[HN Gopher] Harry Browne's Rules of Financial Safety (1999)
___________________________________________________________________
Harry Browne's Rules of Financial Safety (1999)
Author : Tomte
Score : 218 points
Date : 2023-09-03 14:47 UTC (8 hours ago)
(HTM) web link (thetaoofwealth.wordpress.com)
(TXT) w3m dump (thetaoofwealth.wordpress.com)
| choeger wrote:
| But how does one even buy significant quantities of gold?
| pjfin123 wrote:
| > Rule 1: Your career provides your wealth
|
| > Build your wealth upon your career.You most likely will make
| far more money from your business or profession than from your
| investments. Only very rarely does someone make a large fortune
| from investments.
|
| This is good advice. If you're getting 2% dividend payments from
| stocks you need 5 million dollars to make 100k $/yr.
| tempaway12114 wrote:
| The economy is like an opaque operating system that none of its
| users truly understand, and in 2008 it blue-screened and had to
| be crash-restarted using hacks that we don't really know the
| repercussions of yet.
| anon1199022 wrote:
| This has some information but if you use all of them, this leads
| to a lot less or no oppurtunity in real world. It's like opposite
| of open mindset and being optimistic. Definitly works for average
| mind? and those who don't want to crate long term wealth. And 0
| mention of index funds? sp 500 history and returns? For me that
| defines the limited view and limited information of the author
| (whoever he/she is)
|
| Gold has very little returns against real inflation in last 10
| years. ok this has some mindless advices too, funny
| dang wrote:
| Related:
|
| _Golden Rules of Financial Safety (1999)_ -
| https://news.ycombinator.com/item?id=15586230 - Oct 2017 (110
| comments)
|
| _The 16 Golden Rules of Financial Safety_ -
| https://news.ycombinator.com/item?id=10842766 - Jan 2016 (1
| comment)
|
| I've nicked 1999 from that other title. If it's wrong, hopefully
| someone can figure out the right year
| (https://meta.wikimedia.org/wiki/Cunningham%27s_Law).
| dennis_jeeves1 wrote:
| 16. Have relationships with functional/reliable people who will
| help you in a crisis. ( easier said than done)
| andruby wrote:
| This seems to have been easier in the past than it is now.
| Family traditionally played that role and I hope for a lot of
| us still does.
|
| We do seem to be living in a society more disconnected than
| before.
| pjfin123 wrote:
| Yeah financial crises wouldn't be as bad if more of people's
| economic activity was more embedded in a family or local
| community with people they know personally.
| sakopov wrote:
| > You're speculating when: You select individual stocks, mutual
| funds, or stock market sectors you believe will do better than
| the market as a whole.
|
| So no individual stocks and funds - got it. What am I supposed to
| buy to be an investor? A financial advisor?
| raintrees wrote:
| Browne wrote a number of books I found helpful, such as How I
| Found Freedom in an Unfree World.
|
| http://harrybrowne.org/
|
| (corrected title)
| cryptoboy2283 wrote:
| Rule 18: Don't trust a Generic Wall Street Dude in a Suit,
| especially his own selling book
|
| (to be fair this is already mirrored in the several rules, Rule
| 8 and others)
| [deleted]
| IAmGraydon wrote:
| Some of these are good, some are terrible. The rule about not
| using leverage is so bad that I can't take the rest of the
| article seriously. Anyone who really understands the purpose of
| debt and how to utilize it has to be laughing at this. The very
| best way to make money is with other people's money - this is a
| very basic tenet of wealth building. I challenge anyone to find
| an example of a business or wealth empire that wasn't built with
| some level of leverage.
| JacobAldridge wrote:
| I agree with you. Debt is a terrible master, but can be a
| wonderful servant and I wouldn't be as financially successful
| as I am without leverage. And that's not a wealth empire - just
| a regular family geared into real estate.
|
| Of course, the "ZIRP" zero interest rate environment that
| predominated the 10 years since this article was written has
| been a historical anomaly. Though perhaps part of a longer
| trend, investors must be cautious not to view the benefits of
| recent leverage as evidence of easy future gains.
|
| But if there was one thing that differentiates our financial
| position from our less-financially-free friends, it would be
| our comfort with debt as part of a well-developed investment
| strategy.
| sacado2 wrote:
| These "rules" are for individuals, not for businesses or
| "wealth empires". I could be rephrased as "don't buy stocks on
| a margin to finance your retirement." (Not that I necessarily
| agree with him)
| ghaff wrote:
| >The rule about not using leverage is so bad that I can't take
| the rest of the article seriously.
|
| In the context of a personal investment portfolio, I'd question
| there are many circumstances where borrowing money to buy stock
| or whatever is a good strategy. This is not about building a
| business empire.
|
| (One can reasonably debate paying down a low interest mortgage
| early vs. continuing to save in other ways.)
| PaulHoule wrote:
| It makes me think of the "efficient frontier" idea that hedge
| funds are based on that make a case that proper use of
| leverage really can improve the risk/reward distribution of a
| portfolio but you can just as easily get into a trap where
| you juice a failing strategy by applying more leverage to
| cover up the fact it isn't working anymore, see the "Market
| Neutral" funds that blew each other up in the summer of 2007.
|
| Note Harry Browne ran as the libertarian candidate for US
| president more than once and is really famous for
|
| https://www.amazon.com/Permanent-Portfolio-Long-Term-
| Investm...
|
| In my mind it is quite similar to Diallo's "All Weather"
| strategy where inflation protected bonds play a role similar
| to gold in Browne's portfolio.
| ghaff wrote:
| Hedge funds, VCs, and so forth are also playing multiple
| games multiple times--so they can afford to play win some
| lose some so long as they don't lose too many and hit a few
| home runs.
|
| On the other hand, the person who took out a big HELOC to
| buy Yahoo stock in 1999 shortly before being laid off was
| making a bet that ended up being life-changing in a way
| they didn't intend it to be.
|
| (That's an extreme example but playing the averages both
| assumes that the average doesn't change and that they get
| enough rolls for the average to be a meaningful concept.)
| compiler-guy wrote:
| 99% of people need a safe and comfortable retirement, not a
| business or wealth empire. If you are looking to build an
| empire, sure take the high risk way.
|
| If you just want to provide for yourself and your loved ones,
| leverage as a method of investing is quite risky and counter to
| your goals.
| iambateman wrote:
| > "Rule 9: Don't ever do anything you don't understand."
|
| In 2021 I bought $500 of stock in a VR software company who was
| crowdfunding. Price per share was $4 on a valuation of $60M.
|
| Fast forward two years and they raise again...this time at a
| valuation of $170M. Naturally, I assumed my $500 was worth close
| to $1500 on paper.
|
| Wrong.
|
| By some magic, the common stock share price went from $4 to only
| $4.75 even as the company tripled in value.
|
| Even though I "picked" well, my investment still lagged the
| general S&P of the same time period. I thought I understood what
| I was doing, but evidently I was the sucker.
| jsmith99 wrote:
| Rule #0: before investing in a privately held company make sure
| you understand the capital structure and obligations and if
| there are classes of investor with guarantees or seniority.
| hn_throwaway_99 wrote:
| There are other replies saying you were "scammed", but just
| examine your own statements to see how something had to give
| (in this case, the common stock valuation) for anything to make
| sense. That is, look at your statement (emphasis mine):
|
| > Fast forward two years and _they raise again_ ...this time at
| a valuation of $170M. Naturally, I assumed my $500 was worth
| close to $1500 on paper.
|
| If they raised again, it's completely nonsensical to think your
| stock would have tripled in value. The only way to assume
| that's even possible is if the company tripled in value
| _without_ raising more money. After all, "raising" is just
| another word for _selling_ part of the company to other, new
| shareholders. When you sell part of something, that means the
| existing shareholders own less (as a percentage) of it.
|
| Yes, there are other bad tricks companies can play with
| different share classes and obscene preference rights for
| preferred shareholders (1x is pretty standard and totally fair
| in my opinion, anything more than that means to me that the
| company needed to raise under duress or has bad management).
