The Mistakes Of The Great Resignation

Barron's looked at the reversal of the Great Resignation that appears to be underway. The Great Resignation was the pandemic-induced phenomenon where people quit their jobs or retired early for feeling scared of the pandemic, emboldened by stock market gains and motivated to reassess their priorities as many people were getting sick and even dying. 

Toward the end of the article was an anecdote about a now 50-year old who had "retired" in February, 2021 but found himself bored after a while and feeling some financial stress after seeing his portfolio go down in value. It turned out to be a one year sabbatical, going back to his job in February of this year. He was quoted in the article "it's nice not having to go to work but what are you going to do?"

I say this a lot, you don't want to wake up on day one of...in this case, retirement and say to yourself, "ok, now what am I going to do?" There's a natural tendency for people to make things too complicated and a blind spot of mine might be that I make things too simple but what do you enjoy doing, what does your ideal day look like? How much of that ideal is embedded into your typical day already? If there's not as much overlap between your ideal and your regular routine, what can you do to change that? Building more of your ideal into your regular routine is a way to more easily transition into whatever comes after you move on from your primary career even if moving on just means doing the same work part time. 

One part of the Barron's anecdote was the implication that the guy played a lot of golf. I don't golf so I don't know how much green fees are these days. When I google "average green fees" $61 comes up as the first result. Is that realistic? How many rounds per week is the typical retiree going to get in at $61 per? I know clubs are expensive too. I might be cheap but this seems like an expensive hobby for a retirement plan that causes stress from a portfolio decline of some magnitude during an up year for the stock market--presuming 2021 since he was back at work as quick as February.

How old are you? If you want to retire, when do you want to do it? That's how much time you have to figure it out if you haven't already done so. I get that many people don't love what they do for work and want to retire from it at some point. What do you love? What would you want to learn about as something new? Learning new things is critical to successful aging and there are plenty of outlets to go learn new things. What are you passionate about that needs volunteer help? Hopefully any planning like this leaves time for exercise too.     

I said many times before, and I think the Barron's anecdote is a reiteration, that retirement planning isn't just financial. Knowing yourself and what you want to do and what will make you happy are key to getting retirement, or whatever you call it, right. This is why I write so often about the non-financial aspects of retirement so frequently. 

Gameplanning For Crazy Inflation

Two weeks ago, I put gas in our Tundra for $3.94/gallon. A couple of days later my wife filled her 4Runner for $4.19/gallon. This past Sunday, I took our gas cans to fill them up--we keep 12 gallons on hand for our ATV and to have in a pinch--and paid $4.34. Gas in Prescott tends to be a little lower than the national average.

In the context of preventing/solving problems and connecting to my comments the other day about the crazy cost of insulin, would $10 gas be a problem for you? If so, how much of a problem? Would it be a problem so big that you'd need to make changes to some part of your routine? 

I don't think $10 gas is a serious threat as an average but what about $6 as a national average (that might take California close to $10)? My Tundra holds 26 gallons and if I typically fill it when it is only 1/4 full then that would work out to $195 to top it off at $10 per. My wife drives out to the United Animal Friends (the animal rescue she's the President of) ranch a couple of times/wk and that is on our nickel. She doesn't need to fill up that often but more than I do.

At $200 a pop and having a regular commute, that could easily be very problematic for a lot of people. I maybe fill once a month thanks to working from home and using a fire department for most, not all, trips into town. I also take the FD vehicle when I go work out at the fire house believing that if I am at the fire house for any reason, I should be immediately available to respond to a call as opposed to going home first and then responding. 

I am acutely aware how lucky we are on this front. If the price of gas became problematic, my wife could cut back to once/wk and we could both be strategic on grocery runs. So we've thought about it, assessed how much of a problem it is or is not and have a couple of thoughts on what we could do differently if we had to.

Not everyone is that lucky.

