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.
By reading and partipating to this forum, you confirm you have read and agree with the disclaimer presented on http://www.mustachianpost.com/
En lisant et participant à ce forum, tu confirmes avoir lu et être d'accord avec l'avis de dégagement de responsabilité présenté sur http://www.mustachianpost.com/fr/
Durch das Lesen und die Teilnahme an diesem Forum bestätigst du, dass du den auf http://www.mustachianpost.com/de/ dargestellten Haftungsausschluss gelesen hast und damit einverstanden bist.
