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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)

#161

Post by nly »

hammock wrote: post #158
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…

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)

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

#162

Post by compiler-guy »

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…

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.

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

#163

Post by nly »

tornato7 wrote: post #102
javanissen wrote: post #88

Earlier quoted context omitted.

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…

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/

So a 50% market drop wipes you out completely? Hrrm, nah

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

#164

Post by PaulHoule »

ghaff wrote: post #159
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.)

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.

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

#165

Post by sixstringtheory »

hammock wrote: post #158
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…

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)

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

#166

Post by ghaff »

DennisP wrote: post #140
kaycebasques wrote: post #136

Earlier quoted context omitted.

> 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 ado…

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.

>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.)

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

#167

Post by ghaff »

PaulHoule wrote: post #164
ghaff wrote: post #159

Earlier quoted context omitted.

>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.)

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. No…

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.)

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

#168

Post by sacado2 »

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…

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)

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

#169

Post by hammock »

nly wrote: post #161
hammock wrote: post #158

Earlier quoted context omitted.

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…

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)

>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?

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

#170

Post by sacado2 »

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 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.
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