William Bernstein - A Day To Remember (article)

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Doom&Gloom
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Re: William Bernstein - A Day To Remember (article)

Post by Doom&Gloom »

I remember being told about the drop on Black Monday as I was leaving work. I had been expecting another loss but nothing of that magnitude. I also remember trying to mute my reaction as I was practically certain that the person who told me and the others in the immediate area had little or no personal investments.
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Re: William Bernstein - A Day To Remember (article)

Post by Ependytis »

To the OP, thanks for posting this. It provides of semblance of rationality in this chaotic world we live in. In 1987, I was just starting my career and looking into investing. This crash probably set me back five years in terms of starting to invest in the stock market.
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Re: William Bernstein - A Day To Remember (article)

Post by Engaging in sloth »

I agree it is very wise for a retiree to have a significant cash stash...15-20 yrs worth for SWAN and personal safety for your old-age.
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Re: Wm. Bernstein_A Day To Remember (article)

Post by VictoriaF »

winterfan wrote: Sat Jan 15, 2022 8:53 am I enjoyed the article, but 20 years in safe assets seems excessive and overly conservative. I know he says that retirees with a pension and SS that covers their expenses can be 100% stock, but almost everyone will receive a SS check eventually. Maybe it's for people who need a large income? I say this, because for us, once SS kicks in, most of our day to day expenses will be covered. We will use our portfolio for extras and larger purchases. I think 10 years ought to be enough to weather any volatility.
This is not binary: either 100% in stocks if pensions and SS cover living expenses or 20 years of expenses in safe assets. Instead, the safe assets must provide 20 years of the delta between pensions/SS and living expenses. For example:
Living expenses = $60k/year
Social Security = $40k/year
delta = $20k/year
20 years of delta = $400k
Total assets = $1m
Percent of safe assets to provide delta = 40%

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Re: William Bernstein - A Day To Remember (article)

Post by AlwaysLearningMore »

Engaging in sloth wrote: Sun Jan 16, 2022 2:31 pm I agree it is very wise for a retiree to have a significant cash stash...15-20 yrs worth for SWAN and personal safety for your old-age.
While wise, such an approach may well be out of financial reach for many near-retirees. (Only in the rarefied atmosphere of Bogleheads is such an approach commonly discussed.)
Retirement is best when you have a lot to live on, and a lot to live for. * None of what I post is investment advice.* | FIRE'd July 2023
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Re: William Bernstein - A Day To Remember (article)

Post by Mel Lindauer »

AlwaysLearningMore wrote: Sun Jan 16, 2022 4:20 pm
Engaging in sloth wrote: Sun Jan 16, 2022 2:31 pm I agree it is very wise for a retiree to have a significant cash stash...15-20 yrs worth for SWAN and personal safety for your old-age.
While wise, such an approach may well be out of financial reach for many near-retirees. (Only in the rarefied atmosphere of Bogleheads is such an approach commonly discussed.)
And remember the need to protect those future spending dollars from the ravages of inflation.
Best Regards - Mel | | Semper Fi
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Re: William Bernstein - A Day To Remember (article)

Post by Leesbro63 »

Mel Lindauer wrote: Sun Jan 16, 2022 4:50 pm
AlwaysLearningMore wrote: Sun Jan 16, 2022 4:20 pm
Engaging in sloth wrote: Sun Jan 16, 2022 2:31 pm I agree it is very wise for a retiree to have a significant cash stash...15-20 yrs worth for SWAN and personal safety for your old-age.
While wise, such an approach may well be out of financial reach for many near-retirees. (Only in the rarefied atmosphere of Bogleheads is such an approach commonly discussed.)
And remember the need to protect those future spending dollars from the ravages of inflation.
And exactly how does one do that with a large taxable portfolio?
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Re: William Bernstein - A Day To Remember (article)

Post by Mel Lindauer »

Leesbro63 wrote: Sun Jan 16, 2022 5:04 pm
Mel Lindauer wrote: Sun Jan 16, 2022 4:50 pm
AlwaysLearningMore wrote: Sun Jan 16, 2022 4:20 pm
Engaging in sloth wrote: Sun Jan 16, 2022 2:31 pm I agree it is very wise for a retiree to have a significant cash stash...15-20 yrs worth for SWAN and personal safety for your old-age.
While wise, such an approach may well be out of financial reach for many near-retirees. (Only in the rarefied atmosphere of Bogleheads is such an approach commonly discussed.)
And remember the need to protect those future spending dollars from the ravages of inflation.
And exactly how does one do that with a large taxable portfolio?
Maxing out I Bonds with individuals, entities, trusts, gifting strategies and tax refunds and then equities up to the top of the comfort level. And perhaps TIPS when they improve.
Best Regards - Mel | | Semper Fi
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Re: William Bernstein - A Day To Remember (article)

Post by Leesbro63 »

Mel Lindauer wrote: Sun Jan 16, 2022 5:21 pm
Leesbro63 wrote: Sun Jan 16, 2022 5:04 pm
Mel Lindauer wrote: Sun Jan 16, 2022 4:50 pm
AlwaysLearningMore wrote: Sun Jan 16, 2022 4:20 pm
Engaging in sloth wrote: Sun Jan 16, 2022 2:31 pm I agree it is very wise for a retiree to have a significant cash stash...15-20 yrs worth for SWAN and personal safety for your old-age.
While wise, such an approach may well be out of financial reach for many near-retirees. (Only in the rarefied atmosphere of Bogleheads is such an approach commonly discussed.)
And remember the need to protect those future spending dollars from the ravages of inflation.
And exactly how does one do that with a large taxable portfolio?
Maxing out I Bonds with individuals, entities, trusts, gifting strategies and tax refunds and then equities up to the top of the comfort level. And perhaps TIPS when they improve.
Long term equities have been inflation beaters. But your comment was in reply to keeping 20 years of future spending in “safe” fixed income. For large, non-tax-sheltered “mature Boglehead” type portfolios, there is no way to do what you suggest, with the “safe” fixed income, 20-years-of-spending money.

