The Wiseguy Portfolio

Since I've decided to allocate the majority of my future savings into ETFs, I needed to craft an asset allocation that will:

• Grow enough to meet my future needs.
• Have gentler drawdowns than the overall U.S. stock market.
• Avoid lost decades.
• Avoid bubbles that take down the entire portfolio.
• Allow me to remain sane as the markets bounce around and as different asset classes do better than others.
• Beating the S&P 500 is not the goal, though it wouldn't be unwelcome either.

I've settled on an arrangement I'm calling the Wiseguy Portfolio.

There are two versions. The first is a more aggressive allocation with 75% stocks and 25% protective assets:

• 25% Small Cap Value
• 25% Ex-US Small Cap Value
• 25% U.S. Large Cap Growth
• 20% Long Term U.S. Bonds
• 5% Gold

The less aggressive version is a 60% stocks to 40% protective mix:

• 20% Small Cap Value
• 20% Ex-US Small Cap Value
• 20% U.S. Large Cap Growth
• 30% Long Term U.S. Bonds
• 10% Gold

The Wiseguy name is a crack at myself for trying to out think my emotions. I'm both trying to have strong exposure to factors that the evidence suggests will work over time (small, value, international), while also second guessing that because of my inevitable sense of FOMO around missing out on things like American growth stocks and the occasional big gold move.

U.S. Small Cap Value

Image: the absolute dominance of small cap value since 1972.

There are several reason to include a small cap value tilt in a portfolio:

• Both value and size are factors that tend to lead towards outperformance over time.
• By its very nature, it's unlikely to enter a bubble. If some companies grow more quickly than their fundamentals, by definition, they will leave the small cap factor, the value factor, or both.
• Even when it's not outperforming, its performance is likely to be good enough for my goals.

The downsides are:

• Drawdowns can be nasty. For example, the March 2020 drawdown for the overall U.S. market was 20%, but for small cap value it was 35%.
• There's no guarantee that small cap value outperforms ever again.

However, the bet is asymmetrical: if small cap value doesn't outperform, the likely worst that happens is that it performs well enough for my needs, likely in line with the market over time. The inverse is not automatically true.

ETFs: AVUV, DFSV, VBR

Ex-US Small Cap Value

Everything written above about U.S. SCV applies to ex-U.S. SCV as well, with the added wrinkle that it's not U.S. companies. Depending on your point of view, that's a good thing or a bad thing. Let's take a look at some factors to consider:

• First, like the United States, small caps outside the U.S. tend to outperform the total ex-US combined stock markets.
• Ex-US value tends to outperform the broader ex-US market as well.

Image: a comparison of $10,000 invested in ex-US stocks (blue), ex-US small cap (red), and ex-US value (yellow)

• The world stock market without the U.S. stock market has been under performing for years now.
• In the past it has outperformed.
• It is unlikely that the United States stock market will outperform in perpetuity.

Image found here from Reddit user /u/misnamed

• Some exposure to ex-US stocks, therefore, is a logical bet to make, and within that broader category, small cap value is probably the best place to focus.

Even with this 25% allocation, the Wiseguy Portfolio is heavily U.S. weighted. But if the rest of the world ever does outperform the United States, this portfolio will capture some of that performance.

I'll also add: the dividends from companies outside of the U.S. are often very good. They come in fits and bursts, and it's rough for your taxes, but you can get large cash flows in some years.

Image: shows the dividends from a portfolio with a $500 monthly dollar cost average into Dimensional's international small cap value fund in blue vs the Vanguard S&P 500 fund in red.

ETFs: AVDV, DISVX, VSS (no value aspect)

U.S. Large Cap Growth

Similar to the Weird Portfolio, I was considering sticking with small cap value for my stock allocation. If small-cap value works as it has in the past, it can carry a portfolio, even when adding in heavy allocations to safe assets like bonds.

