I like Alex Dumortier - TMFAleph1 - a lot, and I always read his Fool articles and I usually like them too. The most recent - Is This the Fed's Rally? - is currently in the blog sidebar and can be read by clicking my link (if it works; hopefully it will.)
His point leads back to something I've been thinking about since 2007-2008, when a money market fund "broke the buck" briefly; cashing out of the fund was returning less than a dollar for every short-term dollar you had invested in it.
It reminds me of something a famous investor said, and I paraphrase here: "If you elect to participate in the price movement of stocks, because you want the historical outperformance of stocks in terms of ROI, you should realize that you are electing to participate in all the price movements of stocks - the upside and the downside."
Well, in 2013, I have come to realize that this is true of anywhere I can put my money. I work as a doctor and a small business owner; the small business provides medical care and employs me as well as a couple other docs. I like running the business but I do it for free; taking care of sick people and the associated things doctors also do are what provides my revenues. I get paid in the form of a check; I depost the check in my bank account and can withdraw that money as cash if I choose.
But what is cash? When I was a kid gas was 50 cents a gallon; now it's $5 a gallon. When I was a kid a chicken cost a couple of bucks; now an unpoisoned chicken that tastes like the chicken I remember costs $20. The dollars I am using to purchase that chicken looks the same; the average doc in my specialty made twice as many of them when I was a kid working a 40 hour week, as I do working about an 80 hour week. That's not inflation adjusted dollars; that's just dollars. Forget inflation stats; forget purchasing power; I'm talking about things I actually pay for, and I love eating chicken and I have to drive places, so I pay for those things quite often.
People assume I'm a 1%er; I'm not. The house is underwater; I'm still paying off the car; and no matter how hard I try I can't seem to get ahead in my bank account. Haven't contributed to my retirement fund in years; just got divorced. Lot of reasons for that; one was I could tell I was never going to be able to make a retirement contribution supporting this person, whose economic contribution to the relationship consisted of spending $80,000-$100,000 a year post-tax in return for a series of educational lectures on the topic of why I am a 1%er and should quit worrying about money. (There was also a series of lectures on why her 40 hour a week volunteer position was real work and should be counted as an equal work contribution to the relationship. Funny, that never came up in the divorce proceedings, in which I was instructed to pay a large lump sum in lieu of support. I like lectures; I have been to a lot of Universities and I find that often you learn something. Eventually I did!)
I met a man recently as a patient. He works for USPS as a custodian after honorable retirement from his 20 year hitch as a Navy sailor. 62, he is in the prime of health - had an accident that brought him to my attention - but he exercises daily, is a working artist, has passion for life, loves women, loves his family. The man does not have as much money as I do, cannot command as much working capital as I can, but I count him far wealthier than I.
The point of this blog entry has to do with asset allocation. I have to make choices about how much cash goes into my personal bank account and what I do with it. I have money in an IRA; basically my choices are cash equivalents, stocks, bonds, REITs, MLPs, precious metal proxies, and a variety of levered instruments. None of these are stable in value in terms of purchasing power; if you say stocks are no good, you have to explain why cash equivalents are better (and I don't think that particular argument is good, short medium or long term).
Do I love living in my house? I like it fine; but do I like the way the mortgage keeps me on the cash payments treadmill? I love my work; do I love it enough to neglect my health and my relationships over it? These are tough questions and I think I've been ignoring them, and, by default, getting the answers wrong. They are questions about working capital and cash allocation; but I have another asset, the only asset for which there truly is a fixed supply: the hours remaining in my life.
Be careful with your asset allocation, folks. It's a jungle out there; bring your flashlight and your machete. You're going to need them.