The Five Layers of Investing - Which Layers Is Your Portfolio Allocated?
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Walking the money for the rest of us. This is a personal financial on money, how IT works, how to invest IT and how to live without worrying about IT. I'm your host.

David's time today is episode for ninety one. It's titled the five layers of investors. Pro, I have been up in the mountain to video for a couple of months now. And as you drive into the the long private road that goes to our cabin, invariably there are mountain blue birds, vesper's sparrows, sometimes robbins, and they are in the road and they're looking for crickets and grass hoppers. And as you drive, they just move down a little ways.

And then as you get moved down again, and it's so of why don't they fly off knowing we're coming, but the actions of a specific bird direction they are going to go, or a grass hopper, which way will IT jump, is very, very difficult to accurate predict. A grass hoper, a cricket, let's only about eight to ten weeks, very short time horizon. Mount blue birds, sixty ten years.

Other species can live decades. When we think about the natural world, things move on different scales. Some, such as my robes, move very quickly.

Their life cycle is very quick. Other plants and animals have a slower life cycle. They move at a slower scale, a larger scale with day to day, whether there's lots of flotus.

Climate change moves much more slowly. The investing world is similar. There are different layers, different time scales. And this episode, we're going to talk about five different layers of the investing world as investors.

We might gravitate to one of those layers or we might participate in several them, like I do. The layers that we focus on is dependent on our interest, what type of investing we like to do. But IT also depends on the stories we tell ourselves, both about our skill as investors and what we think we can earn investing. David tucket is trained in economics, sociology and psychology, sis wrote.

When investors buy, sell or hold all classes of financial assets, what they are doing is constructing narratives about their future relationships with an imagined idea, their relationship with how much money they're gna make on this investment, what they could do with that money, what their lifestyle would be like, what kind of social status would they have as a successful investor, the ability to trade or to identify undervalue opportunities, we can escape that story telling IT. It's what drives financial markets. So let's go through these five players and i'll give examples of assets, strategies that fit in those labor, how I have participated in that investment layer, different firms or ads trying to attract our attention to get training or access specific security in that layer.

And so the the very first layer is very short term. It's layer one up and down, its equivalent in nature to what is that cricket going to do in the next thirty seconds. Securities that following that layer are option strategies, futures, currencies.

Few episodes we talked about zero days expiration securities where seventy five percent of trades in S. M. P.

Five hundred options are options that expire in lesson a day. There one includes high frequency trading, very short term securities. And what we saw on that episode is that the expecting return at this layer is essentially negative. It's like game often because the trading cost are so high to get in and out of these very short term options or currency trades.

Now there are successful hedge funds that do this, but the amount of resources and money they put into computer systems, often locating very close to the stock exchanges or the security exchanges so they can get that micro second implement. They're very fast trades. This is the most difficult layer of investing to be successful at.

It's also the layer that those selling service is in IT seek after really the most vulnerable individual investors that feel like they're behind and they they want to get an edge. I saw on the add here is the headline, see how are proprietary trading algorithm with twenty two million dollars of assets under management across one hundred and eighty two users generated nine million dollars of growth profit with twelve percent gross average monthly growth. Now I don't know if they're talking about the return.

This sounds like their performance. They're promising twelve percent a month with their proprietary trading algorithm. And you don't need professional trading experience or huge time commons or be tex aby.

So lots of promises to be able to trade short term. There is another ad by, and I know this person, but i'm not gonna share their name so he's a fame, A I expert. And we have to do this particular action to participate in this trade by August twelve.

But there's an urgency to trading to learn the secret. Now i've tried IT. I ve seen hedge funds and visited hedge funds that were able to trade in futures s and options in twenty thirteen.

I thought I try IT for a few months, and I wasn't very good at IT was an experiment. I get some type of vegetation and I couldn't. So I gave up and then focused like ahead for most of my career.

On the other layers, there are also investment products that focus on. That is I found one add for direction etf. You can buy a single stock leveraged E T F G G L L.

IT replicates the daily performance of google on a leverage basis. It's meant to be used at today, trading type vehicle. Again, very, very difficult.

