Really confused by Bernstein
Really confused by Bernstein
As mentioned in another post, I am near retirement and am evaluating withdrawal rates and portfolio allocation. I have read of materials referring to William Bernstein's views and am currently reading Four PIllars. I had found his portfolio theories very interesting and thought helpful in formulating a long term portfolio perspective for me. But then I read this 2012 interview on Morningstar in which Bernstein was talking about stocks and equities in the current low interest rate environment. I saw this question and answer:
"Bill, one conundrum that I know a lot of our readers have wrestled with is they know they are approaching retirement, and I guess I would ask you, if I were to come in to your office today and say, "I'm a couple of years away from retirement and most of my portfolio is in equities," how would you suggest that I approach the portfolio, and how would you suggest that I derisk that portfolio?'"
........
"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"
This answer blew my mind. 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?
I assume this is why his management business is limited to people with ten million dollar net worth because he doesn't believe anyone else should be investing?????
This was very disheartening and suggested that I should stop reading anything. But is he right??? If you have a million and need to support a 40 -50,000 lifestyle or 2 million and want to support a 100,000 lifestyle, etc, you basically just forget investing because you cant take any risk whatsoever even with a balanced passive porfolio of various indexed stock categories and bond categories???? And everything in his books isn't meant for retires that aren't 1 percenters?
"Bill, one conundrum that I know a lot of our readers have wrestled with is they know they are approaching retirement, and I guess I would ask you, if I were to come in to your office today and say, "I'm a couple of years away from retirement and most of my portfolio is in equities," how would you suggest that I approach the portfolio, and how would you suggest that I derisk that portfolio?'"
........
"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"
This answer blew my mind. 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?
I assume this is why his management business is limited to people with ten million dollar net worth because he doesn't believe anyone else should be investing?????
This was very disheartening and suggested that I should stop reading anything. But is he right??? If you have a million and need to support a 40 -50,000 lifestyle or 2 million and want to support a 100,000 lifestyle, etc, you basically just forget investing because you cant take any risk whatsoever even with a balanced passive porfolio of various indexed stock categories and bond categories???? And everything in his books isn't meant for retires that aren't 1 percenters?
Re: Really confused by Bernstein
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. It is important as an investor to have your own mind and not just blindly follow what even those whom you admire say.
Probably what you need to do is to google Dr. Bernstein and read more of what he has said on this topic and try to get a wider context on his comments. Perhaps this thread will catch his eye and maybe he will respond.
My take is that inflation is the biggest enemy of the investor. Inflation marches on whether one is retired or not. In my opinion the retired investor has to take on some degree of risk even in retirement. Unless of course you are very wealthy.
So don't get confused. You are an intelligent person and can take the information from this forum and form your own opinions. I sure wouldn't change your investment strategies based on an opinion from one author.
I will say that I have read the Four Pillars of Investing and was very impressed by the book. I also have seen Dr. Bernstein on the Boglehead Reunion Videos and also was very impressed with him. John Bogle has often commented on Dr. Bernstein's intelligence and that says a heck of a lot to me.
Probably what you need to do is to google Dr. Bernstein and read more of what he has said on this topic and try to get a wider context on his comments. Perhaps this thread will catch his eye and maybe he will respond.
My take is that inflation is the biggest enemy of the investor. Inflation marches on whether one is retired or not. In my opinion the retired investor has to take on some degree of risk even in retirement. Unless of course you are very wealthy.
So don't get confused. You are an intelligent person and can take the information from this forum and form your own opinions. I sure wouldn't change your investment strategies based on an opinion from one author.
I will say that I have read the Four Pillars of Investing and was very impressed by the book. I also have seen Dr. Bernstein on the Boglehead Reunion Videos and also was very impressed with him. John Bogle has often commented on Dr. Bernstein's intelligence and that says a heck of a lot to me.
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Re: Really confused by Bernstein
None of the sages, as smart and learned as they are, have the marble tablets of complete wisdom. You have to make your own path through the jungle.
Re: Really confused by Bernstein
You derisk a portfolio by taking the risk out. Annuities do that.richk2, quoting a question to wbern wrote: and how would you suggest that I derisk that portfolio?'"
A lot of people like the idea of a floor that covers your basic expenses. Now if you can live on social security alone, you have that covered. If you need more than social security, then you need more. And if you want it to have as little risk as social security, you shouldn't be betting on stocks for that portion of your income. Once you have your basic expenses covered, what you do with the money you don't need to cover your basic expenses is up to you. That seems fairly rational to me.You can't take any risk
To me there is no inconsistency between talking about asset allocations for the money that you don't absolutely need and talking about annuities for the money you do absolutely need. You don't have to be super rich to have enough for more than the bare necessities.
I am not rich compared to many around here, but my pension and my social security cover more than I need, so I am free to do whatever I want with my money. Now I tend not to think that much about asset allocation, but my own money isn't going into annuities because I already have my floor. And I am very passive, although my daughter accused me of being passive-agressive just last week.
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Re: Really confused by Bernstein
Yes, Bernstein believes that stocks and bonds are dangerous for most retirees, unless their living expenses are already covered by some combination of SS/pension/TIPS/annuities.
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Re: Really confused by Bernstein
I think you're taking things out of context.
While Bill is a big fan of not taking risk you don't need to take, I don't think he would advocate someone who had been 75% or 60% equities going to 0% equities on the eve of his retirement. But if you can meet all your needs with nothing but SPIAs and TIPS, that's certainly a very viable option for someone who wants to avoid risk.
However, it seems to me that someone who has dealt with equity risk for 20 or 30 years to all of a sudden not be able to deal with it is a little odd. I think I would find it easier to adjust my lifestyle than that type of theory seems to suppose.
While Bill is a big fan of not taking risk you don't need to take, I don't think he would advocate someone who had been 75% or 60% equities going to 0% equities on the eve of his retirement. But if you can meet all your needs with nothing but SPIAs and TIPS, that's certainly a very viable option for someone who wants to avoid risk.
However, it seems to me that someone who has dealt with equity risk for 20 or 30 years to all of a sudden not be able to deal with it is a little odd. I think I would find it easier to adjust my lifestyle than that type of theory seems to suppose.
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Re: Really confused by Bernstein
The OP should read "Unveiling the Retirement Myth" by Jim C. Otar.
If one doesn't have enough saved to cover their retirement, then the best they can do is buy a single premium immediate annuity. If you read the book, I think you might see why this is so. In this sense, Bernstein agrees with Otar and many others in this field.
If one doesn't have enough saved to cover their retirement, then the best they can do is buy a single premium immediate annuity. If you read the book, I think you might see why this is so. In this sense, Bernstein agrees with Otar and many others in this field.
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Re: Really confused by Bernstein
I'm no expert on Dr. B's philosophy, but one of his fundamental philosophies is that the worst thing that can happen--the one thing we want to avoid at all costs--is running out of money in the later part of retirement. And, based on every study I've seen (and my own amateur calculations), with a 4% withdrawal rate, there's a nonzero probability of that happening over a ~30 yr. horizon. That's true even with historical investment returns, and arguably more so with the rather muted returns most "experts" see going forward. So, that's where he's coming from, doing whatever it takes to ensure a reasonable level of income under near worst-case conditions. I don't see myself doing that, but I respect the potential of having a very rough go of it. My intended approach is to be very flexible in my lifestyle during the early half of retirement. In other words, I'm prepared to react to lousy investment returns with frugality and maybe austerity. That approach isn't acceptable to everyone--many prefer a predictable income stream. Dr. B has his opinion for the "safest" steady income stream. It depends I guess on how much risk one wants to take.
