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Harry Browne’s Rules of Financial Safety (1999)

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

#151

Post by matsemann »

ajross wrote: post #128
matsemann wrote: post #26

Earlier quoted context omitted.

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.

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 c…

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.

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

#152

Post by ww520 »

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…

"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.

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

#153

Post by jandrewrogers »

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…

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.

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

#154

Post by IAmGraydon »

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.

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

#155

Post by angarg12 »

kaycebasques wrote: post #22

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…

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.

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

#156

Post by koolba »

javanissen wrote: post #88
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 conditi…

> 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.

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

#157

Post by 6ak74rfy »

soared wrote: post #4

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.

> 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.

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

#158

Post by hammock »

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…

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

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

#159

Post by ghaff »

IAmGraydon wrote: post #154

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 t…

>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.)

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

#160

Post by hammock »

jandrewrogers wrote: post #153
brilee wrote: post #50

Earlier quoted context omitted.

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…

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.

If you have 10% in cash you ought to have enough to cover the tax bill from rebalancing, in most years
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