Manafort indicted for keeping money overseas that he did not report, among other reasons. Just a fact to bear in mind, as one of the points suggests keeping cash overseas
I mainly disagree with the first rule. Your career should not provide your wealth. Your career should keep your bills paid, provide security for the future, and allow you to live a comfortable life. Investments in financial endeavors like real estate, businesses, stocks, etc, education, and family is what provides wealth.
Update: Not sure why this post is getting downvoted? A career provides MONEY not WEALTH. There is a big difference. It is up to you to convert that money into wealth
> Where does the money for those things come from, if not your career?
The money to fund wealth building ventures comes from having a stable career. However, the act of having a career does not build wealth as the rule implies.
Arguing that "your career provides your wealth" isn't valid because "you use the money from your career to build your wealth" is like arguing "father provides my food" isn't valid because he actually just gives mother the money to buy the food.
Pointless. You're arguing semantics, and pretty meaningless semantics at that.
And how, exactly, does one embark upon an endeavour such as owning real estate, starting a business, buying stocks, acquiring education, or starting a family?
For almost every single person, the main source of their wealth will be their career.
Unless you are planning on inheriting more money than you expect to make from your career from your extremely wealthy parents, you're going to have to accept Rule #1.
And if you borrow money to accomplish these things, you are in violation of Rule #7, don't use leverage.
> And how, exactly, does one embark upon an endeavor
By using the money earned from your career to fund ventures. A stable career should provide you with money to build wealth. However, simply working a 9-5 everyday will not provide wealth as the rules implies. It provides money, not wealth. There is a difference
But you don't need to replace your salary, just cover your expenses :-).
For example, if you can save ~96% of your gross income and safely draw 4% from your investments, you can cover your expenses after only a single year. (Of course, you will never save 96% of your gross income, due to taxes.)
Many people are downvoting you but you're right. Browne is implying that your investment returns will not outpace your career earnings. This may not be true at all, with compound interest over a lifetime.
For a contrived example, let's make the following assumptions:
1) There is no inflation.
2) Your capital investments always return 5%.
3) Your salary is $100,000 and does not change.
4) You are able to save 50% of your income and invest it.
At year 0, you are worth the equivalent of $2,000,000 invested. It won't be until year 40 that your investments are returning the same amount as your starting salary. Presumably, you plan to retire sometime around year 45 (~65-ish).
Thing is, there is inflation, a 5% return isn't guaranteed, your salary will probably increase, and saving 50% is pretty ambitious. All of these things actually make it harder to get a better return than your salary.
It is incomplete because: presumably you do not die immediately upon retirement. A 30 year retirement would see your investments compound for an additional 30 years after your career income stream ceases. This can dwarf the $2M total you save over a 40 year career at $50k/yr.
It is incorrect because even after the 40 years your net worth is $6.5M on gross lifetime earnings of $4M.
I think this bit from the article sums up the intent of rule #1:
> Your investments can make your future more secure and your retirement more prosperous. But they can't take you from rags to riches. So don't take risks with complicated schemes in the hope of multiplying your capital quickly.
He wasn't making a statement about how to become wealthy, instead, he was trying to warn you against get rich quick schemes.
He would probably consider endeavors like real estate investing a part of your career.
What advantages do index ETFs have over a comparable index mutual fund against the same benchmark?
Or, to ask another way, is there any reason to prefer anything other than Vanguard's Index500 vs anything else attempting to replicate the SP 500? (I call out the Vanguard fund because the fees are very low, .14% iirc.)
As others have mentioned, there isn't really much of a difference (apart from fees) when you're thinking about it as a vehicle for long-term holdings. Most of the time, 401k plans will not let you hold ETFs - they only let you hold mutual funds. Mutual funds usually can't be traded intra-day. You place your order and they buy/sell at the stated NAV on the close. ETFs can normally be traded intra-day. Again, ex-fees irrelevant to a truly long-term buy-hold-rebalance portfolio.
Mutual funds: recurring investment of any dollar amount (fractional shares). Minimum initial investment required. Trade once per day, beware loads, fees, and expense ratios
ETFs: buy or sell one or more whole shares, trade throughout the day, beware trading commissions and expense ratios.
ETFs trade mid-day instead of just end of day. You can only buy unit shares (but the unit price is typically far lower than mutual fund minimums). Those are really the only differences I know about.
