https://humbledollar.com/2022/01/a-day-to-remember/Here are two lessons that took me decades more to learn—and which could have made my financial journey far smoother:
Evelyn
https://humbledollar.com/2022/01/a-day-to-remember/Here are two lessons that took me decades more to learn—and which could have made my financial journey far smoother:
Not everyone retires at age 65, voluntarily. If you are pushed out of the workforce at 58 and are unable to be fully employed again, having a pile of safe assets can tide you over. Social security is not a retirement plan.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.
That’s an interesting point. Add to that the impact that algos would have had. I’m not sure if they were used at the time, but if they were, I’m pretty sure they weren’t used to the extent firms employ them today.
I think it would be an interesting discussion on if that would make it worse or not. The panic cause by people not being able to reach their brokers or get accurate pricing surely added to the panic. Also, we have circuit breakers now that would provide cooling off periods.
From the article: "For the retiree, holding 10 years of living expenses in safe assets is barely acceptable, 15 years is better and 20 years’ worth is optimal. Once you’ve filled your retirement safe-asset bucket, you can begin filling and growing your risk-and-aspirational bucket. Never forget, if you’re going to survive retirement, your portfolio first has to survive. If you play portfolio Russian Roulette, by taking more risk than you can handle during a frightening economic and investment crunch, you’ll inevitably pay the price."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, 1987https://humbledollar.com/2022/01/a-day-to-remember/Here are two lessons that took me decades more to learn—and which could have made my financial journey far smoother:
Evelyn
Yes, that might be true in that case, but to me, it's seems like too broad of a statement to make. The percentage in bonds seems more dependent on your expenses, portfolio size, risk levels, human capital (as he says), debts, COL, etc. The hypothetical 58 yo can still get a PT job. Perhaps they have enough money saved and would prefer to lower their expenses/lifestyle and withdraw a smaller amount from their portfolio while unemployed. I'm not totally disagreeing, I just think there are more options available than saying 20 years in fixed assets. Maybe I am just an optimist, but we are age 49/61 and have 10 years in FA and a paid off house. I feel totally comfortable with that.Grt2bOutdoors wrote: ↑Sat Jan 15, 2022 9:00 am Not everyone retires at age 65, voluntarily. If you are pushed out of the workforce at 58 and are unable to be fully employed again, having a pile of safe assets can tide you over. Social security is not a retirement plan.
A very good post.Fortitude wrote: ↑Sat Jan 15, 2022 9:21 am When Black Monday occurred, I was 26 years old with very little invested in a 401K that my employer had recently established. My wife and I had been married a year and we had just bought our first house earlier that year and our daughter hadn’t yet been born. With little at risk and not feeling the gut wrenching fear felt by many, I remember Black Monday well.
I was at a training seminar and called in to the office to check in with my boss about something and I asked him how everything was. He was 39 years old at the time; married with children. He was freaking out and I asked him what was wrong. He screamed at me, “What the “F” are you talking about! What planet are you on!”
With no internet and cell phone, I had no idea what the hell he was talking about and failed to understand why he was going off the rails when I digested what had happened. I didn’t follow the market then as I began doing later in life.
Now as an experienced investor with much that needs to be protected and going through the 9/11/01 attack, the 2008 fInancial crisis and the 2020 market crash from Covid, I am all too familiar with how sick my boss felt during the October 1987 crash. I’ve reflected on that phone call with my former boss with each black swan event I’ve experienced and am grateful for everything I’ve learned over the years on building and managing a diversified portfolio.
+1winterfan 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.
