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Wow! My Feb. 26 column about a conversation with one of my successful college buddies touched a lot of hot buttons.
If you haven’t read it, I recommend you do; here’s the setup:
“Tony,” he began, “my portfolio, my Bitcoin and the value of my home have skyrocketed. I’m thinking about selling everything and retiring. What do you think?”
I started with this question: “If the stock market dropped by 40% over the next year, how would that affect your life?”
From there, we had a long conversation.
That column ended with a dramatic portfolio makeover for my friend that, in hindsight, turned out to be extremely timely.
Prior to the makeover, my friend’s portfolio looked like this ...
• 80% Upstart “Disruptor” Tech Stocks
• 20% Bitcoin
Here’s what my friend’s portfolio looked like after our mid-February conversation ...
• 40% iShares 3-7 Year Treasury Bond ETF (Nasdaq: IEI)
• 30% Blue-Chip “Dominator” Stocks
• 15% Upstart “Disruptor” Tech Stocks
• 5% Bitcoin
• 10% Gold/Silver
Bitcoin and precious metals haven’t done much in the roughly six weeks since that conversation. But the stocks in his “before” 80% allocation to high-flying tech stocks have been clobbered.
He owned tech darlings such as Pinterest Inc. (NYSE: PINS), Uber Technologies Inc. (NYSE: UBER), DoorDash Inc. (NYSE: DASH), Etsy Inc. (Nasdaq: ETSY), Airbnb Inc. (Nasdaq: ABNB), Snap Inc. (NYSE: SNAP), Shopify Inc. (NYSE: SHOP) and Zoom Video Communications Inc. (Nasdaq: ZM).
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The Nasdaq Composite went from 14,095 on Feb. 12 to 13,215 on March 20. That’s a 6.2% decline. Some of my friend’s tech stocks — DoorDash, Zoom, Shopify and Pinterest — were hit much, much harder.
So, it’s important that he reduced his high-flying tech stock allocation from 80% to only 15%. That move saved him a lot of money.
Plus, his allocation to established, blue-chip stocks went from 0% to 40%. The Dow Jones Industrial Average went from 31,458 on Feb. 12 to 32,627. That’s a 3.7% increase.
His reallocation to blue-chip, Dow Jones-type stocks paid off.
The only negative mark comes with the bond portion of his portfolio. Interest rates have spiked, and prices on long-term bonds have gotten hammered.
My friend owns iShares 3-7 Year Treasury Bond ETF (Nasdaq: IEI), which has dropped from $132.18 to $130.01. That’s a 1.6% decline.
Ultimately, my friend saved money on one end and made money on the other. Indeed, that double-wonder boosted his net worth by seven figures.
I’m not suggesting you copycat my friend’s moves. The “after” allocation is based on a thorough evaluation of his personal situation, his financial goals and his tolerance for risk.
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In short, the allocation is tailored to his — not your — specific needs.
Still, it’s worth asking yourself: Can I afford to see 40% (or more) of my wealth wiped out by the next bear market?
That’s up to you to decide.
My friend, of course, is quite happy. His wife is even happier.
“I think we should set Tony up with my sister,” she said. Her sister is often mistaken for Michelle Pfeiffer. "I think they’d make a great couple.”
I agree ...
Best,
Tony Sagami
