The most sustainable portfolio that anyone can make
Harry Brown, an experienced financial consultant and author of many books, presented the concept of a sustainable portfolio, which includes an even distribution of funds between different asset classes. This strategy is designed to reduce fluctuations and ensure the stability of investments for investors.
The idea is that the investor places the same percentage of his funds in stocks, bonds, real estate and other assets. This approach assumes that with fluctuations in one sector, profitability in another sector can compensate for losses. This gives the investor a "reinforced concrete" peace of mind and a level of diversification, which can help reduce risks.
However, despite the logic of this strategy, it may not be very popular among investors, as many of them prefer more complex and aggressive approaches to investing. Each investor has his own goals and level of risk, and the choice of a portfolio depends on his personal preferences and strategy.
"To save money for the rest of your life, form a simple balanced diversified portfolio. I call it permanent, because once created, it doesn't require any recomposing, even if your ideas about the future change. This portfolio should ensure the safety of your condition under any circumstances, including the complete destruction of any single element of the portfolio… Making a portfolio so secure is not at all difficult and not difficult. You can achieve very good diversification in a surprisingly simple portfolio."
The structure of this portfolio is extremely simple and concise:
? 25% of the shares;
? 25% bonds;
? 25% real estate;
? 25% gold.
Interestingly, for dividend investors, it turns out that the strategy of building a portfolio changes over time. Initially, the task may be the accumulation of capital, but over time it evolves into the preservation and protection of this capital. Such an evolving portfolio, which focuses on stability and risk minimization, may not always outperform portfolios fully invested in stocks or distributed in a 60/40 ratio (60% of stocks, 40% of bonds).
Therefore, the author advises investors not to pay too much attention to comparisons of their portfolio with indices and not to participate in "competitions". The main goal of the investor is to preserve the purchasing power of his money on a long-term horizon, overcome inflation and, preferably, grow. This can be done by avoiding extreme volatility, which can threaten long-term investments.
The main risk in investing in a portfolio consisting entirely of stocks is the possibility of "getting into" a serious market crisis that can destroy long-term investments. This is confirmed by the experience of crises such as 1998, 2008 and 2022, as well as other crises and prolonged periods of market stagnation.
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