Today I’ll show you the secret behind our asset allocation model – and why it’s the best way I know to move the needle on your wealth.
The Palm Beach Letter Asset Allocation Model
First, let’s get to our allocation model. Instead of Wall Street’s two asset classes, we have eight.
If you look at the table above, you’ll notice our suggested allocation sizes don’t add up to 100%. That’s because each individual is unique.
Every investor has a different financial road map – including monetary situation, risk tolerance, and investment time horizon. So we don’t recommend one-size-fits-all allocations.
You might keep a heavier allocation to Fixed Income. You might want to rely more on Equities. Or perhaps you want to move to the upper-limit ranges for alternative assets, such as Private Markets and Cryptos.
Our basic framework gives you the flexibility to build a diversified portfolio that best fits your long-term investment goals. Over time, we’ve safely beaten the market using this approach.
But if you really want to move the needle on your wealth, you need to add our “secret sauce” to your asset allocation…
Unlike Wall Street, at PBRG we don’t need to place outsized bets to try and get mediocre returns. That’s a recipe for disaster.
Instead, we recommend doing it the other way around: Making relatively small bets on investments that can make life-changing gains.
First, we find safe, conservative ideas that generate multiple streams of income. These could be assets like dividend-paying stocks or bonds.
Then we put a portion of that safe income into what we call “asymmetric” risk investing.
You see, symmetric risk is when you invest $100 for a chance to make $100. That’s a 100% return. But triple-digit returns are rare in the stock market…
That’s why typical investors end up making a very unfair negative asymmetric bet. They often can’t bank more than the average annual return on the S&P 500, about 7%. So they’ll put up $100 for the chance to make just $6–7 per year.
When you make a negative asymmetric bet like this, you’re risking way more than what you’re potentially getting in return.
What we do is something very different. We put our subscribers in the position to harness the effects of positive asymmetric risk.
With positive asymmetric risk, you put up the same $100… but you could stand to make $100,000 – or more.
This approach gives you the opportunity to turn tiny grubstakes into life-changing gains without putting your current lifestyle at risk.
And taking these outsized bets is only possible because of the first step in our roadmap. Meaning, even if you blow all your safe income in one year on risky asymmetric bets… you’ll see 100% of that money replenished next year from your safe income.
This is the secret behind getting really rich without ever blowing yourself up. And it’s why I keep the majority of my wealth in “boring” blue-chip dividend stocks and income real estate. They kick out hundreds of thousands of dollars per year in dividend and rental income.
I then take that income and use it to make asymmetric investments. This has created a self-funding wealth machine.
I have made millions of dollars in asymmetric gains this way. And I’ve done it without putting my current lifestyle at risk.
Friends, this is the key to getting – and staying – rich.
It takes time to build up your portfolio of safe assets… but it’s where you need to start. Build up those assets then take the income from those safe investments and use that money for your asymmetric bets.
This gives you huge staying power even when things go badly. For instance, during the crypto winter my bitcoin and Ethereum positions dropped 85%. My paper losses were in the millions.
I was able to weather that storm because my daily lifestyle was never at risk. Friends, this is key…. no matter how much you love an idea NEVER EVER risk your current lifestyle for the hope of a better one.
Bringing It All Together
The most important thing you can take from this essay is this: Wall Street is 100% right that asset allocation plays a critical role in how much money you make over time…
But they are completely WRONG about what those assets should be. If you severely limit your choices from the start, it sends you down a path of bigger risks and lower returns.
In contrast, we recommend building a solid base of income-producing investments from a wide range of assets.
That extra income allows you to grow your overall wealth faster – without putting your principal capital at risk.
You can then take your reliable, safe income and use a portion of it to grow your wealth rapidly through strategies like our asymmetric crypto and private market plays.
The beauty of this approach is the income replenishes every year. So even if you’re totally wrong on your aggressive plays, you won’t hurt your lifestyle or impair your wealth. Within a year, all the income will be replaced.
Let the Game Come to You!
Editor, Palm Beach Daily