Financial Review 2021: My Portfolio Changes, Best and Worst Performers, and Future Predictions

A financial blogger should have a financial review, right? Here’s my inaugural review where I break down what happened to my finances and investments for the year. I’ll also make some predictions for 2022.

Note: if for some reason you want to know way too much about my personal life, here’s my 2021 personal annual review.

Whenever someone makes a claim that a certain investment is good, I try to ask: compared to what?

This is why I start this financial review looking at all my assets as a percentage of my total net worth. This helps me make comparisons with more context, and sets up the framework for the rest of this review.

Here’s what I’ll cover:

• Asset allocation changes
• My best, worst and favorite investments of the year
• Investing lessons + how my psychology of money has changed
• Future predictions

⚖️ Asset allocation: “Whoa, that’s a lot of crypto”

I started off the year with stocks leading the major % of my holdings. Thanks to the crypto bull run of 2021, crypto overtook stocks to become 61% of my total net worth. This was unexpected, but I plan to hodl and let my winners ride. I still believe in a long, fruitful, if not volatile future in crypto, and will continue to buy using the 50/50 Bitcoin Ethereum Strategy.

I specifically called out Stablecoins as its own category, because I view it as a relatively safe cash equivalent that could earn me 8-10% interest. More on stablecoins later in the review.

Note: these calculations exclude the net worth of my home, because it’s an illiquid asset that I plan to keep forever. My primary residence would’ve constituted 20% of my net worth, and including it would’ve decreased the values in the table by 5-10% each.

Where to invest my future dollars?

I believe in my current holdings enough to not take money out from them. Rather, I’m focusing on where to put money coming in + any cash that’s just sitting around.

With that said, my stock holdings are heavily concentrated in tech: my company equity is 100% in 1 tech stock and the S&P 500’s performance has been largely driven by tech giants.

My diversification move: allocate future money away from tech.

Real estate feels like the opposite of tech stocks, and can help my overall portfolio migrate towards a Barbell Strategy: play both extremes of digital assets and real assets. I’m looking into options like:

• Real estate funds like Fundrise or Cadre
• Farmland via FarmTogether or AcreTrader
• Multifamily units…if a compelling enough option shows up.

I’ll also explore alternative investments that are less correlated with the stock market, like:

• Art via Masterworks. Might also start looking at NFTs.
• Corporate debt/loan via Percent and Yieldstreet
• Anything else that’s compelling on WithVincent, an alternative investment search platform

Degenerate stuff and not diversifying out of crypto 😂

In case you don’t know, degenerate is crypto parlance for someone who’s willing to experiment with ultra high risk / high reward DeFi projects. Like Wonderland Finance, which offers 64,000% APY (not a typo) using complicated tokenomics. I’ll sprinkle $1k across a bunch of high risk projects like this.

While I’ll continue my 50/50 Bitcoin-Ethereum strategy, I’ve also started buying Ethereum competitors like Solana, Avalanche, Luna and Fantom. The amount I’ve invested is quite small and I’ll look to make a bigger bet ($3k to $5k) into each protocol. I’ll wait for inevitable crypto dips for this opportunity.

Making small bets

Without looking at assets as a % of net worth, I had felt wary of alternative investments (yes…this is coming from a crypto investor). But seeing that alternative investments comprise such a low % of my net worth gives me more confidence to allocate more in this area.

If alternative investments make up only 3% right now, I’d be comfortable with this number moving towards 10%.

📊 Best, worst, and favorite investments of the year

🏆 Best performers of the year

• Ethereum: up 412% for the year, starting from $700, reaching all time highs of $4800, then settled to around $3700 by year end.

• Intuit: up ~73% for the year, starting from $375, topping near $700, then settling at $650 by year end.
  
• S&P 500: up 30% for the year!

This was an incredible year of returns for the average investor. We got 3 years worth of average S&P returns in one year. However, not all parts of the stock market looked so pretty…

🤮 Worst performers for the year

• Metromile: down 85% for the year. Bought $1000 worth of the stock and sold at a loss ending up with $200. It got acquired by Lemonade, which also got hit hard.
  
• Lemonade: the fruit-inspired insurtech company is down 63% for the year.
  
• Clover Health: the Medicare health tech company down 76% for the year.

Metromile and Clover Health are the only 2 stocks I’ve sold off purposely to take a loss on (still holding onto my lemons). You’ll notice that two of these names are SPACs, an investing trend I got hyped in.

Here was my strategy in acquiring SPACs: “The investment officer seems legit. It’s only $10 a pop, it could easily go up!” Not a great strategy. I and other SPAC investors did this without knowing what the acquiring company will even become. My IPOF and IPOD shares are still waiting for an acquisition.

