When it comes to investing, you probably think you've heard every investment strategy once, but as is often the case with those kind of things, the more you think you know, the more often you are proven wrong.
One claim I have now come across is that of the Talmud Investing Portfolio. (Or rule, or strategy, or whatever you want to call it.) On the one hand, this puts down that the strategy is presented relatively frequently, though I must clearly be living in a bubble here, because I've never heard of this rule before. On the other hand, this ancient rule is said to spend almost outright miracles.
Since the original rule is in Hebrew and I lack the linguistic skills for it, there are only different translations of the original text, among them:
"it is advisable for one that he should divide his money into three parts, one of which he shall invest in real estate, one of which in business, and the third part to remain always in his hands,"
Source
Another:
And Rabbi Yitzḥak says: A person should always divide his money into three; he should bury one-third in the ground, and invest one-third in business [bifrakmatya], and keep one-third in his possession.
Source
All I could think of was that while this is a nice lesson in history, it's almost irrelevant to finance. Oh man, I didn't expect what came next.
As soon as this Talmund rule comes up on blogs about finance and investing, the author starts pointing out that the rule is already a bit older, since a few hundred years after Christ a rabbi once stood up and recorded an idea of how one could preserve one's wealth. Since a direct transfer into the today's time that does not go naturally, because he would have to recommend the reader, depending upon translation, to bury a third of its fortune in the soil. They came to the conclusion to transfer the rule from the old investments into modern products.
And this is where the problems really begin. Since the innumerable authors do not agree anyway on which products one should take at which places for it, there is any playful combination. One third in trade goods is then seen gladly as shares, the other third with a direct investment in real estates or REITs, a part in gold, which was with all probability at that time the appropriate currency.
As it is with such old rules, sayings, idioms or other things: Some make sense, others you can basically leave out altogether.
Dividing the portfolio into different parts shifts the risk profile from a standard world market portfolio (a simple FTSE All-World ETF is already sufficient here) to less volatile assets with less return. On the one hand, this reduces volatility of the portfolio because you are no longer fully exposed to the stock market, but on the other hand, the average return also suffers from such a split. If you then also invest part of the assets in gold, you expose the portfolio to the fluctuations of a resource with a significant risk, which is tied to how expensive mining projects are at the moment. Even if this part is replaced by bonds, the return increases only marginally. Real estate is also a business in itself with a variety of different risks, which might reduce some kind of volatility, but still dampers the possible return.
In addition, with the Talmund Rule there is also no reference to cryptocurrencies, that simply did not exist at the time and there is also no comparable reference possibility to it.
Anyway, investing a third of your capital in crypto may not be a good idea for the average investor either, unless you're a degen.
In my opinion, you just have to look at the advantages and disadvantages of all asset classes, from commodity investments to bonds and stocks to cryptocurrencies, compare them and determine for yourself what volatility you can tolerate in your portfolio. Those who already sell in panic at a price drop of 10% should be satisfied with government bonds. If you can bear a 50 % loss, you can also aim for a pure stock portfolio, especially if the time horizon for investing is long enough.
And for all the swashbucklers who can sleep through even 100% crashes like Luna, 100% crypto can go as well.
The biggest loss is the loss where one would sell the whole portfolio because the market crashed stronger than the estimated expectation of the investor. That’s the main reason I’m seeing to split the portfolio in different portions. A way to earn money with higher risk assets, like stocks, while keeping some part of the capital out of the fight, like bonds.
It's like everything, instead of blindly applying old rules without sense and reason in modern times, you should directly follow the classic rule: Do your own research!
