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  • Does Bitcoin Act as a Portfolio Hedge?

    Summary: We manage alternative assets for high-earning and high net worth clients. We frequently get asked whether Bitcoin can act as a hedge against short to medium-term volatility of the stock market. Our analyses found the contrary:

    • Bitcoin’s correlation to the S&P 500 has steadily increased since 2010
    • Bitcoin has generally experienced sharper drawdowns than the S&P 500 index during recent equity shocks

    What is Bitcoin’s Correlation to the S&P 500?

    The table below shows 1yr return correlations between the S&P 500 and various assets. We have provided the tickers we used to proxy each asset class’s return.

    Table showing correlations between the S&P 500 and Bitcoin, Gold, Long Bonds, Cash, and Commodities across different time periods.

    There are two points we want to highlight in this table:

    • Between Jan 1, 2010 and today, Bitcoin shows a 0.07 correlation to the S&P 500; but that low correlation appears to be heavily skewed by Bitcoin’s behavior in its early years. The correlation steadily rises to 0.77 since 2020 suggesting Bitcoin is acting more and more like a leveraged portfolio of equities than a non-correlated asset.
    • No other asset in the table shows a correlation greater than 0.30 across the time periods assessed.

    Key Finding 1: Bitcoin’s correlation to the S&P 500 has steadily increased since 2010

    Does Bitcoin Protect Against Stock Market Crashes?

    The table below shows the relative performance of each asset during notable events that led to significant drawdowns in the S&P 500 over the past 10 years.

    A detailed chart showing how Bitcoin and other assets performed during recent market shocks.
    • In three out of four of these events, Bitcoin experienced greater drawdowns than the S&P 500
    • No other assets in the table below experienced sharper drawdowns than the S&P 500 during these events. In all drawdown events at least one of the other assets experienced gains.

    Key Finding 2: Bitcoin has generally experienced sharper drawdowns than the S&P 500 index during recent equity shocks

    Bitcoin does not appear to act as a hedge for equity portfolios

    These two analyses suggest Bitcoin has not historically functioned well as a short to medium term hedge to equities (as proxied by the S&P 500). Instead, it has exhibited an increasing correlation in recent years and has experienced significantly sharper drawdowns than the S&P 500 in three out of four of the shock events analyzed. 

    I’m not against clients holding Bitcoin. that’s an individual decision depending on how much you allocate, your risk tolerance, and what your point of view on Bitcoin’s long term prospects are. However, this analysis suggests that holding it as a short to medium term hedge to volatility in stocks is not a role it has played well.

    Hedges should exhibit low to negative correlation like some of the other assets in the analysis. When we design the hedge portions of our clients’ portfolios we are generally looking for assets that move more independently of equity holdings.

    As a disclaimer, I have a small amount of Bitcoin out of interest in the underlying technology and as a way to more closely follow how the crypto markets evolve over time. But I do not hold it as hedge to anything in my core portfolio.

    Nathan
    Founder & Lead Advisor
    [email protected]

    The Tradeoff

    Most financial advice is generic. Mine isn’t. Get an email every other week with real strategies and stories from my work with mid-career professionals. Free, no paywall.

    Check it Out

    Kangpan & Co. is a flat-fee financial advisory firm specializing in helping mid-career professionals navigate the career, family, and financial tradeoffs that come with this stage of life. This content is for educational purposes only and is not financial, legal, or tax advice. Consult a licensed advisor for help with your individual situation. Employees and clients of Kangpan & Co. may hold positions discussed in our content. Past performance is no guarantee of future results.

  • Client Letter #4: Living Off a Portfolio’s Income

    2025 Tax Planning Summaries, engineering a Personal Endowment, capital-intensive infrastructure bubbles, and a primer on income-centric investing

    Dear Friends and Client Partners,

    In this week’s deep dive I’ll be talking a bit about the income strategy I’ve used to create the cashflows that support my family. This portfolio income took the place of my C-level salary when I left the corporate world and also provides the cashflow that allows me to be intentional and measured in who I decide to work with as I build Kangpan & Co.

    A number of you have asked about or expressed interest in living off your portfolio as you think about your future so hopefully this is a helpful start. But first, a quick update on Systematic Upgrades we’ve made for our clients’ financial lives.