I think Dr. Bernstein pretty much called it, above. He will accept real purchasing power loss. I just hope our safe money doesn’t become seriously unsafe. But I agree w Dr. Bernstein that increasing equity risk seems to be taking on a bigger risk to offset a less big risk.

Anyway, many of us are seriously looking for a way to do what you state. IBonds can’t be purchased in quantity and both IBonds and TIPS become subject to serious “taxflation” in large taxable accounts when inflation heats up.
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Re: William Bernstein - A Day To Remember (article)

Post by aj76er »

Leesbro63 wrote: Sun Jan 16, 2022 5:34 pm
Mel Lindauer wrote: Sun Jan 16, 2022 5:21 pm
Leesbro63 wrote: Sun Jan 16, 2022 5:04 pm
Mel Lindauer wrote: Sun Jan 16, 2022 4:50 pm
AlwaysLearningMore wrote: Sun Jan 16, 2022 4:20 pm

While wise, such an approach may well be out of financial reach for many near-retirees. (Only in the rarefied atmosphere of Bogleheads is such an approach commonly discussed.)
And remember the need to protect those future spending dollars from the ravages of inflation.
And exactly how does one do that with a large taxable portfolio?
Maxing out I Bonds with individuals, entities, trusts, gifting strategies and tax refunds and then equities up to the top of the comfort level. And perhaps TIPS when they improve.
Long term equities have been inflation beaters. But your comment was in reply to keeping 20 years of future spending in “safe” fixed income. For large, non-tax-sheltered “mature Boglehead” type portfolios, there is no way to do what you suggest, with the “safe” fixed income, 20-years-of-spending money.

I think Dr. Bernstein pretty much called it, above. He will accept real purchasing power loss. I just hope our safe money doesn’t become seriously unsafe. But I agree w Dr. Bernstein that increasing equity risk seems to be taking on a bigger risk to offset a less big risk.

Anyway, many of us are seriously looking for a way to do what you state. IBonds can’t be purchased in quantity and both IBonds and TIPS become subject to serious “taxflation” in large taxable accounts when inflation heats up.
Direct CD's used to provide above inflation returns, but since 2020 those yields have dried up too. TIPs held directly in taxable suffer from the phantom income/taxation issue. So, I agree with Mel - buy all the I-bonds possible (opening trusts and entity accounts, as desired), and then suffer loss of purchasing power on anything over that (with CD's, Savings accounts, Treasury Bills/Bonds, etc..). If you know enough to buy individual muni's, that could be an option, but involves some risk. Also, duration matching with TIPS funds could be an option depending on tax bracket.
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle
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Re: William Bernstein - A Day To Remember (article)

Post by Leesbro63 »

aj76er wrote: Sun Jan 16, 2022 6:05 pm
Leesbro63 wrote: Sun Jan 16, 2022 5:34 pm
Mel Lindauer wrote: Sun Jan 16, 2022 5:21 pm
Leesbro63 wrote: Sun Jan 16, 2022 5:04 pm
Mel Lindauer wrote: Sun Jan 16, 2022 4:50 pm

And remember the need to protect those future spending dollars from the ravages of inflation.
And exactly how does one do that with a large taxable portfolio?
Maxing out I Bonds with individuals, entities, trusts, gifting strategies and tax refunds and then equities up to the top of the comfort level. And perhaps TIPS when they improve.
Long term equities have been inflation beaters. But your comment was in reply to keeping 20 years of future spending in “safe” fixed income. For large, non-tax-sheltered “mature Boglehead” type portfolios, there is no way to do what you suggest, with the “safe” fixed income, 20-years-of-spending money.

I think Dr. Bernstein pretty much called it, above. He will accept real purchasing power loss. I just hope our safe money doesn’t become seriously unsafe. But I agree w Dr. Bernstein that increasing equity risk seems to be taking on a bigger risk to offset a less big risk.

Anyway, many of us are seriously looking for a way to do what you state. IBonds can’t be purchased in quantity and both IBonds and TIPS become subject to serious “taxflation” in large taxable accounts when inflation heats up.
Direct CD's used to provide above inflation returns, but since 2020 those yields have dried up too. TIPs held directly in taxable suffer from the phantom income/taxation issue. So, I agree with Mel - buy all the I-bonds possible (opening trusts and entity accounts, as desired), and then suffer loss of purchasing power on anything over that (with CD's, Savings accounts, Treasury Bills/Bonds, etc..). If you know enough to buy individual muni's, that could be an option, but involves some risk. Also, duration matching with TIPS funds could be an option depending on tax bracket.
How do low yielding Munis, even the riskier longer term ones, beat inflation?
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Re: William Bernstein - A Day To Remember (article)

Post by dodecahedron »

A couple more retrospective pieces on 1987's Black Monday by Jason Zweig:

https://jasonzweig.com/remembering-blac ... elentless/

https://jasonzweig.com/will-you-be-read ... hes-again/

My own recollections:

My late husband and I were in our mid 30s at the time. A good chunk of our portfolio was in fixed income (partly due to conservative policies enforced by our academic employers, some of whom had mandated a minimum 50% allocation to TIAA Trad, which was totally illiquid at the time.)

