"Three Simple Rules of Investing"

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Taylor Larimore
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"Three Simple Rules of Investing"

Post by Taylor Larimore »

Bogleheads:

A new book is out titled: Three Simple Rules Of Investing.
1. Simplify Your Options

2. Look Only Forward

3. Tune Out Noise
Wade Pfau gives us a short review here:

https://retirementresearcher.com/book-r ... investing/

Best wishes.
Taylor
Last edited by Taylor Larimore on Sun Dec 02, 2018 11:25 am, edited 1 time in total.
"Simplicity is the master key to financial success." -- Jack Bogle
dharrythomas
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Re: "Three Simple Rules of Investing"

Post by dharrythomas »

Taylor,

Thanks. A valuable contribution as always.

Harry
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Re: "Three Simple Rules of Investing"

Post by Trader Joe »

Wonderful advice. Thank you Taylor.
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Re: "Three Simple Rules of Investing"

Post by steve_14 »

Thanks. Those rules avoid analysis paralysis before you invest, and the urge to tinker once you do. Your investments will rise in value due to (currently unknown) future events. They will not rise due to complexity, history, or activity on your part. Markets don't care about these things.
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nedsaid
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Re: "Three Simple Rules of Investing"

Post by nedsaid »

Dr. Pfau is thinking aloud like many of us. The approach he uses in this article: 1/3 world stock index, 1/3 laddered bonds, and 1/3 income annuities seems really conservative. He also has advocated that retirees increase their allocation to stocks in retirement. It sounds to me like he hasn't quite settled on the best approach on managing a nest egg for retirees. A lot of us are also thinking on these issues and are undecided about the best approach. What he said here makes a lot of sense. This was a very good blog post by Dr. Pfau.
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Re: "Three Simple Rules of Investing"

Post by wade »

Taylor, thank you very much for sharing.

Nedsaid, that slide showing stocks, bonds and income annuities wasn't meant to imply the allocation. Just the menu of available options. Though I can understand how it could be misinterpreted.

Though I talk about sensible default allocations during accumulation in other parts of the presentation, I think it would be very hard to come up with a sensible default for retirement. This really requires some thinking and planning.
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Re: "Three Simple Rules of Investing"

Post by nedsaid »

Thank you Wade for responding. Yes I did misinterpret your graph. I have read your articles and seen a couple of your video presentations. They are good food for thought.

For myself, I am not settled on an allocation strategy in retirement. I am also thinking about the best withdrawal strategy. I will soon turn 55 so these questions get to be more and more relevant to me. I am thinking about annuitizing a portion of my nest egg in retirement, the level of interest rates will be a big factor in my decision making. Whether or not to annuitize and how much of the portfolio to annuitize.

I am also thinking about when I should de-risk my portfolio and by how much. 69% of my retirement funds are in US and International Stocks, Stock Funds, and Indexes. Again, interest rates are a factor.

So keep posting your articles and video presentations. A lot of us around here are all ears.
A fool and his money are good for business.
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Re: "Three Simple Rules of Investing"

Post by jmourik »

After reading "The 3 Simple Rules of Investing", which is very enlightening, one would come to the conclusion that a simple portfolio of Global Stock and Tips would be enough. Now, lately I've been tinkering with some of the Robo-advisors, Betterment and WiseBanyan. Unnecessary in light of the above of course.

But...

Would the Tax-Loss harvesting feature be the one thing that might make these services worth using?

Thoughts?
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Re: "Three Simple Rules of Investing"

Post by SailingAway »

Quite an interesting book. Just gets to the heart of the matter and really put's Einstein's famous, "everything should be made as simple as possible, but no simpler." The essence of Occam's razor. Always amazing how we can so complicate things. A good, quick read. Glad I did.

Also, if you check out their website, 3simplerulesofinvesting.com, they have some nifty calculators, tips optimizer spreadsheet and various calculators. The one called the fee calculator will make you sit up and take notice when it projects out your various investment fees for 30 years. Clearly the lowest priced fund wins, as Jack has always told us.
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Re: "Three Simple Rules of Investing"

Post by pkcrafter »

Thanks Taylor. It doesn't get any clearer than that.

