PR'd financially today

mprevost

Level 6 Valued Member
CD Ladder: CDs mature after a specific time interval (i.e., you can buy 1, 2, 3, 4 and 5 year CDs). Generally, the longer the maturity date, the higher the yield. A "ladder" is purchasing CDs that mature at different dates, so that you have a CD coming to maturity each year. That way you will have cash available if you need it, or can reinvest it if you want.
 

Sean M

Level 6 Valued Member
@mprevost You mention you aren’t in the market. Is that “not any more” or “I never was”? Reason I ask - aside from owning a successful business (which would include real estate ownership), what other way is there for a wage-earner to build wealth over decades, other than the stock market - literally buying in to the whole market, like Vanguard Total Stock Market ETF (VTI)?

I’m 32, I have about my lifetime to ride the wave (overall, there are ups and downs - but the “downs” just mean I am buying on sale) - but by being too conservative (not being invested) I would miss out on the upside, or at least the risk-adjusted upside (not everyone is going to be Mark Zuckerberg - big risk but big reward if it works).
 

mprevost

Level 6 Valued Member
@mprevost You mention you aren’t in the market. Is that “not any more” or “I never was”? Reason I ask - aside from owning a successful business (which would include real estate ownership), what other way is there for a wage-earner to build wealth over decades, other than the stock market - literally buying in to the whole market, like Vanguard Total Stock Market ETF (VTI)?

I’m 32, I have about my lifetime to ride the wave (overall, there are ups and downs - but the “downs” just mean I am buying on sale) - but by being too conservative (not being invested) I would miss out on the upside, or at least the risk-adjusted upside (not everyone is going to be Mark Zuckerberg - big risk but big reward if it works).
I got there primarily by spending much less than I earned. I down sized my spending and lifestyle to the point that I was saving 50% or more of my income every year, for more than 10 years. Very little of my wealth came from yield. I found that I was just as happy (happier even) with a more minimal lifestyle. Basically I was just stacking money in a mattress. Not ideal, but it is a low risk strategy that can work if you are an aggressive saver.

I had three real estate investments. One ended up being about break even and the other two lost money. I bought a house in 2006 (new construction, in a great neighborhood), and sold it 11 years later for 100K less than I paid for it. It was a stupid purchase given my circumstances at the time. But FOMO (fear of missing out) drove the purchase. It was a hard lesson. I lost MORE than I invested because of leverage.

In 2007, I watched the guy who worked in the cubicle next to me go into near clinical depression because he was (so he thought) 1 year away from retiring when the crash hit. He lost so much money in 3 days that he figured he was going to have to work at least 8 more years! I don't know exactly what the right strategy is, but I know what the wrong strategy is. The wrong strategy is to have so much money "at risk" that a loss would be unacceptable.
 

mprevost

Level 6 Valued Member
I should mention another Nassim Taleb idea that can simplify complex decisions. Via negativa - wisdom through subtraction. Instead of focusing on what is the right strategy, focus on avoiding what you know is the wrong strategy. In the long run, it puts you in the right position with less guesswork.

Via negativa can apply also to fitness, health, nutrition....many areas of life.

Via Negativa: Addition by Subtraction | The Art of Manliness
 
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Anna C

Level 9 Valued Member
Elite Certified Instructor
Wow, this is good, from that article...

On his blog, Cal Newport shared an anecdotal story about Warren Buffet that illustrates the importance of choosing the best over the good:

“Buffett wanted to help his employee get ahead in his working life, so he suggested that the employee list the twenty-five most important things he wanted to accomplish in the next few years. He then had the employee circle the top five and told him to prioritize this smaller list.

All seemed well until the wise Billionaire asked one more question: ‘What are you going to do with the other twenty things?’

The employee answered: ‘Well the top five are my primary focus but the other twenty come in at a close second. They are still important so I’ll work on those intermittently as I see fit as I’m getting through my top five. They are not as urgent but I still plan to give them dedicated effort.’

Buffett surprised him with his response: “No. You’ve got it wrong…Everything you didn’t circle just became your ‘avoid at all cost list.’”
I think most of us might be wise to take this approach with our physical training...
 

wespom9

Level 6 Valued Member
Certified Instructor
CD Ladder: CDs mature after a specific time interval (i.e., you can buy 1, 2, 3, 4 and 5 year CDs). Generally, the longer the maturity date, the higher the yield. A "ladder" is purchasing CDs that mature at different dates, so that you have a CD coming to maturity each year. That way you will have cash available if you need it, or can reinvest it if you want.
A yes ok, we have that here in Canada but under a different acronym.

Via negativa was something I learned more from Stoic readings prior to reading it by Taleb, but that is definitely a concept that greatly increased my life satisfaction since adopting.
 

Sean M

Level 6 Valued Member
I agree the barbell strategy is great for a pile of money you already have a nestegg built up that you want to preserve.

But if you are dollar-cost-averaging 3-9% (with employer match) of a salary, is it too conservative to use 90% of that on government bonds and 10% on 10x beta (or negative beta) securities? Especially if one has a decades-long horizon?

