I really enjoyed your article, so I apologize if you felt like I was attacking you. That said, I think I disagree on a few points:
1) Commercial real estate underwriting much more heavily weighs the fundamentals of the property as opposed to the borrower. As a result, it's possible that you could have a lender who would be comfortable with you carrying several times your net worth in loans, provided the underlying collateral fundamentals are strong.
2) I'm skeptical that a long-term diversified portfolio will only return 5%, before inflation is taken into account. This would correspond to a real return of 2%, which seems overly-conservative. Don't wealth managers advise safely withdrawing 4% per year to protect your principal and keep pace with inflation? I may be mistaken here.
3) I'm not as gung-ho about diversification as you are. I think it can make sense, but as Buffett has said, it's a hedge against ignorance. If you sell a startup for $20m, you were highly under-diversified before the sale, but that doesn't make it a bad idea. Nor would it be a terrible idea to roll a significant portion of that capital back into a business that you knew well enough that the risk profile was low for you. This probably requires more work and self-assessment than most people are capable of or willing to engage in.
Anyway, thanks for your original post and your comment here. Food for thought, as always :)
Fair points. Regarding the 5%, that's my conservative # based on my personal feelings about the economy. The math holds up just fine if you nudge that up to 7%. You still go broke (unless you cut your spending, which I certainly would-- I've no need to live rich). 7% is pretty solid for a balanced portfolio.
I personally opt for a riskier portfolio than most (I have a few rental properties and assorted mutual funds), but I don't think you or I can pick 'em like Buffet! :-) It IS a hedge against ignorance, which I happily admit that I am (compared to buffet).
Interesting stuff, regardless-- I've actually never crunched the #s on big apartments. Thanks for doing it!
1) Commercial real estate underwriting much more heavily weighs the fundamentals of the property as opposed to the borrower. As a result, it's possible that you could have a lender who would be comfortable with you carrying several times your net worth in loans, provided the underlying collateral fundamentals are strong.
2) I'm skeptical that a long-term diversified portfolio will only return 5%, before inflation is taken into account. This would correspond to a real return of 2%, which seems overly-conservative. Don't wealth managers advise safely withdrawing 4% per year to protect your principal and keep pace with inflation? I may be mistaken here.
3) I'm not as gung-ho about diversification as you are. I think it can make sense, but as Buffett has said, it's a hedge against ignorance. If you sell a startup for $20m, you were highly under-diversified before the sale, but that doesn't make it a bad idea. Nor would it be a terrible idea to roll a significant portion of that capital back into a business that you knew well enough that the risk profile was low for you. This probably requires more work and self-assessment than most people are capable of or willing to engage in.
Anyway, thanks for your original post and your comment here. Food for thought, as always :)