Harry Browne’s permanent portfolio emphasizes the importance of diversified international assets, including a significant allocation to gold.
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Nelle risposte che seguono, tratte dalle mie risposte online su Quora, mi concentro su una serie di argomenti, tra cui:
- Why does Harry Browne’s permanent portfolio have such a large allocation to gold? Has this portfolio performed well relative to the S&P500 and Ray Dalio’s All Weather Portfolio?
- Why do people believe that property is a great investment and are they right?
- To open a business, do you need loads of money? I offer a different narrative.
- Does having more money mean you are more successful?
- Should you invest in the ARK ETFs?
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Why does Harry Browne’s permanent portfolio have such a large allocation to gold?
Fonte: Quora
For those that don’t know Harry Browne’s portfolio consists of 25% in stocks, 25% in gold, 25% in bonds and 25% in cash.
To answer your question, I am not 100% why gold makes up exactly 25% of the portfolio.
I am guessing one reason is that even though gold hasn’t outperformed long-term, it is likely to perform during periods when stocks don’t.
In addition to that, he probably wanted to keep things simple, with four equal weights.
This was especially important in his era, when it was harder to trade financial investments unless you were very rich.
I would make a wider point though. If you look at the permanent portfolio, long-term, it gets beaten hands down by the general stock market.
It is just less volatile which makes people feel safer.
Let me give you a simple example
Since 1977 the permanent portfolio has done 8.31%, and the worst year has only been -5.2%.
You might be thinking “what’s not to love!”. You can get more than the bank pays and reduce the volatility.
Yet during the same period, US stocks have done 11.83% adjusted for dividend reinvestment.
To give you some context, if you had invested $100,000 in 1977, 8.31% would become $3.1m.
11.83% would have yielded close to $13.5m. Quite a difference for no extra work!
If we look at the results from the late 80s, we see a similar trend:
We also see a similar trend when we look at Ray Dalio’s All Weather Portfolio.
Even if we look at a period before a crash, it doesn’t do as well as the S&P500:
The bottom line is this. Wide diversification can yield much better returns than putting your money in the bank AND you can get those returns without huge volatility.
Yet if you can stomach a 50% fall, it is better to be 90%-100% in stocks when you are young/relatively young, and then focus on wider diversification closer to retirement.
With cash and bonds paying less than they used to when the Permanent Portfolio was designed, this has never been truer than today.
Why are people convinced that buying a home is a good investment?
Fonte: Quora
In many countries, at least until relatively recently when stock ownership has democratised and isn’t only for “the rich”, real estate has been the go to investment.
It paid more than cash and bonds at least, and seemed to only go up.
Added to that, if you look at real estate returns in the last hundred or two hundred years, most of the rises have been between 1970 and 2008 in developed countries, and 1980s-present in most developing countries.
Take the UK as an example. There was close to zero rises from 1900–1960, at least adjusted for inflation.
Likewise, apart from London and some parts of the country, prices have actually fallen in real terms compared to the peak of 2008–2008, even if they are higher than in 2009 and 2010.
Most of the returns were therefore in the 1960s, but especially 70s, 80s, 90s and 2000s.
That means that most of our parents, grandparents and teachers made a decent amount of money from property.
Same thing happened in the US, where prices spiked in the 1990s and 2000s – and have continued that way in some specific cities after 2010:
It has therefore became culturally embedded to assume that property is a good investment.
Similarly, gold has historically been another investment which has been popular in some cultures, regardless of the rationale behind it.
Few people look at older term graphs to compare property and stocks, and inflation-adjusted graphs.
If they did they would see that
- Property isn’t the worst investment in the world but nor is it the best.
- Property can be the best investment in the world over a two, five or occasionally decade long period but doesn’t beat stocks long-term
- The only way to beat a market like the S&P500 with property is to focus on yield and leveraging your gain.
- There are a lot of costs, in terms of taxes and maintenance, associated with property. So, the difference between gross and real returns is huge. Simple example. Let’s say you have a $500,000 house and next year it is worth $515,000. You aren’t making $15,000. You are losing money. Inflation is running at 2% or so, and maintenance costs and taxes typically 2%. Likewise, if your rental property is making 8% per year, that could easily be 4% adjusted for these factors.
- Sometimes renting can be cheaper than buying and sometimes buying is better
- A rental property and a primary residency aren’t the same thing.
So, property can be a great investment for some of the people, some of the time.
It is a huge misconception that “you can’t lose with property” though.
To open a business, do I need lots of money?
Fonte: Quora
It depends what kind of business. In some industries, for example capital and labour intensive ones, or ones that need a very expensive license on day one, you do need a lot of money.
Yet there are loads of businesses that need close to zero money.
