Harry Browne’s Rules of Financial Safety (1999) | Hacker News Reader

Harry Browne’s Rules of Financial Safety (1999)

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263 pointsTomte231 comments

Rule 11 deserves a rethink. There is an official policy that cash will lose some % of its value each year! Holding 25% of your wealth in cash is planning to throwing away years of life.

For this sort of dead-basic investment advice, there is no point being ready for situations where a cash position is advantageous. People are much more likely to panic, do something stupid or get ground down by inflation.

It is better to hold enough cash for an emergency fund then a mix of productive and hard assets. Gold is good as a hard asset, but anything that is durable would be ok. The advantages of cash are small compared to the risks and locked-in losses.

EDIT

Although thanks to other commentators I see that the fine print says that cash isn't literal cash and is actually "short-term U.S. Treasury securities"; making the whole complaint a bit moot. Once the money is in bonds it becomes a matter of strategic thinking rather than a simple "don't do that". I wouldn't do that right now, but given the level the article is pitched at I think it is fair advice as long as people read that cash doesn't mean cash cash.

>Rule 11 deserves a rethink. There is an official policy that cash will lose some % of its value each year! Holding 25% of your wealth in cash is planning to throwing away years of life.

That depends on lots of things including how old you are and the current economic situation.

For someone on the older side, getting a very low risk 5% on a chunk of their money doesn't seem like a half-bad strategy at the moment especially if they already own their home.

They could hold gold. Similar risk profile, much more likely to hold value long term and be better to hand on to the kids if there is some left over.

I'm not saying cash is so terrible that a nervous, confused and delicate grandma can't just eat the losses for security. I mean, sure. If you think you're probably going to lose money anyway then <10% a year is better than >10%!

But a 25% allocation by default is just giving money to wealthy men wearing suits. They already own suits, they don't need it. Keep the wealth. Donate it towards lobbying for Georgism instead of new wars, maybe, if you feel like burning a few % on a cause.

If you look at the chart for the GLD it doesn’t resemble and inflation proof investment imo. Maybe in the extremely long term it is but on a 1 decade time scale for example it certainly is not.

I cheerfully point out that cash also doesn't resemble an inflation proof investment. The difference is gold's value ambles around a level, and cash trends down.

Physical cash trends down but t-bills have kept up with inflation over the past century.

Fully agree that cash is not inflation proof (by design). However, when looking for something that is inflation proof it isn’t clear that gold is it.

Note that this OP probably has some agenda against dollar, being that in another comment before https://news.ycombinator.com/item?id=37046128#37047171 they said

"Yeah, for example China's position of overwhelming strength vs. weak little USoA meant that China's wages have risen by an order of magnitude and their technology catapulted into the present century, building them in to the world's largest economy."

Just a subtle subterfuge against dollar if I had to guess

1. That post had nothing to do with the US dollar, and you're quoting it without context which is a mistake. It is a heavily sarcastic reply to someone saying that "Every trading relationship will favour the stronger side" - which is obviously a silly thing to focus on. The US-China relationship has been a series of massive wins for China. It is a better view to say "well executed free trade with a stronger partner has huge, society reshaping upsides for the weaker one. Trade should be encouraged".

In fact, I live in Australia. So when that poster said "Australia in particular has been subject to unprecedented economic coercion and manipulation by China. It's not pretty." they were completely wrong. Australia suffers far more from our own policies than from anything China could do to us short of military action.

2. I just made a top-level comment saying "don't buy the dollar". You don't need to analyse my comment history to figure out where I stand on the dollar. Or you could just ask - I think it is a a dog of an asset and managed by incompetent bureaucrats who do a lot of harm to their own society.

You obviously havent had your bank account frozen for no reason. I have!

Trying going without cash for 6 weeks, not knowing if transactions have gone through, direct debits have been paid etc etc. Going around in legal loopholes where the bank ombundsman wont talk to you until you have exhausted the banks complaints dept, but the banks complaints dept wont talk to you, so you get no where.

Its fucking legal intimidation and harassment and there is no legal recourse for it in the UK. Its why I have no bank accounts now.

The banks can and do freeze your accounts, just look at the sanctions done to Russians when the West decides to stoke a war!

But a rule to hold 25% of your wealth in (physical) cash doesn’t seem well balanced. Imagine stashing $250,000 in notes somewhere. Do you put it in a safe in your house and hope your house doesn’t burn down or get burglarized? Or do you spread the cash across your multiple properties (that you don’t rent out)?

I commented already for the parent, but the article most definitely does not mean physical cash. Nobody will advice you to hold physical cash.

Unless you want to live like Scrooge McDuck or Smaug.

You swap systemic risk for physical security risk if you hold substantial hard currency.

The "cash" in the article does not mean physical cash. It means money in a bank account.

Edit: or more accurately,

> The cash portion should be kept in a money market fund investing only in short-term U.S. Treasury securities

That's kind of the opposite of cash...

Cash is frequently used as shorthand for liquid.

Liquid and low risk. Equities are usually liquid but they're not really cash equivalents at least at the individual consumer level.

So you don't consider it cash unless it's US Treasury notes stuffed in a mattress?

Uhm, mattress is optional, but the form of notes (or equivalent) is not.

Words have meaning. Cash you have physically and it shelters you from incompetent/rogue financial companies and governments. If you use "cash" to mean something else then what is the word for cash?

Like everyone else, a liquid and very low risk (modulo inflation) financial instrument. (The definition is often a bit broader in financial statements.) I'd posit that, in this day and age, $100K (or whatever) in bank notes is going to do you very little good if you lose access to all your accounts.

> Like everyone else, a liquid and very low risk (modulo inflation) financial instrument.

You clearly misread my question. I'll rephrase for legibility then: What is the word for cash (as in "physical money not in a bank") if you use "cash" to mean the opposite ("money in a bank")? Is it now a concept so rarely used that term is unnecessary?

Also wow, didn't know you can't buy a car or a house with cash in US anymore, interesting times. Which year did it become illegal?

Words can have more than one meaning, depending on context. For investors talking about asset allocation, "cash" means t-bills, money market, or money in the bank.

It depends on the context. In the context of paying for your dinner, it means bills/notes. In the context of personal or corporate finances, it means liquid, low-risk investments.

>Also wow, didn't know you can't buy a car or a house with cash in US anymore, interesting times. Which year did it become illegal?

It's not illegal but I'd guess in a lot of situations involving (legal) high dollar transactions, the seller is probably going to tell you to take your briefcase of $100 bills to the bank and get a cashier's check--which will also kick off some raised eyebrows and financial reporting obligations.

Bank accounts being frozen has absolutely nothing to do with holding cash. Also, anyone saying "holding cash" almost certainly does not mean in a safe/under your mattress. It means in a bank account somewhere. Hopefully a high yield savings account.

And, the strategy to dealing with bank accounts being frozen is multiple bank accounts at different, unrelated banks. Same with credit cards.

Well it does, because if you trust a bank to not freeze your accounts, then you dont need to hold so much cash.

As to having multiple bank accounts, have you heard of data sharing?

If you have multiple bank accounts in your name, across multiple banks, they can all be frozen, just look at how sanctions work of foreign entities.

You obviously dont know how credit reference agencies work. So in the UK, the electoral register (open and closed) is used by credit reference agencies to see if you are linked to an address. The credit reference agencies then pass on information to would be lenders and banks, and banks also update the credit reference agencies with your monthly bank account totals and your direct debit payments so they can see your monthly outgoings and see if you are paying your overheads reguarly, so other banks and lenders can see if you are worth lending money to.

Now even if you dont need to borrow money, pay your bills as soo as they come through the letter box if they are not handled by direct debit, that information is still passed on by your bank to multiple credit reference agencies who then disseminate the data around the world to different countries because programming teams can exist in multiple countries, different laws and then you get stuffed if you value your privacy, and thats before hackers get involved hacking the likes of Experian.

Again, cash in the context of the article has nothing to do with physical possession of money in a safe or something.

And, you seem to imply I don't have an understanding for how banking works. If one of your bank accounts gets yanked for fraud investigation, you shouldn't be getting all accounts frozen at all banks, outside of some government intervention involving freezing assets. If that's a situation you have to worry about, then sure maybe having physical cash matters. It doesn't for 99.999+% of people.