My husband was a professional scholar of the financial markets with a longstanding fascination/passionate interest in their vicissitudes. He and his widowed mother on a very modest income (SS survivor benefits mostly--and SS was not yet indexed for inflation) had started watching Wall Street Week when he was in elementary school two decades earlier. He lived close enough to Wall Street that he could visit the NYSE visitor gallery whenever he wanted to as a kid. (It used to be open to the general public. I have this image of my husband as a little kid with his nose pressed against the glass, trying to make sense of it all.) When he was in college (on the West Coast), he used to get up early in the morning and watch the ticker in the front window of a local stock brokerage before classes started (thanks to the time zone difference.) He had dabbled in speculation in college in the early 1970s with the little bit of money he had somehow scrounged up and learned enough the hard way to be cautious before I met him in grad school.

In any case, in 1987, the idea of our retirement decades away seemed like an abstract hypothetical, and the money locked up in our 403b plans so abstractly remote, so I don't remember either of us being unduly alarmed by the news, though we were certainly aware of it. We had a WSJ subscription, which both of us read daily, and I have fond memories that we enjoyed watching Wall Street Week every Friday night as a form of entertainment. My husband was intrigued by the 1987 Black Monday phenomenon as an academic interest and subsequently spent a lot of his professional time and energy thinking about public policy or institutional trading protocols (circuit breakers and other more exotic things) that might prevent such turbulence in the future. It was a puzzle he was still thinking about (among many other things) when he died.

In retrospect, he continued being pretty thoughtfully conservative about our portfolio (even after our employers stopped restricting our choices) and I am glad that conservatism consequently spared him a significant amount of stress in 1987, 2001, and 2008-09. No regrets at all that our portfolio might have been much larger with a greater equity allocation.
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Re: Wm. Bernstein_A Day To Remember (article)

Post by bikechuck »

Random Walker wrote: Sat Jan 15, 2022 9:04 am Many of us think in terms of a single top down AA. Many of us have also read WB’s LMP/RP concept. In this article he does a good job of discussing integration of the LMP/RP thinking into the overall AA for us top down thinkers. He says that for himself and his clients, he has an overall AA but does a little mental accounting to be aware of the LMP portion of the portfolio locked away in safe assets. This is the approach I had developed after reading WB’s Life Cycle Investing ebook. Strongly recommend investors familiarize themselves with the concept of Murphy’s Law of Retirement.

viewtopic.php?t=220275

Dave
Your post is so full of akrynums that I cannot understand it.
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Re: Wm. Bernstein_A Day To Remember (article)

Post by Silk McCue »

bikechuck wrote: Sun Jan 16, 2022 6:39 pm Your post is so full of akrynums that I cannot understand it.
WB - William Bernstein
LMP - Liability Matching Portfolio
RP - Risk Portfolio
AA - Asset Allocation

Cheers
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Re: Wm. Bernstein_A Day To Remember (article)

Post by Random Walker »

bikechuck wrote: Sun Jan 16, 2022 6:39 pm
Random Walker wrote: Sat Jan 15, 2022 9:04 am Many of us think in terms of a single top down AA. Many of us have also read WB’s LMP/RP concept. In this article he does a good job of discussing integration of the LMP/RP thinking into the overall AA for us top down thinkers. He says that for himself and his clients, he has an overall AA but does a little mental accounting to be aware of the LMP portion of the portfolio locked away in safe assets. This is the approach I had developed after reading WB’s Life Cycle Investing ebook. Strongly recommend investors familiarize themselves with the concept of Murphy’s Law of Retirement.

viewtopic.php?t=220275

Dave
Your post is so full of akrynums that I cannot understand it.
AA= asset allocation
LMP= liability matching portfolio
RP= risk portfolio
WB = William Bernstein

Dave
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Re: Wm. Bernstein_A Day To Remember (article)

Post by bikechuck »

Random Walker wrote: Sun Jan 16, 2022 7:27 pm
bikechuck wrote: Sun Jan 16, 2022 6:39 pm
Random Walker wrote: Sat Jan 15, 2022 9:04 am Many of us think in terms of a single top down AA. Many of us have also read WB’s LMP/RP concept. In this article he does a good job of discussing integration of the LMP/RP thinking into the overall AA for us top down thinkers. He says that for himself and his clients, he has an overall AA but does a little mental accounting to be aware of the LMP portion of the portfolio locked away in safe assets. This is the approach I had developed after reading WB’s Life Cycle Investing ebook. Strongly recommend investors familiarize themselves with the concept of Murphy’s Law of Retirement.

viewtopic.php?t=220275

Dave
Your post is so full of akrynums that I cannot understand it.
AA= asset allocation
LMP= liability matching portfolio
RP= risk portfolio
WB = William Bernstein

Dave
Thanks, very helpful!
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Re: William Bernstein - A Day To Remember (article)

Post by doobiedoo »

On Oct 19, 1987 I remember someone at work saying, "Santa Claus isn't coming to my house this year!"

Even more than the crash on Monday Oct 19, I remember being shocked at the volatility in the days afterward.
Image

Oct 19: The DJIA plummeted a record 22.61% on Black Monday, down 509 points from 2247 to 1738.

