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Bogleheads University 101 2023 - Examples of Asset Allocations: Reasonable & Unreasonable Jim Dahle


Whisper Transcript | Transcript Only Page

00:00:00.000 | (audience applauding)
00:00:03.160 | - Okay everyone, we have to stay on track,
00:00:08.900 | so let's go ahead and get started.
00:00:10.920 | Before we get into Dr. Jim Dolley's session though,
00:00:15.600 | just want to mention that all of the slides
00:00:17.880 | that you're seeing today, and really any slides
00:00:20.520 | that you'll see during the course of this conference,
00:00:23.000 | will be available on the Bogle Center's website.
00:00:26.080 | The URL is boglecenter.net,
00:00:28.800 | and so you'll just go to the conference page,
00:00:31.520 | go to the agenda, and you'll see a spot
00:00:33.760 | to download the slides.
00:00:35.600 | So no need to feverishly take notes,
00:00:38.180 | we got you covered with the presentations.
00:00:41.760 | And we see that we've got a lot of questions coming in,
00:00:44.520 | which is fabulous.
00:00:45.880 | So Dr. Jim Dolley has been leading the sessions next door.
00:00:50.320 | Jim has been absolutely fabulous to us at Bogleheads.
00:00:54.480 | He's been such a wonderful member of our community
00:00:57.260 | for so many years.
00:00:58.560 | I think he's one of the most prolific posters
00:01:01.000 | on bogleheads.org.
00:01:03.040 | And he has his own empire over at White Coat Investor,
00:01:07.240 | which is a website, podcast, book series, conference,
00:01:12.240 | geared toward healthcare professionals.
00:01:16.280 | So Jim has written several books
00:01:19.600 | under the White Coat Investor name.
00:01:22.080 | He's got the White Coat Investor podcast.
00:01:24.700 | He runs a fabulous conference every year,
00:01:27.320 | and I will say that we have gotten a little bit
00:01:29.200 | of a twofer with Jim, which is that Jim's wife Katie
00:01:32.920 | helps put on their amazing conference,
00:01:35.720 | and Katie has been here every step of the way
00:01:38.200 | helping us make this conference run smoothly.
00:01:41.300 | So we are so grateful to them
00:01:43.440 | for being part of our Bogleheads community.
00:01:45.740 | Jim is going to talk about asset allocation.
00:01:48.680 | He's going to expand on what I talked about in my session,
00:01:53.280 | but he'll share some specific examples.
00:01:56.080 | Please join me in welcoming Jim Dolley.
00:01:58.620 | (audience applauding)
00:02:01.780 | - All right, it's great to be with you.
00:02:05.640 | I'm sorry, I've missed all the other sessions in here.
00:02:08.300 | (audience member speaking faintly)
00:02:12.560 | Okay, all right, so Christine's talk dealt
00:02:19.320 | with a lot of theory and a lot of how-tos
00:02:22.760 | on your asset allocation.
00:02:23.960 | In this talk, we're gonna try to get
00:02:25.400 | a little bit more into the nuts and bolts,
00:02:28.600 | which means I gotta actually share opinions,
00:02:30.760 | and bear in mind that my opinions are not gospel.
00:02:33.960 | Some other people's opinions disagree with my opinions,
00:02:36.440 | and that's okay, but I think it's helpful to hear opinions.
00:02:39.480 | And so we'll be going over a bunch of portfolios
00:02:41.960 | as part of this and talking about my opinions.
00:02:45.320 | All right, before we get into that,
00:02:47.080 | a few disclosures and disclaimers.
00:02:51.000 | I am not a financial advisor.
00:02:52.580 | I'm not an accountant, I'm not an attorney.
00:02:54.400 | I'm not licensed to do anything in this state.
00:02:56.700 | So this is all for entertainment and information only.
00:03:01.700 | I do have a conflict of interest.
00:03:02.920 | I own a company called the White Coat Investor.
00:03:04.760 | I have dozens or hundreds of advertisers there
00:03:07.860 | with whom I have financial conflicts of interest.
00:03:10.100 | I'm not gonna mention any of those.
00:03:11.440 | The only company I'm gonna mention today is Vanguard,
00:03:13.560 | and I'm still trying to talk them into advertising with me.
00:03:15.900 | So even there, I have no conflict of interest.
