New Portfolios with Stocks, Bonds and Crypto

New Portfolios with Stocks, Bonds and Crypto

by Stephen Wealthy
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New Portfolios with Stocks, Bonds, and Crypto

We’ve been busy for the last couple of months studying and restudying our recommended portfolios, and we’ve decided to introduce some small tweaks and update them to make all new portfolios with stocks, bonds, and crypto!  We’ve been doing our homework on Bitcoin and Cryptocurrencies; trying to understand the use case for digital currencies, the investment opportunity they present, and decide if we should recommend them to our readers and followers. 

There is an opportunity that will develop and unfold over the next 10 years that we want to capitalize on. We believe the inclusion of Bitcoin into our portfolios will improve returns while reducing portfolio volatility.

Reasons to Invest in Bitcoin

This blog post is part four of series of posts called the Asset Oriented Mindset.  We are striving to uncover just how the wealthy and rich think and see how could best incorporate this into our lives and better realize our wealth building aspirations.  Our last post, part 3, dealt with Four Reasons You Should Invest in Bitcoin.  If you haven’t read it yet please do so and familiarize yourself with the reasons why this makes such a great investment asset.  We will assume today with this post that you have already read it and are here to learn how much of your portfolio should be earmarked for Bitcoin and cryptocurrencies.

Here’s the outline for today:

Balanced Portfolio Allocation

To kick things off we’re going to introduce our newly updated Balanced Portfolio.  The incremental evolution between this and the prior asset allocation is to simply add 2% of Bitcoin and to take this 2% directly from the bond allocation.  Here is how the new allocation stacks up.

New Portfolios with Stocks, Bonds, and Crypto

Well lets see how these stack up and perform! But before we do, you need to know we’ve capped the historical performance for Bitcoin to January 2015.  If we go back further the numbers are even more dramatic.  

When Bitcoin was introduced in January 2009 it was below $1.00 USD.  It took until February 2011 for the cryptocurrency to first reach par value with the USD.  Even though 1 BTC is now worth upwards of $15,000 USD today, it spent its first two years lower than $1.00!  If we include this timeframe the returns are just silly.  So we strip this out, and fast forward to January 2015, to see how we could have done once BTC was valued higher and had some confidence behind it.

Portfolio Parameters

Portfolio Parameters for all three balanced portfolios:

  • $10,000 invested
  • Rebalance Annually
  • No Taxes
  • No Fees or Commission

Precise ETF Allocations and Performance

Here are the ETFs we’re using to implement the balanced portfolios, followed by their performance.

New Portfolios with Stocks, Bonds, and Crypto​
New Portfolios with Stocks, Bonds, and Crypto​
New Portfolios with Stocks, Bonds, and Crypto​

Balanced Summary and Notes

Look at that impressive return with just a 2% allocation to Bitcoin!  The 5 year annualized returns are nearly double what the other two portfolios delivered despite such a meager allocation.  What is equally impressive is in 2017 Bitcoin hit an all time high of $19,891 but then retreated into the $3,200 range in 2018.  Despite this, the 2018 portfolio returns weren’t all too negatively impacted.  Yes they were worse, but because we have just 2% allocated we weren’t impacted that much.  This is due in large part to the annual rebalancing when we would have sold BTC at the end of 2017 and allocated those profits into stocks and bonds.

Added Diversification

Note too that the addition of Bitcoin to the portfolio further diversified the portfolio by reducing the correlation to the US Market.  This means it is less reliant on returns from the US market and is more dependent on other factors.  Other factors means more diversification.

This should be a convincing case for adding just even a small 2% portion of your portfolio to Bitcoin.  Let’s move onto the growth portfolios.

Growth Portfolio Allocation

You’ll immediately notice we made room for the additional Bitcoin allocation by reducing our stock allocation.  We tried it with taking it from bonds but it was getting a touch too volatile.  Keeping the bonds, but reducing the stocks, reduced our volatility while still producing great returns.

New Portfolios with Stocks, Bonds, and Crypto​

Precise ETF Allocations and Performance

Here are the ETFs we’re using to implement the growth portfolios outlined above, followed by their performance.

Portfolio Parameters are the same here as for the balanced portfolios:

  • $10,000 invested
  • Rebalance Annually
  • No Taxes
  • No Fees or Commissions
New Portfolios with Stocks, Bonds, and Crypto​
New Portfolios with Stocks, Bonds, and Crypto​
New Portfolios with Stocks, Bonds, and Crypto​

Growth Summary and Notes

Again, look at that impressive lift just a small 2% allocation to Bitcoin.  I know what you’re thinking – what would happen if we added more? What about a 5% or 10% allocation.  The answer is it gets even more impressive but we need to draw the line somewhere and we’re going to draw that at 2%.  It’s still within the realm of possibility that Bitcoin craters and we want to limit our exposure to just 2% of assets.  In our estimation, with just 2% allocated to Bitcoin, we can handle a complete loss here and still do well overall. However, should the best case scenario of Bitcoin play out as the BTC promoters say it will, we will grab a tremendous lift for our investment portfolio.