|
| In other words, the outcome you described seems perfectly
| reasonable just by the rules of math. It says to me that many
| people just don't understand that "raising money" means selling
| a part of your company.
| username135 wrote:
| Everyone tries to get cute with financial strategies and
| investments, chasing those huge returns. You would be hard
| pressed to consistently beat the returns of a market fund over
| the life of your portfolio.
| quonn wrote:
| Probably due to ,,dilution" where the number of shares is
| expanded, leading to lower value per share.
|
| I was surprised by this, too. It's perhaps the most important
| thing to know when working for startups or investing in them.
| blitzar wrote:
| Listed companies can and do this as well, typically not on a
| scale that is so noticeable.
| TuringNYC wrote:
| Same story for most employees getting tons of equity in
| startups with a preference overhang
| https://www.holloway.com/definitions/liquidation-overhang
| ghaff wrote:
| One thing is that with small, especially non-public company
| investments, even _if_ you have reasonably expert opinion that
| they 're doing something special that isn't really on the
| radars on the mainstream investment community, market timing
| can still be off and you probably have no idea what's going on
| behind the scenes in terms of financing etc.
| ajross wrote:
| That kind of scam is _exactly_ why securities trading is
| regulated. Before the IPO though, all bets are off and unless
| you 're the VC writing the term sheet, you're the sucker.
| matsemann wrote:
| It doesn't have to be a scam. The pie got bigger, but perhaps
| because other people added more stuffing (money) to it. So
| one's original piece remained mostly the same.
| ajross wrote:
| The point is that with public securities, the SEC makes
| sure that it's not a scam. A public company can't just
| decide one day to issue a ton of stock and hand it over to
| an arbitrary entity, there's a regulatory process and
| legislated veto power held by the shareholders/board.
|
| When you buy an unregulated security (like shares in a
| "crowdfunded" startup), that's the protection you're not
| getting. Most people in this community tend to see the SEC
| as the enemy, but this is the value it provides.
| matsemann wrote:
| Hmm, where I live at least (not US) the company still
| have to act in a way that's in the interest of its
| owners. They can't do shady stuff just because they're
| not publicly traded. Or, they can, but it's not any more
| legal.
| NhanH wrote:
| Practically speaking, when getting stocks/ stock options in
| startup, you have to trust the integrity of the founders to the
| point not only for them to do the right things, but to fight
| for it. Preferred stocks (which VC gets) + dilution means there
| are a lot of ways to screw over common stocks, and at time when
| liquidation (that isn't IPO) happens, a lot of lawyers will
| have the jobs of minimizing your stake.
|
| Which is to say that crowdfunding stock is a baaaaaaaaad idea.
| You are faceless to the founders, hard to see a scenario when
| things can go right.
| iambateman wrote:
| For sure. Meanwhile this latest round raised $12M from 5,600
| investors in a couple days. So the management team is getting
| a massive signal that "this is good."
| oezi wrote:
| Investing in any VC investment as a crowd investor at a
| valuation of more than 5m-10m is a near certain recipe for
| disaster.
| 303uru wrote:
| Preferred stock. IE the rich get to dilute their risk by
| passing it on to you!
| blitzar wrote:
| What was The Founders's ownership share diluted down to?
|
| It wasn't.
|
| What was Peter Thiel's ownership share diluted down to?
|
| It wasn't.
|
| What was your ownership share diluted down to?
|
| Point-zero-three percent.
| jboy55 wrote:
| To correct, the Fair Market Value of the common stock went from
| $4 to $4.75. Saying "Price" indicates you can sell at that
| value, you most likely can not sell your stock for any price
| right now. You should value those shares at 0 in your future
| financial planning.
|
| tldr; You bought $500 in lottery tickets with an undetermined
| draw date in the future with a high chance that it won't
| happen.
| AlbertCory wrote:
| I'll call out Rule 14: Beware of tax-avoidance schemes.
|
| I'm always meeting people who are obsessed with avoiding taxes.
| It's better to just pay the minimum you owe legally, and sleep at
| night. They think "Oh, it's deductible" means "Oh, it's free."
| ghaff wrote:
| The one (very modest) trust I have some first-hand familiarity
| with, I'm pretty sure the effort and legal/accounting fees over
| the years long ago negated any tax savings associated with it.
| soared wrote:
| Like 15 of these can be replaced by having a financial advisor
| that you fully trust. Finding one is obviously a huge challenge,
| but makes almost of all this knowledge you can offload onto an
| expert.
|
| IMO fidelity is probably the closest you'll get, they're call
| centers/etc are all fully certified us-based people who aren't on
| commission/etc.
| 6ak74rfy wrote:
| > IMO fidelity is probably the closest you'll get,
|
| This is not true. I have decent knowledge about investing
| (index funds, stocks vs bonds vs real estate allocation etc.).
| So, I know when my Fidelity investment advisor was BSing me
| when she started selling me "alternative investments" (such as
| private annuity and direct indexing). Needless to say, I don't
| talk to her anymore.
| williamdclt wrote:
| Does anyone has a UK advisor they're overwhelmingly happy with?
| foobiekr wrote:
| In the US I have friends who are deliriously happy with their
| absolutely incompetent financial advisors.
|
| The problem is that it's a sales role and the usual customer
| manipulation applies strongly.
| thenerdhead wrote:
| Rule #1 literally talks about why you don't.
|
| > Can you make big profits by relying on an expert who does
| have the proper qualifications? How do you find a true expert?
| That task is no easier than picking the right investments. If
| you don't understand investing as well as the pros, you won't
| know how to check those who seek to advise you. And you can't
| rely on an advisor's track record, even when it's presented
| honestly. Track records tell you only how advisors did in the
| past - not how they will do next year.
| soared wrote:
| This is true historically where you needed to pick an
| individual advisor who managed your portfolio based on their
| experience/etc. That's not really how the major companies
| like fidelity run it anymore - an advisor gets their
| certification and then fully plays by the playbook and isn't
| allowed to even have their own track record. So you're not
| getting some guys advise, you're getting a company's
| extremely researched strategy they built for individuals who
| match your needs.
|
| But really calling up any company and asking for a rep isn't
| going to be great - I think being friends with someone who
| you trust as a friend first and then as someone who converts
| the playbook to your investments is best.
| ghaff wrote:
| I like my financial advisor and all that. And he'll take
| into account my plans and any specific preferences I have.
| But, at the end of the day, he's mostly taking the output
| of his company's computer programs.
| thenerdhead wrote:
| The point of much of Harry Browne's work is to be self-
| reliant and not trust the government nor big companies with
| your life decisions such as investments. Stop fooling
| yourself that these big companies are looking into your
| best interests. They aren't. They are looking for ways to
| make activity on your investments and collect fees.
| Tempest1981 wrote:
| Ok, but I know people who invest poorly and never
| rebalance. It's not a priority for them. Professional
| help would be a win-win for both, even after fees.
| jordanpg wrote:
| The issue is that these "advisors" have to get paid. And if
| you are paying for mass-produced advice, the margins are
| guaranteed to be small. This is the kind of advice that you
| can easily get if you research it, but might still be work
| intensive or error-prone to implement. The happy medium is
| robo-advisors, that get paid slightly less and implement
| the strategies for you.
| [deleted]
| 303uru wrote:
| Fidelity is maybe ok. You really need to spend some time
| educating yourself and if you want help, need to get a
| fiduciary.
| soared wrote:
| Agreed - doing some learning is a huge huge step that the
| list of rules kind of gets at but doesn't make crystal clear.
| prepend wrote:
| What's the minimum wealth level where these are applicable?
|
| > Rule 13: Keep some assets outside the country in which you
| live.
|
| This is very impractical unless you have even money where 5% of
| your wealth international makes up for the cost to maintain.
|
| It could easily cost$5-10k in travel expenses to travel somewhere
| and establish accounts, plus the costs to account for and audit
| and maintain.
