Really confused by Bernstein

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ftobin
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Re: Really confused by Bernstein

Post by ftobin »

Levett wrote:To provide a more complete picture of retirement savings, Fidelity also studied the combined balance for investors who hold both a 401(k) and Individual Retirement Account (IRA) with the firm3. For these investors, the combined 401(k)/IRA average balance is $261,400, up 16 percent from the end of the fourth quarter 2012 when it was $225,600 (see chart).[/i]

Where's the million bucks? Where's the five million bucks? :confused
Without knowing at what stage of accumulation participants are at, using averages of all retirement account balances doesn't provide a helpful picture. Someone just starting out in the workforce has a $0 account balance, but this is natural.

That said, I wouldn't think retirement account balances would be that great in any respect. Saving 10% of median household income of $50k each year for 30 years, even with good equity growth, isn't going to come close to $1m.
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Re: Really confused by Bernstein

Post by Levett »

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Re: Really confused by Bernstein

Post by Dandy »

I believe that Bill is saying you have won the game (barely). If you have 20 years of funding for your retirement needs you can't afford to take much risk. 20 x $50k = $1M. It is hard to find safe returns of 2 to 3%. Major risks are inflation and living beyond your means. Thus TIPS and annuities are recommended. It is one knowledgeable, respected opinion, there are many others who suggest a different approach.

You don't have to agree. If you follow it and it fails Bill isn't going to bail you out. Unfortunately, you have to formulate a plan and live with the results. Read other opinions and select one that fits your comfort -- all have risks no perfectly safe plan.
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Re: Really confused by Bernstein

Post by hoops777 »

The younger you are when you retire the more risk you have of running out of money.I am not shedding a tear for those who choose to retire in their early to mid fifties with a 7 figure portfolio and then are fretting about do they have enough.I do feel for those who are laid off and forced to retire with no other options.
With that being said,common sense will tell you not to put your money at risk if you have just enough.If you have to put your money at risk to retire,you should keep working if possible.I am not WB but even I can figure that out.
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Re: Really confused by Bernstein

Post by siamond »

I have the greatest respect for Dr Bernstein, reading the '4 pillars' was a truly seminal point in my life, and I have totally restructured my investment planning according to many of the principles he explained. For the simple reason that he is just making a TON of sense, always providing truly fact-based justifications which are easy to understand, or double-check with spreadsheet homework. Now I have a plan that seems sensible and that I truly believe in. I hold an eternal gratitude to Dr Bernstein.

Now the bit that the OP emphasized... I'll confess... I don't get it either. Made no sense to me when I read it, still makes no sense to me now (except indeed if you're very wealthy). I am too in this $1M to $2M bracket. Not complaining, I feel very fortunate in many respects, but I don't feel I totally 'won the game' either, and I could certainly benefit from higher withdrawals than 2% or 3% SWR if the market gods are smiling at the right time...

Reading the various responses on this thread trying to justify such LMP views... I still don't get it. Yes, a $1M portfolio with a good dose of equities may go through a really bad fall, but if you're reasonable and adaptive with your withdrawals, you DO recover. Or at least, this is what happened in the past again & again. Unless you panic and sell at the wrong time, of course, but then what lessons have we learned? Or is it about protecting yourself against the use of a fixed SWR that you stubbornly keep going while your world is falling apart? This seems a justification a little too thin to move to extra safe ways of investing with stunted returns, and give up on all those possibly luckier outcomes where withdrawals can get better over time. It's not a matter of playing with the devil, it's a matter of assessing probabilities and diverse outcomes.

I will admit, I share the OP's puzzlement. I have no plans to move my portfolio to a bunch of TIPS and annuities. My way of dealing with LMP is to check that my truly barebone basic budget doesn't exceed ~ 2.5% of my portfolio + fixed income (SS/Pension). While my preferred budget is higher and more flexible, up and down. And my portfolio uses an AA I feel good about, fairly diversified. Inflation is protected by both equities & fixed-income. What's wrong with that?
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wjo
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Re: Really confused by Bernstein

Post by wjo »

richk2 wrote: I thought passive investing versus active investing was mostly about reducing the risks to a manageable level while giving yourself a reasonable opportunity for a lifestyle you want (just like when you are not retired). But Bernstein comes out and says, nope, whether active or passive investing its too risky and you can't do it. He might be right but I am only saying if that is what he feels, what is the real point of all his books about asset allocation without a disclaimer that it is only for the very rich?
You've had lots of good advice on this thread, but I wanted to pull out this comment. Passive investing has nothing to do with reducing the risks inherent in an investment plan. It is about reducing costs so you get your fair share of market returns. Because of that, passive investing generally outperforms active. But risks in 2008-9 showed up in a big way whether you were passive or active.

If you think passive investing provides some sort of risk reduction, that is a misreading of everything Bill Bernstein has ever said. Passive investing gives the small investor the best chance at a fair shake. But there is always risk. We are investors who hope for better outcomes but accept risk along the way. The old saw is they call it fishing, not catching. Sometimes you come up empty!

Bill B. has always advocated spending under a low SWR and setting targets for accumulation in line with 4% (or less!). The addition of transition to a floor or TIPs portfolio is a recent addition to his writing that is entirely consistent with a SWR planning number, just adding an additional guarantee.

