I can well relate to the anxiety that comes with managing someone else’s money. I generally take a very conservative approach in these cases, targeting 1-3% return p.a. with a focus on maximum stability in the portfolios value. So generally some variant of a cockroach portfolio.
It is worth noting that for folks in Eurozone countries, just holding Swiss francs could yield a real return in euros, if history is anything to go by. From that perspective, even CHF medium-term notes could potentially yield a decent real return in euros, and in the worst case will still yield some return with no risk of loss (other than the bank going bust).
I remembered this video and rewatched it as it’s extremely dense in information.
I admire Ben Felix’s scientific rigour but have held the view for a couple of years at least that his content leans to the academic rather than the practical side, and remembering this video in the context of this thread enforced that view
That’s what I mean, maybe you’re well beyong the point where the extra cash would have given you a huge amount of marginal volatility. Imagine they gave it to you 15 years ago. It would have been compounding for 15 years for a start and you’d be able to give it all back with interest and have a lot left over!
I think the paper talks about the actual variables which should impact the investor. These are -: total return , ruin probability and withdrawal rates.
But the issue investors have is that they care about the three variables mentioned above but they also care about how the chart of portfolio looks at any moment in time.
The loss aversion is embedded in our brains and thus even though it might be a best advise for investors to hold 33% domestic stocks and 67% international, our brains still care about the chart of portfolio (drawdowns being most impactful)
Why would anyone give it to anyone though? I mean, 15 years ago I had no clue about investing, and neither did anyone around me. My grandpa knew a thing or two but he was distrustful of securities, he’d get gold Sovereigns (that’s what most Greeks bought when they wanted to buy gold) and the occasional bond. We still have these gold coins, there’re many rolls of them in a safety deposit box which I am now suggesting we liquidate (and invest).
My broader point is that investing is good and important, but if I’d been given some of this lump sum 15 years ago I wouldn’t know what to do with it, most likely I’d have blown it on a car which’d be worthless now anyway (but could have made for exciting 30s
In my experience, investors - people who actually have an understanding of investing - are less likely to concern themselves with fluctuations. The issue is that when you invest for others, they are ultimately in control of their money. For example, if at some point the person falls in love with some place and decides to spend their money on a holiday home there, you can try to explain to them that the timing is bad, markets are low, and they should wait a few years, etc. To you, the logic of leaving the money invested until markets turn may be obvious. But most likely, they will prioritize the emotional decision, and sell their assets at a loss in order to buy the holiday home. In their eyes, even if only subconsciously, you will be the one to blame for them losing money (few people are mature enough to blame their own ignorance).
That’s why when investing or making investment recommendations to others, it is beneficial to prioritise stability over returns, in my opinion. While you obviously hope that they “get it,” you have to plan for the possibility that they may want to have the whole of their money at any time.
I would argue that the analysis of the specific paper, as discussed in Ben’s video and 2-3 Rational Reminder podcasts with the author (not to mention the RR community), has significant practical side.
In essence, the message is: ‘Diversify internationally, maintain some home bias - allocating between 10-50% of your portfolio to domestic assets is just fine, and don’t worry too much about other optimizations.’
Risk Tolerance/Capacity etc of course are important, but this is another topic. He talked about it several times. He has even created a great video recently.
Apparently, you haven’t been reading this forum during the last big drop, or you would have seen the discussions about this topic .
But I agree with the rest. I am very cautious even discussing this stuff with other people.
Update: we’ll probably put aside a sizeable emergency fund for emotional comfort (say 3 years’ worth of potential expenses) in instantly available EUR cash, no investment whatsoever, and put the rest in VEVE and be done with it.
There are brokers like scalable capital (with full banking license and an IBAN), where you can get the euro short term rate on the cash sitting in the account.
Not getting interest would be a huge lost opportunity in € and inflation eating it up.
I don’t know what the bank’s rate is (it is a bank!), could be laughable like 0.1%. I want to keep things really simple though, the opportunity cost of leaving a pretty good amount of money sitting for 15 years - the last 15 years in particular! - was the real pain, they’d be millionaires by now. Considering that opportunity cost, the cost of losing out on a few k per year is pennies in front of the steamroller.
Maybe check with their bank, if they have a savings account feature, where you at leats park it there and can transfer it internally to the chekcing if needed.
I get you, but savings accounts and CDs in Greece are a loansharking racket at the moment and for many years: the banks borrow with whatever the ECB’s rate is and lend at 2-5x that, so why give them money to play with?
Thanks man! I mean ideally when you want to REALLY be sure you won’t eff up your investment by touching it you NEED to be able to not touch it for years.
The issue is that when you’re building like most of us are…setting aside several years’ worth of emergency fund could be missing great years eg 2023-2024, so you can’t really do it unless you have a big lump sum at hand, which most people don’t unless it’s a windfall inheritance, property sale, lottery win (!) etc!
Your family does not know anything about the stock market, bad/good years etc.
They have kept the money in a bank account for 15 years. As most, unfortunately, do!
If holding 3 years of expenses is what it takes to be calm, stay invested long term etc, then so be it…
They may even overperform many of us in this forum…
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