| theshrike79 wrote:
| I have bank account in a German bank[0] and I opened it during
| a coffee break at the office. I don't live in Germany and have
| never visited there.
|
| [0] https://en.wikipedia.org/wiki/N26
| prepend wrote:
| What's your home country?
|
| For the US, this bank seems impractical/impossible.
| nottorp wrote:
| "In November 2021, N26 announced that it would be pulling out
| of the United States in January 2022, leading to the closure
| of approximately 500,000 accounts. American customers were no
| longer be able to use its app after January 11, 2022."
|
| This is the bank you linked to?
| theshrike79 wrote:
| I'm also not American, like most of the world =)
| splintercell wrote:
| Yeah so the Obamacare regulations took care of the
| American financial isolation.
| bwanab wrote:
| It's not only impractical, but for U.S. citizens at least,
| practically impossible. I lived in Switzerland as an ex-pat
| worker for a few years, so I had a Swiss bank account. Nothing
| fancy, just a regular post office bank account like 75% of
| Swiss people have. When I moved back to the U.S. I kept it open
| with a modest balance since I had a debit card I could use when
| I was in Europe that kept me from incurring currency conversion
| costs. Over the years, the U.S. regulations made it very
| difficult to keep it open. The bank didn't want to deal with
| it, so they made it hard enough that I finally closed it.
|
| I know why the U.S. does it, but that doesn't mean that I, as
| an honest taxpayer, have to like it.
| PopAlongKid wrote:
| In the U.S. you have FBAR and FATCA requirements to report
| information on many types of assets held in foreign countries.
| capableweb wrote:
| > It could easily cost$5-10k in travel expenses to travel
| somewhere and establish accounts, plus the costs to account for
| and audit and maintain.
|
| Maybe don't travel to Dubai (or similarly most-expensive-
| countries-in-the-world) then and establish accounts in a
| country that doesn't wildly out-rich you. Also, you don't have
| to stay longer than just a few days most likely.
|
| Besides, many places to allow internationals to signup for
| accounts also allow you to do a video call with account manager
| rather than going there in person.
| prepend wrote:
| > Besides, many places to allow internationals to signup for
| accounts also allow you to do a video call with account
| manager rather than going there in person.
|
| I'm not so sure about that. No reputable banks where you'd
| want to have your other country account. And I don't think
| the author considers "first cyber bank of Barbados" to fit
| this rule. And it's certainly a horrible idea.
|
| > Maybe don't travel to Dubai
|
| Please attempt to put together a travel budget from the US to
| some country that makes it cost reasonable for a "normal"
| person to travel and open an account.
|
| I picked $5-10k because if you have enough cash to keep
| overseas, you probably don't want to take a mega bus to
| Toronto or Mexico City and scrimp to open the account and
| visit it.
| ghaff wrote:
| We also live in a sufficiently interconnected world that, if
| something goes really south in the US, I'm not sure having a UK
| bank account or a bunch of cash and gold in a Swiss safety
| deposit box is the get out of jail free card it was in cold war
| spy novels.
| throw0101a wrote:
| With regards to Rule 11, especially:
|
| > _GOLD not only does well during times of intense inflation, it
| does very well._
|
| No, it does not:
|
| * https://www.nber.org/papers/w18706
|
| * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3667789
|
| From Roy Jastram's _The Golden Constant: The English and American
| Experience 1560 to 1976_ :
|
| > _Andre Sharon, head of the international research department at
| Drexel Burnham, Inc., notes, "the value of gold essentially
| derives from its capacity to preserve real capital and purchasing
| power."+ I select this particular quotation because of the
| prestige of the organization and the position of the spokesman,
| but statements in this vein can be found in great numbers. They
| can be traced back for generations and in many countries. How can
| this proposition so contrary to statistical fact become so widely
| believed and quoted? Possibly because gold has preserved capital
| in cataclysmic cases it is easy to infer that it can be trusted
| to do the same in less severe circumstances. To extrapolate from
| gold's protection in singular catastrophes to its use as a
| strategy against cyclical infation is an example of faulty
| inductive reasoning._
|
| * PDF: http://csinvesting.org/wp-
| content/uploads/2016/02/RoyJastram...
|
| * https://www.pwlcapital.com/will-gold-save-the-day/
| OrvalWintermute wrote:
| Gold is the least bad currency option when compared to all the
| fiat currencies.
| throw0101a wrote:
| Gold is an unproductive asset, that does not do anything
| useful against inflation, and when used to back currency
| (e.g., Gold Standard) does not help with stability (and may
| actually cause instability):
|
| * https://www.theatlantic.com/business/archive/2012/08/why-
| the...
|
| * https://archive.ph/FWKcL
| dkga wrote:
| Leverage to finance something you have an edge on can be good.
| Leverage to finance something you have no edge, like stock
| picking, is a path to ruin.
| insamniac wrote:
| I haven't heard about this guy in a long time (2001 or so) but
| one thing he said has stuck with me for some reason, and pops
| into my mind often. I think he framed it as good general life
| advice to his young adult daughter. "No one owes you anything."
| gnfargbl wrote:
| Rule 7 (don't use leverage) really needs some additional
| clarification.
|
| If you're borrowing money using a mortgage in order to invest in
| stocks, that's probably not particularly smart. If you're taking
| on debt financing to grow an already-profitable business into an
| even more profitable business, that might be a different kettle
| of fish.
| stouset wrote:
| > If you're borrowing money using a mortgage in order to invest
| in stocks, that's probably not particularly smart.
|
| If you have both a mortgage and investments, that is almost
| literally exactly what you're doing.
|
| If your mortgage is below a 4% rate, this is almost certainly a
| great idea. If it's above that, it may be a reasonable approach
| (up to a point).
|
| I have a mortgage at 2.375% and I can assure you I intend to
| pay it off over the full 30 year duration. Every early payment
| is an enormous opportunity cost compared to leaving it in the
| markets over the remaining duration.
| colonwqbang wrote:
| Why would an investment into your own business be less risky
| than a diverse investment in the general market? It doesn't
| make sense.
|
| Anyone who has both loans and stocks is "borrowing to invest in
| stocks". Because they are investing money that could be used
| towards paying off their loans. As long as the risk is
| carefully considered (not too high % loans etc) why not do it?
| OJFord wrote:
| I might not _re_ -mortgage in order to raise capital to invest,
| but if the interest rate is low (i.e. not right now) why would
| you put up more of a deposit than you have to? It's a cheap
| loan for however many years, and if it rises you can just put
| up more then, having benefited in the meantime.
| [deleted]
| ttul wrote:
| Rule #0: Be born into a privileged family. Your parents will
| raise you in a wealthier suburb where the schools are good and
| you network with other similarly privileged kids. The crime rate
| is low, so you're less likely to end up injured or killed by
| violence. Air pollution is also likely lower, so less odds of
| death by asthma.
|
| Privilege gets you into college, where you study with other even
| more privileged kids, obtaining a designation that further
| cements your advantages. From this basis of privilege, your
| privileged ancestors will perhaps gift you some capital with
| which you can start your portfolio or purchase a home.
|
| You now begin you career and can start following the other steps
| to maintain your advantage.
|
| * edited to replace "white male" with "privileged family," which
| is a bit fairer and less controversial.
| [deleted]
| Racing0461 wrote:
| How are white males a privileged class? The top 1% sure, but
| the average white male?
|
| If anything, white females are a privileged class.
| tasty_freeze wrote:
| Being privileged doesn't mean one's life has no hardship.
| There are plenty of poor, white men, and Oprah Winfrey is a
| billionaire.
|
| The way to think about it is take one of those poor white men
| and imagine he is black while the other things (wealth,
| schooling, location, etc) remain constant. While anything
| might happen, statistically that person's outcome would be
| worse as a black poor man than as a white poor man.
| Racing0461 wrote:
| Yeah but that isn't because of race. Replacing the race
| doesn't work with asian men nor black men that come from
| africa as 0th gen/1st gen immigrants.
