Thanks for this post Steve. And so glad to see The Intelligent Investor made an appearance which as you know was required reading in my family!
I appreciate the analysis of the past few decades which was eye opening. A few other thoughts from my end in reading this.
First, I completely agree that you have to be flexible in portfolio management. Diversification also applies to having multiple managers if you have enough assets to merit that. Even in a household that managers their investments themselves, they likely have mutual or similar funds in their portfolio so they have indirect managers of their assets. It might be better to have 50% of an investment type - say US Large Cap - at two different groups with the same target list.
Second, there is another situation that I am thinking of semi-retired. In this situation, the family still has one or both of the couple working. At least one of them has health coverage (this is pre-Medicare) and their combined salary, while likely decent by most standards is not enough to cover their annual cash flow needs. So, they are working off investment income (ideally not invading capital while they are working) plus their salaries. This situation might change how they view risk but is also a step towards planning for retirement too. Almost a trial period. Maybe they only work part-time or are working in a field that they are passionate about but is not necessarily highly compensating (such as non-profit or teaching).
Third is the concept of estate planning which applies to those working, retired or my new term of semi-retired. Assuming the family has enough assets to considering leaving a legacy to their kids or other loved ones, how much do they want to leave? Maybe there are other issues to consider? For example, my niece has a congenital health concern, so my sister-in-law has to approach her planning thinking of how her daughter will have enough funds after my sister-in-law is gone. In other cases, there can be just the desire to provide some funds to their descendants because they want to. With hopefully longer and longer lifespans, this gets more complicated, particularly as healthcare costs are likely to rise in one’s 80s and 90s if blessed to live that long.
Laird - great points! (1) Totally agree on the multiple managers point for a different take on the same sector. (We do this, too!) (2) Great point on the "trial period" when investment income supplements salaries / consulting income. (3) Estate planning is a good subject! We are actually revisiting ours now as we speak as we hadn't done it since 2013 back when our kids were small, I was still working, and we were living in California. All of those situations are different now!
Thanks for this post Steve. And so glad to see The Intelligent Investor made an appearance which as you know was required reading in my family!
I appreciate the analysis of the past few decades which was eye opening. A few other thoughts from my end in reading this.
First, I completely agree that you have to be flexible in portfolio management. Diversification also applies to having multiple managers if you have enough assets to merit that. Even in a household that managers their investments themselves, they likely have mutual or similar funds in their portfolio so they have indirect managers of their assets. It might be better to have 50% of an investment type - say US Large Cap - at two different groups with the same target list.
Second, there is another situation that I am thinking of semi-retired. In this situation, the family still has one or both of the couple working. At least one of them has health coverage (this is pre-Medicare) and their combined salary, while likely decent by most standards is not enough to cover their annual cash flow needs. So, they are working off investment income (ideally not invading capital while they are working) plus their salaries. This situation might change how they view risk but is also a step towards planning for retirement too. Almost a trial period. Maybe they only work part-time or are working in a field that they are passionate about but is not necessarily highly compensating (such as non-profit or teaching).
Third is the concept of estate planning which applies to those working, retired or my new term of semi-retired. Assuming the family has enough assets to considering leaving a legacy to their kids or other loved ones, how much do they want to leave? Maybe there are other issues to consider? For example, my niece has a congenital health concern, so my sister-in-law has to approach her planning thinking of how her daughter will have enough funds after my sister-in-law is gone. In other cases, there can be just the desire to provide some funds to their descendants because they want to. With hopefully longer and longer lifespans, this gets more complicated, particularly as healthcare costs are likely to rise in one’s 80s and 90s if blessed to live that long.
Laird - great points! (1) Totally agree on the multiple managers point for a different take on the same sector. (We do this, too!) (2) Great point on the "trial period" when investment income supplements salaries / consulting income. (3) Estate planning is a good subject! We are actually revisiting ours now as we speak as we hadn't done it since 2013 back when our kids were small, I was still working, and we were living in California. All of those situations are different now!