arresting

I drowned, my heart stopped, but I was quickly revived. 

I was acutely aware of my mortality, and my consciousness lasted for at least 2 minutes. I lost all sensation. Then I had hallucinations. I didn't experience the 'bright light' some near-death folks describe. 

It was very much like falling asleep, except being aware that I probably wouldn't wake up. I was scared. I remember feeling my heart go still. 

My first sensation upon revival was the crushing pain in my chest from cracked ribs. Breathing was very difficult. Coughing up the remaining water was excruciating. But I realized instantly I'd been rescued.

- an account of dying on Reddit

peer pressure

Dr. Casadevall, now editor in chief of the journal mBio, said he feared that science had turned into a winner-take-all game with perverse incentives that lead scientists to cut corners and, in some cases, commit acts of misconduct.

Carl Zimmer writes in the Science column in the New York Times that there is a rise in misconduct in the sciences; a ten-fold increase in journal retractions over the last decade. This is very troublesome. He outlines some of the reasons based on findings from some who have researched the phenomena.

1. Biomedical research where the bulk of the issue lies, consumes a larger and larger amount of government funding.
2. Researchers feel a need to publish many papers and in prestigious journals (I don't see how this has changed much so I don't think it's a driver). There is a direct link between how 'important' a paper is (as measured by the number of citations) and the likelihood of retraction. The worst offender was The New England Journal of Medicine.
3. In 1973, more than half of biologists had a tenure-track job within six years of getting a Ph.D. By 2006 the figure was down to 15 percent. In other words a high profile paper is a requirement for 'admission'.
4. Promotions are driven by number of papers written, quality of journal the papers is printed in, and the amount of funding a researcher can claim.  Not the quality of the research.
5. More and more researchers are coming out of India and China creating more competition. And those countries offer cash rewards for papers in prestigious journals.
6. And perhaps the online availability of papers is leading more faulty research to be rooted out.

I don't know that this answers the question of why the increase in retractions. Most of this was true when I was a grad student considering becoming a professor. Quantity of publications and the quality of the journal we topics of discussions many times. I was lucky in that my professor agreed that my work warranted two complete and broad papers rather than a bunch of smaller ones stretched out. I simply refused to cut up the work because it didn't make any sense.

The other subcontext to this article is that it only talks about MEDICAL research. Sean Carroll has already come out and said that he doesn't think this is a trend in physics. And I believe him. Having read lots of medical research the quality of papers is simply mindbogglingly atrocious. It is almost universally bad. Including stuff coming from the top universities. Most of this is due to the reliance on observational studies over clinical studies. Clinical studies are hard and expensive. New observational research can be culled from age old studies with a computer and some ideas.  In sort the research techniques available, suck. That's why I don't believe any medical research unless I read that specific article and look around for criticisms.

But in general the bigger problem is the methodology of journal peer review. You write your paper and the journal sends it to 3 researchers in the same field. It's a system with the potential for gaming and more likely laziness. We need a Wikipedia or research where everyone can see and comment and criticize papers before they are sanctioned by a journal. And maybe even sanctioning of papers is not really necessary at all.

facts matter

Encyclopedia Britannica died this week. About the only surprising thing about this is, what took so long? I'm all for forward progress and I think Wikipedia is an ample (and free) substitute for EB.  But I'll miss two things about it.

1. It's written for normal human beings. Here's the entry for diode in Wikipedia.  It's correct but not entirely illuminating for the novice.

In electronics, a diode is a type of two-terminal electronic component with nonlinear resistance and conductance (i.e., a nonlinear current–voltage characteristic), distinguishing it from components such as two-terminal linear resistors which obey Ohm's law.

2. I'll miss the serendipity of just flipping through it. I hated school as a kid. I thought it was boring because quite frankly it was boring. But EB was one of those things that taught you that the world was big, old, and far more interesting than your high school teachers would have you believe. It's possible to 'peruse' Wikipedia but not necessarily as easy or random or fun.