If your accumulation left you with a portfolio where you need to spend 4% per year without any cushion, you've always been on the edge of having a "high probability of success, safe, sustainable portfolio." Taking a lot of that portfolio out of the investing game and putting it in a safe floor is a good way to avoid the risks of 2008-9.

I think you are reacting to the news that retirement math is depressing if you want a high guarantee of success. I don't think it is fair to say Bill B. or any of the other 'gurus' are telling you other than that or that it only makes sense for the 'super-wealthy.' Passive investing increases your odds of success in investing, no matter what scale you are at. It gives you the best chance - but it is still a chance as you are investing.

If anything, kudos to Bill B. and others for telling the nasty truth as opposed to those who sell their services with high hopes of 12% per year return!
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Re: Really confused by Bernstein

Post by twocavaliers »

Artsdoctor wrote:http://www.morningstar.com/cover/videoc ... ?id=557820

I would suggest that you go back and listen to the interview again.

Bernstein addresses NEED. If a person has a $5M portfolio and only needs 1% of the portfolio to live in, she can have a very equity allocation. If a person has a $1M portfolio and NEEDS to get $50,000 per year out of that portfolio, equities are going to be too risky and the investor has very little wiggle room.

If you have a $1M portfolio and you NEED to get $10,000 per year from that portfolio, he would probably argue that you can have a high equity allocation.

Once you have what you NEED, you can then have a portfolio that is dedicated to growth. On good years, you go to France, give to charity, renovate the kitchen, buy art. On bad years, you stay at home and decrease the spending.

He has been very conservative, to be sure. But to say that there has been some sort of arrogance is just plan wrong.
Yes, I think this is where OP is getting off track. Need vs want.
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Re: Really confused by Bernstein

Post by Artsdoctor »

^ Yes. The emotional response is understandable. I see this at work as people start contemplating retirement. At first, there's a feeling that a nest egg is just fine. Then, people come to the realization that that nest egg might not generate enough money to sustain their lifestyles. The confusion that results can be anxiety-provoking to be sure.

Sometimes it is difficult to really ascertain what you want and what you need. A lot of people probably haven't thought about it in that regard; maintaining the lifestyle that you had during the working years might be considered a NEED. Bernstein has been very clear that you figure out what you need for basics and do everything you can to protect that. Then, you can definitely take more risk with those assets you don't necessarily need.

Other very smart people haven't quite delineated portfolio planning this way, but nearly every reasonable advisor suggests having Plans A, B, and C just in case things don't work out.

Bernstein is smart, has his own opinions, and is very conservative with personal financial planning. This might be because he's a physician and realizes that bad things can and do happen more frequently than you'd expect. He also has a very significant grasp of financial history. No one is under any obligation to follow his advice. But the OP definitely misconstrued the interview.
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Re: Really confused by Bernstein

Post by Woodshark »

After some reflection, I see what the OP is talking about. I’ve been reading this and other investment and retirement forums for a couple of years. About 95% of the basic structure of all the advice has been to make sure to save at least 25 times your annual expected expenses. Invested in a good mix of equity and bond index funds according to your age and recommended asset allocation. Upon retirement take out only 3 to 3.5% annually and you should be fine 95% of the time. These are the fundamentals I’ve seen espoused again and again and again. Nowhere do I recall it saying that this really only applies for people with a high net worth. Something to use for “excess funds”, only after you have first used your investments to buy TIPS or annuities to guarantee a minimum “floor”. Yet after reading this entire thread (so far) that seems to be the new truth. If so then, like the OP, it’s news to me too.
If true then......

“First save 20 times your annual minimum expenses, then invest in TIPS or a SPIA”

should be chapter 1, page 1, for retirement planning books and all over the basic guidelines in forums such as this. I cannot recall seeing it espoused often. If I did then I, like the OP, I would feel like this also……..
richk2 wrote:Forget asset allocation and passive investing - its only for the young or the super rich. If you have a million or a couple of million and you want to support a relatively modest life style, you can basically forget it as far as investing is concerned. Don't buy stocks, don't allocate, don't buy bonds - all you can do is buy tips or annuities and basically, I guess, plan not to live very long. So all this stuff about passive investing and asset allocation and negative correlations is just for either the young or the super rich. Everyone else can forget it?

This was very disheartening and suggested that I should stop reading anything.
I can see how he is feeling a bit.....perhaps deceived?, by this omission. As someone who will retire with less than many here, if this is the new truth then I'm starting to feel a little disheartened myself.
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Re: Really confused by Bernstein

Post by ObliviousInvestor »

Woodshark wrote:After some reflection, I see what the OP is talking about. I’ve been reading this and other investment and retirement forums for a couple of years. About 95% of the basic structure of all the advice has been to make sure to save at least 25 times your annual expected expenses. Invested in a good mix of equity and bond index funds according to your age and recommended asset allocation. Upon retirement take out only 3 to 3.5% annually and you should be fine 95% of the time. These are the fundamentals I’ve seen espoused again and again and again. Nowhere do I recall it saying that this really only applies for people with a high net worth. Something to use for “excess funds”, only after you have first used your investments to buy TIPS or annuities to guarantee a minimum “floor”. Yet after reading this entire thread (so far) that seems to be the new truth. If so then, like the OP, it’s news to me too.
If true then......

