William Bernstein - A Day To Remember (article)

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

Post by ScubaHogg »

willthrill81 wrote: Tue Jan 18, 2022 2:40 pm
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.
A person could say “I like the color green” and someone on the internet would misinterpret it.

No amount of clarity is sufficient for everyone
“Conventional Treasury rates are risk free only in the sense that they guarantee nominal principal. But their real rate of return is uncertain until after the fact.” -Risk Less and Prosper
seajay
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Re: Wm. Bernstein_A Day To Remember (article)

Post by seajay »

Leesbro63 wrote: Tue Jan 18, 2022 11:53 am
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.
Pick any asset and historically for some start years it will have failed to have been 'safe'. Different assets may have different start dates for failures, however blends equally have their own worst case start years. For some start years nothing was safe, all choices failed but by different magnitudes. The answer would seem to be to expand the capital allocated for the desired purpose, a lower SWR applied to a larger amount. Similar to having to invest more in each rung of a inflation bond ladder when real yields are negative. Valuations at the start are also a consideration factor.

If your Safe/drawdown bucket is stocks, with a 25 year 3% SWR intent, and your remainder growth bucket is also invested into stocks then two buckets with the same asset can be merged into a single bucket. The assumption that to reach 33x instead of 25x before retiring taking many more years of working is subjective. For some the difference might be just a single year i.e. stocks having had a good year following reaching 25x (saved another 2% of the portfolio value and stocks up 30%). Basically having more than enough is safer and in younger accumulation years stock heavy is more inclined to hit that. Even at 3% or 3.3% SWR (33x) however you don't want to shift that all into bonds as that is less safe than having some stocks (25%+), at least as indicated by the Trinity Study.

The ideal would be if the state were to collectively insure retirement planning. Guaranteed inflation pacing net of costs/taxes to each individual such that each retiree could use that with certainty and comfort rather than the uncertainties of when they might retire and having to target accumulating more than enough/surplus to reduce the risk. The US iBonds I believe better provide that, here in the UK in contrast and our equivalents were withdrawn to new investors (only existing holders permitted to roll) and/or where taxation levels have historically been increased to negate the benefits at the worst possible times. When the state has endured difficulties it has sought to raid/hit pension pots despite other avenues that might otherwise have been taken
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oldcomputerguy
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Re: William Bernstein - A Day To Remember (article)

Post by oldcomputerguy »

LadyGeek wrote: Sat Jan 15, 2022 7:22 pm You can google it. :wink:

(Sorry, couldn't resist.)

In October 1987, I was working as an engineer. A few of my colleagues were watching the news in disbelief. "Hey, look what the market's doing.". I went "Huh, I guess that's not good." and then went back to engineering.
In 1987 I was pretty ignorant of what world events might be doing to my 401k. I paid no attention during 1987, and I paid no attention during the subprime mortgage crisis in 2007-2008; I just kept working, kept putting contributions into my 401k, and was oblivious. That lack of awareness probably saved me from some serious behavioral mistakes.

When China devalued the yuan in 2015 and the market dropped in response, I had found Bogleheads and had become aware of the material taught here, so I began paying attention to the market. That was unfortunate, because it caused me a bit of worry at a time when I was about a year and a half away from retirement. Fortunately, since I had discovered Bogleheads and had learned a bit to counteract my ignorance, I had already adjusted my AA from 100% stocks to something more conservative, so I was able to weather that drop without serious reaction.
There is only one success - to be able to spend your life in your own way. (Christopher Morley)
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VictoriaF
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Re: William Bernstein - A Day To Remember (article)

Post by VictoriaF »

October 19, 1987, is significant, because on that day Nassim Taleb became financially independent, which has paved the path to "The Black Swan" and his other books.

