[d23]

> Putting somewhere around 30-40% of your emergency stash into the stock market may be a good call.

> The fundamental rule is to not be greedy: within the scope of this guide, your goal should be to preserve capital, not to take wild risks. It's best to pick about 10-20 boring companies that seem to be valued fairly, that are free of crippling debt, and that have robust prospects for the coming years.

> It is worth noting that many personal finance experts advise against hand-picking your investments. Instead, they advocate a process known as "indexing": buying into an investment vehicle comprising hundreds of stocks, structured to represent the stock market as a whole. The proponents of indexing have a point: most people who try to pick individual winners in the stock market usually fare no better than an index fund. But in the context of prepping, I think this is advice is flawed. To remain calm in tumultuous times, it is important to maintain a firm grasp of the merits of your investments. One can convincingly reason about the financial condition, the valuation, or the long-term prospects of a paper mill; the same can't be said of an S&P 500 index fund - which, among other things, contains the shares of about a hundred global financial conglomerates.

Oh come on. He's advocating putting 40% of your emergency fund into the stock of a handful of companies. This is hard to take seriously.

[horsawlarway]

I also disagree with his take here, but I think there is some merit to the advice of "understand what you've invested in".

It's fairly hard to personally evaluate companies in a fund - it is somewhat easier to evaluate a single company (or even 10 single companies).

If I assume he means "~40% of non-retirement emergency funds" I can let this skate by.

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I also think there's some risk to index funds precisely because they appear like such low-risk investments. If the majority of investments are in index funds, I suspect there are systemic risks that we just don't understand very well yet, because the vehicle is so young. Whether that's low liquidity, poor capital allocation, fraud, etc - it's hard to say exactly what risks come with that market structure, since we have no real history to look at.

(side note - I'm about 80% invested in index funds... so certainly don't read this as me recommending against them)

[skybrian]

It seems like Berkshire Hathaway would be as hard to evaluate as an index fund. For example, do you understand or even know the other companies they are invested in? At the same time, they are probably more diversified than most mutual funds.

[horsawlarway]

Sure - if you pick an investing conglomerate like berkshire, evaluation is still hard.

It's less difficult (although still not a breeze) for companies like Tyson, John Deere, Cargill, etc. If you pick a major manufacturing company near you, that's producing non-luxury goods or essential goods, you can expect to have a reasonable idea of how they'll hold their value in adverse market conditions.

I want to be really clear - I'm assuming ALL of the advice in this article is "disaster planning" advice. It's not going to maximize returns, but it can give you ownership of an asset that is likely to survive things like rapid inflation, or other unexpected series of events.

Maximizing returns is often counter to this idea - because it almost always implies taking on additional risk, which is not ideal for disaster scenarios.