00:03:18.540 | We're gonna talk about these three things.
00:03:21.000 | We're gonna talk about some principles to consider
00:03:22.980 | when building your portfolio,
00:03:24.440 | and then we're gonna go through a long list of portfolios
00:03:26.800 | that I consider reasonable,
00:03:28.760 | and then through a list of portfolios
00:03:30.280 | that are extreme and not reasonable.
00:03:33.320 | And I think this is a helpful exercise
00:03:34.840 | for people who haven't done this before.
00:03:36.680 | Okay, this is me sleeping on the side of Half Dome
00:03:42.200 | a month ago.
00:03:43.740 | After climbing for 24 hours,
00:03:45.480 | I managed to get 45 minutes of sleep there
00:03:47.160 | before continuing the climb.
00:03:48.960 | If I look like I'm hallucinating, I probably am,
00:03:52.200 | but that is not reasonable, okay?
00:03:55.200 | Like many of the portfolios we'll discuss today.
00:03:58.240 | All right.
00:03:59.080 | Your goal is to avoid extreme portfolios.
00:04:04.540 | You know, extreme sports might be fun.
00:04:06.000 | Extreme portfolios are not.
00:04:08.420 | You want a portfolio that's likely to do well
00:04:10.140 | in a wide range of potential future economic scenarios.
00:04:15.140 | You cannot know the perfect portfolio in advance.
00:04:18.580 | You cannot know it.
00:04:19.740 | Quit trying to find it.
00:04:21.240 | The efficient frontier is defined retrospectively.
00:04:24.340 | You want to find a good enough portfolio
00:04:28.580 | and then stick with it.
00:04:30.800 | That is what you want, a good enough portfolio.
00:04:33.160 | This would be static,
00:04:36.380 | meaning it has set percentages
00:04:37.820 | that you can regularly rebalance to.
00:04:41.020 | It's broadly diversified and has low costs, okay?
00:04:44.620 | So instead of trying to come up
00:04:46.620 | with the most reasonable portfolio,
00:04:48.500 | you can just pick one.
00:04:50.060 | That's okay.
00:04:51.300 | If you'll stick with it, it'll be fine.
00:04:53.180 | Every asset class in it will have its day in the sun.
00:04:55.840 | A reasonable portfolio, okay?
00:05:00.180 | If there is a slide to remember,
00:05:01.620 | if there's a slide to take a picture of, it's this one, okay?
00:05:05.260 | We'll have at least 50% of the assets in it
00:05:09.020 | in stocks, bonds, and real estate, okay?
00:05:12.500 | Not wacky stuff, okay?
00:05:14.180 | Stocks, bonds, real estate
00:05:15.380 | should be the majority of your portfolio.
00:05:17.400 | 25% or more needs to be in risky assets.
00:05:20.460 | If not, it's unlikely to keep up with inflation.
00:05:23.620 | It's unlikely to reach your goals.
00:05:25.740 | It turns out if you only invest in safe stuff,
00:05:28.020 | you gotta save a lot of money,
00:05:30.460 | like 50% of your gross income for 30 years
00:05:34.200 | in order to retire comfortably.
00:05:35.540 | It's a lot.
00:05:36.380 | You want to have 20% or less,
00:05:40.060 | 0% is fine, in speculative investments.
00:05:45.220 | You want to have at least 20 individual securities.
00:05:47.680 | I mean, if you buy total stock market index,
00:05:49.520 | you're getting 4,000 securities in 30 seconds.
00:05:52.560 | Have at least 20 in your portfolio, please.
00:05:55.720 | And no individual security or property,
00:05:58.300 | if you're a real estate investor,
00:05:59.540 | should really be more than 5% of your portfolio.
00:06:02.620 | You want to have at least three asset classes
00:06:04.800 | as well as a general rule.
00:06:07.040 | Okay, what really matters in investing?
00:06:12.120 | If you want to get rich,
00:06:13.120 | if you want to be financially independent,
00:06:14.720 | if you want to reach your financial goals,
00:06:16.320 | if you want to be comfortable in retirement,
00:06:17.960 | here's what matters.
00:06:19.720 | Fund it adequately.
00:06:21.680 | It's less important what's in the account
00:06:23.880 | than how much you put in the account.
00:06:26.400 | That's what really matters.