|
| This is uniquely an african american problem suggesting
| alternative reasoning (culture, education/values etc).
| threadweaver34 wrote:
| I'm a solid white male engineer at a FAANG. If I were a
| woman, the company would bend over backwards to make sure I
| advance. 80th percentile as a male, they're happy to keep me,
| but investing in me isn't a priority.
| maskil wrote:
| So you're advice is basically to give up?
| ttul wrote:
| Not at all. But I think it's worth pointing out that it's a
| privilege to even have wealth to manage in the first place.
| It is commonplace to disregard that privilege in these sorts
| of discussions on the topic of wealth.
| k2xl wrote:
| This is an awful, overly-simplistic, unproductive, and arguably
| inaccurate mindset to have in life.
| ttul wrote:
| To each their own, but I just dropped my daughter off at
| university, and nearly every kid is white. I felt it may be
| of some interest here on HN to let people know there is a
| step 0 that most humans will never be able to access.
|
| I don't mean to imply that successful people didn't work
| hard. I have worked hard. But had I grown up as some of my
| primary school colleagues did - on the literal wrong side of
| the tracks - I likely would not have had nearly the same
| success in life and would not have a portfolio to worry about
| in the first place. At best, I'd be hopeful for a union job
| with a pension.
| braislen wrote:
| [dead]
| glutamate wrote:
| Missing: If the promised interest rate is higher than the market
| rate for bank accounts, there is an implied risk of default, in
| which case you would likely lose your entire investment.
| dalyons wrote:
| Not missing. " The cash portion should be kept in a money
| market fund investing only in short-term U.S. Treasury
| securities, so that you don't have to evaluate credit risk.
| These securities are safer than bank accounts"
| dehrmann wrote:
| The funny lesson I got from SVB was why bother putting cash
| in a bank when they're just going to put it in treasuries,
| MBSes, etc. It's not exactly insured, but a short-term
| government money market fund seems safer, or a state muni
| fund if you're worried about the federal government
| defaulting.
| ghaff wrote:
| >why bother putting cash in a bank
|
| In general, banks are set up to deliver consumer services
| that brokerages are not. However, in these days where
| treasury funds have ~5% interest rates, it makes sense to
| keep checking account balances at a level that they have a
| comfortable buffer for your preferences but no higher.
|
| I see my brokerage makes the case for maybe not needing a
| separate bank. Which may be true at this point. On the
| other hand having one doesn't really cost me much and would
| probably be a bit of a pain to change.
| roenxi wrote:
| Rule 11 deserves a rethink. There is an official policy that cash
| will lose some % of its value each year! Holding 25% of your
| wealth in cash is planning to throwing away years of life.
|
| For this sort of dead-basic investment advice, there is no point
| being ready for situations where a cash position is advantageous.
| People are much more likely to panic, do something stupid or get
| ground down by inflation.
|
| It is better to hold enough cash for an emergency fund then a mix
| of productive and hard assets. Gold is good as a hard asset, but
| anything that is durable would be ok. The advantages of cash are
| small compared to the risks and locked-in losses.
|
| _EDIT_
|
| Although thanks to other commentators I see that the fine print
| says that cash isn't literal cash and is actually "short-term
| U.S. Treasury securities"; making the whole complaint a bit moot.
| Once the money is in bonds it becomes a matter of strategic
| thinking rather than a simple "don't do that". I wouldn't do that
| right now, but given the level the article is pitched at I think
| it is fair advice as long as people read that cash doesn't mean
| cash cash.
| [deleted]
| hef19898 wrote:
| Ah yeah, the imfamous "cash and cash equivalants" in public
| companies balance sheets. Yet another topic in which most
| people ignore just how well solved it is among professionals.
| ghaff wrote:
| >Rule 11 deserves a rethink. There is an official policy that
| cash will lose some % of its value each year! Holding 25% of
| your wealth in cash is planning to throwing away years of life.
|
| That depends on lots of things including how old you are and
| the current economic situation.
|
| For someone on the older side, getting a very low risk 5% on a
| chunk of their money doesn't seem like a half-bad strategy at
| the moment especially if they already own their home.
| roenxi wrote:
| They could hold gold. Similar risk profile, much more likely
| to hold value long term and be better to hand on to the kids
| if there is some left over.
|
| I'm not saying cash is so terrible that a nervous, confused
| and delicate grandma can't just eat the losses for security.
| I mean, sure. If you think you're probably going to lose
| money anyway then <10% a year is better than >10%!
|
| But a 25% allocation by default is just giving money to
| wealthy men wearing suits. They already own suits, they don't
| need it. Keep the wealth. Donate it towards lobbying for
| Georgism instead of new wars, maybe, if you feel like burning
| a few % on a cause.
| jamesaurichs wrote:
| Note that this OP probably has some agenda against dollar,
| being that in another comment before
| https://news.ycombinator.com/item?id=37046128#37047171 they
| said
|
| "Yeah, for example China's position of overwhelming
| strength vs. weak little USoA meant that China's wages have
| risen by an order of magnitude and their technology
| catapulted into the present century, building them in to
| the world's largest economy."
|
| Just a subtle subterfuge against dollar if I had to guess
| [deleted]
| osigurdson wrote:
| If you look at the chart for the GLD it doesn't resemble
| and inflation proof investment imo. Maybe in the extremely
| long term it is but on a 1 decade time scale for example it
| certainly is not.
| roenxi wrote:
| I cheerfully point out that cash also doesn't resemble an
| inflation proof investment. The difference is gold's
| value ambles around a level, and cash trends down.
| osigurdson wrote:
| Fully agree that cash is not inflation proof (by design).
| However, when looking for something that is inflation
| proof it isn't clear that gold is it.
| DennisP wrote:
| Physical cash trends down but t-bills have kept up with
| inflation over the past century.
| [deleted]
| darkclouds wrote:
| You obviously havent had your bank account frozen for no
| reason. I have!
|
| Trying going without cash for 6 weeks, not knowing if
| transactions have gone through, direct debits have been paid
| etc etc. Going around in legal loopholes where the bank
| ombundsman wont talk to you until you have exhausted the banks
| complaints dept, but the banks complaints dept wont talk to
| you, so you get no where.
|
| Its fucking legal intimidation and harassment and there is no
| legal recourse for it in the UK. Its why I have no bank
| accounts now.
|
| The banks can and do freeze your accounts, just look at the
| sanctions done to Russians when the West decides to stoke a
| war!
| nemo wrote:
| >just look at the sanctions done to Russians when the West
| decides to stoke a war!
|
| Worth noting that the sanctions on Russia were due to Russia
| invasions of neighbors like Ukraine (and Georgia), not "the
| West" deciding to stoke a war. "The West" was using sanctions
| to _avoid_ stoking a war in responding to Russia's various
| military offensives against neighbors.
| alluro2 wrote:
| If you're actually interested in having an informed opinion
| on the matter, it might be useful finding out more about
| history of NATO vs USSR, expansion of NATO and dynamic of
| relationship between NATO and Russia, and EU and Russia in
| the last ~20 years. Not defending anyone, nor do I have any
| horse in the game, but as usual, reality is not black and
| white, and there's a broader history of moves and counter-
| moves that lead to this point. So "the West stoke a war" is
| not simply and obviously false (neither it is one-
| dimensionally true).
| nemo wrote:
| In fact I'm actually very familiar with that history
| already. Russia has justified their military invasions
| and occupations of neighbors by claiming that their
| actions were a result of NATO's actions, but this is in
| my opinion after having considered the evidence to be a
| ridiculous pretext. At no point did NATO actually force
| Russia to roll their military forces across the borders
| of their neighbors despite Russia's obviously false
| claims to that effect.
|
| This is a case where pro-Russian propagandists have made
| a lot of headway in both-sides-ing an issue which was
| unilateral. Repeating that propaganda isn't a nuanced or
| informed take, it's rationalizing and justifying war
| crimes.
