MP recently spoke with Ted Oakley, founder of Oxbow Advisors, a money management firm that works across the US. He built his own business and wealth, and both admires and understands business owners who have created companies that can be sold for tens of millions, or even hundreds of millions of dollars.

What does it mean to have a balanced portfolio?

A balanced portfolio is a dynamic portfolio that allows you to have exposure to offsetting asset classes.

Why is important to have a balanced portfolio?

Over the course of an investing lifetime, you’re going to have situations you don't expect. If your assets are all in one or two categories, that could really affect your outcome. With a balanced portfolio, you not only have some liquidity but also some ability to make changes.

How can you find the correct balance for your portfolio and how does risk appetite come into play?

This is an interesting question. My new book, Your Money Mentality, addresses this. Every investor has a different risk appetite, so many don’t realize what that is until it’s too late. They have either not been around very long or have only been around certain kinds of investments. It almost takes experiencing some setbacks to find the correct balance for your portfolio. We find that people, in many cases, don’t really understand their money mentality due to other factors, such as outside influences, social media, or just inexperience.

How important are investments that generate cash flow and why are they this important?

Investments that generate cash flow are at the top of the list for all investors. Cash flow is the number one driving factor in investing. This is the same whether it be free cash flow from a common stock, cash flow on interest and dividends, real estate, or energy. All of these are important to the valuation of a particular investment.

Real estate is an attractive investment to many people, including those who have absolutely no experience investing in it. How can someone safely begin investing in real estate on their own and not through a fund of some sort?

I do think it is appropriate to own as much real estate direct as you possibly can. However, there is a learning curve.

My advice to someone who does not have experience is to create an LLC for risk purposes and purchase one single-family residence. This will give them experience in many areas, such as filing an LLC tax return, doing business with banks on the loan side, leases and understanding the types of tenants you want in your property, the capital expenditures necessary to maintain the property, understanding leverage and how much leverage you should use on properties, and securing insurance. By doing each of these on a single purchase, you gain experience without having a tremendous amount of capital outlay.

As a professional wealth advisor, what is your professional opinion on cryptocurrencies as an investment?

Cryptocurrencies as a group has become a very toxic subject. It seems that people on both sides are very adamant about how they feel. In my opinion, there are so many coins that there will eventually be a tremendous shakeout like there was with a lot of internet companies between 1998 and 1999. I think some of the biggest Ponzi schemes that have ever existed and are probably existing now are found in a lot of the areas of cryptocurrencies. I believe that most people do not understand cryptocurrencies even though they are investing in them. While there will be a few coins that probably survive, it pays to see what effect the central governments will have on coins before investing in them.

Does the coin itself make a difference? Do you see Bitcoin, Litecoin, and Ethereum as stronger investments than other coins like Dogecoin and SHIB?

Unfortunately, even though I think a few of the coins will survive, there will likely be many that lose their value. 

What is an inflation hedge, and should it be included in someone’s portfolio?

An inflation hedge, pure and simple, is where returns can stay up with the level of inflation year over year.

That could be several things. Some businesses operate very well during inflation periods. There are solid assets in the form of real estate, land, metals, energy, and a host of other things that generally stay up with inflation. Commodities, in most cases, stay up with inflation as well. I believe that people should have some inflation protection in their portfolios but having said that I see very few people that do. In my case, I’ve been around long enough to see inflation. For most people in their entire investing life, they have never seen inflation, nor have they ever seen higher interest rates. So, they have no fear about how that could affect them. A lot of assets don’t do well during inflation periods, so it pays to have some protection in your portfolio.

How much cash, in terms of a percentage, should someone keep lying around, and does this change as you become wealthier?

This is an interesting question. At Oxbow, we work with large investors and cash is not really a problem. However, if I look at the landscape of investors and have to make a general comment about cash, it will go something like this: if you look at the best investors who have the most money, they all carry a lot of cash. In most cases, over 25% of their net worth.

Some people may not agree with that, but I have been around so many large investors that they have enough money to never really worry about running out of money. For the investor that doesn’t have enough money, I think they need to use what I just said as a piece of advice for themselves.

If you don’t have liquidity, you don’t have the ability to make purchases or move things around when you really need to.

My advice to small investors is to keep at least 10-15% liquid in normal times. Currently, I would recommend, even more, around 25 to 30%. When the negative times arrive, if you have liquidity, it can really make a difference.

Is there anything else you’d like to share?

My advice to beginner investors: keep your debt low, save money, stay with quality, and have multiple asset classes that include real estate.

Disclaimer: Comments in this article are the opinion of Tim Oakley and not Modern Professional. This article is for information purposes only and should not, in any way, be interpreted as financial advice. Seek a professional familiar with your unique circumstances for professional financial advice.

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