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…
Stock Picking (5-10% of total portfolio)
I allocate a small portion of my portfolio to individual growth stocks, which allows me to capture outsized returns from companies with exceptional long-term growth potential. If I’m Angel investing (see below), this number will drop to 5% of the total portfolio; if not, I keep it around 10% (never above).
Why Growth Stocks?
Growth stocks represent companies expected to grow significantly above the market average. These are often innovative firms disrupting traditional industries or creating entirely new markets — but for some reason, the market has yet to price in this future potential.
My Approach to Selecting Growth Stocks
Investing in individual stocks, particularly growth stocks, requires a different mindset and approach compared to passive index investing:
Trend Spotting: Most important, I try to identify major technological or societal trends early. This often involves looking at emerging technologies, changing consumer behaviors, or shifts in the global economy.
Deep Sector Knowledge: I focus on industries where I have expertise or a strong understanding. This might be due to professional experience, personal interest, or extensive research.
Competitive Advantage: I look for companies with a strong moat — which is a sustainable competitive advantage that can help them maintain market leadership as they grow.
Financial Health: I look for companies with strong balance sheets, and a clear path to profitability or in a sector with so much long-term potential that raising additional capital shouldn’t be an issue.
Management Quality: The leadership team is crucial. I favor companies with visionary yet pragmatic management teams that have a track record of execution.
Personal Examples
To illustrate this approach, let me share two examples from my personal experience:
Tesla: A decade ago, I blogged about the potential for electric vehicles to disrupt the automotive industry. Tesla, obviously, stood out as a potential leader in this space. Despite skepticism from many quarters, I believed in the company's long-term potential.
NVIDIA: As artificial intelligence began gaining traction, I recognized the critical role specialized hardware would play. NVIDIA's GPUs were already dominant in gaming and began to signal a transition to AI-dedicated hardware. In this instance, I purchased shares based on this news, and dollar cost averaged into a larger position as this thesis solidified.
Both of these investments required looking beyond current market conditions and imagining how these companies could shape and lead emerging trends.
I plan on making my future trades public as they happen. Not financial advise, but fun fodder for discussion in our chat.
Risk Management and the Importance of a Moat
Individual stocks can be highly volatile, and even promising companies can fail to live up to expectations. That's why I limit this to a small portion of my overall portfolio and diversify even within this allocation. No matter how promising it seems, I never bet too heavily on any single stock.
In evaluating and managing the risk of growth stock investments, I always keep in mind Warren Buffett's famous quote:
"The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage." ~Warren Buffett
This competitive advantage, often referred to as a "moat," is critical in my risk management approach. A strong moat provides a buffer against competition and market downturns, offering some downside protection. However, moats can erode over time, especially in fast-moving industries (ChatGPT is great, but hot damn, Google’s Gemini caught up quickly). That's why investing in individual stocks requires continuous monitoring and a willingness to reassess your investment thesis as new information becomes available.
Always be prepared to exit a position if the fundamental reasons for your investment no longer hold true. This might include signs that a company's moat is weakening, changes in industry dynamics, or shifts in the company's strategy that don't align with your original investment thesis.
A Flexible Approach to Stock Picking
It's important to note that I don't always keep this individual stock bucket full. I view this allocation as opportunistic rather than mandatory. I only invest when I identify an opportunity that aligns with a well-researched investment thesis. I often maintain no individual stock positions when I lack a compelling investment thesis.
This approach allows me to stay disciplined with my overall asset allocation while still leaving room to act when I see exceptional potential. It's a way to potentially boost returns without compromising the stability provided by my core index fund holdings.
Angel Investing: The High-Stakes Poker of Investing (10% of total portfolio)
Angel investing is like playing high-stakes poker with startups. It's thrilling and potentially lucrative, but definitely not for the faint of heart. Here's the unvarnished truth:
Connections are everything: Without deep industry ties, you're playing with a handicap. No amount of diversification can save you from a portfolio of shitty investments.
Expect massive failure rates. Most startups crash and burn, so be prepared to lose your entire investment.
Hunting for unicorns: The game is about finding those rare 100x returns that make up for all the losses.
It's a numbers game: Top angels invest in 20, 30, or even 50+ startups, knowing most will fail.
Potential for astronomical returns: While the S&P 500 might provide 10% annually, a successful angel portfolio could return multiples of that.
The potential for outsized returns comes with increased risk and volatility. It's crucial only to allocate capital you can afford to lose entirely and to approach angel investing as part of a broader, diversified investment strategy.
When friends want to become angel investors
I provide them the following framework and ask them to consider these key factors:
1. Capital: Do you have enough money to invest $10-15k (typical angel deal minimums) in at least 20 companies over time? Can you afford to lose this money entirely, and if you do, will it screw up your retirement strategy?
