Nice piece by Christine Benz, "Not a portfolio emergency"

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
User avatar
Topic Author
nisiprius
Advisory Board
Posts: 41975
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Nice piece by Christine Benz, "Not a portfolio emergency"

Post by nisiprius »

Sorry, You Probably Don't Have a Portfolio Emergency

The "sorry" is because what the victim in this story had was not a portfolio problem, but something more mundane and less pleasant to deal with: an insufficient-savings problem.
What ailed my friend's financial plan wasn't going to be fixed by bumping up his weighting in small caps, or getting out of the 2035 target-date fund because of its 20% bond position. It most certainly wasn't going to be rectified by steering the money into a high-cost variable annuity [that had been the advisor's suggestion]....

my friend acknowledged that the advisor had also told him to target a higher savings rate. I wasn't there, so I can't know for sure how that discussion went down, but it's highly possible that the advisor soft-pedaled that difficult message in favor of pushing portfolio fixes (and product). It's also likely that my friend, in search of a noninvasive solution for problems in his financial plan, zoned out during the discussion of saving more; he latched onto the idea of changing up his portfolio allocations instead....

People often look to their portfolios and their investment selections to do the heavy lifting for their financial plans. The main reason is obvious: Watching your money grow on its own is inherently more fun than reducing spending in order to save. Some investment advisors--especially those with products to sell--are all too eager to pander to the notion that investors won't have to sacrifice much; their investment portfolios can work their magic....
.
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.
retiredjg
Posts: 41909
Joined: Thu Jan 10, 2008 12:56 pm

Re: Nice piece by Christine Benz, "Not a portfolio emergency"

Post by retiredjg »

Another great piece by Christine Benz. It's mostly about the saving.
User avatar
simplesimon
Posts: 3928
Joined: Mon Feb 25, 2008 8:53 pm

Re: Nice piece by Christine Benz, "Not a portfolio emergency"

Post by simplesimon »

Good message, although $250k in retirement and $20k in cash sounds a lot better than what most people have in their late 40's if you believe most statistics.
Miriam2
Posts: 3114
Joined: Fri Nov 14, 2014 11:51 am

Re: Nice piece by Christine Benz, "Not a portfolio emergency"

Post by Miriam2 »

Again, the importance of a strong savings rate:
. . . no amount of investing acumen can make up for a plan that didn't begin with articulating and quantifying a financial goal, then saving an appropriate amount for it. Relying on those levers you can control, rather than the market, has another key benefit. While saving more and working longer may not be fun, their contribution to your portfolio is guaranteed, an assurance you simply don't have by investing in the market.
John Bogle, "The Twelve Pillars of Wisdom" - Pillar 3: Time Marches On. Time dramatically enhances capital accumulation as the magic of compounding accelerates.
User avatar
Topic Author
nisiprius
Advisory Board
Posts: 41975
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Nice piece by Christine Benz, "Not a portfolio emergency"

Post by nisiprius »

Christine Benz wrote:Some investment advisors--especially those with products to sell--are all too eager to pander to the notion that investors won't have to sacrifice much; their investment portfolios can work their magic....
And that is not a straw man! Here is an honest-to-gosh real quotation from a print book published in 2010. I am not going to publicize the book by disclosing the title or the authors.
Yes, seriously, someone really wrote:A smarter allocation can improve your nest egg by 50 percent. That's a lot easier than increasing your savings by 50 percent. Through the process of improved diversification you can get this increase without more risk.
Image
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.
livesoft
Posts: 73338
Joined: Thu Mar 01, 2007 8:00 pm

Re: Nice piece by Christine Benz, "Not a portfolio emergency"

Post by livesoft »

^Well, sure! There is a difference between being invested 100% in a money market fund for 40 years and being invested in a Vanguard Target Retirement fund for 40 years.
Wiki This signature message sponsored by sscritic: Learn to fish.
boglephreak
Posts: 441
Joined: Fri Apr 22, 2016 5:16 pm

Re: Nice piece by Christine Benz, "Not a portfolio emergency"

Post by boglephreak »

lol
The low-cost target-date 2035 fund that he had invested in through his 401(k) (that I had recommended) was way too conservative, for one thing. Meanwhile, the advisor thought my friend's rollover IRA, parked in an S&P 500 index fund, completely missed the boat because it didn't include small caps. The advisor's solution? A variable annuity.
its like going to the doctor's office and hearing "you have all the symptoms of a cold, i recommend a lobotomy."
Miriam2
Posts: 3114
Joined: Fri Nov 14, 2014 11:51 am

Re: Nice piece by Christine Benz, "Not a portfolio emergency"

Post by Miriam2 »

The low-cost target-date 2035 fund that he had invested in through his 401(k) (that I had recommended) was way too conservative, for one thing. Meanwhile, the advisor thought my friend's rollover IRA, parked in an S&P 500 index fund, completely missed the boat because it didn't include small caps. The advisor's solution? A variable annuity.
The Vanguard 2035 Target Date Fund has an 80% stock/20% bond ratio. The investor in the article is "in his late 40's and single." I don't consider an 80/20 Target Fund too conservative for that age. Then he has the S&P 500 stock fund in his IRA on top of this - more stock.
John Bogle, "The Twelve Pillars of Wisdom" - Pillar 3: Time Marches On. Time dramatically enhances capital accumulation as the magic of compounding accelerates.
TropikThunder
Posts: 2539
Joined: Sun Apr 03, 2016 5:41 pm

Re: Nice piece by Christine Benz, "Not a portfolio emergency"