Oct 20: The DJIA rebounded 102 points or 5.88%.
It was a wild day. Upon opening, the DJIA quickly rose 210 points by 10:30am but gave up all of its gains by noon, and by 12:30 was down. The DJIA traded from a low of 1616 to a high of 2067!

Oct 21: Stocks continue their rebound from Black Monday. The DJIA finished up 186.84 points, a 10.15% rise. This 2-day rally recouped more than half of the 508 points lost on Monday.

Oct 22: The Dow reversed course and dropped 77 points or 3.8%.

Oct 23: The Dow traded in a narrow range and finished unchanged.

Oct 26: Just when you thought things were stabilizing, the DJIA dropped 156 points for an 8% loss.

Somebody interviewed John Templeton [of Templeton Funds] after the Black Monday close, and he predicted big volatility in the days ahead. Amazingly, he was right!
The point drops aren't big numbers in today's world, but those percentages were huge. And trading volume was thru the roof!

I knew a guy at work who bought $30k of stock [Ford, IBM?] on Tuesday morning at the opening. That seemed like a lot of money to me back then. And a very risky trade. But he got out 2 days later and doubled his money. Actually the most astonishing thing was that he actually got his broker on the phone! [Eric P, if you're still alive and reading BH, that was you!] Everyone else I knew just got a busy signal! [No internet in those days.]
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Re: William Bernstein - A Day To Remember (article)

Post by KarenC »

For those with a bit of nostalgia for Wall Street Week with Louis Rukeyser, here is part one of the episode from October 23rd, 1987:

https://youtu.be/XFn1G2goDQw
"The first principle is that you must not fool yourself—and you are the easiest person to fool." — Richard P. Feynman
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Re: Wm. Bernstein_A Day To Remember (article)

Post by Call_Me_Op »

Bill Bernstein wrote: Sat Jan 15, 2022 2:42 pm Thanks for all the kind words!

A few points:

I'll admit to a bit of literary license with "won the game." I love it as a resonant metaphor, but of course I don't mean it literally. Investing certainly isn't a "game."

Same with "stop playing." Again, I apologize for being a sucker for good metaphors; what I literally mean is "reduce your risk."

Bill
Bill,

Thanks for these clarifications, These particular points have been the subject of seemingly endless debate in this forum.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
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Re: William Bernstein - A Day To Remember (article)

Post by rhubarbpie »

Does anyone have links to other material where Dr. Bernstein talks about what the "safe bucket" would consist of?
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Re: William Bernstein - A Day To Remember (article)

Post by aj76er »

Leesbro63 wrote: Sun Jan 16, 2022 6:13 pm
aj76er wrote: Sun Jan 16, 2022 6:05 pm
Leesbro63 wrote: Sun Jan 16, 2022 5:34 pm
Mel Lindauer wrote: Sun Jan 16, 2022 5:21 pm
Leesbro63 wrote: Sun Jan 16, 2022 5:04 pm

And exactly how does one do that with a large taxable portfolio?
Maxing out I Bonds with individuals, entities, trusts, gifting strategies and tax refunds and then equities up to the top of the comfort level. And perhaps TIPS when they improve.
Long term equities have been inflation beaters. But your comment was in reply to keeping 20 years of future spending in “safe” fixed income. For large, non-tax-sheltered “mature Boglehead” type portfolios, there is no way to do what you suggest, with the “safe” fixed income, 20-years-of-spending money.

I think Dr. Bernstein pretty much called it, above. He will accept real purchasing power loss. I just hope our safe money doesn’t become seriously unsafe. But I agree w Dr. Bernstein that increasing equity risk seems to be taking on a bigger risk to offset a less big risk.

Anyway, many of us are seriously looking for a way to do what you state. IBonds can’t be purchased in quantity and both IBonds and TIPS become subject to serious “taxflation” in large taxable accounts when inflation heats up.
Direct CD's used to provide above inflation returns, but since 2020 those yields have dried up too. TIPs held directly in taxable suffer from the phantom income/taxation issue. So, I agree with Mel - buy all the I-bonds possible (opening trusts and entity accounts, as desired), and then suffer loss of purchasing power on anything over that (with CD's, Savings accounts, Treasury Bills/Bonds, etc..). If you know enough to buy individual muni's, that could be an option, but involves some risk. Also, duration matching with TIPS funds could be an option depending on tax bracket.
How do low yielding Munis, even the riskier longer term ones, beat inflation?
I never said they would. No “safe” fixed income is beating inflation today. Best you can do is I-Bonds, which only matches inflation. But those have purchase limitations, so munis may be the least bad option for overflow savings in a taxable account if one is in a high tax bracket. YMMV
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle
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Re: William Bernstein - A Day To Remember (article)

Post by Random Walker »

rhubarbpie wrote: Mon Jan 17, 2022 10:04 am Does anyone have links to other material where Dr. Bernstein talks about what the "safe bucket" would consist of?
Start with WB’s ebook, Life Cycle Investing

Dave
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Re: William Bernstein - A Day To Remember (article)

Post by Leesbro63 »

aj76er wrote: Mon Jan 17, 2022 10:48 amBest you can do is I-Bonds, which only matches inflation.
Not after taxes.
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Re: William Bernstein - A Day To Remember (article)

Post by You Know What I Mean »