Paul
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Re: "Three Simple Rules of Investing"

Post by Leeraar »

Wade, et al,

I think there needs to be more emphasis on the idea of saving (pre-retirement) and (or vs.) spending (post-retirement) portfolios.

It's not just "age in bonds" any more.

People seem to carry their savings phase asset allocation into retirement, then they are terrified of possible market events and, what is a safe withdrawal rate? Most investment advisors are clueless about this issue. They will push you to a more conservative AA, but virtually none will open a discussion about assuring a floor resource or liability matching.

To tell you the truth, I am outraged about this. My trusted advisor during my accumulation years tried to sell me a variable annuity after I retired. Fired. The next advisor (also since fired) really made no distinction between the savings and spending phases. He was only about investment returns and his secret sauce which involved tilting to exclusive DFA funds.

L.
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Re: "Three Simple Rules of Investing"

Post by wade »

Thanks Lee. I completely agree with what you are saying. This is a big part of a lot of Powerpoint presentations I make these days.

I also recently co-wrote a whitepaper for Challenger in Australia, and Section 2 is about this. Here's a table summarizing some of the key important differents between the saving and spending phases:

Table 1: Retirement income planning – new challenges

• Reduced flexibility to earn income increases the vulnerability of a retiree’s standard of living to poor market returns.

• Retirees seek to fund a sustainable level of income from their investments, an important portfolio constraint that is less
visible during wealth accumulation.

• Retirees experience heightened vulnerability to sequence of returns risk: poor returns in early retirement mean that the
sustainable withdrawal rate from a portfolio may fall well below what is implied by average portfolio returns over the
whole retirement period.

• The length of a person’s retirement is unknown, and it could be much shorter or much longer than their life expectancy.

• Even low inflation can compound over a long retirement, leaving retirees vulnerable if their portfolio returns do not at
least keep pace with inflation.

• Retirees must preserve flexibility and liquidity to manage risks related to unplanned expenses.

• Despite liquidity needs, retirees must also expect to experience cognitive decline at higher ages, which could hamper
portfolio management skills and other financial decision-making.
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Re: "Three Simple Rules of Investing"

Post by Leeraar »

wade wrote:Thanks Lee. I completely agree with what you are saying. This is a big part of a lot of Powerpoint presentations I make these days.

I also recently co-wrote a whitepaper for Challenger in Australia, and Section 2 is about this. Here's a table summarizing some of the key important differents between the saving and spending phases:

Table 1: Retirement income planning – new challenges

• Reduced flexibility to earn income increases the vulnerability of a retiree’s standard of living to poor market returns.

• Retirees seek to fund a sustainable level of income from their investments, an important portfolio constraint that is less
visible during wealth accumulation.

• Retirees experience heightened vulnerability to sequence of returns risk: poor returns in early retirement mean that the
sustainable withdrawal rate from a portfolio may fall well below what is implied by average portfolio returns over the
whole retirement period.

• The length of a person’s retirement is unknown, and it could be much shorter or much longer than their life expectancy.

• Even low inflation can compound over a long retirement, leaving retirees vulnerable if their portfolio returns do not at
least keep pace with inflation.

• Retirees must preserve flexibility and liquidity to manage risks related to unplanned expenses.

• Despite liquidity needs, retirees must also expect to experience cognitive decline at higher ages, which could hamper
portfolio management skills and other financial decision-making.
Wade,

Maybe people like you will end up making a difference.

I further believe that defined contribution plans like 401ks and IRAs should offer simple and fair annuitization options so it is easy to "buy" a pension.

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")
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Re: "Three Simple Rules of Investing"

Post by jmourik »

So... Would the Tax-Loss harvesting feature be the one thing that might make services like Betterment, Wealthfront and WiseBanyan worth using?
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Re: "Three Simple Rules of Investing"

Post by Herekittykitty »

Taylor, I look for your posts whenever I log on, and every time I read them, I come away wiser.