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Re: Really confused by Bernstein
Or read Dr. Bernstein's The Ages of the Investor as it explains the context very well. Retirement is essentially attending the funeral for one's human capital which completely changes the perspective. Its not an overnight change but keep an eye out for preparing to be less aggressive as one grows older due to your shrinking human capital. Know your liabilities and don't retire until you can match those liabilities for 20 or 30 years in less risky assets. Avoid catastrophic risk when you can afford it least. It's a fantastic read.
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Re: Really confused by Bernstein
I think it comes down to one's level of conservatism. Dr. Bernstein is telling you how to craft your investments if you know how much you will need and wish to take zero risk. The balanced portfolio (stocks and bonds, periodically rebalanced), while giving you the opportunity to have more than you actually need, also leaves open the possibility of running out of money unless the withdrawal rate is very low. That said, adjusting the amount withdrawn as a function of your balance is very effective for increasing portfolio longevity. Doing this requires a level of over-saving.
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Re: Really confused by Bernstein
Ned said:
Lev
In my experience, I would say declining health is by far the biggest enemy.My take is that inflation is the biggest enemy of the investor
Lev
Re: Really confused by Bernstein
You have to ask yourself, richk2,richk2 » Mon Mar 24, 2014 1:47 am wrote:... I read this 2012 interview on Morningstar in which Bernstein was talking about stocks and equities in the current low interest rate environment. I saw this question and answer:This answer blew my mind. 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?"Bill, one conundrum that I know a lot of our readers have wrestled with is they know they are approaching retirement, and I guess I would ask you, if I were to come in to your office today and say, "I'm a couple of years away from retirement and most of my portfolio is in equities," how would you suggest that I approach the portfolio, and how would you suggest that I derisk that portfolio?'"
........
"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"
- o You saved $S (deferred income AFAIC) to pay for expenses when you are no longer working and saving.
o You need $X annually from savings, so how will you best-guarantee* to have this for Y years?
o This is a personal question that only YOU can answer. When you answer it, you may (maybe not) come to exactly the same opinion as Bernstein.
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Re: Really confused by Bernstein
I think Bill would have asked you "do you have Social Security and/or a pension"? If so the income from these sources would typically make a large dent in the investment income needed to fund a $50,000 lifestyle for an investor with a $1 million portfolio. You would first subtract your SS/pension income from the $50,000 lifestyle income goal. Multiplying the remaining needs by 20, or even 30, should leave a considerable amount of your $1 million portfolio available for investment in riskier assets.richk2 wrote:This was very disheartening and suggested that I should stop reading anything. But is he right??? If you have a million and need to support a 40 -50,000 lifestyle or 2 million and want to support a 100,000 lifestyle, etc, you basically just forget investing because you cant take any risk whatsoever even with a balanced passive porfolio of various indexed stock categories and bond categories???? And everything in his books isn't meant for retires that aren't 1 percenters?
Re: Really confused by Bernstein
I take issue with Dr. B. from a different angle. I don't believe that large taxable portfolios can really be set up as true liability matching portfolios. But I agree with him here. With $1M, the chance that TIPS or an annuity will work out are pretty good while a 60/40 to 40/60 portfolio is a much bigger gamble. And $1M is not so,large as to have a significant "taxflation" problem if inflation ramps up.
By the way, buying all TIPS and/or annuities is still asset allocation and it's still investing.
By the way, buying all TIPS and/or annuities is still asset allocation and it's still investing.
Re: Really confused by Bernstein
I would say low or negative real returns is the biggest enemy (or inadequate resources to meet one's needs). What's the problem if my costs are going up 5% if my portfolio and income are going up 8%?nedsaid wrote:<snip>My take is that inflation is the biggest enemy of the investor. Inflation marches on whether one is retired or not.<snip>
Very low inflation can mean a slow economy and low returns (e.g., 5 year TIPS rates are negative). If our investor is not yet retired, this can mean unemployment, underemployment or inadequate wages. Very high inflation is often a mess, which is bad for returns.
Re: Really confused by Bernstein
TIPS and inflation adjusted annuities are probably the best we can do, but they are not good enough.Leesbro63 wrote:I take issue with Dr. B. from a different angle. I don't believe that large taxable portfolios can really be set up as true liability matching portfolios. But I agree with him here. With $1M, the chance that TIPS or an annuity will work out are pretty good while a 60/40 to 40/60 portfolio is a much bigger gamble. And $1M is not so,large as to have a significant "taxflation" problem if inflation ramps up.
By the way, buying all TIPS and/or annuities is still asset allocation and it's still investing.
In addition to the taxation of inflation adjustments, there's credit risk on annuities (exacerbated by the small number of issuers of inflation adjusted annuities) and current low real interest rates.
Fans of lifecycle investing say better products are being developed (or even that current products are adequate), although I have my doubts we'll see anything available to the general public anytime soon that really solves these issues.
Re: Really confused by Bernstein
I would say the TIPS and annuities are not perfect. But for many they might, indeed, be the best you can do AND "good enough". I can say the same for a stocks and bonds portfolio.
Re: Really confused by Bernstein
I'd say they are good enough if we don't experience high enough inflation for taxation of the inflation adjustment to be a problem, if you can live with current real rates and if you are somehow immune to the credit issues with annuities. A portfolio very large relative to expenses would ameliorate these issues.
In part, it depends on what one means by "good enough". I suppose Bill would say a solution is good enough if the odds of a problem are significantly less than the odds we see the four horsemen of the apocalypse.
In part, it depends on what one means by "good enough". I suppose Bill would say a solution is good enough if the odds of a problem are significantly less than the odds we see the four horsemen of the apocalypse.
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Re: Really confused by Bernstein
I think it fascinating that people who believe that you can't time the market fervently believe that THEY can "time" the cycle of life. I can hear them saying "Not me Father Time I am a MASTER OF THE UNIVERSE , I am sprinkled with magic fairy dust and my magic spread sheet /asset allocation will defeat all comers.
If Edward Jones was spreading this nonsense you would laugh at the suckers who fell for it.
As you get older longevity risk is the real risk is the real risk. If you want to deal with inflation you save part of the annuity. You buy LTC insurance to cover the gap between your pension/annuity/social security and the cost of LTC. If your guaranteed income is large enough you just self insure for LTC
If Edward Jones was spreading this nonsense you would laugh at the suckers who fell for it.
As you get older longevity risk is the real risk is the real risk. If you want to deal with inflation you save part of the annuity. You buy LTC insurance to cover the gap between your pension/annuity/social security and the cost of LTC. If your guaranteed income is large enough you just self insure for LTC
Re: Really confused by Bernstein
I have probably been the one on here talking the loudest about "taxflation", mainly of TIPS in large taxable portfolios. But it has been pointed out to me that for smaller portfolios (I consider $1M small in this case), this might not be a huge issue because tax rates, under current law, will also rise with inflation. And with only $1M, you can buy 10 annuities at $100,000 and have diversification as well as some state insurance guarantee (but I get it that the total insurance is way less than $1M). So I maintain that TIPS and annuities for a portfolio of $1M is probably "good enough". But still not perfect.richard wrote:I'd say they are good enough if we don't experience high enough inflation for taxation of the inflation adjustment to be a problem, if you can live with current real rates and if you are somehow immune to the credit issues with annuities. A portfolio very large relative to expenses would ameliorate these issues.