Of course I checked out the entry for EB in Wikipedia.  Some interesting tidbits

• It was first published in 1768
• It reached 20 volumes in size by 1801
• The final print edition (the 15th edition) was 32 volumes
• Over the last 70 years the set has averaged 40 million words and 500,000 topics
• Around 1880 James Clerk Maxwell and Thomas Huxley were the science advisors
• In total 110 nobel prize winners wrote for EB and 5 U.S. presidents
• Geographical topics make up the largest share of topics
• In the late 1700s EB rejected the theory of Newtonian gravity. It stated instead that it was caused by the classical element of fire.
• Shortest entry in 1771 release - "Woman - The female of man"
• Ernest Shackleton’s crew, while marooned in Antarctica, smoked pages from Britannica.
• The 1768 edition listed California as 'Callifornia' and described as ‘a large country of the West Indies. Unknown whether it is an island or a peninsula.’

meat is murder

ARRRGHH!

"More red meat, more cancer, more heart disease"

Believe me when I say that I enjoy reading well written and well thought out research that challenges my beliefs. Not because I suspect I can shoot down the research (although I do get a buzz out of that) but because I'd rather know the truth than be right. Whenever I get really religious about some thing I believe I generally start trying to argue with myself. I do this because I've been really wrong on lots of things in the past. The only useful tool I gained by being a Wall Street analyst was a good boss who always asked challenge my beliefs and to release myself from any agenda I might have at being correct. Holding onto your beliefs in the face of provocative data was called 'anchoring'. So reading research that goes against my beliefs arms me with some ammo. One belief I have is that all unprocessed meat is not bad for you. And most of the processed stuff probably isn't bad for you either. It may not be good for you but it's not bad. Other things are bad but not meat.

So this article above was EVERYWHERE the other day. Well everywhere where people care about health (which is the blogs and journals I read). Vegans were dancing on Atkins grave. High fives all around at the Club Dean Ornish. But also in the Paleo groups and the Atkins groups. There were a lot of deer in headlights posts going on there. And why not? It's an awfully dangerous sounding study.  Let me count the ways:

1. It's from Harvard.  They're smart aren't they?
2. It's peer-reviewed and published in a good journal (Archives of Internal Medicine)
3. As a basis it used two well known and well regarded studies (Nurse's Health Study and Health Professionals's Follow-up Study)
4. No sample size issues - 83,644 women and 37,698 men were in the studies; followed for 28 years

And most importantly the main findings:

1. Eating a daily serving of red meat increased mortality by 13% in the study period.
2. Eating a daily serving of red meat increase your odds of getting cancer or heart disease by 14%.
3. Eating a daily serving of processed meats increased those percentages to 20% and 18% respectively.

Guess what I had for dinner tonight?  

Steak.

You know why?  Because this study is entirely USELESS.  Here's why.

1) It is an observational study.

There are two basic types of health studies. Observational studies run by epidemiologists where a group is tracked and measured and Clinical studies where you randomly chose participants and control for the variation of a single variable.  Observational studies tell you nothing for certain because you aren't controlling for variables.  They are only useful for suggesting causal relationships which would then mean you need to do a clinical study.  I don't pay any attention to reports of observational studies.  You know why? Because they are almost always wrong.  Almost always. In fact I can't think of one that wasn't wrong. Does this sound like a random group of people in this study. "Nurse's Healthy Study"? Hmmm? No because it is tracking nurses.  Not the general population. 

Really you can stop right here.  This study is useless.  As are 95% of the studies reported in the press. Because they are observational.

2) This study was done by Walter Willett.

Willet was part of the team that put another report like this that is world famous in its wrongness among the health community who loves digging into research.  In particular it was Willet and others who started the whole 'estrogen reduces heart disease' speculation in the 80s. Even as a boy I remember it.  That finding was done using the SAME technique and the SAME Nurse's study. When a clinical follow up was done, estrogen INCREASED the likelihood of heart disease. Not decreased it. Increased it. Why?

3) Observational studies typically suffer from selection biases and these are very difficult to mathematically remove.