So that's there. One very short term trades like gambling, reor, black, upper down, like a cricket. What direction will IT move in the short term?

Layer two, longer term speculation. A speculation is something, where is a difference of opinion, whether he will go up or down in Price? An example of longer term speculation would be in nature, would be hunting or fishing.

I like to fly fish. It's highly uncertain, especially the places why fly fish, which the fish tend to be very smart and difficult catch. But it's a speculation.

Sometimes you win, sometimes you lose. Examples of longer term speculations include crypto currencies. Commodities were by purchasing commodity futures.

You believe the commodity will either go down or up in Price more than what's ready Price in to the future expectations for those commodes a commodity future that Price ready reflects what the thinks the Price will be. And so then the Price actually to go higher than that in order to make money. If you're long at particular commodity, there can be differences of opinions.

So commodities is an example. Longer term speculation. Precious metals, including gold, we've done episodes on speculating in gold, art, antis, non funny able tokens.

Nf, these are all longer term speculations where when you participate, you're risk losing everything. Now, I, I participate in there too. He makes up about twenty percent of my investment portfolio, primarily crypto currencies, gold sum and antics.

I recognize that what that is, it's it's more fast moving, it's more uncertain, but these are longer term speculations, no cash flow, not a way that we can really value what it's worth. It's worth whatever people think IT will be worth in the future. And so the bed is that due to scarcity, in many cases, that this asset will be worth more in the future than IT is today and will outpace inflation.

An add for a layer two type investment is when I saw instagram and I I took screen shots about thirty different ads on instagram. The algorithm, instagram algorithms terminate that I was interested in, and then I kept selecting the ads so they would just keep show me more and more to have only screen shots where here's when the little known strategy, the smartest new million's are using to become their own bank, up out of inflation and crush hedge funds, mely eleven percent return. Turns out this is a service that provide education in decentralized finance.

Defy, which is based on crypto, which are longer term speculations of layer two. Layer two is like hunting or fishing in nature, highly uncertain. Layer three are individual securities in nature, is what's the weather today? Will IT rain, will IT snow, or will IT not? Investments in layer three include individual stocks, bonds, many these are have a cash low component.

But one of the aims in buying individual stock is that IT will outperform the index that you'll you'll do Better doing that than just buying a diversified index fun or need tf. And when you buy an individual stock, your saying that the consensus of investors is wrong. The Price of the stock reflects what the consensus of buyers and sellers have come to and is based on the expected earnings of that stock, the expected evidence, expected cash flow in, in order for that stocked out, perform and needs to do Better than what everybody already expects.

And so when investing in individual securities and some ways we're saying we know more than everyone else now not every individual security is that we can buy a treasury inflation protection security, the tips. And when we do that, we're not necessarily trying to outsmart the market, which is buying one bond, not knowing what the inflation rate will be. But we want that inflation protection, individual stocks, individual bonds, individual realistic properties to try to flip a house or perhaps by A A rental apartment that's like an individual security, an individual bt, we can value IT.

We can look at the earnings expectations are IT could be a start up investment in the venture capital space. IT could be a bio, this layer, layer three of individual security IT takes a lot of work. There's lot of information about out there.

There's apps to analyze stocks or bonds. It's highly competitive. This is the area where hetch funds are very involved with trying to get an informational edge to generate a positive return.

But IT can be incredibly fun. This is almost like when we think about Joseph campus heroes journey. That's what IT feels like when you're out searching for individual investments.

When I was an investment console, we would bring in asset managers to present to a college investment committee, for example, in the most interesting part, with the stock stories, they will tell how they were able to identify an opportunity that nobody else had, that they did the research and that IT worked out incredibly well. And they were able to, perhaps IT with a ten banger, make ten times their money. The incredibly fruitful area, exciting also per super difficult to be successful.

I've shared in the past, the morning starts active passive parameter where they look at all the different stock and bond strategies and look at how the active managers are, what percent of the active funds about performed a comparable index fund or etf. Generally, the vast majority of the active funds under perform ninety percent. In the case of large cap, eighty percent for small cap, seventy percent of active managers under perform in the nine U.

