Bonus Points: Failing Early And Often

Bonus Points

Today SpaceX launched its new and massive Starship rocket on its first test flight, and the event ended with a flourish. By “flourish” I mean it exploded in spectacular fashion.

One of the more confusing things that seems to be tripping up people unfamiliar with such tests is the reaction of SpaceX employees on the live feed. At the moment when the rocket experienced its “rapid unscheduled disassembly”, rather than hanging their heads in failure the entire team erupted in applause. It’s easy to wonder what world they’re living in.

But engineers watching the event understood. The greatest design achievements are never achieved flawlessly in a single step. If they were, they wouldn’t be such great achievements! So rather than planning forever for a reality full of unknown variables that we’ll never truly understand until we finally hit the launch button, we celebrate failures for what we learn. And we press on creating something even better.

If you’ve ever found yourself evaluating portfolio ideas for the thousandth time without making a decision, stop for a moment to think about the flight crew cheering their work going up in flames. I’m not saying you should make hasty financial decisions. Be smart about it and start small. But at the same time, don’t be afraid to try or regretful when things don’t go as planned. Embrace each small failure as a required educational step towards your long-term success, and before you know it you’ll be enjoying the view from orbit.

Good Questions

What other Portfolio Charts readers are asking

A curious Discord participant had a question about building a Golden Butterfly portfolio:

Just out of curiosity, where are you guys holding your gold etf? Strictly in tax deferred?

The tax treatment of different account types probably deserves its own full writeup, but for me personally my answer is rather simple. While I understand why many people seek to hold certain asset types in specific accounts in order to minimize taxes, I prefer to hold full portfolios in both taxable and tax-deferred.

Some of the reasons are that I like having complete portfolios in each account to maximize tax loss harvesting opportunities and make rebalancing easier. But perhaps most importantly, I also appreciate having the full portfolio performance in each account.

For example, one of the major benefits of the Golden Butterfly is its consistency. Let’s say you have a taxable and tax deferred account. You put stocks/cash in taxable and bonds/gold in tax deferred. Your total holdings behave like the Golden Butterfly, but each individual account can be all over the place because of the asset concentration you introduced. For some goals like early retirement or saving for your kid’s college, investment stability for the money you can easily access before full retirement age is particularly important. So getting the full portfolio consistency in each account has its benefits.

Have a question? 🙋‍♂️

I’m NOT a financial adviser, but I’m always happy to help.

What I’m Reading

Insightful market discussion worth sharing

How Should You Choose Your Asset Allocation?A Wealth of Common Sense

The good strategy you can stick with is decidedly better than the perfect strategy you can’t stick with.

Ben Carlson talks about different portfolio approaches over time and comes to a refreshingly honest conclusion. For all of the very specific allocation and withdrawal strategies that people like to debate, the best one is always the one you’re comfortable actually sticking to.

How Long Does it Take to Double Your Money?Of Dollars and Data

Though I will always toot the compounding horn, the fact remains that the quickest way for most people to double their money is to save more, not to chase higher returns.

I really like Nick Maggiulli’s concept of a “wealth savings rate” and his data proving how important it is for accumulation plans is pretty eye-opening. If you’d like to explore that idea on Portfolio Charts, the best options are the Portfolio Growth and Savings Rates charts. They will allow you see the entire range of portfolio outcomes over time for any asset allocation, and they take into account regular contributions. Study how much increasing your savings rate influences the time to meet your goal, and it could make you reconsider your current optimization priorities.

Why Not One Fund?Discipline Funds

Everyone is a multi-asset investor because of liquidity constraints. Even the most aggressive equity investor needs a cash allocation. And thinking of this concept in terms of a multi-asset portfolio (like stocks and bonds) creates other potential problems. The biggest of which is liquidity risk. 

Cullen Roche makes some good points about how prioritizing simplicity over all other goals in a portfolio may sometimes make things more difficult for investors. The most interesting one to me is his insight about how excluding cash from your asset allocation can create a liquidity trap where you may be forced to sell your long-term investments at a loss to meet short-term needs. If that sounds vaguely familiar, think about how Silicon Valley Bank was ruined by a similar mistake.

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