“First save 20 times your annual minimum expenses, then invest in TIPS or a SPIA”

should be chapter 1, page 1, for retirement planning books and all over the basic guidelines in forums such as this. I cannot recall seeing it espoused often. If I did then I, like the OP, I would feel like this also……..
The bolded part is the key. What Bernstein is saying is that if you have not saved such an amount (and need a higher withdrawal rate), then you cannot afford to take on risk. It is not, “First save 20 times your annual minimum expenses, then invest in TIPS or a SPIA." It is, "if you are retired or nearly retired and have only saved 20 times your annual minimum expenses, invest in TIPS or a SPIA."
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Re: Really confused by Bernstein

Post by joe8d »

hoops777 wrote:The younger you are when you retire the more risk you have of running out of money.I am not shedding a tear for those who choose to retire in their early to mid fifties with a 7 figure portfolio and then are fretting about do they have enough.I do feel for those who are laid off and forced to retire with no other options.
With that being said,common sense will tell you not to put your money at risk if you have just enough.If you have to put your money at risk to retire,you should keep working if possible.I am not WB but even I can figure that out.
:thumbsup
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Re: Really confused by Bernstein

Post by Barry Barnitz »

Hi:

Background material: Life-cycle finance-Bogleheads, wiki
Plus this forum discussion

regards,
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Re: Really confused by Bernstein

Post by MnD »

Excellent observations. I'd add the slide from 4% to 3.5% to 3% and now 2.5% and even lower as far as SWR for a conventional balanced portfolio.
I think a lot of this is PTSD from 2000/01 and 2008 along with a fair contingent of money hoarders who don't want to see their big money pile ever stop growing under any circumstances.
Excellent advice here as to investing but the distribution advice is getting a bit looney.
Woodshark wrote:After some reflection, I see what the OP is talking about. I’ve been reading this and other investment and retirement forums for a couple of years. About 95% of the basic structure of all the advice has been to make sure to save at least 25 times your annual expected expenses. Invested in a good mix of equity and bond index funds according to your age and recommended asset allocation. Upon retirement take out only 3 to 3.5% annually and you should be fine 95% of the time. These are the fundamentals I’ve seen espoused again and again and again. Nowhere do I recall it saying that this really only applies for people with a high net worth. Something to use for “excess funds”, only after you have first used your investments to buy TIPS or annuities to guarantee a minimum “floor”. Yet after reading this entire thread (so far) that seems to be the new truth. If so then, like the OP, it’s news to me too.
If true then......

“First save 20 times your annual minimum expenses, then invest in TIPS or a SPIA”

should be chapter 1, page 1, for retirement planning books and all over the basic guidelines in forums such as this. I cannot recall seeing it espoused often. If I did then I, like the OP, I would feel like this also……..
richk2 wrote:Forget asset allocation and passive investing - its only for the young or the super rich. If you have a million or a couple of million and you want to support a relatively modest life style, you can basically forget it as far as investing is concerned. Don't buy stocks, don't allocate, don't buy bonds - all you can do is buy tips or annuities and basically, I guess, plan not to live very long. So all this stuff about passive investing and asset allocation and negative correlations is just for either the young or the super rich. Everyone else can forget it?

This was very disheartening and suggested that I should stop reading anything.
I can see how he is feeling a bit.....perhaps deceived?, by this omission. As someone who will retire with less than many here, if this is the new truth then I'm starting to feel a little disheartened myself.
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Re: Really confused by Bernstein

Post by stlutz »

The other dimension to this discussion is what constitutes stock market "risk." I'll oversimplify and propose two options:

a) The risk of investing in stocks is a significant short-term (e.g. 1-2 years) drop in the market as in 2001 or 2008.
b) The risk of investing in stocks is a significant decline in the market and it doesn't recover for a decade or two or more--e.g. Japan 1989 or US 1967.

If (a) is the better representation of what the risks really are and you can pretty much count on the stock chart going from the bottom left to the top right over time, well then investing in risky assets in retirement makes a lot of sense, especially if you have the ability to cut back during the occasional bad years.

If (b) is a better representation of reality, well then you simply can't count on stocks doing what they have done over the past 100 years--that was the anomaly. In that case, looking for guaranteed investments like TIPS or annuities makes a lot of sense.

Everyone has to make their own guesses and then live with them.
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Re: Really confused by Bernstein

Post by MnD »

stlutz wrote: b) The risk of investing in stocks is a significant decline in the market and it doesn't recover for a decade or two or more--e.g. Japan 1989 or US 1967.
Or US bonds 1941-1981
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Re: Really confused by Bernstein

Post by Cb »

I'm pretty sure Dr. Bernstein said several years ago that he'd changed his mind about the ability of well-informed investors to manage their own portfolios adequately. I think watching investor behavior during the more recent downturn has made him even less hopeful about the prospects for DIY'ers, the result being that he is now more conservative in many of his recommendations.
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Re: Really confused by Bernstein

Post by Leesbro63 »

I am a fan of Bernstein and do not doubt his conclusions. But I'm starting to see that maybe the bigger conclusion is that, for the average or even somewhat above average American, the dream of an affluent retirement similar to that of our parents may be slipping away. Many may conclude it's not worth what has to be sacrificed along the way. And that living in a mobile home in Florida on Social Security and Medicare, driving an old Corolla, might be better than giving up what has to be given up to do better. But don't shoot the messenger....Bernstein is just that, the messenger.
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Statement of the Retirement Funding Problem

Post by grayfox »

decided to make this a sparate thread
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Re: Really confused by Bernstein

Post by livesoft »

Cb wrote:..., the result being that he is now more conservative in many of his recommendations.
William Bernstein is a human being. He gets older just like the rest of us. As we get older our perspective changes, so I suspect that his perspective changes, too.

