Investment returns in the era of the decline

[slsdly]

With regards to the OP's question, I think there are a few different aspects baked into it.

Emotionally, I try to tell myself that in the event of a paradigm shift, I may/will be forced to change my strategy. It may mean the end of early retirement as I had defined it previously. It is difficult to accept we may spend many years of our lives and ultimately just dump it. While that hasn't happened to my wealth yet, it certainly has happened to my work in software. The company decided to divest part of its portfolio, and myself/my colleagues/our years of fine tuning and expanding the project disappeared into the ether. If it happens, it will be a humbling moment for many of us.

Practically, part of the ERE journey is about accumulating skill sets. Presumably if you have diversified in them, some of them will hopefully remain useful in the new era. It is possible your old skill set you used to build your wealth in the first place may remain useful. You may, gods forbid, go back to work in some capacity . We may feel differently about it in any event, given we may look around our communities, our countries and the world, and think, we're not so bad off.

There are no guarantees. For the record, I'm with you on TEOTWAWKI happening in our lifetimes. I might be wrong, but I think I am less emotionally invested in being right on that, than the optimists are on the future being bright . After all, I'm either right and poor, or wrong and wealthy. Either way, a mixture of winning and losing.

[Hristo Botev]

Detail it out.

Of course not but if you can't detail it out it's not a valid plan.
***
There is still no detailed plan.

For the sake of this discussion I'm going to assume these are sincere requests on your part. And as I said above, this isn't likely a "plan" for you, as we're not likely to agree as to what the ends are/should be.

- Marry young, and marry someone from your hometown from a good family from the same church as you and your family.
- Don't leave your hometown.
- Don't go to college.
- Don't use birth control.
- Have lots of children.
- Homeschool your kids.
- Avoid organized sports for your kids, or other organized "pay-to-play" activities.
- Don't own a TV or pay for any "entertainment" other than books.
- Play an instrument and make your own music.
- Paint and make your own art.
- Write your own prose and poetry and histories and plays.
- Learn every card game worth playing and invent some of your own, and play cards (and chess) as your primary form of leisure activity.
- Surround yourself with family, including 1st, 2nd, 3rd cousins, etc., and with those handful of like-minded non-family neighbors that time has convinced you are worthy of friendship.
- Don't read anything written after 1900 until you've read everything that has been preserved that was written before 1900.* Start at the beginning and work your way through chronologically.
- As much as possible, only eat and drink what you've made with your own hands or what you've received from family or bartered for with neighbors.
- Avoid using cash as much as humanly possible.
- Avoid debt always, and don't participate in usury, either as a usurer or a usuree.
- Lift weights and don't be a glutton.
- Avoid the health care system as much as humanly possible, like for anything short of traumatic injury.
- Don't invest in the stock market, in any form, and especially don't invest in any restricted "tax-advantaged" account that will use your money to pay for the pensions of strangers a decade or 4 older than you, who won't be around to return the favor when the government finally grants you access to your money (if anything is left).
- Don't travel anywhere that requires anything more than a couple hours in the car.
- Don't trust anyone with anything you value who isn't both family and a short car ride away.
- If you're not already "landed" when you start your family, then seek employment and work only so long as necessary to buy land and make it productive.
- Productive means:

Vegetable farming, livestock, orchards, rental homes, hunting leases, hay and tree harvesting, AirBnBs, Harvest Hosts, RV park, trailer park, special event facility, any number of businesses built around giving urbanites a chance to be "country" for a day (skeet shooting, dirt bike/BMX tracks, etc. . . .); I'm sure there are many, many other options.

- For any cash that comes your way: (a) stock up on pantry items; (b) buy books; (c) invest it in your land (e.g., more fruit trees); (d) invest it in businesses you own; (e) invest it in businesses owned by those family members who are also neighbors who you also think are competent; (f) buy more land.
- For any more cash that comes your way not already spent on (a)-(f), I guess silver makes more sense than sticking it under your mattress. But I don't know, I'm not there yet.
- Keep your kids close--horses are a good way to do that with daughters; hunting is a good way to do that with sons; make clear always the expectation that you and your spouse have that the reason you are working your ass off caring for your land is because it will be theirs one day, and that if they ever sell it you will come back from the dead and haunt them incessantly.

Remember always that you are a participant in the Theo Drama; the Ego Drama is boring and sad and pathetic and gross and degenerate.

*Exceptions should of course be made for the likes of Wendell Berry and Paul Kingsnorth; likely some others.

ETA: Maybe keep a TV in the basement or something so that you can watch episodes of the Office or Office Space or whatever from time to time so that your kids will learn that, yes, some ways of living are in fact objectively and universally better than other ways of living.