Victoria
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lawman3966
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Re: William Bernstein - A Day To Remember (article)

Post by lawman3966 »

EvelynTroy wrote: Sat Jan 15, 2022 7:42 am William Bernstein has contributed an article today at Humble Dollar - he presents: A Day To Remember - October 19, 1987
Here are two lessons that took me decades more to learn—and which could have made my financial journey far smoother:
https://humbledollar.com/2022/01/a-day-to-remember/


Evelyn
The article appears to no longer be available on humbledollar.com. Does anyone have another link to the article, or some other way of accessing it?
zuma
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Re: William Bernstein - A Day To Remember (article)

Post by zuma »

lawman3966 wrote: Sat Mar 19, 2022 3:06 am
EvelynTroy wrote: Sat Jan 15, 2022 7:42 am William Bernstein has contributed an article today at Humble Dollar - he presents: A Day To Remember - October 19, 1987
Here are two lessons that took me decades more to learn—and which could have made my financial journey far smoother:
https://humbledollar.com/2022/01/a-day-to-remember/


Evelyn
The article appears to no longer be available on humbledollar.com. Does anyone have another link to the article, or some other way of accessing it?
https://web.archive.org/web/20220118193 ... -remember/
lawman3966
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Re: William Bernstein - A Day To Remember (article)

Post by lawman3966 »

Zuma: Thank you.

I suppose I ought to learn how to use Web Archive.
pseudoiterative
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Re: William Bernstein - A Day To Remember (article)

Post by pseudoiterative »

The first lesson in Bill's article hasn't yet been discussed much in this thread:
a suboptimal portfolio you can execute is better than an optimal one you can’t
The interpretation of an "executable" portfolio I understood from reading this section is to choose an asset allocation that is appropriate for your risk tolerance, to make it less likely you commit an "unforced error" and sell during periods of high market stress or market volatility.

The phrasing of that lesson, "a suboptimal portfolio you can execute", really struck a chord with me, but for a slightly different interpretation. Maintaining the portfolio generates a bunch of ongoing operational tasks, that you have to be disciplined and stick with. One task might be regularly investing surplus cash through a variety of market conditions. Another task might be executing periodic rebalancing.

My situation differs from that of sensible people in that I got excited about value investing at the beginning of my investing journey, and I've largely stuck with it. Instead of outsourcing equity portfolio construction to a company that offers a low-fee passive index tracking ETF, I build and maintain my own equity portfolio out of individual stocks. From the perspective of a hobby and intellectual interest, this has been a fun journey to learn more about a variety of topics: business, valuation, financial data sources and how to automate the repetitive parts of an investment decision process. But trying to execute this yourself does require a reasonably large and ongoing input of time and energy to continue to evaluate potential investments or deal with sudden changes in situation or corporate actions involving companies in your portfolio. Even if the financial results were incrementally better than outsourcing the work to a low-fee passive index tracking total market ETF run by professionals and subject to external regulation (doubtful!), the ongoing investment of time and energy -- and the fact that most of the remaining investment decisions left after automating away the more repetitive decisions are the ones requiring careful judgement calls -- makes managing a portfolio of individual securities much more difficult to execute, compared to paying Vanguard & peers a few basis points to do the work in a principled, passive-index-tracking way. If I would look back and do it all again from the start, I might ask "what new jobs am I creating for myself by taking this approach, how much value does that actually add, and am I going to be able to continue executing those jobs adequately, even during the periods when I have little time, energy, emotional stability?".
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Re: William Bernstein - A Day To Remember (article)

Post by Leesbro63 »

VictoriaF wrote: Wed Jan 19, 2022 7:05 pm October 19, 1987, is significant, because on that day Nassim Taleb became financially independent, which has paved the path to "The Black Swan" and his other books.

Victoria
Significant for Taleb, anyway! :D
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Re: William Bernstein - A Day To Remember (article)

Post by othermike27 »

Bill Bernstein wrote: Sat Jan 15, 2022 7:03 pm Re "to spreadsheet," I'm not a grammatical stickler. My go-to for common usage is JSTOR, which I think is even more authoritative than, say, the Chicago Style Manual or a standard dictionary.

So you made me look! I can't find the the infinitive form but there are plenty of past participle and gerund entries on JSTOR...
OK, but take care with the past tense. :D
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