In the vast majority of cases, if you have an account frozen at one bank establishment, until they finish action... the rest of your money is fine at other banks. You should have plenty of time to go through the appeals process and whatnot.

>just look at the sanctions done to Russians when the West decides to stoke a war!

Worth noting that the sanctions on Russia were due to Russia invasions of neighbors like Ukraine (and Georgia), not "the West" deciding to stoke a war. "The West" was using sanctions to _avoid_ stoking a war in responding to Russia's various military offensives against neighbors.

If you're actually interested in having an informed opinion on the matter, it might be useful finding out more about history of NATO vs USSR, expansion of NATO and dynamic of relationship between NATO and Russia, and EU and Russia in the last ~20 years. Not defending anyone, nor do I have any horse in the game, but as usual, reality is not black and white, and there's a broader history of moves and counter-moves that lead to this point. So "the West stoke a war" is not simply and obviously false (neither it is one-dimensionally true).

In fact I'm actually very familiar with that history already. Russia has justified their military invasions and occupations of neighbors by claiming that their actions were a result of NATO's actions, but this is in my opinion after having considered the evidence to be a ridiculous pretext. At no point did NATO actually force Russia to roll their military forces across the borders of their neighbors despite Russia's obviously false claims to that effect.

This is a case where pro-Russian propagandists have made a lot of headway in both-sides-ing an issue which was unilateral. Repeating that propaganda isn't a nuanced or informed take, it's rationalizing and justifying war crimes.

I sometimes think the Bolshevik revolution, the death of Tsar Nicholas 2, related to the British Royal Family, Queen Victoria was first cousin to Tsar Nicholas 2, are not over.

Disputes run deep and span generations when at the top.

The west did not stoke a war with Russia. What are you on about?

You might disagree, but this a widely held narrative. If you aren’t familiar with it you’re not getting news from diverse sources

I had a bank account emptied by the US govt.

The California state board of equalization (SBOE) decided that since I hadn't filed and paid taxes in Cali for a few years, that they'd just empty one of my bank accounts to collect on me. Why didn't I pay taxes? Well, I moved to Vietnam and didn't know that I still had to file a $0.

Zero warning or notice. They just emptied it. Bank even charged me a couple hundred for this 'service' on top of it.

Even after I cleared up the issue with them via my EA, I've never gotten the money back. Luckily, they hit one of my bank accounts that had a small amount of money in it, enough to not get dinged fees by the bank for them holding my money. I was only using that account to transfer money back and forth to Vietnam.

So yea... I'm with you.

One compromise is to hold the cash in US TIPs, i.e. inflation indexed bonds. There's a limit of how much you can buy each year and the interface is quite clunky, but these bonds should protect against inflation.

(Note: inflation as measured by the US government. Many feel that the equations understate the real inflation.)

Limit is $10k/year per tax-ID, IIRC

You're thinking of I bonds and so is the poster you replied to.

TIPS are different and there is no purchase limit. They are available as funds/ETFs.

Harry Browne didn’t like TIPs and didn’t think they would protect when things got bad. He preferred holding gold coins in a country outside the one you live in.

Which seems like an utterly unrealistic strategy for most people which likely comes with many problems of its own, especially in the event of a massive financial system collapse.

Gold, and t-bills for the cash portion. They do well at different times than gold. Over the past century, t-bill rates on average have pretty closely matched inflation.

Browne didn't advocate holding all your gold as physical coins in another country, because he wanted people to rebalance annually, which would be pretty difficult if the gold were held that way.

The advice says keep 25%, but it also says to rebalance every year. In a year when stocks are down, cash becomes a larger fraction of your portfolio and you would use it to buy stocks precisely when they are at their lows! On the flip side, when stocks are great, then cash becomes a smaller part of the portfolio and rebalancing implies selling stock when it is high.

I do agree overall that these transitions happen infrequently enough that the opportunity cost of not being in the market is likely to outweigh the potential upside of being ready to buy at a dip

Superficially that makes sense, but on reflection you may observe that logic will apply to any assets as the relative prices change. Rebalancing from any asset to shares when shares are cheap will net good results.

“When stocks are great”… ie buy low sell high, easy to say but damn near impossible to do.

Timing the market is hard but periodically rebalancing your portfolio is easy, and generally recommended.

Rebalancing according to risk is recommended, not doing it because you think you know what the market is going to do. For instance, let's say right now, the market is headed up. When is the right time to "re-balance" to more cash? This is just assuming that the market is going to go lower than it currently is, which is just as much a gamble as thinking it'll go up for the next year.

In short, don't try to guess the market and keep some magical percent of cash/investments unless you have the means to gamble that money. Talk to a financial advisor and choose a risk-based investment strategy that makes sense for your point in life.

It's simple and doesn't involve guessing what the market will do. Just as Browne recommended, you pick a percentage to hold for each asset, and rebalance on a fixed schedule that's long enough to avoid short-term tax rates. If percentages aren't off by much, don't bother.

It's not gambling, and it's not original with Browne. The percentages aren't magic, they're just anything that has worked reasonably well historically over many different economic conditions. Most fee-based financial advisors will give you a strategy like this. It's probably the most widely-accepted strategy in finance.

> When is the right time to "re-balance" to more cash?

When you look at your balance at the end of the year and your cash proportion happens to be below 20% instead of 25%.

Rebalancing is pretty much standard practice nowadays, nothing magical there. Any financial advisor will tell you to rebalance your portfolio from time to time.

> For instance, let's say right now, the market is headed up. When is the right time to "re-balance" to more cash? This is just assuming that the market is going to go lower than it currently is, which is just as much a gamble as thinking it'll go up for the next year.

It's the other way round, if the market has gone up then you rebalance to hold more cash. You're betting on mean reversion, not just making a random directional bet; in the long term that works, and since you're not leveraging there's no "remain irrational longer than you remain solvent" problem.

> When is the right time to "re-balance" to more cash?

In theory if you wanted to invest "perfectly" you'd do it continuously. In practice trading costs, tax concerns, and the cost of your own time mean you want to set a schedule that's not too inconvenient.

> Talk to a financial advisor and choose a risk-based investment strategy that makes sense for your point in life.

I know this is the standard advice, but these days it's pretty outdated IMO. A financial advisor will rarely tell you anything more than the basic middle-of-the-road advice you find on the internet or elsewhere, and they'll charge you a substantial amount for the privilege.

The issue with rebalancing is that it often has tax implications if you aren't careful. You have to weigh the benefits of rebalancing with the tax loss. It works in tax deferred accounts but, at least in the US, a significant percentage of people do not have material access to such accounts.

If you have 10% in cash you ought to have enough to cover the tax bill from rebalancing, in most years

This is why the first order move when "rebalancing" is to just adjust your allocations of new investment money from your post tax income.

e.g. if your stocks and bonds are doing very well and have inflated beyond their allocation, stop buying them and divert all of your savings to cash and gold/bitcoin.

Yes, and also you can sometimes select tax lots that minimize or completely eliminate the net tax exposure. This does have practical limits though e.g. if the portfolio greatly exceeds income or all of your tax lots of consequence are deep into positive territory.

Both very good problems to have.

If you have enough assets not to simply invest in the general market. Then there is also an opportunity cost to not having the funds to buy into "unique" opportunities. Whether they be distressed assets, innovative ideas - or simply buying Nvidia when ChatGPT came out. While the optimal strategy for an uninformed investor is diversification and buying the market... There are different strategies for informed well to do investors.

> Holding 25% of your wealth in cash is planning to throwing away years of life.

You have to look at the portfolio as a whole. When stocks fall 50% you'll be glad to have some cash because:

1. You'll be down less than 50%

2. You'll be able to buy more stocks at a discount (via rebalancing)

I wonder if this has been back tested? The advantages of 1 and 2 don't seem to be a good trade for 25% fewer gains in the majority of years.

It's a well known portfolio so it has been analyzed quite a bit.

You can backtest it yourself:

https://www.portfoliovisualizer.com/backtest-asset-class-all...

- portfolio 1 is all stocks

- portfolio 2 is 75% stocks, 25% cash

- portfolio 3 is the "Harry Browne Permanent Porfolio" (selected from the "lazy portolios" option)

Take a look at the "drawdowns" tab.