The problem with the estrogen nurse study was that there was a confounding variable. Or a variable which was the actual cause of people having lower heart disease and also for them taking estrogen. What was it? People who actively try maximize their health. If you were to section out a group of people from any group based on a simple question, "Do you actively make healthy choices", do you think those people live longer, have less heart attacks, etc? Yes. Because those people probably don't smoke, don't drink too much, don't eat ice cream all day, go see the doctor when they have a problem, don't sit on the couch watching TV 6 hours a day, take their vitamins, etc. These people also take estrogen. Or at least they did back then because it was supposed to lower chances of osteoporosis. These people had lower heart disease rates not because they took estrogen but because they were health conscious.  Because of that they took estrogen and did a whole bunch of other 'healthy' things. To be blunt, that fucks up your results.

Bottom line: The key reason everyone needs to be skeptical of public press reports of health research is not because the press sucks at reporting science. It's because health research is not conducted by scientists. Scientists do not do observational studies and report findings as fact and make health recommendations for everyone. They don't do that. Idiots do that. Scientists determine facts and understand causal relationships. And then you do your damnedest to prove yourself wrong. You don't get to guess in science and then report it in a journal.

So what could be going wrong here. It could simply be the same effect. Healthier people eat less meat. Not because they eat less meat but because they do a myriad of other things that are healthy like exercise and don't smoke and so forth. In fact it has already been pointed out in this very study that as you go from the healthiest quintile to the most unhealthy quintile all the other parameters of health get worse. Things like BMI, blood pressure, smoking prevalence, amount of alcohol consumed, lack of exercise, etc. For example smokers in the healthiest quintile were 5% of the group but 15% of the unhealthiest quintile.  Could this explain most of it?  All of it? More than all of it implying that the meat eating kep them healthier?

The FUNNIEST variable tracked however was cholesterol.  It actually went down as you moved to the unhealthiest quintile.  15% of the healthiest quintile had high cholesterol yet only 8% of the unhealthiest quintile had high cholesterol.  Everyone still think cholesterol has anything to do with heart disease? Let's hope not.

Vegetarians, even though I think they are doing it wrong, get a lot of stuff right outside of their diet. Ultimately what you are comparing is vegetarian, non-smoking, non-drinking, annual checkup, yoga mat toting, marathon runners to overworked, overstressed, lower income class, beer swilling, never go to the doctor, watch 6 hours of TV a day, steak eaters. 

You can see where I'm going with this. Public health policies get reinforced this way. It's really exceptionally dangerous stuff. 

4) Data is collected verbally. 

The dietary intake in the study was not directly measured. It was reported by participants in questionnaires. "Mr. Johnson did you have a cupcake yesterday at your son's birthday party". "No ma'am. Not me."

5) For an observational study the effect isn't that large.

It may seem large but the relationship between things that we have done clinical studies on have much higher increases in effect. Things like smoking and lung cancer or radiation and cancer.  In those cases where clear causal effect have been identified the increases are enormous. Thousands of percent higher rates of incidence.

Even more damning is that this rollover effect should have had a larger effect.  The case of healthy people doing both actual healthy and actual unhealthy things that are collectively thought to be healthy should produce a larger effect.  It actually suggests that the meat part of this might actually be reducing the approximately 20% mortality increase from something higher.

6) Only clinical trials matter. Randomized controlled trials (RCT) 

And these have been done in regards to "Atkins" type diets in comparison to others.  How have they turned out? 16 out of 16 RCTs show the lower carbohydrate studies win.  Not only in weight loss but in blood metrics, other disease risk factors, cognitive performance, and others.

See The Diet Doctor's compilation of these studies here.

More Reading:

Zoe Harcombe - "Red Meat & Mortality & The Usual Bad Science"

Denise Minger - "Will Eating Red Meat Kill You"

Gary Taubes - "Science, Psudoscience, Nutritional Epidemiology and Meat"

till Md(Md+2)^2 do us part

Interesting graphic from the NY Times on celebrity marriages and an algorithm that can be used to determine the probability of divorce.

The key drivers in the algorithm are funny,

• Age - The older the combined age of both partners the better
• Pre-marriage dating length - The longer the better
• Google image search for wife - The less 'scantily-clad photos' the better
• Ratio of New York Times to National Enquirer search results for the wife
• Time - The longer you've been married the more likely to divorce

What's funny is the algorithm includes two specific 'wife parameters' that loosely measure the wife's notoriety and sleaze factor.  Interestingly there's no similar parameters or really any unusual parameters about the husbands.

