Should I invest more aggressively?

[LazyInvestor]

All my investments are in PP. No real estate or other investments. I still have around 30 working years in front of me.

As of now, I have around 20x yearly expenses of OK lifestyle (including assumption of renting) for myself and spouse. Given the general recommendation that one should have 25-33x yearly expenses invested for the retirement, if I don't add anything else to my savings over next 30 working years:

if PP returns 3% real, I should have around 48x living expenses
if PP returns 4% real, I should have around 65x living expenses

I'm planning on having kids and maybe buying a house if I'm not required to move as much as up to now, so the future savings will be reduced although career advancement will probably cover for the upcoming extra expenses and mortgage.

Given this, I am thinking if I should keep on adding to my retirement PP or if I should go with some more aggressive "variable" portfolio with the upcoming savings?

[Kshartle]

How often are you checking the markets and your balance now and how likely are you to panic sell in a serious downturn?

Investing more aggressively means you will with absolute certainty experience a greater drawdown. There is no way around it. It might be from a much higher level because you've been getting greater returns but that will be of little help if you panic sell when things turn south.

I'm confident my strategy is the best one for me because I don't care about day to day, weekly monthly or even yearly returns. If I own something for fundamental reasons and it declines seriously I buy more. I;ve only bought gold miners and russian stocks since the gold crash last year and ukraine conflict and I'm sitting on an 18% twelve month return. I had to go through a serious drawdown before that but outperformed for years with 1/3 gold 1/3 stocks 1/3 global real estate.

You need to be at peace with the drawdowns imo and set up your investments with that in mind.

Even a Gold/Stocks 50-50 split will probably have double the drawdown potential of the PP for maybe 2% greater annual gains in the long run, maybe 3%. To me that's well worth it and still low volatility but can you handle it? If you sell when things are at their worst you are screwed.

[barrett]

Lazy I,

Kshartle seems to thrive on more active investing. He accepts drawdowns like John Travolta welcomed the thermonuclear warhead to his gut in the movie Broken Arrow. Not everyone has his pain threshold.

It sounds to me like you have already won the game and don't need to be aggressive. Just my opinion, of course.

[rickb]

if PP returns 3% real, I should have around 48x living expenses
if PP returns 4% real, I should have around 65x living expenses

Given this, I am thinking if I should keep on adding to my retirement PP or if I should go with some more aggressive "variable" portfolio with the upcoming savings?

Assume you do this and end up with 100x living expenses.  What would you do with the extra money?  Do you even want it?

We're all culturally conditioned to think more money is better, but there's definitely a point beyond which more money is just more money.  If you think you might be at that point, why take any risk at all?

[LazyInvestor]

Thanks, note I plan to leave what I have up to now in PP. I'm asking only about the upcoming stream of savings.

In order to generalize the question to make it more interesting: if one follows and subscribes to ERE principles and reaches the ERE goal of retirement with 25-33x of living expenses, but doesn't want to actually retire because he enjoys what he does... what should he do with the new streams of income if one wants to invest a significant portion of it (in addition to being more charitable, enjoying more life, etc.)?

[Kshartle]

The biggest risk for someone with a 30 year time horizon is inflation. Volatility and drawdowns, even if they last for several years, are not a true risk, provided you don't panic sell after a crash in some of your investments (which will happen).

When I look at the four assets, two (G&S) are relatively low risk with high likely reward and two (C&B) are high risk with low likely reward.........in the long-run.

[Pointedstick]

At a certain level of wealth, drawdowns become irrelevant. Think about it this way. If you lived a reasonable lifestyle (spending less than 50k/yr, for example) and had 100 million dollars, would you particularly care if you experienced 50% drawdowns three years in a row? That sounds scary, and it would reduce your portfolio to "only" 12.5 million, that's still 250 times your annual spending! It's irrelevant at that point. You can afford to wait a few years and reap the probable 100%+ gains when the assets recover. With a tiny bit of patience, soon you'll have 200 million.