However, that just didn't feel right to me. Since one of my goals with this portfolio is to avoid feeling FOMO - which I hope will help me hold on in difficult times - having zero exposure to the most high profile stocks feels intellectually possible but practically impossible. In periods where the market does well and beats everything else, I want to at least feel like I'm part of it. Otherwise, I might just give up and buy the S&P 500.

The risk with growth is bubble risk. Investors extrapolate good news to infinity, and no price becomes too high. These bubbles can take years to work out (see Japan and the dot-com bubble). Many argue that we're currently in a bubble, and the poster child for this fear is the growth stocks, many of which have plunged in value over the past year after having exploded higher in price and valuation over the prior year.

That said, there's value to these bubbles if you can rebalance out of them. As the bubble forms, it provides an area of relative outperformance within a portfolio, which can then be rebalanced. When the weaker parts of the portfolio eventually outperform, they are in a good position to take over as the previous winning assets starts to decline.

With both growth and value, there's a timing risk inherent in buying one strategy at any given time. Growth sometimes does better, and sometimes value does better. If you get it wrong, you're going to be looking at major underperformance that may be difficult to recover from. Therefore, mixing the two with a strong tilt towards value strikes me as a compromise. I don't know if we're entering a period of value or growth outperforming, so I'm hedging my bets here.

An obvious question is why not just buy the S&P 500 for this asset? I originally looked at this, but after tinkering, it became clear that it wasn't different enough when compared to a pure growth fund. The S&P 500 is loaded with growth stocks to be sure, and it definitely goes along for the ride on bubble misadventures. But it also has value stocks as well as stocks that aren't really one or the other. Since I'm trying to capture a rebalancing premium, I wanted the factors to be as different as possible. Using large cap growth as opposed to overall U.S. large cap (which is what the S&P500 is basically) was a purer way to capture this difference.

ETFs: VUG, QQQ

Long Term Bonds

Image: a comparison of a 100% stocks portfolio to a 60/40 and 40/60 portfolio. Notice how bonds smooth the ride, and stocks alone have trouble outperforming forever.

I view long-term bonds as serving three goals:

• One, they usually reduce the severity of drawdowns.
• Two, they provide interest income.
• Three, they provide an asset to rebalance into in times of strong stock growth and as a source of funds to rebalance out of during stock drawdowns.

Bonds are not the primary return vehicle in the portfolio, but because they often zig when other parts of the portfolio are zagging, they serve a useful purpose.

The arguments against holding bonds are compelling if not entirely convincing:

• Interest rates are at all time lows. Therefore, the return from bonds will be paltry.
• In 2022, bonds have dropped alongside stocks. Where is the drawdown protection in that?

Both those things are true, but I allay my fears with a few reminders. Yes, interest rates are low, but we have no idea what the future will bring. They might continue to go lower over the long term. Should they rise substantially, the limited 15% position should be protective. Since I'm a net saver over time, future purchases at higher yields are advantageous.

Second, bonds have dropped alongside stocks, but a total bond portfolio (such as ETF:BND) has dropped less. Long term bonds, admittedly, have underperformed the S&P 500 this year, but this is also an outlier drawdown year for bonds. I'm not making this portfolio for 2022 alone. It's supposed to do well enough over various regimes without impacting growth too much. There will come a day when bonds counteract stock drops as they have in the past.

Why long-term bonds (a mixture of corporate and treasuries) rather than just long-term treasuries? In my backtests, a mixture does well. Sometimes a mixture beats treasuries alone and sometimes not. Part of this is my increasing distrust of the U.S. federal government. Despite that, long-term treasuries alone will likely serve just as well.

And why long-term bonds rather than total bonds? Right now, I view my time horizon as long-term. Long term bonds tend to outperform total bonds over the long-term with greater volatility. Big surprise. It may be that as I get older, allocating a larger portion to short-term bonds or a total bond market will make more sense. But today is not that day.

