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by Rick Ferri
Tue Jul 03, 2018 5:01 pm
Forum: Investing - Help with Personal Investments
Topic: Expected returns for 80/20 stock bond for next 10 years.
Replies: 169
Views: 12027

Re: Expected returns for 80/20 stock bond for next 10 years.

Rick, surely you do not encourage people to plan an uncertain future based on assuming that investment returns are certain. Are you suggesting that doing so and getting a single number with no range of uncertainty around the result is a better idea than using a probabilistic model as all the curren...
by Rick Ferri
Tue Jul 03, 2018 3:32 pm
Forum: Investing - Help with Personal Investments
Topic: Expected returns for 80/20 stock bond for next 10 years.
Replies: 169
Views: 12027

Re: Expected returns for 80/20 stock bond for next 10 years.

And in that respect the uncertainty what will happen in the individual case is so large compared to the differences in the estimates being debated that the result is not actionable except as an exercise in self deception one way or the other. Regardless, we still need to make plans and the best pla...
by Rick Ferri
Tue Jul 03, 2018 3:20 pm
Forum: Investing - Help with Personal Investments
Topic: Expected returns for 80/20 stock bond for next 10 years.
Replies: 169
Views: 12027

Re: Expected returns for 80/20 stock bond for next 10 years.

“You can’t step into the same river twice.” Heraclitus Estimates are estimates, they are not facts. We will not know how good the estimates were until 10 years from now. I can tell you in late 2008, estimates were very low because the stock and commodities markets were suffering. Yet, I said it was...
by Rick Ferri
Tue Jul 03, 2018 1:37 pm
Forum: Investing - Help with Personal Investments
Topic: Expected returns for 80/20 stock bond for next 10 years.
Replies: 169
Views: 12027

Re: Expected returns for 80/20 stock bond for next 10 years.

I’m not trying to be negative. I’m trying to explain there are real economic reasons why the next ten years probably will not be like the last ten. They never are.
by Rick Ferri
Tue Jul 03, 2018 1:29 pm
Forum: Investing - Help with Personal Investments
Topic: Expected returns for 80/20 stock bond for next 10 years.
Replies: 169
Views: 12027

Re: Expected returns for 80/20 stock bond for next 10 years.

I can't believe Rick Ferri and all of you bogleheads saying to expect 5% nominal returns in the future. I guess i will have to sell my holdings and contact a SmartVestor Pro. Dave Ramsey says i should get 12%. LOL! That’s what I would do. If 5% was too low for me, I’d visit a high cost adviser and ...
by Rick Ferri
Tue Jul 03, 2018 1:01 pm
Forum: Investing - Help with Personal Investments
Topic: Expected returns for 80/20 stock bond for next 10 years.
Replies: 169
Views: 12027

Re: Expected returns for 80/20 stock bond for next 10 years.

I'll be (perhaps) the first in this thread to state the obvious; nobody really has a clue because none of us knows what is going to happen in the future. I know exactly what will happen if you purchases a 10-year Zero coupon Treasury today and hold it to maturity. You will earn 2.87%. The expected ...
by Rick Ferri
Tue Jul 03, 2018 12:33 pm
Forum: Investing - Help with Personal Investments
Topic: Expected returns for 80/20 stock bond for next 10 years.
Replies: 169
Views: 12027

Re: Expected returns for 80/20 stock bond for next 10 years.

I disagree that predicting 10 year returns is a random event. There is no randomness in a the expected return of a 10-year zero coupon bond. It is 2.87%. That’s an absolute number which all other expect returns can be derived by adding expected risk premiums. Does this mean that you estimate the eq...
by Rick Ferri
Tue Jul 03, 2018 9:11 am
Forum: Investing - Help with Personal Investments
Topic: Expected returns for 80/20 stock bond for next 10 years.
Replies: 169
Views: 12027

Re: Expected returns for 80/20 stock bond for next 10 years.

I disagree that predicting 10 year returns is a random event. There is no randomness in a the expected return of a 10-year zero coupon bond. It is 2.87%. That’s an absolute number which all other expect returns can be derived by adding expected risk premiums.
by Rick Ferri
Tue Jul 03, 2018 4:04 am
Forum: Investing - Help with Personal Investments
Topic: Expected returns for 80/20 stock bond for next 10 years.
Replies: 169
Views: 12027

Re: Expected returns for 80/20 stock bond for next 10 years.