    Systematic Upgrades

    Focus: 2025 Tax Planning Summary

    We have finalized your 2025 Tax Planning Summaries. These reports highlight actions we took together that have tax implications that are not readily apparent on your W-2s and 1099s (e.g. 529 plan contributions, IRA funding, etc.). 

    The goal of this summary is twofold: ensuring zero “tax leakage” and reducing the administrative drag on your accounting team. Implementation is as follows:

    • Comprehensive Tax Coordination: For clients utilizing our integrated tax coordination services, we’ll be sending summaries directly to you and your CPAs. No action is required.
    • Independent Tax Services: For clients managing their own accounting flow, your summary will be securely sent over to you if you have any notable actions.

    Deep Dive

    Engineering a Personal Endowment

    As countless modern philosophers (both academic ones and the armchair variety) have pointed out, two of the hardest addictions to overcome are carbohydrates and a steady paycheck.

    The pretzels, frozen waffles, and assorted cookies that we regularly refill at the Kangpan household present no argument against the addictiveness of carbohydrates.

    Let’s talk about the monthly salary.

    I spent almost two decades in the corporate world, the latter half mostly as a C-level executive. I always had a proclivity for investing and financial planning so I was diligent over the years in contributing a fixed percentage of my salary to my family’s portfolio. This allowed me to “retire” from the corporate world before 40.

    However, the strategies that work during accumulation aren’t necessarily the same ones that should be used when switching gears to living off your portfolio.

    Low-cost, broad stock indexes with selective exposure to various factors are a great way to build your portfolio while you’re in accumulation mode. These were a core part of my strategy for building my own asset base and they form the foundation for many of Kangpan & Co.’s growth-focused clients.

    But predictability, stability, and the preservation of assets are what’s important when you are living off investments. 

    A traditional stock and bond portfolio doesn’t check those boxes as the inflationary 1970s, the 2008 GFC, the synchronized drawdown in 2022, and many other events have repeatedly shown. 

    These major shock events are incredible opportunities for buying when you have a steady wage to invest into the market. But they create significant sequence of returns risks for anyone living off their investments.

    Volatility aside, I also knew I didn’t want a strategy that involved steadily selling the assets I had accumulated. When you spend twenty years or more building up a nest egg via a steady paycheck, it is very difficult to suddenly shift into selling the family jewels to support a post W-2 life.

    This means I needed to engineer a portfolio strategy that:

    • Generates a predictable income across economic cycles
    • Grows that income steadily over time
    • Protects the underlying assets against common economic shocks

    Essentially, I developed a portfolio strategy that was modeled after how large universities manage their endowments – a Personal Endowment that provided a synthetic, growing income to replace the one I was stepping away from.

    This Personal Endowment portfolio is primarily made up of the following strategies:

    • Quality-Tilted Equity Income: Companies across a diverse set of industries and geographies that have steadily increasing cashflows, established distributions, and conservative payout and debt ratios.
    • Real Assets: Real estate and infrastructure that generate contractual revenue tied to inflation escalators. 
    • Alternative Credit: Private and senior-secured loans that are primarily floating rate in nature that help smooth the rate sensitivity of the portfolio.
    • Economic Hedges: A mix of uncorrelated assets such as managed futures, cash, gold, etc. that help shield the portfolio against major economic shocks. These form the basis of Kangpan & Co.’s Guardian strategy used across many client portfolios.

    The exact mix of these assets can vary throughout the economic cycle but I generally aim for a balanced mix of yield and yearly growth of that yield. This allows the portfolio to generate a livable, diversified income today and a steadily increasing cashflow that aims to outpace inflation over time.  

    So how’s it going?

    So far this strategy has done exactly what I wanted it to do.

    I designed this Personal Endowment style portfolio because I wanted a stochastic (random) market to support a more deterministic (predictable) life. 

    It was important to me to be able to comfortably and reliably support my family through our investment portfolio when I left Kepler. This wasn’t because I wanted to retire, but because I wanted to be measured and intentional in how I pursued my second act.

    Not needing the income from Kangpan & Co. has allowed me to to focus on working only with clients I enjoy spending time with while supporting them the way I think a full service wealth manager should. I don’t need scramble to build assets and take on clients that aren’t a fit for the firm or compromise Kangpan & Co.’s integrity by accepting commissions for products. 