Post by TropikThunder »

nisiprius wrote:Sorry, You Probably Don't Have a Portfolio Emergency

The "sorry" is because what the victim in this story had was not a portfolio problem, but something more mundane and less pleasant to deal with: an insufficient-savings problem.
What struck me is the advisor seemingly making the rookie mistake we point out to new posters all the time: looking at a piece of the portfolio in isolation.
He had had a free consultation with an "advisor" onsite at his workplace, and that person had spotted some problems. The low-cost target-date 2035 fund that he had invested in through his 401(k) (that I had recommended) was way too conservative, for one thing. Meanwhile, the advisor thought my friend's rollover IRA, parked in an S&P 500 index fund, completely missed the boat because it didn't include small caps. The advisor's solution? A variable annuity.
The Vanguard 2035 Target Retirement Fund VTTHX is ~80% equity, 20% bonds. Fine, if you as an advisor feel 80/20 is too conservative for a late-40's investor, that's your opinion. But Christine's friend isn't 80/20, as he has his rollover IRA in an S&P 500 fund. Which doesn't "completely miss the boat" due to lack of small cap, as we have all seen that when charting Total Stock vs S&P500 there is negligible difference. Sure, if you have access to a cheap TSM fund (like in an IRA) most here will recommend it over S&P500, but it's not going to make the difference between success and failure. Either the advisor doesn't know any better (sad!) or is serving his own sales goals rather then advising (can anyone say "fiduciary"?).
User avatar
willthrill81
Posts: 20909
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Nice piece by Christine Benz, "Not a portfolio emergency"

Post by willthrill81 »

livesoft wrote:^Well, sure! There is a difference between being invested 100% in a money market fund for 40 years and being invested in a Vanguard Target Retirement fund for 40 years.
Historically, moving from 0/100 to 50/50 has improved nominal returns by 50%.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
Fallible
Posts: 7519
Joined: Fri Nov 27, 2009 4:44 pm
Contact:

Re: Nice piece by Christine Benz, "Not a portfolio emergency"

Post by Fallible »

TropikThunder wrote: ...What struck me is the advisor seemingly making the rookie mistake we point out to new posters all the time: looking at a piece of the portfolio in isolation.
He had had a free consultation with an "advisor" onsite at his workplace, and that person had spotted some problems. The low-cost target-date 2035 fund that he had invested in through his 401(k) (that I had recommended) was way too conservative, for one thing. Meanwhile, the advisor thought my friend's rollover IRA, parked in an S&P 500 index fund, completely missed the boat because it didn't include small caps. The advisor's solution? A variable annuity.
But was it a mistake? Although not essential to this excellent article by Benz, it could prove interesting to know more about the "advisor" and how much he might have stood to gain somewhere along the line from his "free" consultation and expensive (for the investor) solution.
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
MarvinK
Posts: 107
Joined: Wed Apr 12, 2017 8:04 pm
Location: DC

Re: Nice piece by Christine Benz, "Not a portfolio emergency"

Post by MarvinK »

Did anyone else think "Wow I would have loved to have Christine Benz as a friend review my investments"!

Oh the variable annuity sales pitch. It's sad the scare tactics that are used.
Greg in Idaho
Posts: 136
Joined: Tue Dec 27, 2016 12:59 pm

Re: Nice piece by Christine Benz, "Not a portfolio emergency"

Post by Greg in Idaho »

The cited list of false fixes remind me of so many of the thread titles around here...lots of attempts to super-optimize the structure/content of one's portfolio (perhaps, I don't know, instead of consistently adding more to it).
lynneny
Posts: 224
Joined: Sun Apr 15, 2012 10:23 pm

Re: Nice piece by Christine Benz, "Not a portfolio emergency"

Post by lynneny »

MarvinK, you can have Christine Benz review your investments!

She does an annual portfolio makeover week and invites people to write in describing their circumstances/investments/goals, and picks 5. She publishes a daily makeover, with before and after portfolios, and a detailed explanation of the changes she recommends and why.

I was lucky enough to be picked several years ago, and it was a terrific experience. Christine is very thorough, and we exchanged a number of emails beforehand as she asked questions to better understand my situation. She's also extraordinarily nice.

I don't think she expects you to follow her makeover 100% (the tax consequences, for one, would have been hefty). But I've followed a lot of her recommendations, from fund choices to what to put in my Roth. One of my worst failings was to have a ridiculous number of funds; since the makeover I've steadily cut way back. I still keep a printout of the makeover, and consult it. When I finally retire, I'll send Christine a note and thank her!
User avatar
goingup
Posts: 3906
Joined: Tue Jan 26, 2010 1:02 pm

Re: Nice piece by Christine Benz, "Not a portfolio emergency"

Post by goingup »

lynneny wrote:MarvinK, you can have Christine Benz review your investments!

She does an annual portfolio makeover week and invites people to write in describing their circumstances/investments/goals, and picks 5. She publishes a daily makeover, with before and after portfolios, and a detailed explanation of the changes she recommends and why.

I was lucky enough to be picked several years ago, and it was a terrific experience. Christine is very thorough, and we exchanged a number of emails beforehand as she asked questions to better understand my situation. She's also extraordinarily nice.

I don't think she expects you to follow her makeover 100% (the tax consequences, for one, would have been hefty). But I've followed a lot of her recommendations, from fund choices to what to put in my Roth. One of my worst failings was to have a ridiculous number of funds; since the makeover I've steadily cut way back. I still keep a printout of the makeover, and consult it. When I finally retire, I'll send Christine a note and thank her!
Great story. I'm a big fan of Ms. Benz's interviews and articles. You likely can't go wrong with any of her suggestions! :beer
Post Reply