What about price inflation for food? I can't envision the scenario where we'd cut back on meat, eggs, fish, cheese or coffee. Those items, well maybe not the coffee, are crucial for good nutrition as we see it. We could cut other stuff...painfully...if it came to that. The fiat food that I wrote about the other day, as crazy as I might have thought that was 10 years ago, I'm not sure now but either way filling up on flour and corn products is insanely unhealthy and we'd sacrifice other things before food.

How vulnerable are you to increases in healthcare costs? The more visits to the doctor and the more prescriptions you take the more vulnerable you are obviously. We talk all the time about behavioral changes to try to reduce reliance on the healthcare system beyond what has happened to all of us over the last 15 years or so with the cost of health insurance. If my wife and I went with "good insurance" we'd be shelling out $1500/mo, we are lucky that we can get away with lousy "insurance" for a little over $500/mo. 

What other things do you spend money on that you have to? Can you cut back if you had to? What about discretionary spending like cable/satellite TV? Many people have moved on to streaming through their ISP. That doesn't quite work for us due to limited choices where we live but we could cut Directv if we had to but probably not internet service....unless I spent all day, every day at the firehouse. 

I have no idea what will happen. $10 gas as well as similar prices increases for other things seems like a crazy outcome to me but what if it happens? Or what if people get subsidies to help with those costs but you make a little too much to qualify for those subsidies. 

Do not wait until gas is at $10 to figure out how you'll handle gas at $10.

Alternative Expectations

David Tracey opined that "this is the worst market in my life that I've ever seen at pricing in risk." 

Is the equity market mispricing risk? Aren't markets efficient at pricing in all known information? A while back I quipped the markets are efficient except when they aren't. It's funny but it's kind of useless in terms of relying on rational actors in markets. It is useful in terms of pointing out we should not rely on markets always being efficient. Once you can accept that markets will behave irrationally, especially in times of headline stress, it gets easier to keep your cool, to not submit to emotions you might feel.

This contributes to my belief in and use of alternatives to try to manage portfolio volatility. I first learned about this concept back in the late 90's reading about then Harvard Management CEO Jack Meyer investing in timber land, actual timber land not some sort of exchange traded product or REIT, because of its low volatility and low correlation to equities. 

Everyone draws their own conclusions of course but I think alternatives, the right alternatives, properly sized can go a long way to helping smooth out the ride in times of market turmoil like we've been experiencing lately. Maybe for now it's not so much the market that's in turmoil, it's not really down that much, but the world, the headlines, the nature of the unknowns are the source of turmoil. 

I spend a lot of time learning about new (to me) funds and strategies that might help with client portfolios. It's a lot of fun for me but as I have mentioned before, I learn about way more funds than I ever use. For example, I have bee intrigued by risk parity since I first learned about it. I can't quite come around though to being confident in a strategy that balances out risk by levering up on bonds to balance out the risk, to create the parity of risk. With rates so low, even if they stay low the strategy calls for using leverage to buy high. 

This morning I stumbled across a portfolio of alternatives called Return Stacked 60/40 Absolute Return Index. Here's a summary of what they're trying to do: "The Index is designed to preserve exposure to core stock and bond allocations, while bolstering expected risk-adjusted returns with non-correlated return streams like trend following, global macro, and tail-hedging strategies. The Index targets a volatility and drawdown profile similar to a U.S.  balanced portfolio. Of course, there is no guarantee that the Index will meet this objective."

I'm not going to be critical but I don't exactly get what they are trying to do but they have good transparency on the alternatives that comprise their index. Here is a chart of the alternatives in their index YTD compared to the S&P 500 that is down 7% in the red circle.

Some of the alternative strategy funds are up and really don't look like the stock market this year (that's a good thing for an alt) and some are down like the S&P 500, or worse, and have offered no protection. Interesting to me is that TYA, a fairly new risk parity ETF, is down the most at 15.8%. Of course, yields have gone up so a risk parity ETF going down makes sense. But then, what is the value of it as an alt? Maybe there's a better argument for it as a portfolio proxy instead?