    I don’t care about being the biggest wealth manager, I want to be the best for the client partners whom have entrusted their family’s future with my firm. My portfolio strategy gives me the absolute independence from outside pressures to focus on that goal.

    If you are interested in looking at the math of supporting a career pivot or retirement with a customized Personal Endowment strategy, let’s sit down and run your specific numbers together. 

    Food for Thought

    A collection of articles or books I’ve read that might be interesting to many of you.

    • The AI Debt Boom Does Not Augur Well for Investors via the FT: A reminder that capital-intensive infrastructure booms have historically had permanent, transformative effects on the broader global economy and human behavior…. but can create short to medium term investment pain if the capital cycle turns. As the FT notes:

    “History rarely rewards lenders who finance capital-intensive growth booms at their peak. In the late 1990s, telecoms companies borrowed heavily to lay fibre-optic cables, confident that data demand would ensure adequate returns. Although the infrastructure transformed the economy, it generated little return on investment for years.”

    • The Ultimate Dividend Playbook by Josh Peters: For anyone interested in learning more about income-centric investing (a least in terms of equities). This is a solid primer on assessing the quality and sustainability of payments from publicly traded firms. The appendix also provides a great series of briefings on investing in various industries like utilities, REITs, and more. I don’t agree with all the valuation methods but the book provides a strong foundation from which to expand.

    Thank you for the continued partnership and for the opportunity to help steer your family’s capital toward what matters most.

    Nathan
    Founder & Lead Advisor

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    Disclosures: This content is for educational purposes only and is not investment, tax, or legal advice. No post is an endorsement of any particular strategy or security. The Personal Endowment is a conceptual investment framework customized to each client and does not represent a specific fund or guaranteed outcome. Asset allocation and yield targets are subject to market volatility. We do not receive any direct payments or commissions for securities discussed in our posts. Employees and clients of Kangpan & Co. may hold positions in securities discussed in posts. Speak with a licensed tax, legal, or financial advisor before making any changes to your investments or financial strategies. Past performance is no guarantee of future returns. Investing involves risk including the loss of capital.

  • What is Tax-Efficient Asset Location?

    Tax-efficient asset location is the practice of placing each investment in the account type where it receives the most favorable tax treatment. High-yielding assets taxed as ordinary income like bond funds belong in tax-advantaged accounts like IRAs and 401ks. Lower-yielding assets with preferential tax rates like stock index funds belong in taxable accounts.

    For a high-earning couple in a high tax state with $1.7M invested, getting this right could be worth $6,370 per year in tax savings without changing a single investment they own. Here’s exactly how it works.

    The Detailed Math Behind Asset Location Tax Savings

    Here are the assumptions for this example:

    • John and Jane are a high-earning couple in their late-30s working and living in California
    • They have a combined income this year of $832,000 putting them in the 37% Federal and 10.30% CA state tax brackets (assuming they will file Married, Filing Jointly). We’ll hold off on local taxes for this example.
    • The couple have $790,000 spread across various Traditional IRA and 401k accounts and $915,000 in taxable investment accounts
    • John and Jane know the basics of personal finance and hold a diversified 60/40 stock and bond allocation within each of their investment accounts (i.e. they have a 60/40 split in their 401k plans, a 60/40 split in their brokerage investments, etc.)

    We’re going to spend the rest of this post examining how shifting assets across John and Jane’s various portfolios will help them reduce their overall tax drag. Instead of using a 60/40 allocation within each investment account they have against, we will look at all their investments in aggregate in order to determine a more tax-efficient strategy across their accounts.

    To simplify this analysis we will:

    • Focus just on the impact of taxes on the dividends or distributions from investments
    • Treat all qualified accounts as one portfolio which we’ll called Tax-Advantaged Accounts and all taxable accounts as another portfolio which we’ll call Taxable Accounts
    • Use a portfolio mix of 60% stocks represented by Vanguard’s S&P 500 Index (ticker: VOO) and 40% bonds represented by iShares’ Core US Aggregate Bond Index (ticker: AGG). While we don’t default to a 60/40 for our clients, it serves as an illustrative common reference point across examples we provide.
    • Assume the same funds are available to an investor in both their Tax-Advantaged Accounts and their Taxable Accounts