[Western Red Cedar]

So do you think the Amish pretty much nailed it @HB? Sounds like you've basically described their society.

[Hristo Botev]

So do you think the Amish pretty much nailed it @HB? Sounds like you've basically described their society.

I think the Amish send their kids to school. I think we (as in, my family) are several generations away from being able to trust a community school to educate our kids.

Also, I suspect we wouldn't agree on the theology.

[chenda]

- Don't use birth control.
- Have lots of children.

Ummm...this will likely require lots more spending...

[Jiimmy]

the reason you are working your ass off caring for your land is because it will be theirs one day, and that if they ever sell it you will come back from the dead and haunt them incessantly.

Lots of my relatives grew up with this ultra-controlling parental narrative, who did everything possible to exert control even from the grave. Typical response from the children in our case was resentment or rebellion, or extreme guilt.

[Hristo Botev]

Lots of my relatives grew up with this ultra-controlling parental narrative, who did everything possible to exert control even from the grave. Typical response from the children in our case was resentment or rebellion, or extreme guilt.

That sucks for you; I'm sorry to hear it.

[Dave]

This thread has drifted a ways from the OP - “are you still optimistic about returns from your money-producing investments (e.g. stocks, real estate)?”

The topic has been covered a bit in another thread that I linked in my first response, worth reading.

But in general a problem of this conversation is the (expected) disagreement in what collapse is (is it even occurring at all?), how it occurs, and when it occurs.

And then another area of disagreement is to what extent one should focus on financial strategy vs. non-financial strategy (covered in both threads, with a lot of interesting specifics added in this thread by @Hristo).

As I said in my first post, some of your views on defining collapse (when it occurs, in my case) can inform your decisions as to what extent one should focus on the financial investing side of things. If a business is worth the present value of its future cash flows, at more historically normal discount rates (which I use in doing my own valuations) the cash flows >30 years out don’t matter so much, but rather the next 10-20, in many cases. I think it is very possible to find many businesses whose cash flows will be predictable over this period, and therefore financial investing is a viable avenue if you have views that we won’t have major collapse before 2050, as you can earn a financial return and be left with money that would have some, if perhaps diminished, value.

The nuance around this is quite interesting. If one can, regardless of their views, do a thought experiment where collapse is definitely occurring, it’s not so hard to envision a number of scenarios where the world does not rapidly crumble. Layers will peel off civilization, aggregate resource production may fall, but amidst that there will be industries and particular businesses thriving. The overall pie shrinking, with some parts quicker than others, but some maintaining, and some even growing. That is a source of investment opportunity.

Additionally, in my case as a bottom-up fundamental stock picking value investor, much of the source of my returns is finding undervalued securities and then waiting for the valuation gap to close. Whether the broader market is thriving or not is not the single determinant to success in this endeavor (although it certainly has an impact, especially in the span of months and even several years), but rather continued market volatility of securities that can be valued.

Similarly, there are many trading strategies that would thrive throughout any sort of market environment.

On the other hand, if you expect rapid economic collapse in 10-15 years, with the value of money being worth little at the end, I’m not so sure many investing strategies would prove useful for the long-term. This is where it’s worth being explicit about what collapse is, how it plays out, and when it plays out. There is a tremendous amount of variability in how collapse could play out, with very different implications for how investors should act.

Trying this back to something actionable, and this touches on something @jacob has said in the past, this is why it's wise for an investor to be willing to make significant changes to their investing approach. The world can change, markets can evolve, and it is possible that one strategy may not work forever. I know this is anathema to buy and hold forever index investors, but if one truly believes in impending and significant collapse, this style of investing may not make the most sense.

Clearly defining the range of outcomes you think is probable over the coming relevant years, then, is key to outlining a wise investment strategy.

[Hristo Botev]

But in general a problem of this conversation is the (expected) disagreement in what collapse is (is it even occurring at all?), how it occurs, and when it occurs.

And then another area of disagreement is to what extent one should focus on financial strategy vs. non-financial strategy (covered in both threads, with a lot of interesting specifics added in this thread by @Hristo).

My take: financialization = collapse.

[7Wannabe5]

Don't read anything written after 1900 until you've read everything that has been preserved that was written before 1900.* Start at the beginning and work your way through chronologically.

For your purposes, you might be better off simply banning all novels rather than relying on chronological boundaries. Two of the earliest novels written in the English language are “The Adventures of Moll Flanders” (movie version would almost certainly be soft porn) and “Beware the Cat” a condemnation of Catholicism thinly disguised as fanciful fiction. Even earlier works written in languages other than English would likely also not be deemed entirely wholesome.

