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Choose Your Uncertainty

The SXSW Conference kicks off today in Austin, TX. Last year, about 350,000 participated in this celebration of creativity tech, film, music, education, and culture. Imagine this year will be even bigger.


I'm honored to be back again, where I'll share the stage with legendary investor, founder, and philanthropist, David Booth.


And we're going to talk about uncertainty.


Having founded a $700B+ global investment giant, from nothing, out of a spare bedroom 40+ years ago, David knows more about embracing uncertainty than I do.


But having once worked for David on the investment manager side, and now running my own independent advisory firm, I wanted to share with you something that I know about uncertainty.


As an investor, you can't avoid it. You have to pick.


Choose your uncertainty.


You can own risk-free assets and guarantee yourself a yield.


  • The current risk-free rate for 10 years is currently 4.11% per year.


But then you'll have inflation uncertainty. You can guarantee 4.11% per year, but what if inflation spikes back to ~ 9% like it did in 2022? You'll be losing purchasing power on your money each year, even though it's growing.


Alas, though you can even own risk free assets, guarantee yourself a yield, AND protect against future unexpected inflation spikes. These are called real risk-free rates. For a cost, you solve the inflation uncertainty, and your return will adjust upward if inflation spikes.


  • The current risk-fee rate for 10 years, with inflation protection, is 1.81% per year.



David will address many topics at our SXSW conversation uncertainties related to investing, life, entrepreneurship, etc...and why thoughtfully embracing uncertainty is critical across nearly all part of our existences.


But I want you to know, is that when it comes to how your portfolio and your life integrate, you don't have a choice. Growing your wealth at 1.81% (after inflation), insulating your portfolio against all known investment uncertainties, won't be enough.


  • $181 growth on a $10,000 portfolio.

  • $1,810 growth on a $100,000 portfolio.

  • $18,100 growth on a $1,000,000 portfolio.


Ain't gonna cut it. So at best, optimized, you can guarantee yourself a rate that won't get you where you need to go. You'll face different uncertainties about how long you need to work, uncertainties how to reduce your lifestyle and expenses because of your paltry risk-free returns, and uncertainty around the financial legacy you may leave (or be unable to leave) to your loved ones and communities.


Or you can choose an uncertainty where you thoughtfully engineer your expected investment outcomes, where you leverage the empirical work behind portfolio design and implementation, leverage benefits like time, and low-costs, and diversification, and get comfortable without a fully guaranteed portfolio return. An uncertainty where you choose to understand risk and how to prudently embrace it within a portfolio, rather than fully avoiding it.


Investment certainty may feel like a welcomed weight of your shoulders, but in owning solely risk-free or real risk-free assets, you will receive guaranteed investment returns but you will not receive guaranteed life outcomes.


You just swap investment anxiety for life anxiety. Choose your uncertainty.

End.

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My blog posts are informational only and should not be construed as personalized investment advice. There is no guarantee that the views and opinions expressed in my posts will come to pass. They are not intended to supply tax or legal advice and there is no solicitation to buy or sell securities or engage in a particular investment strategy.

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