TC&MN #11 Fueling Your Financial Independence: Unveiling the 50/50 Portfolio Strategy

Your Portfolio is Your Engine to Financial Independence

To get to Financial Independence, you need a robust portfolio to support you and your family.

Financial Independence is a journey. 

• Your Destination is your “Why” 

• The Fuel is the equity and cash that you earn

• The Engine is your portfolio

If your engine is not built for the journey, you won’t make it.  That is a fact. 

Like you, I struggled to understand what a sustainable portfolio should look like and how to manage it as I started down this path. People were talking about just dumping everything in an index fund or only doing real estate. Neither of those resonated with me.

I have spent thousands of hours researching and developing my 50 / 50 portfolio strategy and will share it here.

Many get this part wrong and don’t understand how to build or manage a portfolio effectively. This leads them to not getting the results they want.    A lot of tech employees make the same mistakes that I did. You can learn from my mistakes.

The top three mistakes I see people making are : 

1. No Portfolio Direction - Just a collection of assets 

2. Lack of Diversification - Overconcentration increases risk 

3. No Plan for Real Income - Significant Income is needed to sustain your portfolio. 

The truth is that you have just not seen how others structure it.  

In last week's newsletter, you saw a pie chart of the Tiger 21 Members Portfolio that gave you insight into how savvy investors with over 10 million dollars of net worth manage their portfolios. 

Studying these portfolio types helped me construct a simple and straightforward framework for managing my own.

Today, I will give you the fundamentals and an inside look at how someone who is Financially Independent manages and structures their portfolio. 

Note:  This is not advice, but just a case study of what I have done.  Consult your own professionals in making your financial, legal, and tax decisions.    Ok, the lawyers are happy. 

Before an investing thesis, I created some core principles to put your portfolio front and center in your financial plan. You need principles that breathe life into your financial plan, so it is more than numbers. It is an inspiring entity to rally the family around.

Here are the five principles that I use to manage my portfolio. 

1. Brand it as a Legacy.

   • Set Your intention that you want to build something to for future generations.

2. Give It a Vision and a Mission

   • Like any business, it needs a clear destination and direction. 

3. Establish Yourself as the CEO 

   • You own the vision, mission and the execution.   

   • Evaluate, Hire and Fire Partners as you Grow 

   • Build relationships with other business owners 

4. Define Clearly  the Business Functions and Services it will provide 

   • Business Functions: 

     • Investment Management | Tax Strategies  |Asset Protection  | Estate Planning 

   • Services: 

     • Income | Emergency Cash | Medical Insurance | Benefits 

5. Manage It Like a Business 

   • Set Annual Goals 

   • Have KPIs 

   • Train  to Build Skills 

   • Evaluate your Team as you Grow 

   • Train the Next Generation to take over 

These principles ensure that you treat and manage your portfolio as a business with you as the owner.   

My vision for my portfolio is that one day, my only job will be managing my portfolio, which will be my main priority.   Today, I still have projects and businesses I am involved in, but they will stop one day.     The vision is to retire the other responsibilities and just be managing this.  I will train my sons to run and manage it as they become teenagers so that it will continue an ongoing family tradition.

Set a bold vision that this portfolio will impact generations.

Financial Independence requires work to stay free. You won't get a big result if you want something that doesn’t require work. A large vision requires that you manage your portfolio.  

The 50/50 Portfolio Framework

My investing thesis for my portfolio is straightforward.   The 50/50 portfolio was built off of a variant of the classic 60/40 portfolio. 

The 50/ 50 framework provides an equal allocation towards growth and income. 

• 50% Allocation to  Growth Assets 

• 50% Allocation to  Income Assets 

Growth Asset Definition:  These assets aim to achieve long-term capital appreciation of the underlying asset by increasing the value of the underlying business or asset.   Its primary objective is to grow the value of the investment over time. 

Income Asset Definition:  These assets focus on generating regular income from the operations of underlying businesses or real estate assets.  The income will be profit from operations and not sales. The primary objective is to provide a steady source of income for the portfolio. 

 50/ 50 Portfolio Return Targets

•  50% Growth Asset Return Target: Grow at 10% annually or twice inflation.  

• 50%  Income Asset Return Target: Produce 10% Cash on Cash Return and grow the invested principle by a minimum of 10% at Exit. 

