Capital Preservation

[Jin+Guice]

Sooo..... after reading this thread, I've concluded that active investment is probably not for me. So what do to with my giant pile of ca$h? Is anyone pursuing a wealth preservation instead of wealth growth strategy?

Obv. would prefer just to treat my $$ like a giant savings account that has a 4% (or really any %) real return forever, but this seems overly ambitious? Willing to entertain strategies for this too.

Oh, why yes, I am familiar with the strategy of buying a total U.S. stock market fund and am aware that this cannot possibly fail under any circumstance. Just for arguments sake, what if I refuse to do that though (would hold it as part of my portfolio, but not just a total stock/ total bond portfolio either)?

[chenda]

Property. A long way from the Gulf Coast

[ertyu]

Obv. would prefer just to treat my $$ like a giant savings account that has a 4% (or really any %) real return forever, but this seems overly ambitious? Willing to entertain strategies for this too.

wait until the cape is low enough. then vtsax and chill.

potential spanner in wheels: if the market does continue to go up in nominal terms while falling in real terms

[zbigi]

I have most of my money in state bonds which pay according to inflation (equivalent of US TIPS). Requires zero thinking and preserves most capital even in rough times, provided you won't be buying real estate in the future (which can baloon way more than inflation, or at least it did in the past).

[Stahlmann]

- buy AAII membership and copy their strategy like an idiot and then learn the trade
- https://www.youtube.com/watch?v=FlxfIdsDynE (actually better in Northern-Eastern part of it \)

[jacob]

Is anyone pursuing a wealth preservation instead of wealth growth strategy?

These strategies were intended for wealth preservation.
TIPS/I-bonds: https://www.amazon.com/Risk-Less-Prospe ... 118014308/
Permanent portfolio: https://www.amazon.com/Permanent-Portfo ... 118288254/

... in which case forget about the 4%-rule or the 3%-rule .. or any other %-rule. This requires having enough preserved [measured in years] to cover your remaining lifespan.

[Jean]

i really like my real estate, now that I have really zero problem tenant.
If you choose a place that is likely to stay attractive for your whole lifespan you should be good.

I'll repeat myself, but imo in the us, it means mainly the UP and around.

[chenda]

i really like my real estate, now that I have really zero problem tenant.
If you choose a place that is likely to stay attractive for your whole lifespan you should be good.

I'll repeat myself, but imo in the us, it means mainly the UP and around.

+1. And New England.

The security of tenure it gives you can't be matched by any equity portfolio, especially in these times.

[oldbeyond]

There are various asset allocation schemes as well where you include assets like gold, commodities, crypto, LT bonds as well as various stock styles (factors/geography). The PP is only one example. You can also trade the portfolio according to rules of your choice. That’s what I do (SMA200). See portfoliocharts et al.

There’s a lot you can do besides VTSAX or individual stock value investing. I’m cautious about 100% long stocks as paradigms do change and drawdowns can last for a long time, but reading up on individual stocks did not suit me well. I like following macro news though, thus I feel more comfortable having gone down that path.

[sky]

Now that the price of investments has dropped to a more reasonable level, a standard "balanced portfolio" buy and hold strategy becomes attractive again. Balanced portfolio means different things to different people, but a starting point is 50% dividend stocks, 25% growth stocks and 25% bonds. You may optimize as you see fit.

This is based on my guesstimate that we will see a stock market low in 2022, slow growth in 2023-2024 and eventually see another ridiculous bubble like we have experienced in the past 10 years. Position yourself now for the next bubble.

As to what to do with a lot of cash right now? If you are a gambler, plan your investment allocation and be ready to pounce on a low. We may have already seen the low, or may still see lower prices this year.

If not a gambler, invest 10% of your cash every month over the next year.

[prudentelo]

What's wrong with passive investment?

Defensive outlook in investments will tend to cause their erosion.

3.5-4% WR survives worst historical circumstances. Your circumstances can be worse and you can also be hit by a truck.

Passive investment pays dividends on not having to spend time on it.

[steveo73]

Passive investment pays dividends on not having to spend time on it.

OP - why not just a simple portfolio of a stock index and a bonds index along with some cash.

I'm not risk averse but I'd sort of think through what being risk averse means.

William Bernstein made some great points regarding risk.

1. Inflation. Inflation is the no 1 risk for your portfolio over the longer term. If your portfolio can't counter this risk I personally think you are taking on way too much risk. This is Bernstein's point as well. The way to beat this is via a stock index. I think you go for the broadest index you can find. It's easy and a cheap to handle inflation.
2. Deflation. This is a potential risk but stuff worrying about it. It's really unlikely and who knows how to really handle it. I state this because it's so rare.
3. Confiscation. I don't worry about this one either. If you live in a country that is reasonably safe you are probably good. I also think protecting against this is too hard and costly.
4. Devastation:- the same as confiscation assuming you aren't doing something stupid like leveraging yourself to the hilt in some fancy investment opportunity.

This is a small article on these ideas:- https://www.forbes.com/sites/wadepfau/2 ... -horsemen/

I think this is the best approach possible:- https://www.kroijer.com/

You need a stock index. You don't need to have too large a position.

You sound a little worried about your money and I don't blame you. I quoted the post I quoted because when you invest passively your finances just become a non issue assuming you save up enough.