I don’t follow the Harry Browne portfolio advice, but I have read Craig Rowland’s very good book about it [0], and I disagree. The Permanent Portfolio has had pretty good overall returns extremely consistently despite its low (25%) stock allocation because it holds four assets with poor correlation and rebalances between them, and because one of them is cash.

These assets each do well under different economic conditions. The cash asset does well during periods of sharply rising interest rates since it retains its principle and gets higher rates, while all the other assets get wrecked. Because cash’s correlation with the rest of the portfolio assets is 0% or negative, you tend to store some gains from the other assets in the cash section during up years, and then use the cash section to buy other assets once they have down years - in effect buying low and selling high. This is why the permanent portfolio gets pretty good returns with a low standard deviation: the cash protects the downside, but doesn’t significantly hamper portfolio performance due to the rebalancing effect. (It also helps that your cash should be in short treasuries per Harry Browne’s advice, which almost always have better yield than bank accounts with basically no risk).

You could remove or titrate down the cash portion, but then you’re left with three risky assets in stock, gold, and 25- to 30-year bonds. (Anyone who doesn’t think long bonds are risky doesn’t understand interest rate risk). Does this raise the expected return? Yes! But it also raises the risk of extended periods of poor performance, or acute periods of terrible performance. The Permanent Portfolio made 1.8% in 2008. It didn’t have a 10-year rolling period since 1972 with real returns below 3%, with all of them falling between 3 and 6.1%. A 60/40 portfolio achieved better returns but with much higher risk, including full decades of negative real return [0].

Ultimately I think your objection to the portfolio is because you think it’s advantageous to take on more risk. For a young investor with high risk tolerance I agree with you, but for older investors and retirees who need to be mindful of sequence of returns risk, and young investors who can’t stomach volatile portfolios, I think it’s an underrated choice.

Even if you’re not convinced by the rest of the argument, consider that holding half your fixed income in cash and the other half in very long bonds tends to produce similar performance to holding it all in intermediate bonds, which is often the recommended duration for an investor’s bond holdings.

[0] https://www.amazon.com/Permanent-Portfolio-Long-Term-Investm...

This is interesting. The antithesis is probably the book Lifecycle Investing [0] which essentially concludes that you should be 2X leveraged stocks in your youth and slowly reduce leverage over time.

0. https://www.lifecycleinvesting.net/

So a 50% market drop wipes you out completely? Hrrm, nah

Reminder: it takes as long to get from 100 to 1,000 as it takes from 10 to 100 -- it is really important to avoid big drawdowns, which 2× leverage is almost sure to produce.

If anything, optimal growth requires fractional leverage, i.e. keeping wealth out of the markets.

For a few years in your '20s, when your investment is going to be small either way, you presumably haven't got a lot of commitments, and you'll have your whole life to adjust for it if a literal once-in-a-century slump happens to hit at exactly the worst time? I can see the logic.

> Anyone who doesn’t think long bonds are risky doesn’t understand interest rate risk

The past year is a great lesson in what happens to long term bonds when rates finally move.

Though to be fair to Harry, his financial advice was written before zero rate policy. Anybody buying into sub-3% 30-year bonds is either uninformed or has their investments bound by governing rules.

> Ultimately I think your objection to the portfolio is because you think it’s advantageous to take on more risk. For a young investor with high risk tolerance I agree with you,

I agree with everything you write except this bit deserves an expansion.

There is a growth-optimal balance between assets and it depends only on the joint probabilities of future returns, which means it's unknowable -- but it also means it depends not at all on the age of the investor. (Which makes sense, if you think about it -- why would the optimal growth rate depend on the age of the person owning the money?)

However, the optimal growth rate is only guaranteed asymptotically, and aiming for it could result in some wild swings up and down before getting there, so for people without infinite time on their hands it makes sense to keep a higher proportion of wealth in low-risk assets.

Ah yeah, the imfamous "cash and cash equivalants" in public companies balance sheets. Yet another topic in which most people ignore just how well solved it is among professionals.

"Cash is trash." That's a saying on Wall Street urging people to put cash in equities. When viewing cash in isolation, it's tempting to conclude that holding cash is bad due to inflation. However, cash needs to be seen in contrasting with other investment vehicles.

It's true that cash is losing 7% annually due to inflation. But at a time when stocks are losing 50% and bonds are losing 20% due to raising rate, losing 7% is a good deal. When everything is losing value, the one losing the least is a good investment.

Since you can't predict the market to move cash in and out of the market, holding 25% cash and rebalance periodically doesn't sound too absurd.

I'd also say that "cash" includes a lot of things like savings/sweep accounts, short term treasuries (5.3%), and even CDs. Those are usually losing (eg not the last 20 years!?!) only a couple of points to stocks much less inflation.

Cash is convertible trash, except during deflation when it is King.

Doesn’t have to be in deflation. During asset deleveraging, cash is king, too.

Why get hung up on the percentages? Isn’t that bike shedding? The principle is what matters. Take the wealth you can’t afford to lose, and put it in a balanced portfolio that seeks to match the performance of the market so that you don’t fall behind your peers.

So look at your peers (your socioeconomic class) and match the average portfolio.

For a tech wagie, a 60/40 for the older folks or 80/20 for the younger folks with 10% in cash will work.

For an UHNWI, look at the Tiger 21 asset allocation and follow that. (In 2023 it’s roughly 30% PE, usually your own businesses, 20% public stocks, 20% RE, 10% bonds, 10% cash and 10% alternative assets).

Overthinking here is ignoring rule #1 and possibly rule #3.

The point is simply to keep up with your peers’ returns on their wealth that they also can’t afford to lose (NOT talking about their career wealth here), within a small margin, and this should not be

Most UHNWIs have the majority of their liquid wealth in public stocks, real estate and bonds. It's a bit of a myth that they have exotic investment tastes (once you eliminate equity in their own businesses)

>Most UHNWIs have the majority of their liquid wealth in public stocks, real estate and bonds

Not clear if you’re trying to refute me, but that aligns with what I said.

I cited a leading UHWNI research firm which has a sample size of 1200+ (very good for this hard to find, small audience). Do you have better data?

Modern UHNWI individuals in the tech markets are almost entirely stock in their own company(ies). It's paper money against which they borrow to fund their lifestyle. They do sell this stock from time to time, but mainly to pay off debt. If they sold everything all at once, the stock would tank, taking their wealth along with it.

For those like me who don’t know that acronym: Ultra-high-net-worth individuals (UHNWI) are people with a net worth of at least $30 million (according to investopedia)

> So look at your peers (your socioeconomic class) and match the average portfolio.

> The point is simply to keep up with your peers’ returns on their wealth that they also can’t afford to lose

Wait... Why the heck would I give care about what my "peers" (whatever that is) are making as returns? I don't care about keeping up with the Jones.

Does copying my peer's average portfolio somehow protect mine? As in: is that some game theory thing where because they all do that, what they own keeps some value and hence I should copy that?

I'm genuinely asking.

Because at the end of the day, for humans (and any lifeform competing, in the biology sense, with others of their sexually-reproductive species), relative advantage trumps absolute advantage

Cash is there to be used when everything else goes to hell. The point is to always have enough money at hand to buy low (and to reduce the overall volatility of the portfolio). Browne's portfolio doesn't make sense until you start to look at it as an allocation that maximizes the effect of volatility (the other 3 assets are very volatile, by design) and rebalancing.

Cash can be appropriate too. Safety has a value.

In a scenario where liquidity is an issue, you may pay way more than inflation to close a position, even in a bond. During the 08 crash, my dad bought some quality US State GO bonds at a significant discount, for example.

Thinking about a permanent portfolio means you need to think about events that seem unlikely today. What happens if the US loses a major conflict… aircraft carrier gets sunk, etc. that’s gonna affect treasury debt.

> “Rule 9: Don’t ever do anything you don’t understand.”

In 2021 I bought $500 of stock in a VR software company who was crowdfunding. Price per share was $4 on a valuation of $60M.

Fast forward two years and they raise again…this time at a valuation of $170M. Naturally, I assumed my $500 was worth close to $1500 on paper.

Wrong.

By some magic, the common stock share price went from $4 to only $4.75 even as the company tripled in value.

Even though I “picked” well, my investment still lagged the general S&P of the same time period. I thought I understood what I was doing, but evidently I was the sucker.