KarenC wrote: Mon Jan 17, 2022 6:14 am For those with a bit of nostalgia for Wall Street Week with Louis Rukeyser, here is part one of the episode from October 23rd, 1987:

https://youtu.be/XFn1G2goDQw
I didn't start watching that show till a few years later, but enjoyed it regularly. In that episode, Louis' opening comments were absolutely wonderful in tone and content. As usual, he had a good perspective on things. I also think that John Templeton's comments near the end of Part 2 were also great.
"Well, she was just seventeen, You Know What I Mean, and the way she looked... was way beyond compare."
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Re: William Bernstein - A Day To Remember (article)

Post by AlwaysLearningMore »

Leesbro63 wrote: Sun Jan 16, 2022 5:04 pm
Mel Lindauer wrote: Sun Jan 16, 2022 4:50 pm
AlwaysLearningMore wrote: Sun Jan 16, 2022 4:20 pm
Engaging in sloth wrote: Sun Jan 16, 2022 2:31 pm I agree it is very wise for a retiree to have a significant cash stash...15-20 yrs worth for SWAN and personal safety for your old-age.
While wise, such an approach may well be out of financial reach for many near-retirees. (Only in the rarefied atmosphere of Bogleheads is such an approach commonly discussed.)
And remember the need to protect those future spending dollars from the ravages of inflation.
And exactly how does one do that with a large taxable portfolio?
Series I Bonds were introduced in 1998. If my quick arithmetic is correct, then a couple with a single trust could have accumulated approx. $750k in I Bonds since then. Add in a second trust and there's $250k more.
Retirement is best when you have a lot to live on, and a lot to live for. * None of what I post is investment advice.* | FIRE'd July 2023
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Re: William Bernstein - A Day To Remember (article)

Post by AlwaysLearningMore »

Leesbro63 wrote: Mon Jan 17, 2022 11:59 am
aj76er wrote: Mon Jan 17, 2022 10:48 amBest you can do is I-Bonds, which only matches inflation.
Not after taxes.
If you're looking for a perfect or near-perfect answer in today's fixed income space, you're not likely to find it.
Retirement is best when you have a lot to live on, and a lot to live for. * None of what I post is investment advice.* | FIRE'd July 2023
Leesbro63
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Re: William Bernstein - A Day To Remember (article)

Post by Leesbro63 »

AlwaysLearningMore wrote: Mon Jan 17, 2022 6:38 pm
Leesbro63 wrote: Mon Jan 17, 2022 11:59 am
aj76er wrote: Mon Jan 17, 2022 10:48 amBest you can do is I-Bonds, which only matches inflation.
Not after taxes.
If you're looking for a perfect or near-perfect answer in today's fixed income space, you're not likely to find it.
It’s not about being unable to find a perfect fixed income answer. It’s about not being able to even find a mediocre answer. It seems that for large taxable portfolios, there are only two options. Either take on extra equity risk or just accept letting inflation eat away at the real value of your fixed income allocation portion.
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Re: William Bernstein - A Day To Remember (article)

Post by hudson »

Random Walker wrote: Mon Jan 17, 2022 11:56 am
rhubarbpie wrote: Mon Jan 17, 2022 10:04 am Does anyone have links to other material where Dr. Bernstein talks about what the "safe bucket" would consist of?
Start with WB’s ebook, Life Cycle Investing

Dave
I agree...great book. https://www.amazon.com/Ages-Investor-Cr ... oks&sr=1-2

Maybe this: viewtopic.php?p=5160087#p5160087
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Re: William Bernstein - A Day To Remember (article)

Post by beyou »

I was a young early career brokerage industry employee working blocks away from Wall St and NYSE trading floor. I used to take the subway to Wall, and walk to my office right by the exchange.

Funny thing I noticed. Prior to Black Monday, there would daily be a fanatic preaching that the “end of the world” was approaching”. The many busy workers would walk by ignoring this person, until Black Monday. On that day, he had such a large audience, he climbed up on some object (car or mailbox) so his large audience could better see him ! He finally had his believers ;-)

As an IT employee, the whole thing was laughable to me in that I had friends who told me they worked 3 days without sleep to sort out all the paper trade tickets hand written on the floor of NYSE on Monday. Imagine all the angry phone calls if people could have seen their confirms online at the time, finding them missing or wrong ? This crash not only drove the industry to create “circuit breaker” but also to finally invest in automation of the entire equity trading process. People outside the industry were so focused on the value of their portfolios, few realized the operational melt down that occurred behind the scenes.
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Re: William Bernstein - A Day To Remember (article)

Post by Valuethinker »

Whilst Oct 19, 1987 was pretty shocking (I was working in IT for an insurance company, and had a small personal portfolio),

In financial terms Sept 2008 was worse. "All that is solid melts into air". It really felt like every financial institution in the world was trading insolvent.

