The Talmud is the central text for Rabbinic Judaism. It is an essential guide for how one is to understand the Bible or what Christians know as the Old Testament. What one might not know is that it has an outline for investing that just might work, especially for one who is risk adverse.
According to The Talmud, Isaac also said, “One should always divide his wealth into three parts: [investing] a third in land, a third in merchandise, and [keeping] a third ready to hand.”
If one were to take this in contemporary terms, it essentially means that one should invest equal thirds in real estate, businesses, and cash. Given that, an indexed portfolio was analyzed to see how it would have performed in the last 18 years.
To build our portfolio, we used:
- DJ US Real Estate TR USD (33.3%)
- Franklin Money A FMFXX (33.3%)
- S&P 500 TR USD (10%)
- S&P MidCap 400 TR USD (10%)
- S&P SmallCap 600 USD (5%)
- MSCI World Ex US GR USD (8.3%)
This divides our initial investment ($60,000) in three bins between real estate (land), money markets (ready to hand), and merchandise (equities). If one looks at it carefully, one will notice that the equity portion roughly follows the recommendations from Dave Ramsey. It also should be noted that some use CDs and bonds to represent the money portion of the portfolio, but it was decided here that text is pretty clear about the need for ready cash.
The results are fair, but acceptable for one who is risk adverse. Our portfolio, regularly balanced, returned an annual 7.17% compared to the S&P 500’s annual return of 9.55%. If one looks, though, the losses in 2008 were limited to 28%, which is far better than 40% experienced by the average equity investor.
If one is using a systematic investment plan, the returns were still acceptable at 6.42% per year compared to Mr. Market’s 7.32%.
Clearly, with the heavy allocation toward cash, this is not a get rich quick strategy, but it certainly gives one a risk reduced return that is still well above the rate of inflation.
Maybe sages from the past still have a few things to teach us.