[Hristo Botev]

For your purposes, you might be better off simply banning all novels rather than relying on chronological boundaries. Two of the earliest novels written in the English language are “The Adventures of Moll Flanders” (movie version would almost certainly be soft porn) and “Beware the Cat” a condemnation of Catholicism thinly disguised as fanciful fiction. Even earlier works written in languages other than English would likely also not be deemed entirely wholesome.

It's not wholesomeness I'm worried about; I'm also not looking to read only what I 100% agree with (quite the contrary). And it's not so much chronological boundaries as reading chronologically. Most novels being published today seem pretty boring after you've read the Odyssey. Most protagonists being written today seem pretty flat when compared with Medea (nothing wholesome about her; or, perhaps she exudes wholesome? that's something worth discussing).

[7Wannabe5]

Medea clearly needs to chill out with some Level Yellow compersion I kept our big old house in rural small town packed with all sorts of books when my children were growing up. My DS32 preferred the classics fro a very early age, but my DD30 had a taste for 19th century horror. They both really liked “The Office” too, but I could never get into it. I will spare you my giant list of non-boring and worthwhile books written post-1900, because although your alternative lifestyle would not be the one I would choose, I do believe that a wide variety of alternative lifestyles will lend resilience to the human species.

[Hristo Botev]

I do believe that a wide variety of alternative lifestyles will lend resilience to the human species.

Strength in diversity! That's the only way to avoid the monoculture.

[chenda]

@Hristo Botev - do you practice all these points or is it more of an aspirational thing ?

[Hristo Botev]

@Hristo Botev - do you practice all these points or is it more of an aspirational thing ?

It's a multi-generational plan. We're on the path. Our hope is our children won't have to figure out so much and build so much from scratch, when it's their time, but can instead build upon and improve what we started for them, learning from the many, many mistakes we've already made and will continue to make. We're building our own culture and trying to avoid evil by focusing on what's good, and building towards that.

[sky]

I am thinking that my next investment will be in land that I can use to garden. Ideally about a half acre or more of cleared land, less than 10 miles from where I live, with a shed or pole barn on site, in a low tax area, and agricultural use permitted. My goal is to garden in a way that improves the soil and which can cover a good amount of my own food needs. I would want to stealth build a tiny house/shed so I could move there if I want to. The land should also be usable for a future home construction site, which I may or may not do myself, but could sell it as a home construction site in the future.

At the moment the real estate market is way too hot, but as interest rates rise and as the various subsidies and interference in the real estate market diminish, the market may get back to normal and we will see lower prices. I am hoping to spend less than $20k, which should be possible, but I might have to look and pounce when a good property comes up for sale. I will probably start looking in earnest in Fall/Winter of 2022, which is when I think things may have cooled down in the real estate market in my area.

[Hristo Botev]

At the moment the real estate market is way too hot, but as interest rates rise and as the various subsidies and interference in the real estate market diminish, the market may get back to normal and we will see lower prices. I am hoping to spend less than $20k, which should be possible, but I might have to look and pounce when a good property comes up for sale. I will probably start looking in earnest in Fall/Winter of 2022, which is when I think things may have cooled down in the real estate market in my area.

The other variable is whether this normalization of the rural real estate market will also require some reversal of the current exodus from the big cities. This is a discussion my wife and I keep having; should we assume that rural real estate prices will in fact "normalize"--as in return to somewhere close to where they were in the before times? And does it matter? For us this isn't "investment" property in any sort of financial sense.

We're buying what we can afford to buy now, in cash. And if prices do in fact drop, we'll buy more later. And we'll probably buy more later regardless.

Fun little (public domain) Walden style book on independent farming: https://www.gutenberg.org/ebooks/48753

[steveo73]

For the sake of this discussion I'm going to assume these are sincere requests on your part. And as I said above, this isn't likely a "plan" for you, as we're not likely to agree as to what the ends are/should be.

I'm definitely sincere. It's not a plan unless it has some meat on it's bones.

I'm impressed with your list. Don't take this the wrong way but I think your plan is more life advice rather than investing advice. I'm only going to state on this point that I think you can do most of the stuff you state and invest in simple index funds and generate above average investment returns. It's average returns but average returns beat the people who think they know what they are doing.

I know this is off topic and it might not comply with ERE orthodoxy but here are some points I'd make in relation to your list (which is great):-

These are also just my opinions which mean everyone can live their life however they freaken want too.