In psychological terms 9-11 was worse or as a friend of mine put it "You can see yourself in that building, in a different timeline". Yes. For sure. They evacuated Canary Wharf in London ( a financial district which is pretty much isolated with one elevated railway and one Tube line to get 50,000 workers out).
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Re: William Bernstein - A Day To Remember (article)

Post by WhyNotUs »

I remember that day but not fondly. My last day as a gambler. Up to my eyeballs in OEX calls that were suddenly worthless. Wife 8 months pregnant. Lost enough to pay cash for the house we bought two months later. Had just enough left in actual stocks for downpayment. Humbled to my knees. Seems like another lifetime.
I own the next hot stock- VTSAX
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Re: William Bernstein - A Day To Remember (article)

Post by Leesbro63 »

WhyNotUs wrote: Tue Jan 18, 2022 9:53 am I remember that day but not fondly. My last day as a gambler. Up to my eyeballs in OEX calls that were suddenly worthless. Wife 8 months pregnant. Lost enough to pay cash for the house we bought two months later. Had just enough left in actual stocks for downpayment. Humbled to my knees. Seems like another lifetime.
Maybe this was a blessing in disguise for you? How did this lesson help you in the 35ish years since?
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Re: Wm. Bernstein_A Day To Remember (article)

Post by willthrill81 »

winterfan wrote: Sat Jan 15, 2022 8:53 am I enjoyed the article, but 20 years in safe assets seems excessive and overly conservative.
I would argue that it's recklessly conservative for all but those exceptionally few who have dramatically over-saved (i.e., 40x or greater).

The highest SWRs have come from a stock allocation ranging from about 50% - 80%.

It seems to me that part of Bernstein's flawed reasoning is that he views stocks as being very risky and bonds as being very safe. That only works if you equate safety with predictability, which most investors don't, and even then, the predictability of bond returns over the long-term (i.e., 20+ years) has not been good.
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Re: Wm. Bernstein_A Day To Remember (article)

Post by Jags4186 »

TheTimeLord wrote: Sat Jan 15, 2022 9:44 am S&P 500 Close
Oct 16, 1987 - 282.70
Oct. 19, 1987 - 224.84
Oct. 20, 1988 - 282.88

Source: Yahoo Finance
If you do it this way, it never happen:

Dec. 31, 1986 close: 242.17
Dec. 31, 1987 close: 247.08

Rather ho-hum +5.69% year (including dividends)
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Re: William Bernstein - A Day To Remember (article)

Post by WhyNotUs »

Leesbro63 wrote: Tue Jan 18, 2022 9:55 am
WhyNotUs wrote: Tue Jan 18, 2022 9:53 am I remember that day but not fondly. My last day as a gambler. Up to my eyeballs in OEX calls that were suddenly worthless. Wife 8 months pregnant. Lost enough to pay cash for the house we bought two months later. Had just enough left in actual stocks for downpayment. Humbled to my knees. Seems like another lifetime.
Maybe this was a blessing in disguise for you? How did this lesson help you in the 35ish years since?
Thanks Jack Bogle
I own the next hot stock- VTSAX
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Re: Wm. Bernstein_A Day To Remember (article)

Post by TheTimeLord »

Jags4186 wrote: Tue Jan 18, 2022 11:14 am
TheTimeLord wrote: Sat Jan 15, 2022 9:44 am S&P 500 Close
Oct 16, 1987 - 282.70
Oct. 19, 1987 - 224.84
Oct. 20, 1988 - 282.88

Source: Yahoo Finance
If you do it this way, it never happen:

Dec. 31, 1986 close: 242.17
Dec. 31, 1987 close: 247.08

Rather ho-hum +5.69% year (including dividends)
Nice, I hadn't thought to look back a year.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
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Re: Wm. Bernstein_A Day To Remember (article)

Post by bigskyguy »

willthrill81 wrote: Tue Jan 18, 2022 11:03 am
winterfan wrote: Sat Jan 15, 2022 8:53 am I enjoyed the article, but 20 years in safe assets seems excessive and overly conservative.
I would argue that it's recklessly conservative for all but those exceptionally few who have dramatically over-saved (i.e., 40x or greater).

The highest SWRs have come from a stock allocation ranging from about 50% - 80%.

It seems to me that part of Bernstein's flawed reasoning is that he views stocks as being very risky and bonds as being very safe. That only works if you equate safety with predictability, which most investors don't, and even then, the predictability of bond returns over the long-term (i.e., 20+ years) has not been good.
Dr. Bernstein needs no defending, and I will not attempt to do so. My reading of his article is different than yours, in that I see his approach as more nuanced (taking into account one's age, financial circumstances, risk/reward tolerance, employment status, dependent responsibilities).

As a 72 year old retiree married to a 62 year old retiree, we have determined that having a 20+ year portfolio of secure cash flow (SS plus TIPS ladder) is not only logical, but also responsible. I am personally willing to forego a 90% likelihood of a financial upside in return for a secure guarantee that my purchasing power will be sustained in my (and my partner's) later years.

Were I 32 with a family or 52 with a thriving career I would think and invest differently. And I believe if one reads Dr. Bernstein closely, he would agree. I acknowledge that my spouse and I represent a small minority of the Boglehead demographic, and that might well be the reason why your position struck a nerve. We are actually in a financial position where a sustained market downturn would have a major impact upon our lifestyle were we to invest in our retirement years as you seem to advise (50-80% equities).

Understanding oneself is imperative. Many activities I undertook in my early years were very reasonable (and appropriate) at the time, but would be truly reckless (for us) now. Investing as you suggest, given our financial picture, I believe would be just such an example.