S. Space in real estate rates, seventy percent under perform. And these are the professionals that spend all the working time trying to identify specifics is and it's very difficult to do, and there's ads that address this services.

Here's one from a research service where they promised to reveal the three companies behind the videos, one trillion dollar. I pip IT in how to invest in them from some stock legend. Another invest like the elite guaranteed fifteen to twenty five percent returns.

That's a real state service. Here's one offering, lower risk, ten percent return. And they compare IT to the yield on savings accounts and treasury bonds and twice as much what they don't say is signing an unsecured promising note that this company that facilitate real estate transactions will not go bankrupt.

The promise, I note isn't back by anything. So this level takes a lot of research to understand what the investment is now fidelity ran and and for their enhanced large capco etf there had is seeked outperform the index. And that's the quest with this layer to try to outperform, to do Better than everybody else, to be Better than average, even though most professionals are below average, are not able to beat the index.

Now I participate in layer three. If I look at my portfolio, I have a hotel property that I bought to a real estate crowd funding platform. I own some individual mortgage rate preferred stocks where i'm getting a six percent to seven percent yield.

Now in this case, my wages, the mortgage, we won't glad a business. So i've done research on the mortgage resection ors agc, and i've mention individual treasure inflation protected securities would fall under layer three. I have a couple of individual real estate investment trust in the single family home space is about twenty five percent of my portfolio, a most of which is in individual bonds as well as is preferred stocks there.

Three then are individual securities. It's like trying to predict the weather in a given day. Before we continue, let me pause and share some words from this week.

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That's linton. Dot comes last, David. To post your job for free, terms and conditions apply, therefore, is where I have spent the bulk of my professional career in the investing space is what we spend most of our time at money for the rest of us talking about.

And it's why we developed acid camp, our research service and education service, for individual investors to understand layer for investments. And layer for investments involve structural issues, factors, drivers. IT includes T S. funds. It's diversify, but it's understanding what's under the hood of a particular asset category, what's drive in the returns to come up with reasonable expectations from a natural stamp points like predicting the season will will be summer, will be winter is much easier because we're not so much competing against other investors.

We're just understanding the aspects of an investment and building on a portfolio with a variety of those assets, therefore, includes modern portfolio theory, strategic asset allocation and asset garden approach that guy used with a variety of asset types with different return drivers. IT includes factor based investing like value growth. Momentum could be a train strategy to focus on quality dividend investing.

IT involves allocating to different segments to the market, could be small cap stocks, large cap stocks IT could be a diversified preferred to stock etf, rather than an individual preferred stock. Could be equity V E T S. IT includes options based strategies, the option to use to protect, such as buffer E T S to defined outcome E T S.

Like we discussed a couple of weeks ago, this area includes structural things baked into the options market, including the volatility risk premium. The idea that there's such a high der man to head against market losses that the pricing put options. They tend to be more expensive based on the imployed volatility then compared to the actual volatility that realized.

And so by selling put options on a regular basis, not buying them, but selling that protection, investors are able to earn a premium over time, which has been about six percent. Analyzed, therefore, is where institutional pools of money, private foundations, family offices, university. And that's what they spend their time doing.

It's what financial advisers do. They build out purfoy lio s made up of layer type investments. This is the area i've have enjoyed the most.

There was a time early in my investment career in the late nineties when I thought I want to spend my time in layer three, I want to be a stock picker and I pick stocks and I I thought I could do IT. But I was in discussions with a small cap manager based in new york to to join them as an employee and and ultimately ded. I don't want to move my family to new york.

So I continued focusing mostly on lare form. It's what I enjoy the most to go through the ads. There are plenty ads for layer, for type opportunities, including from wealth managers.

Here's one from muti full wealth management bara service that originally focused on layer three newsletters, stock advisor and other newsletters, and now apparently are are registered investment advisors. So the ad is, do you have seven hundred and fifty thousand? As in festival asset, there are asset gathers.