00:06:27.840 | The younger you are, the more it matters.
00:06:30.080 | Your savings rate matters.
00:06:32.000 | After that, a reasonable portfolio and sticking with it.
00:06:35.960 | All right, here is my son and my wife
00:06:41.520 | who gave you all your badges down there
00:06:43.840 | on the Grand Teton in August.
00:06:45.560 | Again, not something that's reasonable to do,
00:06:47.960 | but a lot of fun.
00:06:49.680 | They're gonna teach us a little bit
00:06:50.640 | about reasonable portfolios.
00:06:52.120 | Okay, here's the first reasonable portfolio
00:06:55.240 | I'll throw up there.
00:06:56.080 | Putting all your money into the S&P 500 Index Fund,
00:06:59.220 | or putting it all into the Total Stock Market Index Fund.
00:07:02.780 | The pros of that portfolio are that it's very, very simple.
00:07:06.520 | You only gotta remember one thing,
00:07:08.040 | and that fund is gonna be available
00:07:09.560 | in every retirement account you have.
00:07:13.640 | There's hundreds or thousands even of individual securities.
00:07:16.600 | It's got a great track record.
00:07:17.920 | It's very easy to know your performance.
00:07:19.500 | It's put on the TV every night.
00:07:21.200 | The downside, it's not so diversified.
00:07:24.000 | It's really only one asset class, large U.S. stocks.
00:07:27.360 | It's only one country, and there's no factor investing.
00:07:30.520 | And if you end up with a lost decade, like the 2000s,
00:07:33.320 | you may not be super happy with your returns.
00:07:35.600 | Next one, this one's very popular on the Bogleheads Forum.
00:07:41.120 | This is what we call the three-fund portfolio.
00:07:44.100 | It's money in the Total Stock Market Index,
00:07:46.080 | the Total International Stock Market Index,
00:07:47.920 | and the Total Bond Index.
00:07:49.620 | The benefit, well, if you do poorly,
00:07:51.760 | you're gonna have a lot of friends
00:07:52.880 | that are doing just as poorly.
00:07:54.720 | You'll have a lot of camaraderie.
00:07:55.880 | A lot of people love this portfolio.
00:07:57.720 | Taylor Laramore may be the most profound advocate for it,
00:08:02.120 | but there's plenty of others.
00:08:03.880 | You do get three separate asset classes like that.
00:08:06.240 | Downsides, there's no tips.
00:08:08.080 | There's no international bonds.
00:08:09.200 | There's no muni bonds.
00:08:10.200 | There's no factors to tilt to.
00:08:11.800 | There's no alternatives in it.
00:08:13.400 | It does have downsides, but it's certainly reasonable.
00:08:16.280 | Number four, this is the four-fund portfolio,
00:08:21.360 | popularized by Rick Ferry, okay?
00:08:23.120 | You take the three-fund and you add a REIT fund to it
00:08:25.240 | in some sort of percentage.
00:08:27.240 | You get an extra asset class for that
00:08:28.920 | because real estate is often not, you know,
00:08:32.340 | included in publicly traded stocks.
00:08:34.440 | It's maybe a little bit closer
00:08:35.480 | to what the real economy is like.
00:08:38.100 | Still, there's no tips, no international bonds,
00:08:40.000 | no muni bonds, no factors, no alternatives.
00:08:42.440 | And it's a pretty decent bet on real estate outperformance.
00:08:45.940 | Okay, five, six, and seven, I like these.
00:08:49.040 | These are all available at Vanguard.
00:08:51.000 | And they're one-fund solutions.
00:08:53.440 | You got the Total World Stock Market Fund,
00:08:55.620 | which is basically the US stocks and international stocks.
00:08:59.320 | You got the Balanced Index Fund,
00:09:00.760 | which is US stocks and US bonds.
00:09:03.360 | You've got the Tax Managed Balance Fund,
00:09:05.040 | which is the same thing, run a little bit differently
00:09:07.600 | to try to decrease the tax hit on you.
00:09:10.760 | The benefits of these are they're very simple.
00:09:12.600 | It's one fund, it automatically rebalances.
00:09:15.320 | The downside is with each of these,
00:09:16.720 | you're really only getting two asset classes.
00:09:18.800 | And it might be cheaper to roll your own
00:09:21.840 | than to let Vanguard combine them for you.
