rogernusbaum

A friend noted that it had been a while since I'd written a blog post. My blogging has evolved into when I see something interesting or something interesting happens I write about it. I guess I haven't seen that much that was interesting lately. There's a lot of negative things in the world which in a way might make for fewer interesting things to explore. Also, we've been very busy lately, nothing negative for us, I am acutely aware of how lucky we've been during the pandemic.

I've been thinking about this idea of 'all weather' pertaining to more than just portfolio construction. This morning, Jonathan Ferro interviewed Peter Cecchini (not sure on that spelling) about gold. I took from the interview that Cecchini is favorably inclined toward gold, not sure how long this has been the case. As the conversation evolved, Ferro asked about the diminishing utility of a 60/40 portfolio where 40% goes to bonds given how low bond yields are. Is gold becoming more important for filling up the bucket that we've been using to allocate to fixed income was essentially the question. Cecchini seemed to advocate for a heavier weighting to gold but was not specific.

In a related anecdote a friend on Facebook asked about buying gold a few days ago. My view on gold has always been the same. I am neither bullish on it nor bearish. Gold has the longer term tendency to have a low to negative correlation. More often than not it goes up when the stock market goes down. To my way of thinking, that attribute helps to weatherproof (am I torturing the metaphor?) a portfolio. Weatherproof could be a synonym for smoothing out the ride which is how I have framed this previously. Part of the inspiration there is the Permanent Portfolio which allocates an equal 25% to stocks, long bonds, cash and gold. The idea is that no matter what is going on, at least one of those will be going up.

That is why I've included gold in client portfolios as well as BTAL, TAIL and a couple of others, funds that tend to have a low to negative correlation to equities in order to help smooth out the ride. I have nowhere near 25% in gold or even all of these diversifiers added together. Stocks are the best performing asset over the long term. In that light I don't want to allocate too much away from stocks. There's a big difference between smoothing out the ride versus missing out on the stock market's growth--subject to a suitable asset allocation for your circumstance.

What are the types of things in life that create emotional volatility and how can that ride be smoothed out, how can life be at least partially weatherproofed? That is where the conceptual overlap between an all weather life and all weather portfolio is.

Paul Portesi Tweeted that "real wealth is increasing your optionality." I use the word optionality here all the time. I replied "built my entire life around this, been blogging about it for years. I'll thrown in resiliency too. The easiest path to this includes living below your means, healthy habits and staying curious." I pound the table on these points on a regular basis. Living below your means allows you to save more money which is the epitome of optionality in the face of a an adverse financial event like losing a job or or having something unexpected and very expensive come along.

While optionality is a form of wealth, I think being fit and able bodied is higher up on my list of priorities as a form of wealth. I think health promotes optionality. Owning your own time is also a form of wealth but I think being able bodied plays a role here too. Speaking from my mid-50's, this is an age where you can be an elite athlete with the metabolic health of someone 20 years younger. The other extreme is having many chronic maladies requiring many prescriptions and many doctor visits. That is time lost, it takes away from wealth where time is a manifestation of wealth. A point I've made previously is that being able bodied increases optionality. If you're 50 or 60 and fall to the increasing number in the cohort who are forced to "retire" but are not ready then being able bodied is another epitomic example of optionality. You may not prefer a job that involves lifting heavy things but it would be nice to have the option if it came down to it. A good example for me is being an EMT. Being an EMT is part of my volunteer endeavor, we have a couple of calls a month, literally just a handful and being able to help on a call is a great life enhancement but I have no preference for working full time as an EMT. The option though is available as I can still participate in lifting heavy patients.

A couple of real hot buttons for me is having my hand forced and worrying about money. Those can't be that uncommon. I've long been aware of these hot buttons which has made it easy to make a priority out of mitigating them. This point is exactly why I write so frequently about figuring out what is important to you and what isn't. That way you don't save and plan for the wrong thing. I've never been a boat and $100,000 car guy so I never wasted time trying to save for those things or go into debt for them.

If you're able bodied, have a little in the bank and in touch with what's important to you you've gone a long way to weatherproofing your life. If you've figured out how to reduce your portfolio's volatility (to the extent that is even important to you) then you've gone a long way to weatherproofing your life.