Mark Moss argues the wealthy skip broad diversification for a simpler approach: leverage a $100,000 seed into a $500,000 rental property (5% return), extract equity to buy Bitcoin (30% return), then move Bitcoin gains into Nasdaq (17% return). Three familiar assets compound to roughly 25-30% annually, versus spreading money thin across 17 uncorrelated positions.
So let me give you an example. We have $100,000 and what most people would do is they would divide this up. They'd follow a Ray Dalio model, you know, all-weather portfolio, and they would find 17 different positions, non-correlated. And so they'd put some into bonds, maybe that's, you know, 40% into bonds and then they'd put, you know, 30% into stocks. And then in those stocks, they would break those up into a bunch of things that they don't know or understand. Then they might put some into some private equity, and they would split this up and they'd say, well, if I can get 10% return here and I can get a 20% return here and I can get a 5% return there, my blended return could be 15%. But the wealthy think about it differently. We want to engineer the return we need without all this complexity. What we want to do is we want to take our $100,000 and we want to invest it vertically. So I might put it into a tax depreciation asset first, like a home. What this home does, it allows me to buy a $500,000 asset with the $100,000. With that $500,000 $100,000, I get now income, I also get tax depreciation. And I also get the compounding growth of this, call that 5% a year, but I get these other benefits as well. Then let's say that I have equity in this home after a period of time, I could pull out, let's call $250,000 of that equity. And I could put that into another investment, let's call that Bitcoin. Now that Bitcoin is compounding at, let's call it 30% a year, then I could say take $125,000 of that Bitcoin out. And then I could put that into the NASDAQ here at say 17%. Now, when I add up what this $100,000 is doing, one job, two jobs, three jobs, and I take my blended return here, I'm closer to 25 or 30% return. And with much less complexity, three assets, standard assets that most people know versus the complexity of this at half the rate.
