Thinking about your original post on the Boglehead view: "For most investors, this will simply not be an appropriate level of risk."ObliviousInvestor wrote:First a brief note of explanation in case it wasn't clear: In my prior post, rather than presenting my personal views, I was trying to present as close as I could to a Boglehead consensus -- in case somebody wanted to start a wiki article regarding Ramsey and his investing advice for instance.tadamsmar wrote:Just to be the devil's advocate...ObliviousInvestor wrote: The bad:
Ramsey recommends a portfolio entirely of stocks -- that is, no bonds or CDs. For most investors, this will simply not be an appropriate level of risk.
What's wrong with 100% stocks? Using the Trinity Study that you cite later in your post, 100% stocks do well, at least as good as 50% stocks. (75% stocks does a little better, but not much).
One could argue that a investor would be better off paying an adviser 1.5% assuming the adviser could give the investor the backbone to stay in 100% stock rather than 50% stocks. A 100% stock portfolio has about the same safe withdrawal rate and about a 2% higher expected return, so the investor (or his heirs, since it's really the terminal value and not the withdrawal rate that improves) would come out ahead by paying the adviser.
Same thing applies here.
One: Paying the advisor doesn't necessarily guarantee that an investor will refrain from bailing out during a market decline.
Two: Probability of portfolio success is only one measure of risk. Another relevant measure is when the failure scenarios occur (e.g., one year into retirement or 25 years into retirement). From what I've seen, for withdrawal rates in the range most Bogleheads would use, early-in-retirement failure scenarios are more likely with a high stock allocation than they are with a lower stock allocation. See "Figure 7" in this article from Wade Pfau for an example of such an analysis.
Bogleheads seem to be assuming:
1. Risk is somehow a subjective thing, an attribute of the investor like shoe size.
2. It's a fixed value, unchanging
3. Like everything else in investing, the investor must determine this value in a DYI process, some sort of navel gazing exercise.
But what if the truth is:
1. Risk is objective
2. This psychological thing that Bogleheads have confuse with risk is not fixed.
3. An investment advisor can change the psychological thing, providing value for a fee.