The question is this, do you plan for a 5% expected return from 80/20 by making adjustments to your savings and spending so you’ll likely have enough for retirement, or spend and save based on a 7% expected return and potentially not have enough?
by Rick Ferri
Mon Jul 02, 2018 8:56 pm
Forum: Investing - Help with Personal Investments
Topic: Expected returns for 80/20 stock bond for next 10 years.
Replies: 169
Views: 12027

Re: Expected returns for 80/20 stock bond for next 10 years.

I understand. Recency bias is very real in financial expectations. It’s common for investors to expect high returns after a ten year period of high returns.
by Rick Ferri
Mon Jul 02, 2018 8:35 pm
Forum: Investing - Help with Personal Investments
Topic: Expected returns for 80/20 stock bond for next 10 years.
Replies: 169
Views: 12027

Re: Expected returns for 80/20 stock bond for next 10 years.

Are you referring to historical returns during the decade of the 1930s, 1970s, or 2000s?
by Rick Ferri
Mon Jul 02, 2018 8:22 pm
Forum: Investing - Help with Personal Investments
Topic: Expected returns for 80/20 stock bond for next 10 years.
Replies: 169
Views: 12027

Re: Expected returns for 80/20 stock bond for next 10 years.

A realistic return number for an 80/20 allocation is 5% nominal and 3% real. Sorry I was not clear in that.
by Rick Ferri
Mon Jul 02, 2018 8:10 pm
Forum: Investing - Help with Personal Investments
Topic: Expected returns for 80/20 stock bond for next 10 years.
Replies: 169
Views: 12027

Re: Expected returns for 80/20 stock bond for next 10 years.

Nope. 2% inflation is included in the 5% estimate. So, 3% real return, before tax. Don’t like it? Central Banks around the world will be trying to normalize policy after a decade of negative real interest rates and that means regression to the mean for asset prices - my opinion, of course. I’m givin...
by Rick Ferri
Mon Jul 02, 2018 7:42 pm
Forum: Investing - Help with Personal Investments
Topic: Expected returns for 80/20 stock bond for next 10 years.
Replies: 169
Views: 12027

Re: Expected returns for 80/20 stock bond for next 10 years.

I would use up to 5.0% for that allocation if the bond side is in the intermediate-term corporate fund. Less if you use Treasuries.
by Rick Ferri
Mon Jul 02, 2018 5:25 pm
Forum: Investing - Theory, News & General
Topic: ETFs finally get respect at SEC
Replies: 4
Views: 750

ETFs finally get respect at SEC

After more than 10 years of studying ETFs and asking for industry comments, the SEC has finally pass streamlined rules for ETF creation and trading. This Barron's article provides an overview of the changes. From the article: 1) The SEC scrapped a patchwork quilt of more than 300 “exemptive orders” ...
by Rick Ferri
Mon Jul 02, 2018 8:35 am
Forum: Investing - Theory, News & General
Topic: Equity Risk Premium over Two Centuries, 1825-2017
Replies: 24
Views: 2243

Re: Equity Risk Premium over Two Centuries, 1825-2017

Prior to 1950, dividend yield was higher than bond interest. That changed with tax laws the the rise of equity options as executive compensation. Consequently, buybacks are also considered a dividend yield today. Assuming 2% cash dividend and 2% buyback yield, the expected long-term ERP would be abo...
by Rick Ferri
Mon Jul 02, 2018 7:52 am
Forum: Investing - Theory, News & General
Topic: A thought exercise
Replies: 11
Views: 1549

Re: A thought exercise

Here is another thought excercise:

Assume you bought a few broadly diversified stock and bond index funds and stopped looking at your portfolio every day of every week of every month. Instead, you forgot about the account and didn’t look at it for 10 years. Would you be further ahead?
by Rick Ferri
Sun Jul 01, 2018 10:01 pm
Forum: Investing - Theory, News & General
Topic: Do Advisers Add $$$ Value?
Replies: 71
Views: 5404

Re: Do Advisers Add $$$ Value?

Interesting conclusions! Thanks, LadyGeek.
by Rick Ferri
Sun Jul 01, 2018 8:32 pm
Forum: Investing - Theory, News & General
Topic: Do Advisers Add $$$ Value?
Replies: 71
Views: 5404

Re: Do Advisers Add $$$ Value?

I was an adviser for 30 years and will pick up the role again after a non-compete is over with my former firm. The first seven years as an adviser was spent trying to find ways to beat the markets. My “Aha! moment” occurred after the portfolios were not keeping up, and reading Jack’s first book, “Bo...
by Rick Ferri
Sun Jul 01, 2018 11:55 am
Forum: Investing - Help with Personal Investments
Topic: Should I add REIT’s to my fortfolio?
Replies: 9
Views: 656

Re: Should I add REIT’s to my fortfolio?