I’ve learned my lesson to avoid saucy investment trends. My saving grace is that I took small bets in amounts that I didn’t feared losing.

Growth stocks ballooned in 2020 through parts of 2021, until the latter half of 2021 summarily gave back all the gains. Covid stock favorites like Zoom and Docusign are down at least 30% from a year ago, when stay-at-home stocks were all the rage. Ark Invest (ARKK) is down 24% YTD, the worst since it’s inception in 2014.

But this is just the nature of growth stocks. I’m still buying quality growth stocks which are now at a discount and closer to reality.

❤️ Favorite new investment of the year: Stablecoins

While NFTs stole all the crypto attention this year, stablecoins like USDC won my heart. They bring much-needed liquidity to the crypto world and is a crucial bridge in exchanging assets.

Stablecoin’s 8-10% interest rates in 2021 became my new base rate to evaluate any other investment. It exhibits 3 qualities I like:

• Liquid, like cash. Can be easily withdrawn and/or converted back to USD at 1:1
• No or low minimums, unlike many other alternative investments
• Depending on the exchange it’s sitting on, stablecoins help me quickly buy dips in crypto

The new base rate has led me to make major investment decisions this year:

1. I transferred all my funds from Worthy Bonds (which earns a respectable 5%) to BlockFi and Celsius
2. I skip any investment that doesn’t return at least 10% because I’m able to get similar returns without locking up my funds*
3. Outside of maximizing my retirement accounts, which are mostly invested in stock index funds, I’ve dropped the amount of money that flows into stocks in favor of stablecoins.

**Here are two examples from Point #2…

I had two private real estate investments that were locked for the past few years, due to mature in 2021. Both of them failed due to Covid’s ballooning construction / project management costs. The first investment made good on the principal, and the second investment still has yet to get back to any of its investors (!!)

Months ago, I was presented another real estate fund deal to develop a property in West LA. I was already uninterested based on how the last two deals went. But get this: the return was 10%, with a minimum investment of $50k. I held back the disbelief in my voice when I was on the phone with the developer.

When he asked me why I wasn’t interested, I simply replied “I have access to similar returns with less risk.” That investment is literally setting up an account on BlockFi to earn crypto interest, which anyone can do…and which I wrote about at length here.

But why male models? JK that’s a Zoolander reference.

Why real estate? Earlier I mentioned diversifying away from tech into real estate. Here’s how I think through that… I’ll look at diversified, efficient funds like the ones offered by Fundrise. The higher the return and the longer the project, the more I’m interested. So if it returns 10% APY per year and the project is over 5 years, I’m interested because stablecoin interest rates can and do change, just like any other savings product. I’ll also prioritize investments here that don’t have a high minimum.

🧠 Investing Lessons and Psychology of Money

I realized that true wealth is the experience we create for ourselves. That’s why I talk about lifestyle design themes in my personal annual review. What’s the point of getting rich if you can’t enjoy something free? If you’re financially free but imprisoned by constantly chasing the next financial goal?

I’ve personally felt the effects of newfound wealth wear off pretty quickly. I used to not understand why rich people keep working or why billionaires use cheap products. Now I understand all this more deeply at a psychological level, having experienced swings in my wealth (negative and positive).

At the end of the day, humans are humans, and there’s a natural limit to how money can positively affect our psychology past comfort.

This year taught me a lot about what it means to design my own rich life. These new lessons help me build my definition of a rich life:

• Don’t rush. I so often find myself in a rush, when I don’t need to. I want to own my time, because that is more important than money. This means managing unnecessary feelings of urgency at work, or even how I hold stress in my body going about the day. It’s a subtle, constant practice.
  
• Revisit bucket lists often: Prioritizing the things I want to do before I die is always a fruitful exercise
  
• Choose 1 category (or more) to not worry about: I stretched myself to never worry about getting groceries. I comparison shop everything, so turning off the part that compares organic blueberries to regular ones is realllly nice. I also made the decision to automatically say yes and pay for any events I’m interested in that cost up to $30.
  
• Budgets offer mental structure: I never had a vacation budget, so coming up with a number really helped me stress less about pursuing experiences that feed my soul.
  
• Don’t optimize at the margins: I was enticed by the idea of trading options this year because some friends of mine are doing really well in them. But it just didn’t feel right and would distract from my energy + core financial strategy. While I’m open to options and other strategies, I’m better at feeling out when I no longer want to trade my energy for money.

Other finance-y things I learned:

• The difference between index funds and ETFs
• The Rule of 72
• Backdoor Roth IRAs
• DeFi things like liquidity mining. I want to deep diver into crypto economics and DAOs
• Respect the base rate and how things tend to average back to the mean
• How to take risks: first identify a goal, then the risk of taking one approach, and determining if that risk is worth it compared to some base rate measure.