The internet has been a game changer here. Think of any industry and most can be done online at a fraction of the cost of traditional businesses.
In this case, you just need experience and a well defined plan.
The world class lawyer who already has clients and lives in an area where getting a license is cheap, can start easily.
A world class real estate professional who already knows how to sell houses doesn’t usually need a lot to get started.
I know I didn’t need a lot to get started.
In this case all you need is
- Experience. Get good at something for at least five years. Of course, experience in an industry, ideally services, which doesn’t need loads of start up capital.
- Make it an online business
Also, it is better to start small even if you have loads of capital. If you are starting your own business, it is better to focus on your existing clients, experience, revenue sources etc.
What is the more productive activity on day one of starting a new business?
To call a former client if that doesn’t go against the NDA, or spend a fortune on ads? The answer is obvious in most industries at least.
The problem is, too many people are looking to start sexy business with loads of venture capital money.
Some have never build up something organically. Yet if you learn how to do that, then you can actually better use capital and are less likely to waste it.
In other words, if a business has already grown very nicely organically and from free or cheap sources, money can add fuel to the fire.
You are already adding money to a winning formula. I know one guy who has made a lot from Facebook leads.
Yet he spent two years building up a Facebook page organically and then used money to go to the next level.
In comparison, throwing money at a problem isn’t always the best option.
Is having more money real success?
Fonte: Quora
There is one fact in life that nobody can escape from. You will never make everybody happy.
Imagine you are in Dubai, Egypt or any other tourist destination. You ride a camel with your wife:
If you go together, one person might claim the added weight is cruel for the camel.
If you go alone, some people will say you aren’t being gentlemanly.
If you let your wife go, and you stand and watch, some will say that you are putting her in danger if the camel gets angry and drops her!
Now this is a non business and investing example, and we could have changed that up to speak about how people would have reacted in many other situations.
Yet the point holds. No matter what you do, other people will judge.
Most people don’t care that much. They might gossip. But they are mainly just getting on with their lives.
So, in answer to your question, real success should be defined by yourself.
If real success is money for you, then great. If it is helping other people via charity, then fantastic.
Or maybe it is status, lifestyle or many other things. Yet the point is, define it for yourself.
Don’t let your family, friends or especially general society influence you that much.
What we can look at is the general picture. In the book below from Bonnie Ware, who looked after many dying people, the old people listed their regrets:
The top five, according to the wikipedia entry, are:
- “I wish I’d had the courage to live a life true to myself, not the life others expected of me.”
- “I wish I hadn’t worked so hard.”
- “I wish I’d had the courage to express my feelings.”
- “I wish I had stayed in touch with my friends.”
- “I wish that I had let myself be happier.”
Yet from reading the book, there were one commonalities throughout.
That is, caring too much about what random people think, and caring too little about the important things and important people.
So, define success for yourself. If you get money and don’t feel successful, then guess what, you can use that money to help charity or do whatever you want to do.
Should one invest in the ARK Innovation ETF (ARKK)?
Fonte: Quora
Cathy’s Wood’s ARKK has certainly received a lot of attention of late.
The performance, at least until very recently, has also been great:
Here is something which few people take into account when considering “hot” stocks or funds that could beat the market.
If your investment falls by 90%, which is possible in higher risk stuff, you need to gain by over 900% to break even.
Simple example. If you invest $100,000, and it becomes $10,000, it needs to 10x to get back to where it was.
I am not saying this will happen to the ARKK funds. They might continue to outperform.
I am merely saying:
- They are riskier than the general indexes. They are investing into riskier areas to begin with, and you also have the human error risk associated with the fund manager.
- Mean reversion means that they might one day have an awful year. Most hot funds that beat the market eventually revert to the mean.
- If this mean reversion happens then you might need to see a rebound of 500–1,000 to break even.
- “Star” fund managers come and go. Look at somebody like Neil Woodford in the UK. His star has really waned.
- Most people who don’t have access to advisors aren’t good at assessing the risk and likely risk-adjusted returns, they are just interested in the story behind the ETF.
- People tend to get complacent if their “bets” pay off over a long time. In the 1990s, plenty of people who beat the market consistently for about a decade with stock picks and buying into tech funds assumed it would happen forever. We see similar complacency these days.
Let’s not forget as well, as more money goes into hot funds, it gets harder to outperform, compared to when the fund is boutique.
Getting 30% from a boutique 1 billion fund is much easier than a one trillion fund!
So, I am not saying don’t invest. Just keep funds like that down to 5%-10% of the total.
That way you will gain if it does really well, but it isn’t the end of the world if it falls a lot.
That kind of strategy won’t just help you with ARK, it will also help you with any hot trend.
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