Probably due to „dilution“ where the number of shares is expanded, leading to lower value per share.

I was surprised by this, too. It‘s perhaps the most important thing to know when working for startups or investing in them.

Listed companies can and do this as well, typically not on a scale that is so noticeable.

> not on a scale that is so noticeable.

it's more likely that the equity raised are deployed to produce more value than the "loss" due to dilution.

For a startup, this might be harder, since the revenue is less clear, and thus the valuation is very inaccurate. For a mature/listed company, the revenue is much clearer and thus the valuation is more accurate.

Same story for most employees getting tons of equity in startups with a preference overhang https://www.holloway.com/definitions/liquidation-overhang

One thing is that with small, especially non-public company investments, even if you have reasonably expert opinion that they're doing something special that isn't really on the radars on the mainstream investment community, market timing can still be off and you probably have no idea what's going on behind the scenes in terms of financing etc.

That kind of scam is exactly why securities trading is regulated. Before the IPO though, all bets are off and unless you're the VC writing the term sheet, you're the sucker.

It doesn't have to be a scam. The pie got bigger, but perhaps because other people added more stuffing (money) to it. So one's original piece remained mostly the same.

The point is that with public securities, the SEC makes sure that it's not a scam. A public company can't just decide one day to issue a ton of stock and hand it over to an arbitrary entity, there's a regulatory process and legislated veto power held by the shareholders/board.

When you buy an unregulated security (like shares in a "crowdfunded" startup), that's the protection you're not getting. Most people in this community tend to see the SEC as the enemy, but this is the value it provides.

Hmm, where I live at least (not US) the company still have to act in a way that's in the interest of its owners. They can't do shady stuff just because they're not publicly traded. Or, they can, but it's not any more legal.

You can sue in the US but there's really no case for OP. The company is "trying its best to deliver value".

Practically speaking, when getting stocks/ stock options in startup, you have to trust the integrity of the founders to the point not only for them to do the right things, but to fight for it. Preferred stocks (which VC gets) + dilution means there are a lot of ways to screw over common stocks, and at time when liquidation (that isn’t IPO) happens, a lot of lawyers will have the jobs of minimizing your stake.

Which is to say that crowdfunding stock is a baaaaaaaaad idea. You are faceless to the founders, hard to see a scenario when things can go right.

For sure. Meanwhile this latest round raised $12M from 5,600 investors in a couple days. So the management team is getting a massive signal that “this is good.”

Investing in any VC investment as a crowd investor at a valuation of more than 5m-10m is a near certain recipe for disaster.

Preferred stock. IE the rich get to dilute their risk by passing it on to you!

What was The Founders’s ownership share diluted down to?

It wasn’t.

What was Peter Thiel’s ownership share diluted down to?

It wasn’t.

What was your ownership share diluted down to?

Point-zero-three percent.

Rule #0: before investing in a privately held company make sure you understand the capital structure and obligations and if there are classes of investor with guarantees or seniority.

There are other replies saying you were "scammed", but just examine your own statements to see how something had to give (in this case, the common stock valuation) for anything to make sense. That is, look at your statement (emphasis mine):

> Fast forward two years and they raise again…this time at a valuation of $170M. Naturally, I assumed my $500 was worth close to $1500 on paper.

If they raised again, it's completely nonsensical to think your stock would have tripled in value. The only way to assume that's even possible is if the company tripled in value without raising more money. After all, "raising" is just another word for selling part of the company to other, new shareholders. When you sell part of something, that means the existing shareholders own less (as a percentage) of it.

Yes, there are other bad tricks companies can play with different share classes and obscene preference rights for preferred shareholders (1x is pretty standard and totally fair in my opinion, anything more than that means to me that the company needed to raise under duress or has bad management).

In other words, the outcome you described seems perfectly reasonable just by the rules of math. It says to me that many people just don't understand that "raising money" means selling a part of your company.

For sure, I think I was a sucker, not that the company was acting outside of the law.

In this case, I’m learning that my perspective on dilution is different from the founding team, who evidently feel fine tripling the share pool - as they should! Their odds of a major exit go up with millions in the bank, and the market is willing to bear that dilution, so of course they dilute.

Meanwhile, I end up feeling like I would have been better off buying $450 worth of Dogecoin and a really big pack of oatmeal crème pies.

Everyone tries to get cute with financial strategies and investments, chasing those huge returns. You would be hard pressed to consistently beat the returns of a market fund over the life of your portfolio.

To correct, the Fair Market Value of the common stock went from $4 to $4.75. Saying "Price" indicates you can sell at that value, you most likely can not sell your stock for any price right now. You should value those shares at 0 in your future financial planning.

tldr; You bought $500 in lottery tickets with an undetermined draw date in the future with a high chance that it won't happen.

Yea, I understand your point. Price is convenient shorthand for funny money.

You’re right that I probably lit my cash on fire.

Hey, I spent 6 years at a company collecting over 200k options, spending $2k exercising and having new money come in and try a 200:1 reverse split. Now, 15 years later, I'm a proud owner of common stock in a private company that is marginally profitable.

Some of these are good, some are terrible. The rule about not using leverage is so bad that I can't take the rest of the article seriously. Anyone who really understands the purpose of debt and how to utilize it has to be laughing at this. The very best way to make money is with other people's money - this is a very basic tenet of wealth building. I challenge anyone to find an example of a business or wealth empire that wasn't built with some level of leverage.

>The rule about not using leverage is so bad that I can't take the rest of the article seriously.

In the context of a personal investment portfolio, I'd question there are many circumstances where borrowing money to buy stock or whatever is a good strategy. This is not about building a business empire.

(One can reasonably debate paying down a low interest mortgage early vs. continuing to save in other ways.)

It makes me think of the "efficient frontier" idea that hedge funds are based on that make a case that proper use of leverage really can improve the risk/reward distribution of a portfolio but you can just as easily get into a trap where you juice a failing strategy by applying more leverage to cover up the fact it isn't working anymore, see the "Market Neutral" funds that blew each other up in the summer of 2007.

Note Harry Browne ran as the libertarian candidate for US president more than once and is really famous for

https://www.amazon.com/Permanent-Portfolio-Long-Term-Investm...

In my mind it is quite similar to Diallo's "All Weather" strategy where inflation protected bonds play a role similar to gold in Browne's portfolio.

Hedge funds, VCs, and so forth are also playing multiple games multiple times--so they can afford to play win some lose some so long as they don't lose too many and hit a few home runs.

On the other hand, the person who took out a big HELOC to buy Yahoo stock in 1999 shortly before being laid off was making a bet that ended up being life-changing in a way they didn't intend it to be.

(That's an extreme example but playing the averages both assumes that the average doesn't change and that they get enough rolls for the average to be a meaningful concept.)

99% of people need a safe and comfortable retirement, not a business or wealth empire. If you are looking to build an empire, sure take the high risk way.

If you just want to provide for yourself and your loved ones, leverage as a method of investing is quite risky and counter to your goals.

These "rules" are for individuals, not for businesses or "wealth empires". I could be rephrased as "don't buy stocks on a margin to finance your retirement." (Not that I necessarily agree with him)

I agree with you. Debt is a terrible master, but can be a wonderful servant and I wouldn’t be as financially successful as I am without leverage. And that’s not a wealth empire - just a regular family geared into real estate.

Of course, the “ZIRP” zero interest rate environment that predominated the 10 years since this article was written has been a historical anomaly. Though perhaps part of a longer trend, investors must be cautious not to view the benefits of recent leverage as evidence of easy future gains.

But if there was one thing that differentiates our financial position from our less-financially-free friends, it would be our comfort with debt as part of a well-developed investment strategy.

You might have missed the point of the rules. They are not about FIRE, or maximizing gains. They are about risk minimized investing. Effectively 'how to beat keeping all your money in a bank account, whilst also having even less risk than a bank account'.

Debt is great for boosting returns, and the risk can be managed. But it remains risky. Certain strategies are less risky if you use debt. Those strategies have a risk that is astronomically above the risk tolerance these guidelines assume.

Rule #1 (your career creates your wealth) is a gem.

Rule #8 (make your own decisions) lacks self-awareness, especially after you read Rule #11 (bulletproof portfolio). I have been on a quest for a truly bulletproof portfolio for years. It's not easy. TANSTAAFL. Rule #11 also contradicts Rules #6 (no trading system works forever) and #9 (only do things you understand).

