The "Little Blue Pill" for Your Portfolio

By Wayne Mulligan, on Thursday, July 16, 2015

Once upon a time, there was a little blue pill.

Originally, it was designed to treat heart disease...

But during its initial trials, doctors discovered an intriguing "side effect."

Eventually, this side effect became so popular that sales of the little pill reached into the billions of dollars.

If you haven’t guessed already, the pill I’m referring to is Viagra.

Unsurprisingly, it’s become of the most successful products in Pfizer’s history: after all, it’s simple to take, and it makes any man feel like a superman in the bedroom.

But wouldn’t it be incredible if something similar existed for your investments?

In other words, what if you could take a “portfolio enhancer”—where one small, simple dose could send your returns straight up?

Well, as a recent study revealed, a little blue pill for your portfolio actually exists...

And one tiny dose could give your returns just the boost you’re looking for.

Traditional Portfolio

The study I’m referring to was conducted by SharesPost, an investment fund manager.

In brief, the study reveals a dead simple way to dramatically enhance the returns of your portfolio.

But before we tell you more (and before we show you the simple step you can take to enjoy a portfolio boost of your own), let’s review the basics of traditional portfolio construction.

Perhaps you’re familiar with the “60/40 rule”...

This old investment guideline recommends that you keep 60% of your investable assets in stocks and 40% in bonds.

The allocation to stocks would help grow your wealth, and the allocation to bonds would generate current income and act as a “hedge” in case the market tumbles.

But recently, another asset class made its way into many investors’ portfolios...

"Enhanced" Portfolio

Since the dot-com crash of 2001, investors have increasingly been looking outside the stock and bond markets for returns.

One of the first assets they settled on was real estate—more specifically, Real Estate Investment Trusts, or REITs.

REITs are publicly traded funds backed by real estate holdings, and as the U.S. recovered from the 2008 collapse, they’ve soared in value and popularity.

This helps explain why the “new” investment rule of thumb became ”50/25/25.” In other words, 50% of your portfolio in stocks, 25% in bonds, and 25% in REITs.

And the effect of this change on portfolio returns can be dramatic:

As one specific example based on the SharesPost study, a “traditional” portfolio allocation over the 3.5 year period starting in January 2010 generated an average return of 9.88% per year...

But by adding real estate to the portfolio, returns rose to 12.15% per year—that’s a 23% increase over the traditional portfolio.

“Superman” Portfolio

But as you’re about to see, if you’re willing to add just a tiny amount of an additional asset class, you could almost double the returns of a traditional portfolio.

Not only can this new asset class enhance your overall returns, but since it’s “non-correlated” to the broader stock, bond and real estate markets, it can help protect your portfolio if the markets take a tumble.

Furthermore, the overall risk of this “superman” portfolio is nearly identical to that of a traditional portfolio.

And the best part?

To gain these benefits, you need to allocate just 6% of your assets to it.

That tiny 6% allocation could theoretically take your annual returns from 9.88% to 16.52%. That’s a 67% increase over a traditional portfolio.

The Little Blue Pill

So what is this “little blue pill” for your portfolio?

It’s something the SharesPost study calls Private Growth Companies, or "PGC."

These are "late stage VC-backed private companies with significant revenue and growth.”

In other words, these are private equity investments, but they’re not early-stage tech start-ups. Instead, they’re later-stage companies on the verge of an IPO.

We’ve written about these types of opportunities before—we often call them “Pre-IPO” opportunities.

And as it turns out, by allocating just 6% of your portfolio to these types of deals, you can dramatically improve your returns.

Since these companies are private—and in high demand by institutional investors—these shares can be hard to come by.

But we’ve discovered a way that you can get access to 49 of these PGC opportunities with a single investment:

Invest in what’s called a Business Development Company, or “BDC.”

BDCs are publicly traded funds that invest in private equity opportunities.

One of the most prominent BDCs is GSV Capital (NASDAQ: GSVC). Its holdings include some of the most promising pre-IPO opportunities in the market today—from Palantir and Lyft to Bloom Energy.

And remember, even though these companies are private, GSVC is publicly traded...

So you can add this “little blue pill” to your portfolio today.

Happy investing.

Best Regards,
Wayne Mulligan
Wayne Mulligan


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Tags: Pre-IPO Private Equity Sharespost GSVC

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