The economy is about 14% commercial real estate and the equity market is about 3%. If you want your portfolio to be more like the economy and less like the stock market, then adding 10% in equity REITs is a way to do it.
by Rick Ferri
Sun Jul 01, 2018 9:44 am
Forum: Investing - Theory, News & General
Topic: Do Advisers Add $$$ Value?
Replies: 71
Views: 5404

Re: Do Advisers Add $$$ Value?

My Twitter feed is @Rick_Ferri

I think “value added” is in the eyes of the beholder. It cannot be quantified because there is no way to define it and measure it universally.
by Rick Ferri
Sun Jul 01, 2018 9:17 am
Forum: Investing - Theory, News & General
Topic: You Can Market Time At Valuation Extremes
Replies: 64
Views: 7340

Re: You Can Market Time At Valuation Extremes

Most long-term investors should ignore valuations. However, there are exceptions: If you’re approaching a life event such as transitioning into retirement, and you were planning to make an asset allocation change to less equity anyway, then considering valuations isn’t the worse thing you could do a...
by Rick Ferri
Sat Jun 30, 2018 8:44 pm
Forum: Investing - Theory, News & General
Topic: Do Advisers Add $$$ Value?
Replies: 71
Views: 5404

Re: Do Advisers Add $$$ Value?

Nate79, You’re speaking about a good, honest adviser. If someone with no knowledge is fortunate enough to find such a person or firm then I agree with you. Unfortunately, relative to the populations of advisers and investors, there are as many bad advisers as there are bad investors. I’ll also add t...
by Rick Ferri
Sat Jun 30, 2018 7:48 pm
Forum: Investing - Theory, News & General
Topic: Do Advisers Add $$$ Value?
Replies: 71
Views: 5404

Do Advisers Add $$$ Value?

The most overused cliche in the investment advice industry is “We add value”. This is just ambiguity; it doesn’t mean anything. When I ask 1000 advisers to quantify “value added” I get 1000 different answers. What does it mean? When I can’t define what something means, I’ll reverse the question and ...
by Rick Ferri
Sat Jun 30, 2018 8:54 am
Forum: Investing - Help with Personal Investments
Topic: Need some math help with Solin based portfolio
Replies: 9
Views: 802

Re: Need some math help with Solin based portfolio

Keep it simple:

75% US Total Stock
25% Small Value
by Rick Ferri
Sat Jun 30, 2018 8:36 am
Forum: Investing - Help with Personal Investments
Topic: Europe investor Question updated: Typical adviser fees from inception to apply to portfolio?
Replies: 6
Views: 550

Re: Europe investor Question updated: Typical adviser fees from inception to apply to portfolio?

The typical fee is “bundled”, which covers all aspects of planning and portfolio management. For example, the all-in fee for $3.5 mm relationship might be 0.6%. Due to competition and fee compression, a few advisers have started unbundling fees whereby each service has its own fee, and those fees ar...
by Rick Ferri
Fri Jun 29, 2018 8:27 pm
Forum: Investing - Help with Personal Investments
Topic: Anybody Investing with 'Betterment'?
Replies: 15
Views: 1437

Re: Anybody Investing with 'Betterment'?

Interesting that it takes $100,000 to get the 30k miles. Betterment’s average client has ~$15k with the firm. This is clearly an attempt to push upscale, into profitable business perhaps.
by Rick Ferri
Thu Jun 28, 2018 8:47 am
Forum: Investing - Theory, News & General
Topic: Bernstein watchers - where do you go to see his current writing or current allocation preferences ?
Replies: 32
Views: 3877

Re: Bernstein watchers - where do you go to see his current writing or current allocation preferences ?

Just how smart is Bill Bernstein? I recall having lunch with him one day and the three of us had a nice conversation.

