Erik Smolinski built his wealth in the stock market.
He started trading stocks as a teen in 2007 after a teacher recommended he invest the money he was making working odd jobs.
Over his 16-year trading career, he’s only posted two negative years: his first two years, 2007 and 2008.
“Since then, my lowest return has been 13.78% in 2018,” the 32-year-old California-based Marine vet told Business Insider.
Between 2018 and 2022, Smolinski returned 24.6% on average, which Insider verified by looking at screenshots of his summary statements. The S&P 500 index averaged nearly 12% over the same period. His strongest year was 2013, when he returned 52%. Insider also verified that he had a seven-figure account balance as of September 2023.
While the stock market is his bread-and-butter, he’s been gradually diversifying his portfolio and adding real estate in the mix.
He bought his first property, a primary residence, in 2015. A year later, he sold that home and moved into his current house in Encinitas, California. His first investment-specific property was a rental in Fort Lauderdale, Florida that he acquired with a friend in 2016, he said. His friend ended up buying him out and turning the rental into a primary residence.
He’s also funded a few flips, he said. He found that, with house flipping, “the margins aren’t always super great,” so he never tried it himself and stuck to acting as a money lender.
About two years ago, Smolinski broke into the commercial real estate investing space. He currently has a majority stake in three properties — student housing outside of Arizona, a ski resort outside of Las Vegas, and a pair of golf courses in Arizona — which Insider verified by looking at promissory notes and subscription agreements.
Having experimented with a few different types of real-estate investing over the last eight years, he’s found that commercial real estate, while expensive to get into, can generate returns that are “insanely, insanely lucrative.”
Smolinski prefers commercial real estate deals that come with an operating business, like a ski resort or golf course — rather than owning a commercial building and leasing it to tenants — because the returns are three-fold: “You will have a preferred return. The second source of income is the cash flow, so whatever percentage you are of the deal, you will rate a certain cash flow based on that. And then there’s also appreciation of the property itself and the business itself.”
Gradually putting more of his money into real estate: ‘If it makes dollars it makes sense’
As for asset allocation, Smolinksi estimates that he’s currently close to 50-50, with half of his portfolio in the stock market and the other half in real estate.
He recognizes that just because he has more than a decade of trading experience and a strong track record doesn’t mean that’s the only way he should invest.
Markets change and “are becoming increasingly efficient,” he said. “I don’t think we’ll ever get to a point where markets are purely efficient, but they get to be efficient enough that it starts to decrease my lunch money.”
That didn’t happen this year: As of late November, Smolinski predicted that 2023 will be his best year yet for stock-market returns.
“That’s because we’ve gotten some really good market action,” he said. “But just because things are very good right now, I’m not nearsighted enough to think that I’m going to just stay in this.”
His real-estate holdings diversify his portfolio. He’s no longer dependent on one source of returns, which lowers his overall risk.
“The stock market could close because of a global war and I’m not illiquid; I have money in some of these other things,” he explained. “There could be a terrible college year where enrollment in the student housing place is doing awful, but that’s okay because people are still golfing and skiing.”
Besides further diversifying his portfolio, Smolinksi’s real-estate holdings are producing good returns, he added — and, at the end of the day, his investing philosophy is, “if it makes dollars it makes sense.”
While he’s happy with his 50-50 allocation right now, he’s not afraid to make changes in the future.
“I will maintain this position until things start to change: If all of a sudden the commercial real estate has a bad three-year run, okay, I will reallocate. If the stock market is starting to slow down and I’m not able to produce what I want to produce, okay, time to start moving more and more into commercial real estate,” he said. “It’s a sliding scale for me. While I am a trader at heart, I am committed more to the broader business of making money than to which vector it’s done through.”