As an aside, one of the fun things in life is to talk to and associate with much younger people. They have a perspective that us old folks used to have. :)
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Re: Really confused by Bernstein

Post by richard »

MnD wrote:Excellent observations. I'd add the slide from 4% to 3.5% to 3% and now 2.5% and even lower as far as SWR for a conventional balanced portfolio.
I think a lot of this is PTSD from 2000/01 and 2008 along with a fair contingent of money hoarders who don't want to see their big money pile ever stop growing under any circumstances.
Excellent advice here as to investing but the distribution advice is getting a bit looney.<quote snipped>
The slide from 4% is largely due to:
- the realization that the returns during the historical period used to generate 4% were the product of luck and it's far from clear luck will continue
- predicting the next 30 years based on 3 (or perhaps 4) independent 30 year data points is pretty poor statistical technique
- valuation ratios have been better predictors of returns than raw history (Vanguard has a good paper) and current valuation ratios don't support 4% (Wade Pfau has good analyses)
- current corporate profitability owes a lot to high margins resulting largely from low or negative real wage growth and at some point the popular mood may no longer support this

Flexibility and a good plan B help a lot, but those who believe 4% is rock solid risk disappointment or worse.
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Re: Really confused by Bernstein

Post by richard »

Leesbro63 wrote:I am a fan of Bernstein and do not doubt his conclusions. But I'm starting to see that maybe the bigger conclusion is that, for the average or even somewhat above average American, the dream of an affluent retirement similar to that of our parents may be slipping away. Many may conclude it's not worth what has to be sacrificed along the way. And that living in a mobile home in Florida on Social Security and Medicare, driving an old Corolla, might be better than giving up what has to be given up to do better. But don't shoot the messenger....Bernstein is just that, the messenger.
A lot of that may have to do with the trend in wage growth for most of the population (or compare the GI Bill and other subsidized education to current student debt) rather than the predictions of low returns and the effects of low returns on withdrawal rates.
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Re: Really confused by Bernstein

Post by lazyday »

richk2 wrote:, where I live, it takes a lot of money for a lifestyle that I don't consider very lavish
Many people retiree to a new location.
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Re: Really confused by Bernstein

Post by lazyday »

Cb wrote:I'm pretty sure Dr. Bernstein said several years ago that he'd changed his mind about the ability of well-informed investors to manage their own portfolios adequately. I think watching investor behavior during the more recent downturn has made him even less hopeful about the prospects for DIY'ers, the result being that he is now more conservative in many of his recommendations.
I believe he's also indicated that this applies less to members of this forum. Maybe in a thread about Investor's Manifesto.

Though the posts from 2008-9 don't make me very confident.
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Re: Really confused by Bernstein

Post by lazyday »

johnz1001 wrote:.... $400,000 be used to purchase TIPS and inflation indexed annuities. You still have another $400,000 to invest in the 60/40 portfolio, in whatever mix you prefer depending on the level of risk you want to take with the non-floor portfolio.
I'd think with a sturdy floor covered, it could make sense to be quite aggressive with the rest.
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Re: Really confused by Bernstein

Post by lazyday »

nedsaid wrote:This is why I don't do guruism. As much as I admire folks like John Bogle, Dr. Bernstein, Rick Ferri, Larry Swedroe, and others on this forum I have points of disagreement with each of them.
I don't see this as a problem. Following a guru does not mean that we don't need to think critically about their ideas.

For my top gurus I consider everything they say seriously. Even if I reject it, I try to find the elements of truth in it.
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Re: Really confused by Bernstein

Post by lazyday »

Retirement funding is a problem that can have many possible solutions. Which we choose will depend on our personal circumstances and tastes.

Lately the Lifecycle solution of safe assets to cover required spending has been gaining in popularity. It may not be the best approach for everyone.

For example a retiree can take more risk if she has highly marketable skills that don't depend on good health.

Part of my issue is that required spending is not a well defined number.

Some people might be willing to risk surviving on only social security payments, and invest the portfolio aggressively in hope of some luxury.
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Re: Really confused by Bernstein

Post by lazyday »

Levett wrote:why don't you go chat up a few retirees
....
Indeed, they might well smile at some of the pretense that informs some of the responses you have received.
....
I talk to them every day--mainly at the gym, bookstores, and coffee shops. You would be astonished by how differently they have gone about retiring successfully.
Nice post.

http://www.bogleheads.org/forum/viewtop ... 4#p2005993
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Re: Really confused by Bernstein

Post by tadamsmar »

Why are you confused?

In the OP quote, Bernstein said a factor of 20. That's a 5% withdrawal rate during retirement.

I have rarely if ever seen anyone try to claim that 5% withdrawal rate is sufficiently safe.

