- Why I wrote this;
- So, How to make money buckets and set objectives doesn’t have to be a mystery
- From there,
- From there,
- From there,
- Infinite wealth
- Concept
- Passive income
- The Bucket Concept
- Let’s take a look at some examples.
- Retirement Buckets
- Bucket 1
- Bucket 2
- Bucket 3
- Setting Objectives
- Final thoughts;
- **DISCLAIMER**
“I am writing this from a desire to share facets of my journey that may help others build the life of their dreams in the safest, most reliable way possible.”
– Me-The Crypto Medium, James Hudson
Why I wrote this;
- Why I wrote this;
- So, How to make money buckets and set objectives doesn’t have to be a mystery
- From there,
- From there,
- From there,
- Infinite wealth
- Concept
- Passive income
- The Bucket Concept
- Let’s take a look at some examples.
- Retirement Buckets
- Bucket 1
- Bucket 2
- Bucket 3
- Setting Objectives
- Final thoughts;
- **DISCLAIMER**
I have seen many people, and have myself, suffered much larger drawdowns than I would have liked as a part of the recent volatility we’ve seen. Reflecting on that, I wanted to share a way to position one’s overall assets to reduce the likelihood of suffering such a large drawdown.
I am writing this from a desire to share facets of my journey that may help others build the life of their dreams in the safest, most reliable way possible. I have observed in myself that if I put too many eggs in one basket, I become terrified that something will happen to that basket, and make me more fragile.
I believe that thinking very broadly about my financial goals, and my positioning to meet those goals, can both increase my chances of success and decrease the risk of an adverse event doing too much damage.
So, How to make money buckets and set objectives doesn’t have to be a mystery
In a previous conversation, we discussed the importance of position sizing, with a focus on how a smaller sizing reduces the likelihood of blowing up the account and increases the likelihood of reaching your goals.
Well, position sizing is just one part of the overall process of achieving goals. I believe the process must start with understanding yourself and your purpose.
From there,
understand what goals you want to set.
From there,
design your economic life to meet those goals.
From there,
design your trading systems and position sizing for those systems to meet your goals.
My mentor, Van, was fond of saying that understanding objectives was more than 50% of systems development.
I have always found setting objectives to be really difficult. The most important objectives for a trading system start at return requirements v. risk appetite.
From there it comes down to time, especially the time one is looking to dedicate to management, and one’s time horizon. After that, any other objectives tend to come into play.
I will be writing this mostly about myself but using that as an example to illustrate the point. Partially this is done to be very clear that I am sharing my journey rather than providing any investment advice.
Please consider this for entertainment purposes only; do your own research, and if desired consult a certified professional for assistance.
Infinite wealth
Back to the story. For me, the overarching economic goal is to become infinitely wealthy. Infinite wealth is a concept I picked up from the Van Tharp Institute, furthered by Robert Kiyosaki (Rich Dad Poor Dad) and Chuck Whitman (see for example https://www.youtube.com/watch?v=-JwAWrMIHw8).
Infinite Wealth is an entire course – well a couple of courses – all on its own, so I will stick to a very high-level overview of it.
Concept
The basic concept is that one is infinitely wealthy when s/he brings in enough money passively that the core needs are met. This comes to an infinite wealth number that is passive income – expenses. If that number is greater than zero then one can be said to be infinitely wealthy.
Passive income
In this definition, this is less than a few hours per week of total effort. So, for a concrete example, if a person has $5,000 of regular expenses and $6,000 of passive income per month, then this person can be said to be infinitely wealthy.
The Bucket Concept
This overarching goal guides all the other goals.
But as I aimed to define more specific trading system goals, I initially couldn’t get far past “I want to make as much money as possible with as little risk as possible”.
Well, that doesn’t do much for deciding if a 25% drawdown or 75% drawdown is acceptable.
What really brought it home for me was to break up my investible assets into different buckets.
From each bucket, I could then set my investment approach.
Let’s take a look at some examples.
First, I have a retirement bucket. I can’t touch that money for 30 years. That gives me a very long time horizon.
I also know for myself that I can’t stomach a significant drawdown across the whole account. I also know that I want the money to grow enough that I can live off it in retirement.
As an extra objective, I want to participate in the crypto markets, based on my belief that it is the biggest technological change that has occurred since the invention of the internet.
I happen to have 3 retirement accounts, so this gave me an obvious opportunity to create 3 different buckets within the overall retirement account.
Retirement Buckets
Bucket 1
In one bucket, I am aiming to be conservative. I want this bucket to buffer against volatility in other buckets and help me feel secure. I want growth that will beat inflation, but also want low drawdowns.
This led me to a set of objectives for this bucket of 15% gain and 10% drawdown. I also don’t want to invest much time in managing this bucket, no more than 1 hour per month.
This led me to a monthly momentum strategy in major liquid ETFs.
In another, smaller, bucket, I am being more aggressive. Here I am aiming for 30% gain and am accepting of 20% drawdowns.
I am OK spending a few hours per month managing this, but don’t want it to be a major time commitment.
In my final bucket, I am dedicating a small percentage to crypto. This is my super aggressive bucket.
My goal with this bucket is to average over 100% yearly, but I am accepting of a 75% drawdown. I am also accepting of individual positions going to zero.
I am happy to spend a couple of hours per week managing this bucket, as I am intrinsically interested in the space. This also meets my personal objective of being involved in the crypto evolution and learning the ins and outs firsthand.
Together, the three buckets will meet my macro objectives of having enough money to retire on in 30 years from what is in the accounts presently, while also being able to sleep at night.
Outside of the retirement bucket, there are a few other buckets. One is a crypto passive income bucket.
Another is a crypto VC style bucket.
Another is a business income bucket.
Another is my salary. My salary is there to cover my living costs. That bucket is meant to be very conservative, as my family relies on that income. This bucket is solely there to feed other buckets.
There are others, but this gets the idea across.
The major point is that each bucket has a specific objective. Together, all of the buckets are designed to move me closer to infinite wealth.
They are also designed to be robust so that I am not overly damaged if any particular bucket runs dry for a period, as something like crypto is wont to do. This type of thinking has also changed how I think about economic goals.
If I look ahead a few years, my goal is to become 5x infinitely wealthy through different buckets that use uncorrelated assets in uncorrelated markets. If I can achieve that goal, I become very confident that I will be financially OK regardless of what is occurring.
Setting Objectives
If I were starting this journey today, here is what I would be thinking about:
- What is my infinite wealth number?
- How can I move closer to infinite wealth (are there expenses I can decrease, or income I can increase)?
- What money buckets do I already have?
- Are those money buckets designed to meet my objectives or should I make changes?
- How should I strategically be investing to either increase the assets in a given money bucket or diversify my money buckets?
- What could go wrong with my current setup and what can I do to mitigate what might go wrong?
I hope this has helped you to think about not putting too much focus on any one bucket and using multiple diverse buckets to enhance your ability to thrive in any environment.
Article by; James Hudson
**DISCLAIMER**
I’m not a special advisor and this is not special advice
So if you’re looking for a special advisor, I will certainly not suffice
Merely a humble truth seeker; for a truth that nobody owns
Not your’s, mine, or their truth, but a truth that has no clones
In a world that’s unsettling and hazy, where the outcome is not very clear.
By stcking your Bitcoin and chilling, there’s much less that you have to fear.