ETFs: BLV, TLT, VGLT

Gold

Image: compares a 100% gold position (blue line) to 100% U.S. stocks (red line) and a 50/50 mix of the two since 1972 (yellow line). Notice the lower drawdowns and more steady rise of the mixed portfolio.

The 5% allocation to gold is a "What if?" allocation. When looking at a performance chart of gold compared to stocks, gold tends to have idiosyncratic performance that makes it an ideal rebalancing vehicle. It can outperform during periods of great financial distress and in inflationary periods. To have no gold at all risks missing out on this performance when the rest of the portfolio may be experiencing extended drawdowns. Since the Wiseguy Portfolio has "keep me sane" as a prerogative, I would hate to leave it out entirely.

That said, I won't ever hold an outsized proportion of my net worth in gold. It is an unproductive asset that requires basic supply and demand dynamics to work in the holder's favor. It will send me no dividends, and gold has no management that is trying to improve it. It is an element that has certain inherent qualities that we humans believe have value. That's why I'm limiting it to 5% in the riskier portfolio and 10% in the more risk-averse portfolio. I personally can't bring myself to approach the heavy allocations to gold that the Permanent Portfolio and the Weird Portfolio have.

ETFs: SGOL, GLD

Performance Characteristics

(Image: a backtest since 1995 using the most approximate funds that I can. In this scenario, the riskier version (red line) has returned 9.99% annually while the risk-averse version (blue line) has returned 9.56% annually. The risk-averse version's max drawdown however was limited to -33.65% while the riskier was down 41.17% in 2008-9. Both had lower drawdowns than the S&P 500's 50.97% and higher than a 60/40 portfolio's -15.06%. The safe withdrawal rate of this backtest is 9.7% and the perpetual withdrawal rate is 6.97%.)

It's hard to get a precise long-term view of how the portfolio will do. Each element will behave differently depending on the environment. In the 90's, the bonds and growth stocks would have done very well, while the international ex-U.S. stocks would have muted growth. In the 2000's, small-cap value, ex-US, and gold would have crushed growth. The 70's were like the latter, and the 80's were a mix, since ex-U.S. stocks were strong then.

Since 2009, the Wiseguy Portfolio has underperformed the S&P 500. So has practically everything else except for some individual stocks or pure growth strategies. That's just the kind of environment it's been, and after you stare at these charts long enough, it becomes clear that environments change. Some day, U.S. stocks and growth stocks won't be the dominant force they've been since the Great Recession, and I believe the Wiseguy Portfolio will do well in those environments while not doing horribly in strong growth environments.

With that, I hope the Wiseguy Portfolio and this article have at least whetted your appetite to consider your options more broadly. Wish me luck, and I wish you luck on your progress.

VTSAX and No Chill

As I've been debating my ETF allocation, a regular suggestion has been to buy the Vanguard Total Stock Market Index Fund (VTSAX or ETF:VTI) - which holds all the publicly traded stocks of the United States - and buy nothing else.

Aka, VTSAX and chill.

To be sure, this is easy to implement, and it would be exceedingly tax efficient. Buying one fund and never selling is the height of simplicity. And since you're never rebalancing, you don't have to worry about tax costs eating into your gains over time (aside from pesky dividend taxes). Those are real benefits that I'd be stupid to dismiss.

It's also been difficult to beat. The U.S. stock market has been on an amazing run, and while I've been running backtests of different asset allocation strategies, it's been very hard to find strategies that outperform the market cap-weighted U.S. market. Especially in the years since the Great Recession, buying any asset other than the U.S. market has been an exercise in frustration. You have likely underperformed year after year after year. Value has been crushed. Ex-US stocks have gone mostly nowhere. Small caps have had mediocre returns.

Modern FIRE

During this period, the modern FIRE movement got its legs. Obviously, it existed before this great bull run, since the term comes from 1992‘s Your Money or Your Life. However, I believe this modern version with the blogs and internet forums has been aided by this incredible period of somewhat easy returns. Both Mr. Money Mustache and J. L. Collins began blogging in 2011, which was an amazing time to be buying U.S. stocks.

