4 ms·

Yeah, but it seems like any sort of “permanent fund” where the timeline is infinite should be doing really aggressive, long-term, illiquid stuff, right? Investi

Yeah, but it seems like any sort of “permanent fund” where the timeline is infinite should be doing really aggressive, long-term, illiquid stuff, right? Investing like a 22 year old. And then any liquidity needs you need for annual distributions you handle via loans. I feel like I could make an investment product where I pay you 4% of whatever you invest, per year, forever... but you can never get your original investment back. It seems like this would be a product all endowments/permanent funds would use. And then I just put it all in the s+p 500. I guess I’d need to be the government for endowments to trust me forever though.

ac29 6y ago
Paying 4% of an initial investment would over time become a relatively worthless amount of money due to inflation. You could get about that return by just buying a ETF or mutual fund that focuses on dividends without having to give up the value of your principal (which would also grow over time).
smabie 6y ago
Corporate debt often looks like what you're describing. The principle is rarely called and the loan can be extended virtually forever (unless the bank decides you're too risky). There are certainly other ways a school could run its endowment, sure. In fact, the way things are usually done is perhaps far from optimal. But you don't want to that guy who gets fired because you did some crazy stuff. These institutions are perversely risk adverse, and the investment through consensus model makes it hard to do anything different.
throw0101a 6y ago
> I feel like I could make an investment product where I pay you 4% of whatever you invest, per year, forever... It seems that you have heard about the "four percent rule", but probably have not needed to actually look up the details. It is from something called the Trinity study (also see Bengen and recent Wade Pfau) and there are important details about it: > The 4% refers to the portion of the portfolio withdrawn during the first year; it is assumed that the portion withdrawn in subsequent years will increase with the consumer price index* (CPI) to keep pace with the cost of living. * https://en.wikipedia.org/wiki/Trinity_study https://en.wikipedia.org/wiki/Trinity_study * https://en.wikipedia.org/wiki/William_Bengen https://en.wikipedia.org/wiki/William_Bengen Further it is/was focused only on thirty-year retirement time horizons, not the infinite-horizons of perpetual institutions. It is probably not even appropriate for the 'retire early' (FIRE) movement that is somewhat popular in recent years: * https://www.pwlcapital.com/the-4-rule-for-retirement-the-trick-is-in-the-timing/ https://www.pwlcapital.com/the-4-rule-for-retirement-the-tri... * https://www.youtube.com/watch?v=3BScK-QyWIo https://www.youtube.com/watch?v=3BScK-QyWIo

ac29 6y ago

Paying 4% of an initial investment would over time become a relatively worthless amount of money due to inflation. You could get about that return by just buying a ETF or mutual fund that focuses on dividends without having to give up the value of your principal (which would also grow over time).

smabie 6y ago

Corporate debt often looks like what you're describing. The principle is rarely called and the loan can be extended virtually forever (unless the bank decides you're too risky). There are certainly other ways a school could run its endowment, sure. In fact, the way things are usually done is perhaps far from optimal. But you don't want to that guy who gets fired because you did some crazy stuff. These institutions are perversely risk adverse, and the investment through consensus model makes it hard to do anything different.

throw0101a 6y ago

> I feel like I could make an investment product where I pay you 4% of whatever you invest, per year, forever... It seems that you have heard about the "four percent rule", but probably have not needed to actually look up the details. It is from something called the Trinity study (also see Bengen and recent Wade Pfau) and there are important details about it: > The 4% refers to the portion of the portfolio withdrawn during the first year; it is assumed that the portion withdrawn in subsequent years will increase with the consumer price index* (CPI) to keep pace with the cost of living. * https://en.wikipedia.org/wiki/Trinity_study https://en.wikipedia.org/wiki/Trinity_study * https://en.wikipedia.org/wiki/William_Bengen https://en.wikipedia.org/wiki/William_Bengen Further it is/was focused only on thirty-year retirement time horizons, not the infinite-horizons of perpetual institutions. It is probably not even appropriate for the 'retire early' (FIRE) movement that is somewhat popular in recent years: * https://www.pwlcapital.com/the-4-rule-for-retirement-the-trick-is-in-the-timing/ https://www.pwlcapital.com/the-4-rule-for-retirement-the-tri... * https://www.youtube.com/watch?v=3BScK-QyWIo https://www.youtube.com/watch?v=3BScK-QyWIo