Warren Buffett's advice for his wife

racing_blue

But is economic growth guaranteed in perpetuity? What if for unforeseen reasons, there is a multi-decade contraction in global productivity. How would this affect the private long term investor saving for a pension?

I don't know. This is why I would be attracted by an ETF which offered weighted exposure to every sort of investible asset. There would be no need to think ever again & I could get on with playing Perudo with my harem.

I'd say Warren Buffet is making a number of big calls by recommending 90% S&P500 to his heirs. Clearly he has been rather successful making big calls though. That's where my fudgy hedge comes in. 50% global investible asset ETF, 50% Berkshire Hathaway. How's that for a portfolio!?

Linton

racing_blue wrote: »

But is economic growth guaranteed in perpetuity? What if for unforeseen reasons, there is a multi-decade contraction in global productivity. How would this affect the private long term investor saving for a pension?

I don't know. This is why I would be attracted by an ETF which offered weighted exposure to every sort of investible asset. There would be no need to think ever again & I could get on with playing Perudo with my harem.

I'd say Warren Buffet is making a number of big calls by recommending 90% S&P500 to his heirs. Clearly he has been rather successful making big calls though. That's where my fudgy hedge comes in. 50% global investible asset ETF, 50% Berkshire Hathaway. How's that for a portfolio!?

Economic growth isnt guaranteed but it has happened for the last 300 years or so since shares were invented. I doubt whether the world as we know it could survive a multi-decade downturn so I suspect that were it to happen the health of your pension would not be one of your major problems, you would have plenty of other things to worry about.

I suggest that you dont put more than 50% of your assets into the US, and even that in my view is too high. Europe and the Far East are worth a significant %. Diversification is key.

racing_blue

Linton wrote: »

I suggest that you dont put more than 50% of your assets into the US, and even that in my view is too high. Europe and the Far East are worth a significant %.

Amen.

But Warren says 90%.

And not just in the USA, but in common stocks of the USA's 500 biggest companies.

Unfortunately, between you, me and Warren Buffet there are no more than 2 billionaire investors. Probably only 1. Which makes me feel kind of edgy rejecting his advice!

But I have rejected it, because like you I think:

Linton wrote: »

Diversification is key.

And, what could be more diversified than basket of investments representing the whole horizon. Stocks, debt instruments, commodities, real estate, fancy derivatives, and so on. That's what I'd like for Christmas.

dunstonh

But Warren says 90%.

And not just in the USA, but in common stocks of the USA's 500 biggest companies.

But that is because he talking to the US market which is notoriously inward looking. They draw a map of the USA and around it, in the waters, they write here there be dragons.

The rest of the world is more global in its approach.

DominicH

dunstonh wrote: »

But that is because he talking to the US market which is notoriously inward looking. They draw a map of the USA and around it, in the waters, they write here there be dragons.

The rest of the world is more global in its approach.

According to this Vanguard report (PDF), investors in other countries including the UK are more home-biased than US investors.

masonic

DominicH wrote: »

According to this Vanguard report (PDF), investors in other countries including the UK are more home-biased than US investors.

Isn't that just because the US market is so much bigger? The UK makes up less than 10% of the global market, whereas the US makes up about 60%. A UK investor with a 20% allocation to the UK therefore has more home bias proportionally than a US investor with a 100% allocation to the US.

Malthusian

DominicH wrote:

According to this Vanguard report (PDF), investors in other countries including the UK are more home-biased than US investors.

I haven't read the report in full, but most UK investors will be predominantly invested in the FTSE 100, and the FTSE 100 is so multinational in nature that a UK investor who invests in it cannot really be said to be home-biased.

racing_blue wrote:

But is economic growth guaranteed in perpetuity? What if for unforeseen reasons, there is a multi-decade contraction in global productivity. How would this affect the private long term investor saving for a pension?

You would be screwed, but you would be screwed whatever you did. There would be a Weimar-style bout of hyperinflation which would destroy cash savings, so that would be no good.

If you'd hoarded gold bars you might do well if you managed to hide them until the end of it, but only if you were able to wait out the crisis. During the crisis one gold bar would buy a day's worth of food or a pair of boots.

A multi-decade contraction in productivity would result in mass starvation. When the apocalypse eventually ended, there would be an economic boom similar to that following WW2 as the world rebuilt. If you survived and still had your health and wits, it shouldn't be difficult to make a modest fortune or even a big one, even if you had to start from scratch. So that's how you get your pension. If you're too old to ride out the multi-decade apocalypse then you will be dependant on the charity of others.

Linton

Malthusian wrote: »

I haven't read the report in full, but most UK investors will be predominantly invested in the FTSE 100, and the FTSE 100 is so multinational in nature that a UK investor who invests in it cannot really be said to be home-biased.
..

Unfortunately the FTSE100s multinational nature is significantly into EM metal mining, oil and multinational banks and insurance companies rather than sectors like consumer electronics, IT or modern manufacturing. Its not overwhelmingly home based but its not a good proxy for a balanced global portfolio either. If you want a Mexican silver miner (Fresnillo) try the FTSE100, but dont look there for a video game or TV manufacturer, a vehicle manufacturer or an internet giant.

planteria

very good point Linton. there are some quality global players in the FTSE100, but it is certainly not covering all of the big World sectors.

Malthusian

Linton: I wasn't saying that the FTSE 100 is a balanced index, just that it isn't really a UK-only index.