Trailblazing: Trailmix's Journal

[delay]

Thanks for your journal update!

Total savings went down again despite my savings this month from stock market decline.

Stock markets go up and down over long periods of time. When I started investing in 2000, the value of my investments dropped below what I put in multiple times until 2013. That's 13 years of decline. You can bet the markets will tank for years on end. I don't check my investments every month.

All of savings from this year have going to a HYSA for a 6 month cash buffer. Now that I have that, I will start investing again.

Having a 6 month buffer as a student must feel great! I do remember that the amounts I had as a student were so small that investing in my student days wouldn't have made a difference. I can recommend spending some money on trying various jobs before you settle in one career. That will pay much higher dividends than the stock markets.

[TrailMix]

I have never held investments through a recession. I bought my first stock shares in 2020. It was like being WL2 and going into a shopping mall all 25-50% off. No idea that ETFs were a thing so I bought a bunch of stock in small companies I knew would be out of business/on sale due to COVID-19. Cruises, airlines, hospitality, energy, etc. It was complete beginners luck that I'm still riding. The amount I did have in cash got ripped by inflation two years later. So my disposition to stocks and cash are very strongly positive and negative respectively. Trying to change that by holding this cash and not buying into the tariff turbulence.

Did you keep investing through the 13 years or did you go to other assets? Did you have to take money out and eat the loss at any point?

I have thought about saving up 6 months of expenses in gold through an ETF in taxable brokerage. 70% of what I have is in Roth IRA and is vanilla US and ex-US indices. No bonds.

I already know that when I finish I am taking a lot of time off and then taking any job I can find. 2 years of cash equivalents would be a good goal for that.

[delay]

So my disposition to stocks and cash are very strongly positive and negative respectively.

Thanks for your reply! Things like cash, gold, bitcoin, bonds and stocks are claims on future goods. These claims are advertised with unbelievable exaggeration.

Jacob recommended Unexpected Returns. The stock market matrix from the book is publicly available. The matrix shows how investments from 2000 have now returned around 5% per year. Subtract inflation, costs, taxes, and investment mistakes and there's not a lot left. A quote from the book:

Yes, when you awaken on New Year’s Day and contemplate the coming year’s impact on your investment portfolio, there is a 70 percent chance that it is going to be a double-digit year—up or down. In addition, there is a 50 percent chance that the change up or down will be in the high teens or greater!
...
Keep in mind that half of all years in the stock market occur outside of a 32 percent range from -16% to +16%.

This year can be a -30% year and it would be nothing unusual.

Did you keep investing through the 13 years or did you go to other assets? Did you have to take money out and eat the loss at any point?

I think of investing as a bet on the really long term. I'm an employee with a regular income so I can keep adding to the bet. I kept betting on stocks, did not have to take money out, or eat a loss.

I already know that when I finish I am taking a lot of time off and then taking any job I can find. 2 years of cash equivalents would be a good goal for that.

Well 6 month's buffer is considered good safety. Using the remainder for time off sounds like an excellent choice.

Hopefully I say this correctly: money you plan to spend in the coming 15 years is best not invested. In other words, your net worth should not drop below your invested money in the coming 15 years. Stocks are just too volatile for the short term.

[TrailMix]

Thank you for the matrix delay, that is helpful. Do you know if a similar matrix exists for bonds?

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I will post my April update soon, but for now I am thinking about what I want my portfolio to look like by the time I am FI. I experience discrete events, not the probability of all events. My portfolio must survive and provide during these discrete events with a blindfold to the future.

All economic regimes have:
Inflation or deflation
Growth or decline

I want to protect myself from inflation and decline and benefit from deflation and growth. I then thought what the best investment would be for each category.

Inflation: TIPS and I bonds (the I’s stand for inflation after all)
Deflation: nominal bonds with fixed interest rates
Growth: stock market and claims on wealth creation
Decline: ?

Decline stumped me. I thought maybe the best asset would be gold. During the Great Depression, there was deflation and gold kept its purchasing power, although confiscated from the public. The biggest decline of all, the fall of Rome, had periods of mass inflation and deflation and high purity gold coins were found buried throughout the empire.

Looking at charts of post Bretton Woods recessions, gold tends to dip in the recession's trough and return to its previous price at the end. I am guessing these are sell offs to pay debts. Gold has a negative correlation to USD index most of the time but not always. The inflation adjusted price swings wildly in periods <100 years, which is not helpful as a <100 year being. It seems too speculative in that sense.

Thinking more, those that did best during the Great Depression had no debt, a paid off house and farm, were not in dust bowl territory, and were self sufficient. In the fall of Rome it was a similar story: no debt, house and farm, not in the western half or conflict areas, and were self sufficient. Both times saw mass migration to greener grass.

