Define "can afford to lose"

[dragoncar]

I realize the VP is only for money you can "afford to lose."  But what does this phrase mean?  I could lose every cent I have and be fine.  This is because I currently save a high percentage of my income.  Does this mean I should really move up the risk/reward curve from the PP?  Is the PP only for people who are worried about meeting retirement savings goals?

(The source for this question is that I'm trying to determine if I should buy one of various properties that, preliminarily, would seem to beat renting).  I'm trying to figure out what percentage of my net worth should be in real estate (VP) when determining down payment, etc.

[MachineGhost]

Keep in mind HB and PP cheerleaders don't really believe that you can be succesful at anything else other than investing in the PP, so the VP is considered a "throwaway portfolio" to satisfy your speculative lust.

Traditionally for leveraged investments or speculative investments, they should never take up more than 10% of your net worth and the PP follows that rule as well.

MG

[MediumTex]

Keep in mind HB and PP cheerleaders don't really believe that you can be succesful at anything else other than investing in the PP, so the VP is considered a "throwaway portfolio" to satisfy your speculative lust.

That may be your impression, but it's not mine.

It is, however, true that most people are not very good speculators and thus they would usually do well to minimize the size of their VP in relation to their PP.

The key to VP success is, IMHO, in understanding how to make truly speculative bets and not bail on them early (easier said than done, of course).

[stone]

For my houshold, our VP is cash. Bailing on it early would be expanding the PP .

[clacy]

It is a very relative term, that's for sure.  Since loosing money causes me so much pain, I really can't afford to lose any of my investable assets.  I only use the PP for about 60% of my money, but I feel like I have a sound momentum strategy for the other 40%.  That strategy uses most of the same concepts as the PP anyway, but includes several more sub-asset classes.

I certainly believe there are other well thought out strategies or portfolios that don't automatically mean that you're going to lose it all.  Everything in investing is speculative to various degrees, including the PP which assumes the portfolio is infallible.

Investing in businesses, single stocks, leveraged products, etc are all far more risky and I would say they are highly speculative.

[Tyler]

If the VP is supposed to be your outlet for wanting to juice your returns using your own personal insights, then for me that has nothing to do with investing. 

What I like most about the PP is that it allows me to spend all my mental energy on earning and saving more - activities I know are actually in my control.  So for me, once I've saved money I guess I prefer not to lose any of it.

[melveyr]

I use my VP as a back-stop.

The PP's rebalancing means that one asset class could wreck the portfolio because money would continually get shoveled into it from the winners. The idea is that generally another asset class held by the PP will offset the losses, but anything is possible.

For my VP, I simply hold an international equity index. I like that the holdings are entirely different from what is in my PP, and that I get some currency diversification. I think people who say that holding international stocks is more risk without reward are thinking strictly mathematically and looking in the rear-view mirror. Philosophically, I like that the companies are bringing in revenues from different parts of the world, in different currencies, and are subject to different regulations. My VP is pretty small compared to my PP, but I feel safer with it than without it.

I guess I could afford to lose it, but it isn't really an outlet for speculation for my situation.