Generally, a three month sample size it pretty small but give or take, that's how long the current event has been going on. Zooming the above chart out to four months, the S&P 500 shows down 4.8% with only three of the alt funds charted outperforming and five underperforming. I would note that at four months, the chart for RDMIX appears to be distorted for a large annual payout. 

I disclose the alt funds I use all the time, regular readers know the names. I've lucked out maybe in this event as only one alt fund in my ownership universe has been acting funky, it's not a catastrophe, just not really doing what I'd hope. I don't want to say picking alts is complicated. I mentioned that I spend a lot of time studying these which gives confidence in figuring which ones will meet the expectations they set. There've been a few funds that I have test driven before using for clients, some I end up using like BLNDX and some I don't like SPYC. SPYC is in the Return Stacked index. It owns the S&P 500 with a long strangle overlay (options terminology) to try to smooth out the ride and when I owned it and any time I've looked at it since it just looks like a proxy for the index. I can't see the strategic benefit. 

Taking time to learn and understand does not equate to complexity in my mind but portfolio construction is my primary job so I can give it the time. 

I will close out with what role Bitcoin could play as a diversifier in the context we've been discussing. As someone who owns a little Bitcoin, I would tell you that for now it does nothing. Sometimes it correlates with stocks (risk on) and sometimes it doesn't and there doesn't appear to be any discernable pattern to when it will or will not correlate with stocks or hedge inflation or do anything else but its own thing to eventually either go to a bazillion or go to zero. YTD, Bitcoin has taken a path that at times looks like stocks and other times not and done so with more volatility to arrive at a similar decline as the S&P 500. Of course tomorrow, or any given day, it could be up or down 10% for any reason or no reason. 

This is not an anti-Bitcoin comment, again I own some, but it sets no reasonable expectation for anything in a portfolio. I own it in case the touts turn out to be correct and it does go to a bazillion. 

Fiat Food Is Here, What Are You Going To Do About It?

Teresa Ghilarducci wrote an article for Bloomberg about ways to reduce spending in the face of our recent inflation problem. The Tweet promoting the article bullet pointed taking the bus, not buying in bulk, eating lentils instead of meat and in the article she talked about thinking twice about expensive medical care for pets. This got torched on Twitter.

I like to read Ghilarducci's articles even though I disagree with where she is coming from philosophically. As best as I can tell, she puts no stock in self-sufficiency or taking action to prevent/solve problems. I take her as believing the government can solve a lot of our problems for us. Teresa, if this makes your radar and my take is wrong, I'd love to hear from you.

The Barron's cover story this week was about food inflation. The first paragraph included an anecdote about a 29 year old single mother who "is cutting back on fresh produce and meat in exchange for less-nutritious but cheaper items while often unable to find inexpensive staples like pasta."

Saifedean Ammous, author of The Bitcoin Standard and The Fiat Standard, wrote about this exact thing referring to it as fiat food. When I first heard about fiat food I just thought it was a reference to high carb food that is unhealthy, so pervasive in the standard American diet and making us so sick. It sort of is that but with a more insidious underpinning. The basic idea is that government policy, the Fed has a seat at this table too, is inflationary, it erodes our purchasing power on purpose forcing people to food choices like mentioned above, being forced to switch to unhealthier food that is cheaper in nominal terms but will make us sick and require we start taking medication to treat these fiat diet-induced chronic maladies. 

The idea of not buying in bulk because it is not cheaper? Is that anyone's experience? I couldn't put my finger on it but Joe Norman took that as Ghilarducci saying not to prepare for anything. That resonates with me. I've been saying since before the pandemic started that we're not accumulating a year's worth of food or anything like that but want to keep a couple of weeks ahead of our needs to avoid the type of hassle that goes with empty store shelves and other disruptions. 