There is a limit to how much you can expect from stock/bond AA. What do you think the limit is?

PS: A 4% withdrawal rate is 20% lower and considerably safer. But notion that that is safe seems to be based on the cherry picking the performance of the 20th Century's single best national stock market, so I have my doubts. It's less rosy if you back test with global markets.
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Re: Really confused by Bernstein

Post by YDNAL »

tadamsmar wrote:Why are you confused?

In the OP quote, Bernstein said a factor of 20. That's a 5% withdrawal rate during retirement.
Exactly.
"Now, let's say that instead of a $5 million portfolio, you have $1 million portfolio. Now you cover your needs by a factor of 20. Really, in that situation, if you want to retire at that point, there's only one thing you should be doing, and that's to take that money and probably either buy a Treasury Inflation-Protected Securities ladder and some longevity insurance on top of it, or you could just throw it all into three or four immediate fixed annuities and pretty much cover almost all of your living expenses on that. You can't take any risk."
That, I believe, is where the original poster missed the point -- and turned focus to wealthy/not wealthy discussion.
  • 1. The quote, explicitly, discussed how $1M "covers your needs" [of $50K] by a factor of 20.
    2. In this case, that's not a 4% withdrawal --- it is a 5% withdrawal and you better make sure that you make the right decisions (or hope for lots of luck).
    3. Bernstein provides input (take it, or leave it) on that decision.
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Re: Really confused by Bernstein

Post by siamond »

stlutz wrote:The other dimension to this discussion is what constitutes stock market "risk." I'll oversimplify and propose two options:

a) The risk of investing in stocks is a significant short-term (e.g. 1-2 years) drop in the market as in 2001 or 2008.
b) The risk of investing in stocks is a significant decline in the market and it doesn't recover for a decade or two or more--e.g. Japan 1989 or US 1967.

If (a) is the better representation of what the risks really are and you can pretty much count on the stock chart going from the bottom left to the top right over time, well then investing in risky assets in retirement makes a lot of sense, especially if you have the ability to cut back during the occasional bad years.

If (b) is a better representation of reality, well then you simply can't count on stocks doing what they have done over the past 100 years--that was the anomaly. In that case, looking for guaranteed investments like TIPS or annuities makes a lot of sense.

Everyone has to make their own guesses and then live with them.
Thanks, Slutz. That is indeed a clear explanation of the matter. I would further qualify that the (b) situation is not necessarily an absolute killer if you have a reasonably diversified AA and some level of backup (e.g. sell your house, move to a cheaper area), but this kind of "1% scenario" does exist and is harsh for sure. Personally, I don't center my planning on it, while keeping awareness of it. Frankly, there are worse black swans (e.g. World War III, big nuclear issue, etc) that we're not centering our planning on either.
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Re: Really confused by Bernstein

Post by siamond »

tadamsmar wrote:Why are you confused?

In the OP quote, Bernstein said a factor of 20. That's a 5% withdrawal rate during retirement.

I have rarely if ever seen anyone try to claim that 5% withdrawal rate is sufficiently safe.
You have a very good point here. I missed this and somehow assumed a 25x multiplier. Ok, this makes a bit more sense now. In such 20x situation, one is indeed in a tight spot.

But a good deal of my puzzlement remains IF the LMP recommendation is to put 80% of your portfolio in TIPS & Annuities if you're at 25x... Is it?

Hm. I guess I should read this LMP material again straight from the author. Still doesn't add up in my mind. At least for my own situation.
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Re: Really confused by Bernstein

Post by DRiP Guy »

lazyday wrote:For my top gurus I consider everything they say seriously. Even if I reject it, I try to find the elements of truth in it.
To the bolded part, I think I'd just add:
"...or at least what caused them to say it..."
lazyday
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Re: Really confused by Bernstein

Post by lazyday »

DRiP Guy wrote:"...or at least what caused them to say it..."
Makes sense.

Also might be helpful to look at their perspective and experience. For example, in Unconventional Success, Swensen suggested a high % of REITs. This might have been partly due to his experience with institutional RE investing. Surely he looked into REITs but probably didn't spend much of his career thinking about them. After the 08-9 crisis he lowered the REIT % moving it to EM. He spoke about this in a video online but I can't recall details of the reasons he gave.

He also spoke highly of Treasuries and TIPS but not sure he said much on CDs or savings bonds.
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Re: Really confused by Bernstein

Post by Leeraar »

I find the Bodie-like argument somewhat infuriating:

You can't afford to risk your retirement savings therefore you must invest very conservatively to ensure the floor therefore you will get a low rate of return therefore you cannot afford to retire therefore you should lower your expectations and plan to work until age 75.

There is a simple answer: Plan to exceed your requirements by some modest amount. Plan to retire at age 55. When you don't but do so at age 60, you will be all set.

I can clearly remember the day when I decided I had "enough" saved in my 401k. That was in the year 2000, and things proceeded to get very interesting. I did actually retire on November 1, 2008, and we are fine. Barring a catastrophe, we have more than enough saved.

The way to make your plan robust is to exceed the minimum requirements. The idea (or the interpretation) that you should slam on the brakes and throw out the anchor when you reach a minimum threshold is just silly.

