Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Harry Browne’s Rules of Financial Safety (1999)

thetaoofwealth.wordpress.com

Post reply on HN
Print view View original

81–90 of 245 posts

Re: Harry Browne’s Rules of Financial Safety (1999)

#81

Post by ttul »

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.

Re: Harry Browne’s Rules of Financial Safety (1999)

#82

Post by capableweb »

prepend wrote: post #76

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.

> 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.

Re: Harry Browne’s Rules of Financial Safety (1999)

#84

Post by Racing0461 »

ttul wrote: post #81

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, obta…

How are white males a privileged class? The top 1% sure, but the average white male?

If anything, white females are a privileged class.

Re: Harry Browne’s Rules of Financial Safety (1999)

#85

Post by ghaff »

prepend wrote: post #76

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.

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.

Re: Harry Browne’s Rules of Financial Safety (1999)

#86

Post by maskil »

ttul wrote: post #81

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, obta…

So you're advice is basically to give up?

Re: Harry Browne’s Rules of Financial Safety (1999)

#87

Post by smitty1e »

fbdab103 wrote: post #65
distances wrote: post #46

Earlier quoted context omitted.

I commented already for the parent, but the article most definitely does not mean physical cash. Nobody will advice you to hold physical cash.

Unless you want to live like Scrooge McDuck or Smaug.

You swap systemic risk for physical security risk if you hold substantial hard currency.

Re: Harry Browne’s Rules of Financial Safety (1999)

#88

Post by javanissen »

roenxi wrote: post #14

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…

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...

Re: Harry Browne’s Rules of Financial Safety (1999)

#89

Post by ttul »

maskil wrote: post #86
ttul wrote: post #81

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, obta…

So you're advice is basically to give up?

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.

Re: Harry Browne’s Rules of Financial Safety (1999)

#90

Post by liquidpele »

brilee wrote: post #50
roenxi wrote: post #14

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…

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 in…

“When stocks are great”… ie buy low sell high, easy to say but damn near impossible to do.
Post reply on HN