In part, it depends on what one means by "good enough". I suppose Bill would say a solution is good enough if the odds of a problem are significantly less than the odds we see the four horsemen of the apocalypse.
Re: Really confused by Bernstein
I guess it can blow someone's mind to read what financial economists have known for a very long time and what is discussed and recommended by many advisers in the field and in conversations here. I do hope you understand that a single premium immediate annuity is just exactly the use of assets that addresses living a long time rather than being a plan not to live a long time. The TIPS ladder is also discussed and indeed, there is a problem out there about what to do at the end of the ladder. Note, however, that for a 65 year old investor 30 years is living a long time, but not so much for a person thinking to retire at age 50. How to manage inflation during retirement is a part of the puzzle, as well. That is why TIPS and the problem of what to do when one has pensions and/or annuities that are fixed. There is also Social Security, which is an inflation indexed annuity that people are urged to maximize by delaying as long as possible.richk2 wrote: This answer blew my mind. 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?
It is an issue that deserves consideration as to how well current retirees will make out funding from portfolios of stocks and bonds given current conditions. Personally I think some people imagine they know more about the future than they really do and it is always possible to assume the worst. I think you should have some patience to read and explore more about the subject. Otar's book is one but very long source on the subject and there are many other papers and conversations. It should be remembered that figuring out what really happens in retirement is a little bit of a complicated problem that can be approached different ways. We are also reminded that it can be a simple problem if one recognizes that life is uncertain and that one adjusts as one goes along. It is also advised that people have multiple sources of support during retirement, which can/should include investments, possibly with TIPS, and (only single premium immediate) annuities together with Social Security.
Re: Really confused by Bernstein
I'm suspicious of this logic. Perhaps my logic is also confused, but my understanding is that with a TIPS ladder in taxable, the real after-tax cash flows from the ladder become hopelessly unreliable as inflation fluctuates.Leesbro63 wrote:But it has been pointed out to me that for smaller portfolios (I consider $1M small in this case), this might not be a huge issue because tax rates, under current law, will also rise with inflation.
For example, say a retired couple has a $1M TIPS ladder in taxable that generates $40k in real pretax income each year over 30 years. Further, assume they have other taxable income of $30k per year (for simplicity, let's say this is taxed at ordinary income rates). So that means the couple receives $70k a year of pre-tax real cash flow to cover expenses.
During the early years of the ladder, around $10k of their $40k in TIPS cash flow will be from taxable interest payments paid by TIPS in their ladder.
If inflation is 1%, the imputed income from the ladder's inflation adjustment will be $10k ($1m x 1%). So at 1% inflation, they'll have a total TAXABLE income of $30k + $10k + $10k = $50k. A super simple tax calculator shows a tax liability of around $3,600 on this taxable income. That gives them an after tax cash flow of $66,400 for the year.
If inflation moves up to 10%, the imputed income from the inflation adjustment will be $100k. Their taxable income will be $30k + $10k + $100k = $140k, with a tax bill of around $22,000.
Now, instead of $66,400, they'll only have $48,000 to spend after paying taxes. That's a lot of variability in a supposedly guaranteed real income. This may be exaggerated because I assumed a 9% inflation spike right after the ladder is purchased, but IMO it's not an impossible scenario or even the worst case.
Jim
Re: Really confused by Bernstein
Does Bernstein favor a Treasury Inflation-Protected Securities ladder instead of TIPS fund?richk2 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"
This was very disheartening and suggested that I should stop reading anything. But is he right??? If you have a million and need to support a 40 -50,000 lifestyle or 2 million and want to support a 100,000 lifestyle, etc, you basically just forget investing because you cant take any risk whatsoever even with a balanced passive porfolio of various indexed stock categories and bond categories???? And everything in his books isn't meant for retires that aren't 1 percenters?
~~~ when dumb money acknowledges its limitations, it ceases to be dumb ~~~
Re: Really confused by Bernstein
I don't believe there are ten issuers of inflation adjusted annuities. Are there even five? The problem grows for larger than "small" portfolios.Leesbro63 wrote:I have probably been the one on here talking the loudest about "taxflation", mainly of TIPS in large taxable portfolios. But it has been pointed out to me that for smaller portfolios (I consider $1M small in this case), this might not be a huge issue because tax rates, under current law, will also rise with inflation. And with only $1M, you can buy 10 annuities at $100,000 and have diversification as well as some state insurance guarantee (but I get it that the total insurance is way less than $1M). So I maintain that TIPS and annuities for a portfolio of $1M is probably "good enough". But still not perfect.richard wrote:I'd say they are good enough if we don't experience high enough inflation for taxation of the inflation adjustment to be a problem, if you can live with current real rates and if you are somehow immune to the credit issues with annuities. A portfolio very large relative to expenses would ameliorate these issues.
In part, it depends on what one means by "good enough". I suppose Bill would say a solution is good enough if the odds of a problem are significantly less than the odds we see the four horsemen of the apocalypse.
On TIPS, the problem is not "bracket creep", it's paying taxes on the inflation adjustment.
Assume 10% inflation, 2% real interest rates, 35% federal tax bracket and a $1mm TIPS portfolio (to make the numbers easy). There's a $100,000 non-cash inflation adjustment and $20,000 interest. You pay $35,000 plus $7,000, or $42,000 in taxes on $20,000 in cash interest. You'll be paid the $100,000 in cash at maturity, but maturity could be decades later.
That's always been the argument against holding TIPS in taxable. There's less of a problem at lower (and more realistic) inflation rates. Current Fed policy appears to be to set a 2% ceiling on inflation, which would greatly ameliorate the problem, but it's hard to predict the relative power of inflation hawks.
Re: Really confused by Bernstein
Some of these responses are basically chastising my viewpoint. Essentially, I am reading them as saying if you are "poor" like only having a million or two or three, what did you expect other than poverty? So why I am complaining??? While poor is poor and if you are poor there is no point in complaining on a Board like this, I think my real complaint is that passive investing, Bogleheads and guys like Bernstein are really a fraud. There is no disclaimer anywhere that basically says "DON'T WASTE YOUR TIME READING OR STUDYING BOGLEHEADS FORUMS OR BERNSTEIN AND THE LIKES' BOOKS UNLESS YOU ARE SUPER RICH".
So passive investing is just as much a fraud as active investing and ultimately is just another way that gurus can make money off of people by selling a philosophy that doesnt work anymore than traditional wall street. Either way you are doomed but it does seem to me that active investing at least gives you hope while Bernstein says passive investing gives you no hope.....
I am probably going to get flamed for this post. In any event, I don't think Bernstein is right. Lots of things can go wrong if you are young or old but a few million dollars gives you more options than elusively unavailable inflation adjusted annuities that would take all you money and leave you with very little to live on
So passive investing is just as much a fraud as active investing and ultimately is just another way that gurus can make money off of people by selling a philosophy that doesnt work anymore than traditional wall street. Either way you are doomed but it does seem to me that active investing at least gives you hope while Bernstein says passive investing gives you no hope.....