Thanks much.
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Re: "Three Simple Rules of Investing"

Post by Carol88888 »

I just listened to this last night through audible.com and it has been mind blowing to say the least. I think I need to get a text copy to really study this.

I must say, as someone new to the Boglehead view I am still struggling to take all this in. It flies in the face of what I want to do and what I think should happen.

Boglehead investing may be simple, but it ain't easy if I am in any way typical.
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Re: "Three Simple Rules of Investing"

Post by 2015 »

nedsaid wrote: Sun Jun 22, 2014 9:35 am Dr. Pfau is thinking aloud like many of us. The approach he uses in this article: 1/3 world stock index, 1/3 laddered bonds, and 1/3 income annuities seems really conservative. He also has advocated that retirees increase their allocation to stocks in retirement. It sounds to me like he hasn't quite settled on the best approach on managing a nest egg for retirees. A lot of us are also thinking on these issues and are undecided about the best approach. What he said here makes a lot of sense. This was a very good blog post by Dr. Pfau.
Like many, before retirement, I spent a lot of time running around the rat maze being undecided as a result of devouring the overabundance of information theory cheese continually presented to me. Now, in retirement--that is, actually experiencing reality as opposed to theory--I've found (once again!) what Taylor has stated previously to be true. For me, It's just been organic, the best approach for managing my nest egg evolved on its own into simplicity, commitment to a single, good enough approach (not a "best" approach), and just leaving stuff alone. The infamous "Taylor Approach" to spending in retirement is exactly what's happened because that's what reality has presented to me.

As a result, I don't violate Charlie Munger's rule of "Don't Do Stupid Stuff" anymore.
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Re: "Three Simple Rules of Investing"

Post by cjniemiec »

SailingAway wrote: Sat Nov 15, 2014 7:13 pm Quite an interesting book. Just gets to the heart of the matter and really put's Einstein's famous, "everything should be made as simple as possible, but no simpler." The essence of Occam's razor. Always amazing how we can so complicate things. A good, quick read. Glad I did.

Also, if you check out their website, 3simplerulesofinvesting.com, they have some nifty calculators, tips optimizer spreadsheet and various calculators. The one called the fee calculator will make you sit up and take notice when it projects out your various investment fees for 30 years. Clearly the lowest priced fund wins, as Jack has always told us.
I looked on the link/website and found no such calculators....what am I missing? Your help would be appreciated.
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Re: "Three Simple Rules of Investing"

Post by nisiprius »

For some reason, I had trouble finding Pfau's book review from the link Taylor gave. This one works for me:

The 3 Simple Rules of Investing, by Michael Edesess, Kwok L. Tsui, Carol Fabbri, and George Peacock.

The biggest thing that stands out is the support for TIPS and I bonds. I bonds represent a very clear situation, even clearer than TIPS. To me, they are a touchstone of a writer's honesty.

1) By most measures series I savings bonds are and have been a pretty good investment, for many mass affluent investors and retirement savers--certainly worthy of consideration.

2) There is no way for anyone in the investment industry to make money from them.

Therefore, a writer who recommends, or at least explains series I savings bonds is likely honest; while a writer who simply never mentions them at all is likely self-interested.

I personally am very close to doing what's suggested in the "Simplify your Options" slide. The main place I depart from it is in holding but underweighting international stocks. An interesting place where I conform to it is in my use of TIPS (if I include series I savings bonds as "fixed income," then I'm using 40% TIPS, 20% I bonds, 40% Total Bond). I do own SPIAs. I depart from it in not having any term life insurance, because at my stage in life I don't need any. In the "additional choices" list I do use a Total Bond. I once used a REIT index fund but gave it up long ago. I once held individual TIPS issues, but gave them up and swapped them for a TIPS fund a few years ago, with some regret, because realistically the complexity would make it unmanageable for my wife if the need ever arose.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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Re: "Three Simple Rules of Investing"

Post by Prudence »

Your 40/20/40 allocation is just for your fixed allocation, right? What is your reasoning behind 40% TIPs?
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