The world certainly looks different now than it did when I was employed with a reliable paycheck.
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Re: Wm. Bernstein_A Day To Remember (article)

Post by Leesbro63 »

bigskyguy wrote: Tue Jan 18, 2022 11:48 am As a 72 year old retiree married to a 62 year old retiree, we have determined that having a 20+ year portfolio of secure cash flow (SS plus TIPS ladder) is not only logical, but also responsible.
I, also am a BIG fan of Dr. Bernstein. That being said, the problem now is DO YOU REALLY have a secure cash flow? TIPS are subject to taxflation when we get bigger inflation, like now. Yeah, if inflation has peaked and recedes everyone will be fine. But if we are on the way to 1979-80 inflation, you've given up the inflation protection that stocks bring longer term for the unfulfilled guarantee of security now.
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Re: Wm. Bernstein_A Day To Remember (article)

Post by hudson »

bigskyguy wrote: Tue Jan 18, 2022 11:48 am
As a 72 year old retiree married to a 62 year old retiree, we have determined that having a 20+ year portfolio of secure cash flow (SS plus TIPS ladder) is not only logical,

That works for me. Some might say to throw in a SPIA at the end.
I'm moving in your direction.
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Re: Wm. Bernstein_A Day To Remember (article)

Post by willthrill81 »

bigskyguy wrote: Tue Jan 18, 2022 11:48 am
willthrill81 wrote: Tue Jan 18, 2022 11:03 am
winterfan wrote: Sat Jan 15, 2022 8:53 am I enjoyed the article, but 20 years in safe assets seems excessive and overly conservative.
I would argue that it's recklessly conservative for all but those exceptionally few who have dramatically over-saved (i.e., 40x or greater).

The highest SWRs have come from a stock allocation ranging from about 50% - 80%.

It seems to me that part of Bernstein's flawed reasoning is that he views stocks as being very risky and bonds as being very safe. That only works if you equate safety with predictability, which most investors don't, and even then, the predictability of bond returns over the long-term (i.e., 20+ years) has not been good.
Dr. Bernstein needs no defending, and I will not attempt to do so. My reading of his article is different than yours, in that I see his approach as more nuanced (taking into account one's age, financial circumstances, risk/reward tolerance, employment status, dependent responsibilities).

As a 72 year old retiree married to a 62 year old retiree, we have determined that having a 20+ year portfolio of secure cash flow (SS plus TIPS ladder) is not only logical, but also responsible. I am personally willing to forego a 90% likelihood of a financial upside in return for a secure guarantee that my purchasing power will be sustained in my (and my partner's) later years.

Were I 32 with a family or 52 with a thriving career I would think and invest differently. And I believe if one reads Dr. Bernstein closely, he would agree. I acknowledge that my spouse and I represent a small minority of the Boglehead demographic, and that might well be the reason why your position struck a nerve. We are actually in a financial position where a sustained market downturn would have a major impact upon our lifestyle were we to invest in our retirement years as you seem to advise (50-80% equities).

Understanding oneself is imperative. Many activities I undertook in my early years were very reasonable (and appropriate) at the time, but would be truly reckless (for us) now. Investing as you suggest, given our financial picture, I believe would be just such an example.

The world certainly looks different now than it did when I was employed with a reliable paycheck.
I completely agree that one's own situation, including one's age and risk tolerance, should be the primary driver of one's AA. But that's not what Bernstein has generally advocated. He has recommended (at least other writings) that everyone keep 20-25 years of spending in what he refers to as 'safe' assets, and his 'when you've won the game...' statement implies that stocks are little better than a casino, despite the data showing that bonds are far from being riskless.

I don't have a problem per se with a liability matching portfolio approach, which is basically what Bernstein argues for though without often referring to it as such. But it only makes sense in certain situations and should by no means be taken as the 'default' strategy, as Bernstein has at least strongly suggested it to be.
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Re: Wm. Bernstein_A Day To Remember (article)

Post by hudson »

willthrill81 wrote: Tue Jan 18, 2022 12:02 pm I completely agree that one's own situation, including one's age and risk tolerance, should be the primary driver of one's AA.
I agree! Well said! Put it in the Wiki!
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Re: Wm. Bernstein_A Day To Remember (article)

Post by bigskyguy »

willthrill81 wrote: Tue Jan 18, 2022 12:02 pm
I completely agree that one's own situation, including one's age and risk tolerance, should be the primary driver of one's AA. But that's not what Bernstein has generally advocated. He has recommended (at least other writings) that everyone keep 20-25 years of spending in what he refers to as 'safe' assets, and his 'when you've won the game...' statement implies that stocks are little better than a casino, despite the data showing that bonds are far from being riskless.

I don't have a problem per se with a liability matching portfolio approach, which is basically what Bernstein argues for though without often referring to it as such. But it only makes sense in certain situations and should by no means be taken as the 'default' strategy, as Bernstein has at least strongly suggested it to be.
If one reads Dr. Bernstein closely, he is indeed advocating 20-25 years of spending in safe "assets" at all ages. However, if I am reading him correctly, amongst those assets would be a paycheck. Given that up until age 45, give or take, assuming one is a responsible adult with a reasonably reliable stream of reasonably predictable income, the need for "invested" safe assets is fairly small. Not the case as one approaches full retirement. His emphasis is much less on asset balance than it is on cash flow. At least that is how I read his approach. I might be wrong, but I would leave it to Dr. Bernstein to comment.
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Re: Wm. Bernstein_A Day To Remember (article)

Post by willthrill81 »

bigskyguy wrote: Tue Jan 18, 2022 1:39 pm
willthrill81 wrote: Tue Jan 18, 2022 12:02 pm
I completely agree that one's own situation, including one's age and risk tolerance, should be the primary driver of one's AA. But that's not what Bernstein has generally advocated. He has recommended (at least other writings) that everyone keep 20-25 years of spending in what he refers to as 'safe' assets, and his 'when you've won the game...' statement implies that stocks are little better than a casino, despite the data showing that bonds are far from being riskless.

