“The greatest shortcoming of the human race is our inability to understand the exponential function.” — Albert Allen Bartlett
You’ve probably heard someone say:
Invest in cash flowing deals and you’ll never have a loss.
I think there’s truth to that.
But what about exponential returns?
Venture capitalist Chris Sacca invested early in big companies like Twitter, Uber, and Facebook.
His venture fund returned about 282x to his investors.
That means $100,000 became $28.2 million.
Isn’t that amazing?!
There are investments that have incredible upside.
As Warren Buffett would say: “Rule number one is never lose money.”
However, there may be a place in your portfolio to have some higher risk, higher reward deals.
We’re going to talk about what places those are and how much to allocate to those deals, all in three easy steps.
Let’s jump into it!
1. What Are Exponential Investments?
An exponential investment is an investment that can go 10x or higher over the next 5 to 10 years.
When you get 10% to 20% a year, that’s great!
But what if there’s a chance you can have something that goes 10x?
That could be huge.
Typically, these investments have a higher risk of capital loss.
You have to weigh the risks against the potential benefits.
2. Specific Examples of Exponential Investments
Let’s go over some specific examples of exponential investments.
One that we’ve done at Bronson Equity is in the energy space.
It’s a 17x to 100x potential return.
100x per term would mean $100,000 becomes $10 million (this is simply potential, not guaranteeing any investment returns).
That’s a life-changing amount of money.
With any of these investments, you’ll have opportunities to have a higher return.
I’ve interviewed Rick Rule a couple of times.
He’s a friend of mine in the metal space who is also a billionaire.
He’s gotten a 100x on a number of investments.
There are also times where he’s lost the entire investment.
Loss happens to everybody, even billionaires!
After considering your options and the risks, the question becomes:
How much of your money should you allocate to these investments?
3. What Allocation Should I Give to These?
There will always be a higher risk with exponential, high-upside investments.
So, what allocation should you give?
50% of your net worth?
Less? More?
If you have a net worth of over $2 million, you could easily have a place in your portfolio for exponential investments.
When you’re below that amount, there are more questions you need to ask.
How much risk is there?
How old is the investor?
How much income do they have?
I call myself a recovering investment advisor.
The most difficult thing with that job is figuring out how to help people allocate money correctly.
Deciding how you want to allocate your money is something only you can figure out.
You know what makes the most sense for your portfolio.
My friend George Gammon has something called the 10-80-10 rule.
I really like this rule.
The gist of is: If you have 100% of your capital, how would you allocate the money?
Split up the amount into 10%, 80%, and 10% again.
10% could go into things like metals, which provide insurance against inflation.
The insurance prevents the value of your capital from being eaten up by high interest rates.
80% could go into cash flowing investments that pay you to hold them.
Typically, there’s also an inflation hedge or some other type of protection.
The remaining 10% is saved for higher risk deals.
Again, this is typically for higher net worth people.
Let’s say somebody had a net worth of $5 million.
A 10% allocation into higher risk investments would mean investing $500,000.
You could spread that amount into maybe five different higher risk deals.
A good way to think about this method is that of the five deals, one of them will have an upside.
If you get a 10x return on that one deal, that’s a million dollars.
If it’s a 100x, you’d have a $10 million return.
You could triple your net worth with a 100x return, all from only investing 10%.
In conclusion, the decision of whether or not to dip into exponential investments depends on your temperament.
Some people might not want to lose money.
Warren Buffett even gives similar, cautious advice.
But doesn’t Warren Buffett lose money?
Doesn’t he have high upsides?
He does!
In general, there are guidelines and rules.
But I do think for some individuals, the risk could be very worth it.
If you have risk tolerance and you’re willing to suffer some losses to have higher gains, exponential investments could be for you.
Exponential returns can be super powerful within your portfolio.
They can create a lot of upsides.
Now I want to hear from you!
Are you going to look into exponential returns?
Let us know in the comments.
Before you leave, make sure to check out our special report about inflation investing. It shares the best choices to invest during an inflationary environment.
If you are interested in investing with us, we are happy to answer any questions that you may have. Join our investment club today and we will be in touch.
Disclaimer: I am not your investment advisor. This is for educational purposes only. I am not giving specific advice on what you can do. I am simply giving my opinions.