I also agree with Kshartle that the biggest long-term threat to a person with money practically spilling out of his ears (to the extent that there really are any threats) is inflation. Happily, once you have a ton of money, and you can afford not to care about drawdowns so much, what you can do is focus on assets that are likely to at least keep up with inflation over time. In this case, I really like Kshartle's 50% gold/50% stocks portfolio. I don't think it's appropriate for someone without a lot of money unless they are not relying on the portfolio for their income because the drawdowns can start to interfere with the withdrawal schedule. But if the portfolio is so vast that you're probably never going to exhaust it, this allocation seems like a winner. And because it will grow a ton, you can use it to fund a whole charitable foundation or something.

[Tyler]

In order to generalize the question to make it more interesting: if one follows and subscribes to ERE principles and reaches the ERE goal of retirement with 25-33x of living expenses, but doesn't want to actually retire because he enjoys what he does... what should he do with the new streams of income if one wants to invest a significant portion of it (in addition to being more charitable, enjoying more life, etc.)?

IMHO, once one has accumulated 33x living expenses, investing purely to maximize wealth becomes boring and counterproductive. Once you've won the game, stop playing. Establishing reliable excess income streams to apply more proactively to the world around you seems a lot more interesting. Think of it as a personal endowment, and you're the chairman charged to both apply and protect it.  For me, the PP still seems quite appropriate for that kind of setup.

That said, I could also see myself trying out P2P lending, angel funding, etc with a portion of "extra" money. My goal would be not simply to earn more, but to pick projects that I want to support on their merits.  To profit by doing good.

[Kshartle]

In order to generalize the question to make it more interesting: if one follows and subscribes to ERE principles and reaches the ERE goal of retirement with 25-33x of living expenses, but doesn't want to actually retire because he enjoys what he does... what should he do with the new streams of income if one wants to invest a significant portion of it (in addition to being more charitable, enjoying more life, etc.)?

IMHO, once one has accumulated 33x living expenses, investing purely to maximize wealth becomes boring and counterproductive. Once you've won the game, stop playing. Establishing reliable excess income streams to apply more proactively to the world around you seems a lot more interesting. Think of it as a personal endowment, and you're the chairman charged to both apply and protect it.  For me, the PP still seems quite appropriate for that kind of setup.

That said, I could also see myself trying out P2P lending, angel funding, etc with a portion of "extra" money. My goal would be not simply to earn more, but to pick projects that I want to support on their merits.  To profit by doing good.

 

Profit is how you will know you are doing the most good. If your capital earns a high rate of return it's because it was put to the most productive use. The productive use is aparant because people value it by exchanging value for it and generating the profit/return on investment.

Even if you're just buying a commodity because you think the price is driven down too far you are setting it aside for use later when it might be scarce. Your profit is because you helped everyone by "hoarding" something during plentiful times and making it available during a scarce time.

[Pointedstick]

 

Profit is how you will know you are doing the most good. If your capital earns a high rate of return it's because it was put to the most productive use. The productive use is aparant because people value it by exchanging value for it and generating the profit/return on investment.

In a free market, that might be true, but we don't live in one. In the world we actually live and invest in, the government is often distorting incentives, subsidizing losing propositions, loaning money at abnormally low rates to highly risky enterprises, and all manner of things like this. All of these distortions reduce the truth of the proposition that the greatest rate of return equals the biggest social good. And because we live and invest in the world as it is, not the world that economic principles tell us would exist in the absence of a government, I must agree with Tyler. This crazy mixed-up world of ours demands that we use our heads to determine what's socially beneficial rather than just looking at the performance of what we'e invested in.

[Kshartle]

 

Profit is how you will know you are doing the most good. If your capital earns a high rate of return it's because it was put to the most productive use. The productive use is aparant because people value it by exchanging value for it and generating the profit/return on investment.