They want to manage the assets building out later for portfolio. Fisher investments is another one very, very highly involved in marketing seven retirement incomes strategies. Once portfolio reaches five hundred thousand dollars, investment advisors want larger portfolios because it's is more efficient and there's also an aspirational aspect of that.

You see this adds a lot. You have a half a million dollars. Do you have seven hundred fifty thousand dollars? And people say, I do. So maybe theyll accept me as a client. Here's an add for the canberra tail risk, T, F, where the providing structural protection against losses we've done episode on that on money for the restless plus.

Here's the thing though, about layer for investments that I have found incredibly frustrated institutional investors, including college and diamond foundations, they have access to research that typically individuals don't have or don't get access to, to be a successful layer for investor, we need to be able to understand what happened, what drove market returns, and we need to understand where we now, where are markets Price now? What are the yields on bonds? What is the Price to earnings ratio on stocks? What are reasonable earnings growth expectations on those stocks? Are earnings growing faster than the historical average? We need to understand where we're heading, water reasonable expectations based on those underlying drivers.

The dividends they are earnings, the valuation within our defined contribution plan following k plan international story are basically asked to make these allocation decisions without having the tools to do so. Now there are many different layers of complexity within there. Four and IT can be more simplified, IT can be more complex, but IT does require an understanding of the basics of what drives returns.

That's why we launched acid camp a year ago to help individual investors to give them the research tools that are available to them. And i've look one reason I looked for s i'm just trying to find some entity that does what S A camp t does that gives individual investors access to the type tools I had as an institutional investor able to see, oh, here's the Price earnings ure ratio of emerging market stocks. And here is how expensive that is relative to its long term marriage.

Here's quantified why on U. S. Stocks lag us. Stocks over the past decades and any other thing i've shared on the podcast. But we wanted to teach individuals have to fish that they could access the tools without having a filter through us. We will share our view, and we do we do a monthly webinar on asia camp and share what we find interesting.

But we also give individual investors the tools to use them themselves to analyze the stock market and soon in october to be able to analyze the bond market in the same way. We recently changed our approach with the acid camp and now now any individual investor can get a seven day free trial at acid camp dot com. You get access to everything available, including a revenge education, the thousand plus charts, summary tables.

We sure you how to use IT, how to understand what happened, where we now and where we heading. That's layer for credibly interesting area. But sometimes I admit I get in the weeds.

I was thinking about this the other day, was doing a plus episode for money for plus community, added two episodes, two weeks, and is talking about parsing square, which is bill act mends hedge fine. And they were doing a new closed and fund offering where a closed and fun is an investment, a layer four type of investment, typically buy them at a discount. And action was convinced his offering with solid premium.

And we did a number episode the benefit for the closed and find if they're able to sell at a premium because they can issue new stock at a at a premium and basically fund a higher distribution to shareholders IT omas like a ponzi scheme. And as I was talking about and researching, and I thought, you know, sometimes I get too far into the weeds because I like player for investing. But playful doesn't have to be complicated.

We can have a simple portfolio with a few E, T. S. We we provide some example there for portfolios of money for the rest of plus or. Adaptive model portfolio, hundreds and hundreds of hours of premium podcast episodes on, therefore, investing in our community money for the rest of us plus.

So then what is layer five with layer four being structure, drivers, factors, etf and funds, putting together a modern portfolio, the underlying drivers of an investment portfolio, managing a portfolio, not focusing on individual securities. Well, air five is the simply able, its maximum diversification, with a simplified portfolio with the nature. This would be climate level layer, how the climate change is, over time, very, very slow.

A two fund portfolio that's broadly diversified between global equity invested in vt, the var, total world's ck market a and B, N, D, the vanguard bond market T, F, that's a three five folio super simple row based permanent portfolio are examples on money. For the best of plus, we have some example permanent portfolio where we share etf to implement a permanent portfolio that includes global stocks, long term bonds, cash and gold. We have won the golden butterfly, which includes global stocks, small cap value, long term bonds and gold.