Bottom line suggests dating a long time, wait until you're older, don't marry women your mom wouldn't be proud of.

no sleep till...

Interesting article on the myth of the need for 8 hours of sleep.

Main points:

• In the 1990s a study was done where a group of people were sequestered into darkness 14 hours per day. After their sleep stabilized they slept for 4 hours, woke up for 1-2 hours, and slept for another 4 hours.
• In 2001 a meta study of 16 years of research suggested, historically, humans used to sleep in 2 distinct chunks. The source of information was from diaries, medical records, literature, court records, and scientific research.
• An example,

  "He knew this, even in the horror with which he started from his first sleep, and threw up the window to dispel it by the presence of some object, beyond the room, which had not been, as it were, the witness of his dream." Charles Dickens, Barnaby Rudge (1840)

• During this wakened interlude people were active (smoking, visiting neighbors, reading, writing, praying, etc.) There were even special prayers for this awake phase. And a doctors manual suggested this is the best time to conceive.
• References to the two sleep periods started to disappear in the late 17th century starting with the upper class in northern Europe. By 1920 all references were gone.
• The 2001 study suggests that public and home lighting and more evening entertainment were the cause of its demise.

get off my lawn

It's entirely possible that I'm just becoming a crotchety old guy who doesn't understand this newfangled technology but I've been having an unusual number of negative discussions with friends about technology lately. Even my wife who isn't that interested in technology discussed it last night. It's been hard to encapsulate the mood of these discussions in a concise way but the best I've come up with is this.

"Young technology companies today have an adversarial relationship with their users."

This could simply be the realization of the maxim, "If a product is free, you are the product."  The discussions have be unstructured but have touched on a number of items in the technology news lately:

• Path (and others) felt it was okay to download entire address books from people's phones onto their servers without asking for permission.
• Pinterest and many other sites are growing fast and yet people seem to hate their addiction to these services.
• The app stores for phones are clogged with 'free' apps that seem designed to invoke addictive behaviors that then require payment to advance those behaviors (Dragonvale example).
• Many apps now require authorization to tap into your email, address books, twitter accounts, facebook, etc and yet we don't really know what that means in terms of what these companies are doing with that data (e.g., Spotify requires login through Facebook)
• Google and others bypassing iOS privacy settings.
• Google just shut down a bunch of services.
• Dan Lyons points out that technology journalists are in bed with start-ups now and that they are getting paid through stock/options to defend/promote them.
• Many of the up and coming journalistic sites seem to provide link bait versus real journalism. (see Business Insider, Huffington Post, etc.)

Together all of these things boil down to a few themes.

1. Technology products now seem built to not be useful in nature but rather purely addicting.  They are adept at engaging users to spend a significant amount of time doing largely useless and unproductive things (e.g., Reddit, Farmville, Dragonvale, Pinterest, etc.).  Or at least the 99% of people who just consume aren't doing anything productive.
2. Technology companies don't have any obvious interest in protecting anyone's privacy and want access to anything they can use.
3. The 'free' business model where the user is the product seems to be the most popular business model for technology start-ups.
4. I'm guessing most 'free' business models end in failure. What then happens to your 'stuff'.
5. It is hard to identify trusted sources of technology news coverage
6. "Depth", "expertise", "long-form content", "well-researched content", "real productive creativity", "time-consuming hard work", and "value" are not a part of this new landscape. 

These themes aren't terribly cohesive.  And therein lies the problem of discussing this in a constructive way.  But the angst and frustration is present in almost everyone I talk to when the discussion turns to technology.  Something feels rotten in Silicon Valley.

I suppose most of this should not be a surprise.  I'm under no delusions that companies are out to serve my best interest directly.  They want to make money.  And in general I believe this is a good thing.  Historically making money has been done by trying to provide value to the consumer even if there are some egregious counter examples (e.g., monopolies, etc.).  But the new wave of technology seems more focused on tapping into those mental blind spots human brains have (greed, fame, fear, the need for task-based accomplishment, the need for approval by others, the need for status climbing).  Humans are generally not rational creatures by default.  We've built up a set of rational-based heuristics that our brains work with to make decision making more simple.  But with the generalized approach heuristics take, comes blind spots.

