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Golden Rules of Financial Safety (1999)

harrybrowne.org

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Re: Golden Rules of Financial Safety (1999)

#91

Post by mfoy_ »

PatientTrades wrote: post #46
dsr_ wrote: post #29

Earlier quoted context omitted.

Where does the money for those things come from, if not your career?

> 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.

Re: Golden Rules of Financial Safety (1999)

#92

Post by froindt »

Heraclite wrote: post #79

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).

Re: Golden Rules of Financial Safety (1999)

#93

Post by SilasX »

snikeris wrote: post #80
SilasX wrote: post #69

Earlier quoted context omitted.

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 y…

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?

Re: Golden Rules of Financial Safety (1999)

#94

Post by mfoy_ »

tanderson92 wrote: post #73
PatientTrades wrote: post #4

> Rule #1: Your career provides your wealth. 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…

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.

Re: Golden Rules of Financial Safety (1999)

#95

Post by loeg »

brndnmtthws wrote: post #52

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. 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.

Nothing in TFA mentions 25% cash.

Re: Golden Rules of Financial Safety (1999)

#96

Post by dice »

pattle wrote: post #55
chillydawg wrote: post #20

Earlier quoted context omitted.

...or it might go to 0? Bitcoin is many things, but it certainly is not a savings account.

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

Dogecoin should also have theoretically been always going up. I seem to recall something about the moon...

Re: Golden Rules of Financial Safety (1999)

#97

Post by snikeris »

PatientTrades wrote: post #4

> Rule #1: Your career provides your wealth. 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…

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.

Re: Golden Rules of Financial Safety (1999)

#98

Post by loeg »

simplerufus wrote: post #22
pattle wrote: post #17

Earlier quoted context omitted.

Why not store the money in Bitcoin instead? It's outside of government control and you should get a nice return on your investment.

Yeah, interesting. So far I have plenty of crypto, but foremost as a high risk investment and not capital storage

Again, as TFA mentions, bitcoin is speculation, not investment. It has no inherent production of value, unlike stocks.

Re: Golden Rules of Financial Safety (1999)

#99

Post by mfoy_ »

SandersAK wrote: post #81
lbotos wrote: post #70

Earlier quoted context omitted.

>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 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…

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!"

Re: Golden Rules of Financial Safety (1999)

#100

Post by loeg »

Heraclite wrote: post #79

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?

patio11 has a pretty reasonable (if US centric) article on the subject: https://training.kalzumeus.com/newsletters/archive/investing...
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