. International. These days, some political agendas seem to be trending towards deglobalization and economic nationalism. For the sake of simplicity and reduced geopolitical speculation, I divide my index fund exposure 50/50 between US domestic and international markets
US domestic, 50% of index funds:
VOO - Vanguard S&P 500 ETF (.03% expense ratio)
Invests in stocks in the S&P 500 Index, representing 500 of the largest U.S. companies.
International, 50% of index funds:
VXUS - Vanguard Total International Stock ETF (.08% expense ratio)
It seeks to track the performance of the FTSE Global All Cap ex-U.S. Index. This index is a market-capitalization-weighted index that tracks the performance of large, mid, and small-cap companies in developed and emerging markets, excluding the United States.
Why I choose broad international index funds
When it comes to international exposure, I prefer broad index funds like VXUS over picking individual international markets. Here's why:
Simplicity: Researching and selecting individual international markets is challenging and time-consuming.
Diversification: A broad index fund provides exposure to developed and emerging markets, reducing country-specific risks.
Automatic Rebalancing: As different markets perform differently, the fund automatically adjusts allocations.
Cost-Effective: Broad international index funds typically have lower expense ratios compared to country-specific funds.
Bonds and Cash Management: My Financial Shock Absorbers (0-20% of total portfolio)
I think of bonds and cash as my portfolio's shock absorbers. They smooth out the ride when the market gets bumpy. Here's my approach:
Short-term bond ladders: I buy bonds with staggered maturity dates. It's like having a conveyor belt of cash coming due at regular intervals.
Government money market funds: I use ultra-safe options like Vanguard's Treasury Money Market Fund (VUSXX) to park cash.
Flexibility is key: I'm ready to slash this allocation to near-zero if the stock market takes a nosedive (20%+). That's when bonds transform from shock absorbers to dry powder for buying opportunities.
A short-term solid bond strategy helps me transition from defense to offense when the timing makes sense (more on this later).
High-risk Investments
Index funds aside, truthfully, the bulk of my returns and net worth have come from individual stocks and angel investments.
Having a framework to minimize this risk is vital. I like to think of this as the rubber bumpers they use on bowling alleys for kids. In the worst-case scenario, I want to hit at least one pin.
Let’s dive in…