What is it about Pinterest or Farmville that causes people to spend hours doing something that isn't inherently productive, challenging, or conducive to creating lasting happiness?  For me it's scary on three levels.

First, I don't think for a second I'm immune to being sucked into this level of time-wasting.  In fact I suspect I'm more susceptible to it than most yet I'm also perhaps a little more aware of what is going on.  Additionally I love trying new things so I generally sign up for the app or web service du jour right away to try it out.  I no longer view this activity the same way.  It's no longer a 'free trial'.  I've become exceedingly cautious and cognizant of what the costs of me using a service are.  I no longer just download free apps for my phone without first checking if they have in-app purchases.  This just tells me they've adopted a pure addiction model.  And now I've gone and disabled my Facebook account.  Yet why I've done that (beyond the fact that I don't use it anymore) is still a little nebulous in my mind.  I just don't trust these companies and I don't trust that there aren't tons of people out there much smarter than I am scheming to fuck with my mental heuristics.

Second, even if I control my activities, the Path debacle shows this is only half of the equation.  I'm in the contact lists of hundreds of people.  I'm linked to calendar events of many people.  All those people who sign up for these apps and services provide a second gateway to me. There's no protection to this issue. This just happens now. It's out of my hands.

Third, and most worrisome, I'm trying to play out in my mind how my kids adapt to this environment.  It's terribly worrisome to think of your kids getting sucked into these addictive useless pursuits, being marketed in ways that taps into their mental blind spots, or having zero control over information about themselves.  Especially when they aren't armed to some extent with a cynicism and caution that protects against some of this.

My wife's first instinct in our discussion was to adopt the old 'keep the kids off the internet for as long as possible' ruse.  An approach I can sympathise with.  But I'm not convinced that's correct.  I'd rather them understand the brave new world they exist in and learn how to deal with it.  My son, who has an addictive personality, and one in which certain behaviors of his are hard to control, is going to need to learn control.  It makes the education of your kids that much harder. When I was growing up your foibles and problems and who you were was confined to your neighborhood.  Now kids are faced with the problem of instant and unwanted notoriety. And who do I trust now to guide me or my kids through this maze?  What tech influencers and 'advisors' are now really just paid for PR?  When are my digital assets going to just up and [poof] disappear?  This blog will one day cease to exist.  All of this builds a sense of trepidation in me.  That maybe I should pull back and re-evaluate which of these services I should be using and in what fashion.  A phone suddenly seems very appealing. Paid apps seem more trustworthy now.  I host my videos on Vimeo whom I pay for the privilege of hosting HD content.  They don't have to sell me out.  And hopefully they'll be around longer than the free services.

For me this technology wave feels fundamentally different from Web 1.0 (and early Web 2.0) when clearly useful companies were created.  Companies that let you find anything you wanted on the web (Google), companies that let you hold garage sales to a much larger audience of buyers (eBay, Craigslist), companies that let you buy things without having to traipse down to the store (Amazon), companies that let you buy or consume previously physical things in a digital format (Amazon, iTunes, Netflix, YouTube) companies that let you transact more easily (PayPal), and companies that let you communicate more easily (Skype).  Now nothing strikes me as useful.  Everything seems to have ulterior motives.  In short.  I don't like being a product.

how to invest your money

I've helped enough people with this that I figure I'll just throw this out there.  As someone who has invested other people's money I get asked all the time, what should I do with my money?  There are really two questions within this question.

1. What strategy should I use to invest my money?
2. How do I implement that strategy?

ANSWER #1: PASSIVE INVESTING

Let's tackle the first one.  The answer is you should use low cost index funds to create a diversified portfolio of stocks allocated across a number of asset classes and then reallocate those funds when they get out of whack.

This is Passive Investing 101.  You are NOT going to pick stocks.  You are NOT going to hire other people to pick stocks for you (mutual funds). You are NOT going to change your exposure to an asset class because you think it is going up or down. You are NOT going to make 'active' bets on anything going up or down.

You ARE going to pick a portfolio of assets based on an allocation that makes sense for you (See Answer #2) and mechanically (as opposed to emotionally) keep your assets pinned to that allocation.  