It sounds conspiracy theory-ish, doesn't it? Of course it does but it is happening. Arguably the push many years ago for more seed oil consumption is also part of it. Drug companies supposedly were involved in the creation of the food pyramid many decades ago pushing more grains and other carby foods. Statins are part of all of this too, they definitely lower cholesterol but cholesterol is not what is clogging us up and killing us, it's the sugar (carbs). Statins are a huge money maker for the drug companies, huge money maker with some lousy side effects and that don't prevent heart attacks. 

Does this sound crazy to you? Maybe it does but look at where we are. Do your own research on carbs, statins and the rest to draw your own conclusion but this is where we are. We are sicker, poorer and not taught or even encouraged to solve our own problems. It has continued with Covid. Vitamin D, Pepcid, Oil of Oregano, low dose aspirin, Vitamin C and a few others provide plenty of protection (look for it online) against Covid and can coexist with anything else you've done for yourself in regard to Covid. I am not making an anti-vax argument, I am saying that where so many of us are sick with chronic maladies that make up more vulnerable to Covid being serious, why wouldn't you do more?

All this is essentially ground zero for how I've come to live my life and what I've been writing about almost 16 years now, the importance of preventing or solving your own problems. 

Someone close to me got very sick with Covid last year and had to stay in the hospital. In the process of getting treated they learned they have Type 2 Diabetes and had to start taking insulin. I don't know how much they make but I believe they make a fine living, not a ton of money but a fine living. I don't know how much, if anything, they need to pay out of pocket for insulin but some people are paying hundreds of dollars per month. Think about that new expense combined with now paying 30% more for food, 40% more for gas, I don't even know how much natural gas/propane has gone up for heating your home and so on. 

This link had insulin costing $450/mo back in 2016. It's gone up since then of course and it depends on your insurance coverage, how much you actually pay. Could there be scenarios where people are paying $800/mo now? And their food bill just went up and all the rest. Ammous might refer to this as a form of slavery, fiat slavery. Could all of these things add up to an extra $1000/mo in expenses? More? Where is your limit on what you can afford?

Back to Ghilarducci suggesting lentils. According to WebMd, lentils have 12 grams of protein in a 140 calorie serving. That same serving also has a whopping 23 grams of carbohydrates. According to Very Well Fit, a 218 calorie serving of red meat, that's only 3 ounces, has 24 grams of protein and no carbohydrates. You'd likely eat more than 3 ounces of meat, maybe you'd eat about half a pound? For simple math, 9 ounces of meat would have 72 grams of protein. To get the same amount of protein from lentils you'd need to eat 4.6 times the amount of that original serving amount. Hold on though, protein bioavailability in beef is 92% compared to 70% (which is pretty good for a legume) for lentils so you'd need to eat even more lentils. If you want to try this, make sure you don't have immediate plans to leave your home. And eating that much lentils would be a carbohydrate festival making you a different kind of sick. She is promoting fiat food even if she is oblivious to the concept.

The realistic outcome of fiat food is eating less protein and more carbohydrates and seed oils. Given the history of the food pyramid and all the rest, there's an argument that this conspiracy theory may not be a theory. Best case, we've gotten to this point because of incompetence. 

Regardless of whether it's conspiracy or incompetence, we cannot rely on the people who got us here, politicians, government, food companies or drug companies, to fix it. It is up to us to fix it for ourselves, to prevent our problems from happening or solve them for ourselves when they do happen. No one will care more about our outcomes than us. 

Back to Ghilarducci again, her suggestions are reactionary to what is happening. Paraphrasing myself, you don't want to wake up on day one of a crisis and say "ok, now what am I going to do?" 

Living below your means and taking care of your health and fitness are both low hanging fruit in this conversation, I've been writing about that forever and living it even longer. All of the problems people, including my friend above, might be having now are a little easier when you are under mortgaged, or no mortgage, don't have car payments, aren't drowning in credit card debt and not shelling out $X00/mo for insulin. 

