- The 10x Factors
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- Part 3: 10x Investors And Their 10x Factors
Part 3: 10x Investors And Their 10x Factors
It's Strategy Time!
Now let’s see what the next five 10x Factors of a 10x investor’s Strategies are.
10x Factor No.6: Risk Management
Risk management is the backbone of successful investing.
There are 2 parts to this:
1. You need to protect what you have, not just profit from it.
2. You need to take calculated risks for potentially larger rewards, without being wiped out when things go wrong.
While a 10x investor understands that losses are inevitable in any investment, catastrophic losses can and should be avoided.
Risk management allows you to stay in the game for the long term. You will have the ability to get through storms and quickly take advantage of opportunities.
Let’s look at the five essential strategies for managing risk effectively.
1) Diversify
Diversification means spreading your capital across different types of investments.
This could mean diversifying across asset classes, such as stocks, bonds, real estate, and cryptocurrencies, or within a single asset class.
The key is ensuring that you are not overly exposed to one specific area.
For example, within cryptocurrency, you wouldn’t want to hold just one coin.
Let’s say you only invest in Ethereum. If the Ethereum network faces an unforeseen issue or a competitor like Solana or Cardano gains ground, your entire investment is at risk.
By diversifying into different coins like bitcoin, Ethereum, and altcoins (alternative cryptocurrencies), you reduce the impact if one of them takes a dive.
Diversification also applies to geography and sectors.
Imagine having all your investments in U.S. tech companies. If a regulation hits the tech sector, or if U.S. markets underperform, your entire portfolio is at risk.
By spreading investments across different countries and industries, you increase the chances of one sector performing well when another doesn’t.
2) Hedge
Hedging involves creating a balance within your portfolio so that if one investment performs poorly, another gains.
Using hedging is like buying insurance for your investments.
Its main use is not to increase your profits, but to protect you against major losses without needing to liquidate your core positions.
One example of a hedge is owning both stocks and bonds.
Historically, when stocks go down, bonds tend to go up.
If you have a portfolio heavily weighted in tech stocks and you're worried about a market correction, adding bonds can help balance potential losses.
In the world of cryptocurrency, a common hedge is using derivatives like futures contracts to offset risk.
If you have a large long position in bitcoin, you could have a short position in bitcoin futures.
That way, if bitcoin’s price drops, the short position gains value, reducing your overall loss.
Another example of hedging is using options.
An investor holding a stock can purchase a "put" option, which allows them to sell the stock at a certain price.
If the stock drops significantly, the investor can exercise the put and sell at the higher price, limiting their loss.
Thus the key benefit of hedging is to preserve your capital.
You protect your investment from severe losses, allowing you to remain in the game for future opportunities.
As a 10x investor, you know that protecting downside risk enables you to sustain long-term growth despite short-term market fluctuations.
Here are the differences between Diversifying and Hedging:
Note the following:
Systematic Risk affects the entire market and is unavoidable. Even a diversified portfolio can’t escape it.
Unsystematic Risk is specific to a particular company or industry and can be reduced or eliminated by diversifying your portfolio.
Both strategies aim to manage risk in different ways
Diversification spreads your risk among many different assets.
Hedging directly counters your risk for an asset in specific cases.
3) Sizing
Position sizing refers to how much of your total capital you allocate to a single investment.
Even the most promising opportunities carry risks, so you never want to over-commit to any one asset.
Proper position sizing prevents you from being overexposed in the case of a bad outcome.
Let’s say you’re working with a $100,000 portfolio.
A 10x investor might cap individual positions at 5%, meaning the maximum you would put into any one trade or asset would be $5,000.
Even if that asset plummets to zero, the loss would only account for 5% of the portfolio, which is recoverable.
This strategy applies equally to high-risk investments.
Cryptocurrencies are known for their volatility. You might love a certain altcoin’s potential, but that doesn’t mean you should invest 50% of your capital into it.
As a 10x investor, you understand that your goal is to grow steadily over time, not gamble everything on a single bet.
4) Stop Loss - Or Not
A stop loss is a pre-set order to sell an asset when it drops to a specific price.
This automatic sell helps prevent emotional decision-making when an investment starts to go bad.
Many investors let losses run longer than they should, hoping the price will recover.
A stop loss ensures that doesn’t happen, allowing you to cut losses before they get out of hand.
For example, you buy 100 shares of Company A at $50 per share.
You’re optimistic about the stock, but you also want to protect yourself in case the price drops.
To manage your risk, you set a stop loss order at $45.
This means that if the stock price falls to $45, your broker or your exchange will automatically sell your 100 shares to prevent further losses.
By using the stop loss, you have limited your loss to $500 ($5 loss per share x 100 shares).
If you hadn’t set the stop loss and the stock dropped further to $40, you would have lost $1,000.
The stop loss helped you exit the trade before things got worse — and it’s done automatically — hence eliminating all emotions from this decision.
That said, if the stock price later bounced back to $55 or higher, you’d have missed out on potential gains because your shares were already sold at $45.
This is one of the downsides of stop losses, where they might sell your position during temporary market dips, locking in a loss when the price could recover.