Okay so why do I think you should invest passively.  Let's go through the reasons:

1. Picking your own stocks is a loser's game.  Really?  You think you can pick stocks better than the rest of the market?  Even the people that do this full time can't beat the market.  Forecasting and prediction is hard.  Downright impossible.  And the further out your prediction, the greater the likelihood that the error increases.  There are hedge funds out there that purely invest in one small sub-sector of the market.  There is a hard drive hedge fund.  Are you going to pick hard drive stocks better than them?  Think of the resources they put to work on understanding these companies.  Even worse.  A lot of hedge funds cheat (insider trading).  You can't beat them.  You may do well due to luck.  But it won't be because you are good.
2. Professional stock picking (mutual funds) is a loser's game.  Maybe not for the stock pickers but for you it is.  Most mutual funds don't beat the market.  And then on top of that you have to pay fees.  Significant fees that bite into your compounded returns.  Fees that are not based on how well they invest but based on how much money you gave them.  Does that sound right?  Well that's how it works.  You can't definitively beat the market with mutual funds.  You may do well due to luck.  But it won't be because you are good.
3. Choosing professional stock pickers (mutual funds) is a loser's game.  This is the main reason to invest passively. Let's ignore point 2.  Let's assume a lot of funds beat the market.  How do you identify those winners?  I never see this question asked. But it is the most important reason for passive investing.  How do you pick winning mutual funds?  You are going to look at historical performance?  Really?  You think that matters?  There is no guarantee that the team that beat the market previously is the team you are investing in. I've seen the sausage making that goes into stock picking and it's ugly. People come and go in the asset management industry.  And if they are good they always go.  One of the supposedly best stock pickers was Bill Miller at Legg Mason. His Value Trust fund beat the S&P 500 15 years in a row.  Is he a good stock picker?  Everyone on Wall Street would have said yes.  And then 2007 happened.  And 2008.  In those 2 years he lost every single percentage point of outperformance he had previously gained in the last 15 years.  Let me rephrase that.  You could have bought his fund on 1/1/2007, LMVTX, at the price the fund was 15 years earlier (on 1/1/1992) and after two years you'd be behind the market in performance.  That's how bad 2007 and 2008 was.  He is, by definition, a below average stock picker.  He left the fund shortly thereafter.  How really do you expect to pick a fund that will beat the market over the next 15-30 years?  How?

Active investing is a fools game.  You may get lucky.  I won't deny that.  But at least know you are just gambling.

Why do you want to beat the market?
The last reason to passively invest is that passive investment gives you approximately market returns.  The whole reason to invest actively is to beat the market.  But why do you want to beat the market?  Because beating the market comes at the risk of not beating the market.  And the market over long periods of time gives you a good return for DOING NOTHING.  Where else do you get a deal like that?  My view is just get the market returns and be happy you live in a world where this is possible.  Don't fuck around with a free ride.  It costs you nothing because passive investing is ridiculously easy and low maintenance.  I don't have to look at the market and I only tend to my investments maybe once per year.  In return for that 'doing nothing' I should get a 5-6% post-tax post-inflation return over the next 15-30 years.

ANSWER #2: USE MY ALLOCATION/REALLOCATION PROCESS
So if you buy into passive investing then how do you do it.  This is where for some reason the whole DIY ethic of the internet seems to fail.  No one really says, "Do this."  And people like when someone says "Do this."  So I'm going to tell you what to do.  I'll be prescriptive.  But at the end of the day you should feel free to modify as needed.  I built my prescription from what others have done but I modified it.  I'll allude to some of the ways to do that along the way.

The rules of Passive Investing
There are a few basic principles that a passive investing portfolio should have.