Example:
Janitor Ronald Read Leaves Behind $8,000,000 Secret Fortune
 

Anna C

Level 9 Valued Member
Elite Certified Instructor
But if you are dollar-cost-averaging 3-9% (with employer match) of a salary, is it too conservative to use 90% of that on government bonds and 10% on 10x beta (or negative beta) securities? Especially if one has a decades-long horizon?
I think it's too conservative. But everyone has a different risk tolerance. I have a bulk of my 401k/IRA investments in Vanguard Total Stock Market Index Fund and Vanguard Target Retirement 2040 Fund and it's grown a lot over the years. I'd hate to think how much smaller the pile would be if I had stayed conservative since the beginning. I plan on retiring sooner than 2040, but I don't mind being aggressive with it because I'll have a military pension starting at age 60. I will probably gradually move the investments to more conservative funds over the next few years.
 

mprevost

Level 6 Valued Member
I agree the barbell strategy is great for a pile of money you already have a nestegg built up that you want to preserve.

But if you are dollar-cost-averaging 3-9% (with employer match) of a salary, is it too conservative to use 90% of that on government bonds and 10% on 10x beta (or negative beta) securities? Especially if one has a decades-long horizon?

Example:
Janitor Ronald Read Leaves Behind $8,000,000 Secret Fortune
I think you are probably right. But it depends on what the economy does, and nobody really knows. I tend to revert to a safer strategy under uncertainty. I focus on not being ruined more than higher yield.
 

mprevost

Level 6 Valued Member
A simple heuristic might help. Don't put more money at risk (even low risk) than you can afford to lose (pain is survivable, ruin may not be). That way, even if a "black swan" event happens, you are not ruined.

We always underestimate the risk of "black swan" events
 

Sean M

Level 6 Valued Member
A simple heuristic might help. Don't put more money at risk (even low risk) than you can afford to lose (pain is survivable, ruin may not be). That way, even if a "black swan" event happens, you are not ruined.

We always underestimate the risk of "black swan" events
That’s good. In my case, I have 3.5 decades to make up another ‘29 or ‘87 or ‘08 (or WWIII...). So I’m ok with it all (measly as it is) being at risk. When I’m 50, different story.
 

LukeV

Level 5 Valued Member
A simple heuristic might help. Don't put more money at risk (even low risk) than you can afford to lose (pain is survivable, ruin may not be). That way, even if a "black swan" event happens, you are not ruined.
We always underestimate the risk of "black swan" events
I agree with the sentiment on black swans generally but in practice we should also be guided by data and what is knowable.

There is over a century of data on movements in the share market and over that history I would describe the market as eating black swans and crapping dividends. The market displays incredible resilience and paradoxically the longer the timescale the less risky it becomes (unlike in life where the longer you hang around the more likely bad stuff is to happen).

I don't have US data but on the ASX (reinvesting dividends) a diversified portfolio only has a 1% chance of making a loss over five year timescale. I'm not sure there has ever been a loss over 10 year timescale.

Of course it's possible for the world to go to hell in a hand basket but it hasn't happened yet and if it did chances are someone would monetise it and list on the stock exchange.

But that's systemic risk and there is the unsystemic risk of individual companies or sectors going belly up so diversification is still the key. For my part the rule of thumb is to diversity sufficiently so you can afford to lose what is placed in each individual company or sector. Outside of cash (which is government guaranteed in Australia) the maximum I hold in any single investment is 6% (and thats in a diversified conglomerate) while most are around 4%. I don't invest in indexes but plenty of people do well with that approach. As stated earlier I hold enough cash that if the market crashes I don't need to sell, at least not for a couple of years.

Ultimately though it comes down to your risk appetite and it's not worth chasing maximum returns if that means losing sleep at night.

I only invest in companies that I understand and that make stuff that people and society need. So I've never invested in Facebook, Google, Coca-cola etc and am poorer (maybe) as a result. But I've still made enough.
 

North Coast Miller

Level 7 Valued Member
I have some gold set aside and not a week goes by I don't consider cashing out one of my IRAs and sinking what's left after penalties and taxes into gold and silver.

I have zero confidence the FRN can hold up for another 5 years let alone 20. I have zero confidence the govt can or will honor its pension obligations (fed and/or state) at 100%.

The amount of govt debt is astronomical and increasing, the derivatives market is conducted primarily in FRN and is based on essentially nothing. I feel like we're all sitting on a powder keg.
 

mprevost

Level 6 Valued Member
I have some gold set aside and not a week goes by I don't consider cashing out one of my IRAs and sinking what's left after penalties and taxes into gold and silver.

I have zero confidence the FRN can hold up for another 5 years let alone 20. I have zero confidence the govt can or will honor its pension obligations (fed and/or state) at 100%.

The amount of govt debt is astronomical and increasing, the derivatives market is conducted primarily in FRN and is based on essentially nothing. I feel like we're all sitting on a powder keg.
I agree, it is a very fragile situation and getting worse. The founding fathers stated that once the citizens realized they could vote themselves benefits, the republic would be doomed. It is the great flaw of democracy.
 