That criticism aside, the author did a service to us all by writing this. If I had followed all these rules consistently throughout my life, I would probably be a wealthier man today.

Where I've ended up is keeping some money aside to scratch whatever (mostly pretty conservative) investing itch I have and leaving the rest to a financial advisor. He's done stuff for my family for years and my feeling is that especially if I'm not going to actively manage my full portfolio, I'm better off with someone else doing it than just throwing the money into some index funds and calling it a day. (Though there have certainly been periods where that's probably been the right strategy.)

Have you back tested this hypothesis? It’s very unlikely to be true over a long period, say 15 years.

Hard to say. Everything invested in the NASDAQ over the past 15 years would have been a great strategy. (Edit: high return strategy. Not necessarily a "good" one.) The 15 years before that probably not as good.

Putting money in a small number of index funds and not even looking at them probably isn't a bad strategy and the costs are pretty low. But it's not bulletproof.

I look at the financial advisor/firm as a form of diversification in part. I also keep my own portfolio small enough to have some (hopefully) intelligent opinion on whether the investments still make sense. (Including a decent weight on index funds.)

It’s not hard to say though, back testing is trivial. There are very few market-beating advisors, and the longer you look the longer the odds get.

People with “a guy” always think he’s doing something super clever. In reality, the best ones are just investing your money in index funds. The best they can do is help to save you from yourself, like avoiding selling stocks and moving to cash in 2008 or 2020.

Trading systems and asset allocations are not the same thing.

Browne wrote a book explaining his portfolio in hopes that people would understand it. If you understand it and decide to use it, you're making your own decision.

> Trading systems and asset allocations are not the same thing.

Asset allocation is just a trading system that changes much less frequently and has a different belief system underpinning it. They are both fundamentally decision frameworks about how to spend your money.

The tragedy with this article is that a lot of the advice is sound. Once people get to Rule #11 they have a lot of reason to trust this author and adopt his bulletproof portfolio. And then they learn the hard way how it wasn't bulletproof.

The author really should have known better. The prescriptive recommendations in Rule #11 contradict so much of the otherwise sound advice.

Nothing is bulletproof, but you have to do something and Browne's portfolio has less risk than most. It sacrifices some returns to achieve that, but if you're retired or nearly so, it's a solid choice.

Yes, exactly! Nothing is bulletproof and you have to do something. There Ain't No Such Thing As A Free Lunch. You can't depend on anyone to figure out a low-risk plan for you, not even Browne!

>It sacrifices some returns to achieve that, but if you're retired or nearly so, it's a solid choice.

In that scenario, especially given a healthy nest egg, it absolutely makes sense to optimize locking in an income stream at the expense of limiting the upside. Once you have "enough" money close to retirement, it's mostly about not taking risks for potential gains that won't really benefit you.

For someone in a different situation, it will often make sense to go for higher average returns over time.

(All of which is pretty much bog standard financial planning advice.)

Growing up poor-ish and coming to a high income later in life (nearing 40 now) I believe growing your income is almost a prerequisite to accumulate wealth.

Sure, I wish I had known this advice earlier, but even if I did, now I would be only ever so slightly richer. When I spent the first half of my career in a low pay job living paycheck to paycheck, I simply didn't have the spare income to invest.

> Growing up poor-ish and coming to a high income later in life (nearing 40 now) I believe growing your income is almost a prerequisite to accumulate wealth.

Your income is your number one wealth building asset. Love him or hate him, but he has some solid advice at times: "Ramsey says that your income is your biggest wealth-building tool. I'd argue that it's actually the gap between what you earn and what you spend. That's the cash you can use to become more financially secure. If you're unsure of where to start, take a look at where your money goes each month." - https://www.fool.com/the-ascent/personal-finance/articles/da...

With regards to Rule 11, especially:

> GOLD not only does well during times of intense inflation, it does very well.

No, it does not:

* https://www.nber.org/papers/w18706

* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3667789

From Roy Jastram's The Golden Constant: The English and American Experience 1560 to 1976:

> Andre Sharon, head of the international research department at Drexel Burnham, Inc., notes, “the value of gold essentially derives from its capacity to preserve real capital and purchasing power.”† I select this particular quotation because of the prestige of the organization and the position of the spokesman, but statements in this vein can be found in great numbers. They can be traced back for generations and in many countries. How can this proposition so contrary to statistical fact become so widely believed and quoted? Possibly because gold has preserved capital in cataclysmic cases it is easy to infer that it can be trusted to do the same in less severe circumstances. To extrapolate from gold’s protection in singular catastrophes to its use as a strategy against cyclical infation is an example of faulty inductive reasoning.

* PDF: http://csinvesting.org/wp-content/uploads/2016/02/RoyJastram...

* https://www.pwlcapital.com/will-gold-save-the-day/

Gold is the least bad currency option when compared to all the fiat currencies.

Gold is an unproductive asset, that does not do anything useful against inflation, and when used to back currency (e.g., Gold Standard) does not help with stability (and may actually cause instability):

* https://www.theatlantic.com/business/archive/2012/08/why-the...

* https://archive.ph/FWKcL

Gold is great as a hedge for many things, and that is exactly how I use it. However, I am not suggesting all people have to have a physical supply. There are 3 ways at least that it is regularly used as an investment

Physical Gold

Gold via a fund e.g. SPDR (GLD) https://www.spdrgoldshares.com/

Gold mining stocks e.g. SPDR (GLDM) https://www.spdrgoldshares.com/

Gold does work as a hedge against sustained inflation, but not momentary blips in inflation https://www.investmentnews.com/gold-standard-fight-inflation...

Gold also works as a hedge against currency hyperinflation

First of all, most fiat currencies don't last very long. https://medium.com/@bewdliberty/on-a-long-enough-timeline-th...

2nd, diversification across asset classes still makes sense https://www.morningstar.com/portfolios/why-portfolio-diversi...

In the case of a weakening dollar, sanctions as weapons, and the potential rise of a new basket, or reserve currency, there are many reasons why gold may make sense to add to a portfolio.

>Gold is an unproductive asset

Anecdotally, my gold hedge via GLD is up >20% per annum in capital gains.

If the US dollar is debased more through excessive printing, it will go much, much higher.

> Gold also works as a hedge against currency hyperinflation

currency hyperinflation is often caused by (very) bad monetary policy (or other decisions) from the gov't, or an apocalyptic event of some sort - which, even if you try to hedge, will not save you from the fallout from such an event.

You'd be better off moving away to a more stable country, or if there's no where to move, you'd be needing guns and ammo. Either way, investment returns would be the last thing on your mind.

A hedge is a financial instrument that is negatively correlated with an exposure. A hedge position is not supposed to have a positive return, it's supposed to offset another position, so that the combined return of both positions is zero, or close to zero. You're using financial jargon in an attempt to sound clever, but you only sound like somebody who doesn't know what they're talking about.

> You're using financial jargon in an attempt to sound clever, but you only sound like somebody who doesn't know what they're talking about.

Stop with the snark, you're violating the rules.

> Hedge defined "To hedge, in finance, is to take an offsetting position in an asset or investment that reduces the price risk of an existing position. A hedge is therefore a trade that is made with the purpose of reducing the risk of adverse price movements in another asset. Normally, a hedge consists of taking the opposite position in a related security or in a derivative security based on the asset to be hedged."

https://www.investopedia.com/terms/h/hedge.asp

> "What Are the Advantages of Buying Gold Over Treasuries? Gold is popular among investors because it can be used as a hedge against currency devaluation, inflation, or deflation. It’s also liked for its ability to provide a safe haven during times of economic uncertainty. When it comes to gold and taxes, depending on your income level, Treasury investments are typically more favorable tax-wise."

https://www.investopedia.com/articles/investing/092514/bette...

I have hedged my heavy US bond & US Treasury & US stock positions & US dollar positions with another asset class.

My hedge is producing outsized returns is the anecdotal observation.

> I have hedged my heavy US bond & US Treasury & US stock positions & US dollar positions with another asset class.

No, you just have a portfolio that consists of a bunch of random assets.

> No, you just have a portfolio that consists of a bunch of random assets.

No, I have a diversified portfolio that consists of 5 asset classes divided into percentages that match my risk appetite.