I am probably going to get flamed for this post. In any event, I don't think Bernstein is right. Lots of things can go wrong if you are young or old but a few million dollars gives you more options than elusively unavailable inflation adjusted annuities that would take all you money and leave you with very little to live on
Last edited by richk2 on Mon Mar 24, 2014 11:45 am, edited 1 time in total.
Re: Really confused by Bernstein
I think you are way overreacting and overly emotional. For one thing you have to invest in order to arrive at retirement with a portfolio worth worrying about. Then if your portfolio is modest relative to your desires (which could be a desire for very little to very much) you have certain options and if it is large relative to your desires you have more options. That really should not be a surprise if you think about it a little.richk2 wrote:Some of these responses are basically chastising my viewpoint. Essentially, I am reading them as saying if you are "poor" like only having a million or two or three, what did you expect other than poverty? So why I am complaining??? While poor is poor and if you are poor there is no point in complaining on a Board like this, I think my real complaint is that passive investing, Bogleheads and guys like Bernstein are really a fraud. There is no disclaimer anywhere that basically says "DON'T WASTE YOUR TIME READING OR STUDYING BOGLEHEADS FORUMS OR BERNSTEIN AND THE LIKES' BOOKS UNLESS YOU ARE SUPER RICH".
So passive investing is just as much a fraud as active investing and ultimately is just another way that gurus can make money off of people by selling a philosophy that doesnt work anymore than traditional wall street. Either way you are doomed but it does seem to me that active investing at least gives you hope while Bernstein says passive investing gives you no hope.....
It makes perfect sense, though it seems to be a surprise to some, that you want a floor of very reliable income and you can't really get that from a marginally sized highly volatile portfolio. If you want more steady income than SS and any pension, you should first set up that steady income. What is left over can be in a volatile portfolio if you wish. Or of course you can try to get a steady income from a marginal portfolio and hope for the best.
I am at a loss as to why you think you are doomed.
FWIW: if one has a million dollars in a stock/bond portfolio that might produce fairly reliably $40K a year adjusted for inflation. This is widely known and reported. You do have to keep an eye on it and likely adjust somewhat to market conditions (might be able to take more or perhaps less). Add that to social security and that is not poverty, but also not upper middle class - it just is what it is. If that is fine, use standard portfolio management. If you really cannot deal with less, or you really want more, you can use some or all to buy an annuity.
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.
Re: Really confused by Bernstein
Corrected my post to say I don't think I am doomed - I probably more just think that most of the stuff on the Boards is a waste of time because its all this carefully analyzed, detailed historical data that adds up to doing no good for anyone except the very rich. The truth of the matter is both people who go to Raymond James and people who do a three fund Vanguard portfolio get through retirement but there is a kind of arrogance to the viewpoint being espoused here that doesn't seem warranted by the disconnect between all the weighty analytical studies and data about fees and index performance and history and the fact that Bernstein (and others in this thread) sum it all up by telling you to forget it unless you have at least 5 million and instead get an inflation adjusted annuity that will use up all your money and leave you with very little. How many books or bogleheads postings should you read for that advice?Rodc wrote:I think you are way overreacting and overly emotional. For one thing you have to invest in order to arrive at retirement with a portfolio worth worrying about. Then if your portfolio is modest relative to your desires (which could be a desire for very little to very much) you have certain options and if it is large relative to your desires you have more options. That really should not be a surprise if you think about it a little.richk2 wrote:Some of these responses are basically chastising my viewpoint. Essentially, I am reading them as saying if you are "poor" like only having a million or two or three, what did you expect other than poverty? So why I am complaining??? While poor is poor and if you are poor there is no point in complaining on a Board like this, I think my real complaint is that passive investing, Bogleheads and guys like Bernstein are really a fraud. There is no disclaimer anywhere that basically says "DON'T WASTE YOUR TIME READING OR STUDYING BOGLEHEADS FORUMS OR BERNSTEIN AND THE LIKES' BOOKS UNLESS YOU ARE SUPER RICH".
So passive investing is just as much a fraud as active investing and ultimately is just another way that gurus can make money off of people by selling a philosophy that doesnt work anymore than traditional wall street. Either way you are doomed but it does seem to me that active investing at least gives you hope while Bernstein says passive investing gives you no hope.....
It makes perfect sense, though it seems to be a surprise to some, that you want a floor of very reliable income and you can't really get that from a marginally sized highly volatile portfolio. If you want more steady income than SS and any pension, you should first set up that steady income. What is left over can be in a volatile portfolio if you wish. Or of course you can try to get a steady income from a marginal portfolio and hope for the best.
I am at a loss as to why you think you are doomed.
Re: Really confused by Bernstein
FWIW: if one has a million dollars in a stock/bond portfolio that might produce fairly reliably $40K a year adjusted for inflation. This is widely known and reported. You do have to keep an eye on it and likely adjust somewhat to market conditions (might be able to take more or perhaps less). Add that to social security and that is not poverty, but also not upper middle class - it just is what it is. If that is fine, use standard portfolio management. If you really cannot deal with less, or you really want more, you can use some or all to buy an annuity.[/quote]
I think you missed the point of Bernstein's comments and my horror with it - He seems to be saying that you can't use a million dollar portfolio to try to get 40,000 a year because it is too risky. all you can do is buy tips or an annuity which will pay far less
I think you missed the point of Bernstein's comments and my horror with it - He seems to be saying that you can't use a million dollar portfolio to try to get 40,000 a year because it is too risky. all you can do is buy tips or an annuity which will pay far less
Re: Really confused by Bernstein
Rich, I think you're overdoing the "The Man keeping poor people in their place" rhetoric.richk2 wrote:Some of these responses are basically chastising my viewpoint. Essentially, I am reading them as saying if you are "poor" like only having a million or two or three, what did you expect other than poverty? So why I am complaining??? While poor is poor and if you are poor there is no point in complaining on a Board like this, I think my real complaint is that passive investing, Bogleheads and guys like Bernstein are really a fraud. There is no disclaimer anywhere that basically says "DON'T WASTE YOUR TIME READING OR STUDYING BOGLEHEADS FORUMS OR BERNSTEIN AND THE LIKES' BOOKS UNLESS YOU ARE SUPER RICH".
So passive investing is just as much a fraud as active investing and ultimately is just another way that gurus can make money off of people by selling a philosophy that doesnt work anymore than traditional wall street. Either way you are doomed but it does seem to me that active investing at least gives you hope while Bernstein says passive investing gives you no hope.....
I am probably going to get flamed for this post. In any event, I don't think Bernstein is right. Lots of things can go wrong if you are young or old but a few million dollars gives you more options than elusively unavailable inflation adjusted annuities that would take all you money and leave you with very little to live on
The reality is that people (regardless of how much they have accumulated) who absolutely, positively need a significant portion of their nest egg every year in retirement can Ill afford to take a lot of risk in investing their money. It's plain common sense. They don't have the flexibility to cut back if their nest egg runs out prematurely because they lost 40 or 50 percent chasing an opportunity to make a windfall.