And the thing is, it's not too late. Here is information about a study that showed people can reverse T2D by fasting for 72 hours. Of course, anyone for whom that is successful would then need to change their habits. I'm not saying that would work for everyone with T2D, but why the hell wouldn't you try it? A slower path to the same outcome can be just cutting carb consumption significantly. Again, won't work for everyone but why the hell wouldn't you try? Lifting weights and skipping breakfast will give you more bang for your low carb buck. The body is very forgiving and it doesn't take long, you just need to do it.

Don't rely on politicians or anyone else to come up with the solution.    

Diversification Doesn't Always Feel Good

Cullen Roche rhetorically asked if 60/40 is finally dead. He was of course referring to the standard allocation of 60% into equities and 40% into bonds. He notes that bonds haven't really come through this year to offer ballast to the equity market declines. 

I've been writing about the flaws, as I see them, with 60/40 for many years. Yields have been low and going lower for many years until recently. The ten year US Treasury is currently in the neighborhood of a 2% yield which is higher than it's been for awhile but I would argue that even 3% for ten years is not very attractive. Of course if/as yields go up, the price of bonds and bond funds will go down. That is the risk when you buy fixed income at a high price (low yield). With a bond you will eventually get your money back, save for a default, but with bond funds there is no par value for the fund to return to. 

The relatively low yields more than 15 years ago pushed me to learn about alternatives, back then there's wasn't really a term for them so I called them diversifiers, that would help manage the volatility of a normal equity portfolio. Back then it was pretty much just gold, inverse index funds and a managed futures mutual fund. All three do a great job, IMO, of maintaining their low to negative correlation to equities so they do tend to go up when equities go down but they also go down when equities go up and equities go up the vast majority of the time. I don't want a portfolio of alternatives that are hedged by a little equity exposure. Equities go up most of the time, so I want to maintain an equity portfolio and am reasonably confident that the alternatives I use will do what they're supposed to in terms of hedging, more often than not. 

The chart shows most of the alternatives I use personally and for clients. I have been writing about all them for many years. BLNDX as possibly the newest addition is one I've used and written about for two years already. They are all up by varying amounts which helps. Early-ish last year I added a metals and mining ETF which has benefitted from the surge in reported price inflation. Of course we still have exposure to tech and discretionary and those are both struggling, doing worse than the S&P 500. 

It is crucial to understand that those things on the chart would probably all be underperforming the stock market if we were having another up year. BLNDX has at times kept up with equities and there was a stretch a couple of years ago or so where BTAL also kept up but that is not the expectation for either one. 

A good way to think about diversification is to ask yourself, if everything you own goes up together in a bull market, what is likely to happen when there is a bear market? They're likely to all go down together. You've diversified issuer risk but not market risk. My objective, as I have always articulated it, is to try to avoid the full brunt of large declines not to miss those large declines entirely. 

For now, the S&P 500 isn't really down a lot, it's only down a little. I am concerned that this could turn into down a lot so this morning I added to clients' existing position in SH increasing our hedge. The catalyst was not the death cross that looks like happened today but that the 200 day moving average is about to turn lower any day...maybe that happened today too. I took all previous action in regards to hedging with diversifiers long before the SPX breached its 200 DMA because certain risks seemed very high to me, risks having nothing to do with Russia invading Ukraine, that was not on my dance card early. 

One behavioral issue with these types of funds is that on the way up, you own too much and on the way down you don't own enough. On thing though is that if equities really puke down, I think at least a couple of the above mentioned funds could go up a lot. At some point, hedges need to come off, you don't need to protect against a large decline after a large decline, and those proceeds can either buy back in or be used to meet client income needs. If the market rockets higher starting tomorrow, then yes we will lag a little but not miss it--see own too much up above.  