00:09:24.800 | And of course, none of these are really available
00:09:26.860 | very commonly in employer retirement plans.
00:09:29.740 | These ones are very popular as well.
00:09:34.440 | In fact, you have already heard today,
00:09:36.080 | or you will soon hear from a very serious advocate
00:09:39.120 | of this investing method.
00:09:40.520 | The Life Strategy Funds at Vanguard are very cool.
00:09:44.320 | They're basically the three-fund portfolio,
00:09:46.280 | except you don't have to remember to buy all three funds.
00:09:48.040 | You only gotta buy one.
00:09:50.000 | They will automatically rebalance for you.
00:09:52.080 | And you will have the same return
00:09:54.340 | if you invest in the Moderate Growth Fund.
00:09:56.360 | You'll have the same return as Mike Piper,
00:09:58.740 | which is a wonderful thing to have.
00:10:00.120 | That's what he invests in.
00:10:01.080 | That's his entire portfolio.
00:10:03.920 | Downside, not available in all employer plans.
00:10:07.100 | There's no factors, there's no alternatives.
00:10:08.840 | It doesn't adjust automatically as you age.
00:10:11.320 | And it's probably not that great
00:10:12.880 | if you have a significant portion of your assets
00:10:14.840 | in a taxable account.
00:10:15.880 | Okay, similarly to that,
00:10:19.240 | we have the Target Retirement Funds, okay?
00:10:22.360 | And there's a whole bunch of them.
00:10:23.400 | There's a dozen or more.
00:10:24.600 | They go from 2060 to the Income Fund.
00:10:27.760 | And the benefit, you only gotta buy one fund.
00:10:30.000 | It automatically rebalances.
00:10:31.440 | It automatically becomes less risky
00:10:33.720 | as you approach that retirement date.
00:10:35.760 | And it's available in lots of retirement accounts.
00:10:37.800 | If the Vanguard ones aren't,
00:10:39.000 | there's some from several other companies
00:10:40.520 | which are almost as good that you can use.
00:10:44.100 | Do not invest in this in a taxable account.
00:10:47.560 | You will regret it.
00:10:49.000 | Couple of years ago, Vanguard distributed
00:10:50.800 | some pretty hefty capital gains to people
00:10:53.040 | that they were not expecting,
00:10:54.080 | who were invested in these funds in a taxable account.
00:10:57.640 | Okay, how about this one?
00:10:58.680 | This one is known as the Coffeehouse Portfolio.
00:11:01.880 | And it's got six asset classes,
00:11:04.500 | stock asset classes at 10% each,
00:11:06.800 | and then it's got 40% of your money in a bond fund.
00:11:10.240 | So what's the benefits of that?
00:11:11.520 | Well, you're getting tilts now.
00:11:13.420 | You're overweighting these factors
00:11:14.880 | that are supposed to maybe do better in the long run,
00:11:17.580 | small in value.
00:11:19.000 | You've got a relatively low
00:11:21.360 | international allocation in it, though,
00:11:23.080 | and you've certainly stepped up the complexity
00:11:25.720 | compared to those other investing options we talked about.
00:11:28.720 | There's still no TIPS or MUNIs or international bonds,
00:11:31.040 | and I'm not a real big fan of the 500 index fund
00:11:34.160 | over a total stock market fund.
00:11:35.960 | Granted, the differences are trivial,
00:11:38.220 | but I figure, hey, why have 500 stocks
00:11:40.200 | when you can have 4,000?
00:11:41.400 | All right, here's one.
00:11:45.360 | This one's actually my portfolio.
00:11:47.160 | Okay, it's 25% in the total stock market index,
00:11:49.720 | 15% in small cap value,
00:11:51.980 | 15% in the total international stock market,
00:11:54.000 | 5% in small international,
00:11:56.080 | 10% in TIPS, 10% in nominal bonds,
00:11:58.540 | 20% in real estate,
00:11:59.640 | and it's divided between some public
00:12:01.120 | and some private real estate.
00:12:02.820 | So what are the pros of this portfolio?
00:12:04.740 | Well, there's some tilts to real estate and to factors,
00:12:07.160 | if you believe in that sort of stuff.
00:12:09.800 | There's some cons, though.
00:12:10.720 | It's a moderately complex portfolio.