| darkclouds wrote:
| I sometimes think the Bolshevik revolution, the death of
| Tsar Nicholas 2, related to the British Royal Family,
| Queen Victoria was first cousin to Tsar Nicholas 2, are
| not over.
|
| Disputes run deep and span generations when at the top.
| bluecheese452 wrote:
| The west did not stoke a war with Russia. What are you on
| about?
| tmn wrote:
| You might disagree, but this a widely held narrative. If
| you aren't familiar with it you're not getting news from
| diverse sources
| andsoitis wrote:
| But a rule to hold 25% of your wealth in (physical) cash
| doesn't seem well balanced. Imagine stashing $250,000 in
| notes somewhere. Do you put it in a safe in your house and
| hope your house doesn't burn down or get burglarized? Or do
| you spread the cash across your multiple properties (that you
| don't rent out)?
| distances wrote:
| I commented already for the parent, but the article most
| definitely does not mean physical cash. Nobody will advice
| you to hold physical cash.
| fbdab103 wrote:
| Unless you want to live like Scrooge McDuck or Smaug.
| smitty1e wrote:
| You swap systemic risk for physical security risk if you
| hold substantial hard currency.
| distances wrote:
| The "cash" in the article does not mean physical cash. It
| means money in a bank account.
|
| Edit: or more accurately,
|
| > The cash portion should be kept in a money market fund
| investing only in short-term U.S. Treasury securities
| throwaway290 wrote:
| That's kind of the opposite of cash...
| fbdab103 wrote:
| Cash is frequently used as shorthand for liquid.
| ghaff wrote:
| Liquid and low risk. Equities are usually liquid but
| they're not really cash equivalents at least at the
| individual consumer level.
| ghaff wrote:
| So you don't consider it cash unless it's US Treasury
| notes stuffed in a mattress?
| throwaway290 wrote:
| Uhm, mattress is optional, but the form of notes (or
| equivalent) is not.
|
| Words have meaning. Cash you have physically and it
| shelters you from incompetent/rogue financial companies
| and governments. If you use "cash" to mean something else
| then what is the word for cash?
| ghaff wrote:
| Like everyone else, a liquid and very low risk (modulo
| inflation) financial instrument. (The definition is often
| a bit broader in financial statements.) I'd posit that,
| in this day and age, $100K (or whatever) in bank notes is
| going to do you very little good if you lose access to
| all your accounts.
| throwaway290 wrote:
| > Like everyone else, a liquid and very low risk (modulo
| inflation) financial instrument.
|
| You clearly misread my question. I'll rephrase for
| legibility then: What is the word for cash (as in
| "physical money not in a bank") if you use "cash" to mean
| the opposite ("money in a bank")? Is it now a concept so
| rarely used that term is unnecessary?
|
| Also wow, didn't know you can't buy a car or a house with
| cash in US anymore, interesting times. Which year did it
| become illegal?
| DennisP wrote:
| Words can have more than one meaning, depending on
| context. For investors talking about asset allocation,
| "cash" means t-bills, money market, or money in the bank.
| ghaff wrote:
| It depends on the context. In the context of paying for
| your dinner, it means bills/notes. In the context of
| personal or corporate finances, it means liquid, low-risk
| investments.
|
| >Also wow, didn't know you can't buy a car or a house
| with cash in US anymore, interesting times. Which year
| did it become illegal?
|
| It's not illegal but I'd guess in a lot of situations
| involving (legal) high dollar transactions, the seller is
| probably going to tell you to take your briefcase of $100
| bills to the bank and get a cashier's check--which will
| also kick off some raised eyebrows and financial
| reporting obligations.
| latchkey wrote:
| I had a bank account emptied by the US govt.
|
| The California state board of equalization (SBOE) decided
| that since I hadn't filed and paid taxes in Cali for a few
| years, that they'd just empty one of my bank accounts to
| collect on me. Why didn't I pay taxes? Well, I moved to
| Vietnam and didn't know that I still had to file a $0.
|
| Zero warning or notice. They just emptied it. Bank even
| charged me a couple hundred for this 'service' on top of it.
|
| Even after I cleared up the issue with them via my EA, I've
| never gotten the money back. Luckily, they hit one of my bank
| accounts that had a small amount of money in it, enough to
| not get dinged fees by the bank for them holding my money. I
| was only using that account to transfer money back and forth
| to Vietnam.
|
| So yea... I'm with you.
| Kirby64 wrote:
| Bank accounts being frozen has absolutely nothing to do with
| holding cash. Also, anyone saying "holding cash" almost
| certainly does not mean in a safe/under your mattress. It
| means in a bank account somewhere. Hopefully a high yield
| savings account.
|
| And, the strategy to dealing with bank accounts being frozen
| is multiple bank accounts at different, unrelated banks. Same
| with credit cards.
| darkclouds wrote:
| Well it does, because if you trust a bank to not freeze
| your accounts, then you dont need to hold so much cash.
|
| As to having multiple bank accounts, have you heard of data
| sharing?
|
| If you have multiple bank accounts in your name, across
| multiple banks, they can all be frozen, just look at how
| sanctions work of foreign entities.
|
| You obviously dont know how credit reference agencies work.
| So in the UK, the electoral register (open and closed) is
| used by credit reference agencies to see if you are linked
| to an address. The credit reference agencies then pass on
| information to would be lenders and banks, and banks also
| update the credit reference agencies with your monthly bank
| account totals and your direct debit payments so they can
| see your monthly outgoings and see if you are paying your
| overheads reguarly, so other banks and lenders can see if
| you are worth lending money to.
|
| Now even if you dont need to borrow money, pay your bills
| as soo as they come through the letter box if they are not
| handled by direct debit, that information is still passed
| on by your bank to multiple credit reference agencies who
| then disseminate the data around the world to different
| countries because programming teams can exist in multiple
| countries, different laws and then you get stuffed if you
| value your privacy, and thats before hackers get involved
| hacking the likes of Experian.
| xhkkffbf wrote:
| One compromise is to hold the cash in US TIPs, i.e. inflation
| indexed bonds. There's a limit of how much you can buy each
| year and the interface is quite clunky, but these bonds should
| protect against inflation.
|
| (Note: inflation as measured by the US government. Many feel
| that the equations understate the real inflation.)
| marcrosoft wrote:
| Harry Browne didn't like TIPs and didn't think they would
| protect when things got bad. He preferred holding gold coins
| in a country outside the one you live in.
| DennisP wrote:
| Gold, and t-bills for the cash portion. They do well at
| different times than gold. Over the past century, t-bill
| rates on average have pretty closely matched inflation.
|
| Browne didn't advocate holding _all_ your gold as physical
| coins in another country, because he wanted people to
| rebalance annually, which would be pretty difficult if the
| gold were held that way.
| ghaff wrote:
| Which seems like an utterly unrealistic strategy for most
| people which likely comes with many problems of its own,
| especially in the event of a massive financial system
| collapse.
| [deleted]
| djbusby wrote:
| Limit is $10k/year per tax-ID, IIRC
| thunky wrote:
| You're thinking of I bonds and so is the poster you replied
| to.
|
| TIPS are different and there is no purchase limit. They are
| available as funds/ETFs.
| thunky wrote:
| > Holding 25% of your wealth in cash is planning to throwing
| away years of life.
|
| You have to look at the portfolio as a whole. When stocks fall
| 50% you'll be glad to have some cash because:
|
| 1. You'll be down less than 50%
|
| 2. You'll be able to buy more stocks at a discount (via
| rebalancing)
| ww520 wrote:
| "Cash is trash." That's a saying on Wall Street urging people
| to put cash in equities. When viewing cash in isolation, it's
| tempting to conclude that holding cash is bad due to inflation.
| However, cash needs to be seen in contrasting with other
| investment vehicles.
|
| It's true that cash is losing 7% annually due to inflation. But
| at a time when stocks are losing 50% and bonds are losing 20%
| due to raising rate, losing 7% is a good deal. When everything
| is losing value, the one losing the least is a good investment.