2. Time: Can you dedicate significant hours to sourcing deals, conducting due diligence, and supporting your portfolio companies?
3. Expertise: Do you have domain knowledge in your investing areas? Can you evaluate business models, market demand, and founding teams?
4. Access (potentially the hardest one): Do you have connections to find high-quality, often oversubscribed, promising startup opportunities? Can you wedge your way into competitive deals? If so, how?
5. Patience: Are you prepared to wait 7-10 years or more for returns? Can you handle the illiquidity of startup investments?
6. Value-Add: Can you provide more than just money? The hottest deals often allocate shares to investors based on the value they bring to the company; this often takes the form of advice, connections, and operational support.
If the answer to any of these questions is no, angel investing might not be the right path. Instead, consider other ways to gain exposure to startups, such as investing in venture capital funds or sticking to growth stocks.
Gold and Bitcoin: Your Financial Apocalypse Insurance
Think of gold and Bitcoin as your portfolio's doomsday preppers. They're not just hedging against market downturns; they're your financial bunker when things go seriously sideways.
Gold (3% of portfolio)
Gold is the original store of value. It's outlasted empires and still shines bright. As Ray Dalio puts it, "When currencies are devalued, people turn to gold." I use GLDM—SPDR Gold MiniShares (0.10% expense ratio), which offers investors one of the lowest available expense ratios for a U.S.-listed physically gold-backed ETF.
Bitcoin (1-2% of portfolio)
The new kid on the block with old-school ambitions. It's digital gold, aiming to be the Fort Knox of the internet age. I use EZBC - Franklin Templeton Bitcoin ETF (0.19% expense ratio), offered by Franklin Templeton, a trusted partner to clients for 75 years, with custody by Coinbase.
Note: Don’t be fooled by different ETFs; many of them use the same Coinbase backend infrastructures, so I choose the lowest expense ratio (EZBC).
Why bother with all this?
In a world where governments can print money at will, having assets they can't touch is like having a financial superpower.
Remember, this isn't about getting rich quick. It's about having an escape hatch when the financial world loses its mind.
For the extreme preppers among us (I’m not in this camp). Self-Custody of both gold and Bitcoin are worth considering. Gold ETFs such as GLD, AAAU, and OUNZ allow for physical redemption (minimums apply). On the crypto side, consider devices like Ledger or Trezor for secure offline storage.
Maximize Retirement Accounts
While I've left this for last, it should be the first bucket to consider as you build out your investment strategy. However, maximizing contributions to retirement accounts requires some important considerations:
Employee Matching: If your employer offers matching contributions, I prioritize contributing enough to take full advantage of this benefit. It's essentially free money that significantly boosts your retirement savings.
Emergency Fund: Before maximizing retirement contributions, I always have an adequate emergency fund in place. This buffer protects me from having to withdraw from retirement accounts in case of unexpected expenses.
Early Withdrawal Penalties: Be aware of the substantial fees associated with early withdrawals from retirement accounts. These penalties can significantly erode your savings if you need to access the funds before retirement age.
Maximizing contributions under these conditions is crucial for long-term financial security. However, if these conditions aren't met, I’ve traditionally balanced retirement savings with other financial priorities to maintain flexibility and avoid potential penalties.
When to buy more
Warren Buffet once told investors: “to be fearful when others are greedy and to be greedy only when others are fearful.” ~Warren Buffet
Market Correction Strategy
During major market corrections (drops of 20% or more), I significantly increase my investments in both funds and individual stocks. These events are infrequent, with recent examples including:
The dot-com bust (2000)
The financial crisis (2007)
The COVID-19 pandemic (2020)
When such corrections occur, my strategy is as follows:
I draw from my short-term bonds and cash reserves to invest more.
I use dollar-cost averaging to account for potential further market declines.
For smaller market dips, I maintain my positions without selling.
My guiding principle is simple: I never panic sell; I buy when others panic.
This approach allows me to capitalize on market downturns, viewing them as opportunities rather than threats.
Conclusion
Investing is a deeply personal journey shaped by your goals, risk tolerance, and life circumstances. The strategy I've outlined here—balancing the stability of index funds with the potential of high-growth investments while maintaining a safety net—has served me well over the years.
Remember, the path to financial success is rarely a straight line. It requires patience, continuous learning, and the discipline to stick to your plan even when markets are turbulent.
Ultimately, the most successful investment strategy is one that you can consistently follow and believe in. What's your approach to building long-term wealth? How do you balance risk and reward in your portfolio? Share your thoughts and experiences in the comments below—let's learn from each other and grow together on this financial journey.
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.
*Full Disclosure: I’m a Wealthfront investor, but you can deploy a bond laddering strategy at nearly every major financial institution.
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