    Table 1: Yield and Tax Rates for High-Earning CA Couple For VOO and AGG

    Vanguard S&P 500 Index (VOO)iShares Core US Aggregate Bond Index (AGG)
    30 Day SEC Yield11.16%4.18%
    Taxes on Yield:
    Federal220.0%37.0%
    State310.3%10.3%
    NIIT43.8%3.8%
    Effective Tax Rate34.1%51.1%

    1. As of August 31, 2025 for VOO and September 18, 2025 for AGG
    2. Simplified assumption for this analysis that all VOO dividends are qualified while no distributions from AGG are qualified
    3. CA levies flat 10.3% tax rate at this income level across all dividends and distributions
    4. Assuming this couple will pay Net Investment Income Tax (NIIT) based on income

    Optimizing Asset Location means taking into consideration two key traits of these assets that should be clear from the above:

    • First, qualified dividends from stock index funds such as VOO are generally taxed at a lower Federal rate than distributions from bond funds. For John and Jane’s income level that means a 20.0% rate for qualified dividends and 37.0% rate for bond fund distributions.
    • Second, the dividend yield of 1.16% on VOO is much lower than the 4.18% on AGG. In other words, there is less taxable income coming out VOO overall than AGG per dollar invested.

    Our path to optimization is clear… move as much of the higher-taxed, higher-yielding asset into Tax-Advantaged Accounts (such as IRAs and 401k plans) while moving as much of the lower-taxed, lower-yielding asset into Taxable Accounts.

    We’re going to assume John and Jane currently hold a 60% stock and 40% bond mix within each of their accounts which gives us the following split of assets and taxes between their Tax-Advantaged Accounts and their Taxable Accounts:

    Table 2: Non-optimized, Consistent 60/40 Within Accounts:

    Distributing assets in a 60/40 split consistently within each of their accounts results in John and Jane paying ~$9,990 in taxes on the dividends and distributions they receive from their investments.

    Now let’s look at what would happen if we optimize the portfolios for Asset Location by shifting as much of our bond mix into the Tax-Advantaged Accounts as we can while keeping the overall mix of stocks and bonds across accounts at 60/40. We’re making this shift because bonds both yield a higher income per dollar invested and are taxed at a higher rate than the stocks in our portfolio so we want to .

    We now have the following results after redistributing assets across portfolios:

    Table 3: Optimized, 60/40 Across Accounts

    We’ve put all our bond holdings into the Tax-Advantaged Accounts boosting the share of bonds within those accounts to 86% (but keeping the total share of bonds across all accounts at 40%). We still have some stocks within our Tax-Advantaged Accounts, but our Taxable Accounts are now comprised 100% of lower yield, lower tax stocks. The total amount of pre-tax income we’re receiving from our investments in the form of dividends and distributions remains unchanged, but we’re keeping much more of the after-tax value of that income.

    The net effect of this swap is a decrease in taxes paid on income from our investments from $9,989 a year down to $3,619. This is a decrease of $6,370 just by being a bit more intentional with how we approach allocating our assets across different types of accounts.

    As we mentioned earlier, this is just a basic, illustrative example to show how more thoughtful asset location can benefit investors. In the real world, we would likely be doing this across a larger range of assets, account for the costs of reallocation, consider unique needs a client may have for a particular account, etc.

    Are There Tax Leaks in Your Portfolio Strategy?

    If you found this content helpful:

    • Follow our twice-monthly Substack for investment, tax, and life planning strategies like this delivered directly to your email
    • Contact Us for a complimentary 30-minute Portfolio Efficiency Diagnostic to quantify the potential impact of tax location and other tax-efficiency optimizations may have on your portfolio.

    Disclosures:
    This content is for educational purposes only and is not an investment recommendation. This is not tax or legal advice. We receive no direct compensation from any of the funds discussed. Employees and clients of Kangpan & Co. may hold investments discussed in this article. Speak with a licensed financial advisor before making any changes to your investments. Past performance is no guarantee of future returns. Investing involves risk including the loss of capital.

Kangpan & Company LLC is a Registered Investment Advisor with the state of Pennsylvania. All content on this site is for educational purposes only and should not be considered financial advice. Past performance is not indicative of future returns and all investing involves risk including the loss of capital. Individualized responses to persons in a particular state will only be made after complying with all regulatory requirements of that state. Kangpan & Company LLC is not responsible for the content of external websites linked from this site. For a full description of our services, fees, and other important information, please read our Form ADV Part 2A, which are available on the SEC’s website here.