|
| Since you can't predict the market to move cash in and out of
| the market, holding 25% cash and rebalance periodically doesn't
| sound too absurd.
| varelse wrote:
| [dead]
| hammock wrote:
| Why get hung up on the percentages? Isn't that bike shedding?
| The principle is what matters. Take the wealth you can't afford
| to lose, and put it in a balanced portfolio that seeks to match
| the performance of the market so that you don't fall behind
| your peers.
|
| So look at your peers (your socioeconomic class) and match the
| average portfolio.
|
| For a tech wagie, a 60/40 for the older folks or 80/20 for the
| younger folks with 10% in cash will work.
|
| For an UHNWI, look at the Tiger 21 asset allocation and follow
| that. (In 2023 it's roughly 30% PE, usually your own
| businesses, 20% public stocks, 20% RE, 10% bonds, 10% cash and
| 10% alternative assets).
|
| Overthinking here is ignoring rule #1 and possibly rule #3.
|
| The point is simply to keep up with your peers' returns on
| their wealth that they also can't afford to lose (NOT talking
| about their career wealth here), within a small margin, and
| this should not be
| sixstringtheory wrote:
| For those like me who don't know that acronym: Ultra-high-
| net-worth individuals (UHNWI) are people with a net worth of
| at least $30 million (according to investopedia)
| nly wrote:
| Most UHNWIs have the majority of their liquid wealth in
| public stocks, real estate and bonds. It's a bit of a myth
| that they have exotic investment tastes (once you eliminate
| equity in their own businesses)
| glitchc wrote:
| Modern UHNWI individuals in the tech markets are almost
| entirely stock in their own company(ies). It's paper money
| against which they borrow to fund their lifestyle. They do
| sell this stock from time to time, but mainly to pay off
| debt. If they sold everything all at once, the stock would
| tank, taking their wealth along with it.
| hammock wrote:
| >Most UHNWIs have the majority of their liquid wealth in
| public stocks, real estate and bonds
|
| Not clear if you're trying to refute me, but that aligns
| with what I said.
|
| I cited a leading UHWNI research firm which has a sample
| size of 1200+ (very good for this hard to find, small
| audience). Do you have better data?
| TacticalCoder wrote:
| > So look at your peers (your socioeconomic class) and match
| the average portfolio.
|
| > The point is simply to keep up with your peers' returns on
| their wealth that they also can't afford to lose
|
| Wait... Why the heck would I give care about what my "peers"
| (whatever that is) are making as returns? I don't care about
| keeping up with the Jones.
|
| Does copying my peer's average portfolio somehow protect
| mine? As in: is that some game theory thing where because
| they all do that, what they own keeps some value and hence I
| should copy that?
|
| I'm genuinely asking.
| brilee wrote:
| The advice says keep 25%, but it also says to rebalance every
| year. In a year when stocks are down, cash becomes a larger
| fraction of your portfolio and you would use it to buy stocks
| precisely when they are at their lows! On the flip side, when
| stocks are great, then cash becomes a smaller part of the
| portfolio and rebalancing implies selling stock when it is
| high.
|
| I do agree overall that these transitions happen infrequently
| enough that the opportunity cost of not being in the market is
| likely to outweigh the potential upside of being ready to buy
| at a dip
| jandrewrogers wrote:
| The issue with rebalancing is that it often has tax
| implications if you aren't careful. You have to weigh the
| benefits of rebalancing with the tax loss. It works in tax
| deferred accounts but, at least in the US, a significant
| percentage of people do not have material access to such
| accounts.
| hammock wrote:
| If you have 10% in cash you ought to have enough to cover
| the tax bill from rebalancing, in most years
| roenxi wrote:
| Superficially that makes sense, but on reflection you may
| observe that logic will apply to any assets as the relative
| prices change. Rebalancing from any asset to shares when
| shares are cheap will net good results.
| liquidpele wrote:
| "When stocks are great"... ie buy low sell high, easy to say
| but damn near impossible to do.
| DennisP wrote:
| Timing the market is hard but periodically rebalancing your
| portfolio is easy, and generally recommended.
| liquidpele wrote:
| Rebalancing according to risk is recommended, not doing
| it because you think you know what the market is going to
| do. For instance, let's say right now, the market is
| headed up. When is the right time to "re-balance" to more
| cash? This is just assuming that the market is going to
| go lower than it currently is, which is just as much a
| gamble as thinking it'll go up for the next year.
|
| In short, don't try to guess the market and keep some
| magical percent of cash/investments unless you have the
| means to gamble that money. Talk to a financial advisor
| and choose a risk-based investment strategy that makes
| sense for your point in life.
| DennisP wrote:
| It's simple and doesn't involve guessing what the market
| will do. Just as Browne recommended, you pick a
| percentage to hold for each asset, and rebalance on a
| fixed schedule that's long enough to avoid short-term tax
| rates. If percentages aren't off by much, don't bother.
|
| It's not gambling, and it's not original with Browne. The
| percentages aren't magic, they're just anything that has
| worked reasonably well historically over many different
| economic conditions. Most fee-based financial advisors
| will give you a strategy like this. It's probably the
| most widely-accepted strategy in finance.
| sacado2 wrote:
| > When is the right time to "re-balance" to more cash?
|
| When you look at your balance at the end of the year and
| your cash proportion happens to be below 20% instead of
| 25%.
|
| Rebalancing is pretty much standard practice nowadays,
| nothing magical there. Any financial advisor will tell
| you to rebalance your portfolio from time to time.
| sacado2 wrote:
| Cash is there to be used when everything else goes to hell. The
| point is to always have enough money at hand to buy low (and to
| reduce the overall volatility of the portfolio). Browne's
| portfolio doesn't make sense until you start to look at it as
| an allocation that maximizes the effect of volatility (the
| other 3 assets are very volatile, by design) and rebalancing.
| javanissen wrote:
| I don't follow the Harry Browne portfolio advice, but I have
| read Craig Rowland's very good book about it [0], and I
| disagree. The Permanent Portfolio has had pretty good overall
| returns _extremely consistently_ despite its low (25%) stock
| allocation because it holds four assets with poor correlation
| and rebalances between them, and because one of them is cash.
|
| These assets each do well under different economic conditions.
| The cash asset does well during periods of sharply rising
| interest rates since it retains its principle and gets higher
| rates, while all the other assets get wrecked. Because cash's
| correlation with the rest of the portfolio assets is 0% or
| negative, you tend to store some gains from the other assets in
| the cash section during up years, and then use the cash section
| to buy other assets once they have down years - in effect
| buying low and selling high. This is why the permanent
| portfolio gets pretty good returns with a low standard
| deviation: the cash protects the downside, but doesn't
| significantly hamper portfolio performance due to the
| rebalancing effect. (It also helps that your cash should be in
| short treasuries per Harry Browne's advice, which almost always
| have better yield than bank accounts with basically no risk).
|
| You could remove or titrate down the cash portion, but then
| you're left with three risky assets in stock, gold, and 25- to
| 30-year bonds. (Anyone who doesn't think long bonds are risky
| doesn't understand interest rate risk). Does this raise the
| expected return? Yes! But it also raises the risk of extended
| periods of poor performance, or acute periods of terrible
| performance. The Permanent Portfolio made 1.8% in 2008. It
| didn't have a 10-year rolling period since 1972 with real
| returns below 3%, with all of them falling between 3 and 6.1%.
| A 60/40 portfolio achieved better returns but with much higher
| risk, including full decades of negative real return [0].
|
| Ultimately I think your objection to the portfolio is because
| you think it's advantageous to take on more risk. For a young
| investor with high risk tolerance I agree with you, but for
| older investors and retirees who need to be mindful of sequence
| of returns risk, and young investors who can't stomach volatile
| portfolios, I think it's an underrated choice.