The Value Of Being Financially Resilient

In an article about retirement withdrawal strategies, Richard Connor looked at a variation I'd never seen before where the idea is to mirror the IRS tables for Required Minimum Distributions (RMDs). The most common approach to retirement withdrawals, more like the most common philosophy, is the 4% rule which says in your first year of retirement you take 4% and then adjust up every year by the rate to inflation so if inflation runs at 3% you'd take 4.12% the second year and then reevaluate every year thereafter. 

It's difficult for me to believe too many people pull out the CPI number and then adjust their withdrawal up by that amount. If you know anyone who does that please let me know. What is more realistic is people who take a regular distribution start with some fixed number that's somewhat close to 4%...maybe...stick with that as long as is practical and then at some point that dollar amount will change based on client need and chances are that number will go up, not down.

What I've written about as building block is whatever you got, 4%. That's a slight tweak on the 4% rule that throws out the inflation math because as the portfolio goes up, as it inflates, it will hopefully keep up with inflation. The more practical application would be 1% of your balance every three months. 

The RMD strategy that Connor wrote about might be thought of as a middle ground between those three ideas. The way this works is you look at an RMD table, look at your age and divide your portfolio by the factor associated with your age. The amount you take goes up every year as your life expectancy decreases. With a $500,000 portfolio, at 72 you'd take $18,248 ($500k/27.4) and with the same amount at 92 years old you'd take $49,019 ($500k/10.2). At 114 years old, you'd take half of what is left. 

You have to take the RMD if you have a traditional/rollover IRA. You don't have to spend the money, you just need to make the withdrawal from the IRA so the government can collect taxes from you. 

Scaling up your total portfolio income up in line with the RMD table makes sense math-wise. If you make it close to 90 and have been able to stay on plan with your withdrawals with no plan-altering large expenses then you can get away with taking more out.

I do question how practical this is though from one standpoint which is that retirees tend to spend more money early on in retirement, then spend less as they get older and then spend a lot more when they are considerably older and most likely to need some sort of long term care. If I am reading this link correctly, 37% of us will need some sort of care from checking into a facility. A long time ago, there was a rule of thumb that long term care facilities were designed to take your last $200,000. With inflation, maybe that's now $300,000.

Quick detour: no one wants to end up in a facility. Our best chance for avoiding that outcome is to lift weights to avoid becoming physically frail and to greatly reduce carbohydrate consumption to avoid getting sick. Carb consumption has been studied in conjunction with every malady there is. You should draw your own conclusion but I've said many times before that I am living my life in belief that sugar, not anything else (other than cigarettes and drugs), are at the root of all medical conditions. Don't take my word for it but there is endless research for you to find and learn from to draw your own conclusion. 

Tying in a rule of thumb I made up, being 85, healthy and out of money is a tough spot to be in. Money is optionality. In the phase of life we're talking about that optionality can protect against the unexpected. You could be otherwise fit and healthy but have something medical come up that for whatever reason is expensive out of pocket. It will become increasingly common that 70 year olds will have to care for their 100 year old parents. You may want to move closer to someone (family) or something (National Park or hobby center) which ends up being expensive to do. Maybe you want to invest in a grandchild's startup which might be more of an act of love than a true money maker.

These sort of life events are why I write about optionality so frequently. You never know what you'll want to do in the future or what you'll have to do. While things like the 4% rule and the other variations are handy, my wife and I hope to be as independent from our portfolio as possible if/when we "retire." Things like post retirement gigs monetizing hobbies or some sort of passive income if you're lucky enough to create that sort of stream or finding work you don't want to retire from all serve to reduce the burden off of your portfolio which gives you more optionality later. 

A scenario of retiring healthy at 65 to do some sort of fun work that covers your expenses without needing to take from your portfolio or take Social Security is a great spot to be in. Especially if you love the endeavor and stay healthy enough to do it for awhile.