Just for context, this is from Harry Browne, who was famously (and perhaps not entirely fairly) labeled as a "gold bug" throughout his career. He was something of a hero figure among those who subscribe to Austrian economic theory, and actually the candidate for the US Libertarian party for president several cycles back.
Off-topic (?) from that article, I'd be interested to hear what he would have made of the current cryptocurrency craze, given his views on gold, inflation, and portfolio stability.
"There's nothing wrong with speculating — provided you do it with money you can afford to lose. But the money that's precious to you shouldn't be risked on a bet that you can outperform other investors."
Edit: Rule #12 addresses it more directly: "Speculate only with money you can afford to lose."
I've just read his self help book "How I found freedom in an unfree world", interesting approach, hardcore libertarian. I think he would like the decentralised aspect of crytocurrency.
Agree, I'm a software engineer with naturally pretty good pay, yet I'm always broke. It's 99% to blame on my spending habits, which have increased equally with the increase of my salary over the years. A problem I am, and everyone should, aim to fix.
Actually, cash flow beats cash. Cash is also a liability but a large enough steady source of income is very hard to beat. That's one reason why so many people that have cash try their hardest to turn it into a stream of recurring revenue that they can then live of without hurting the principal.
Actually from a financial perspective, wealth is assets you own (equivalent to equity + liability). People with high net income should be investing as much as possible to let the money flow in the market. If everyone saves with no intention to invest/spend, it would potentially result in a stagnant economy.
How exactly is this possible? I am a german citizen and resident, and after hours of reaearch a few months ago i couldn’t find ONE bank in the world I could open a bank account with. I always have to be at least a resident. Did anybody figure this out?
My partner is from Canada and I would love to park some money there, but I couldn’t figure out a way to do so.
Browne wrote this at at time when regular people holding international accounts was no big thing. Also, he was quite wealthy himself, so I'm not sure he had any idea what "regular people" could do or not do since most of those firms would laugh you out the door if you wanted to park $10K there.
The powers that be don't want any of us to be financially stable. They want us powerless and broke, while they themselves enjoy all the benefits of international mobility and freedom from taxation and accountability. Same as it ever was.
True it could, but theoretically the price should always go up. Plus there's risk in anything. I'd have thought that placing money in a foreign country is also pretty risky if you're not a citizen
The price you can sell an asset for is whatever someone is willing to pay, on that day. If sentiment turns and everyone is selling bitcoin, the price will most definitely not be going up.
A benefit of using a foreign bank as opposed to bitcoin is if my home country's bank accounts get frozen for whatever reason, I will need money to keep myself from being homeless.
Bitcoin isn't liquid enough for me to trust it for emergencies. If I needed to pay for a hotel or a plane ticket, the process of translating that to cash, then a pre-paid VISA card is way to complicated and probably expensive.
Plenty of banks that don't need citizenship. I'm an Estonian, I live in Estonia, I work in Estonia, but my banking is done via N26 (German bank) and Monese (UK bank), both of which I opened within a day with simply proof of ID.
Times were different when Browne was practicing and refining his system. His book Fail-safe Investing talks about using Swiss banks and holding gold there. My understanding is today the Swiss don't want to deal with the headaches that come with servicing customers from countries that demand so much reporting.
One way is via the Perth Mint in Australia. They need a copy of your passport and take the money by wire to an American account, but as far as moving some money somewhere else you can do it.
Within the EU you should be able to open a bank account without large problems. Either they offer that already or you can request a basic account if you don't have an account yet in their country (which is not always great, it pays to shop around). Sometimes it takes a bit of work and pressure. I opened a Dutch account right from my smartphone within minutes. Other people I know are customers at an Irish bank (even though they officially state that you need Irish residence) because it enables them to use Apple Pay in Germany.
Most Chinese banks will open an account even on an 24-hour transit stamp (it usually helps to speak some Mandarin). Hong Kong is another possibility and will probably get you better service. Same with Vietnam, Pakistan, and lot of others countries. Some US banks will open an account for non-residents as well.
You're right with modern money laundering rules and tax info sharing its rare to be able to open bank accounts for non-residents. If you want to hold CAD you're probably best to get an investment account that will let you hold CAD. I know Interactive Brokers will do this, but maybe some local brokerage will too. Probably Swiss Banks will have accounts with a variety of currencies for German residents if you look there.
Also checkout Harry Browne's Permanent Portfolio if you want a passive investment strategy that yields similar results to a buy-and-hold index fund with much less volatility.
