Unveiling My Public Equity Portfolio

I write a lot about buying SMB’s, real estate investing and tax strategy.

A few of you have written in to ask about my view on public equities.

It’s a fair question, given anyone with a retirement account likely owns them.

So in today’s newsletter, I’ll share:

1. How public equities fit into my broader portfolio

2. Exactly which index funds I own (and why that’s recently changed)

3. How I optimize for taxes

As always, this is not financial nor tax advice. I’m just some random try hard writing to strangers over the internet.

Always do your own research :)

Let’s go:

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Why I Hold Public Securities

The majority of my wealth is split between private real estate (50%), profitable small businesses (20%), cash (10%), and venture (5%).

Here’s how I think about those allocations:

1. Real estate is the base. It provides predictable, tax sheltered income and long-term growth potential. It is split between active investments (single family rentals I own outright) and passive investments (commercial buildings I own a fraction of).

2. Small business is the lever. I allocate the majority of my time here and will use this avenue to build wealth. It is higher risk and more volatile than real estate. The 20% reflects my cost basis, not its fair market value.

3. Cash is the rainy day fund. Given my risk-on career, I sleep better knowing I have years of living expenses readily accessible.

4. Venture is the moonshot. I am slowly building a portfolio of small bets with big upside. I’ll be fine if these investments go to zero.

So what’s left?

15%, which I allocate to public equities.

Since I am early in my career and still earning income, I don’t see a need to hold bonds.

I view public equities as a low-risk piece of my portfolio.

I do not plan to touch this money for 30+ years (the exception being tax-loss harvesting).

A Change of Heart

Until recently, I held public equities across a basket of dividend stocks and individual tech giants (Apple, Amazon, Google).

I also scattered in some small cap growth picks like Carvana (roller coaster!), Zoom (ouch) and Coinbase (thankfully bought at $45).

Despite the recently volatility, I’ve done fine with these investments.

But here’s the reality:

Active management sucks up too much time and mental bandwidth.

Individual stock picking is a terrible Return on Hassle.

If you find it fun, that’s great.

But please recognize it for what it is:

Gambling.

I’ve been in the process of making a pivot.

I spoke with a friend of mine, Rachael Camp.

She’s a financial planner with a specific focus on high earning millennials.

A 30-min zoom call with Rachael delivered more value than a 3 month engagement with some overpaid Morgan Stanley wealth advisor.

Ultimately, here’s where we landed:

My Picks

Pro Vanguard

Vanguard Funds are highly diversified and extremely low-fee (average 0.04% expense ratio).

Exactly what matters when trying to passively track a broad index.

Pro Tech

One of the advantages of selecting a basket of index funds, rather than letting a robo-advisor manage it for you, is the ability to customize things.

I feel strongly that technology companies will outperform other sectors over the next 30 years.

As part of my general pro-tech stance, I’m specifically bullish on the long-term prospects of the cloud economy and want to take advantage of the 2022 blood bath.

I’ll do that by owning The Wisdom Tree Fund, which follows the Bessemer Index.

To be sure, WCLD is a relatively speculative investment and not a core piece of my overall portfolio.

Pro Large-Cap

My “day job” is buying and building small businesses.

So to balance that, it only makes sense to skew large cap.

That said, small cap has proven to outperform over the long-term, so I don’t want to be too large cap weighted.

Pro USA

Many of the largest US corporations are conglomerates with significant international revenue.

So even if I was 100% US weighted, I’d still have some international exposure.

But generally, I feel good about a modest weighting to emerging markets.

Tax Optimization

The accounts that will hold my public equities are split between a Taxable Brokerage, Roth IRA and Traditional IRA.

I’ll assume you have a basic understanding of the differences.

Here’s my strategy:

• Hold VGT and WCLD in a Roth IRA. I’d expect these to be the highest growth investments over the long-term and want to take full advantage of the tax-free growth.

• Hold VTV, VEA and VWO in a Traditional IRA. These funds pay the highest dividends, which won’t be taxed when distributed into a Traditional IRA.

• Hold VO and VB in a Taxable Brokerage. I’d rather hold these in one of the IRA’s, but I don’t have enough in those accounts to hold all of my public equities. Perhaps overtime I will.

That’s a wrap.

I’m sure many of you reading this newsletter are smarter than me on this topic.

Please write in and let me know what I’m doing wrong.

If someone raises a good point, I’ll add it to next week’s issue.

Enjoy your weekend,

Danny

PS - thanks to those of you who completed the investor survey included at the bottom of last week’s newsletter. If you haven’t already, you can expect to hear from me in the next 2-3 weeks to schedule an introductory call. Exciting times ahead!