Just a couple of good decisions/habits early on can get you to that outcome. I of course concede that plenty of people do not want that outcome because it probably means dying with a lot of money in the bank. You've shorted yourself somehow, the thinking goes by dying with a lot of money. There's value in enjoying your money but there is also value in knowing you're financially resilient. I would encourage knowing the difference so you can choose what's best for you. 

Cultivating Your Side Hustle

An article in The Wall Street Journal cited a study from Zapier done in December 2020 that showed 1 in 3 people had a side hustle. Hat tip to Michael Batnick who called BS on the data, I jokingly replied to his Tweet that Zapier surveyed Uber drivers. 

Who knows how many people have a side hustle but I think just about all of us should be investing time to cultivate some sort of hustle as a back up plan in case how things are expected to go don't work out for some reason, some completely unpredictable reason. 

You have 30 years in at a company that cannot fail but does anyway and you're 58. You probably should have a backup. You're forced to get a vaccine by your employer (stale example now maybe but a big deal for some folks who did leave their work over this), you should probably have a backup. You work in some sort of highly specialized technology field and the tech goes through some sort of monumental change that is for you unlearnable (maybe not realistic, I don't know), you should probably have a backup. And 100 other scenarios, you should probably have a backup. 

I talk about this all the time because I think it's important. The term side hustle came to be long after I started writing about monetizing hobbies and although not quite the same thing they are related. If someone needs a second job then yeah they should seek something out and hopefully it is enjoyable. My primary context is more about cultivating a post-retirement gig in hopes of relieving the burden off your portfolio for a few years. If you've put in the work early on and then your hand gets forced like in one of the scenarios above then you're all the more resilient if you can get paid for a hobby and maybe even make it completely sustainable versus your monthly expenses. 

My backup of course involves the fire department. I literally cannot envision the scenario where I lose interest in the stock market and want to move on and being self employed should mean I determine my own fate but just because we can't envision something doesn't make it impossible. 

I have 19 years in with the fire department and hope to stick with it until I am very old. In all that time I've made essentially no money, a couple of hundred bucks ages ago, but the path monetizing it if I need to by working on large fires off district has been laid out for years and the department has taken steps in this direction lately so this is something I could just start doing. The way I maintain the opportunity is staying current with my EMT certificate and still being able to pass the pack test (three mile hike, wearing 45 pounds in 45 minutes or less). I have training for a couple of other things too that I could pursue. 

Crucial point of understanding is how much I love everything I do that is fire department related, I've loved it the whole 19 years and haven't cared about getting paid. That love for it, I believe contributes to some of the opportunity I have beyond being an EMT. 

If you love doing something as much I as love the fire department your odds of getting "lucky" with your unexpectedly needed backup plan go way up. I also think life is much better when you have an outside or extra curricular endeavor that you can give a lot of energy to. 

Correlations & The Long Game

Let's talk about gold. I've owned gold through the SPDR Gold Trust (GLD) for clients and personally since the 2nd or 3rd day that the fund started trading back in 2004. I've been saying the same things about exposure to gold since then which is 1) gold has the historical tendency to not look like the stock market, in times of equity market turmoil it tends to go up, not always, it's a tendency, enough of a tendency that I stick with it. And 2) if gold is the best performer you have, chances are things aren't going so well in the world.

Gold is not the best performer but the chart from Yahoo shows it up for the year just under 10%. 

I regularly see content and Tweets mocking gold because it has done so badly for the last however many years although for the last five years, Yahoo shows it up 56%. That's far behind the S&P 500 but it's not like it's down either. And if you look at a chart of any longish timeframe, you'll see exactly what I said. It tends to not look like the stock market more often than not. If the S&P 500 goes up 50 or 75% for the rest of the decade, I would expect gold to lag that by a lot but during the (hopefully) short windows of market panic I think gold will do what it usually does, that it tends to go up when markets go down. Not always but IMO more often than not. Diversifying with a little gold helps smooth out the ride during market events like this. 