While I am regularly in derivatives too, currently I am not for some specific reasons.

What is your risk appetite? How does gold affect the risk profile of your portfolio, specifically in terms of volatility and value-at-risk, and also more generally?

Browne wrote a number of books I found helpful, such as How I Found Freedom in an Unfree World.

http://harrybrowne.org/

(corrected title)

Rule 18: Don't trust a Generic Wall Street Dude in a Suit, especially his own selling book

(to be fair this is already mirrored in the several rules, Rule 8 and others)

The asset split of 25% each of gold, stocks, bonds and cash would have fared relatively bad over the years since 2007-09.

Investing in gold now seems real not smart, same with that much cash.

I think we might be in point of time where cash could make lot of sense. It is uncertain if we are in an other long running bull market yet. And certain sectors might be approaching a top already. Namely the biggest technology stocks.

As someone on the older side, I generally agree with that. The tech sector has been very good for me over the past 10+ years and I still have a fair bit invested but I look at my portfolio and go "that's probably enough." I've been around long enough so that "Don't get greedy" is pretty ingrained.

On the other hand, getting 5% on basically a treasuries fund looks pretty good on a risk-adjusted basis.

6% or so per year, in fact. Not so bad.

Worse than a more typical 80% stock/15% bonds/5% cash.

Having half your assets in cash and gold is very not smart.

I myself tend to lean toward stock-heavy allocations, but this is not something I'd recommend to everyone. I don't know if you remember the 2008-2009 period, or if you even were an investor back then, but those were... interesting times, to say the least. Almost-retired and newly retired didn't sleep well back then.

Your portfolio lost 26% of its value that year, and losing 1/4 of your life's saving isn't something most people are ready to stomach, especially when they need it the most (year just before or just after retirement, typically).

At the same time, Browne's allocation lost less than 1%. Since 2007 it had just one really bad year (2022, -13%, and even then it wasn't as bad as the above allocation), other than that, it was always positive or close to zero.

A simple portfolio that almost never loses money and still has a decent, yet significantly smaller than its competitors, CAGR. That's a pretty good option for very conservative investors, IMO.

No one should have 25% in cash and 25% in gold.

There’s different stock ratios for different situations. But half cash is bad advice. Even if you are 85, you might have lots of cash equivalents, but you wouldn’t have 25% gold.

Picking a single year isn’t a productive example because the point of investment is to keep for multiple years.

With a 10+ year horizon, you should definitely be willing to stomach a 25% drop one year, because that happens. And of course the market was up over 100%+ in the following 10 years.

It’s not useful to compare Browne’s allocation without mentioning how it was much worse than the s&p500 over that period.

To compare strategies, you want to look at them compared to one another. And of course past performance doesn’t guarantee future performance. But it can be helpful.

“Almost never loses money” is not a very good strategy unless you are in retirement already. Most people aren’t in retirement so if they choose a never lose money vs strategy they will end up with less money than a “loses 25% sometimes, but averages more.”

Average return is a metric, but it's not the only one. If you really want the biggest possible CAGR and don't care at all about volatility, you won't beat a 100% stocks allocation.

Browne allocation's Sharpe ratio (0.67) is better than yours' (0.60). They serve different purposes and cater to different investors.

I personally wouldn't use Browne's because I'm still young(ish) and have a very, very stable income and will get a pension from my government, so I can stomach the volatility and better take the best average return. But if I were a freelance of some sort in my late fifties or older, I'd get closer to Browne's allocation.

What’s the minimum wealth level where these are applicable?

> Rule 13: Keep some assets outside the country in which you live.

This is very impractical unless you have even money where 5% of your wealth international makes up for the cost to maintain.

It could easily cost$5-10k in travel expenses to travel somewhere and establish accounts, plus the costs to account for and audit and maintain.

> It could easily cost$5-10k in travel expenses to travel somewhere and establish accounts, plus the costs to account for and audit and maintain.

Maybe don't travel to Dubai (or similarly most-expensive-countries-in-the-world) then and establish accounts in a country that doesn't wildly out-rich you. Also, you don't have to stay longer than just a few days most likely.

Besides, many places to allow internationals to signup for accounts also allow you to do a video call with account manager rather than going there in person.

> Besides, many places to allow internationals to signup for accounts also allow you to do a video call with account manager rather than going there in person.

I’m not so sure about that. No reputable banks where you’d want to have your other country account. And I don’t think the author considers “first cyber bank of Barbados” to fit this rule. And it’s certainly a horrible idea.

> Maybe don’t travel to Dubai

Please attempt to put together a travel budget from the US to some country that makes it cost reasonable for a “normal” person to travel and open an account.

I picked $5-10k because if you have enough cash to keep overseas, you probably don’t want to take a mega bus to Toronto or Mexico City and scrimp to open the account and visit it.

Sure, Seattle>Tokyo 1st October to 5th, $1000 flight ticket, hotel for 50-100/night, and you have like 3500 before you reach 5k.

We also live in a sufficiently interconnected world that, if something goes really south in the US, I'm not sure having a UK bank account or a bunch of cash and gold in a Swiss safety deposit box is the get out of jail free card it was in cold war spy novels.

I have bank account in a German bank[0] and I opened it during a coffee break at the office. I don’t live in Germany and have never visited there.

[0] https://en.wikipedia.org/wiki/N26

"In November 2021, N26 announced that it would be pulling out of the United States in January 2022, leading to the closure of approximately 500,000 accounts. American customers were no longer be able to use its app after January 11, 2022."

This is the bank you linked to?

I'm also not American, like most of the world =)

Yeah so the Obamacare regulations took care of the American financial isolation.

What’s your home country?

For the US, this bank seems impractical/impossible.

In the U.S. you have FBAR and FATCA requirements to report information on many types of assets held in foreign countries.

It's not only impractical, but for U.S. citizens at least, practically impossible. I lived in Switzerland as an ex-pat worker for a few years, so I had a Swiss bank account. Nothing fancy, just a regular post office bank account like 75% of Swiss people have. When I moved back to the U.S. I kept it open with a modest balance since I had a debit card I could use when I was in Europe that kept me from incurring currency conversion costs. Over the years, the U.S. regulations made it very difficult to keep it open. The bank didn't want to deal with it, so they made it hard enough that I finally closed it.

I know why the U.S. does it, but that doesn't mean that I, as an honest taxpayer, have to like it.

IMO it’s also ineffective.

You can use it to derisk those assets, but in the U.S. there have been cases of a court demanding people hand over non-domestic assets and holding them in contempt until they do.

If the U.S. government decides your assets are theirs, I don’t think the location of the account is sufficient protection. You better hope you aren’t on U.S. soil, or any soil that extradites, when they ask you for that account if you plan on telling them “no.”

> If the U.S. government decides your assets are theirs

which happens if you evade taxes, or commit fraud. In general, the US doesn't do unjustified seizures

Rule 7 (don't use leverage) really needs some additional clarification.

If you're borrowing money using a mortgage in order to invest in stocks, that's probably not particularly smart. If you're taking on debt financing to grow an already-profitable business into an even more profitable business, that might be a different kettle of fish.

> If you're borrowing money using a mortgage in order to invest in stocks, that's probably not particularly smart.

If you have both a mortgage and investments, that is almost literally exactly what you’re doing.

If your mortgage is below a 4% rate, this is almost certainly a great idea. If it’s above that, it may be a reasonable approach (up to a point).

I have a mortgage at 2.375% and I can assure you I intend to pay it off over the full 30 year duration. Every early payment is an enormous opportunity cost compared to leaving it in the markets over the remaining duration.

Why would an investment into your own business be less risky than a diverse investment in the general market? It doesn't make sense.

Anyone who has both loans and stocks is "borrowing to invest in stocks". Because they are investing money that could be used towards paying off their loans. As long as the risk is carefully considered (not too high % loans etc) why not do it?

I might not re-mortgage in order to raise capital to invest, but if the interest rate is low (i.e. not right now) why would you put up more of a deposit than you have to? It's a cheap loan for however many years, and if it rises you can just put up more then, having benefited in the meantime.

