How do you change your investment strategy over time as the portfolio value increases‪?‬ Finance & Fury Podcast

Welcome to Finance and Fury. This week the topic is from a listener, Gabriel.
That is “how do you change your investment strategy over time as the portfolio value increases? more specifically, how do you see someone building a growth portfolio starting with $10,000 and what would they change when they get to $100,000? What about $1,000,000?”
This is a great topic, thank you for suggesting it.
Everyone is different- no one right way to go about this – I have clients invested in a similar manner with $300k to $2m – because it is the right option to meet there needs – the only difference is how much is invested in each of the types of investments that make up their portfolios I also have clients with vastly different allocations – but again, this is depending on your needs Some want long term leveraged growth, so we looked at property or geared share funds there are some factors that can be used to help determine where someone should invest – which helps to determine an investment strategy based around the level of funds invested But the best thing to do is look at the end picture – where do you want to be – and build towards that This will help to answer this question better – to answer ‘what changes should be made once you have accumulated $100k or $1m’, the focus should be more so on what do you need your $100k or $1m to do for you To explain this further – say your end goal is to have a passive income of $50k p.a. - $1m in todays dollars - can fairly comfortably achieve this – but only if the assets generate an income yield of 5% Obviously with cost-of-living increases over the years the nominal value you will need is greater It is great to have $1m, but if this is in cash and you need an income, you are out of luck, as well as if you were invested in one single share that doesn’t pay an income, or even gold This is why having goals-based investing helps to determine this question Goals – to help work this out – for long term investment goals, there are considerations to help determine the investment strategy: Return needs – what returns do you need out of your investment? Returns have two components – growth and income – add these together and you get your total return Different assets have different return profiles – some are purely growth, others purely income They also have different factors that affect each of these returns – leverage on property, income of cash versus FF dividend paying shares at the moment Risk mitigation – do you need to protect your downside? If you are starting off with $10k – you would still probably need to protect from absolute losses. If you have $1m and are looking to retire, you might want to do this also, but is much easier to do with $1m compared to $10k: how can this be done? Diversification – ways to minimise your risk, in terms of volatility is to spread the risk out Risks – absolute and speculative – in other words, what is your risk of losing everything versus seeing some downwards price movements that are a natural part of any growth investment? Using the example above, if you buy one share with your $10k, the risks might be high for both speculative and absolute losses Now use your $1m to buy 100 companies at $10k a pop – your volatility will go down and so will the absolute loss potential Now – buy a property for $400k and use the remaining to buy shares – at $10k a pop then Now – buy a property for $400k, $550k of shares and $50k of gold – the volatility of your overall portfolio will decline further Defensive allocations versus growth components – Defensive assets Both of these factors will change over time as well – as you grow additional wealth, you can start to invest in some defensive assets to help secure your position, as well as purchasing additional assets as part of diversification The costs of the ongoing strategy – Different investment have different costs to them Lo