There's all weather portfolio, but these are portfolios that aren't designed to change much. They're very, very long term occasionally rebaLance back to the long term target. We have some static monopoly folio examples within. There are five, and there five is pretty simple to implement. Now we can't be nae in terms of how we implement.

We need still need to have expected return assumptions understand and and we have subscribe of asic camp that are layer five investors, but they just want to understand where we are now and what happened. IT gives him the confidence to continue with their layer five investments. This describes a layer four investors.

They primarily focus in that round. Now I have some layer five investments in my I own vt, but most of my portfolio is in layer four. That's what I focus on most of the time.

Within that, I have some layer two speculations and a few layer three individual securities terms of layer five advertisements. There's one for vanguard I found about tax savings made simple. And there five.

One of the themes is plica, few investments, maximum diversification, low fees, few, if any, changes other than to be baLance. And it's it's a valid way to invest. But IT could also be difficult.

It's hard to ignore everything because we're constantly pounded with ad and stories, success stories about how someone was successful at layer one or layer two in the years, that fear of missing out or maybe I could be a successful layer one or layer three investors. And so often time layer five investors, they they ban together in order to have that social cohesion so they can stick to their V, T, I, investment. Maybe there are hundred percent stocks or us.

So I think if one to layer five investor, it's helpful to get perspective something like acid can to be able to see and understand, right? This is why i'm doing there. five.

This is what the expected return is. Here's the range returns based on adJusting what the dividends are going to be with earnings growth. So we have a realistic expectation.

So those are the five layers. Layer one, very short term, up and down. What is the cricket going to do?

It's options, futures, currencies, zero, dt, e options. It's like gambling with very high cost in negative elector return. There are two longer term speculations like hunting or fishing.

Sometimes you're successful, sometimes you're not. Crypto o ocurred, cy, commodities, precious metals, arts, antis and is based on scarcity with little, if any, cash flow. There are three is individual security. It's like, what is the weather today? Will IT rain or not? Its individual stocks, individual bonds focusing on casual earnings, our performance active management can be relate properties, venture capital, private equity, takes a lot of research to get an informational edge and confidence, but IT can be incredibly fun and stimulating. Therefore, we spend most of our time money for the rest of us.

And acid camp is managing portfolios, putting together portfolio that have diversified drivers, factors its etf finds, its structure, it's understanding the investment season is IT summer or winter, is asset allocation in making adjustments as we rebaLance and understand what happened, where we now and where we heading. And then layer five, the symbolist maximum diversification simple portfolio, couple of diversified etf or index funds, we can participate in multiple layers, but to manage wealth and build wealth, we should spend most of our time in there. Four or four, five.

The layers that we focus on depends on the story we tell ourselves. But the big pools of capital, the largest capital pools in the world, are generally layer four investors, with some being laid. Five, layer one, two and three are the most difficult.

They have the highest fees, the greatest risk, the greatest competition. We launched acid camp to help layer four and layer five investors because the index providers locked up the information. So we have signed agreements with them to get their data and then put IT in to tools get to help individual bastions.

You can get a seven day free trial of those tools at asia camp dot com, that episode four ninety one on the five layers of investing. Thanks for listening. Asia camp is investing with clarity and control, making the stock market understandable and helping you turn uncertainty into opportunity.

And now everyone can get a free 7 day trial of asset camp and experience all IT offers we built as a camp to empower you do IT yourself investing with top tier market resources that are hard to find anywhere else Priced and built specifically for what individual investors need to know， such as what drove and is driving market returns. Current global and regional market conditions, including valuations, earnings and trend data, and what future returns are possible for your investment. Plus, we offer an exclusive live webinar, two subscribers every month, where we discuss market conditions and answer your questions.

Acid camp is not a stock picking tool. It's a stock index and market research tool that enables real investing, helping you constantly grow and manage your wealth. Like professional money managers try for free at acid camp that come that's A S S E T C A M P dot com as a camp dot com.

Everything i've shared with you in this episode band for general education, i'm not considered your specific risk situation, not provided investment advice. This is simply general education on money investing in the economy. Have a great week.