Re: Really confused by Bernstein
You are getting defensive.richk2 » Mon Mar 24, 2014 1:32 pm wrote:Some of these responses are basically chastising my viewpoint. Essentially, I am reading them as saying if you are "poor" like only having a million or two or three, what did you expect other than poverty? So why I am complaining??? While poor is poor and if you are poor there is no point in complaining on a Board like this, I think my real complaint is that passive investing, Bogleheads and guys like Bernstein are really a fraud. There is no disclaimer anywhere that basically says "DON'T WASTE YOUR TIME READING OR STUDYING BOGLEHEADS FORUMS OR BERNSTEIN AND THE LIKES' BOOKS UNLESS YOU ARE SUPER RICH".
1. Bill he has not posted in this thread, but he did in THIS link re: a related/similar subject.
2. Assuming $40K-$50K you mentioned in the OP, this would be $800K-$1 million BUT says nothing about being "poor."Bill Bernstein wrote:"Large hoard" =Blue wrote:Could you expound on this? What constitutes "large hoard"?Bill Bernstein » Sun Jul 28, 2013 2:07 pm wrote:Hi All:
Re deflation risk, that's really a non-issue, since any sane investor sits on a large hoard of cash anyway, and cash (or, if you like, even short-intermediate high-quality bonds) will do fine with deflation.
1) Pre-retirement: The smaller of a) 25% of your portfolio (short bonds count) or b) 5 years living expenses
2) Retirement: Residual *basic* living expenses (after SS + pensions) for 20 years.
3. Lastly, note he explicitly said "residual basic living expenses (after SS + pensions)." Now, all that said, you either agree or disagree - and must make YOUR own decisions.
Landy |
Be yourself, everyone else is already taken -- Oscar Wilde
Re: Really confused by Bernstein
While my rhetoric may be overdone, my main point is not getting across so I will try again. Of course if you need part of your nest egg every year in retirement, you can't afford a lot of risk on some level. On the other hand, you can't totally afford not to take risk either whether retired or not. 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.dkturner wrote:Rich, I think you're overdoing the "The Man keeping poor people in their place" rhetoric.richk2 wrote:Some of these responses are basically chastising my viewpoint. Essentially, I am reading them as saying if you are "poor" like only having a million or two or three, what did you expect other than poverty? So why I am complaining??? While poor is poor and if you are poor there is no point in complaining on a Board like this, I think my real complaint is that passive investing, Bogleheads and guys like Bernstein are really a fraud. There is no disclaimer anywhere that basically says "DON'T WASTE YOUR TIME READING OR STUDYING BOGLEHEADS FORUMS OR BERNSTEIN AND THE LIKES' BOOKS UNLESS YOU ARE SUPER RICH".
So passive investing is just as much a fraud as active investing and ultimately is just another way that gurus can make money off of people by selling a philosophy that doesnt work anymore than traditional wall street. Either way you are doomed but it does seem to me that active investing at least gives you hope while Bernstein says passive investing gives you no hope.....
I am probably going to get flamed for this post. In any event, I don't think Bernstein is right. Lots of things can go wrong if you are young or old but a few million dollars gives you more options than elusively unavailable inflation adjusted annuities that would take all you money and leave you with very little to live on
The reality is that people (regardless of how much they have accumulated) who absolutely, positively need a significant portion of their nest egg every year in retirement can Ill afford to take a lot of risk in investing their money. It's plain common sense. They don't have the flexibility to cut back if their nest egg runs out prematurely because they lost 40 or 50 percent chasing an opportunity to make a windfall.
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?
Re: Really confused by Bernstein
All I can say is that W Bernstein helped me think about a floor more carefully. I'm not rich and have no need to live extravagantly. But he got me thinking about different aspects of my portfolio. Let's say I need $50 grand a year in retirement, and 30,000 of that I will get from Social Security. I have a portfolio valued at $800,000, and I want to assure with a greater degree of probability that extra $20,000 to complete my floor and thereby, at W. Bernstein's suggestion, consider a TIPS ladder and inflation indexed annuities.
But, I don't have to do that; I could ride a 60/40 balanced portfolio with indexed funds and a SWR of 2.5% to generate the extra $20,000 to complete my floor. The probability of success is pretty good, I believe, and the balanced portfolio with index funds would be a better bet than active funds. But, W. Bernstein prefers a higher probability of success to create the floor and recommends that $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.
In the example you cited from W. Bernstein, I don't believe he states how much per year he wants to generate from the million. He may have be thinking a much higher amount than 40-50 grand a year, and therefore his recommendation for a complete floor for the million.
Nothing suggests that you have to be superrich to benefit from W. Bernstein's suggestions and the board's general take on investing.
But, I don't have to do that; I could ride a 60/40 balanced portfolio with indexed funds and a SWR of 2.5% to generate the extra $20,000 to complete my floor. The probability of success is pretty good, I believe, and the balanced portfolio with index funds would be a better bet than active funds. But, W. Bernstein prefers a higher probability of success to create the floor and recommends that $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.
In the example you cited from W. Bernstein, I don't believe he states how much per year he wants to generate from the million. He may have be thinking a much higher amount than 40-50 grand a year, and therefore his recommendation for a complete floor for the million.
Nothing suggests that you have to be superrich to benefit from W. Bernstein's suggestions and the board's general take on investing.
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Re: Really confused by Bernstein
That's not entirely accurate - what he is saying is, once you have the "floor" you can then place money at risk. If you take into account Social Security and/or any pension and/or any dividend income less 50% of it, you can guessestimate what floor you are going into retirement with. The difference in guaranteed floor less 20 times expenses, is what you should not place at risk. All else, you can place at risk, if you choose to.richk2 wrote:As mentioned in another post, I am near retirement and am evaluating withdrawal rates and portfolio allocation. I have read of materials referring to William Bernstein's views and am currently reading Four PIllars. I had found his portfolio theories very interesting and thought helpful in formulating a long term portfolio perspective for me. But then I read this 2012 interview on Morningstar in which Bernstein was talking about stocks and equities in the current low interest rate environment. I saw this question and answer:
"Bill, one conundrum that I know a lot of our readers have wrestled with is they know they are approaching retirement, and I guess I would ask you, if I were to come in to your office today and say, "I'm a couple of years away from retirement and most of my portfolio is in equities," how would you suggest that I approach the portfolio, and how would you suggest that I derisk that portfolio?'"
........
"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"
This answer blew my mind. 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?
I assume this is why his management business is limited to people with ten million dollar net worth because he doesn't believe anyone else should be investing?????
This was very disheartening and suggested that I should stop reading anything. But is he right??? If you have a million and need to support a 40 -50,000 lifestyle or 2 million and want to support a 100,000 lifestyle, etc, you basically just forget investing because you cant take any risk whatsoever even with a balanced passive porfolio of various indexed stock categories and bond categories???? And everything in his books isn't meant for retires that aren't 1 percenters?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Re: Really confused by Bernstein
I don't have the material with me, but I feel confident that I am relaying the following accurately: Bernstein had, for much of his career as a financial writer, investor and advisor, worked from a "total return" approach (i.e., drawing from a portfolio of stocks and bonds allocated appropriately according to need and risk tolerance). My understanding is that he came to incorporate a liability matching framework into his thinking in part as a result of the crash in 2000 and the last financial crisis after having seen people wrecked by a traditional total return approach - people who had enough to ensure a comfortable lifestyle.richk2 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"
This answer blew my mind. 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?