Inflation is perking up of course. As a matter of maintaining a diversified portfolio, do you maintain any exposure to sectors or industries that tend to do well in an inflationary environment? If so, they are probably also up year to date. Holding on to a defense contracting company for the long term makes sense along the lines of gold for some types of crises like the current one also tends to be a good idea. Defense contractors tend to be procyclical so they should lag far less frequently than gold does.

The types of  hedges, liquid alternatives, that I write about so often which do lag when equities are doing well have also generally done what they're supposed to during this event, go up some or go down less. 

At some point the Ukraine situation will end, stocks will have stopped going down and start going back up. I have no idea when that will happen but it will and when that time comes all of these hedges and alts and inverse funds and the rest will probably go back to underperforming and that's ok. Over the long term, equities are the best performing asset class. Alts and hedges are meant to compliment an equity portfolio to smooth out the ride. For the long term, you don't want a portfolio of alternatives, hedged with a little bit of equity exposure unless you're in game over mode. 

If you don't want to be in the business of guessing when the next crisis will come, I certainly don't, then you might want to consider simply maintaining a position for the long term....for a little context I've held GLD for more than 17 years! I think that reasonably meets the definition of long game. 

The Only Definition Of Wealth...

JP Morgan is running an add where the tag line is "the only definition of wealth that matters is yours." The commercial then goes on to include different ideas like retiring early, or trading off a smaller house for a larger nest egg and other monetary ideas. 

Of course having some number in the bank you believe to be sufficient does meet a definition of wealth but I think the commercial misses the most important aspects of wealth. Once you get past the point of being able to pay for your shelter, to fill your refrigerator and other basic needs I would argue that just as important as monetary goals for wealth are health, time and optionality. They might be more important than monetary goals.

Whatever it is you want to do will be better if you (still) have your health. If all you want to do is be there for your grandkids, cool but no grandparent wants said of them "oh no, Grandpa can't do that anymore." For that person, wealth is being all in for time with grandchildren. If your hand is forced in retirement by having to work at a job you'd generally prefer not having to do, it will be easier if you're healthier and here I probably mean that you don't have the aches and pains that someone that age could otherwise have. And no matter what anyone wants to do or has to do, they certainly don't want to spend more than half a day a year in the doctor's office getting checked out. 

Time is another form of wealth. Setting your own schedule while you're still working is very empowering. Not punching a clock or answering to some sort of boss are also very empowering. When you set your own schedule it might make you less likely to want to retire. If someone spends years dreading some aspect of being an employee somewhere, even if the only thing they dread is their commute, then they are probably going to want to retire sooner than later. It's not that I am against retiring but sticking with work that you love does all sorts of things to promote successful aging in terms of social engagement, being challenged and having a sense of purpose. It also gives more room for error financially. 

I write about optionality all the time, it is a very important form of wealth. Optionality is something that most of us need to cultivate over a long period of time, I feel that way about myself anyway. I've played a very long game with the fire department and believe I have optionality to pursue some of the financial opportunities I've written about in the past. I don't think I will ever pursue them but they are there for me, it is optionality and it is empowering. I want to underscore that this has been a very long game for me. When I talk about monetizing a hobby I always say to figure out how to do it, if it can even be monetized long before you need to start to monetize it. 

The path here, if you've been an adult for a couple of decades is simple even if it is not easy. Live below your means (you'll save more), take care of yourself (cut carbs and lift weights) and stay curious enough to learn new things or get involved with new things. You never know where future optionality can come from. I've said all that before so I will add to that list to always do more than is expected, more than the minimum. I figured this out in college and that mind set has always led to experiences I would have never otherwise had or financial opportunities that although never led to millions, did help me build up a bigger cushion.

For younger readers, 45 or 50 or 60 or any age can be young allowing you to do all sorts of things you want to do or need to do. It comes down to a few good decisions early on and then sticking with those decisions to maintain your health, owning your time and your optionality.