Rick Ferri
by Rick Ferri
Wed Jun 27, 2018 8:34 pm
Forum: Investing - Help with Personal Investments
Topic: Vanguard is really pushing their Personal Adviser Service
Replies: 65
Views: 6229

Re: Vanguard is really pushing their Personal Adviser Service

What I’m saying is this change in attitude about the limit of “advice” they provide in a non-paying account may not be all about Vanguard, and they may be feeling the need to comply with SEC regulations like the rest of the investment Adviser industry. Rick Ferri Does the SEC tell them how much the...
by Rick Ferri
Wed Jun 27, 2018 6:09 pm
Forum: Investing - Help with Personal Investments
Topic: Vanguard is really pushing their Personal Adviser Service
Replies: 65
Views: 6229

Re: Vanguard is really pushing their Personal Adviser Service

I’m a Vanguard investor but not in PAS. I am also a former investment adviser. The firm I used to own and manage (Portfolio Solutions) still competes with Vanguard PAS. With that disclosure being made, I’ve often wondered how Vanguard could give investment advice without a client being in a register...
by Rick Ferri
Wed Jun 27, 2018 5:16 pm
Forum: Investing - Theory, News & General
Topic: Factor Investing Makes Someone Money, But Maybe Not You
Replies: 126
Views: 9062

Re: Factor Investing Makes Someone Money, But Maybe Not You

Rick, I wonder if some of your change in recommendation is related to do it yourself investor behavior? Do you think a DIY simple 3 fund investor is less likely to tinker with the portfolio? Thanks, Dave We're all entitled to receive market returns. They are sitting there waiting for us, taunting u...
by Rick Ferri
Wed Jun 27, 2018 9:09 am
Forum: Investing - Theory, News & General
Topic: Factor Investing Makes Someone Money, But Maybe Not You
Replies: 126
Views: 9062

Re: Factor Investing Makes Someone Money, But Maybe Not You

Food for thought: The only portion of my advice that has changed over the years is the factor portion (Larry is the same way). This itself may signal a bigger problem with factor investing.
by Rick Ferri
Wed Jun 27, 2018 8:29 am
Forum: Investing - Help with Personal Investments
Topic: Europe investor Question updated: Typical adviser fees from inception to apply to portfolio?
Replies: 6
Views: 550

Re: Europe investor Question: Adviser fee to apply to portfolio including cash?

If the cash is in the portfolio being managed as part of the allocation, then it’s customary to include the cash portion when calculating the adviser/management fee. If cash is in a separate account and being included, then you’re likely working with an adviser who charges a holisitic fee based on y...
by Rick Ferri
Wed Jun 27, 2018 7:46 am
Forum: Investing - Theory, News & General
Topic: Factor Investing Makes Someone Money, But Maybe Not You
Replies: 126
Views: 9062

Re: Factor Investing Makes Someone Money, But Maybe Not You

There is no inconsistency. I made suggestions in the book for people who wish to pursue a small amount of factor exposure in their portfolio. The allocations were based on the data available st the time. If I were to give the same allocation advice today, it would be mostly total market and a slice ...
by Rick Ferri
Sat Jun 23, 2018 7:37 pm
Forum: Investing - Theory, News & General
Topic: Portfolio Diversification, Long Before Mr. Markowitz
Replies: 37
Views: 2245

Re: Portfolio Diversification, Long Before Mr. Markowitz

While it is true that basic investment principles go back thousands of years, the PhDs put math behind the theories to first prove or disprove them, and second to refine them. That’s their contribution.
by Rick Ferri
Thu Jun 21, 2018 7:45 pm
Forum: Investing - Theory, News & General
Topic: Are mutual funds safer than ETFs?
Replies: 15
Views: 1744

Re: Are mutual funds safer than ETFs?

One is not safer than the other because ETFs are mutual funds, with certain regulatory relief. They are governed by the Investment Company Act of 1940 and regulated by the SEC. it’s all the same stuff.
by Rick Ferri
Thu Jun 21, 2018 2:16 pm
Forum: Investing - Theory, News & General
Topic: Factor Investing Makes Someone Money, But Maybe Not You
Replies: 126
Views: 9062

Re: Factor Investing Makes Someone Money, But Maybe Not You

My goal with this post is NOT to convince anyone to avoid a factor tilt strategy; it’s to ensure people know what they’re getting into. It takes a higher cost and die-hard discipline needed to make this strategy work in the long-term.
by Rick Ferri
Thu Jun 21, 2018 12:46 pm
Forum: Investing - Theory, News & General
Topic: Factor Investing Makes Someone Money, But Maybe Not You
Replies: 126
Views: 9062

Re: Factor Investing Makes Someone Money, But Maybe Not You

All the chatter about tilting to factors today reminds me of the excitement of tilting to industry sector funds when they flourished in the 1990s.

