Portfolio Strategy

  • My asset allocation strategy remains constant. I am willing to accept substantial risk for aggressive growth.
  • I go all-in with litigation finance. I am a big believer of the concentrated portfolio approach.
  • I will enter the world of hedge fund investing when my liquid assets reach $3m+.
Portfolio Composition

I allocated a substantial portion of my portfolio to legal investments – settlement advances, commercial litigation finance, and law firm financing. The litigation finance industry is set for explosive growth over the next decade. Investments in unsecured personal loans and fix-and-flip hard money loans have been undergoing liquidation over the last several years. I will consolidate all retirement accounts to Merrill Edge IRAs.

Total Value of Accrued Recoveries

My LexShares investments have an accrual of $1.13m as of FY19Q1 based on the percentage of recovery, and it will increase an additional $500k per year. The benefit of the higher returns for the portfolio concentration comes at the cost of a higher level of risk.

Investment Precedence

Commercial Litigation Finance

LexShares is still my preferred investment platform even though it went semi-private and recently increased carried interest to 30%. I am aiming to invest in 2-4 new claims each year to build a portfolio of 10-20 new cases with a total claim value of $1m+. Investments in commercial litigation is almost entirely independent of the stock market. It offers strong historical returns and a moderate investment life-cycle. This asset class has a more acute risk because of binary outcomes where you will either win big or lose all the money. This is the best high yield investment option for risk takers.

Lawsuit Advances & Law Firm Funding

My next option is YieldStreet. It offers a diversified portfolio of mature personal injury and mass tort cases with a high likelihood of winning. These investments generate reliable cash flow, but that also means the stagnation of idle cash that will impact the total return over time. Cash drag is an inherent issue for multi-million dollar investments. Consumer litigation funding is uncorrelated to stock market. This is the best low risk investment option for retail investors who have less than one million dollars in net assets.

Hedge Funds

I will start investing in hedge funds once my liquid assets reach multi-millions. There are apparently many different types of alternative asset classes such as litigation finance, life insurance settlements, commercial real estate, invoice factoring, or merchant cash advance. Hedge funds can bring a level of diversification to those non-traditional investments.

Financial Outlook

My FIRE number is $2m minimum, $3m+ desired based on the projection of my future spending. I am expecting to hit the lower band by 2020. I am in my late 30s and plan to work until my late 40s. My investable assets will likely reach $5m by then. I would not keep working 60 hours a week full time when it moves my net worth by less than 10%.

While the high-yield fixed-income investments generate predictable return patterns, reduce overall risk, and protect against volatility of a portfolio, you need to run towards risk to build wealth in your 20s and 30s. I took a bold step necessary to achieve aggressive capital growth. A wrong decision is better than no decision. Overcoming loss aversion is a key factor in achieving financial independence at an early age.