Real estate correlates to the local labor market and tangentially the business cycle. Also lost value during GD and GFC, so not a good investment in decline.

As of now, I conclude that there is no best asset to hold during economic decline. The best thing to do is not be involved in exchanges of goods or services.

I like the permanent portfolio, but it holds a lot of gold and is not diversified. The cockroach approach is diversified, but relies on trend following and options to beat decline.

Maybe in place of gold, trends, or options, I set aside money for removing myself from the economy. This would be for things like a house or permanent shelter, land with space for growing food and storage, classes and books to learn skills. These would be things I intend to never sell or use as collateral. And I should be mobile, be able to abandon my local economy quickly. I guess this is ERE but with a depression mindset?

That all sounds like bad financial advice for today. Buying a house without a mortgage is very tax inefficient, insourcing your food is not time or money efficient, and hoarding was stigmatized after the pandemic. But this might be expected if today is a golden age of goods and services, and those that remember past declines are dead.

And I am on a path leading me towards the exact opposite. I am becoming highly specialized, living in a highly populated area, and am heavily reliant on others for goods and services.

I was looking for the ERE opinions on TIPS and I bonds and found this thread. Lots of interesting perspectives here.

[TrailMix]

The inflation adjusted price swings wildly in periods <100 years, which is not helpful as a <100 year being. It seems too speculative in that sense.

After seeing these back tests, I read about gold more. It looks like gold is needed in a permanent style portfolio because stocks and bonds sometimes correlate, and gold's volatility is key during uncertainty. I still don't think I will do 25% gold, but some gold will be there.

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April 2025 Update
Everyday things get slightly worse. Looking back three months, it happened too slowly to panic, but quickly enough that I'm terrified to think of what things will like in the next three months. For the first time, we all sat down in the same room solely to discuss these events, the university's future, and future of science in the United States. People asked questions and gave answers and cried.

I'm neck deep in my project. The last time I was this busy, I worked 60+ a week, but someone else did all the cooking and cleaning and I had no other responsibilities besides working. Trying to balance work and the basic household chores at the same time is exhausting. I don't know how long I can keep this up. I do nothing but work outside the house or inside. I took Easter morning off to ride my bike, and I was so tired from the day before I couldn't enjoy it. And I am driving more places now instead of walking to save time. I think I now get why many people are overweight/sick, angry, and throw money at their problems. Society, down to the layout of the sidewalks and streets and food on the shelf, is designed for this kind of time-less life. I don't want it.

Housing:
I signed a lease with the 3 bedroom. Not smart given the fragility of my job, but I don't really have a choice if I want to lock in a cheaper rent. I was a little worried the leasing company would not take those on university payroll, but they said nothing. They acted like everything is normal, and I don't know if that is because they are aware of what is happening and are not worried, or are not aware at all.

Transportation:
My car broke down. It is fixed, but I had to pay for someone to do it. I have no time or money to be a car owner.

Food:
Doubled my store of emergency food.

No update on health, or E&R. No time for any of that.

Misc:
Here is where I am at financially: I'm still getting my stipend check. I'm expecting no COL raises for the remainder of my degree at minimum. Pay cuts and rolling layoffs have been mentioned, unsure about the likelihood of those. Bankruptcy has also been mentioned in meetings.

I explored two different new income sources, plasma donation and gig work. The plasma center pays $100 a week for regulars. I went twice, and it made me pretty sick and I had no energy for two days after. I've donated blood before and was expecting it feel like that afterwards. I don't know why I reacted poorly. I wasn't dehydrated. Maybe it is stress. I decided I won't go back unless I have no other choice. The gig work is remote 1099 stuff that is common for my field. The experience isn't anything resume worthy, this is just for extra money. But it has been a month and I've had no projects. I have two other gig ideas on the docket, both of which I did in the past. They don't pay as well per hour worked.

I'm not investing any savings until my resting heart rate and variability returns to normal.

TSM: 64%
Years of Spending:4.53

[ertyu]

Decline: ?

Skills. The ability to substitute, through self-production, (re/up)cycling, repurposing, etc. that which the formal economy used to provide but doesn't anymore. The ability to make do without touching or needing to sell your portfolio.

And relationships. The ability to band together with others through the difficult times.

[TrailMix]

If I am tight on time, what skill had the highest ROI, with return = usefulness in economic decline?

When I think about my relationships that would be useful in decline, it would be the local bike shop. Whenever I vent there, they have empathy for me. A good friend back home that hunts and grows 80% of their food. My relationship with myself.

There are others I thought of, but I'm not sure they could or would help in the difficult times ahead.