To deal with this downside, another approach is to NOT have a hard stop loss, but use a mental stop loss instead.
A mental stop loss is similar to a traditional stop loss.
But instead of setting an automatic sell order when a lower price is hit, you set a price in your head for how much you are willing to lose before reviewing your position.
This gives you time to reassess your investment.
Is your asset’s decline based on fundamentals?
Or is it just a short-term market fluctuation?
You then decide based on a full understanding of current conditions.
This way, you want to remain in control and not react automatically to short-term volatility.
That said, a mental stop loss may re-introduce the emotional aspect. Be aware of this to mitigate emotional decisions as much as possible.
5) Black Swan
A black swan event is something highly unpredictable that can disrupt entire markets.
Examples include the 2008 Subprime Crisis and the COVID-19 Pandemic.
As we have all seen, these events can cause massive market sell-offs and economic turmoil.
Even the best-laid investment plans can be hit hard by a black swan event, which is why preparation is key.
A 10x investor acknowledges the potential for black swan events and prepares accordingly.
Keeping some portion of your portfolio in cash or highly liquid assets is a smart move.
This gives you flexibility and the ability to buy into markets at discounted prices when others are selling in panic.
Additionally, holding assets that tend to perform well in times of crisis can serve as protection.
For example, gold is known as a safe-haven asset and often spikes in value during market downturns.
Bonds, particularly government-issued ones, also tend to remain stable or even increase during times of financial instability.
A 10x investor regularly reassesses their portfolio and adjusts positions as market conditions change.
Being ready to act during a black swan event, rather than reacting in fear, separates the 10x investor from those who suffer major losses due to panic.
10x Factor No.7: Tax Planning
For a 10x investor, maximising returns is both about picking the right investments AND keeping what you earn.
Effective tax planning can make a significant difference in your overall wealth. By leveraging smart strategies, you can reduce the amount you owe and increase your long-term profits while staying compliant with tax regulations.
1) Tax Advantages
Tax-advantaged accounts are key for investors looking to increase their overall returns.
By taking advantage of different tax-friendly investment accounts and strategies, 10x investors can defer, reduce, or even eliminate taxes on their profits.
Your ability to do this is a big deal.
Depending on your investment amounts, you can save thousands, tens of thousands or even millions of dollars by just knowing how to plan for taxes that are either imposed or not imposed on your investments.
Note that different countries have different types of taxes on your investments. But they generally fall into the following:
A) Tax-Deferred Accounts
Tax-deferred accounts are designed to help you save for retirement by delaying taxes on both the income you contribute and the earnings your investments generate, such as interest, dividends, and capital gains.
Popular tax-deferred accounts in the US include Traditional IRAs and 401(k)s.
With these accounts, you don’t pay taxes upfront.
Instead, you get a tax deduction for your contributions, lowering your taxable income in the year you make the contribution.
Once your money is in the account, it grows without being taxed each year.
This means you aren’t paying taxes on dividends, interest, or capital gains annually like you would in a regular investment account.
As a result, your investments compound more quickly because they aren’t reduced by taxes.
You only pay taxes when you withdraw the funds, usually in retirement, when your income (and tax rate) may be lower than during your working years.
Your key benefit is immediate tax savings.
Tax-deferred accounts work well for people who expect to be in a lower tax bracket during retirement or who want to reduce their taxable income now.
For those in their peak earning years, these accounts are a smart way to defer taxes until retirement when the tax burden might be lighter.
There is a caveat though.
You can’t leave your money in tax-deferred accounts forever.
After you turn 73, the IRS requires that you begin taking required minimum distributions (RMDs) from these accounts, which are taxed as ordinary income.
If you’re still in a high tax bracket in retirement at that age, you could end up paying more in taxes on these withdrawals than you anticipated.
B) Tax-Free Accounts
With tax-free accounts, such as Roth IRAs or Roth 401(k)s, you don’t get a tax deduction upfront.
You contribute after-tax money, meaning you’ve already paid taxes on it before investing. You can’t deduct this contribution to lower your taxes for the year.
But in exchange, all future earnings and withdrawals from the account are completely tax-free, as long as you follow the rules.
The big advantage here is that once you’ve paid taxes on your contributions, you never have to worry about taxes again.
Your investments grow tax-free, and when you withdraw the money in retirement, you don’t owe any taxes on the contributions or the gains.
This makes Roth accounts a great option for younger investors or those in lower tax brackets who expect to be in a higher tax bracket later in life.
By paying taxes now, while your rate is lower, you can lock in tax-free growth for decades.
Another major benefit is flexibility.
Roth IRAs, unlike Traditional IRAs, are not subject to required minimum distributions (RMDs).
This means you aren’t forced to start withdrawing the money at age 73.
So you can let your investments continue to grow tax-free for as long as you want, offering more control over your retirement funds.
Tax-free accounts are especially useful for people who expect to be in a higher tax bracket during retirement or who want to eliminate tax uncertainty in the future.
The ability to withdraw money tax-free in retirement gives you the freedom to manage your income and taxes more effectively.