That's right. It's designed that way on purpose. A 30% decline in VTI will likely have no bearing on the other asset classes. Best case: the other asset classes overcompensate in value (see volatility harvesting) offsetting the crash. Worst case: you re-balance with a portion of the 25% cash you have on hand. As a concrete example, look at what this portfolio did in 2008.
You miss my point. You can't claim to replicate an index fund by investing 25% in that index fund and then not even attempting to do so with the other 75%. It's a simple false claim.
Oh the similar yield comes from back testing a 30 year period for this portfolio compared to S&P500. Both have roughly the same CAGR yet the permanent portfolio has an amazing Sharpe ratio (risk adjusted return).
> Your investment plan should be aimed, first and foremost, at preserving what you have—preserving it from investment loss, government intervention, or mismanagement.
The advice is decent and normal, but I really love how regular advice is "colored" with libertarian perspectives.
May as well replace "libertarian" with "global" or "historical".
See hyper-inflation (e.g. Germany in early 20th century and others now) or government takings like Zimbabwe confiscating farms.
If you think it can't happen in a modern democracy, see https://en.m.wikipedia.org/wiki/Executive_Order_6102 where the US outlawed private ownership of gold in 1933 to enable debt reduction by devaluing the currency.
It's just being practical. Governments mismanage their economies, seize the assets of innocent people, etc. If you're serious about preserving your wealth, government intervention should factor into your decisions.
Governments also manage their economiies, but he doesn't say "be sure to expose your fund to the benefits of government intervention", so he's clearly biased. He advocates putting 25% in T-bills while also insinuating that the government is only a source of trouble.
That should tell you something about his approach. A staunch libertarian advocates investing half your portfolio in government securities. My conclusion: his investing approach is divorced from his politics (as it should be).
Rule #2: Don't assume you can replace your wealth.
The fact that you earned what you have doesn't mean that you could earn it again if you lost it. Markets and opportunities change, technology changes, laws change. Conditions today may be considerably different from what they were when you built the estate you have now. And as time passes, increasing regulation makes it harder and harder to amass a fortune.
> Rule #11: Create a bulletproof portfolio for protection.
> The portfolio should assure that your wealth will survive any event — including an event that would be devastating to any individual element within the portfolio. In other words, this portfolio should protect you no matter what the future brings.
> It isn't difficult or complicated to have such a portfolio this safe. You can achieve a great deal of diversification with a surprisingly simple portfolio.
What could such a portfolio be? Cash in a savings account? (Genuine question from an investment novice -- I always thought any investment was risky to some extent).
HB's Permanent Portfolio consists of 25% each cash/gold/stocks/long term bonds
25% stocks (index fund) Stocks – for profit during periods of general prosperity and/or declining inflation.
25% Gold – for profit during periods of bad inflation; during inflationary episodes gold bullion provides protection against a falling currency and other potential problems.
25% Long Term Bonds (30 year) – for profit during periods of declining interest rates; and especially during a deflation. Bonds also do reasonably well during prosperity.
25% Cash – During a recession, no particular asset class is going to do well. The cash in a Treasury Money Market Fund offers stability when portfolio asset classes fall in price. It also protects purchasing power during a deflation.
That percentage has been and will be debated forever, even by proponents of the Browne PP model, but 4x25 has done well as recently as the past two decades.
Also the exact number is not all that critical. Earlier versions of Browne’s portfolio were more complicated and he simplified it to 4x25 later on, still allowing that people could tweak it if they must. But 4x25 is simple and works.
The first rule is to inherent the money. The second is to be born into a network that benefits you and doesn't punish you arbitrarily. The third rule is to profit from a strong public infrastructure, and then once you've achieved enough wealth, work tirelessly to defund it through tax cuts.
This guy's a mug. And anyone who thinks financial security for one is something that can be done independent of a community is full of it, or a hustler protecting previously accrued assets.
>And anyone who thinks financial security for one is something that can be done independent of a community is full of it, or a hustler protecting previously accrued assets.
???
So you are saying the people who make money, and are frugal, would not be able to get to "financial security"? I'm a sample size of 1, but I seem to be doing just that "on my own".
I don't think financial security is as tied to your independent actions as you seem to think. No matter how frugal you are, the best option for financial security is investing in the infrastructure and community you live in.
