Building a Cryptocurrency Portfolio

I like cryptocurrencies. I like the idea of them. I’m a Libertarian, and I like markets over central planning. I don’t believe all the money printed by the Federal Reserve is going to end well. That’s probably why cryptocurrencies speak to me.

As the market for cryptocurrencies matures, it’s important to bring some of the same fundamentals of investing most people use with stocks and other types of investment. Diversification is a key aspect to investing to reduce your overall risk-adjusted return. When thinking about cryptocurrency, I think it’s important to build a framework for evaluation and then use that framework to build a portfolio.

A Diversified Investment Approach with Cryptocurrency to Generate Income & Appreciation

For the past few months, I’ve been learning more and more about cryptocurrencies. I’ve been reading blog posts and articles. I have also been listening to podcasts, like Tim Ferriss who interviews legendary investors like Naval Ravikant and cryptocurrency masters like Nick Szabo. I love walking on the fine sand on the beaches of Santa Monica, listening to all sorts of new ideas in the various podcasts of the week.

So much good thinking is happening out there. One of those good ideas that has really taken off the past year is cryptocurrency. Here is a primer on the topic, along with a strategy on how to generate both appreciation and income from this new asset class.

Is the Stock Market Expensive?

When it comes to the stock market, you hear about a lot of ways to determine whether the market is cheap or expensive. Many of the approaches start with a price-to-earnings ratio for, say, the S&P 500 index. This ratio helps one figure out how much they are willing to pay for a certain amount of earnings. You can look at trailing P/E ratios, which means price-to-earnings during the previous 12 months. Or, you can look at forward P/E ratios, which forecast and estimate the future 12 months of earnings based on guidance from the companies.

Half-time Review of our 8 Investing Themes for 2017

I outlined and recommended several great investment opportunities for 2017. Many of these investment themes are global in nature and are looking to take advantage of some of the global circumstances of low rates and low inflation. The rise of China and the growth in China has played a role this year, along with the continued printing of money in most developed nations. So how do these opportunities look right now? Let’s go through each of the eight investment theme recommendations and cover it.

Want to Build Stable Income From Investing in Public Markets?

Many of us tout the benefit of investing for income. It beats the “hope and pray” approach so many people take on as a strategy for investing. Income investing has a slightly different goal than investing for appreciation. It’s to focus on monthly or recurring income. It’s not about whether the price of the asset goes up or down. The ultimate goal is to have your monthly income from your investments exceed your fixed monthly expenses. If you can achieve that, then you’re financially free.

Many investment gurus remark on learning to make direct, active investments into an asset class like real estate, cash flow businesses or oil. I agree to an extent. However, a portion of your assets can go towards true passive income where there is no active management or selection involved. This post is targeted towards that portion of your portfolio.

Cryptocurrencies Could Be An Interesting Investment

The year started with Bitcoin rising above the $1,000 mark — and it shows no sign of slowing down. This has a flurry of people wanting to know more about it and wondering if it’s a better time to invest than ever. However, it’s important to understand exactly what Bitcoin is first. It’s not a stock or a traditional investment, but is a currency in and of itself. That’s part of the reason why it’s so enticing.

In times of financial uncertainty and distress, paper currency loses value while commodities tend to thrive. Right now, national debt is higher than it’s ever been. Interest rates are bottoming out, stocks aren’t rising as much as investors would like them to and there is a lot of political turmoil rising in the U.S. and abroad. Fear surrounding the economy is building and people aren’t sure of where to put their money. A lot of people have heard of Bitcoin but think it’s way too risky or aren’t sure how to purchase it or how its value compares to that of other currencies or commodities. But there are plenty of reasons why Bitcoin could be an interesting investment.

4 Ways To Automate Your Investing

Over time, I have found that, for myself, the easiest way to get the most consistent results in life is to automate a task. If I set up auto bill-pay, my bills get paid on time. If I set automatic reminders, I remember all special events. The same is true with investing. You always hear the advice from all the personal finance gurus — pay yourself first. How much better would that work if you automated your entire investment system?

