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by sifar 2457 days ago
Though I am not there yet, the Permanent Portfolio [1] makes sense to me. The key insight is that for the money you have lost, you can never recover the energy/time/life you have spent in earning it. So, capital preservation (wrt inflation) is more important than chasing higher returns - which frankly are not under your control.

[1] https://www.amazon.com/Permanent-Portfolio-Long-Term-Investm...
2 comments
gowld 2457 days ago
This is the loss aversion fallacy. (The irrational belief that losing something you already have is worse than losing a chance to getting something you don't have yet.)

You can never recover the time you spent earning money to make up for missing investment gains.

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sifar 2457 days ago
This is not a fallacy, and certainly not an irrational belief :). It is a very rational response to things you have no control over.

May be this needs some elaboration. For me, the low probability event of blowing up your life's worth of saving beats the ephemeral gains you would expect to get from a higher risk investments, every single time. For me, it is irrational to think otherwise, something I can't understand why people do. I will invest in the riskier investments only so much as I am comfortable to lose completely.

And there is the rub, with the modern banking systems, it is very difficult to achieve that unless you use real hard assets like gold which is becoming difficult, real estate which is quite illiquid.

Is one missing out on potential gains ? Perhaps, but one is ok with that.

P.S >> You can never recover the time you spent earning money to make up for missing investment gains.

I didn't quite understand this. The investment gains are not certain or guaranteed. You talk as if they are a certainty.

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DennisP 2456 days ago
You could also take a look at portfoliocharts.com, which shows you how that and other portfolios have worked out over the past 50 years, in both the US and Japan. You can play around with your own variations too.

The PP does pretty well at limiting drawdowns. A variation that works especially well is the "Golden Butterfly," which just takes the PP and weights a little more towards stocks. In my own experiments on the site, I've found it also helps a lot to include international stocks, and weight towards small value.

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