I don't know how much money you have, but if you or your family had a life-long expensive disease, can you say that given the current medical coverage offered at the current prices, you would be financially secure?
It's not a criticism to your ability to save or manage your money. Please dont' take it that way :)
You're trying to make this article more of a social policy commentary than it is.
Having a "life-long expensive disease" is like the inverse of Rule #12, where you've already lost the lottery. Now, this wouldn't even be a problem in Canada, but it'd be pretty moot to put in a rule about that.
The point is, this article isn't "these are the ingredients for being rich", it's "What reasonable guidelines can you follow to maintain any wealth that you manage to accrue?"
The context was "rich people went bankrupt, whaaaaat?" and the article is "well, they must have violated one or more of the following rules in a big way!"
25% cash is ludicrous and irresponsible. Cash has historically been a terrible 'investment', especially since most central banks have maintained a policy of creating annual inflation.
One can do that with treasuries or T-bills which historically have earned a real return. In a crisis one often finds that treasuries are negatively correlated with equities which can be a boon.
Bonds are better suited for that purpose, however it's still preferred to just hold stocks over the long term. Holding bonds provides stability at the expense of drag.
Or you could apply the deep understanding you gained from the article to untangle the misconception you believe the parent was harboring, rather than ask everyone, on faith, to spend fifteen minutes figuring it out for themselves, when they might not even get the insight you want them to.
>Harry's 25% cash isn't dollar bills, it's treasury bills, which have held up to inflation.
Short-term ones haven't for last ~10 years, especially if it's a taxable account.
The argument of the OP almost exactly fits this lead in to the article:
> I hear some version of this argument all the time: The opportunity cost for holding cash is too high. It earns virtually nothing, and you’re guaranteed to lose money to inflation. Just get over your fear and buy stocks!
I get that the article promises to refute what the OP said, but if it really provided a relevant insight, you should be able to summarize the insight so as to contribute to the current discussion and let others know whether they've already heard the argument, or what crucial assumptions it makes, and whether the refutation really gets at the core point of the parent's objection (or is just nitpicking). And save the thousand people 15 minutes of figuring it out.
It would be much more helpful to say something like "having an investment of stable value can decrease the volatility of the returns as you balance in and out during the market ups and downs, and improving the risk-adjusted returns, which back-testing can demonstrate". (I don't know if that's what it said, but that's an example of contributing the insights back to the discussion.)
And if the article really did provide insight, wouldn't it be easy to produce a paragraph like the above?
I appreciate you schooling me on how to better contribute to the discussion. This was my attempt at what you're discussing (admittedly appended perhaps after your initial comment):
> Harry's 25% cash isn't dollar bills, it's treasury bills, which have held up to inflation.
OP seemed to be under the misconception that cash meant dollar bills under the mattress. The article addresses this in the section beginning "To explain, I think it helps to start with the definition of cash..."
OP seemed to be under the misconception that cash responds poorly to inflation, which the article also addresses.
If your only point is that "cash" includes short-term T-bills, then
1) What else is the article adding? The fact that it (historically) yields something above inflation was enough to refute the OP's implied claim about negative real returns.
2) That wouldn't address the OP's point that they still have a low RoR for a long-term portfolio.
3) As in my comment it wouldn't refute that T-bills haven't kept up with inflation recently.
If the article's point is about how balancing into/out of a stable investment can improve portfolio return, then that would warrant a summary in your comment.
Sorry if my comments come off as mean. I'm trying to convey why a giant article might not be helpful to resolving the disagreement.
My points were that cash includes short-term T-bills, and that they have held up to inflation, both points addressed in the article I linked.
> Sorry if my comments come off as mean.
You're not coming off as mean. I can tell you're genuinely trying to improve the discussion here, and you reminded me that when I'm replying to someone, the audience is wider than just that person. Thanks.
Berkshire Hathaway currently has a $100 billion cash stockpile. There have been multiple times in Mr. Buffett's career when he waited for better investment opportunities by holding cash. Besides, cash isn't so bad. If you roll over short-term Treasury bills, you basically keep up with inflation.
Most of these look great. I am somewhat skeptical of Rule #8 about not giving anyone signature authority. Maybe he means this in a narrow sense that I don't understand, but when you have your money being managed for you, trades are being made on your behalf, you aren't doing them yourself. This is true from robo-advising all the way up to private banking and family funds.
He would argue against having your money managed for you. He wouldn't be against working with an advisor, but he'd want the advisor to explain things to you so that you can execute on your own behalf.