There are four main investment services called “robo-advisors” Betterment, Wealthfront, Personal Capital and traditional online brokers, like TD Ameritrade. They all base their service on Modern Portfolio Theory — asset allocation, diversification, and rebalancing are all part of a goal-oriented investment strategy built on time-tested economic concepts. Each robo-advisor option provides the five basic ways to drastically increase wealth over time, which I outline in this post.

Robo-advisors help keep expenses low, which is critical to building long-term wealth. They also provide an automatic way to build a diversified portfolio. Asset allocation and diversification across many asset classes is key to building wealth. They automatically re-balance the portfolio to keep the asset allocation percentages intact. Each service makes it easy to automatically contribute to the plan. You can set up an automatic plan to add money from your checking account into your investment account. And each robo-advisor automatically invests the dividends earned back into your investments. This increases the impact of compounded return over time because you start to get dividends being paid off your re-invested dividends — a beneficial cycle, indeed.

Each service has its pros and cons. Let us dig a little deeper and go into a detail about each.

An Opportunity To Look For Opportunity

I’m a big fan of business and investing books about how to achieve financial freedom. The idea of financial freedom is just so appealing to me. I love to read books from authors who talk about personal finance, money, building wealth, cash flow, real estate investing, passive income, how to build online businesses, how to become an entrepreneur and achieve financial freedom.

After reading a particular authors book, I decided to go on his website and see what other services he offered. I certainly don’t want to name this person. I respect and admire his business and him and it’s not the point of this article.

I am a CEO of a consulting firm and, I get 20 emails a day from email marketing trying to pitch me services. I’m also an angel investor and, I get another 20 emails a week with proposals to invest in their companies. I’m sure we all feel email bloat. So, I’m a little skittish about handing out my main email. That’s why I use a generic yahoo account when I am in research mode when it comes to investigating services.

Here’s what happened.

8 Great Investing Themes for 2017

With closing out the first quarter of 2017, it’s clear that international markets are beating U.S. markets in terms of performance. The U.S. rose 2.7% in the first quarter, while European markets have seen a rise of 8.8% during the same period. China has seen a rise of 10.8%. The international markets are out-performing the U.S., and I think the trend will continue.

There’s a lot going on around the world in 2017. Much has changed in the investment world from the election. After reviewing previous investing themes in the context of new circumstances, I see eight great investing themes emerging for 2017.

In general, we are looking to get in early on trends. If we can find markets or sectors that have had a correction, then we can get in cheap. Moreover, if we can find markets or sectors that are now back on an uptrend, we can get in early. In other words, our goal is to get in early by identifying cheap and up-trending investment themes.

What is a Carry Trade & Why Should We Care?

Like any market participants, everyone wants to get the best deal. Currency and bonds traders want to borrow in the cheapest currency and then invest in the bonds that are producing the highest interest rates. It’s called the “carry trade”. There are two huge, developed markets that are still implementing quantitative easing (QE) in some form — Japan and Europe. Europe is implementing QE like the U.S. did by buying 80 billion euros in bonds per month and Japan is still tinkering with NIRP, a negative interest rate policy. Negative interest rates means investors lock in a coupon loss (negative interest rates) on the bond; they are investing money for a loss. Neither of these economic states is natural or sustainable. They manipulate the market to alter the risk/reward calculus of investors. These manipulations by central governments are affecting all asset classes.

Currency vs. Money

I always think that every single dollar you have should be tied to a goal. I have been updating plans around retirement, investments to produce more passive income and buying a new home, which got me thinking about money. I recently read a book that made a distinction between money and currency, and I’ve found it particularly interesting.

There are big differences between money and currency, though we collapse these two all the time. What are the differences and how might collapsing those two ideas be affecting us? Let’s first define both currency and money.

The Federal Reserve — Friend or Foe?

In search of an answer to this question, I’ll start with a week-long discussion with my friend Dan about the Federal Reserve. Is the Fed harmful or helpful? Our conversation was sparked by an article written by a former Fed advisor, Danielle DiMartino Booth, “How the fed went from lender of last resort to destroyer of American wealth”. Dan was skeptical of the article and wanted to discuss its positions.

