Reply to 25 y/o $4M Net Worth-should I go to law school?

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[quote=Anonymous][quote=Anonymous][quote=NickScarfo][quote=Anonymous][quote=NickScarfo][quote=Anonymous]No.

Assume 3-4% growth, not 6-7% to avoid unpleasant surprise (few good investment managers can credibly project 7% going forward)...

If I had $$$ BigLaw is the *last* place I’d want to be for 70-80 hrs a week.[/quote]

3-4% for an aggressive portfolio? That sounds awful. My plan doesn't include any fixed income and may eventually incorporate direct investment alternatives along with equities.

Even 7% would typically be conservative for long run return on equities.

Not sure where your numbers come from...[/quote]

PP here ... IMO your approach is wrong.    You have way too long an investment horizon to go whipping it out on flyers and hyper aggressive portfolio choices.

If you want to have to go back to work when the next crash hits you, by all means do.  But my approach saved me 50% of the losses, or more, that others had with aggressive approaches.  It’s much harder to make it back after a big dip than it is to avoid biggest dips.

It’s your money. My approach got me to retirement early and I make more now than when I worked with no crazy risk.... 3-4% is the new 6% (return assumptions) for every prudent analyst I’ve read.  Of course in recent years we’ve done much better but if your benchmark assumptions are too high you set up to fail.

:idea: [/quote]

As I understand it, longer investment horizon warrants a greater risk tolerance. I'm not living on any investment income and am looking for maximum growth.

I guess 3-4% return would make sense for an equity-based portfolio from which you were drawing down additional 3-4% in income. Otherwise, I don't see where you're coming from.[/quote]

Well, I’m coming from years of experience in planning and seeing it work out.  Currently ~50-60% equities ... if you go 100% equities only, then 6-7% is safe (as an assumption for planning, not sure you focus on what it represents- of course you may beat it) imo (and more important the more knowledgeable and experienced I consider).

If you’re ok with risking a huge % then that’s ok for you, just realize the downside.

Do you actually read advisory notes from the more reputable sources (eg Vanguard, Fidelity, Glenmede, T Rowe Price, etc)?   It helps imo to calibrate where to be on the risk- reward scale.

In my case the delta in uncertain gain vs increased risk and risk of higher losses guided me, so, eg, when others lost 40% in big drops I lost “only “ 15-25%, while still getting strong gains in up markets.  If you don’t care and are more willing to go bust, then season to taste accordingly.  :idea: [/quote]

I think my planned allocation is ~80% equities, 10% alts, and maybe 10% high yield bonds.
There's nothing wrong with a conservative allocation, but no advisor would suggest it for a young investor trying to maximize wealth creation. The longer your time horizon is and the less you rely on portfolio cash flow, the riskier your exposure can be.
A diversified pool of equities hedges against volatility while offering the opportunity for greater ROI, inclusive of downturns, than any fixed income-based portfolio. On this point, some of your ideas of what constitute gains and losses don't add up.
In a bad downturn, the only money lost is what you would have otherwise liquidated, but for the drop! Unrealized gains and losses are not gains and losses.
Look at the unlucky investor who dipped into the market just before bad events (1987, 2000, 2008, 2020) and stayed the course for a mere 5 years. They still would have made much better ROI than in a less "risky" fixed income allocation. I'd argue that the REAL risk is opportunity cost resulting from fear.

Since you mention Vanguard, consider what VFIAX (a lazy index fund) would have given you over the last 40 years! Much better than 6-7%, inclusive of every downturn. If you resist emotion and stay invested through dips, you won't lose over the long haul.

The bottom line is that your advice on exposure is better suited to someone dependent on portfolio cash flow and/or retirees than anyone else!
You have undoubtedly missed years of realizable stock market gains, bust years notwithstanding.[/quote]

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