I err on the part of conservatism. One can always adjust a conservative portfolio and increase the risk level if they choose. A risky portfolio however can not be made more conservative after a large risk event has passed without adding additional risks that you not have wanted to introduce including that of portfolio failure. During the Great Depression and I know it was almost 100 years ago, more than 25% of the population could not find any work (FT/PT). I'm not ready to retire yet, but have added more of a "floor" as I get closer. Having more money is nice, having enough is more important. A 20 year blanket depending on assets could be as little as zero if Social Security fully meets your basic expenses to requiring large amounts, most of us are likely to fall in the middle.winterfan wrote: ↑Sat Jan 15, 2022 10:21 amYes, that might be true in that case, but to me, it's seems like too broad of a statement to make. The percentage in bonds seems more dependent on your expenses, portfolio size, risk levels, human capital (as he says), debts, COL, etc. The hypothetical 58 yo can still get a PT job. Perhaps they have enough money saved and would prefer to lower their expenses/lifestyle and withdraw a smaller amount from their portfolio while unemployed. I'm not totally disagreeing, I just think there are more options available than saying 20 years in fixed assets. Maybe I am just an optimist, but we are age 49/61 and have 10 years in FA and a paid off house. I feel totally comfortable with that.Grt2bOutdoors wrote: ↑Sat Jan 15, 2022 9:00 am Not everyone retires at age 65, voluntarily. If you are pushed out of the workforce at 58 and are unable to be fully employed again, having a pile of safe assets can tide you over. Social security is not a retirement plan.
A great deal of truth in this one sentence — with implications for investors that are deep and far-reaching.William Bernstein wrote:Over the past four decades, I’ve learned that the prime prerequisite for a successful portfolio is that it survives.
Jack Bogle's Words of Wisdom: "An investment in knowledge always pays the best interest."
Believe there has been a thread on this:Taylor Larimore wrote: ↑Sat Jan 15, 2022 1:57 pm Bogleheads:
Bill Bernstein may be the smartest man I ever met. the LIterary Hub describes him this way:
"William J. Bernstein is a neurologist, financial theorist, and historian whose books include A Splendid Exchange, Masters of the Word, The Delusions of Crowds, The Birth of Plenty, and The Four Pillars of Investing. He is the co-founder of the investment management firm Efficient Frontier Advisors, and has written for publications including the Wall Street Journal and Money magazine. He was the winner of the 2017 James R. Vertin Award from CFA Institute. He lives in Oregon." Bill has also donated one of the best (and shortest) free internet book on investing here. I am pleased to know that he recommends my favorite Three-Fund Portfolio
This is a link to Dr. Bernstein's latest article Published today in the "Humble Dollar" website. I recommend reading it.
Best wishes.
TaylorJack Bogle's Words of Wisdom: "An investment in knowledge always pays the best interest."
Hi Taylor. I agree that Bill may well be the smartest guy I've ever met. And I firmly believe that there is another day that is indelibly etched in your mind; you freezing in a foxhole with German tanks approaching (aka The Battle of the Bulge).Taylor Larimore wrote: ↑Sat Jan 15, 2022 1:57 pm Bogleheads:
Bill Bernstein may be the smartest man I ever met. the LIterary Hub describes him this way:
"William J. Bernstein is a neurologist, financial theorist, and historian whose books include A Splendid Exchange, Masters of the Word, The Delusions of Crowds, The Birth of Plenty, and The Four Pillars of Investing. He is the co-founder of the investment management firm Efficient Frontier Advisors, and has written for publications including the Wall Street Journal and Money magazine. He was the winner of the 2017 James R. Vertin Award from CFA Institute. He lives in Oregon." Bill has also donated one of the best (and shortest) free internet book on investing here. I am pleased to know that he recommends my favorite Three-Fund Portfolio
This is a link to Dr. Bernstein's latest article Published today in the "Humble Dollar" website. I recommend reading it.
Best wishes.
TaylorJack Bogle's Words of Wisdom: "An investment in knowledge always pays the best interest."
oldcomputerguy:oldcomputerguy wrote: ↑Sat Jan 15, 2022 1:58 pm ^ Taylor, I think perhaps you might have left out the link to the article. I think this is the one:
A Day to Remember
Jack Bogle's Words of Wisdom: “Learn every day, especially from the experience of others. It’s cheaper.”
I think it meant to be percent, not cents.Why is this? At the beginning of the 20th century, each dollar invested in stocks yielded about five cents in annual dividends. Even if stock prices fell, that 5% yield nicely cushioned the loss in share prices. Over the decades, that yield has fallen to well below two cents, which is a much thinner cushion.
