I find treasuries more palatable to hold when they are matched to liabilities. I’ve defeased my mortgage this way with nominal bonds and am working on TIPS rungs for property tax. This way I feel like no matter how bad it gets in the equities market, I’ll never lose my home. Consequently, I’ll be less likely to panic.
I think being risk averse could be a costly mistake when it comes to broad-based portfolio investing. Even if you are a risk averse person in other areas, the rational decision is to tilt towards more stock allocation in investing. That’s what the numbers tell you. The cost of using a club device to protect your car is minimal. The cost of a conservative allocation could be dear in 10-20 years.
Maybe you will have successors (kids?) and you will care about passing your wealth to them.
Regardless, I think what you say can be interpreted differently. The higher the dollar amounts, the higher are the stakes. So maximizing investment returns matters even more - hence pushing the limits of your risk tolerance.
Personal decision. I don't want to lose 50%. I don't want to go through lost decades. And at 7.6% over 50 years, I'll still be rich. But I also won't have to lose any sleep.
Personally I think it's a little absurd to go through lost decades and regular 50% declines just to earn another .6% when the portfolio is already earning enough to earn substantial sums. I'm also not even sure we won't ever have another Depression. If that's a once-in-a-century kind of event, I'll probably see another one in my lifetime. I estimate this portfolio would lose 50%. A 100% stock portfolio would likely lose something on the magnitude of 80-90%.
I'm also not entirely certain that 100% stocks will even outperform a risk parity style portfolio over the long run. It probably will, but I don't think that's a guarantee at all.
100%, I'm on 80% VT and 20% local inflation-linked bonds (in Poland), and this year I decided to shift to 75/20/5, and that new 5% is just EUR MMF. I think my endgame is a 70/30 split, portfolio is too large now and I don't need to risk too much, it's still aggressive and grows fast!
this is very cool. I really do like your story.
Thanks!
I find treasuries more palatable to hold when they are matched to liabilities. I’ve defeased my mortgage this way with nominal bonds and am working on TIPS rungs for property tax. This way I feel like no matter how bad it gets in the equities market, I’ll never lose my home. Consequently, I’ll be less likely to panic.
I think being risk averse could be a costly mistake when it comes to broad-based portfolio investing. Even if you are a risk averse person in other areas, the rational decision is to tilt towards more stock allocation in investing. That’s what the numbers tell you. The cost of using a club device to protect your car is minimal. The cost of a conservative allocation could be dear in 10-20 years.
Based on the backtest data of these portfolios, I don't think you need to sacrifice much in return for a significant reduction in risk.
"Yes, that .6% difference adds up to a lot when compounded over 50 years. "
That's my point I guess.
In 50 years I'll be dead and still have plenty of money. I also won't have to stress out much during a market crash. Up to the person, I guess.
Maybe you will have successors (kids?) and you will care about passing your wealth to them.
Regardless, I think what you say can be interpreted differently. The higher the dollar amounts, the higher are the stakes. So maximizing investment returns matters even more - hence pushing the limits of your risk tolerance.
Personal decision. I don't want to lose 50%. I don't want to go through lost decades. And at 7.6% over 50 years, I'll still be rich. But I also won't have to lose any sleep.
Personally I think it's a little absurd to go through lost decades and regular 50% declines just to earn another .6% when the portfolio is already earning enough to earn substantial sums. I'm also not even sure we won't ever have another Depression. If that's a once-in-a-century kind of event, I'll probably see another one in my lifetime. I estimate this portfolio would lose 50%. A 100% stock portfolio would likely lose something on the magnitude of 80-90%.
I'm also not entirely certain that 100% stocks will even outperform a risk parity style portfolio over the long run. It probably will, but I don't think that's a guarantee at all.
Great post VSG. Appreciate you sharing your backstory.
I really have no opinion on the personal finance side, but I enjoy hearing how others think about risk.
Dean
100%, I'm on 80% VT and 20% local inflation-linked bonds (in Poland), and this year I decided to shift to 75/20/5, and that new 5% is just EUR MMF. I think my endgame is a 70/30 split, portfolio is too large now and I don't need to risk too much, it's still aggressive and grows fast!
Thanks for sharing this!