L.
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Re: Really confused by Bernstein

Post by rob »

wjo wrote:If you think passive investing provides some sort of risk reduction, that is a misreading of everything Bill Bernstein has ever said.
While I completely agree with the general comment...... I think passive DOES remove the manager risk associated with active funds. Following an index removes the bets that the active manager is taking (and the cost of window dressing for reporting periods), so I view it as a part of risk reduction.

Obviously it's not a reduction of market risk.... but a reduction none the less IMO.
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Wildebeest
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Re: Really confused by Bernstein

Post by Wildebeest »

Barry Barnitz wrote:Hi:

Background material: Life-cycle finance-Bogleheads, wiki
Plus this forum discussion

regards,
I would have expected that with Barry Barnitz's post and after reading the Wiki on life cycle investing, the thread would have come to a halt.

I enjoyed reading the thread. I wish that Bernstein would have entered the fray. I also would have loved to have seen Bobcat2 weighing in.

How many times and in how may different ways ( very eloquently done by many of the posters) needs one to be reminded that a safe floor (SPIA, TIPS ladder etc) is mandatory to be insured from market declines (equity, bondmarkets, gold and commodities), inflation etc.

Greyfox does a great way in his post and new thread to make it bite size ready, and in my mind the Wiki lifecycle finance is a must read for anybody, who is "really confused by Bernstein".

My two cents
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Re: Really confused by Bernstein

Post by berntson »

YDNAL wrote:
"Now, let's say that instead of a $5 million portfolio, you have $1 million portfolio. Now you cover your needs by a factor of 20. Really, in that situation, if you want to retire at that point, there's only one thing you should be doing, and that's to take that money and probably either buy a Treasury Inflation-Protected Securities ladder and some longevity insurance on top of it, or you could just throw it all into three or four immediate fixed annuities and pretty much cover almost all of your living expenses on that. You can't take any risk."
That, I believe, is where the original poster missed the point -- and turned focus to wealthy/not wealthy discussion.
  • 1. The quote, explicitly, discussed how $1M "covers your needs" [of $50K] by a factor of 20.
    2. In this case, that's not a 4% withdrawal --- it is a 5% withdrawal and you better make sure that you make the right decisions (or hope for lots of luck).
This exactly. If an investor needs a 5% withdrawal rate over a long period of time, an annuity is about the only option (since it allows the expenses of the survivors to be subsidized by the assets of the deceased). On the other hand, if an investor can get by with a withdrawal rate of more like 2%, she may be able to hold an all-equity portfolio essentially all through retirement. Spendings rates and risk tolerance are closely related. This should surprise no one.
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Re: Really confused by Bernstein

Post by scone »

Alternatively, if you have a 2% withdrawal rate, a high equity allocation is pointless.

On another issue, not all Boomers have parents who enjoyed an "affluent" retirement-- in fact a lot of the Greatest Generation folks where held back by the Depression and the war. These are the types of catastrophes Dr. Bernstein is warning us to insure ourselves against. There are worse things in this world than living modestly.
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Re: Really confused by Bernstein

Post by hoops777 »

Excuse me but the only parents who enjoyed an affluent retirement were the ones who enjoyed an affluent life before retiring.Nobody knows what the stock mkt is going to do the 10,20 or 30 years after you retire.We all want reassurance that our decisions will work out,but the reality is unless you have a big cushion,you are gambling by depending on stocks behaving a certain way.I get a kick out of all the posts from smart people who keep saying you need 40 or 50 pct stocks to keep up with inflation.Really?
K.I.S.S........so easy to say so difficult to do.
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Re: Really confused by Bernstein

Post by bb »

Agree with sentiment of OP. For quite a while rule of thumb of
SWR has been discussed with implicit assumption that fixed
portion of portfolio allows one to weather the risk of
equities. Now discussion comes along and says if
you only have 25 times needed expenses then none
of that can be at risk. Reality is saving more than
25 times expenses is probably unrealistic for most
people. Which brings us to the only folks that can
take risk in retirement are the rich ones who do
not need to take any risk.

Berstein has stated if you have 50 times expenses
then LMP 1/2 and take risk with the other 1/2.
Seems like a 50/50 mix would do just fine.

Agree that if 1% withdrawal is the goal then all this
discussion is a waste of time and just plan on working
until you drop. Or take risk. I think I will sign up
for some risk.

Can't help but believe if we applied this line of thinking
to the other aspects of life one would never leave the
house - or live in a cave - house too risky.
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richk2
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Re: Really confused by Bernstein

Post by richk2 »

BB, that was well said and was exactly what I was trying to say which has not been understood by everyone. All this investment advice and analysis doesn't mean much if it doesn't apply to anyone. The theorists on this Board are no different than the market timers. Market timers always hedge in that its always something like "the market is going up but short term it might go down for awhile". The "bernstein" type people write treatises on how your money can earn a historically predictable return over time as long as you stay the course, keep expenses low and diversify. But then they hedge and tell you its too risky so don't do it. So what was the point? Obviously life has risk but that's no revelation either.
Last edited by richk2 on Thu Mar 27, 2014 10:54 am, edited 1 time in total.
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Re: Really confused by Bernstein

Post by midareff »

Artsdoctor wrote:^

Bernstein has been very clear that you figure out what you need for basics and do everything you can to protect that. Then, you can definitely take more risk with those assets you don't necessarily need.