Both recommend VTSAX/VTI as the singular vehicle for investment. As the blue line in the above image shows, they've been 100% correct. Anyone who recommended anything else has been wrong.

But what about now?

Valuation

First, in the early part of the long bull market (interrupted occasionally by short and intense drawdowns), the U.S. stock market was fairly inexpensive.

For one, the S&P 500 had fallen to below its 200 month moving average. I repeat: below its 200 MONTH moving average. This had only happened before after the second crash of the 1970's and (if you extrapolate backwards) in the years following the Great Depression, both of which were incredible times to be loading up on stocks.

Secondly, in 2009-2011, it was possible to buy the U.S. market for CAPE ratios between 15 and 20. Today, however, it's near its second highest ever level:

An easy rebuttal: using the CAPE ratio for the past few years has been dumb. It's been warning for years that the market was expensive, but buying the U.S. market has been the winning trade. Admittedly, that's a fair critique. CAPE is an awful timing tool.

However, for anyone with a "buy and hold" mindset, stocks are long duration assets. That means that we stock investors shouldn't be focused on short term results. And focusing on a few years of outperformance is focusing on short term results. We need to look over time.

Over Time

In that vein, here's a chart that shocked me:

This is a comparison of three portfolios' performance since 1972 with a starting balance of $10,000. Dividends are reinvested, and the portfolios are rebalanced quarterly. The yellow line is U.S. Stocks, blue is a 60/40 portfolio (60% U.S. stocks, 40% 10-year Treasuries), and red is a 40/60 portfolio.

What do you notice?

For one, up to the end of April 2022, U.S. stocks have outperformed the more balanced stock/bond portfolios. Since 1972, U.S. stocks have returned 10.52% annually. 60/40 has returned 9.49%, which is clear underperformance. And when I see comparisons of the 60/40 portfolio to a pure stock portfolio, that's the framing I usually see.

However, that might not be the best framing. If you look at the box over the chart, that's the performance at the bottom of the 2008/09 crash. Notice that at that bottom, the pure stock portfolio had worse performance than the more balanced portfolios. That's 37 years of holding on to a volatile asset class only to be beaten by a much more conservative mix of stocks and bonds.

This makes it clear that we have to question our assumptions about the relative outperformance of one asset class vs. another. If you read my Update posts, you should know that I value my net worth at the end of the month, and I subtract out my freshly received salary. To me, I'm measuring what I've accumulated after all expenses are paid. It doesn't make sense to inflate my net worth if I'm about to spend it down.

I'm starting the view the stock market the same way. There's clearly some kind of cycle that happens over time, and measuring outperformance based on the results in the middle or peak of a cycle leads to lofty expectations. Yes, as of right now, U.S. market cap-weighted stocks are trouncing everything else. But that has been true in the past as well, and it didn't automatically mean that it continued into the future.

Will a pure U.S. stock portfolio's returns fall below a 60/40 mix after two decades ever again? I have no idea. Going back to the beginning of the 20th century, it appears that a pure stock portfolio does eventually pull away from that more diversified stock/bond portfolio. However, we don't know what time scale that requires. And we have to consider the specific events in the early 20th century that might have influenced that result, which we might not be so glad to repeat.

Market Cap Weighting Downsides

Part of the inescapable issue with VTSAX and all such indexes is the market cap weighting. The most valuable companies get the most dollars allocated to them. However, since market caps are driven by more than the business results, this can mean money allocated to the wrong companies at the wrong time. Looking at the largest S&P 500 holdings over time makes this clear: they were darlings for a time, and then they weren't.

Yes, yes, the indexes are eventually self-cleaning, and those companies will eventually become smaller and will get efficiently de-emphasized. Valuations eventually get sorted.

