my *new* approach to investing in 2022

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My *New* Approach To Investing In 2022

I want to clear 1 thing up before we continue. I still identify as a dividend growth investor. Nothings changed there. The only thing that will be changing is how I’m managing my portfolio from here on out. Maybe you can relate a bit to what happened to me in 2021.

This past year was crazy. I say that from the perspective of an investor. Money was being printed like never before (brrrrrr), hedge funds got infiltrated by the general population and fundamentals seem to mean jack sh*t anymore.

Some people made a lot of money and some people lost a lot of money. Fortunately, I was on the receiving end and managed to come out of the year in the green, but man was it ever hectic.

This past year alone forced me to rethink my entire investing strategy. Up until last year, my allocation looked a little something like this:

• 50% dividend stocks

• 30% growth stocks

• 15% ETFs

• 5% crypto

This was going just fine until I found myself stressing over the value of my portfolio. Never before had this happened to me until 2021. I was always 100% confident in my holdings and slept pretty damn well at night. But this past year was the first year that had me second-guessing my own decisions. And that’s never something you want to go through as an investor.

So naturally, when something like this happens, it’s time to shift gears a little bit to figure out what’s going wrong and how you can fix it. Because peace of mind is priceless.

I took a birds-eye view of my portfolio near the end of last year and really dove into what had happened in 2021 to make me feel like I had lost total control. After about an hour of analyzing every company I was invested in, I came to a realization…

I was investing to get rich, not investing to build wealth.

Getting rich and becoming wealthy are two completely different things (in my opinion at least). Especially when it comes to investing.

Here’s how I see it:

Getting rich involves trying to make as much money as you can as fast as you can.

Building wealth involves growing your money over time using a method that is proven to be effective.

I found myself trying to get rich. I was buying companies that didn’t fit the strategy I had used for so many years. I was creating false convictions that didn’t align with my investing beliefs.

All this to say, I veered off track. Not by much, but enough for me to notice. And I believe an important skill to have as an investor is being aware of when you start contradicting yourself. Because if you’re aware, then you can reel yourself back in.

To be a bit more transparent, 6/17 of my holdings finished 2021 in the red. But not by a few dollars, by thousands of dollars.

And guess what, 3 of those 6 were companies I had bought out of pure impulse trying to swing trade on a price drop. I didn’t take time to analyze the fundamentals and I didn’t do very much ratio analysis, I just bought because my mind told me to buy. I was on my worst behavior (cue Drake).

So I’ve decided I’m leaving that behavior in 2021 and I’m moving forward with a barbell strategy.

What is a barbell strategy you ask?

If you aren’t familiar with this strategy, Investopedia does a good job of summing it up:

Because I’m in my 20’s and can’t shake the need to take on some sort of risk, I’m allowing myself a specific percentage of my portfolio to be allocated towards high-risk high-upside investments to feed that craving.

The other portion of my portfolio will be allocated towards blue-chip dividend stocks, low beta REITs, and index funds (with index funds making up the bulk of this allocation)

So as I move forward, my target allocation will look a little something like this:

• 25% high-risk, high-upside, high-volatility (crypto and disruptive tech)

• 75% low-risk, low-upside, low-volatility (S&P, total stock market funds and REITs/Blue chip dividend stocks)

*Index funds will make up the bulk of that 75% as mentioned above*

My reasoning: I value safety and capital preservation with smaller returns, more than I value swings of volatility with larger potential rewards.

I want to be able to sleep at night knowing my money is safe and I didn’t have that feeling this past year.

Wealth isn’t about how much money you can make, it’s about how much money you can keep. There are plenty of high-income earners who never become multi-millionaires simply because they don’t know how to actually preserve their capital. I’m trying to build good habits young and this past year I didn’t practice what I preach. So that means it’s time for a change.

It will take me some time to get to my desired asset allocation as I have to sell off some positions, but I’m making a commitment to this strategy moving forward. I guess we’ll see how it plays out at the end of the year.

Now, switching gears.

I’ve got some homework for you…

Take 30 minutes to look at your portfolio. Pretend as if it’s not your own money and really analyze the companies you’re invested in. Ask yourself the following questions:

• Do I need to hold all of these companies or can I trim some of the fat?

• Is my money too concentrated in 1 single industry?

• Am I over-diversified? Am I under-diversified?

• Do I need to hold all of these ETFs when some of their holdings overlap?

• Are the fees for these actively managed funds really worth it?

• Do I believe in crypto or am I just buying it because everyone else is?

• What is my risk tolerance and does my portfolio reflect that?

It’s important to take some time and evaluate how you’re managing your hard-earned money because this is your own retirement and financial freedom you’re dealing with. You should be taking it seriously.

Be honest with yourself. You’re the only person that can be. And then make the necessary changes. I’m making mine, what are yours going to be?

Leave a comment below and let me know what changes you’re making in 2022, if any.

Cheers!

- Alex (The Dividend Dominator)

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• My 2 Cents - my other newsletter where I voice my personal opinions on life, money, and people. Beware: I have zero filter. But it might give you a good laugh.

Disclosures

The Profit Zone is provided by The Dividend Dominator. All opinions and views mentioned in this newsletter constitute my own judgments as of the date of writing and are subject to change at any time. Information within this newsletter is not intended to be used as a primary basis for investment decisions and should also not be construed as investing advice. Please keep in mind that investing involves risk, including loss of principal, and past performance may not be a predictor of future results. The Profit Zone, as well as myself, disclaim all liability in respect to actions taken based on any or all of the information on this writing.