As investors, we are always learning.
- Diversification is the key to being a successful investor.
- Despite the ups and downs, the stock market has performed well over the long term.
- Buy-and-hold investing offers the most promise of success.
Graham Stephan is a real estate agent and investor turned financial influencer on YouTube. He is known for sharing tips on everything from studying to budgeting to cryptocurrency. Here’s how he says he plans to invest for 2023.
Stefan makes no secret of the fact that he draws investment inspiration from the late David Swenson, a man who dramatically increased Yale University’s endowment fund by adhering to two main principles:
- Don’t put all your eggs in one basket.
- The opportunity cost of not investing in stocks is more risk than investing.
Based on these principles, here is how Stefan plans to allocate his investments this year:
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- 35% shares
- 35% real estate
- 22% treasures
- 4% alternative assets
- 3% Bitcoin and Ethereum
Distribution of assets
Stefan says that when he was 20 years old, he invested all his money in real estate. He would save enough money to buy a residential property, renovate it and rent it out. Every penny he had was tied to seven properties. In other words, all his eggs were in one basket.
“The risk of tying up your assets in one type of investment is that it can force your hand to liquidate when you’re least prepared,” Stephan said.
You will notice that its current distribution is diversified. That way, if one sector bites the dust, other assets can carry the portfolio as a whole.
It’s all about asset allocation.
The big, scary stock market
Stefan understands that investing in stocks scares some people right now. After all, the market closed down 19% in 2022. The last time stocks fell this much was in 2008. But he says it’s important to look at the big picture.
Here’s how he explains it: “When you look at stocks over a longer time horizon of 20-30 years, stocks have never lost money. The S&P 500’s return has been positive in every 20-year rolling period, and the lowest was in 1948 at 4% — not much different than Treasury bills. But most times the stock market has averaged returns of 7%-10%.
Stefan says that in the short term, owning stocks can be uncomfortable. It does, however, offer a fascinating array of stats.
- If you buy and sell within a year, you have a 73% chance of making money.
- If you wait and sell in the second year, there is an 80% chance of making money
- If you wait and sell in the fifth year, the chances rise to 90%
- If you sell in the 10th year, you have a 97% chance of making money.
It is with this mindset that Stefan invests and forgets about it until 2040.
Changing the way you invest in real estate
You’ll notice that Stephan has allocated 35% to real estate investing. Instead of buying multifamily properties as he once did, he’s turning his attention to commercial real estate this year — a space businesses can tap into over the next five to 20 years.
He is attracted by the fact that commercial property prices have already fallen 13% from their peak. It also appreciates that tenants are responsible for paying taxes, insurance and maintenance fees. As a landlord, he was responsible for everything. Investing in business real estate will allow him more time to focus on other projects.
Assets affected by various factors
It’s not enough to invest in stocks and bonds, two assets heavily influenced by Federal Reserve rates. Stefan feels most comfortable investing in some assets unaffected by these interest rates.
For example, Stefan invested in Ford GT and Tesla Roadster. So far, GT is up 30% since he bought it, and the Roadster’s value is better than his Tesla stock.
However, Stefan does not advise anyone to bet entirely on exotic cars or watches. He used less than 5% of his net worth for such investments.
Like all of us, Stefan will do some things wrong and some things right as he continues to invest. What’s so appealing about his style is the way he embraces new strategies as he learns what works for him.
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