>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 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.

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.

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.

For the gold, I don't think Browne really advocated holding physical coins in another country, or at least not all of it. He wanted people to rebalance annually, which would be pretty difficult if the gold were held that way.

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.

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?

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 "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.

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

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)

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.

> 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.