| 7/31/2018 6:17:02 PM Retirehappy |
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| How do you have $582k in cars? Please explain! What is other? And are you really carrying $8.8M in cash? Or is it in index funds/investments? |
| 8/1/2018 1:09:04 PM EscapeVelocity |
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| Hey RH - LOL. Fair questions! I've explained part of that last month and in the past. Firstly, I bought a sailboat and put it under "cars" because it's a depreciating asset, like a car. "Other" is my law firm equity interest (valued conservatively) plus an independent note payable which pays out $10K per month (plus a larger year-end payment), and should be fully paid by the end of this year. $8.8M is invested in a mix of things, but mostly high-grade, intermediate-term municipal bonds. I've got very little equity exposure. My thinking is that I don't need any equity exposure right now since I generate far more income than I spend and believe the stock market is an overvalued bubble. When it pops, I'll be eagerly buying when everyone is selling, but even then I will not allocate more than 40% to equities. |
| 8/4/2018 7:24:35 AM plasticsurgeryrox |
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| GMT, I find it fascinating that you and I probably are similarly positioned financially, but have different views about stock market/bond market. I feel that there is as much or more risk in the municipal bond market as there is in the stock market (i.e. 2013 Detroit default). I think the market is fairly priced now. (what objectively makes you think its a bubble?) I do believe that the returns on the stock market (i.e. s&p index fund) will far outpace returns on the bond market. As long as one can tolerate the volatitlity. What I am saying is that you and I can probably tolerate a 50% drop in the stock market due to volatility more than most people and so you and I should be fully invested in the stock market while most people should be fully invested in the bond market. However, as people accumulate wealth, they tend to invest in the bond market because of perceived "safety" that they dont need (since they can tolerate the ups and downs of the market). just curious how you |
| 8/4/2018 7:25:22 AM plasticsurgeryrox |
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| balance these thoughts?
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| 8/4/2018 3:07:31 PM EscapeVelocity |
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| Hey PM! A couple of things. First, the muni market is not anything like the rest of the bond market (e.g., corporate bonds, junk bonds, etc). Look at default rates of high-grade munis since the beginning of time (they barely exist at all, and in the high-grade arena they're "zero") versus corporate bonds. Besides, my muni investments are so well-diversified throughout the country that it would mean the end of the United States (and perhaps the world) for those investments to get into any real trouble (in which case, our wealth would be meaningless anyway). Yes, there's some specific weakness in some markets, but that's pretty well-known, easy to avoid and manage. In my view, well-diversified munis are just a tad riskier than U.S Treasury bonds (which are considered "risk-free"), and given my top-tier tax bracket, they are far more attractive. |
| 8/4/2018 3:07:52 PM EscapeVelocity |
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| Second, I follow things like CAPE, market cap v. GDP, etc., to determine the value of the overall market. To me, it's demonstrably and objectively overvalued. I also look at anecdotal evidence -- e.g., the yield curve, historical dividend yields, interest and savings rates, market participation (FAANG vs rest of the market), margin balances, real estate values, sales and inventory, other various bubbles (e.g., Bitcoin and corporate junk bonds), earnings adjustments, share buybacks, volatility, consumer optimism, employment and wage growth, etc. And, of course, general complacency and sentiment (which can change on a dime). Not any one factor is determinative, but in my view they almost all lead to the conclusion that there's far more downside risk near term than upside gain. |
| 8/4/2018 3:08:15 PM EscapeVelocity |
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| Third, most high net-worth people don't actually have all their money in the stock market, and most younger HNW people are close to 50% or less (https://ustrustaem.fs.ml.com/content/dam/ust/articles/pdf/insights-on-wealth-and-worth-2018/Detailed_Findings.pdf). Whether or not that's the right move remains to be seen, but we'll both agree that equities carry more volatility than bonds and that long run returns of equities are *historically* better than bonds (on that note, it is interesting that some people resist following things like CAPE because it's "backwards looking," but will then point to historic market returns as justification that future returns will be the same). The thing is -- and this gets to the nub of your inquiry -- I don't really need more money, and I certainly don't need to experience a 30% to 50% drop in asset value. For what? To make __% additional return on the money I've already got and invested? I've won the game, why risk it for a few more percentage point |
| 8/4/2018 3:09:13 PM EscapeVelocity |
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| I've won the game, why risk it for a few more percentage points of return? To what end? I've no aspirations to be as rich as Bezos and no delusions that going all in on the stock market and doubling my net worth will change my lifestyle (indeed, the volatility would make me less secure and less willing to enjoy some of my wealth). |
| 8/4/2018 3:09:24 PM EscapeVelocity |
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| Note, I am NOT saying you are delusional or attacking you in any way, shape or form ... honestly, I'm just saying that I'm at peace with staying "this rich" and not trying to get "way richer." To me, that's balance. I don't see the value of taking on meaningful risk assets at this stage, especially when all the good news is already baked into the market's cake. And finally, I've got no problem buying stocks again (I've made a lot of money owning stocks in the past), but I'll start doing that again when we're at a different point in the investment cycle--namely, when seemingly everyone is sour on buying stocks due to all the "risk" they suddenly observe. |
| 8/4/2018 4:21:20 PM EscapeVelocity |
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| From the US Trust link above, this sums it up: "While the wealthy seek growth, they consistently say it’s a higher priority to manage risk, even if lower risk means lower returns." |
| 8/6/2018 11:26:26 PM plasticsurgeryrox |
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| Thank you - Appreciate all your thoughts and your link. I enjoy how these conversations are as much about philosophy as they are about finance. To that end, I'll link you to the Mexican fisherman story.... https://bemorewithless.com/the-story-of-the-mexican-fisherman/ |
| 8/9/2018 2:24:33 PM EscapeVelocity |
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| I loved that story, thank you for sharing it. Among other things it nicely captures a uniquely-American obsession with material wealth. You and I are so lucky, and we're luckier still to know just how lucky we are . . . |