Fail-Safe Investing

I picked up the book “Fail-Safe Investing” by Harry Browne recently, and I found several ideas in the book worth consideration and discussion. According to his bio in the book, Harry has written eight investment books, works as an investment adviser, and was the 1996 Libertarian candidate for President. Most of his books were written in the 1970’s and 1980’s, and this book was published in 1999.

The book’s chapters walk the reader through “17 Simple Rules of Financial Safety”, and the chapters flow smoothly and are easy to understand. I’m not going to recreate this 160 page book in a post, but I would like to highlight the following rules that I found most interesting:

Building Your Wealth Upon Your Career

Harry’s key point here is that your career is one of your most valuable assets, and you’re fooling yourself if you think you can live off your investments (early in life) by seeking fast profits from hot tips.

I agree that you need to manage your career both in the short and long-term, and that most financial blogs spend more time talking about the expense and investing side of personal finance than they do the earning side of personal finance (this blog included).

Harry also covers integrity at work, which I found to be refreshing. I’m paraphrasing here, but he brings up a great point that you shouldn’t be stealing from your employer by managing your investments at work or daydreaming about retirement while on the job.

Don’t Assume You Can Replace Your Wealth

The author makes a case for protecting your wealth and for (in later chapters) investing in more conservative investments throughout your life.

Harry is NOT advocating putting your money in a mattress or in risk-free securities only, but I think this point is well taken and should be considered more often. In my own situation I’ve been thinking about shifting to a more conservative portfolio allocation, and I plan to post on some popular alternatives in the near future.

Build a Bulletproof Portfolio for Protection

This would probably be considered the “meat” of the book if you’re like me and want to figure out who this author really is and what he’s going to recommend? It is flipping houses? Foreign CD’s? Art?

Nope. Harry’s recommendation is that you build a core portfolio with 25% of your funds in each of the following:

• stocks (split across 3 actively managed funds; 8 fund recommendations are provided)
• bonds (long term treasury bonds only (20-30 years)
• gold (bullion)
• cash (short term treasury securities)

Harry’s basis for this asset allocation is that it will cover you equally well in times of prosperity, inflation, recession, and deflation. I’m not going to argue all of these points, but by conventional standards this would be a very conservative allocation. The book states that from 1970 through 1998 the portfolio averaged 9.9% (4.5% above inflation), and based on the graph provided it looks extremely steady.

Mad Money

One chapter of the book also covers having a “Variable Portfolio”, which is essentially the same idea as a “Mad Money” account. It represents a small sub-portfolio that you can use to get your speculation or high-risk fix if you need one. There wasn’t a recommendation on a percentage of your total portfolio to use as a guideline, but I would agree with Harry that it should only be used with funds you can afford to lose. 5-10% is probably a reasonable guideline here.

I’m not going to cover the other chapters at this point, but here are three more topics that I haven’t seen in most PF books:

• keep some assets outside your own country
• enjoy yourself with a budget for pleasure
• don’t expect anyone to make you rich

Conclusion: This book is a gem in my opinion, and although it isn’t a life-changer for me it does cover several unique viewpoints and includes a rather conservative approach to meeting one’s goals. If you’re interested in hearing a different view of investing your money, I think this book can be valuable and thought-provoking.

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• Don’t Blindly Invest In A 401K

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