Bernstein is smart, has his own opinions, and is very conservative with personal financial planning. This might be because he's a physician and realizes that bad things can and do happen more frequently than you'd expect. He also has a very significant grasp of financial history. No one is under any obligation to follow his advice. But the OP definitely misconstrued the interview.

+1.. agree totally. Identify and carry a sufficient supply of risk free or least risky assets to carry you through a standard retirement .... MM, TIPS ladder, short treasuries/corporates, and once you have an adequate dollar amount of these assets to secure your retirement years, you are at liberty to invest the rest in riskier assets.
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Re: Really confused by Bernstein

Post by Rodc »

Agree with sentiment of OP. For quite a while rule of thumb of SWR has been discussed with implicit assumption that fixed portion of portfolio allows one to weather the risk of equities. Now discussion comes along and says if you only have 25 times needed expenses then none
of that can be at risk.
That is really only true if you never read the SWR research and instead listened to other people who also did not read the research.

There has never, to my knowledge, been a research paper that said 4% plus inflation had a 100% success rate and certainly none that promised it would in the future. The research said you could frequently weather the risk, not always, at 25x needed income.

Somehow people grabbed the research and misconstrued it, and spread around misinformation.

Now the same is being done with Bernstein's remarks. He was talking about 20 times not 25 times, a meaningful difference. It has long been known that 20x is really not sufficient to be reasonably safe with a 4%+ inflation withdrawal plan.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
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Re: Really confused by Bernstein

Post by Leesbro63 »

Also there is a huge difference between beginning your 30 year SWR period at age 70 versus, say, age 62. The odds of outliving your 4% plus inflation SWR are greatly reduced if you can wait that 8 years before starting.
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Re: Really confused by Bernstein

Post by richk2 »

Rodc wrote:
Agree with sentiment of OP. For quite a while rule of thumb of SWR has been discussed with implicit assumption that fixed portion of portfolio allows one to weather the risk of equities. Now discussion comes along and says if you only have 25 times needed expenses then none
of that can be at risk.
That is really only true if you never read the SWR research and instead listened to other people who also did not read the research.

There has never, to my knowledge, been a research paper that said 4% plus inflation had a 100% success rate and certainly none that promised it would in the future. The research said you could frequently weather the risk, not always, at 25x needed income.

Somehow people grabbed the research and misconstrued it, and spread around misinformation.

Now the same is being done with Bernstein's remarks. He was talking about 20 times not 25 times, a meaningful difference. It has long been known that 20x is really not sufficient to be reasonably safe with a 4%+ inflation withdrawal plan.
I totally agree that neither Bernstein nor anyone else ever said the 4% rule always works. In fact, to the contrary, there are many statements that it doesn't always work. But you don't get my point which is why write all these books about investment theory and allocation and then bury somewhere a brief, by the way, that only about 1 per cent of the population can ever use the theories cause for everyone else it is too risky.By the way, there is nothing wrong with giving investment advice only to the rich and in fact, for all his popular, appeal, Bernstein only gives actual advice to the rich (over 10 million according to his website). I just think it should be clearer up front. The rest of us need to buy tips or gamble and I think most people with a decent savings will gamble for a better lifestyle and of course, some will "lose" that gamble by running out of money. If you are going to gamble anyway instead of buying tips, maybe Bernstein's work is as good a way to gamble as the other wall street solutions but that's what I am not sure about because of what I feel is the arrogance or hypocrisy of it
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Re: Really confused by Bernstein

Post by YDNAL »

richk2 wrote:But you don't get my point which is why write all these books about investment theory and allocation and then bury somewhere a brief, by the way, that only about 1 per cent of the population can ever use the theories cause for everyone else it is too risky.
It appears obvious to me that you conflating issues.
  • 1. Books about investment theory and [asset] allocation differentiate riskless and riskier investments.
    2. Everyone is responsible for their savings and consumption rates. What does 1% of the population have to do with any of this?
    3. Everyone is also entitled to allocate savings to match their Ability & Need for risk.
    4. What Bernstein says - as YOU quoted in your original post - is that "IF you saved 20x to cover your needs" you can't really afford "riskier" investments in #1.
    richk2 [OP] » Mon Mar 24, 2014 1:47 am wrote: ----------
    "Now, let's say that instead of a $5 million portfolio, you have $1 million portfolio. Now you cover your needs by a factor of 20. Really, in that situation, if you want to retire at that point, there's only one thing you should be doing, and that's to take that money and probably either buy a Treasury Inflation-Protected Securities ladder and some longevity insurance on top of it, or you could just throw it all into three or four immediate fixed annuities and pretty much cover almost all of your living expenses on that. You can't take any risk."
All that said, dang it, to cover 30 (or more) years in retirement save more than 20x ($1M in the quote) or consume less than $50K - it ain't rocket science nor is it cause to ramble on and on as you have done since the OP on Monday.
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Re: Really confused by Bernstein

Post by Wildebeest »

[quote="YDNAL"]
richk2 wrote:But you don't get my point which is why write all these books about investment theory and allocation and then bury somewhere a brief, by the way, that only about 1 per cent of the population can ever use the theories cause for everyone else it is too risky.

