Portfolio Preservation: A Tale of Two Cows

When people retire, they generally implement one of two strategies:
1) Set aside enough, throughout your working years, to (hopefully) reach the end of your life before running out of money.
2) Invest enough that, so long as you engage in portfolio preservation, you’ll be able to go on indefinitely without ever draining your core assets.

I like to use a cow analogy to illustrate the distinction between these two approaches… Imagine the first group as those who plan to eat meat, and the second group as those who intend to drink milk.

Let’s dive into the analogy…

Cows, Ploughs, and Wishing for a Rainy Day

In the book Cows, Pigs, Wars, and Witches: The Riddles of Culture, anthropologist Marvin Harris offers fresh perspectives on some of the mysteries of collective human thought and behavior, including taboos.

Harris asserts that the value of the meat of a cow is far less than that of its ability to pull a plough and produce milk. In part because the latter is ongoing.

But, when families were hungry during a drought, it was easy to overlook the long-term value and focus solely on the immediate benefit of beef.

Harris saw cows being deemed sacred, in India, to help people focus on the long-term impact whenever they were tempted to preference the cow’s meat over its milk.

Portfolio Preservation – Financial Vegetarians

Capital preservation is investing with the intent of ensuring that a portfolio won’t suffer serious losses.

DRINK THE MILK,
BUT NEVER EAT THE MEAT!

My husband and I build wealth with the intention of becoming financially independent. In other words, we plan to save enough that we can live off the interest, dividends, etc. indefinitely, without depleting the heart of our portfolio.

Put another way, we’ve decided to grow our cow large enough so that we can survive off milk alone.

Among other things, this will allow us to preserve our portfolio in case medical advances pave the way for us to live to 120.

A primary motivation and driver of my savings and investing protocols is that I want to ensure I leave a legacy of wealth (and ideally wisdom) for my children, and any other dependents that may come along…

How to Save the Cow

Once someone is no longer working or earning money (i.e. living off of their investments) portfolio preservation is accomplished by spending within a safe withdrawal rate (typically 3-4%).

To calculate, take your (inflation adjusted) desired annual spending and multiply it by 25 for 4%, or 33 for 3%.

Now that you have a number, all you need is a solid plan to help you reach it!

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