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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)
#72Re: Harry Browne’s Rules of Financial Safety (1999)
#73Rule 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…
> 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)
Re: Harry Browne’s Rules of Financial Safety (1999)
#74Earlier quoted context omitted.
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
That's kind of the opposite of cash...
So you don't consider it cash unless it's US Treasury notes stuffed in a mattress?
Re: Harry Browne’s Rules of Financial Safety (1999)
#75> 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.
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.
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 ⅒oz, today 1/20th oz.
Re: Harry Browne’s Rules of Financial Safety (1999)
#76What’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.
Re: Harry Browne’s Rules of Financial Safety (1999)
#77Missing: 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.
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”
Re: Harry Browne’s Rules of Financial Safety (1999)
#78Earlier quoted context omitted.
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.)
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.
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.
Re: Harry Browne’s Rules of Financial Safety (1999)
#79Alternatively: buy AAPL :)
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Re: Harry Browne’s Rules of Financial Safety (1999)
#80Earlier quoted context omitted.
That's kind of the opposite of cash...
So you don't consider it cash unless it's US Treasury notes stuffed in a mattress?
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?