|
| Even if you're not convinced by the rest of the argument,
| consider that holding half your fixed income in cash and the
| other half in very long bonds tends to produce similar
| performance to holding it all in intermediate bonds, which is
| often the recommended duration for an investor's bond holdings.
|
| [0] https://www.amazon.com/Permanent-Portfolio-Long-Term-
| Investm...
| kqr wrote:
| > Ultimately I think your objection to the portfolio is
| because you think it's advantageous to take on more risk. For
| a young investor with high risk tolerance I agree with you,
|
| I agree with everything you write except this bit deserves an
| expansion.
|
| There is a growth-optimal balance between assets and it
| depends only on the joint probabilities of future returns,
| which means it's unknowable -- but it also means it depends
| not at all on the age of the investor. (Which makes sense, if
| you think about it -- why would the optimal growth rate
| depend on the age of the person owning the money?)
|
| However, the optimal growth rate is only guaranteed
| asymptotically, and aiming for it could result in some wild
| swings up and down before getting there, so for people
| without infinite time on their hands it makes sense to keep a
| higher proportion of wealth in low-risk assets.
| tornato7 wrote:
| This is interesting. The antithesis is probably the book
| Lifecycle Investing [0] which essentially concludes that you
| should be 2X leveraged stocks in your youth and slowly reduce
| leverage over time.
|
| 0. https://www.lifecycleinvesting.net/
| nly wrote:
| So a 50% market drop wipes you out completely? Hrrm, nah
| kqr wrote:
| Reminder: it takes as long to get from 100 to 1,000 as it
| takes from 10 to 100 -- it is really important to avoid
| big drawdowns, which 2x leverage is almost sure to
| produce.
|
| If anything, optimal growth requires fractional leverage,
| i.e. keeping wealth out of the markets.
| koolba wrote:
| > Anyone who doesn't think long bonds are risky doesn't
| understand interest rate risk
|
| The past year is a great lesson in what happens to long term
| bonds when rates finally move.
|
| Though to be fair to Harry, his financial advice was written
| before zero rate policy. Anybody buying into sub-3% 30-year
| bonds is either uninformed or has their investments bound by
| governing rules.
| jebarker wrote:
| 16 is the most important but needs expanding/modifying. Have a
| budget for everything, not just having fun. The easiest way to
| feel wealthy is to desire spending less.
| dehrmann wrote:
| Damn you hedonic treadmill!
| Eisenstein wrote:
| Rule #18: No one consistently follows a list of rules unless:
| they have personally learned why each rule exists from
| experience; they are the type of person who would have followed
| them anyway without knowing what they were; they are legally
| obligated to.
| StopTheWorld wrote:
| > Rule 7: Don't use leverage.
|
| > Using margin accounts or mortgages (for other than your home)
| puts you at risk to lose more than your original investment.
|
| As this says, margin accounts used in a certain way can put you
| at risk to lose more than your original investment. However, they
| are sometimes necessary to make investments with little to no
| additional risk. For example I may own $50,000 worth of XYZ Corp.
| and want to sell it on a Monday so as to buy $50,000 worth of DEF
| Corp on that same Monday. I can't do that if I don't have a
| margin account - settlement is usually T+2 days.
|
| You can incur additional risk with a margin account, but not as
| much if it's just to borrow money you are almost certain you will
| have in a few days.
| pjfin123 wrote:
| > As this says, margin accounts used in a certain way can put
| you at risk to lose more than your original investment.
| However, they are sometimes necessary to make investments with
| little to no additional risk. For example I may own $50,000
| worth of XYZ Corp. and want to sell it on a Monday so as to buy
| $50,000 worth of DEF Corp on that same Monday. I can't do that
| if I don't have a margin account - settlement is usually T+2
| days.
|
| This isn't really leverage. Your brokerage is just extending
| you temporary credit to paper over the fact that stock trades
| take two days to settle. You're never net long more than 100%
| of your investment.
| [deleted]
| oezi wrote:
| The asset split of 25% each of gold, stocks, bonds and cash would
| have fared relatively bad over the years since 2007-09.
| soared wrote:
| Investing in gold now seems real not smart, same with that much
| cash.
| Ekaros wrote:
| I think we might be in point of time where cash could make
| lot of sense. It is uncertain if we are in an other long
| running bull market yet. And certain sectors might be
| approaching a top already. Namely the biggest technology
| stocks.
| ghaff wrote:
| As someone on the older side, I generally agree with that.
| The tech sector has been very good for me over the past 10+
| years and I still have a fair bit invested but I look at my
| portfolio and go "that's probably enough." I've been around
| long enough so that "Don't get greedy" is pretty ingrained.
|
| On the other hand, getting 5% on basically a treasuries
| fund looks pretty good on a risk-adjusted basis.
| sacado2 wrote:
| 6% or so per year, in fact. Not so bad.
| prepend wrote:
| Worse than a more typical 80% stock/15% bonds/5% cash.
|
| Having half your assets in cash and gold is very not smart.
| sacado2 wrote:
| I myself tend to lean toward stock-heavy allocations, but
| this is not something I'd recommend to everyone. I don't
| know if you remember the 2008-2009 period, or if you even
| were an investor back then, but those were... interesting
| times, to say the least. Almost-retired and newly retired
| didn't sleep well back then.
|
| Your portfolio lost 26% of its value that year, and losing
| 1/4 of your life's saving isn't something most people are
| ready to stomach, especially when they need it the most
| (year just before or just after retirement, typically).
|
| At the same time, Browne's allocation lost less than 1%.
| Since 2007 it had just one really bad year (2022, -13%, and
| even then it wasn't as bad as the above allocation), other
| than that, it was always positive or close to zero.
|
| A simple portfolio that almost never loses money and still
| has a decent, yet significantly smaller than its
| competitors, CAGR. That's a pretty good option for very
| conservative investors, IMO.
| tejohnso wrote:
| > You're violating Rule #1 if you think your investments can be
| the sole source of your retirement wealth
|
| What? That's exactly what I'm investing for. What the hell else
| should I expect to fund my retirement?
| abwizz wrote:
| imo it means that you should also own a place to live in.
| ghaff wrote:
| In context, it's clearer.
|
| Don't be banking on that elusive big investment win to save the
| day if you're not otherwise on the trajectory you want to be
| on. Of course, you hope your investments will preserve your
| savings and augment them. But outsized investment gains won't
| in general get you there by themselves.
|
| (Also remember that the 10 years since this was written have
| been something of an outlier for the stock market.)
| xvaier wrote:
| It should have been phrased, "your return on investments can be
| the sole source of your retirement wealth."
|
| I think what they mean is that the bulk of your wealth will be
| the capital that you put into your investments with a
| reasonable amount of interest/capital gain.
| kaycebasques wrote:
| Rule #1 (your career creates your wealth) is a gem.
|
| Rule #8 (make your own decisions) lacks self-awareness,
| especially after you read Rule #11 (bulletproof portfolio). I
| have been on a quest for a truly bulletproof portfolio for years.
| It's not easy. TANSTAAFL. Rule #11 also contradicts Rules #6 (no
| trading system works forever) and #9 (only do things you
| understand).
|
| That criticism aside, the author did a service to us all by
| writing this. If I had followed all these rules consistently
| throughout my life, I would probably be a wealthier man today.
| angarg12 wrote:
| Growing up poor-ish and coming to a high income later in life
| (nearing 40 now) I believe growing your income is almost a
| prerequisite to accumulate wealth.
|
| Sure, I wish I had known this advice earlier, but even if I
| did, now I would be only ever so slightly richer. When I spent
| the first half of my career in a low pay job living paycheck to
| paycheck, I simply didn't have the spare income to invest.
| ghaff wrote:
| Where I've ended up is keeping some money aside to scratch
| whatever (mostly pretty conservative) investing itch I have and
| leaving the rest to a financial advisor. He's done stuff for my
| family for years and my feeling is that especially if I'm not
| going to actively manage my full portfolio, I'm better off with
| someone else doing it than just throwing the money into some
| index funds and calling it a day. (Though there have certainly
| been periods where that's probably been the right strategy.)
