Standard Caveat: I understand the opinions expressed on this forum do not represent financial or legal advice.
With that said, I have a long term goal to preserve and build wealth (in that order) and I have drafted up a plan that I can commit to in order to facilitate this objective.
I'd like second opinions on this plan as it does deviate slightly from the traditional advice of passive, broad-market investing.
Take my income in a given year to be X.
2% of X is automatically deducted to our company's 401K program.
This qualifies me for matched contributions. Unfortunately, the fees in our plan (even with total market funds) are on the order of 1-4%, so it does not make any sense for me to contribute more.
The next 21% of X is automatically deducted and divided between 3 accounts
- Account 1: Savings Account
- Account 2: Low Risk, Low Return Investments
- Account 3: High Risk, High Return Investments
Account 1 is money that is highly available and acts as "the King's Guard" against my castle being breached.
The success condition of this account is that the current balance must equal 6 months of current living expenses. If that condition is not met, then 7% of income is allocated here
Account 2 is money that held in a defensive position against market movements.
The portfolio is roughly 55% long-term bonds, 15% medium-term bonds, and 30% dividend yielding stocks spanning all sectors.
Edit: This portfolio replicates Ray Dalio's All Weather Strategy. The breakdown is in 55% bond combinations, 7.5% gold, 7.5% commodities, and 30% stocks.
The success condition is a 12% return on the current year. If this condition is not met, then 7% of income is allocated here, as well as any other returns or windfalls in my life.
Account 3 is money that is actively put in harms way for the purpose of generating high returns. 25% of this account's value is continuously deployed in high-probability options trades on short time scales.
This is my favorite Options strategy as it allows for rapid compounding of money if you can stomach the looming threat of being wiped out on any given week. I have this strategy written in an algorithm such that I do not need to be actively involved in trading decisions.
All returns made by this account are deposited to Accounts 1 and 2 until their success conditions are met. If those accounts are topped off, then money is retained and compounded. There is no success condition for this account: 7% is always deposited here.
I am attracted to this plan as it appears to allow me to accumulate and preserve wealth while still allowing me to take riskier positions for the sake of better returns.
I am relatively young, 25, and so I am comfortable with some risk. However, I value consistent and steady growth above all, and this plan appears to be the best of both worlds.
In the case of there being no free lunches, I wanted to ask this forum what could I be potentially missing in this plan that could throw me off-course?
To summarize: I'd be content with a 3% annual return, but I'd be ecstatic if I could consistently achieve 9-10%, as this would slightly outperform passive index funds.
Thanks for taking the time to read this, and do feel free to offer any criticism, no matter how harsh.