However, there’s no immediate tax benefit with Roth accounts, which may be a drawback if you need the tax savings today.
2) Capital Gains
Capital gains are the profits you make when you sell an asset for more than what you paid for it.
This can include stocks, real estate, or other investments.
For 10x investors, understanding how to manage capital gains can lead to significantly higher earnings.
The key is knowing how to optimise the tax treatment of those gains.
This is once again dependent on the laws of the country you are in.
In the US, when you hold an investment for more than a year before selling, the profit is treated as long-term capital gains, which are taxed at a lower rate than short-term capital gains.
If you sell an asset in less than a year, the profits are taxed as ordinary income, which could be as high as 37%.
Long-term capital gains, on the other hand, are taxed at much lower rates at 0%, 15%, or 20%, depending on your overall income.
For a 10x investor, the difference between paying 37% in taxes versus 20% is huge.
To put it simply, the longer you hold your investments, the less tax you pay on the gains.
If you sell a stock for $100,000 after holding it for six months and you're in the highest tax bracket, you'll owe $37,000 in taxes.
But if you hold that same stock for over a year, your tax bill drops to $20,000 or less, depending on your tax bracket.
That $17,000 in savings can be reinvested, leading to even higher earnings in the long run.
So you need to time your sale well.
In addition, 10x investors may also sell their assets during a year when their income is lower, which helps reduce the tax rate on their capital gains.
If you're planning a major life change, such as retirement, and expect a drop in income, selling during that period could save you a lot in taxes.
Another tactic is to spread out your capital gains over several years.
Instead of selling a large chunk of assets in one year and triggering a higher tax rate, you can sell portions over time.
This keeps your taxable income lower each year, allowing you to benefit from the lower capital gains tax rate consistently.
The real power of managing capital gains lies in reinvestment.
By saving on taxes, you have more capital to reinvest.
That means you can buy more assets or put money into other opportunities, allowing your wealth to grow faster.
Minimising taxes and using the savings to reinvest will compound your returns over time, which is why managing capital gains strategically is a 10x move.
10x investors also focus on long-term investments that have high growth potential and offer favourable tax treatment.
Real estate is a prime example.
Let’s say you buy a property for $300,000 and sell it 10 years later for $500,000.
That $200,000 gain will be taxed as a long-term capital gain if you hold the property for over a year.
And if you use a 1031 exchange, you can defer paying taxes on that gain by reinvesting the proceeds into another property.
(A 1031 exchange, named after Section 1031 of the U.S. Internal Revenue Code, is a tax-deferral strategy that allows real estate investors to sell a property and reinvest the proceeds in a new, like-kind property without immediately paying capital gains taxes on the sale. This is often referred to as a "like-kind exchange" or a "tax-deferred exchange.")
Investments like real estate, growth stocks, and index funds allow you to build substantial capital gains over time, all while keeping your tax burden lower by benefiting from the long-term capital gains tax rates.
For 10x investors who are philanthropically inclined, donating appreciated assets is a smart tax strategy.
By giving away stocks or real estate directly to a charity, you avoid paying capital gains taxes on those assets.
At the same time, you can claim a tax deduction for the fair market value of the donation.
This allows you to reduce your tax burden while supporting causes you care about.
Thus capital gains, when managed correctly, are a major strategy for 10x investors to increase their wealth significantly.
The difference between paying ordinary income tax and long-term capital gains tax can be substantial.
By timing your sales strategically, using tax-loss harvesting (see below), and reinvesting your tax savings, you can greatly increase your overall returns.
3) Tax-Loss Harvesting
If you have investments that have lost value, you can sell them to realise a loss and use that loss to offset your capital gains.
This reduces your taxable gains, and in some cases, can eliminate your tax liability on capital gains for the year.
For instance, if you have a $50,000 gain from selling one stock and a $20,000 loss from another, you only pay taxes on the net gain of $30,000.
If your losses exceed your gains, you can also use up to $3,000 to reduce your ordinary income, and carry forward any extra losses to future years.
Tax-loss harvesting is a strategy that 10x investors use to reduce their taxes and keep more of their gains.
It sounds strange that you can gain by selling losing investments.
But your losses will increase your returns by lowering the amount of taxes you pay.
To do this, the 10x investor first looks for investments in their portfolio that have gone down in value.
Once they find a loser, they sell it to lock in the loss.
They use that loss to cancel out any gains they’ve made on other investments that year.
The result is less taxable gains and lower taxes owed.
Next, they reinvest the money from the sale into a similar (but not identical) asset.
This keeps their investment strategy intact while still getting the tax break.
The key here is to avoid the wash-sale rule, which disallows the tax deduction if you buy back the same or a very similar asset within 30 days.
The final step is using the loss to offset gains and reduce the tax bill.
Remember: When you’re building wealth, you need to maximise what you keep, not just what you make.
Taxes can take a big bite out of your profits.
By using tax-loss harvesting, you can keep more of your profits and reinvest them, which compounds your returns over time.
In Part 4 of this series, you will see the final two 10x Factors of 10x investors.
Cheers!
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