Without a second asset class, though, you just have to wait for that to happen, and you have to live with the volatility and year or decade long reshuffling to correct these imbalances. An upside of even a simple stock bond mix is that you can sell off the stocks as they get too expensive to put into something else. This makes the overvaluation of the market a benefit since it can be sold to buy something else.

That leads to the so-called rebalancing premium, whereby two assets together can outperform either one individually. You can’t do that with one asset all by itself.

We're All Making Bets

If you're buying VTSAX and chilling, you're making a series of bets:

• You are betting that the U.S. stock market is more or less efficient.
• You are betting that the U.S. is the best place to invest.
• You are betting that large cap stocks are basically where the majority of your money should be.
• You are betting that the downsides of rebalancing (taxes and complication) are significant enough to warrant putting all your money into a single asset class rather than diversify.
• You are betting that other asset classes aren't worth bothering with.
• You are betting on positive returns coming from earnings growth that justifies the current valuation.

It's easy to wave this all away by using words like "passive" and "efficient" and "indexing", but you're kidding yourself. You're making a very aggressive bet on one asset class.

It's one I'm not comfortable with. It is possible that I'm wrong. But since the future is unknowable, we have to consider a variety of future scenarios. You pays your money, and you takes your chance.

That’s a long post to say: I won’t be putting all my money into VTSAX. It's too concentrated in one style for my taste.

If you are, then you'll probably be ok. Just realize that the returns you're hoping for won't be smooth, and there may be long long periods of no growth or sideways choppiness that will be no fun. You'll probably also have times where other markets do better, which will tempt you to bail on your strategy.

If you're cool with all that, then enjoy your very simple tax-efficient U.S. stock allocation.

Asset Allocation Conundrum

When I decided to focus on a diversified ETF strategy, I hoped asset allocation questions were settled science.

Nope. Not even close.

Accepting Lower Returns

One aspect of this that's a hard pill to swallow is that it will likely force me to accept lower returns. When I buy an individual stock, my hope is that it will appreciate by 15% a year for the foreseeable future. Naturally, volatility won't make that a smooth ride, but generally 15% is the goal.

Expecting a 15% CAGR when you're allocating to a basket of assets is foolish. After backtesting various portfolio types, it's probably wise to expect a 4-9% CAGR. Some years will be better, but due to overvaluation and volatility, sometimes there's no escaping bad returns. There might be an extended period of 0 return.

If I can get 15% on a stock but only 4-9% on ETFs, then why get the ETFs? Well, it's because the stocks aren't guaranteed to work. Additionally, they expose me much more to my own thinking errors, behavioral mistakes, and biases. Perhaps my analysis is simply wrong or under-baked. Basically, I need some money set aside into broad buckets that will perform well enough in case my stock picking doesn't work out.

That's where asset allocation comes in, and - even accepting lower returns going forward - it's tricky.

Why Not Just Do Something Lazy?

So what would be the, you know, "Ah, screw it" portfolio?

As a baseline, there's J.L. Collins 100% allocation to VTSAX (ETF: VTI). Lazy and easy, and you won't feel a lot of FOMO (fear of missing out) since it's the whole U.S. stock market. It's also very hard to beat:

But what if you want some "hold onto your butts" assets for the scary times? Something like the Bogleheads' 3 fund portfolio fits:

For sure, lazy has a lot going for it. It would be easier for me to manage, and should I get hit by a car, it will be easier for my wife to manage. There are some portfolio varieties that just have too many funds in too many strange percentages. If it requires a computer to manage, then it's probably not the best choice.

And the lazy portfolios don't perform strangely. If you spend years envying the S&P 500, how long can you reasonably hold out before you just buy the S&P 500?

That said, are there ways to achieve slightly better risk-adjusted returns without it becoming too complicated?

International

I should have been prepared for difficult questions since I've been an active listener of Meb Faber's podcast. He has idiosyncratic views about asset allocation. For example, he argues effectively that a global allocation is not only valuable but even dangerously underutilized in many modern portfolios.