I assume this is why his management business is limited to people with ten million dollar net worth because he doesn't believe anyone else should be investing?????
This was very disheartening and suggested that I should stop reading anything. But is he right??? If you have a million and need to support a 40 -50,000 lifestyle or 2 million and want to support a 100,000 lifestyle, etc, you basically just forget investing because you cant take any risk whatsoever even with a balanced passive porfolio of various indexed stock categories and bond categories???? And everything in his books isn't meant for retires that aren't 1 percenters?
I will confess that I am of two minds about this - but not in the way you might think. I found it at once anxiety-reducing and disappointing. Anxiety reducing because, 12 or so years out from retirement, we have "enough" to ensure a safe floor of income (we will use TIPS and SS) and then some, and with the remainder we will invest for our extras and for our children. We can breathe a little easier - financially, we should be ok. We don't need to take on that much risk anymore. Rationally, we just don't.
Now for the disappointment: as I look ahead, I see that my investing days - no, all of my days - are numbered. I like investing. It's interesting and challenging on a number of levels and, for me, it is a huge intellectual distance from my other academic and professional pursuits. I like it. I will miss being so involved with it. But I have confidence that I will find other challenging and fulfilling pursuits.
So I see Dr. B's (and Wade Pfau's and Zvi Bodie's) work as a gift - but one that is implicitly bound up with mortality.
If by your calculations you have in the ballpark of enough to ensure that you will have what you need to live out the rest of your days without financial worry, then you should congratulate yourself for your hard work and diligent saving and be grateful for whatever luck may have come your way, and then seriously consider a shift in thinking. If you have way more than enough, then no, you may not need to change a thing - not because you're a "1 percenter", but because unless you do something really reckless you should be ok. But if you have just in the ballpark of enough and continue to take on a lot of risk because you like the risk, or because you just want more, then I hope that luck continues to come your way.
Last edited by RNJ on Mon Mar 24, 2014 12:35 pm, edited 6 times in total.
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Re: Really confused by Bernstein
richk2 wrote:FWIW: if one has a million dollars in a stock/bond portfolio that might produce fairly reliably $40K a year adjusted for inflation. This is widely known and reported. You do have to keep an eye on it and likely adjust somewhat to market conditions (might be able to take more or perhaps less). Add that to social security and that is not poverty, but also not upper middle class - it just is what it is. If that is fine, use standard portfolio management. If you really cannot deal with less, or you really want more, you can use some or all to buy an annuity.
I think you missed the point of Bernstein's comments and my horror with it - He seems to be saying that you can't use a million dollar portfolio to try to get 40,000 a year because it is too risky. all you can do is buy tips or an annuity which will pay far less[/quote]
Would you rather you have your entire milion dollar portfolio in the stock market during 2008? Only to see it plummet in value by 40%, then panic, sell at the bottom and now have a permanent loss of $400K? Be honest, were you even in the market in 2008/2009? Could you then retire on 600K if you needed 40K, sure, but you also run the very likely chance that you consume all of your portfolio leading to an overall failure to be able to finish retirement without being forced to live under an overpass eating Alpo. So, save what you can when you are working, then live on that plus Social Security during retirement, millions of people retire with a heck of a lot less than a million, don't have defined benefit pensions and still manage to make it. It just may not be the lifestyle you envisioned during your working years, but it is not impossible.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Re: Really confused by Bernstein
Maybe the problem is that I am trying to work backwards. I have a certain amount of money and I have social security eventually and I am trying to craft a number of what lifestyle I can support. I am not poor or broke so I have choices of how much to spend but want to support what I consider to be a reasonable lifestyle. Investing only in tips or annuities is not going to do that. So I am mostly going with the 4 percent rule although I realize there is risk in that rule and many people think 4 percent is too high (although there are others who think its too low).
But what I am taking from Bernstein's interview is that if you follow a 4 percent rule but only have a million (I have more but that's not the point), you can't invest in stocks or bonds because its too risky for a person like you. I don't think that is right but it is right, it seems like a contradiction in terms of what his books are about
But what I am taking from Bernstein's interview is that if you follow a 4 percent rule but only have a million (I have more but that's not the point), you can't invest in stocks or bonds because its too risky for a person like you. I don't think that is right but it is right, it seems like a contradiction in terms of what his books are about
Re: Really confused by Bernstein
Nice Quote..Excellent post.RNJ wrote:richk2 wrote:
"So I see Dr. B's (and Wade Pfau's and Zvi Bodie's) work as a gift - but one that is implicitly bound up with mortality.
Re: Really confused by Bernstein
I don't know of a credible source that thinks 4% is too low. Can you point me to one?richk2 wrote:Maybe the problem is that I am trying to work backwards. I have a certain amount of money and I have social security eventually and I am trying to craft a number of what lifestyle I can support. I am not poor or broke so I have choices of how much to spend but want to support what I consider to be a reasonable lifestyle. Investing only in tips or annuities is not going to do that. So I am mostly going with the 4 percent rule although I realize there is risk in that rule and many people think 4 percent is too high (although there are others who think its too low).
But what I am taking from Bernstein's interview is that if you follow a 4 percent rule but only have a million (I have more but that's not the point), you can't invest in stocks or bonds because its too risky for a person like you. I don't think that is right but it is right, it seems like a contradiction in terms of what his books are about
Last edited by Leesbro63 on Mon Mar 24, 2014 2:28 pm, edited 1 time in total.
Re: Really confused by Bernstein
Rich,
I don't know what area of the country you live in, but if you are near any areas with a lot of retirees why don't you go chat up a few retirees--even visit a community center or two where lots of retirees like to hang out and enjoy the company of other retirees.
Just approach them in a friendly way and engage them in a discussion about finance. I've been on the Board of such a community center, and we've done surveys.
Here's what you'll find out. They are mainly doing fine living on Social Security, some modest kind of pension or annuity income, and some investment income (though fixed income has been tough for a number of years). Very few have anything like $1 million dollars. Indeed, they might well smile at some of the pretense that informs some of the responses you have received.
You know best your standard of living. Work out your budget, provide yourself with some kind of margin of safety, and match it all with your resources, including healthcare coverage.
You don't need any "expert" to tell your brain and your gut whether you can afford to retire. Just run the numbers. Millions of Americans have successfully retired without the assistance of any gurus. 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.
In the meantime keep one thing in mind: no adviser will guarantee you anything (other than a management fee). The U.S. Treasury, the FDIC, and an insurance company will provide guarantees.
Books are for reading and reflection. They are no substitute for your own judgment and experience.
You'll figure it out.
Lev
I don't know what area of the country you live in, but if you are near any areas with a lot of retirees why don't you go chat up a few retirees--even visit a community center or two where lots of retirees like to hang out and enjoy the company of other retirees.
Just approach them in a friendly way and engage them in a discussion about finance. I've been on the Board of such a community center, and we've done surveys.
Here's what you'll find out. They are mainly doing fine living on Social Security, some modest kind of pension or annuity income, and some investment income (though fixed income has been tough for a number of years). Very few have anything like $1 million dollars. Indeed, they might well smile at some of the pretense that informs some of the responses you have received.
You know best your standard of living. Work out your budget, provide yourself with some kind of margin of safety, and match it all with your resources, including healthcare coverage.