In a free market, that might be true, but we don't live in one. In the world we actually live and invest in, the government is often distorting incentives, subsidizing losing propositions, loaning money at abnormally low rates to highly risky enterprises, and all manner of things like this. All of these distortions reduce the truth of the proposition that the greatest rate of return equals the biggest social good. And because we live and invest in the world as it is, not the world that economic principles tell us would exist in the absence of a government, I must agree with Tyler. This crazy mixed-up world of ours demands that we use our heads to determine what's socially beneficial rather than just looking at the performance of what we'e invested in.

Well that's a very good point PS. If you are concerned that profitable investments are not in the best interest of people and are at the expense of others then I can understand screening investments by criteria other than risk-adjusted profit potential.



Ahhh but then why are you buying and holding treasuries?*** We know where that money goes (bloated pensions, ridiculous salaries to non-producers, bombs and welfare ratholes). 

*** - I would probably buy treasuries if I thought they were a good investment. Just want to understand how much money you need to have before the virtue behind the investment kicks in. 

[Pointedstick]

Ahhh but then why are you buying and holding treasuries?*** We know where that money goes (bloated pensions, ridiculous salaries to non-producers, bombs and welfare ratholes). 

*** - I would probably buy treasuries if I thought they were a good investment. Just want to understand how much money you need to have before the virtue behind the investment kicks in. 

Well ya got me on that one. My only excuse is that even if everybody stopped loaning them money, they would either still continue to spend with direct government expansion of the money supply, or higher taxes.

[Kshartle]

Ahhh but then why are you buying and holding treasuries?*** We know where that money goes (bloated pensions, ridiculous salaries to non-producers, bombs and welfare ratholes). 

*** - I would probably buy treasuries if I thought they were a good investment. Just want to understand how much money you need to have before the virtue behind the investment kicks in. 

Well ya got me on that one. My only excuse is that even if everybody stopped loaning them money, they would either still continue to spend with direct government expansion of the money supply, or higher taxes.

No need for an excuse to me......if you think it's going to profitable.

[Tyler]

 

Profit is how you will know you are doing the most good. If your capital earns a high rate of return it's because it was put to the most productive use. The productive use is aparant because people value it by exchanging value for it and generating the profit/return on investment.

Yeah, yeah.  I walked into that one.    For the purpose of this exercise, one has the freedom to define "good" however they please. 

For me, I'd argue that one should not automatically equate "economic value" with "good". They do correlate on a large scale academically, but on a human scale there's certainly a difference.  As an extreme example, I could earn a lot more money than I do if I cooked meth.  Or more commonly, if I pursued corporate career advancement at the expense of friends, family, and my own health.  However, I recognize that economic decisions also have tradeoffs, and I insist that my personal life be more valuable and well-considered than the market average.  The average person makes pretty piss-poor decisions way too often. 

Not everything in life needs to be measured in dollars, and I enjoy making personal rather than academic decisions when I can.  Once you have enough money to not worry about supporting your family, that frees up a lot of time and resources to be as selective as you like. 

[Kshartle]

 

Profit is how you will know you are doing the most good. If your capital earns a high rate of return it's because it was put to the most productive use. The productive use is aparant because people value it by exchanging value for it and generating the profit/return on investment.

Yeah, yeah.  I walked into that one.    For the purpose of this exercise, one has the freedom to define "good" however they please. 

For me, I'd argue that one should not automatically equate "economic value" with "good". They do correlate on a large scale academically, but on a human scale there's certainly a difference.  As an extreme example, I could earn a lot more money than I do if I cooked meth.  Or more commonly, if I pursued corporate career advancement at the expense of friends, family, and my own health.  However, I recognize that economic decisions also have tradeoffs, and I insist that my personal life be more valuable and well-considered than the market average.  The average person makes pretty piss-poor decisions way too often. 

Not everything in life needs to be measured in dollars, and I enjoy making personal rather than academic decisions when I can.  Once you have enough money to not worry about supporting your family, that frees up a lot of time and resources to be as selective as you like.