1. Marrying well can be hugely beneficial. My wife is religious. I'm an atheist. My wife doesn't cheat on me and has remained faithful for years. This gives you a really good base. My wife is also frugal.
2. I have 3 kids. It's rewarding like nothing else but geez it's tough.
3. I like your points about sports and organized play events. We are very different to the average consumer. We have limited these events with our kids. Note the word limited but not stopped completely.
4. I play guitar. I used to play piano and I may pick it up again. The only reason I don't is that I have so much to learn on guitar. I also read a lot. These activities are hugely beneficial.
5. I watch some TV. My wife loves TV. I can only watch so much. I love my footy (watching) though every year.
6. We play board games. Spirit Island is our favorite. It's awesome. I play chess as well. These are daily activities.
7. I always consider writing something but I don't. I should.
8. Good friends are great but family are family.It's different.
9. I don't lift weights but I keep fit. I walk. I work out at home (handstands, push-ups, one legged squats, chin-ups, l-sit, stretching) and I do jiu-jitsu. I'm a black belt because I've been doing it for years. Tough hard exercise is good for you.
10. We don't travel. We try and get in the car rarely. Our events out typically involve walking to where we are going.
11. I've saved and invested in index funds. I'm retired. It's huge. I still can't get over it.
12. I think your kids have to find their own way. I wish that wasn't the case but it is.

[steveo73]

Lots of my relatives grew up with this ultra-controlling parental narrative, who did everything possible to exert control even from the grave. Typical response from the children in our case was resentment or rebellion, or extreme guilt.

Yep. My mum tries to control myself and my wife via money. She offers us money to do things or spend on stuff. She hates the fact that I'm retired. I'm not going to do that. I've already discussed with my wife that we give money equally and the cause doesn't matter within reason.

I also 3 kids and the oldest 2 are 18 and 20. Myself and my wife are frugal. My son was just given from the government at least $5k. I thought that money could put him through uni for at least a year but probably longer. He decided he had to have a car. I told him do you realize how much our car costs us. He went and bought a crapper of a car amongst other stuff. He now has no money. I'm amazed people through away these opportunities. We aren't going to support him through uni. He gets a room and board but he needs to get a job and support himself. My 20 yo daughter has been a pain in the ass but we are getting along well right now and she is doing really well.

You can't control people and I don't even want to bother trying.

[steveo73]

As I said in my first post, some of your views on defining collapse (when it occurs, in my case) can inform your decisions as to what extent one should focus on the financial investing side of things.

The nuance around this is quite interesting. If one can, regardless of their views, do a thought experiment where collapse is definitely occurring, it’s not so hard to envision a number of scenarios where the world does not rapidly crumble. Layers will peel off civilization, aggregate resource production may fall, but amidst that there will be industries and particular businesses thriving. The overall pie shrinking, with some parts quicker than others, but some maintaining, and some even growing. That is a source of investment opportunity.

Additionally, in my case as a bottom-up fundamental stock picking value investor, much of the source of my returns is finding undervalued securities and then waiting for the valuation gap to close. Whether the broader market is thriving or not is not the single determinant to success in this endeavor (although it certainly has an impact, especially in the span of months and even several years), but rather continued market volatility of securities that can be valued.

Similarly, there are many trading strategies that would thrive throughout any sort of market environment.

This is where it’s worth being explicit about what collapse is, how it plays out, and when it plays out. There is a tremendous amount of variability in how collapse could play out, with very different implications for how investors should act.

How accurately can you predict the future ? How much faith do you put on me in predicting the future ? If you don't trust me why trust yourself ? Your idea about trading strategies being able to thrive in any market environment shows a complete lack of understanding of the issue. Sure different approaches will work in different scenarios. You and me and every single person in existence will never be able to consistently implement the right trading strategy over time.

Trying this back to something actionable, and this touches on something @jacob has said in the past, this is why it's wise for an investor to be willing to make significant changes to their investing approach. The world can change, markets can evolve, and it is possible that one strategy may not work forever. I know this is anathema to buy and hold forever index investors, but if one truly believes in impending and significant collapse, this style of investing may not make the most sense.

Clearly defining the range of outcomes you think is probable over the coming relevant years, then, is key to outlining a wise investment strategy.

I agree with your & Jacob's premise that it's wise to be able to make significant changes to your investing approach. I think you've mis-characterized index investors. I'm an index investor because I'm a rational scientific investor who bets with the odds in my favor and knows that people cannot predict the future accurately consistently.

Your big problem is that you cannot predict the future consistently. That means you will probably under-perform the index.

I bet with the odds in my favor. I don't trust your predictions of the future or my own or anyone's. I also bet because I'm rational that I'm more likely to be able to change approaches than people who think they can accurately predict the future consistently. If you are wrong now and standing on your rock refusing to budge what makes you think you are going to change when you are more wrong in the future.

I agree that you need to be clear within your investing strategy but you have to look at the cons in your approach. You don't appear to be aware of the cons in your approach.