It appears obvious to me that you conflating issues.
  • 1. Books about investment theory and [asset] allocation differentiate riskless and riskier investments.
    2. Everyone is entitled to allocate savings to match their Ability & Need for risk.
    3. What Bernstein says - as YOU quoted in your original post - is that "IF you saved 20x to cover your needs" you can't really afford "riskier" investments in #1.
    richk2 [OP] » Mon Mar 24, 2014 1:47 am wrote: ----------
    "Now, let's say that instead of a $5 million portfolio, you have $1 million portfolio. Now you cover your needs by a factor of 20. Really, in that situation, if you want to retire at that point, there's only one thing you should be doing, and that's to take that money and probably either buy a Treasury Inflation-Protected Securities ladder and some longevity insurance on top of it, or you could just throw it all into three or four immediate fixed annuities and pretty much cover almost all of your living expenses on that. You can't take any risk."
    4. Everyone is also responsible for their savings and consumption rates. What does 1% of the population have to do with any of this?
All that said, dang it, to cover 30 (or more) years in retirement save more than $1M (20x) or consume less than $50K - it ain't rocket science nor is it cause to ramble on and on as you have done since the OP on Monday.[/quote]

I do not think you can say it much better than Yndal.
My feeble attempt: OP, if you have no debt, and live within your budget on your SS, you can buy all the equity funds you want.
OP, have you read the Greyfox thread? What did you think?

We are living in interesting culture where people want to eat their cake and keep it too.
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Re: Really confused by Bernstein

Post by 2015 »

This is an awesome thread. Thanks to the OP and to all who replied!
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Re: Really confused by Bernstein

Post by jackholloway »

YDNAL wrote:
richk2 wrote:But you don't get my point which is why write all these books about investment theory and allocation and then bury somewhere a brief, by the way, that only about 1 per cent of the population can ever use the theories cause for everyone else it is too risky.
It appears obvious to me that you conflating issues.
  • 1. Books about investment theory and [asset] allocation differentiate riskless and riskier investments.
    2. Everyone is entitled to allocate savings to match their Ability & Need for risk.
    3. What Bernstein says - as YOU quoted in your original post - is that "IF you saved 20x to cover your needs" you can't really afford "riskier" investments in #1.
    richk2 [OP] » Mon Mar 24, 2014 1:47 am wrote: ----------
    "Now, let's say that instead of a $5 million portfolio, you have $1 million portfolio. Now you cover your needs by a factor of 20. Really, in that situation, if you want to retire at that point, there's only one thing you should be doing, and that's to take that money and probably either buy a Treasury Inflation-Protected Securities ladder and some longevity insurance on top of it, or you could just throw it all into three or four immediate fixed annuities and pretty much cover almost all of your living expenses on that. You can't take any risk."
    4. Everyone is also responsible for their savings and consumption rates. What does 1% of the population have to do with any of this?
All that said, dang it, to cover 30 (or more) years in retirement save more than $1M (20x) or consume less than $50K - it ain't rocket science nor is it cause to ramble on and on as you have done since the OP on Monday.
Put another way:

If you need 50k, and by need, I mean need, not want, not live on currently, not "like numbers starting with 5", then you cannot afford risk. Imagine if the loan sharks were going to start breaking things off unless you gave them 4k a month, plus you want $100/month for ramen. In that case, if you had 1M, you would want to be very, very careful. You do not want pieces removed.

If you do not have $1M, then you are very likely to make the loan sharks mad. There are no good answers - reaching for yield has high risk. For example, if you have only $200k, and you want $50k/year, you need a return of 25% a year, and there are no safe 25% returns.

On the other hand, if you prefer living on 50k, but can get by on 10k, then you only need 200k to survive. You must keep that safe, but you can afford risk with the rest. That might indicate, for example, downsizing your home, or sharing an apartment so you have more options.

For many people, Social Security can cover their rent, heat, lights, and food. It would be unpleasant to not have more, but not fatal. They might, for example, have to prepare food on a hot plate when it is difficult to stand up, or not be able to afford pre-prepared food, but they would not be putting their life at risk.
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Re: Really confused by Bernstein

Post by Woodshark »

bb wrote:snip

For quite a while rule of thumb of
SWR has been discussed with implicit assumption that fixed
portion of portfolio allows one to weather the risk of
equities. Now discussion comes along and says if
you only have 25 times needed expenses then none
of that can be at risk. Reality is saving more than
25 times expenses is probably unrealistic for most
people. Which brings us to the only folks that can
take risk in retirement are the rich ones who do
not need to take any risk.

snip
I think that this is what the OP (any myself) find disturbing. It's sort of a circular logic, catch 22 rule of investing. After reading hundreds of posts, this is the first thread where I'm starting to see shades of haves vs have nots. ie. "I've got enough to buy a SPIA to match my needs plus plenty to invest and so should you." On the other side is the people who are saying "Wait, wait! I've get 25 x my annual expenses in savings; just like recommended. We scrimped and went without for years to save for our retirement. Now you're saying it's not enough. After all the years we have struggled, we have to save even more? Why didn't someone say this years ago?" The haves then answer..."Well now it's obvious don't you think. If you had taken the time to read Bernstein or had a better paying job, you wouldn't be in this mess now would you."

I've always viewed this forum applicable for all levels of investors. It's this duality of means I find a little disturbing.
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