Results

Again we’ve really improved every aspect and measure of our portfolio:

  • We’ve dramatically improved returns
  • Our risk adjusted returns have improved even by adding such a volatile asset
  • Diversification has been increased and we’re less reliant on US market returns to deliver this superior performance.
I really hope we have convinced you that some Bitcoin belongs in your portfolio.  Look, we’re not recommending something like a 10% or 20% allocation, instead we’re suggesting a small 2% portion. 

Look at it this way:  98% of the portfolio is using low fee ETFs which carry MERs that are 1-2% cheaper than comparable mutual funds.  Risk adverse mutual fund investors are paying 1-2% a year in management fees and getting nothing in return for that expense.  Let’s take that savings and drop it into an alternative asset that could really deliver superior performance.  I hope you see my point here, and can see a small 2% allocation here is a well deserved and calculated risk / reward proposition.

Execute the Portfolio (Canadian Investors)

I’m going to show you how Canadian investors can create both of our new Balanced and the Growth Portfolios.  I will also recommend a free, no cost brokerage you can use and construct the entire portfolio.

ETFs and Suggested Allocations

Here are the ETF’s we would use to construct both the balanced and the growth portfolios for Canadians.  We’ve included the suggested percentage allocations and what a $10,000 portfolio would look like as you spread and allocate your investment across these assets.

List of ETFs for Canadians
Canadian ETF allocations

Bitcoin doesn’t have an ETF – instead we’re going to use a cryptocurrency trading platform to acquire Bitcoin directly.  WealthSimple Trade is a commission free trading platform that allows you to buy and sell stocks, ETFs, and Bitcoin!  One stop and we have access to it all!  We’ve arranged a great deal whereby you deposit at least $100 into your account and trade $100 within 30 days and you’ll get $10 for free. Great deal.

WealthSimple Trade

Buying Bitcoin

Once you’re ready to buy your portion of Bitcoin, you simply submit a buy order for the amount you wish to allocate and that sum will be purchased and allocated.  Even though Bitcoin is currently valued at $21,021.32 CAD you can buy 0.009681 of a bitcoin which gives you $200 dollars worth.  Just enter the amount you wish to buy in dollar terms and it will calculate how much of a fraction you can buy.  Here is a small screen shot of what it looks like to buy $200 CAD worth of Bitcoin in the WealthSimple trading platform from your phone.
btc order screen2.1

Can I use Other ETFs?

Can you use other ETFs? Say XBB instead of ZAG? Or dial in specific allocations within the Equity portions?  Of course you can.  Tailor your portfolio as you see fit! Use other gold ETFs or specific equity ETFs like VTI, XSP, or XEF if you like.  However if you love simplicity or are not familiar with how to build a good portfolio, consider using the ETF’s we outlined here.  They are broad, diversified, low cost and make annual rebalancing a snapJust be sure to respect the overall allocations as this is what matters most.

If you have any questions or need assistance setting this all up please email me or reach me on Twitter.  I understand how daunting this can look for new investors but I’m very happy to help you out, get things started, and keep you on track.

Execute the Portfolio (American Investors)

I’m going to show you how American investors can create both of our new Balanced and the Growth Portfolios.  I will also recommend a free, no cost brokerage you can use for the entire portfolio.

ETFs and Suggested Allocations

Here are the ETF’s we would use to construct both the balanced and the growth portfolios for our American readers and followers.  We’ve included the suggested percentage allocations and what a $10,000 portfolio would look like as you spread and allocate your investment across these assets.

List of ETFs for American Investors
American ETF Allocations

Bitcoin doesn’t have an ETF so it doesn’t trade on a stock exchange (yet).  Instead we’re going to need a cryptocurrency trading platform to acquire Bitcoin directly.  I’m sure you’re all familiar with the Robinhood trading platform which allows for commission free stock and ETF trading.  Well, they also have a Crypto trading platform as well which allows you to buy Bitcoin along with other Cryptocurrencies.  I haven’t been able to arrange a sign up offer with them but I hope to have this shortly.   Robinhood would be a great option to buy and sell our recommended ETFs along with buying some Bitcoin commission free too.

Buying Bitcoin

Once you’re ready to buy your portion of Bitcoin, you simply submit a buy order for the amount you wish to allocate and that sum will be purchased and allocated.  Even though Bitcoin is currently valued at $15,649.50 USD you can buy 0.013000 of a bitcoin which would give you $200 dollars worth.  Just enter the amount you wish to buy in dollar terms into your trading platform and it will calculate how much you can buy.  
 

Can I use Other ETFs?

Can you use other ETFs? Say BND instead of AGG? Of course you can.  Tailor your portfolio as you see fit! Use other gold ETFs or specific equity ETFs like SPY, ITOT, or EFA if you like.  Just be sure to respect the overall allocations as this is what matters most.

If you have any questions or need assistance setting this all up please email me or reach me on Twitter.  I’m very happy to help you out and keep things on track.

Summary

We’re extremely excited to get these portfolios off the ground and into your hands.  We are very confident they will deliver on the promise of increased returns while delivering reduced volatility.  The addition of Bitcoin is an exciting new addition and we hope you are seriously considering adding some to your portfolio.

Bottom line, I’ll leave you with this short segment of Anthony “Pomp” Pompliano talking Bitcoin with Jim Cramer:

(If you want to watch the full video, click it to watch again, and it will play from the start instead of at 8:02)

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