Weekly Nugget of Wisdom #10

Moving from accumulation mode to preservation mode

Welcome to another Nugget of Wisdom! A weekly post I send out every Thursday. These are designed to be short and sweet, a quick read to (hopefully) impart some sort of wisdom, or at the very least to get you thinking about something interesting.

Moving from accumulation mode to preservation mode

This is something that took me unfortunately far too long to learn. I mistakenly thought that what I was doing and what worked when my portfolio was $10k or $100k is the same approach I should be taking when my portfolio was worth $1m or $10m. It was not, and it is a huge reason why I didn’t realize nearly as much profit as I “should have” last cycle.

When your entire bankroll is $1000, it isn’t that disastrous if you lose it all, or lose 50% of it. In real dollars at the end of the day you’re not down a catastrophic amount of money, and for almost everyone reading this, your life is unlikely to have significantly changed.

Because of this, you should probably be taking more risk with a lower bankroll and be trying to hit some outsized returns. Most people investing or trading in crypto are not content with a 6-10% annual return on their money - otherwise they’d just stick it in the S&P500 and call it a day.

No, crypto is inherently far more risky than traditional markets and because of that, we tend to expect a higher potential reward. Most people are hoping to multiply their portfolios in the course of a year or two (and some on a much shorter time horizon! This is accumulation mode.

And it is a perfectly fine mode to be in if you go in with your eyes wide open; but it does come with it’s set of risks.

When you have a 6 or certainly 7+ figure portfolio, you really ought to take a step back and think about your life and what the risk/reward ratio looks like again. How much does your life really change if you go from $1m to $2m? Probably a bit, but not a tremendous amount. Conversely, how much does it change if you go back from $1m down to $50k? Now that’s a massive difference. This is when you ought to think about shifting from accumulation mode to preservation mode.

Once you start making significant money, if you should be so lucky, you should strongly consider setting aside a significant amount of it and put it into the “safer” assets. Safe is a relative term. That could be the S&P500, that could be cash in a bank earning interest for you, that could be stablecoins in a well established defi protocol earning interest for you, it could be in Bitcoin.

Whatever it is, isn’t really the point. The point is to identify that your situation has changed, and to have an adaptive strategy so that you’re doing taking insane risks with a 6 or 7 or god forbid 8 figure portfolio.

Again, should you be so lucky.