You don't need any "expert" to tell your brain and your gut whether you can afford to retire. Just run the numbers. Millions of Americans have successfully retired without the assistance of any gurus. 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.
In the meantime keep one thing in mind: no adviser will guarantee you anything (other than a management fee). The U.S. Treasury, the FDIC, and an insurance company will provide guarantees.
Books are for reading and reflection. They are no substitute for your own judgment and experience.
You'll figure it out.
Lev
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Re: Really confused by Bernstein
How old are you now? What is your minimum level of expenditures needed to live - this will be a function of whether you own or rent for one thing. If you own but are currently paying a mortgage, the mortgage may be gone at retirement, but you still have living expenses associated with the home - property tax, utilities, maintainance for which you should calculate on an inflation adjusted basis - that is you take today's upkeep cost and use a mulitplier factor, let's say 5% for giggles (or not). If you don't own, but rent, take the annual rent and add an inflation factor for each year until your projected end date. Now, take your annual food expenditure, project that out. Same goes for all your other "needs", not wants. After that, deduct your annual projected Social Security, pensions, income taxes (if you can project it). The difference is what you need to take from your portfolio to make it work. You can have a combination of safe money and risky money, but if you place all of your limited money in a risky portfolio you may find portfolio failure could be a real problem. Have you used Fincalc or TRowe Price retirement calculator to test your assumptions? Even Fidelity has a great retirement income calculator, i hear.richk2 wrote:Maybe the problem is that I am trying to work backwards. I have a certain amount of money and I have social security eventually and I am trying to craft a number of what lifestyle I can support. I am not poor or broke so I have choices of how much to spend but want to support what I consider to be a reasonable lifestyle. Investing only in tips or annuities is not going to do that. So I am mostly going with the 4 percent rule although I realize there is risk in that rule and many people think 4 percent is too high (although there are others who think its too low).
But what I am taking from Bernstein's interview is that if you follow a 4 percent rule but only have a million (I have more but that's not the point), you can't invest in stocks or bonds because its too risky for a person like you. I don't think that is right but it is right, it seems like a contradiction in terms of what his books are about
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Re: Really confused by Bernstein
Thanks! Good adviceLevett wrote:Rich,
I don't know what area of the country you live in, but if you are near any areas with a lot of retirees why don't you go chat up a few retirees--even visit a community center or two where lots of retirees like to hang out and enjoy the company of other retirees.
Just approach them in a friendly way and engage them in a discussion about finance. I've been on the Board of such a community center, and we've done surveys.
Here's what you'll find out. They are mainly doing fine living on Social Security, some modest kind of pension or annuity income, and some investment income (though fixed income has been tough for a number of years). Very few have anything like $1 million dollars. Indeed, they might well smile at some of the pretense that informs some of the responses you have received.
You know best your standard of living. Work out your budget, provide yourself with some kind of margin of safety, and match it all with your resources, including healthcare coverage.
You don't need any "expert" to tell your brain and your gut whether you can afford to retire. Just run the numbers. Millions of Americans have successfully retired without the assistance of any gurus. 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.
In the meantime keep one thing in mind: no adviser will guarantee you anything (other than a management fee). The U.S. Treasury, the FDIC, and an insurance company will provide guarantees.
Books are for reading and reflection. They are no substitute for your own judgment and experience.
You'll figure it out.
Lev
Re: Really confused by Bernstein
I have used firecalc which gave me some comfort that I was on the right track til I read Bernstein's comments. Firecalc and all the other calculators to my knowledge assume you will have some kind of bond/equities portfolio that will generate an historical return. They do not work if you are only buying tips....Grt2bOutdoors wrote:How old are you now? What is your minimum level of expenditures needed to live - this will be a function of whether you own or rent for one thing. If you own but are currently paying a mortgage, the mortgage may be gone at retirement, but you still have living expenses associated with the home - property tax, utilities, maintainance for which you should calculate on an inflation adjusted basis - that is you take today's upkeep cost and use a mulitplier factor, let's say 5% for giggles (or not). If you don't own, but rent, take the annual rent and add an inflation factor for each year until your projected end date. Now, take your annual food expenditure, project that out. Same goes for all your other "needs", not wants. After that, deduct your annual projected Social Security, pensions, income taxes (if you can project it). The difference is what you need to take from your portfolio to make it work. You can have a combination of safe money and risky money, but if you place all of your limited money in a risky portfolio you may find portfolio failure could be a real problem. Have you used Fincalc or TRowe Price retirement calculator to test your assumptions? Even Fidelity has a great retirement income calculator, i hear.richk2 wrote:Maybe the problem is that I am trying to work backwards. I have a certain amount of money and I have social security eventually and I am trying to craft a number of what lifestyle I can support. I am not poor or broke so I have choices of how much to spend but want to support what I consider to be a reasonable lifestyle. Investing only in tips or annuities is not going to do that. So I am mostly going with the 4 percent rule although I realize there is risk in that rule and many people think 4 percent is too high (although there are others who think its too low).
But what I am taking from Bernstein's interview is that if you follow a 4 percent rule but only have a million (I have more but that's not the point), you can't invest in stocks or bonds because its too risky for a person like you. I don't think that is right but it is right, it seems like a contradiction in terms of what his books are about
Re: Really confused by Bernstein
Rich,
Here's some information from Vanguard that may help you put things in perspective.
https://pressroom.vanguard.com/press_re ... _2013.html
At the end of 2012, the average 401K account balance at Vanguard was $86212.
You would think from many posters at this site that all Bogleheads are above average.
And here's a more expansive analysis from Fidelity (that dreaded competitor!):
BOSTON – Fidelity Investments® - the nation’s largest 401(k) provider1 - today announced the average 401(k) balance continued its growth trend to end the fourth quarter of 2013 at a new record high of $89,300, up 15.5 percent from one year earlier, and nearly double what is traditionally considered the market low of March 2009 when it was $46,2002. For pre-retirees age 55 and older, the average balance is $165,200. While 78 percent of the year-over-year increase was due to positive stock market momentum, a full 22 percent of the growth came from employee and employer contributions, such as company matches, demonstrating the importance of continued participation and contributions, no matter the market conditions.
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).
Where's the million bucks? Where's the five million bucks?
Lev
Here's some information from Vanguard that may help you put things in perspective.
https://pressroom.vanguard.com/press_re ... _2013.html
At the end of 2012, the average 401K account balance at Vanguard was $86212.
You would think from many posters at this site that all Bogleheads are above average.
And here's a more expansive analysis from Fidelity (that dreaded competitor!):
BOSTON – Fidelity Investments® - the nation’s largest 401(k) provider1 - today announced the average 401(k) balance continued its growth trend to end the fourth quarter of 2013 at a new record high of $89,300, up 15.5 percent from one year earlier, and nearly double what is traditionally considered the market low of March 2009 when it was $46,2002. For pre-retirees age 55 and older, the average balance is $165,200. While 78 percent of the year-over-year increase was due to positive stock market momentum, a full 22 percent of the growth came from employee and employer contributions, such as company matches, demonstrating the importance of continued participation and contributions, no matter the market conditions.
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).
Where's the million bucks? Where's the five million bucks?
Lev
Re: Really confused by Bernstein
No, no, no. You got that part backwards. You buy tips ladders or annuities precisely so you can live very long!!! Longevity risk is one of the biggest threats to a marginal retirement portfolio, annuities (especially) and TIPS ladders (if you only spend coupons) protect against that.richk2 wrote: 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.