That'd be fine if I could do the trades my banker does for me, but I can't. I know this isn't a problem most people have, but this advice is unimplementable without costing me real money (I'm sure he would advocate lowering the cost basis, although strangely he doesn't say much about that).
I'm a complete financial idiot. As in, I only have money on a government-guaranteed fund in my bank.
Where do I start to know more about this? I dont want it to stress me out though, Im not so risk adverse when it comes to my finance. I spend very little, but I want to learn more about investing.
Any advice? More specifically for people living in EU?
/r/personalfinance is a really good way to get going. It's generally US focused, but I think there are some European focused subs as well. Once you've got a grasp of some of those investing discussions, move on to /r/financialindependence and /r/investing.
Investing doesn't have to be a scary beast, just go one step at a time. I'd suggest starting your studies by reading about asset allocation and expense ratios on mutual funds. Asset allocation will cover how bonds, stocks, and cash behave in various economic situations. Expense ratios are good to understand because they can have a huge effect on how much money you have down the line.
Them look into active versus passively managed funds.
Notice I haven't mentioned picking an individual stock yet. If you're risk adverse and getting into things, I'd highly recommend sticking with low cost index mutual funds. E.g. An S&P500 fund will give you almost exactly what the "overall stock market" would get without the guilty feelings of "I probably picked wrong and I'm screwed now".
Bogleheads is also really good (as mentioned below).
117 comments
[ 3.5 ms ] story [ 130 ms ] threadHe specifically went out of his way to say NOT to try elaborate overseas schemes to avoid paying taxes.
I mainly disagree with the first rule. Your career should not provide your wealth. Your career should keep your bills paid, provide security for the future, and allow you to live a comfortable life. Investments in financial endeavors like real estate, businesses, stocks, etc, education, and family is what provides wealth.
Update: Not sure why this post is getting downvoted? A career provides MONEY not WEALTH. There is a big difference. It is up to you to convert that money into wealth
The money to fund wealth building ventures comes from having a stable career. However, the act of having a career does not build wealth as the rule implies.
He was saying that the initial source of the funds that you use to build your wealth will come from your career.
Unless of course you're lucky enough to inherit those funds, but if that's the case, you already know it.
Pointless. You're arguing semantics, and pretty meaningless semantics at that.
For almost every single person, the main source of their wealth will be their career.
Unless you are planning on inheriting more money than you expect to make from your career from your extremely wealthy parents, you're going to have to accept Rule #1.
And if you borrow money to accomplish these things, you are in violation of Rule #7, don't use leverage.
By using the money earned from your career to fund ventures. A stable career should provide you with money to build wealth. However, simply working a 9-5 everyday will not provide wealth as the rules implies. It provides money, not wealth. There is a difference
For example, if you can save ~96% of your gross income and safely draw 4% from your investments, you can cover your expenses after only a single year. (Of course, you will never save 96% of your gross income, due to taxes.)
1) There is no inflation.
2) Your capital investments always return 5%.
3) Your salary is $100,000 and does not change.
4) You are able to save 50% of your income and invest it.
At year 0, you are worth the equivalent of $2,000,000 invested. It won't be until year 40 that your investments are returning the same amount as your starting salary. Presumably, you plan to retire sometime around year 45 (~65-ish).
Thing is, there is inflation, a 5% return isn't guaranteed, your salary will probably increase, and saving 50% is pretty ambitious. All of these things actually make it harder to get a better return than your salary.
It is incomplete because: presumably you do not die immediately upon retirement. A 30 year retirement would see your investments compound for an additional 30 years after your career income stream ceases. This can dwarf the $2M total you save over a 40 year career at $50k/yr.
It is incorrect because even after the 40 years your net worth is $6.5M on gross lifetime earnings of $4M.
> Your investments can make your future more secure and your retirement more prosperous. But they can't take you from rags to riches. So don't take risks with complicated schemes in the hope of multiplying your capital quickly.
He wasn't making a statement about how to become wealthy, instead, he was trying to warn you against get rich quick schemes.
He would probably consider endeavors like real estate investing a part of your career.
Or, to ask another way, is there any reason to prefer anything other than Vanguard's Index500 vs anything else attempting to replicate the SP 500? (I call out the Vanguard fund because the fees are very low, .14% iirc.)
