
Golden Rules of Financial Safety (1999) - Tomte
http://www.harrybrowne.org/articles/InvestmentRules.htm
======
BMarkmann
Just for context, this is from Harry Browne, who was famously (and perhaps not
entirely fairly) labeled as a "gold bug" throughout his career. He was
something of a hero figure among those who subscribe to Austrian economic
theory, and actually the candidate for the US Libertarian party for president
several cycles back.

Off-topic (?) from that article, I'd be interested to hear what he would have
made of the current cryptocurrency craze, given his views on gold, inflation,
and portfolio stability.

~~~
clamprecht
Regarding Bitcoin, Rule #3 might apply:

"There's nothing wrong with speculating — provided you do it with money you
can afford to lose. But the money that's precious to you shouldn't be risked
on a bet that you can outperform other investors."

Edit: Rule #12 addresses it more directly: "Speculate only with money you can
afford to lose."

------
bhu1st
Might be risk averse but great advice.

Rule #2: Don't assume you can replace your wealth.

The fact that you earned what you have doesn't mean that you could earn it
again if you lost it. Markets and opportunities change, technology changes,
laws change. Conditions today may be considerably different from what they
were when you built the estate you have now. And as time passes, increasing
regulation makes it harder and harder to amass a fortune.

------
simplerufus
#13 - Keep some money overseas

How exactly is this possible? I am a german citizen and resident, and after
hours of reaearch a few months ago i couldn’t find ONE bank in the world I
could open a bank account with. I always have to be at least a resident. Did
anybody figure this out?

My partner is from Canada and I would love to park some money there, but I
couldn’t figure out a way to do so.

~~~
pattle
Why not store the money in Bitcoin instead? It's outside of government control
and you should get a nice return on your investment.

~~~
chillydawg
...or it might go to 0? Bitcoin is many things, but it certainly is not a
savings account.

~~~
pattle
True it could, but theoretically the price should always go up. Plus there's
risk in anything. I'd have thought that placing money in a foreign country is
also pretty risky if you're not a citizen

~~~
bboreham
No. No, no, no, no, no.

The price you can sell an asset for is whatever someone is willing to pay, on
that day. If sentiment turns and everyone is selling bitcoin, the price will
most definitely not be going up.

------
jordanlev
> _Rule #11: Create a bulletproof portfolio for protection._

> _The portfolio should assure that your wealth will survive any event —
> including an event that would be devastating to any individual element
> within the portfolio. In other words, this portfolio should protect you no
> matter what the future brings._

> _It isn 't difficult or complicated to have such a portfolio this safe. You
> can achieve a great deal of diversification with a surprisingly simple
> portfolio._

What could such a portfolio be? Cash in a savings account? (Genuine question
from an investment novice -- I always thought any investment was risky to some
extent).

~~~
schmidty
HB's Permanent Portfolio consists of 25% each cash/gold/stocks/long term bonds

25% stocks (index fund) Stocks – for profit during periods of general
prosperity and/or declining inflation.

25% Gold – for profit during periods of bad inflation; during inflationary
episodes gold bullion provides protection against a falling currency and other
potential problems.

25% Long Term Bonds (30 year) – for profit during periods of declining
interest rates; and especially during a deflation. Bonds also do reasonably
well during prosperity.

25% Cash – During a recession, no particular asset class is going to do well.
The cash in a Treasury Money Market Fund offers stability when portfolio asset
classes fall in price. It also protects purchasing power during a deflation.

~~~
snikeris
I would add that gold is an asset that does well when people lose faith in the
dollar. It's insurance against the unthinkable.

~~~
baby
yeah but there, other currencies make more sense.

~~~
Shivetya
well is this advice of 25% applicable in this day and age, have we moved past
precious metals occupying such a large percentage?

~~~
shoover
That percentage has been and will be debated forever, even by proponents of
the Browne PP model, but 4x25 has done well as recently as the past two
decades.

Also the exact number is not all that critical. Earlier versions of Browne’s
portfolio were more complicated and he simplified it to 4x25 later on, still
allowing that people could tweak it if they must. But 4x25 is simple and
works.

------
brndnmtthws
25% cash is ludicrous and irresponsible. Cash has historically been a terrible
'investment', especially since most central banks have maintained a policy of
creating annual inflation.

Warren Buffett has some interesting things to say about this:
[https://20somethingfinance.com/warren-buffett-is-
moving-100-...](https://20somethingfinance.com/warren-buffett-is-
moving-100-into-us-stocks-should-you/) and
[http://www.barrons.com/articles/buffett-bonds-terrible-in-
co...](http://www.barrons.com/articles/buffett-bonds-terrible-in-comparison-
to-stocks-1494258737) for example.

~~~
swendoog
Possibly holding cash is useful for when you need to quickly capitalize on a
drop in the market?

