Vanilla with Sprinkles

It became a mini-tradition at my house pre-COVID. If mom was going to be gone for a few days, my kids could count on having a meal at our local Culvers. They picked that particular restaurant because their cheap dad won’t buy them dessert at a restaurant, but a scoop of ice cream with a topping is included with all kid’s meals at Culvers.

My older two always took forever studying the ice cream and toppings board. Should they get the flavor of the day? Or match this with that? My youngest, however, knew what he wanted every time. Vanilla with sprinkles. A lot of sprinkles. Even more than that sprinkles. To the point where I got to pull out the classic dad joke, “Would you like some ice cream with your sprinkles?” Ah, parental comedy.

The point I was trying to drive home with, admittedly, lame humor was that there is a balance. At some point, your dessert is no longer ice cream with little bits of candy but rather candy bits with a little ice cream.

So, what on earth does any of that have to do with investing?

Think of my son’s ice cream as an investment portfolio. The vanilla ice cream represents traditional investments targeting goals years or even decades down the road. The typical holdings investors have been using to build wealth for years. Investments like ETFs, mutual funds, or blue-chip stocks.

The sprinkles are the trades that are best done in small doses - such as speculative or risky plays like cryptocurrency - that could provide a huge return or become worthless.

At some point, too many “sprinkles” turn your investment portfolio with some speculative bits into a speculative portfolio with some investments.

So, what then is the ideal ratio of vanilla to sprinkles? While it will vary from investor to investor, I tend to think “sprinkles” portion of the account should be the lesser of 5% of the portfolio or an amount of money that, if lost forever, wouldn’t impair an individual’s lifestyle now and in the future.

Photo by Patrick Fore on Unsplash