Rick Ferri
by Rick Ferri
Thu Jun 21, 2018 8:14 am
Forum: Investing - Theory, News & General
Topic: Factor Investing Makes Someone Money, But Maybe Not You
Replies: 126
Views: 9062

Factor Investing Makes Someone Money, But Maybe Not You

Factor investing is discussed ad nauseam on this forum. Lately, it has reached the point were investors who shouldn’t do factor investing become confused to the point of believing they should or they’ll miss out on something. Let’s correct that. Factor investing is complex and the “optimal” way to d...
by Rick Ferri
Thu Jun 21, 2018 8:02 am
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: The Battle Of Passive Strategies
Replies: 71
Views: 7313

Re: Larry Swedroe: The Battle Of Passive Strategies

Factor investing is complex and the “optimal” way to do it is always changing because there is no optimal way that can be known in advance. That being said, it’s all to common for advisers to relentlessly push complex investment strategies such as “optimal factor allocation” because it makes the adv...
by Rick Ferri
Thu Jun 21, 2018 7:44 am
Forum: Investing - Help with Personal Investments
Topic: help, inheritance of $3.5M, read & read BogleH, & still in the dark
Replies: 33
Views: 4457

Re: help, inheritance of $3.5M, read & read BogleH, & still in the dark

If I were in your shoes, I would: 1) pay $1 mm cash for the home, leaving $2.5 mm 2) put the money at one custodian (Schwab or Vanguard). There is no risk in this. 3) invest in a simple 50 % stock, 50% bond portfolio of core stock and bond index funds (mostly US stock, and use an intermediate-term b...
by Rick Ferri
Tue Jun 19, 2018 9:17 pm
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: The Battle Of Passive Strategies
Replies: 71
Views: 7313

Re: Larry Swedroe: The Battle Of Passive Strategies

If you tilt, I recommend a barbell. Use 75% in total market, 25% in the most heavily factor weighted fund or funds you can find.
by Rick Ferri
Tue Jun 19, 2018 9:08 pm
Forum: Investing - Theory, News & General
Topic: General Electric booted from Dow Jones Industrial Average
Replies: 52
Views: 6359

Re: General Electric booted from Dow Jones Industrial Average

Who cares? The DJIA should have been retired a long time ago. Agreed, who cares? Also, this has been expected for a LONG time. S&P Dow Jones cares because they get licensing fees from fund companies that track the DJIA, such as ticker DIA, which has $22 billion in assets. So, it won’t be killed off...
by Rick Ferri
Tue Jun 19, 2018 8:58 pm
Forum: Investing - Theory, News & General
Topic: Our interview with Taylor Larimore
Replies: 17
Views: 3798

Re: Our interview with Taylor Larimore

PartIrish wrote:
Tue Jun 19, 2018 8:41 pm
Taylor Larimore has been a real inspiration to me on the financial planning side of life, but more important, he is a true gentleman online. Thank you, Taylor, for your extraordinary contributions to the well-being of others!
x 100!
by Rick Ferri
Tue Jun 19, 2018 8:25 pm
Forum: Investing - Theory, News & General
Topic: General Electric booted from Dow Jones Industrial Average
Replies: 52
Views: 6359

Re: General Electric booted from Dow Jones Industrial Average

The DJIA isn’t terrible; just bad. It’s a price weighted “indicator”, not a market index. The idea is to provide a general direction of the price of a few stocks (there were only a few stocks traded when the indicator was created). The allocation to each stock is based on the market price of one sha...
by Rick Ferri
Tue Jun 19, 2018 7:22 pm
Forum: Investing - Theory, News & General
Topic: General Electric booted from Dow Jones Industrial Average
Replies: 52
Views: 6359

Re: General Electric booted from Dow Jones Industrial Average

The stock market is not the economy. It reflects only about 40% of business conducted in the economy. Some large industries have only a small market footprint, such as real estate, others have no footprint, such as legal devices.
by Rick Ferri
Tue Jun 19, 2018 5:24 pm
Forum: Investing - Theory, News & General
Topic: General Electric booted from Dow Jones Industrial Average
Replies: 52
Views: 6359

Re: General Electric booted from Dow Jones Industrial Average

Who cares? The DJIA should have been retired a long time ago.
by Rick Ferri
Tue Jun 19, 2018 5:06 pm
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: The Battle Of Passive Strategies
Replies: 71
Views: 7313

Re: Larry Swedroe: The Battle Of Passive Strategies

I understand the argument. I don’t agree with it. Factor premiums are not guarantees. I don’t treat them like they are. They should be used as a potential additive to beta, not a substitute for beta.