I’ve always hated noise. We live in a world that seems to reward the loudest among us. However, the quiet people often have the most to add, even if others never realize it. A similar dynamic occurs with investing. The speculative investments of our world seem to generate all the attention and pull unwitting investors into their goal-destroying grasp. This is unfortunate because most investors would meet their objectives by simply sitting down, developing a personalized plan, and then executing the scheme with quiet efficiency. In other words, most people would benefit from learning to invest quietly.
Quiet people often take time to reflect on who they are and what they want. This deliberation allows them to more efficiently construct a viable path to their goals. A portfolio designed to be quiet is similar in that it should contain attributes that will efficiently lead its owner toward their goal. A quiet portfolio exists at the intersection of where it is behaviorally possible to endure while hopefully providing enough return to meet an investor’s goal.
This idea is not new. Harry Markowitz introduced the efficient frontier as part of his Modern Portfolio Theory (MPT) in 1952. That being said, I don’t think you need to understand bell curves, parabolas, and t-stats to invest quietly. At the end of the day, you’re mostly investing in businesses that generate earnings and in debt that yields interest. In a nutshell, when you invest quietly, you’re attempting to achieve your financial goals as efficiently as possible with those tools.
There is No Free Lunch
We seem to live in a world of abundance. However, even though the abundance is present, it most certainly isn’t free. Everything that is made requires effort, sacrifice, or both. Nothing is free to produce and neither are your returns when investing.
When you invest, you can only expect a higher return if you accept both higher risk and volatility. There is not a low-risk investment that provides a high return. That would be the definition of a “free lunch” and that does not exist in a world with scarce resources.
In Figure 1 below, you will find a graphical representation of this. The graph contains multiple investments and a few portfolios. The examples in Figure 1 are not exhaustive, but they illustrate the investing landscape well enough for our purposes. In addition, Figure 1 is not meant to be mathematically precise. The graph is simply meant to display the mostly linear relationship between investment returns and volatility.
Start With the Global Market Portfolio
As you can see in Figure 1, the riskier and more volatile an investment is, the higher return potential it has. This leads to a solid trendline from volatile investments with higher return potential to non-volatile investments with lower return potential. The red line in Figure 1 represents this. The graph was created based on the returns and volatility realized between 1987 and 2024.1 Not surprisingly, a portfolio with the broadest diversification of those listed came nearest to the “No Free Lunch” zone – The Global Market Portfolio.
A person holding the Global Market Portfolio would hold all global investable assets at their market weights. However, the actual allocation can be more subjective than one would expect. In addition, there are some assets that are difficult for everyone to access, like private credit and equity. With that being said, we can reasonably arrive at an approximation. A middle-class investor can imitate the Global Market Portfolio by holding 30% in US stocks, 20% in international stocks, 4% in Real Estate Investments Trusts (REITS), 44% in global bonds (nominal and real), and 2% in gold.2
An inexpensive and easily-accessible version of the Global Market Portfolio, like the one previously mentioned, should be the starting point for every investor when they begin designing their portfolio. An investor can then shift their portfolio based on their needs, goals, and timeline. However, an investor should be careful not to shift too severely in the direction of speculative assets.
Speculative Investments are Like Sugar
When I think of a speculative investment, I think of something that does not produce a cash flow. Examples of this would be gold, commodities, or cryptocurrencies. For instance, if I invest in gold, I can hold an ounce of it, but it will not generate income. Gold is only worth what the next person will pay for it, which can fluctuate wildly depending on the economic environment. The long-term return of gold has been less robust than other investments with similar volatility. Investing 100% of your money in a speculative asset is highly dangerous. However, small portions of speculative assets within a broader portfolio can improve the portfolio’s volatility without excessively reducing the potential return.
Speculative assets are like sugar. Adding a bit to your coffee can have a positive effect on the taste. On the other hand, consuming too much sugar can be detrimental to your overall health. The thing about speculative assets is that they aren’t necessary for most people to meet their investing goals. If you need to “scratch the itch,” then you can still invest quietly while having a small allocation to one of these investments.
As mentioned above, the Global Market Portfolio contains speculative assets at their market weights with gold being the most prominent example. In addition, risk parity strategies often utilize these assets. However, I would caution against attributing more than 20% of your portfolio to speculative assets. Doing so could increase your portfolio’s volatility without meaningfully increasing returns.
Do You Invest Quietly?
Ironically, the best way to invest quietly doesn’t involve what you invest in. The number one way to ensure you’re investing quietly is to have a high savings rate for as long as possible and then immediately investing those proceeds. Even an investor putting their money under the mattress can meet their goals if their savings rate is high enough. However, given how destructive inflation is to wealth, this is not recommended.3
Figure 2 below is a graph representing a distribution of what could be considered a quiet portfolio under different circumstances for a hypothetical person. The graph assumes the person is investing in global stocks and bonds in order to meet a retirement goal.
As you can see in Figure 2 (Box #2), a person with abundant time until retirement who will maintain a high savings rate for the duration of that time can invest in virtually any reasonable security to meet their goal. Their savings rate is so high that investing quietly is easy for them. In my opinion, an 80/20 stock-to-bond portfolio seems sensible for such a person, but there are many solid options.
The opposite corner of Figure 2 (Box #3) is what investors should aim to avoid. An investor who has had a low savings rate throughout accumulation and has little time until retirement is in a tough situation. They likely have a small nest egg and negligible time to build one. This hypothetical person will need to make lifestyle changes in order to meet their goals.
The Arguing Must Stop
There are thousands of reasonable ways to invest quietly. Unfortunately, when perusing various investing forums across the internet, many people are convinced their way is best. They project their needs and beliefs onto anonymous people without knowing their individual circumstances or goals. This is both silly and dangerous.
Referring to Figure 2 above, the people in boxes #1 and #4 have entirely different needs. Therefore, they should have different portfolios. Someone in box #1 has likely amassed a large nest egg and doesn’t need to take additional risk. However, someone in box #4 may be starting their career and have a family with dependents to care for. That person should invest more aggressively to meet their future retirement consumption needs. The constraints of a large family may prevent he or she from having a high savings rate. Therefore, the person will need to take more risk in order to generate the needed return.
If you ever find yourself arguing with someone on the internet about the merits of your portfolio over theirs, log off. Your plan should be developed for your life and individual circumstances. Learn investing concepts and develop an efficient investing program. If you do that, you’ll soon be investing quietly.
Find Your Own ‘Invest Quietly’ Portfolio
How you invest is like a fingerprint. Your fingerprint is unique and is only attributable to you. Your plan may be appropriate for your circumstances but could be disastrous for mine. Focus on learning about the available investing options and products. The more you learn, the more you’ll be able to fine tune your investing fingerprint. Just remember, a noisy portfolio is easy to fall prey to. There are many people looking to take advantage of ill-educated investors (insurance salesmen, high-fee advisors, etc.). Investing isn’t rocket science and if anyone ever makes you feel like it is, they likely don’t have your best interests at heart. Take the initiative to educate yourself to avoid such schemes and charlatans.4 No one will ever care about your money like you do. Continue learning and you’ll be on the road to investing quietly in no time.
Thanks for reading.
1 Data to construct Figure 1 was derived from Portfolio Visualizer. I specifically used the “Backtest Asset Allocation” tool.
2 I based the asset allocation for the Global Market Portfolio on this source from Portfolio Charts. I agree with their methodology. You can read about how they came to their allocation here.
3 You can read more about the inflation phenomena and why it’s so damaging to your wealth in my post Invest, You Must: Protect Your Wealth Against Inflation.
4 You can find additional educational resources here.