To make a long story short, being concentrated in one country in a market-cap weighted portfolio leaves you open to major country risk as well as valuation risk. There will be periods of underperformance, and there's the risk of a total country disruption that leads to a total loss.

What's hard to get over, however, is that international additions to a pure 100% US market allocation have been a performance drag in recent memory. It's one thing to know that allocating all your assets to a single country (even the US) can be risky, and it's another to actually allocate money to underperforming geographies:

Adding international exposure looks like a leap of faith based on the following ideas:

• The US is likely overvalued relative to international markets, which may lead to sustained international outperformance during times when the U.S. is working through overvaluation.
• The existential risk of single country concentration is high enough that putting up with potential lower returns is worth the risk. Countries don't stay on top forever, and whole country's stock markets have gone to 0.
• Adding international adds even more diversification.

With those ideas in mind, I will probably add an international component.

Drawdown Protection Portfolios: 60/40, Weird, and Permanent

If I want lower drawdowns in a lazy way, there's not much lazier than the 60/40 or 40/60 portfolio:

One of the accounts I follow on Twitter is ValueStockGeek. While occasionally, he'll put out some information on a specific company he's interested in, the most surprising content he writes is about his Weird Portfolio. I encourage anyone interested in this stuff to read what he's written on it, but long story short it's:

• 20% US Small Cap Value
• 20% International Small Cap
• 20% Gold
• 20% REITs (divided between US and ex-US)
• 20% Long term treasuries

It's his variation on Harry Browne's Permanent Portfolio, and it's more aggressive than Browne's risk-averse allocation (25% US stocks, 25% Long Term Treasuries, 25% Gold, 25% cash).

Notice the slow and steady return of the blue line (the Permanent Portfolio) vs the more jagged yellow line (the S&P 500), with the red line (the Weird Portfolio) somewhere in the middle.

Both alternative portfolios are trying to consider inflationary and deflationary environments, and how those periods impact the various components. When both portfolios succeed, they leads to lower but steadier growth with much gentler drawdowns. The Sharpe ratios are considerably higher than a pure stock allocation. The Permanent Portfolio's returns are low but with much lower risk, while the Weird Portfolio has more acceptable total returns.

Backtests point to something like an 8-9% return for the Weird Portfolio. In the Great Recession, the drawdown was higher than the Permanent Portfolio's, but it was much lower than a 100% stock allocation. Combine that with a 9% return, and it feels like a revelation.

My concerns with it however are:

• Small cap value outperforming over time is necessary for the growth to be satisfactory. It hasn't out-performed during this last decade, though its longer term record is very good:

• The drawdown protection via gold and treasuries has to actually work.

Nevertheless, I find it compelling despite my concerns and will integrate some of this into my own approach.

Other Compelling Portfolios and Final Thoughts

Look around enough, and you'll see all sorts of smart portfolio constructions. Take a look at the Ginger Ale Portfolio for one idea. For my taste, it's too many ETFs, but to each their own. Or stroll through the Boglehead forums to read intelligent debates about portfolio construction.

Nothing is guaranteed, and we have to make best guesses about our own psychology and how best to navigate an unknowable future based on the available research and how assets have behaved in the past. Avoiding blunders is paramount.

The strongest takeaways for me are:

• U.S. Market exposure is basically good enough on its own. It prevents FOMO and will probably perform well. It has risks though.
• Some "hold onto your butts" assets make sense.
• A tilt towards small cap and value makes sense.
• Too many assets gets unwieldy.
• Some international exposure is likely worth it despite recent underperformance.

This only begins to scratch at the surface of asset allocation decisions that someone could obsess over. I think I have a basic plan, when I make a decision I'll write more.

Self-Assessment: Early Coronavirus Edition

Now that our situation has settled into our new reality, which I'll call "Semi-Self-Imposed Lockdown," I have some time to think through our position and evaluate what's going well, and what's not going so well.