Vanguard's prices are great, especially if you get into their top-tier $10,000+ accounts. But ETFs are competitive against Vanguard in my experience.
Of course, Vanguard also offers low-cost ETFs. As long as you go with a mainstream option, I don't think you can go wrong.
Mutual funds: recurring investment of any dollar amount (fractional shares). Minimum initial investment required. Trade once per day, beware loads, fees, and expense ratios
ETFs: buy or sell one or more whole shares, trade throughout the day, beware trading commissions and expense ratios.
Off-topic (?) from that article, I'd be interested to hear what he would have made of the current cryptocurrency craze, given his views on gold, inflation, and portfolio stability.
"There's nothing wrong with speculating — provided you do it with money you can afford to lose. But the money that's precious to you shouldn't be risked on a bet that you can outperform other investors."
Edit: Rule #12 addresses it more directly: "Speculate only with money you can afford to lose."
`Rule #9: Don't ever do anything you don't understand.`
I feel like this could apply to a lot of cryptocurrency evangelists (not all of course).
Wealth is what you save, not what you earn or what you spend.
There are many people with very high income but spending as high (or even higher!), so they have little or no wealth.
So to summarize:
Use your career income to accumulate wealth that will provide your income without your career.
How exactly is this possible? I am a german citizen and resident, and after hours of reaearch a few months ago i couldn’t find ONE bank in the world I could open a bank account with. I always have to be at least a resident. Did anybody figure this out?
My partner is from Canada and I would love to park some money there, but I couldn’t figure out a way to do so.
The powers that be don't want any of us to be financially stable. They want us powerless and broke, while they themselves enjoy all the benefits of international mobility and freedom from taxation and accountability. Same as it ever was.
The price you can sell an asset for is whatever someone is willing to pay, on that day. If sentiment turns and everyone is selling bitcoin, the price will most definitely not be going up.
Bitcoin isn't liquid enough for me to trust it for emergencies. If I needed to pay for a hotel or a plane ticket, the process of translating that to cash, then a pre-paid VISA card is way to complicated and probably expensive.
One way is via the Perth Mint in Australia. They need a copy of your passport and take the money by wire to an American account, but as far as moving some money somewhere else you can do it.
I don't know what conditions they place on the residence location of their subscribers.
Most Chinese banks will open an account even on an 24-hour transit stamp (it usually helps to speak some Mandarin). Hong Kong is another possibility and will probably get you better service. Same with Vietnam, Pakistan, and lot of others countries. Some US banks will open an account for non-residents as well.
The other 75% has no relationship to them at all.
Tenses are important in investing.
The advice is decent and normal, but I really love how regular advice is "colored" with libertarian perspectives.
See hyper-inflation (e.g. Germany in early 20th century and others now) or government takings like Zimbabwe confiscating farms.
If you think it can't happen in a modern democracy, see https://en.m.wikipedia.org/wiki/Executive_Order_6102 where the US outlawed private ownership of gold in 1933 to enable debt reduction by devaluing the currency.
Rule #2: Don't assume you can replace your wealth.
The fact that you earned what you have doesn't mean that you could earn it again if you lost it. Markets and opportunities change, technology changes, laws change. Conditions today may be considerably different from what they were when you built the estate you have now. And as time passes, increasing regulation makes it harder and harder to amass a fortune.
> The portfolio should assure that your wealth will survive any event — including an event that would be devastating to any individual element within the portfolio. In other words, this portfolio should protect you no matter what the future brings.
> It isn't difficult or complicated to have such a portfolio this safe. You can achieve a great deal of diversification with a surprisingly simple portfolio.
What could such a portfolio be? Cash in a savings account? (Genuine question from an investment novice -- I always thought any investment was risky to some extent).
25% Stocks
25% 30 year treasury bonds
25% Cash
25% Gold
His book on the subject: https://www.amazon.com/Fail-Safe-Investing-Lifelong-Financia...
A more recent book: https://www.amazon.com/Permanent-Portfolio-Long-Term-Investm...
25% stocks (index fund) Stocks – for profit during periods of general prosperity and/or declining inflation.
25% Gold – for profit during periods of bad inflation; during inflationary episodes gold bullion provides protection against a falling currency and other potential problems.
25% Long Term Bonds (30 year) – for profit during periods of declining interest rates; and especially during a deflation. Bonds also do reasonably well during prosperity.