~~~
tanderson92
One can do that with treasuries or T-bills which historically have earned a
real return. In a crisis one often finds that treasuries are negatively
correlated with equities which can be a boon.

~~~
tome
T-bills are what Harry Browne means by "cash".

------
kbutler
He missed rule #0:

Wealth is what you save, not what you earn or what you spend.

There are many people with very high income but spending as high (or even
higher!), so they have little or no wealth.

~~~
stuffedBelly
Actually from a financial perspective, wealth is assets you own (equivalent to
equity + liability). People with high net income should be investing as much
as possible to let the money flow in the market. If everyone saves with no
intention to invest/spend, it would potentially result in a stagnant economy.

~~~
kbutler
Savings rate is the amount remaining after deducting expenses for consumption.
It includes long-term investment.

------
marcrosoft
Also checkout Harry Browne's Permanent Portfolio if you want a passive
investment strategy that yields similar results to a buy-and-hold index fund
with much less volatility.

~~~
dsr_
To any index fund, or a specific one?

~~~
marcrosoft
Vanguard (VTI) or S&P500

~~~
dsr_
As I understand it, 25% of his portfolio would approximate one of those... by
being one of them, or a similar all-market fund.

The other 75% has no relationship to them at all.

~~~
marcrosoft
That's right. It's designed that way on purpose. A 30% decline in VTI will
likely have no bearing on the other asset classes. Best case: the other asset
classes overcompensate in value (see volatility harvesting) offsetting the
crash. Worst case: you re-balance with a portion of the 25% cash you have on
hand. As a concrete example, look at what this portfolio did in 2008.

~~~
dsr_
You miss my point. You can't claim to replicate an index fund by investing 25%
in that index fund and then not even attempting to do so with the other 75%.
It's a simple false claim.

~~~
marcrosoft
Oh the similar yield comes from back testing a 30 year period for this
portfolio compared to S&P500. Both have roughly the same CAGR yet the
permanent portfolio has an amazing Sharpe ratio (risk adjusted return).

------
Heraclite
I'm a complete financial idiot. As in, I only have money on a government-
guaranteed fund in my bank.

Where do I start to know more about this? I dont want it to stress me out
though, Im not so risk adverse when it comes to my finance. I spend very
little, but I want to learn more about investing.

Any advice? More specifically for people living in EU?

~~~
brndnmtthws
Here's the best place to start:
[https://www.bogleheads.org/wiki/Main_Page](https://www.bogleheads.org/wiki/Main_Page)

------
dragontamer
I dunno if I agree with the rest of this guy's blog or his off-hand remarks,
but the investment advice in this page looks pretty solid overall.

------
sulam
Most of these look great. I am somewhat skeptical of Rule #8 about not giving
anyone signature authority. Maybe he means this in a narrow sense that I don't
understand, but when you have your money being managed for you, trades are
being made on your behalf, you aren't doing them yourself. This is true from
robo-advising all the way up to private banking and family funds.

~~~
snikeris
He would argue against having your money managed for you. He wouldn't be
against working with an advisor, but he'd want the advisor to explain things
to you so that you can execute on your own behalf.

~~~
sulam
That'd be fine if I could do the trades my banker does for me, but I can't. I
know this isn't a problem most people have, but this advice is unimplementable
without costing me real money (I'm sure he would advocate lowering the cost
basis, although strangely he doesn't say much about that).

------
snikeris
Harry had a radio show about investing where people would call in and ask him
questions:

[https://web.archive.org/web/20160402162234/http://crawlingro...](https://web.archive.org/web/20160402162234/http://crawlingroad.com/finance/harrybrowne/radio/)

------
garyrichardson
> Your investment plan should be aimed, first and foremost, at preserving what
> you have—preserving it from investment loss, government intervention, or
> mismanagement.

The advice is decent and normal, but I really love how regular advice is
"colored" with libertarian perspectives.

~~~
snikeris
It's just being practical. Governments mismanage their economies, seize the
assets of innocent people, etc. If you're serious about preserving your
wealth, government intervention should factor into your decisions.

~~~
gowld
Governments also manage their economiies, but he doesn't say "be sure to
expose your fund to the benefits of government intervention", so he's clearly
biased. He advocates putting 25% in T-bills while also insinuating that the
government is only a source of trouble.

~~~
snikeris
That should tell you something about his approach. A staunch libertarian
advocates investing half your portfolio in government securities. My
conclusion: his investing approach is divorced from his politics (as it should
be).

------
metalliqaz
Advice: Just do dollar cost averaging in an index ETF. Question: Why? Answer:
This article.