This has some information but if you use all of them, this leads to a lot less or no oppurtunity in real world. It's like opposite of open mindset and being optimistic. Definitly works for average mind? and those who don't want to crate long term wealth. And 0 mention of index funds? sp 500 history and returns? For me that defines the limited view and limited information of the author (whoever he/she is)

Gold has very little returns against real inflation in last 10 years. ok this has some mindless advices too, funny

I haven't heard about this guy in a long time (2001 or so) but one thing he said has stuck with me for some reason, and pops into my mind often. I think he framed it as good general life advice to his young adult daughter. "No one owes you anything."

> Rule 7: Don’t use leverage.

> Using margin accounts or mortgages (for other than your home) puts you at risk to lose more than your original investment.

As this says, margin accounts used in a certain way can put you at risk to lose more than your original investment. However, they are sometimes necessary to make investments with little to no additional risk. For example I may own $50,000 worth of XYZ Corp. and want to sell it on a Monday so as to buy $50,000 worth of DEF Corp on that same Monday. I can't do that if I don't have a margin account - settlement is usually T+2 days.

You can incur additional risk with a margin account, but not as much if it's just to borrow money you are almost certain you will have in a few days.

> As this says, margin accounts used in a certain way can put you at risk to lose more than your original investment. However, they are sometimes necessary to make investments with little to no additional risk. For example I may own $50,000 worth of XYZ Corp. and want to sell it on a Monday so as to buy $50,000 worth of DEF Corp on that same Monday. I can't do that if I don't have a margin account - settlement is usually T+2 days.

This isn't really leverage. Your brokerage is just extending you temporary credit to paper over the fact that stock trades take two days to settle. You're never net long more than 100% of your investment.

Golden Rules of Financial Safety (1999) - https://news.ycombinator.com/item?id=15586230 - Oct 2017 (110 comments)

The 16 Golden Rules of Financial Safety - https://news.ycombinator.com/item?id=10842766 - Jan 2016 (1 comment)

I've nicked 1999 from that other title. If it's wrong, hopefully someone can figure out the right year (https://meta.wikimedia.org/wiki/Cunningham%27s_Law).

> Rule 1: Your career provides your wealth

> Build your wealth upon your career.You most likely will make far more money from your business or profession than from your investments. Only very rarely does someone make a large fortune from investments.

This is good advice. If you're getting 2% dividend payments from stocks you need 5 million dollars to make 100k $/yr.

The general thinking about this is to use a "safe withdrawal rate" of 3% to 4% of assets per year. Dividends are out of fashion since they don't offer tax deferral, they also aren't really easy to properly diversify although dividend funds are offered.

Like 15 of these can be replaced by having a financial advisor that you fully trust. Finding one is obviously a huge challenge, but makes almost of all this knowledge you can offload onto an expert.

IMO fidelity is probably the closest you’ll get, they’re call centers/etc are all fully certified us-based people who aren’t on commission/etc.

Does anyone has a UK advisor they're overwhelmingly happy with?

In the US I have friends who are deliriously happy with their absolutely incompetent financial advisors.

The problem is that it’s a sales role and the usual customer manipulation applies strongly.

Rule #1 literally talks about why you don't.

> Can you make big profits by relying on an expert who does have the proper qualifications? How do you find a true expert? That task is no easier than picking the right investments. If you don’t understand investing as well as the pros, you won’t know how to check those who seek to advise you. And you can’t rely on an advisor’s track record, even when it’s presented honestly. Track records tell you only how advisors did in the past – not how they will do next year.

This is true historically where you needed to pick an individual advisor who managed your portfolio based on their experience/etc. That’s not really how the major companies like fidelity run it anymore - an advisor gets their certification and then fully plays by the playbook and isn’t allowed to even have their own track record. So you’re not getting some guys advise, you’re getting a company’s extremely researched strategy they built for individuals who match your needs.

But really calling up any company and asking for a rep isn’t going to be great - I think being friends with someone who you trust as a friend first and then as someone who converts the playbook to your investments is best.

I like my financial advisor and all that. And he'll take into account my plans and any specific preferences I have. But, at the end of the day, he's mostly taking the output of his company's computer programs.

The point of much of Harry Browne’s work is to be self-reliant and not trust the government nor big companies with your life decisions such as investments. Stop fooling yourself that these big companies are looking into your best interests. They aren’t. They are looking for ways to make activity on your investments and collect fees.

Ok, but I know people who invest poorly and never rebalance. It's not a priority for them. Professional help would be a win-win for both, even after fees.

The issue is that these "advisors" have to get paid. And if you are paying for mass-produced advice, the margins are guaranteed to be small. This is the kind of advice that you can easily get if you research it, but might still be work intensive or error-prone to implement. The happy medium is robo-advisors, that get paid slightly less and implement the strategies for you.

Fidelity is maybe ok. You really need to spend some time educating yourself and if you want help, need to get a fiduciary.

Agreed - doing some learning is a huge huge step that the list of rules kind of gets at but doesn’t make crystal clear.

> IMO fidelity is probably the closest you’ll get,

This is not true. I have decent knowledge about investing (index funds, stocks vs bonds vs real estate allocation etc.). So, I know when my Fidelity investment advisor was BSing me when she started selling me "alternative investments" (such as private annuity and direct indexing). Needless to say, I don't talk to her anymore.

> GOLD not only does well during times of intense inflation, it does very well. In the 1970s, gold rose twenty times over as the inflation rate soared to its peak of 15% in 1980

Is this still true? As a layperson looking at the chart, it seems like gold has moved up and down a lot, but is more or less in the same place as it was 2 years ago.

It’s not true. And using the 70s as proof is either dishonest or lacking knowledge: gold rose in the 70s because an artificial pinning of its price was removed.

Isn’t that the point, though? It’s a hedge against inflation, a low risk, static asset to keep in place of cash.

In 1970 a Carolla would have cost about 40oz of gold and today it would cost about 20oz. A barrel of crude was ⅒oz, today 1/20th oz.

> It’s a hedge against inflation, a low risk, static asset to keep in place of cash.

It is not a good hedge against inflation:

* https://www.nber.org/papers/w18706

* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3667789

From Roy Jastram's The Golden Constant: The English and American Experience 1560 to 1976:

* PDF: http://csinvesting.org/wp-content/uploads/2016/02/RoyJastram...

* https://www.pwlcapital.com/will-gold-save-the-day/

I listed two easily found examples of gold’s buying power increasing from 1970. It will and has always maintained value better than fiat. It’s never been about cyclical inflation, but about long term devaluing of floating currencies. I wouldn’t expect gold to be a hedge against currency that was pinned to the value gold.

Weimar Deutschmarks, Venezuelan Bolivar, Mexican Pesos, Hungary, Zimbabwe, Yugoslavia, etc. etc. are a few examples in the last hundred years where it would have been better to hold gold than cash.

Are productive investments going to be more profitable than gold? Absolutely. Gold is not a productive asset and will not produce anything. That’s not what it’s for. It’s specifically for not investing over long periods where a fiat cash position would lose about ⅓ of its buying power per decade (in terms of current US Federal Reserve Notes).

Look at a chart of gold from 1970 to today and add a trend line from just the lows[0]. Even if you would have bought at the peak in 1980, the buying power of your gold would have been effectively unchanged (the dollar value would have tripled). At any other time, gold has handily beat cash.

Any financial consultant is absolutely going to steer you away from gold because it can’t make them recurring revenue. It’s always going to do worse than the stock market over the long term. That’s not what gold is for. It’s an alternative to a long term cash position.

I’m not saying put all money into gold, but having 1-10% of assets in physical gold is not any worse than most people’s much higher allocation in bonds.

0 - https://www.macrotrends.net/1333/historical-gold-prices-100-...

Many people believe the price of gold is being artificially suppressed or is artificially lagging since it is not behaving the way it typically does. If it can no longer be kept low, it will probably move quickly to a true market price.

Is that true? JP Morgan and Deutche Bank have been caught manipulating the price, but it would probably need to be the Fed to keep it suppressed for as long as it has been. They certainly have the motive, but no one has proven that they are doing it.

Or: past performance is not a guarantee for future performance.

Maybe gold and inflation are no longer as correlated as they used to be.

> Maybe gold and inflation are no longer as correlated as they used to be.

Or maybe they were never correlated and people just assumed they did and never bothered looking at the data:

* https://www.nber.org/papers/w18706

* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3667789

Or me with my tinfoil hat:Gold is correlated with real value and the inflation numbers don't reflect that because they're artificially suppressed.