[Laura Ingalls]

In my opinion there is not really any alternative to stocks in the United States unless you go to real estate which is not passive enough for me (I tend to think owning one house is one more than I would really like to.)

https://www.physicianonfire.com/20-pers ... =268226485

The first chart in this article is very telling. What is happening day by day is just noise.

I think a generous cash cushion is good because it reduces life stress. I don’t want to have to scurry around for cash if something essential breaks. I like to have cash on hand to buy consumables but not perishable items when I find a rocking deal. I don’t need five or ten years. We tend to average six to 18 months.

[chenda]

In my opinion there is not really any alternative to stocks in the United States unless you go to real estate which is not passive enough for me (I tend to think owning one house is one more than I would really like to.)

Owning undeveloped land might be a very passive way for wealth preservation. Yield is likely to be little if anything, but probably not much work involved . Although property taxes and liability insurance might result in negative yield so the capital growth will be important. The main issue with property is its a very 'lumpy' asset, you need a lot of money to diversify your holdings.

[white belt]

What are your investment goals? When do you plan on needing the money? What are risks that are unique to your lifestyle?

Those first few questions are very important. Just as an example, if you are intending to continue some sort of paid activity that has flexible pricing power and covers the majority of your expenses (semi-ERE), then you are likely already a bit more resilient to inflation than a typical FIRE individual who doesn't have that lever to pull. This is because wages usually rise in times of inflation, although there may be a lag effect and you may lose real purchasing power in the short term. However, the semi-ERE approach may expose you to other risks like economic downturns and risk of injury/medical issue that incapacitates you from earning money.

As another example, if you have an orchard of fruit trees in your backyard that provide for all your fruit needs, then you are much more insulated from inflation in apple prices (apple stock vs Apple stock). You are reducing inflation risk but you are exposing yourself to other risks like pestilence, drought, petty theft, fertilizer inflation, etc. Obviously there are mitigations for each of those risks as well. Layers upon layers.

The point is you want to take a holistic look at your lifestyle and structure your portfolio accordingly. Common financial advice is always going to be geared to the lowest common denominator, which in the FIRE sphere assumes you will do salary work with a high savings rate until you have sufficient funds to retire.

[white belt]

In my opinion there is not really any alternative to stocks in the United States unless you go to real estate which is not passive enough for me (I tend to think owning one house is one more than I would really like to.)

There are many alternatives, it's just that the FIRE sphere tends to be an echo chamber when it comes to financial advice. Look at the wide variety of ways forumites use financial capital to generate other forms of capital and vice versa. You could put money into tools, collectibles, flipping items, giant stockpiles of supplies (Alpha strategy), livestock, and so on. For further inspiration, look at how humans stored wealth throughout history before the hyper-financialization of the last 40 years.

The idea of passive investing to me is a bit of a misnomer. There is no such thing as passive. You are making an active choice with your financial capital no matter what. All-in on stock indexes and bond indexes basically assumes that the next 40 years will look like the last 40 years in terms of USA global hegemony, economic growth, dollar reserve currency status, and many other things. That's a fine perspective to take, assuming one understands the risks and still decides it's in their best interest. However, let's not assume that an individual abdicates responsibility by selecting a passive fund or that they are avoiding risk by doing so. Either way, it seems OP has decided against the passive route for now.

[Laura Ingalls]

@white belt

Part of my disdain for real estate that both my mom and my IL’s own ag land and if they don’t outlive their money we will eventually own some. I am not relishing the thought of closing out an estate with livestock, combines, grain bins full of commodity crops.

I would be equally unenthusiastic about classic cars or collectibles.

I agree that you can make money from what ever you know well.

[chenda]

I'd be interested if anyone here invests in local businesses. Hairdressers, cafes, nail salons, massage services (not 'massage') or, well, anything really. Employ a manager or be a silent partner and let someone else do all the hard work and you cream off the profits. I have no idea of how easy this is.

[Mister Imperceptible]

Part of my disdain for real estate that both my mom and my IL’s own ag land and if they don’t outlive their money we will eventually own some. I am not relishing the thought of closing out an estate with livestock, combines, grain bins full of commodity crops.

It is possible you may end up disinheriting some of the most resilient future assets. If and when dollars and bonds become valueless, the few people with gold coins will be trying to use them to buy these assets.

[classical_Liberal]

Start with I bonds, which was mentioned earlier.

You really can't lose here because you can only buy 10K a year, it locks up your money for at least a year so you can't change your mind, and they are inflation resistant. The "risk" is really only US government default.

Then, I really think some type of PP or modified version that you commit to is best. Also previously mentioned. Even this though will require a little attention initially to choose the path, then some maintenance, maybe quarterly or annually to keep everything in balance.

I would avoid Real Estate only because you seemed to dislike dealing with all that accompanies ownership in the past. Also now is a bad time to buy, IMO.

An out of the box thought for you as an individual...Art or art-related for part of your portfolio, given your knowledge and interest music. Cultural Art and it's preservation has traditionally (ie for thousands of years) been a strong method of capital preservation for the rich. But you have to know what is worth buying and preserving. So you'd have to be an active investor here, but you may actually enjoy that type of thing. For Example.