1. Diversification - By diversifying we reduce risk without compromising much on return.  Or in other words we are removing some of the up and down volatility of our assets without paying too dearly with our return expectations.  Diversification is tricky, never perfect, and can/should involve a whole host of parameters.  On a simple level you want diversification across geographies, sectors, number of stocks, asset classes, and in my case, company styles.  The more the better.  Although you want something manageable at the end of the day.  To do this I use ETFs.  Passive funds that buy what's in an index and do it for very low cost.
2. Allocation and reallocation - Allocation is just the activity of defining how much money goes into each investment vehicle you chose to invest in.  If you chose 4 investment vehicles, how do you deploy your pile of cash into those?  This is where typical advice breaks down because there isn't any really good scientific way to do this.  Some people argue there is but it's based off of faulty logic.  But the allocation part isn't terribly important as compared to the reallocation part.  As your investment vehicles go up and down your allocation of money gets out of whack.  Reallocating the holdings back to your original allocation is the most important activity you'll do and the one that gives you 90% of your returns.  And it's the one that NO ONE ever does. The reason it is important is because reallocation is just another way of saying, "Buy low, sell high".  Winners get sold and losers get bought.  We just don't do this naturally.  So making it prescriptive is the key to actually doing it.

Implementing the Rules.

1. Diversification

So to get diversification I've picked a number of low cost index funds or ETFs.  Index funds immediately diversify you on on a stock basis because each fund holds many of them.. And they are usually cheap.  By picking a number of different styles of index funds we diversify on those other parameters mentioned above - geography, company style, sectors, and asset classes.  Here they are:

• US Large Cap Equities - SCHX (ER 0.08%)
• US Large Cap Value Equities - VTV (ER 0.12%)
• US Small Cap Equities - SCHA (ER 0.13%)
• US Small Cap Value Equities - VBR (ER 0.23%)
• International Large Cap Equities - SCHF (ER 0.13%)
• International Large Cap Value Equities - EFV (ER 0.40%)
• International Small Cap Equities - VSS (ER 0.33%)
• International Small Cap Value Equities - DLS (ER 0.58%)
• US REITs - VNQ (ER 0.12%)
• International REITs - VNQI (ER 0.35%)
• Emerging Markets - SCHE (ER 0.25%)
• Short-term Bonds - SHY (ER 0.15%)
• Intermediate-term Bonds - IEI (ER 0.15%)
• Treasury Inflation Protected Bonds - TIP (ER 0.20%)
• Commodities - IGE (0.48%)
• Cash

This group of funds allows you to diversify across investment classes (cash, bonds, equities, REITs), geographies (US, international ex-US, emerging markets), company size (large and small cap), and company style (value and market average).  Value refers to whether the asset is cheap or not compared to other similar assets.  Traditionally value stocks, for example, outperform the market.  REITs (pronounced 'reets' are real estate investment trusts.  They are a little different from equities.

I've put the expense ratio (ER) of how much these funds take after each listing.  In general the ER for active funds is about 1%.  The weighted average ER of a portfolio of these funds is about 0.20%.  I just saved you 0.80% return per year right there.

You don't like cash? Or maybe you don't like REITs?  OR maybe commodities?  Too bad.  The idea here is not to invest in what you like.  It is to invest in a set of assets that are reasonably uncorrelated to other assets and yet earn returns over the long haul.  All of these do that.  The reason again why we are doing this is because when the market goes down 50%, for example, you have some cash tied up in assets that didn't go down 50% (like cash, debt or maybe commodities or something else).  You have assets that can be reallocated to the ones that went down.  Rationally we know buying low makes sense but when the market goes down 50% no one instinctively wants to do this.  Through this allocation you'll most likely have some assets that didn't go down and therefore some money to buy more of what did.

[Modification] You could add additional funds here.  And you could swap out funds for similar funds.  And you could get rid of some.  IGE is really an equity fund investing in companies reliant on commodity prices.  Maybe you want a true commodity ETF.  Also, the ERs change over time and if you can find a better one that tracks the index it follows then there's no reason not to switch it out.  And in some cases like in my TD Ameritrade account I get to trade some of these for free.

2a. Allocation

So here's another tricky part.  How to allocate your cash.  

First things first.  You should decide what you want to invest.  That means how much of your money is going to be invested for 10-20-30 years?  You need some rainy day funds.  That should NOT be in here.  You're making a big purchase next year.  Cash saved for that should NOT be in here.  All 401k/IRA stuff should be included.  