I.e. if gold looks flat growth wise to the dollar, maybe it's cause it actually went up in value but the dollar went down due to inflation.

I went to a tech presentation by Barrick and got the impression that gold price is set by their fixed costs and operation costs. If the price goes up they turn up their operations. I am sure this isn't a controlling factor as demand could outstrip their operation size. But it does set a soft ceiling when demand is low, and it is.

Related (as in: investment advice for those who don't want to think too much about it)

https://www.bogleheads.org/wiki/Bogleheads%C2%AE_investment_...

https://www.bogleheads.org/wiki/Lazy_portfolios

https://www.bogleheads.org/wiki/Simple_non-US_portfolios

https://www.reddit.com/r/Bogleheads/

Rule #18: No one consistently follows a list of rules unless: they have personally learned why each rule exists from experience; they are the type of person who would have followed them anyway without knowing what they were; they are legally obligated to.

My simple rules about money and investing for the future:

- Max out 401K and place it in S&P 500 mutual fund - Take an additional 15% and but into an S&P 500 mutual fund - Don't look at it, just keep buying at regular intervals until you decide to retire.

The rest of your money - do what you wish (within reason) and stay out of debt.

Simple? Yes.

Contrary? Yes.

Proven historical returns that beat inflation? Yes - https://www.officialdata.org/us/stocks/s-p-500/1973?amount=1...

You can thank me when you retire :)

> You’re violating Rule #1 if you think your investments can be the sole source of your retirement wealth

What? That's exactly what I'm investing for. What the hell else should I expect to fund my retirement?

It should have been phrased, "your return on investments can be the sole source of your retirement wealth."

I think what they mean is that the bulk of your wealth will be the capital that you put into your investments with a reasonable amount of interest/capital gain.

imo it means that you should also own a place to live in.

In context, it's clearer.

Don't be banking on that elusive big investment win to save the day if you're not otherwise on the trajectory you want to be on. Of course, you hope your investments will preserve your savings and augment them. But outsized investment gains won't in general get you there by themselves.

(Also remember that the 10 years since this was written have been something of an outlier for the stock market.)

Missing: If the promised interest rate is higher than the market rate for bank accounts, there is an implied risk of default, in which case you would likely lose your entire investment.

Not missing. “ The cash portion should be kept in a money market fund investing only in short-term U.S. Treasury securities, so that you don’t have to evaluate credit risk. These securities are safer than bank accounts”

The funny lesson I got from SVB was why bother putting cash in a bank when they're just going to put it in treasuries, MBSes, etc. It's not exactly insured, but a short-term government money market fund seems safer, or a state muni fund if you're worried about the federal government defaulting.

>why bother putting cash in a bank

In general, banks are set up to deliver consumer services that brokerages are not. However, in these days where treasury funds have ~5% interest rates, it makes sense to keep checking account balances at a level that they have a comfortable buffer for your preferences but no higher.

I see my brokerage makes the case for maybe not needing a separate bank. Which may be true at this point. On the other hand having one doesn't really cost me much and would probably be a bit of a pain to change.

16 is the most important but needs expanding/modifying. Have a budget for everything, not just having fun. The easiest way to feel wealthy is to desire spending less.

Damn you hedonic treadmill!

Leverage to finance something you have an edge on can be good. Leverage to finance something you have no edge, like stock picking, is a path to ruin.

I'll call out Rule 14: Beware of tax-avoidance schemes.

I'm always meeting people who are obsessed with avoiding taxes. It's better to just pay the minimum you owe legally, and sleep at night. They think "Oh, it's deductible" means "Oh, it's free."

The one (very modest) trust I have some first-hand familiarity with, I'm pretty sure the effort and legal/accounting fees over the years long ago negated any tax savings associated with it.

"Any attempt to be clever in assigning portions to the investments probably will do more harm than good. I prefer the simplicity of allocating 25% to each of the four investments."

Why would you assign 50% of your portfolio to non-productive assets?

> You’re speculating when: You select individual stocks, mutual funds, or stock market sectors you believe will do better than the market as a whole.

So no individual stocks and funds - got it. What am I supposed to buy to be an investor? A financial advisor?

Whole market funds, but preferably multi market funds. Basically VT. But you can foray into VFIAX.

The economy is like an opaque operating system that none of its users truly understand, and in 2008 it blue-screened and had to be crash-restarted using hacks that we don't really know the repercussions of yet.

But how does one even buy significant quantities of gold?

A better title would be "Harry Brown's 17 Rules for Keeping Your Wealth Once You Already Have it, and Good Luck Getting There!"

Rule 1 directly addresses this point.

16. Have relationships with functional/reliable people who will help you in a crisis. ( easier said than done)

This seems to have been easier in the past than it is now. Family traditionally played that role and I hope for a lot of us still does.

We do seem to be living in a society more disconnected than before.

Yeah financial crises wouldn't be as bad if more of people's economic activity was more embedded in a family or local community with people they know personally.

Alternatively: buy AAPL :)

I remember in around 1998 I just started my career and one of my duties of my job was to go around to our alpha testers of a photography product we built and make sure things were going well. These customers were often pretty angry at my company due to them not being told it was an alpha version, but most often they were happy to see me try to help them out.

Anyhow, at one of those customers, the designers, photoshop artists, and I got lunch and started talking. Prime topic was the 'outspoken IT guy' who had all sorts of 'theories' and 'rules' he lived by, often to the amusement of his coworkers.

They goaded me into asking about his rules,

     "Ask him why he only uses chopsticks!". 
     A: "Because they've never been able to train monkeys to use chopsticks"

     "Ask him his retirement strategy! He only invests in one thing, he's a true believer!"
     A: "I am a believer, I'm a believer in Steve Jobs, I put all of my money in whatever he does. I had money in Pixar, now I'm putting all my money in APPL".

note: If he had 100k he put in at that time, he'd have 63 million now.

Hopefully he doesn’t follow Jobs’ medical strategy.

This is cruel, but fair.

For some reason, I can't edit the above, but it was supposed to be a joke, hence the smiley. Seems like some people lacking a sense of humour (or at least, their sense of humour is sufficiently different to mine to not correlate).

Rule #0: Be born into a privileged family. Your parents will raise you in a wealthier suburb where the schools are good and you network with other similarly privileged kids. The crime rate is low, so you’re less likely to end up injured or killed by violence. Air pollution is also likely lower, so less odds of death by asthma.

Privilege gets you into college, where you study with other even more privileged kids, obtaining a designation that further cements your advantages. From this basis of privilege, your privileged ancestors will perhaps gift you some capital with which you can start your portfolio or purchase a home.

You now begin you career and can start following the other steps to maintain your advantage.

* edited to replace “white male” with “privileged family,” which is a bit fairer and less controversial.

How are white males a privileged class? The top 1% sure, but the average white male?

If anything, white females are a privileged class.

Being privileged doesn't mean one's life has no hardship. There are plenty of poor, white men, and Oprah Winfrey is a billionaire.

The way to think about it is take one of those poor white men and imagine he is black while the other things (wealth, schooling, location, etc) remain constant. While anything might happen, statistically that person's outcome would be worse as a black poor man than as a white poor man.

Yeah but that isn't because of race. Replacing the race doesn't work with asian men nor black men that come from africa as 0th gen/1st gen immigrants.

This is uniquely an african american problem suggesting alternative reasoning (culture, education/values etc).

I'm a solid white male engineer at a FAANG. If I were a woman, the company would bend over backwards to make sure I advance. 80th percentile as a male, they're happy to keep me, but investing in me isn't a priority.

So you're advice is basically to give up?

Not at all. But I think it’s worth pointing out that it’s a privilege to even have wealth to manage in the first place. It is commonplace to disregard that privilege in these sorts of discussions on the topic of wealth.

This is an awful, overly-simplistic, unproductive, and arguably inaccurate mindset to have in life.

To each their own, but I just dropped my daughter off at university, and nearly every kid is white. I felt it may be of some interest here on HN to let people know there is a step 0 that most humans will never be able to access.

I don’t mean to imply that successful people didn’t work hard. I have worked hard. But had I grown up as some of my primary school colleagues did - on the literal wrong side of the tracks - I likely would not have had nearly the same success in life and would not have a portfolio to worry about in the first place. At best, I’d be hopeful for a union job with a pension.

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