00:12:12.560 | It's a very complex portfolio
00:12:14.400 | if you use private real estate to do it,
00:12:16.600 | and it's a pretty big bet on small value,
00:12:20.400 | which, if you want to know the truth,
00:12:21.760 | since I started investing in 2004, has not paid off.
00:12:25.580 | They're talking about that next door right now.
00:12:27.280 | Paul Merriman's advocating for this sort of a portfolio.
00:12:30.080 | Rick Ferrier's arguing against it.
00:12:31.820 | I still think it's gonna pay off
00:12:34.180 | during my investing horizon, but there's no guarantee.
00:12:36.920 | Welcome to factor investing.
00:12:38.320 | Okay, here's one, and the type just got smaller.
00:12:44.180 | I apologize to those of you in the back,
00:12:45.920 | but this is what happens
00:12:46.880 | when Paul Merriman puts together a portfolio, okay?
00:12:50.080 | This is the ultimate buy-and-hold portfolio.
00:12:51.960 | It's 6% into each of 10 different stock asset classes,
00:12:57.480 | and then 40% into a bond fund.
00:13:00.280 | What's the pros?
00:13:01.120 | Well, there's lots of tilts.
00:13:02.160 | If you believe in these factors,
00:13:03.520 | if you believe they're gonna pay off, you've got 'em, okay?
00:13:07.520 | Downside, well, this is pretty highly complex.
00:13:10.520 | It still uses the 500 index over a total stock market,
00:13:13.400 | and I think it's really weird
00:13:15.640 | to have 10 stock asset classes, 10 funds in the stocks,
00:13:20.160 | and one in the bonds.
00:13:21.960 | That just seems really odd to me, so.
00:13:24.360 | If you're gonna slice and dice,
00:13:25.360 | why wouldn't you slice and dice the bonds, too?
00:13:27.060 | I don't know.
00:13:28.480 | All right, this one here comes
00:13:30.680 | from one of Bill Bernstein's books.
00:13:32.060 | This is the Sheltered Sam 60/40 portfolio,
00:13:35.800 | and you can see it's got all kinds
00:13:37.440 | of different numbers up there.
00:13:38.440 | It's got 12% in the 500 index, 15% in the value index,
00:13:42.880 | 3% in the small-cap index, 9% in the small-cap value index,
00:13:47.160 | 6% in REITs, 1.8% in precious metals,
00:13:50.920 | 3% in each of the Europe, Pacific,
00:13:53.220 | and emerging markets sectors of the international stocks,
00:13:56.700 | 4.2% in the International Value Fund,
00:14:01.220 | and then it's got the bonds split
00:14:02.980 | between the short-term corporate bonds, and 16% in TIPS.
00:14:06.620 | See what I mean about how there's a gazillion
00:14:09.440 | different ways you can do this?
00:14:11.700 | Is this reasonable?
00:14:12.540 | Yes.
00:14:13.940 | There's lots of tilts in factor investing.
00:14:16.260 | Again, if you believe in that and want to do that
00:14:18.260 | and want to deal with that complexity
00:14:19.740 | in hopes of higher long-term returns,
00:14:23.180 | this portfolio has that.
00:14:24.920 | Maybe it captures a bit of a rebalancing bonus
00:14:27.660 | by splitting up your total international stock fund
00:14:30.180 | into those three components,
00:14:32.060 | but you're adding a lot of complexity to get that,
00:14:36.500 | and again, it uses the 500 index over TSM.
00:14:39.180 | Honestly, I don't know that there's really any point
00:14:41.300 | to putting anything in your portfolio.
00:14:43.120 | If you don't believe in it enough
00:14:44.940 | to put at least 5% into it,
00:14:46.840 | maybe you shouldn't have it at all.
00:14:49.340 | It's my thoughts on it.
00:14:50.180 | Don't tell Bill, he's in the next room.
00:14:51.980 | All right, here's another one.
00:14:54.500 | 30% US stocks, 20% international stocks,
00:14:57.300 | 10% TIPS, 10% US, 10% international, 10% real estate,
00:15:01.300 | 5% in gold, and 5% in Bitcoin.
00:15:03.480 | What are the pros?
