Dry Powder
How much and where?
How much dry powder should you have? Circumstances vary but my answer to “how much” is “a lot”. Have more than your enemy (when it comes to literal gunpowder) and more than your counterparty (when it comes to trading liquidity). It is a wild world with more surprising disasters and surprising opportunities than you expect before they arrive. Be ready. Most days reward patience but a few reward decisiveness.
Where should you keep it? Someplace safe. Never get tempted by mission creep or reaching for yield. It is nice if the yield covers inflation. Frec pays over 4% in their treasury portfolio and that is plenty and comes with 0.00 risk to the principal in nominal terms. If you don’t get your principal back from T-bills, you have bigger problems (planet destroying meteor, nuclear war, etc.).
Then at the right time and for the right price, you can conveniently shift it into one of their low cost tax efficient direct indexes. Which one? Historically I’ve liked the S&P 500. Prospectively I prefer the developed market ADR index. I have no interest in ESG, IT, or Semis; those seem faddish and expensive. Instead I just want broad equity exposure.
Whether you join me at Frec or find somewhere else you prefer, at least use it as a standard. Get >4% interest. Pay <6% interest. Pay <0.14% fees. Annually compound >10% over a decade. Harvest >24% tax loss rate every 3 years (that’s >$24k in 2021–2024). If you find better: please comment with where! If not, consider Frec.
