A case for ‘for-realsies’ diversification

Trading has been halted. There’s been an explosion outside the New York stock exchange. From what we can tell there are only a couple of casualties. First responders are one the scene now. 
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Only this is much more serious. Mounted radioactivity alarms are going off all over the financial district. What initially is thought to be a suicide bombing was actually a Radiological Dispersion Device or ‘dirty bomb’. People are freaking out. Half of Manhattan tries to flee the island by any means possible, jamming the tunnels and bridges. By the end of the day its established that forty blocks of downtown manhattan have higher levels of radioactivity than the EPA deems safe.

This isn’t even a black swan event. There are very serious people at Homeland security and in NYC that imagine an event like this is and I quote, ‘inevitable’.

The number of people that would die in such an event are quite low. But the economic and psychological damage would be profound.

What would something like this do your portfolio? How do you quantify one third of Manhattan being uninhabitable for the next ten to twenty years? How many points would the Dow Jones drop by? 2000? 5000? 10,000? Whats the total cost to the world economy? How long to recover to where we are now? Seven years? Twenty years? What would happen if this happened three months before your retirement? Would you survive?

There are too many variables. Too many considerations. And really, nobody knows what would happen in a situation like this. Imagine every employee at the world’s top banks being irradiated? Now imagine it wasn’t some radical Islamist. It was North Korea. What does that do the world economy? Its easy to punish Afghanistan for 9/11 without any real consequence for the rest of us. Much harder to punish North Korea. Now imagine Trump in charge.

Just gave myself the heebie jeebies.

Anyways. The point I’m trying to make is one of diversification. I mean real old school diversification. These days if you ask someone if they own property they say, ‘Sure, I have property tracker index fund’. But for-realsies bricks and mortar physical buildings have somehow fallen out of vogue.

I am not an engineer, however lately I’ve being playing a lot with colored wooden building blocks. My 11 month old daughter doesn’t build stuff yet. She does like to smash whatever I’ve built though. Like some miniature baby Kaiju laying the smack down on my Tokyo.

I’ve learnt some stuff recently. This is a poor design.

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This is WAY better…

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In a perfect Fundamental Joey-ism world this is what I want my retirement to look like. I use the term retirement loosely. Infact retirement to me doesn’t really mean what retirement does to other people. Maybe I should choose a different word.

So lets start there. Retirement for me is a state of existence where I work ten to twenty hours a week, in a company that I’ve created and love. Basically until I die. If you’re doing what you love it isn’t really work after all. This company will pay me a salary forever.

I have real physical property which is paid off and giving me a rental income every month. Hopefully by the time I want to ‘retire’ this will be properties. Plural. I will never sell these buildings. And will form part of a legacy.

Then theres my share portfolio. Again. Something I will never sell. It chugs along. Doing what it does. But again, something I NEVER plan on selling. Dividends now are relatively paltry. But give it time. Eventually dividends will equal my salary and rental income.

Finally theres interest. However you get this is up to you. Loan accounts, bonds, savings (shudder). But I feel it should be a component in my little brick plan. Even if its a brick I don’t lean on.

So if my company goes bust. Well then I still have some rental income and dividends. If the NYSE gets nuked. Well I still have my rental income and my salary. And if sea levels rise and Vredehoek is the new beach front… we have dividends and salary. If everything goes to pieces I can still sell my properties. It feels much more secure and safer than the single pillar of dividend income and shares that I have to sell.

My portfolio has never been tested. I was too young for the dot com bubble. When 2008 really hit I was all in bonds. I’ve never been been hit by a panic of 1907, or a great depression or a black Monday. Neither have most people trading today. Things have been pretty peachy for quite a long time now.

I’m not saying we’re due for an ‘event’ sometime soon. But lets not be naive about these things. I like the Boy-scouts motto. Be prepared.

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