Second things second.  You should consider all the cash you're investing as a big fungible pile of cash.  We are going to allocate this big pile.  We are NOT going to allocate based on how your money sits in trading accounts.  Lump it all together and figure out the best way to allocate within your trading accounts.  For me I've rolled all 401ks into a single IRA account.  You may also have a current 401k plan that doesn't offer the investment vehicles listed above.  Try and pick something close.  Most 401ks offer a US large cap equities fund or a S&P500 type fund.  Use that type of fund to meet your allocation requirements.

Third things third.  All REIT funds go into a tax deferred account (IRA, 401k, etc.)  These funds dividend out most of their net income and you don't want to up your tax burden each year.  So stick those if possible into a tax deferred account.  If you can't it isn't the end of the world.

Fourth things fourth.  You may have stock in the company you work with.  You can't allocate that.  Personally I sell all stock in a company I work for as soon as I can.  Why double down on a single company.  You earn your income there and you are tying your investment performance on the same place.  If your company falters you risk losing those assets and your income.  It's the opposite of diversification.  Sell that shit pronto.

Fifth things fifth.  You have large gains and a large holding of some stock like Apple.  Sell it.  You got lucky.  Again you are doing the opposite of diversifying.  It won't end well.

With that out of the way here's my allocation:

For most people this should be a starting point.  I have about 74% in equities, 5% in REITs, 11% in bonds, 3% in commodities, and 7% in cash.  Do you feel comfortable with that?  If the global equity market goes down 50% can you stomach that loss assuming nothing else goes down?  Go ahead and calculate it.  Make sure your stomach doesn't churn.  Because if it does you are going to blink.  And if you blink you are going to start doing stupid things.  Like betting on the market or converting everything to cash.  Fix the risk of your allocation to something you can handle.

I think the litmus test is if your equity component goes down 50% while everything else is the same, can you deal with that?  Calculate what happens to your $1,000 or $10,000 or $1,000,000?  Can you handle it?  If not drop the equity percentages and up the cash and bond percentages.  Do it until you feel comfortable about that 50% drop.  Personally I think the equity component is a little high for most people.  But I'm not risk-averse in the context of a well laid out investment plan.  And while the market was going down in 2008 I was pumping cash in.  So I'm comfortable with my ability to not blink.  Make sure you are too.

Once again, deployment of this is straightforward.

1. Group all your investable cash into one big pool and calculate how much of each security you need to buy at current prices.
2. Buy the two REIT securities with your IRA or tax deferred accounts if possible.
3. Buy everything else in your other accounts
4. Done
5. ???
6. Profit

2b.  Reallocation
The final activity that needs to be done is reallocation.  Again there is some research on how to do this best but I think optimizing when the reallocation occurs may be minor event.  An easier way to do this is to simply reallocate once per year.  Pick a date and put it in your calendar.  Buy and sell what you need to get your allocation back to target.

[modification] A second thing to consider is to drop your equity holdings over time.  If you set yours to something like mine above.  You might consider dropping the total equity percentage (in my case 74%) 1% per year.  As you get older you'll want even less volatility because you'll be getting to an age when you will be pulling money out.

Finally, one way to avoid some of the tax burden at the end of each year is to try and save enough money such that you can rebalance not buy selling and buying securities but instead just buying securities to top off low percentages.  You'll still pay taxes (dividends, churn in the individual funds) but it avoids some of the taxes.

fact

the bacon of shoes

I posted a while back about some research I had done on the minimalist shoe movement and how I kind of bought into the entire thing. Namely shoes should really have wider toe-boxes and little to no heel support. I almost exclusively wear minimalist shoes now and what minor issues I had with my feet are largely gone. At the time I was trying out the Vibram Five Fingers which I still contend are a great pair of shoes.

Quite frankly though VFFs are just too conspicuous. So I hunted around for some alternatives and ended up trying the Merrell Trail Gloves. To say I love these shoes is an understatment. I now own 3 pairs and unless the occasion calls for something more formal they are on my feet. The toe box is huge. Which is good. I actually wear a pair of orthotic toe spreaders inside which as the name suggests spreads your toes out. The heel is very thin, the shoes are washable, and they breathe well so they don't get stinkified like the VFFs. And oddly these are the only pair of shoes that I get complements on. And you can use them anywhere. I use them to work out, hike, and stroll in the city.