Totally get it.

I just think it's unfortunate when profit is equated with something negative when it's almost exclusively a reflection of what people have chosen and prefer. The marxist lie that profit is theft is rampant.

[Tyler]

I just think it's unfortunate when profit is equated with something negative when it's almost exclusively a reflection of what people have chosen and prefer. The marxist lie that profit is theft is rampant.

I totally agree.  IMO, profit is not inherently good nor evil -- it simply correlates to market preferences. 

[mortalpawn]

Keep it in the PP and ride it out.  You are more concerned about preservation of wealth than rapid growth, and the PP will do that better than anything else I can come up with.  Also it will stand up to "black swan events" like market crashes or high inflation much better than most portfolios.

Also skip the kids - they are hideously expensive and provide a negative return on investment  (trust me - I have three already, they have cost me hundreds of thousands of dollars, and I have yet to see any of them contribute to my retirement fund).  Same for the house - it costs a lot of money to maintain it and you'll be lucky to keep up with inflation when you sell it.

Yes, I love my kids and I love my house, but neither one are helping me reach my retirement goals 

[Lowe]

Well, you may think different when you're in diapers again.

[murphy_p_t]

u might check out hulbert financial digest to understand the track record of those selling gamvling advice to see if any consistently outperform the pp or vti over time.

i spent a good bit of time at library today looking at some issues from 2013.

very few. if any. have beat the pp over time.

how do u think u can consistently outperform the pp?

[Kshartle]

u might check out hulbert financial digest to understand the track record of those selling gamvling advice to see if any consistently outperform the pp or vti over time.

i spent a good bit of time at library today looking at some issues from 2013.

very few. if any. have beat the pp over time.

how do u think u can consistently outperform the pp?

By just holding stocks, or gold, or a split, in the long run.

By mixing in EM also.

Of course beating the returns with similar volatility and drawdown potential.....virtually impossible I think.

[murphy_p_t]

kshartle...we.ve both paid a high opportunity cost w this stratgy since 2011 blowotffs...

[Kshartle]

kshartle...we.ve both paid a high opportunity cost w this stratgy since 2011 blowotffs...

Only if you bought at the absolute top, but that's always the case.

GLD/VTI has beaten the PP in 2009, 2010, 2012, & 2013. Only 2011 was better for the PP and GLD/VTI was still up over 5% that year.

The PP is ever so slightly up in 2014 but there's a long way to go.

[goodasgold]

The PP is ever so slightly up in 2014 but there's a long way to go.

"Slightly up?" According to peak to trough (http://www.peaktotrough.com/hbpp.cgi), my PP is up about 6.5% so far this year. Speaking personally, I will be rather pleased if we close the year at +6.5%, although 10% would be even nicer.    Even at 6.5%, the PP so far is a lot better than last year, when it lost about 2%, but we all know even the best portfolios lose money on occasion.

[Kshartle]

The PP is ever so slightly up in 2014 but there's a long way to go.

"Slightly up?" According to peak to trough (http://www.peaktotrough.com/hbpp.cgi), my PP is up about 6.5% so far this year. Speaking personally, I will be rather pleased if we close the year at +6.5%, although 10% would be even nicer.    Even at 6.5%, the PP so far is a lot better than last year, when it lost about 2%, but we all know even the best portfolios lose money on occasion.

Slightly up compared to a VTI/GLD portfolio which is up nearly 6.3%.

The discussion was a comparison of a relatively easy, lazy way to invest more aggressively and get a higher return than the PP.

[LazyInvestor]

Thanks all for very useful insights.

Kshartle, why GLD/VTI and not GLD/VT or other total world market ETF? So, for a long term permanent "variable" portfolio that you don't care that much if it goes up or down, you'd rather got with GLD/VTI 50/50 compared to some other aggressive bogleheads portfolio or even regular PP?