🗺 Roads converging towards money coaching

My varied interests in finance and desire for connection in what I”m doing led me to explore money coaching. As I began to have 1:1 conversations with people, I realized that I had a skill in helping people reframe their problems—often making them feel better about their finances afterwards.

I continue to be surprised by how many people have not dipped their toes into investing yet. In general, I underestimated the amount of people who fear stocks, crypto, etc.

This is a big, juicy enough of a problem to tackle, and led me to my new missions:

1. Help people feel a sense of ease and power around money
2. Lower the perceived barriers to investing
3. Make money and finance feel fun and engaging

To support that mission, I’ll be making a lot more offerings and experiments in this space, from reading clubs to small group classes.

To develop myself in this area, I’ll also look into money coaching certifications, exams like the Series 6 and 65, and reading + summarizing way more finance books.

🔮 Next year’s financial “predictions”

Beware of anyone who claims to be Nostradamus (Oztradamus?), so my “predictions” are less grand and more of a continuation of themes I see playing out already.

Inflation in 2021 hit its highest levels since the 1980s. One of the impacts of inflation is that investors will more aggressively chase returns since their dollar is going down in value. Investors will put these dollars to work in financial assets like stocks, real estate, and increasingly, crypto.

My 2022 prediction is that inflation will remain high, and that money will continue flowing into these assets:

• Stocks: I think growth stocks that have been hammered will come back in 2022, but with less aggressive returns than we saw in 2020. Blue chip stocks will continue to perform well.

• Housing: There may be price squeezes as people try to buy property before higher mortgage rates arrive. However, I think Covid-driven pandemic moves will slow down / have been baked in.

• Alternative investments: The space for alt investments is exploding and continues to offer investors interesting yield opportunities, from art to farmland to NFTs. The barrier to entry to invest in once-exotic investments will keep lowering. I’m personally hoping for more fund/index type options. I don’t want to invest in single farmland projects, I want platforms like FarmTogether to offer a a diversified fund.

Covid will normalize and be more manageable both in the U.S. and around the world. There may be the occasional new variant spike, but Covid may want to keep propagating itself as a less deadly, albeit still infectious virus.

In times of crisis, fear seeks stability, and the world still sees the dollar as such. One of the fears of inflation is that people will lose confidence in the U.S. dollar, but the opposite happened in 2021: DXY, the U.S. Dollar Index, was up 7%, demonstrating the relative strength of the dollar.

However, the next generation will continue to hedge against the dollar, and bet on the future, in crypto.

Crypto will continue to eat money

Crypto adoption will continue. Money will keep flowing into crypto. Almost every fintech company will need to have a crypto strategy. Every major place that sells stocks will also let you exchange crypto. PayPal, Cash App and Venmo already do this. I think it’s the traditional banks game to lose if the likes of Chase, BOA and Wells Fargo don’t somehow integrate crypto soon.

I believe ETH and BTC will double to $8000 and $100,000, respectively, over the next 5 years. On an annual basis, I’m expecting these two will increase 20% in 2022, which would be $4,800 and $55,000. This is a conservative prediction BTC & ETH have already reached these all time highs before.

If Ethereum finally migrates to ETH 2.0, then Ethereum’s price can rally dramatically.

Ethereum competitors like the aforementioned Solana, Avax and Luna will continue to mature. Each of these will grow the crypto pie as the appetite for DeFi, NFTs and god knows what else crypto will do next. But there will be another major correction of 30% or so. I’m going to take advantage of this to make small bets across several crypto projects.

Stablecoins will get more popular before yields drop. I’m optimistic that USDC can maintain 9-10% and UST at 20% returns for 2022, but IDK about after that. It’s a double edged sword: high rates attract dollars into stablecoins, but there will be a saturation point where sufficient demand is met and rates will drop.

In general I’m expecting my crypto portfolio to swing between -30% and +100% next year.

My Financial Checklist: Death and Taxes

There’s a bunch of stuff I’ve been procrastinating on. These are long-term, time-intensive, and costly financial projects I know I should, but haven’t acted on it. Here’s a quick checklist of things to do or at least get started in 2022:

• Death: Create a will and security strategy for all my holdings in case I die young.
• Taxes: explore tax-advantaged structures like S-Corps, Solo 401Ks, and non-profits
• Housing: finish building my garage conversion ADU
• Modeling out the end: define my big dreams and arrive at a reasonable “FIRE” number. Double check my work with a fiduciary, tax advisor or financial strategist.

Wow, you made it this far? Thank you for reading. Let me know what stood out to you about this review. I’d love to read your review if this inspired you to write one!