~~~
wiredfool
What advantages do index ETFs have over a comparable index mutual fund against
the same benchmark?

Or, to ask another way, is there any reason to prefer anything other than
Vanguard's Index500 vs anything else attempting to replicate the SP 500? (I
call out the Vanguard fund because the fees are very low, .14% iirc.)

~~~
kbutler
Vanguard also provides equivalent ETFs - VOO has expense ratio .04%, vs VFINX
.14% - basically the ETF is like the admiral class shares ($10k+ investment).
[https://advisors.vanguard.com/VGApp/iip/site/advisor/investm...](https://advisors.vanguard.com/VGApp/iip/site/advisor/investments/productoverview?fundId=0968)

Mutual funds: recurring investment of any dollar amount (fractional shares).
Minimum initial investment required. Trade once per day, beware loads, fees,
and expense ratios

ETFs: buy or sell one or more whole shares, trade throughout the day, beware
trading commissions and expense ratios.

------
SandersAK
The first rule is to inherent the money. The second is to be born into a
network that benefits you and doesn't punish you arbitrarily. The third rule
is to profit from a strong public infrastructure, and then once you've
achieved enough wealth, work tirelessly to defund it through tax cuts.

This guy's a mug. And anyone who thinks financial security for one is
something that can be done independent of a community is full of it, or a
hustler protecting previously accrued assets.

~~~
lbotos
>And anyone who thinks financial security for one is something that can be
done independent of a community is full of it, or a hustler protecting
previously accrued assets.

???

So you are saying the people who make money, and are frugal, would not be able
to get to "financial security"? I'm a sample size of 1, but I seem to be doing
just that "on my own".

You seem extra jaded here. What am I missing?

~~~
SandersAK
I don't think financial security is as tied to your independent actions as you
seem to think. No matter how frugal you are, the best option for financial
security is investing in the infrastructure and community you live in.

I don't know how much money you have, but if you or your family had a life-
long expensive disease, can you say that given the current medical coverage
offered at the current prices, you would be financially secure?

It's not a criticism to your ability to save or manage your money. Please
dont' take it that way :)

~~~
mfoy_
You're trying to make this article more of a social policy commentary than it
is.

Having a "life-long expensive disease" is like the inverse of Rule #12, where
you've already lost the lottery. Now, this wouldn't even be a problem in
Canada, but it'd be pretty moot to put in a rule about that.

The point is, this article isn't "these are the ingredients for being rich",
it's "What reasonable guidelines can you follow to maintain any wealth that
you manage to accrue?"

The context was "rich people went bankrupt, whaaaaat?" and the article is
"well, they must have violated one or more of the following rules in a _big_
way!"

------
sova
Manafort indicted for keeping money overseas that he did not report, among
other reasons. Just a fact to bear in mind, as one of the points suggests
keeping cash overseas

~~~
Eire_Banshee
He never said try to hide it. Pay your taxes on it, do what you have to do so
that it is legal. Just have it somewhere where "the man" cant seize it.

He specifically went out of his way to say NOT to try elaborate overseas
schemes to avoid paying taxes.

~~~
sova
Foreign assets can't be seized?

------
PatientTrades
> Rule #1: Your career provides your wealth.

I mainly disagree with the first rule. Your career should not provide your
wealth. Your career should keep your bills paid, provide security for the
future, and allow you to live a comfortable life. Investments in financial
endeavors like real estate, businesses, stocks, etc, education, and family is
what provides wealth.

Update: Not sure why this post is getting downvoted? A career provides MONEY
not WEALTH. There is a big difference. It is up to you to convert that money
into wealth

~~~
mfoy_
And how, exactly, does one embark upon an endeavour such as owning real
estate, starting a business, buying stocks, acquiring education, or starting a
family?

For almost every single person, the main source of their wealth _will_ be
their career.

Unless you are planning on inheriting more money than you expect to make from
your career from your extremely wealthy parents, you're going to have to
accept Rule #1.

And if you borrow money to accomplish these things, you are in violation of
Rule #7, don't use leverage.

~~~
PatientTrades
> And how, exactly, does one embark upon an endeavor

By using the money earned from your career to fund ventures. A stable career
should provide you with money to build wealth. However, simply working a 9-5
everyday will not provide wealth as the rules implies. It provides money, not
wealth. There is a difference

~~~
mfoy_
It will take you _decades_ of saving to have the kind of capital that can show
a return that's even remotely comparable with your salary.

~~~
loeg
But you don't need to replace your salary, just cover your expenses :-).

For example, if you can save ~96% of your gross income and safely draw 4% from
your investments, you can cover your expenses after only a single year. (Of
course, you will never save 96% of your gross income, due to taxes.)