My friend Dan (DH) started the conversation with this question:

DH: One of the recurring complaints I hear from some fiscal conservatives is about the Federal Reserve and how evil it is. I’m trying to understand why and have been doing a little research. I have read a lot of people complain about the era of “cheap money” and how it is having a terrible effect on the real US economy (despite all the traditional markers like unemployment rate and DOW looking really good). Is it justified?

Tackling Your 4 Biggest Expenses

Your financial life comprises two main components — production and consumption. In personal finance and in entrepreneurship, we spend most of our time speaking about production. We’re either looking to invest more in producing companies, real estate and assets or we’re looking to start a company that will ultimately help us produce more. Everyone who is thinking about investing is thinking about production at its core.

If you’re going to optimize your production and consumption so that your passive income is greater than your expenses, you need to work both sides of the equation. In the beginning of your Opening Moves phase, I recommend focusing on reducing the cost of your consumption. Your four biggest expenses are — taxes, shelter, debt and recurring monthly expenses. The goal is to minimize each of these and have a plan to optimize them.

Managing Your Credit Score

Paying off bad debt and managing your credit are important aspects of your Opening Moves in the game to win your financial future. I find the topic on credit and how to manage it critical, so consider checking your credit score a couple times per year. Your credit score can affect you in many ways. It can set the price you pay to borrow money. It can even affect employment if a prospective employer checks your credit rating.

It’s become even more important because of the major trend of increased student loans. There are more than $1T, with a T, in student loans outstanding and that’s affecting Millennials in many ways. They’re having to pay off large student loans before getting into buying their own homes and all of the early family/home development. They’re having to put off many purchases to deal with the deal owed.

Is The Market Going Up in 2017?

At the beginning of every new year, many people start to think about their finances. It’s a good time to get some positive momentum going. I think a lot of people are wondering, is the stock market going up in 2017?

Surveying social networks and newspapers, most of the conversation seems to be about our new president. Are the changes he’s proposing going to affect the economy positively? Is his view on trade going to be good for American companies? Much focus is concentrated on the economic and trade positions of the president.

Dividends vs. Buybacks — Which Is Better?

A lot of people have been talking about the importance of dividends these days. There are only two ways a company can transfer value from the company to its shareholders. One is in dividends, which is cash payments per share at regular intervals. The second is share buybacks, which are announced by the company quarterly. Each company maintains a share repurchase program and announces updates to it on its quarterly conference call. So, which one is better? To answer that question, we must first define a few things.

The Four Seasons’ Approach to Customer Service

Several years ago, through a personal connection, I had the opportunity to stay at the famous Four Seasons Hotel in New York City. The stay was for a week in the beautiful New York autumn. After we got settled in our room, I walked into the bar around 6pm on a Thursday night. I looked over to the concierge desk as Penelope Cruz was leaving the hotel with tickets in hand. She had a big smile on her face.

As I sat down at the bar, the bartender came over to greet me, within a minute of me sitting down. The entire environment was meticulously designed with comfort and opulence in mind. The maple paneling behind the bar and the lighting over the bottles gave a warm and inviting feel to the space. I ordered a martini and watched as the bartender shook the drink shaker for at least 30 seconds. Anyone who drinks martinis knows that what makes a great martini is that it’s really cold . The bartender was a professional and his confidence made the moment that much more special, like a scene out of a movie. A few years ago, I had heard an anecdote about the Four Seasons in NYC and I asked the bartender about it. He confirmed it really happened. It goes like this:

Level VII — Buy Cash Flow Businesses and Real Estate

Okay, now you’re at the final level of the game of Winning Financial Freedom. You’ve learned many lessons along the way. What is different about this level compared with all other levels? One aspect is the stakes. The deals we’re looking to do here are bigger. Another is moving into more active and direct investing. This means investing directly in businesses, real estate and commodities versus buying stocks (paper assets) in companies or real estate trusts. Another difference is the goal. We’re here to finalize the task of generating enough cash flow over expenses to win financial freedom. And the final difference is exactly what we’re investing in to achieve the goal.