Thanks for the link to an excellent, thought-provoking article, Taylor. Not only was it interesting, but reading it had a calming effect on this Saturday afternoon — with the comfortable feel of a fireside chat.Taylor Larimore wrote: ↑Sat Jan 15, 2022 1:57 pm This is a link to Dr. Bernstein's latest article Published today in the "Humble Dollar" website. I recommend reading it:
https://humbledollar.com/2022/01/a-day-to-remember
Best wishes.
TaylorJack Bogle's Words of Wisdom: "An investment in knowledge always pays the best interest."
Use and meanings of the phrases “won the game” and “stop playing” always seemed self evident to me, but nice of you to clarify since in other threads some have been fencing with windmills about this language.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."
SGM's situation sits at the most optimistic extreme. If your burn rate is below 2% and you can live on the dividends of your 100% stock portfolio with a good margin of safety, then you don't need a large LMP. (Nor do you need much of an LMP if all of your living expenses are met with Social Security + pensions.) This assumes, of course, that you're one of those rare people who can live with a 100% stock portfolio, with the full knowledge of what happened in 1929-1932 in mind.
Finally, today's bloated stock and bond prices mean that we all have far more assets than we'd have with higher real interest rates. Yep, this year I expect to lose several percent of my spending power in safe fixed income assets. But that can't go on for very long without Fed action, and if the equity risk premium hasn't changed--and, if anything, it may have actually shrunk--then taking more risk in stocks may not be the most brilliant of moves.
Bill
Thanks for sharing. Can one even imagine having a portfolio decline 25% in a single trading session!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, 1987https://humbledollar.com/2022/01/a-day-to-remember/Here are two lessons that took me decades more to learn—and which could have made my financial journey far smoother:
Evelyn
Yes. That was very interesting to me too and I don't recall ever reading those details either. Not just about his active investing mistakes but also his use of futures in his younger years as well.
Yes, interesting to hear a few details about Mr. Bernstein's financial journey — and poignant that my "aha! moment" came soon thereafter when reading his Efficient Frontier blog in the 1990s — a time when I was floundering about investing matters.William Bernstein wrote:Fortunately, my financial journey got better from there. Not long after, I came across the books of Burton Malkiel and Jack Bogle, and began to immerse myself in the world of academic finance, particularly Eugene Fama and Kenneth French’s work on market efficiency and factor investing. I taught myself to spreadsheet, which was far less ubiquitous back then than it is now. My portfolio, whose stock exposure now consisted entirely of low-cost passively managed funds, prospered.
When the topic is dollars (see blue, above), cents and percent are equivalent. Two cents out of every dollar = 2% of a dollararcticpineapplecorp. wrote: ↑Sat Jan 15, 2022 2:41 pmThen there's this one:
I think it meant to be percent, not cents.Why is this? At the beginning of the 20th century, each dollar invested in stocks yielded about five cents in annual dividends. Even if stock prices fell, that 5% yield nicely cushioned the loss in share prices. Over the decades, that yield has fallen to well below two cents, which is a much thinner cushion.
Ah thanks. That does make sense (cents) now that I read it again.David Jay wrote: ↑Sat Jan 15, 2022 6:10 pmWhen the topic is dollars (see blue, above), cents and percent are equivalent. Two cents out of every dollar = 2% of a dollararcticpineapplecorp. wrote: ↑Sat Jan 15, 2022 2:41 pmThen there's this one:
I think it meant to be percent, not cents.Why is this? At the beginning of the 20th century, each dollar invested in stocks yielded about five cents in annual dividends. Even if stock prices fell, that 5% yield nicely cushioned the loss in share prices. Over the decades, that yield has fallen to well below two cents, which is a much thinner cushion.
I grew up with people talking this way, so Bill's text seems completely normal to me.
Thanks Dr. Bernstein. I probably should have checked it myself. Got a new word in my vocab now--Spreadsheeted.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, see, for example, the journal article half way down this page:
https://www.jstor.org/stable/i25062632
Then, of course, there's this:
https://en.wiktionary.org/wiki/spreadsheeted
FWIW, I kind of enjoy getting pulled over by the grammar police
Bil
Thank you for another wonderful article. I need to rethink my risk tolerance as my stock allocation had increased more and more. I was lucky in 2020. Not sure how I would take 2000-09 market. This article is perfect start for me. Plan to read books over the next few days.