With this division of assets, each side of the portfolio has a specific job.  

Growth has one job! It needs to grow and double in size every seven years.  

Income has one job to provide income and expand the principle so there will be more cash flow in the next investment. With this income, I can cover my expenses, pay for health insurance and lifestyle, and continue to look for more investments.

You want portfolio income at 2x your desired income before dropping employment. This will ensure you have a buffer of cash and have dollars to keep investing and growing the portfolio.

In my conversation with Jeremy Roll on Episode 22, we discussed more strategies for managing income in your portfolio. Check it out.

50/ 50 Portfolio - Risk Allocation for Growth and Income

    I divide the allocation further on each side of the portfolio to manage risk and provide clarity to the type of assets that I want to invest in for growth and income

Here are the allocations into smaller buckets with some examples of my assets. 

• 50% Growth  - Allocation into two 25% buckets based on Risk 

  • 25% -  Stable Growth:  Index and Market Funds to grow steadily with the market

  • 25% -  High Growth:   Holdings with more risk and massive upside, including single stock positions, VC / Seed Investments, Real Estate with no income, and direct business holdings with no income

• 50%  Income -  Allocated into two 25% buckets based on risk and return level

  • 25% - Capital Preservation:  Lower risk and lower income including directly held, low leverage real estate, farmland, CDs, and High Interest Savings Accounts 

  • 25% - Higher Risk Income  - Private Equity funds, value add real estate syndications with cash flow, debt funds,  direct positions in small businesses

This framework is exactly what I am using to manage my portfolio today and what got me to Financial Independence.   

I will continue using this framework until I learn something new or it stops working. Remember that this is the framework and all of the assets in the quadrant will need to be monitored, rebalanced and managed. 

The structure's simplicity makes it easy for me to manage and be effective simultaneously.

That is it. What are your thoughts?  Do you have questions? 

Hit reply and let me know. I answer all emails. 

Tech Equity and Money Talk is a weekly podcast showing you how to work for tech equity as a wealth-building strategy and meet your financial goals.

039 🎙️ Fueling Financial Independence: Inside my Portfolio Investment Strategy

Do you want to go deeper into the topic of the Evergreen Porftolio? In this podcast episode, I take these topics and go deeper.

Hear more personal stories and strategies for building a business around your Evergreen Portfolio. 👇

Getting Liquid With a Private Company:
A Resource Guide 

Liquidity is critical when working for a pre-IPO start-up.

Sometimes, you have sacrificed a larger salary, time, and opportunity to come here, so being able to de-risk your situation and take some money off the table is essential.

There were few options for early liquidity in the 1990s and early 2000s.

However, companies that broker transactions between early-stage employees and buyers of those shares have been founded in the last few years.

Remember that your stock agreement will dictate how to handle private sales, and more companies are promoting early liquidity for early-stage employees.

Without further ado, here are some of the providers of secondary markets for Tech Equity.

Forge Global
Established in 2014 - Forge is founded on making it easy for tech employees to sell vested shares in private companies.

Forge Global acquired Sharespost in May of 2020 and is arguably one of the largest players.

Forge Global states they have a $100,000 transaction minimum but are willing to take offers like they are negotiable. You can learn more here.

Equity Zen

Founded in 2013, Equity Zen has been around for almost nine years and boasts 260,000 worldwide users who are buying and selling private equity stock.

Their platform is easy to navigate, and they have an excellent blog that provides insightful information on private tech company due diligence.

Here is an excellent article on why secondary market liquidity is essential to tech employees.

Equity Zen has a very straightforward process that walks shareholders through the steps to verify if there are buyers for your shares. They have excellent testimonials as well.

I have a login for Forge Global and use it to keep my eye on private tech companies and their valuation. This is a great tool for getting deeper information on the valuation and financials of public companies

Use this tool when you are evaluating companies to work fof.

When you are ready, there are 3 Ways I can Help You:

1.) Get started on your learning - 🎧️ Follow our Podcast

2.) Watch our Videos - 📺️ Subscribe to our Channel

2.) Build a Career or Money Strategy 🧠 Book a 1:1 coaching session

Disclaimer: This newsletter is for informational purposes only and does not constitute financial or career advice. Always consult with qualified professionals before making any decisions based on the information provided.