00:15:04.320 | Well, if you want to have a little bit of your money
00:15:06.180 | and some speculative assets, this portfolio has that,
00:15:10.020 | and yet it doesn't bet the farm on them,
00:15:12.100 | so I'm okay with that sort of portfolio.
00:15:14.280 | I think that's reasonable.
00:15:16.180 | Downsides?
00:15:17.020 | It doesn't happen to have any factor investing.
00:15:19.700 | All right.
00:15:20.540 | Okay, this is the Pit of Despair.
00:15:26.020 | It's found in southern Utah,
00:15:29.820 | and if you ever find yourself there,
00:15:31.460 | may you be prepared to cross and get out of it.
00:15:34.500 | It is not a reasonable place to be,
00:15:36.160 | but it's incredibly beautiful.
00:15:37.660 | Okay, here's unreasonable portfolio number one.
00:15:44.060 | 1/3 in vacant land, 1/3 in gold,
00:15:46.540 | 1/3 in fine art.
00:15:47.740 | Okay, what's the problem here?
00:15:49.780 | Well, I can't really think of any pros.
00:15:52.100 | Outside of a very apocalyptic worldview,
00:15:55.320 | I don't know why anybody would hold this portfolio.
00:15:57.520 | It's 100% speculative.
00:15:58.820 | You're getting no earnings, dividends, interest, rents.
00:16:02.480 | Nothing is coming out of this portfolio,
00:16:04.620 | other than you're hoping somebody else
00:16:06.020 | will pay you more for the assets than you paid for them.
00:16:08.700 | Okay, here's another one,
00:16:12.900 | and this one seems very specific, I admit,
00:16:15.060 | and that's because somebody actually emailed me in
00:16:17.220 | and asked what I thought about this portfolio.
00:16:19.380 | 1% in gold mining stocks,
00:16:20.900 | using an actively managed mutual fund
00:16:22.460 | with an expense ratio of 1.5%,
00:16:24.980 | 44% in gold, bullion in this case,
00:16:28.300 | and 55% in treasury bills.
00:16:30.780 | Well, this one might do okay in a massive downturn,
00:16:34.720 | but it's gonna have low volatility
00:16:36.820 | with all that money in cash,
00:16:38.100 | but it's unlikely to keep up with inflation.
00:16:40.540 | It's extremely speculative.
00:16:42.340 | Why in the world would you pay 1.5% for anything, you know?
00:16:46.260 | So, not a reasonable portfolio.
00:16:47.920 | Okay, this one also somebody sent in to me.
00:16:51.700 | Okay, 7.5% in commodities,
00:16:53.540 | same in gold mining stocks and emerging market stocks.
00:16:56.500 | Then they had 15% of the portfolio
00:16:58.660 | in something I couldn't even figure out what it was,
00:17:00.220 | rare physical assets.
00:17:01.900 | Is that Beanie Babies?
00:17:02.920 | What is that?
00:17:03.760 | 5% was their hobby trading account,
00:17:07.060 | which I don't have a problem with.
00:17:08.420 | If it's only 5% of your portfolio in something weird,
00:17:11.060 | that's okay.
00:17:12.620 | 5% in tips and then 52% in money market.
00:17:16.100 | Well, you know, the perma bears are every now
00:17:18.260 | and then they're right.
00:17:19.660 | But for most of the time,
00:17:21.140 | you don't wanna be investing in this sort of weird stuff.
00:17:24.480 | It's unlikely to keep up with inflation.
00:17:26.100 | It's very speculative.
00:17:27.340 | And frankly, 100% of your stocks are in emerging markets?
00:17:31.540 | Really?
00:17:32.420 | That seems like an incredible bet on emerging markets.
00:17:35.020 | So, not a reasonable portfolio.
00:17:36.700 | How about this one?
00:17:38.980 | Apple, Bitcoin, cash,
00:17:40.340 | and your brother-in-law's small business.
00:17:42.400 | I guess it could be worse.
00:17:45.340 | Maybe it's all in your brother-in-law's small business.
00:17:48.260 | But this portfolio takes on uncompensated risk.
00:17:51.120 | It's got way too much speculation in crypto.
00:17:53.940 | And don't invest significant amounts
00:17:56.620 | with your family and friends.
00:17:57.660 | You're gonna ruin the relationship.
00:17:58.920 | You'll probably lose your money too,
00:18:00.060 | but you'll definitely ruin the relationship.