LukeV

Level 5 Valued Member
I have some gold set aside and not a week goes by I don't consider cashing out one of my IRAs and sinking what's left after penalties and taxes into gold and silver.
Gold and silver? That's a bit old fashioned, isn't it? What are you going to do? Bury it on a desert island! Seriously though chickens do come home to roost and the long-suffering taxpayer pays back every cent plus interest of the debt their government accumulates. I can understand pessimism in the USA because at some point your economy will be hit with a double whammy - government will spend less on services and more on debt repayment; and government will have less to spend because borrowings will be less. That's going to hurt and is inevitable. But I'm not unduly pessimistic because we have seen the market absorb massive shocks before only to power onto new highs. Your government might be dysfunctional but your industry is strong. Demand for goods and services is much bigger than government. I am not saying capitalism is unbreakable but it reflects the sum total of human ingenuity and perseverance and comes pretty close.
 
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WhatWouldHulkDo

Level 6 Valued Member
This is all interesting stuff.

I think there's a definitely similarity between training for strength (as opposed to training for looking good) and striving for financial independent. Very commonly those of us who train for strength are looking to decrease our need for dependence on others - be that in the form of being able to get stuff done on you own and on time (i.e. daily chores), being able to physically defend you or yours if the need was to ever arise, or banking strength for use in later life (i.e. staying independent in your 70s/80s). It's a similar mindset - I'm going to pay my dues now to make things easier later.

My wife and I are of the mindset "life is short, drink the good stuff". So we have a good time, but we are still diligent savers. Savings has to get done; we have a lot of automatic investments/savings that just go out every month without us thinking about it. But once we've met our target savings for the month, we enjoy what's left. So, financial independence gets its due, but it will take us a while to get there. I'm 43 now... with a little luck we could be there in 10 years. But, being honest, we just aren't the sort of people who can carry all their stuff around in a small van.
 

North Coast Miller

Level 7 Valued Member
I agree, it is a very fragile situation and getting worse. The founding fathers stated that once the citizens realized they could vote themselves benefits, the republic would be doomed. It is the great flaw of democracy.
I think we're more in the same boat as Athens, when they were constantly voting to go from one war to the next for the benefit of a handful of folks at the top, eventually stretched so thin they had lost all flexibility.

In the US its a somewhat different dynamic, but again too many financed tax cuts, too much war spending. Seems like just yesterday the debt was 1 trillion and it was a big deal. Now it isn't even an issue worth discussion until you realize there are debt service payments to be made. Modern Monetary Theory isn't remotely connected to reality, and the last time US had this high of a debt to GDP ratio we were rebuilding half the planet with zero competition. I don't see how this can end well.

Gold and silver? That's a bit old fashioned, isn't it? What are you going to do? Bury it on a desert island!
Gold and silver prices have been running at or below production costs for years, mostly due to short selling on the COMEX for gold that is never delivered. Only 10% of the gold that is traded actually exists, and central banks all over the planet have been snapping it up with increasing gusto for the last decade. At some point it will break out to something close to double its current value, or at least to $1800.00/ounce.
You treat it just like any capital gain, keep track of what it cost when you bought it, what you sold it at, pay the taxes and collect your $. If you want to go underground with it you'd have to buy gold chains/jewelry and pawn it as needed, which I haven't even considered for a moment...:D
 

Tarzan

Level 4 Valued Member
Things are worse in Australia, the IMF has released a working paper that's preparing for negative interest rates (our cash rate is already 1%) and our central bank which has a board that is stacked with international bankers are itching to implement it. We have a housing bubble that's in the process of collapsing, even though the MSM is trying portray otherwise and our retail sector is in recession and employment rates are falling.

Our government has tried to sneak legislation through parliament while no-one was looking that will ban cash transactions over 10K and the way the legislation is drafted that could be changed at the drop of a hat without going through parliament again. They're saying we will be totally cashless in 5 years and with the negative interest rates we'll have to pay to have money in a bank.

The worst part though is that our banks have a massive exposure to derivatives that has the potential to crash whole system if some of the offshore investments they're tied into go south, Deutsche Bank could drag everything down with it if it goes belly up.

It's hard to know where to put your money now, we have low interest rates which will soon go negative if we can't stop it, many areas have negative equity on properties, a lot of bond yields are going negative and the stock market is getting jittery.

I had one crypto investment that returned over 700% in 4 months but that was a standout and the crypto market is not what it was a few years ago. A lot of the big money is rolling into gold and silver but if the markets do crash you can almost guarantee gold trading will be banned like it was in great depression. A lot of people are buying paper gold too which looks good on paper but if things get volatile that will be gone in a heartbeat.
 

mprevost

Level 6 Valued Member
In times like these, it is hard to really know what to do. Sounds like we are all doing the best that we can given our circumstances.

I really don't claim to know either. But, I like to simplify confusing issues with via negativa. I don't really know what to do, but I sure know at least a few things not to do. By avoiding those, I get closer to where I need to be.

The rest, I really cannot control, so no use in worrying about it.
 
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