What we did well leading up to this crisis

• We have an emergency fund. I don't think it's large enough, but I'll get into that with the critiques section.
• We have a stable income. My job is such that I am unlikely to be laid off during this crisis. My wife's work scales up and down, which makes it more vulnerable, but there's no point where she's "fired": work will simply start to come back over time. Because of her stability via my income, she may come out of this with an even stronger position.
• We have liquid investments that could be turned into cash if necessary. I really don't want to turn them into cash, but if it were absolutely necessary, we could probably survive a year off of our current investments.
• We always tended to buy large amounts of shelf-stable food. We still had to go to the grocery store a few times at the start, but we could have eaten our stores of stuff if we felt it wasn't worth the risk.
• We have a large amount of unused credit on American credit cards. If we had to, we could run up a giant credit card bill. It's wouldn't be ideal, but having credit is better than not having it.
• We live in a country with a social safety net and a willingness to help its residents.

Critiques

• Our emergency fund wasn't large enough. Currently, we could last a month to two months with our emergency fund. Despite my employment stability, it's not a 100% guarantee that I come out the other side of this with a job if the German economy collapses for years. Although I'm unlikely to lose my job, I am also unlikely to easily get a new job quickly if I lose this one.
• We don't own our own home outright. Renting has long seemed the wise course of action, but not having to make rent payments would go a long way towards easing my mind.
• We don't have enough over-the-counter drugs. We have aspirin and some anti-histamines, but we have no expectorants, NSAIDS other than aspirin, acetaminophen, not to mention rubbing alcohol. The German Apotheke system is great when you get a prescription, but it makes getting certain normal items more challenging than in the US.
• My investment portfolio is not diversified enough amongst asset classes. I should be holding some bonds, for example, and I'm not.
• I came into this with margin debt. Holding margin debt years into a long-run bull market is dumb. Full stop.
• I underestimated the risk of pandemic to my investment portfolio and to my life.
• We should have larger food stores. They sell giant bags of rice here, and we should probably always have at least one. Likewise lots of pasta. Likewise lots of soy milk (the cartons keep for a long time at room temperature). The risk isn't so much that we'd run out of food due to shortages, but instead it's risky going outside right now to stand in a supermarket line. Minimizing grocery store trips is important right now.

Some Action Steps

First, I need to separate out our savings into clearer buckets. I've been dumping everything into the Tagesgeldkonto (savings account), even though I'd mentally earmarked it for taxes or tax prep costs. One account should be strictly for the emergency money, and it should get steady contributions to it until it reaches the famed 6-months-of-expenses level. It's possible that FATCA will make this more difficult than it should be.

Second, we should be saving money to buy property. That needn't have a specific end date, but it's one of those things that gives us optionality should a compelling offer arise. Somewhere I read that Ramit Sethi saves some money to buy a house/apartment not because he definitely wants to buy one but because having the option is worth it.

Third, I need to go to the Apotheke and pick up some useful over-the-counter drugs. I could also order them online.

Fourth, I should build a 10% position in long-term bonds. I can buy individual bonds in Interactive Brokers no problem. The interest rates are garbage, but they provide stability and rebalancing potential in terrible stock market situations. And at the end, you get your money back.

Fifth, I shouldn't use margin.

Sixth, this blog post is my attempt to come to terms with pandemic risk.

Seventh, honestly it would be irresponsible to try and build up large amounts of food storage right now due to the general run on the grocery stores that's happening. But once the shopping situation improves, we should get on that.

Rethink Risk

Lastly, I need to reevaluate risk. I'm not going to do that by selling stocks right now. That moment has passed. But the way I was using my money was clearly riskier than I appreciated or wanted.

I have to find a new way to judge my risk tolerance and build a portfolio of assets that match it. At the same time, this crisis will subside, and we all have to make sure that we're not just fighting the last war but imagining what new surprises might come our way.