| sgerenser wrote:
| People with "a guy" always think he's doing something super
| clever. In reality, the best ones are just investing your
| money in index funds. The best they can do is help to save
| you from yourself, like avoiding selling stocks and moving to
| cash in 2008 or 2020.
| [deleted]
| c0pium wrote:
| Have you back tested this hypothesis? It's very unlikely to
| be true over a long period, say 15 years.
| ghaff wrote:
| Hard to say. Everything invested in the NASDAQ over the
| past 15 years would have been a great strategy. (Edit: high
| return strategy. Not necessarily a "good" one.) The 15
| years before that probably not as good.
|
| Putting money in a small number of index funds and not even
| looking at them probably isn't a bad strategy and the costs
| are pretty low. But it's not bulletproof.
|
| I look at the financial advisor/firm as a form of
| diversification in part. I also keep my own portfolio small
| enough to have some (hopefully) intelligent opinion on
| whether the investments still make sense. (Including a
| decent weight on index funds.)
| c0pium wrote:
| It's not hard to say though, back testing is trivial.
| There are very few market-beating advisors, and the
| longer you look the longer the odds get.
| DennisP wrote:
| Trading systems and asset allocations are not the same thing.
|
| Browne wrote a book explaining his portfolio in hopes that
| people would understand it. If you understand it and decide to
| use it, you're making your own decision.
| kaycebasques wrote:
| > Trading systems and asset allocations are not the same
| thing.
|
| Asset allocation is just a trading system that changes much
| less frequently and has a different belief system
| underpinning it. They are both fundamentally decision
| frameworks about how to spend your money.
|
| The tragedy with this article is that a lot of the advice is
| sound. Once people get to Rule #11 they have a lot of reason
| to trust this author and adopt his bulletproof portfolio. And
| then they learn the hard way how it wasn't bulletproof.
|
| The author really should have known better. The prescriptive
| recommendations in Rule #11 contradict so much of the
| otherwise sound advice.
| DennisP wrote:
| Nothing is bulletproof, but you have to do _something_ and
| Browne 's portfolio has less risk than most. It sacrifices
| some returns to achieve that, but if you're retired or
| nearly so, it's a solid choice.
| ghaff wrote:
| >It sacrifices some returns to achieve that, but if
| you're retired or nearly so, it's a solid choice.
|
| In that scenario, especially given a healthy nest egg, it
| absolutely makes sense to optimize locking in an income
| stream at the expense of limiting the upside. Once you
| have "enough" money close to retirement, it's mostly
| about not taking risks for potential gains that won't
| really benefit you.
|
| For someone in a different situation, it will often make
| sense to go for higher _average_ returns over time.
|
| (All of which is pretty much bog standard financial
| planning advice.)
| kaycebasques wrote:
| Yes, exactly! Nothing is bulletproof and you have to do
| something. There Ain't No Such Thing As A Free Lunch. You
| can't depend on anyone to figure out a low-risk plan for
| you, not even Browne!
| Tokkemon wrote:
| A better title would be "Harry Brown's 17 Rules for Keeping Your
| Wealth Once You Already Have it, and Good Luck Getting There!"
| wmf wrote:
| Rule 1 directly addresses this point.
| spacedcowboy wrote:
| Alternatively: buy AAPL :)
| spacedcowboy wrote:
| For some reason, I can't edit the above, but it was supposed to
| be a joke, hence the smiley. Seems like some people lacking a
| sense of humour (or at least, their sense of humour is
| sufficiently different to mine to not correlate).
| jboy55 wrote:
| I remember in around 1998 I just started my career and one of
| my duties of my job was to go around to our alpha testers of a
| photography product we built and make sure things were going
| well. These customers were often pretty angry at my company due
| to them not being told it was an alpha version, but most often
| they were happy to see me try to help them out.
|
| Anyhow, at one of those customers, the designers, photoshop
| artists, and I got lunch and started talking. Prime topic was
| the 'outspoken IT guy' who had all sorts of 'theories' and
| 'rules' he lived by, often to the amusement of his coworkers.
|
| They goaded me into asking about his rules,
| "Ask him why he only uses chopsticks!". A: "Because
| they've never been able to train monkeys to use chopsticks"
| "Ask him his retirement strategy! He only invests in one thing,
| he's a true believer!" A: "I am a believer, I'm a
| believer in Steve Jobs, I put all of my money in whatever he
| does. I had money in Pixar, now I'm putting all my money in
| APPL".
|
| note: If he had 100k he put in at that time, he'd have 63
| million now.
| jonhohle wrote:
| Hopefully he doesn't follow Jobs' medical strategy.
| [deleted]
| tqi wrote:
| > GOLD not only does well during times of intense inflation, it
| does very well. In the 1970s, gold rose twenty times over as the
| inflation rate soared to its peak of 15% in 1980
|
| Is this still true? As a layperson looking at the chart, it seems
| like gold has moved up and down a lot, but is more or less in the
| same place as it was 2 years ago.
| jtc331 wrote:
| It's not true. And using the 70s as proof is either dishonest
| or lacking knowledge: gold rose in the 70s because an
| artificial pinning of its price was removed.
| jonhohle wrote:
| Isn't that the point, though? It's a hedge against inflation,
| a low risk, static asset to keep in place of cash.
|
| In 1970 a Carolla would have cost about 40oz of gold and
| today it would cost about 20oz. A barrel of crude was [?]oz,
| today 1/20th oz.
| throw0101a wrote:
| > _It's a hedge against inflation, a low risk, static asset
| to keep in place of cash._
|
| It is not a good hedge against inflation:
|
| * https://www.nber.org/papers/w18706
|
| *
| https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3667789
|
| From Roy Jastram's _The Golden Constant: The English and
| American Experience 1560 to 1976_ :
|
| > _Andre Sharon, head of the international research
| department at Drexel Burnham, Inc., notes, "the value of
| gold essentially derives from its capacity to preserve real
| capital and purchasing power."+ I select this particular
| quotation because of the prestige of the organization and
| the position of the spokesman, but statements in this vein
| can be found in great numbers. They can be traced back for
| generations and in many countries. How can this proposition
| so contrary to statistical fact become so widely believed
| and quoted? Possibly because gold has preserved capital in
| cataclysmic cases it is easy to infer that it can be
| trusted to do the same in less severe circumstances. To
| extrapolate from gold's protection in singular catastrophes
| to its use as a strategy against cyclical infation is an
| example of faulty inductive reasoning._
|
| * PDF: http://csinvesting.org/wp-
| content/uploads/2016/02/RoyJastram...
|
| * https://www.pwlcapital.com/will-gold-save-the-day/
| jonhohle wrote:
| Many people believe the price of gold is being artificially
| suppressed or is artificially lagging since it is not behaving
| the way it typically does. If it can no longer be kept low, it
| will probably move quickly to a true market price.
|
| Is that true? JP Morgan and Deutche Bank have been caught
| manipulating the price, but it would probably need to be the
| Fed to keep it suppressed for as long as it has been. They
| certainly have the motive, but no one has proven that they are
| doing it.
| andruby wrote:
| Or: past performance is not a guarantee for future
| performance.
|
| Maybe gold and inflation are no longer as correlated as they
| used to be.
| throw0101a wrote:
| > _Maybe gold and inflation are no longer as correlated as
| they used to be._
|
| Or maybe they were never correlated and people just assumed
| they did and never bothered looking at the data:
|
| * https://www.nber.org/papers/w18706
|
| *
| https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3667789
| zo1 wrote:
| Or me with my tinfoil hat:Gold is correlated with real
| value and the inflation numbers don't reflect that because
| they're artificially suppressed.
|
| I.e. if gold looks flat growth wise to the dollar, maybe
| it's cause it actually went up in value but the dollar went
| down due to inflation.
___________________________________________________________________
(page generated 2023-09-03 23:00 UTC)