Jay,
If, however, on the same income, expense and savings numbers, I have a net worth of US$ 10 mm, I then would not want to position the assets in any way that will likely expose the mix of assets to a 10-20% downside, as it would take me many years of active income to make good the passive loss
I think the problem with this example is the assumption that a 150K active salary could be some kind of significant contributor to a 10MM portfolio. Especially when disposable savings is only 50K of the 150K, or 0.5% of 10MM. It is close to a rounding error. More especially when you are talking of six months disposable savings, or 25K or 0.25%.
Your example of the person with a 250K portfolio assumes a given volatility level (e.g., 10-20% decline) may be acceptable if active income can replenish same in short order. While this position may have intuitive appeal for one thusly situated, the active salary thread gets stretched thinner as assets build relative to income. At the eight-figure threshold, the idea becomes absurd IMHO.
Such is to say that the hypothetical person with a 10MM portfolio and 150K salary needs to find justification other than salary "backup" for portfolio volatility, or else default to abject nonvolatility, IMHO. (Likewise, such person probably needs justification other than "making ends meet" in order to work for a salary of 150K.) Of course, such a person may find other reasons for choosing nonvolatility (e.g., nonvolatile [read "low"] returns may more than suffice for lifestyle requirements at this asset level), but association with the active salary seems rather arbitrary. |