00:18:02.620 | Not reasonable.
00:18:03.480 | Okay, how about this one?
00:18:06.200 | This is the permanent portfolio.
00:18:07.740 | Stocks, cash, gold, long-term bonds,
00:18:10.060 | all split 25% apiece.
00:18:12.540 | Now, you're probably likely to do better
00:18:14.180 | than most portfolios if the Great Depression happens again.
00:18:17.420 | I will admit that.
00:18:19.100 | But the problem is that there are bets in this portfolio
00:18:22.780 | on less likely scenarios.
00:18:25.480 | And the truth about investing
00:18:27.340 | is that it should be titled the triumph of the optimists.
00:18:31.020 | Because over the long run,
00:18:32.180 | the optimists have been very much been right
00:18:34.560 | when it comes to investing.
00:18:35.980 | And you're taking a lot of your portfolio
00:18:37.740 | and saying, I think there's a high chance
00:18:39.380 | bad things are gonna happen.
00:18:41.100 | And that's the problem I have with the permanent portfolio.
00:18:43.660 | Okay, this one, I meet lots of people
00:18:46.620 | that are into real estate investing.
00:18:47.820 | Now, I don't have a problem with real estate investing.
00:18:49.580 | As you saw, I invest in real estate myself.
00:18:51.900 | But I think putting it all in real estate's a mistake.
00:18:53.940 | It's just too easy to invest
00:18:56.700 | in the most profitable corporations
00:18:58.720 | in the history of the world.
00:19:00.180 | In 30 seconds, you can buy them all.
00:19:02.740 | And not even think about them ever again.
00:19:04.780 | I think it's silly not to have
00:19:06.140 | 20 or 25% of your money in stocks,
00:19:08.860 | even if you love real estate investing.
00:19:11.200 | It's just one asset class and avoids all those stocks.
00:19:15.180 | And of course, there's massive impact
00:19:16.700 | on a real estate downturn or interest rate changes.
00:19:19.260 | All right, how about this one?
00:19:25.100 | 40% in QQQ, 10% in Tesla, 10% in Apple,
00:19:29.260 | 20% in the Vanguard large growth stock index,
00:19:32.480 | and 20% in cash.
00:19:34.020 | Well, the problem here is
00:19:35.140 | this person thinks they're diversified,
00:19:37.420 | but each of their holdings is actually owning the same stocks
00:19:40.180 | so it's false diversification.
00:19:42.100 | And of course, uncompensated risk
00:19:44.680 | with the individual companies.
00:19:46.220 | Not reasonable.
00:19:47.940 | Okay, how about this one?
00:19:50.240 | 25% cash, 25% bonds, 25% gold, 25% whole life insurance.
00:19:54.660 | Is it diversified?
00:19:55.500 | Sure.
00:19:56.320 | Is it gonna have low volatility?
00:19:57.540 | Absolutely.
00:19:58.420 | What's the problem?
00:19:59.660 | The problem is you need to save 50% of your gross income
00:20:02.020 | for 30 years to get as much as you need.
00:20:04.140 | It's not gonna reach your financial goals.
00:20:05.740 | These are all very low returning asset classes.
00:20:08.000 | You're not taking enough risk.
00:20:09.940 | Not reasonable.
00:20:10.860 | Okay, again, reasonable portfolio characteristics.
00:20:14.620 | At least 50% in stocks, bonds, and real estate
00:20:18.460 | instead of weird stuff.
00:20:20.140 | 25% at least in risky assets.
00:20:22.980 | 20% or less in speculative stuff.
00:20:25.940 | 20 plus individual securities.
00:20:29.000 | No individual security or property
00:20:30.540 | more than 5% of the portfolio
00:20:32.100 | and at least three asset classes.
00:20:34.400 | What matters?
00:20:36.260 | Funded adequately.
00:20:38.340 | Reasonable portfolio.
00:20:40.180 | Stick with it.
00:20:41.140 | That's what matters in investing.
00:20:42.860 | Stay the course.
00:20:43.820 | I think that's my last slide, yes.
00:20:47.300 | Thank you for your attention.
00:20:48.340 | (audience applauding)
00:20:51.500 | (audience cheering)
00:20:54.500 | (audience applauding)
00:20:57.660 | [BLANK_AUDIO]