Passive investing includes annuities and TIPS ladders. As to asset allocation and negative correlations there you are talking about "Modern Portfolio Theory" and in that case what you say is roughly true. It can be very good advice to stay away from that especially if you have a marginal portfolio in retirement.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?
Read up on "Life-cycle Finance", there have been good recent threads.
Again, I'm not sure what you mean by "investing". If by investing you mean "recommend people who can't take risk go out and take risk" then yes he probably doesn't serve those folks. Investing is not limited to equity and bond index funds. It really should include a much broader set of products including insurance contracts and annuities.I assume this is why his management business is limited to people with ten million dollar net worth because he doesn't believe anyone else should be investing?????
If you have a million and want to support a 40-50k lifestyle with just that $1M alone (no SS or any other income) then you should go in eyes wide open to the risks you would be taking trying to fund a 30-40 year+ retirement with a 4-5% withdrawal rate given what expected returns look like these days.This was very disheartening and suggested that I should stop reading anything. But is he right??? If you have a million and need to support a 40 -50,000 lifestyle or 2 million and want to support a 100,000 lifestyle, etc, you basically just forget investing because you cant take any risk whatsoever even with a balanced passive porfolio of various indexed stock categories and bond categories???? And everything in his books isn't meant for retires that aren't 1 percenters?
You might choose to take the risk and go with the standard MPT based equity/fixed income allocation and ignore products like annuities. You might just hope you die soon or the market does better than expected and it all ends up OK.
Alternatively you might consider working/saving longer, evaluating whether you'd be happier on a risky $50K/year or a more secure $30k/year.
Not easy questions to answer, but your very likely to end up with an ugly surprise or at least some regret if you don't consider the world beyond just index funds and a MPT based asset allocation. Especially look closely at annuities. Those mortality credits are some of the best risk adjusted return a retiree will find in the market in any asset class.
Re: Really confused by Bernstein
Couldn't agree with you more, Lev. On the other hand, where I live, it takes a lot of money for a lifestyle that I don't consider very lavish. There is a disconnect that is hard to figure....Levett wrote:Rich,
Here's some information from Vanguard that may help you put things in perspective.
https://pressroom.vanguard.com/press_re ... _2013.html
At the end of 2012, the average 401K account balance at Vanguard was $86212.
You would think from many posters at this site that all Bogleheads are above average.
And here's a more expansive analysis from Fidelity (that dreaded competitor!):
BOSTON – Fidelity Investments® - the nation’s largest 401(k) provider1 - today announced the average 401(k) balance continued its growth trend to end the fourth quarter of 2013 at a new record high of $89,300, up 15.5 percent from one year earlier, and nearly double what is traditionally considered the market low of March 2009 when it was $46,2002. For pre-retirees age 55 and older, the average balance is $165,200. While 78 percent of the year-over-year increase was due to positive stock market momentum, a full 22 percent of the growth came from employee and employer contributions, such as company matches, demonstrating the importance of continued participation and contributions, no matter the market conditions.
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).
Where's the million bucks? Where's the five million bucks?
Lev
Re: Really confused by Bernstein
Beware of conflating separate issues here.richk2 wrote:So passive investing is just as much a fraud as active investing and ultimately is just another way that gurus can make money off of people by selling a philosophy that doesnt work anymore than traditional wall street. Either way you are doomed but it does seem to me that active investing at least gives you hope while Bernstein says passive investing gives you no hope.....
First, is how to allocate your savings among stocks vs bonds. This defines your risk tolerance.
Separately is the tool you use to implement your stock/bond allocation: active vs passive. Time and time again, research has shown the odds favor passive investors. You know what you've be able to achieve with regards to market conditions: equities performance, interest rates, etc. Active management management adds another factor, where you can "hopefully" outdo what you would otherwise be pre-committed to with passive investing, but the odds are against you.
I'm concerned when someone mentions "hope" when talking of investment strategy. I'm reminded of a poster that once mentioned that he had no idea how his investments did, but since they were indexed, he knows they did as well as he expected them to. I think highly of this approach. Nisiprius, when talking about low TIPS real rates, said no-one promised him a rose garden either. Even today I read a post about someone talking about when would "attractive" interest rates be here. We don't have control over these variables -- we should control what can.
There are a million "hopeful" investments out there where the odds are against you; be wary of considering active fund management as being special in this regards.
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Re: Really confused by Bernstein
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.
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.
Re: Really confused by Bernstein
Myself and many people on this board seem to have plenty of no-growth revenue streams and assets (SS, pension, paid off house, collectibles).
I'm certainly not going to de-risk and thus "de-growth" the last remaining slice of the pie, nor am I going to plan on 1% SWR from a balanced financial portfolio as someone suggested earlier would be "safe". With reasonable and prudent flexibility I'm positive I'll do just fine. The level of fear about retirement income on this board relative to the very high levels of financial assets and investing common sense is kind of astonishing.
I'm certainly not going to de-risk and thus "de-growth" the last remaining slice of the pie, nor am I going to plan on 1% SWR from a balanced financial portfolio as someone suggested earlier would be "safe". With reasonable and prudent flexibility I'm positive I'll do just fine. The level of fear about retirement income on this board relative to the very high levels of financial assets and investing common sense is kind of astonishing.
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.
Re: Really confused by Bernstein
There is lots of fear. Perhaps because there is lots of uncertainty. In a prior era, you knew you'd PROBABLY die in your 60s. And if you were one of those who survived, you would end up in the grandkid's old bedroom at your oldest daughter's house. And you'd be content to spend your days watching black and white TV and reading the paper. Today you probably won't die until you are at least approaching 80. Your only child lives 3000 miles away, and his wife can't be bothered with you too much. The old safe company pension is gone...in fact, the company is gone! And you want to travel, buy new cars and enjoy winter in Florida.
So, yeah, fear.
So, yeah, fear.
Last edited by Leesbro63 on Mon Mar 24, 2014 4:15 pm, edited 1 time in total.
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Re: Really confused by Bernstein
I agree but it is a totally self inflicted injury caused by people tripping over their need for spreadsheets. ?tehy confuse reality and numbers on a sheet. They stare blankly when they are told that the house they live in is an investment that yields imputed income. they insist that an annuity that yields a stream of income is not an asset. They cannot believe that you can deal can inflation by saving in retirement. They do not study how stocks and bonds both have matrix risk profiles so asset allocation must include risk not merely two boxes of stocks and bonds.MnD wrote:Myself and many people on this board seem to have plenty of no-growth revenue streams and assets (SS, pension, paid off house, collectibles).
I'm certainly not going to de-risk and thus "de-growth" the last remaining slice of the pie, nor am I going to plan on 1% SWR from a balanced financial portfolio as someone suggested earlier would be "safe". With reasonable and prudent flexibility I'm positive I'll do just fine. The level of fear about retirement income on this board relative to the very high levels of financial assets and investing common sense is kind of astonishing.
What they believe in are spreadsheets, that only spreadsheet assets that can be traded are "investments" and that SWR is a meaningful concept. I've taught Lawyers, Engineers, Physicians, economists and liberal arts majors. Whatever their training these spreadsheet folks are engineers to the core. If its not a number its not real. If its a number it is real. Oh well