I don't have a problem per se with a liability matching portfolio approach, which is basically what Bernstein argues for though without often referring to it as such. But it only makes sense in certain situations and should by no means be taken as the 'default' strategy, as Bernstein has at least strongly suggested it to be.
If one reads Dr. Bernstein closely, he is indeed advocating 20-25 years of spending in safe "assets" at all ages. However, if I am reading him correctly, amongst those assets would be a paycheck. Given that up until age 45, give or take, assuming one is a responsible adult with a reasonably reliable stream of reasonably predictable income, the need for "invested" safe assets is fairly small. Not the case as one approaches full retirement. His emphasis is much less on asset balance than it is on cash flow. At least that is how I read his approach. I might be wrong, but I would leave it to Dr. Bernstein to comment.
The fact that these threads almost invariably lead to posters saying 'I think Bernstein means X' is indicative of him not being clear enough in his recommendations.
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Re: William Bernstein - A Day To Remember (article)

Post by Fallible »

BarbBrooklyn wrote: Sat Jan 15, 2022 9:49 pm I was a young mom with 3 kids and a husband who worked in FinTech. (They didn't call it that back then. They just knew if the numbers on the ticker ever stopped, they'd be taken out and shot. Or something like that).

So I'm driving the Littles home and I hear about this market craziness, but what got me was the VOLUME. I knew what load the system he was supporting could bear and the number they were reporting was way above that.

I said to the kids (7, 6 and 4), "Daddy can't come home tonight; let's make hot dogs". They were mystified how I knew what Daddy was going to do from listening to the radio.

He staggered in 3 days later.
Good perspective, especially the hot dogs. :thumbsup

What I remember about that day was that I'd just begun investing several months before and I naively wondered how often crashes happened. Luckily, I was in mutual funds and had a good time horizon - lots of time to learn how often crashes happen.
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Re: William Bernstein - A Day To Remember (article)

Post by Bill Bernstein »

I'm unclear only if you don't actually read what I wrote, which is that young investors should be heavily into stocks, and retirees, and near-retirees, should aim for an LMP, and beyond that, an RP.

From Ages of the Investor, page 1:

"We’ll find, among other things, that young people should, in general, invest far more aggressively than they do, although it may take them some time to achieve the risk tolerance necessary to do so; that older people, on the other hand, should, in general, aim at an investment strategy heavy on “defeasing assets,” that is, fixed annuities or a laddered bond portfolio that matures throughout their retirement years; and that the trickiest and riskiest part of the process is the transition from the first phase of investing to the second."

then, a page later,

"To wit, it’s virtually impossible for young workers to deploy their investment capital too aggressively, because their human capital overwhelms it. Contrariwise, in later years aggressive investing may place an otherwise secure retirement at risk."

I repeat the concept in Rational Expectations and Investor's Manifesto.

If Willthrill81needs further clarification on this, he or she can PM me [OT comment removed by admin LadyGeek].

Bill
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Re: William Bernstein - A Day To Remember (article)

Post by drob »

Perfectly clear. Thanks, Bill Bernstein, for writing another terrific article. I read and re-read all your books and articles anytime I begin for a second to question my investing plan.
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Re: William Bernstein - A Day To Remember (article)

Post by willthrill81 »

Bill Bernstein wrote: Tue Jan 18, 2022 3:04 pm I'm unclear only if you don't actually read what I wrote, which is that young investors should be heavily into stocks, and retirees, and near-retirees, should aim for an LMP, and beyond that, an RP.
Thank you for clarifying this Bill. Some of the posts others have made regarding your writings have led myself and others to believe that your recommendations may have been otherwise.

As I noted above, I have no problem with those preparing for a retirement no longer than about 30 years using an 'LMP+RP' strategy, though it seems to be most appropriate for those with a low tolerance for risk.
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Re: William Bernstein - A Day To Remember (article)

Post by Bill Bernstein »

Reasonable people can disagree about how many years residual living expenses an LMP should be.

Much below 10, though, I think, is risky.

The older I get, the more I realize that investing success is more about psychology than anything else, and that a "suboptimal" allocation that lets you sleep at night is better than an "optimal" one that wakes you up at 3 AM in a cold sweat.

Were a retiree to start drawing down in 1966 with only a 10-year LMP, by December 1974 they'd have been hitting the HS valium hard.


Bill
Last edited by Bill Bernstein on Tue Jan 18, 2022 3:45 pm, edited 1 time in total.
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Re: William Bernstein - A Day To Remember (article)

Post by willthrill81 »

Bill Bernstein wrote: Tue Jan 18, 2022 3:42 pm The older I get, the more I realize that investing success is more about psychology than anything else, and that a "suboptimal" allocation that lets you sleep at night is better than an optimal one that wakes you up at 3 AM in a cold sweat.
I entirely agree that behavioral risks are some of the biggest risks that investors face. A strategy that doesn't enable an investor to sleep well at night is not an optimal strategy for that investor.

The phrase 'know thyself' comes to mind.
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Re: William Bernstein - A Day To Remember (article)

Post by Leesbro63 »

Bill Bernstein wrote: Tue Jan 18, 2022 3:42 pm
Were a retiree to start drawing down in 1966 with only a 10-year LMP, by December 1974 they'd have been hitting the HS valium hard.


Bill
So how did that 1966 LMP survive inflation, in real terms, by 1974?
In other words, I’m asking if safe fixed income withstands the safety test?

Thank you for chiming in.
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