25% Cash – During a recession, no particular asset class is going to do well. The cash in a Treasury Money Market Fund offers stability when portfolio asset classes fall in price. It also protects purchasing power during a deflation.
Also the exact number is not all that critical. Earlier versions of Browne’s portfolio were more complicated and he simplified it to 4x25 later on, still allowing that people could tweak it if they must. But 4x25 is simple and works.
This guy's a mug. And anyone who thinks financial security for one is something that can be done independent of a community is full of it, or a hustler protecting previously accrued assets.
???
So you are saying the people who make money, and are frugal, would not be able to get to "financial security"? I'm a sample size of 1, but I seem to be doing just that "on my own".
You seem extra jaded here. What am I missing?
I don't know how much money you have, but if you or your family had a life-long expensive disease, can you say that given the current medical coverage offered at the current prices, you would be financially secure?
It's not a criticism to your ability to save or manage your money. Please dont' take it that way :)
Having a "life-long expensive disease" is like the inverse of Rule #12, where you've already lost the lottery. Now, this wouldn't even be a problem in Canada, but it'd be pretty moot to put in a rule about that.
The point is, this article isn't "these are the ingredients for being rich", it's "What reasonable guidelines can you follow to maintain any wealth that you manage to accrue?"
The context was "rich people went bankrupt, whaaaaat?" and the article is "well, they must have violated one or more of the following rules in a big way!"
Warren Buffett has some interesting things to say about this: https://20somethingfinance.com/warren-buffett-is-moving-100-... and http://www.barrons.com/articles/buffett-bonds-terrible-in-co... for example.
https://portfoliocharts.com/2017/05/12/understanding-cash-wi...
Harry's 25% cash isn't dollar bills, it's treasury bills, which have held up to inflation.
>Harry's 25% cash isn't dollar bills, it's treasury bills, which have held up to inflation.
Short-term ones haven't for last ~10 years, especially if it's a taxable account.
> I hear some version of this argument all the time: The opportunity cost for holding cash is too high. It earns virtually nothing, and you’re guaranteed to lose money to inflation. Just get over your fear and buy stocks!
It would be much more helpful to say something like "having an investment of stable value can decrease the volatility of the returns as you balance in and out during the market ups and downs, and improving the risk-adjusted returns, which back-testing can demonstrate". (I don't know if that's what it said, but that's an example of contributing the insights back to the discussion.)
And if the article really did provide insight, wouldn't it be easy to produce a paragraph like the above?
> Harry's 25% cash isn't dollar bills, it's treasury bills, which have held up to inflation.
OP seemed to be under the misconception that cash meant dollar bills under the mattress. The article addresses this in the section beginning "To explain, I think it helps to start with the definition of cash..."
OP seemed to be under the misconception that cash responds poorly to inflation, which the article also addresses.
1) What else is the article adding? The fact that it (historically) yields something above inflation was enough to refute the OP's implied claim about negative real returns.
2) That wouldn't address the OP's point that they still have a low RoR for a long-term portfolio.
3) As in my comment it wouldn't refute that T-bills haven't kept up with inflation recently.
If the article's point is about how balancing into/out of a stable investment can improve portfolio return, then that would warrant a summary in your comment.
Sorry if my comments come off as mean. I'm trying to convey why a giant article might not be helpful to resolving the disagreement.
> Sorry if my comments come off as mean.
You're not coming off as mean. I can tell you're genuinely trying to improve the discussion here, and you reminded me that when I'm replying to someone, the audience is wider than just that person. Thanks.
Where do I start to know more about this? I dont want it to stress me out though, Im not so risk adverse when it comes to my finance. I spend very little, but I want to learn more about investing.
Any advice? More specifically for people living in EU?
Investing doesn't have to be a scary beast, just go one step at a time. I'd suggest starting your studies by reading about asset allocation and expense ratios on mutual funds. Asset allocation will cover how bonds, stocks, and cash behave in various economic situations. Expense ratios are good to understand because they can have a huge effect on how much money you have down the line.
Them look into active versus passively managed funds.
Notice I haven't mentioned picking an individual stock yet. If you're risk adverse and getting into things, I'd highly recommend sticking with low cost index mutual funds. E.g. An S&P500 fund will give you almost exactly what the "overall stock market" would get without the guilty feelings of "I probably picked wrong and I'm screwed now".
Bogleheads is also really good (as mentioned below).
https://web.archive.org/web/20160402162234/http://crawlingro...