Peter L. Bernstein: Cash BETTER than Bonds

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stemikger
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Re: Peter L. Bernstein: Cash BETTER than Bonds

Post by stemikger » Wed Oct 04, 2017 8:59 pm

abuss368 wrote:
Wed Oct 04, 2017 8:54 pm
stemikger wrote:
Wed Oct 04, 2017 8:53 pm
abuss368 wrote:
Wed Oct 04, 2017 8:50 pm
I moved past market timing many years ago and plan to stay the course with our stock and bond allocation. This worked very well through the years and during the financial crisis.

Best.
+1

Awesome!! Me too!
Hi stemikger -

Indeed! As Mr. Bogle always recommends "Stay the course"!

Hope all is well.
Thanks Tony, everything is great. Hope all is well with you also.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

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abuss368
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Re: Peter L. Bernstein: Cash BETTER than Bonds

Post by abuss368 » Wed Oct 04, 2017 9:03 pm

stemikger wrote:
Wed Oct 04, 2017 8:59 pm
abuss368 wrote:
Wed Oct 04, 2017 8:54 pm
stemikger wrote:
Wed Oct 04, 2017 8:53 pm
abuss368 wrote:
Wed Oct 04, 2017 8:50 pm
I moved past market timing many years ago and plan to stay the course with our stock and bond allocation. This worked very well through the years and during the financial crisis.

Best.
+1

Awesome!! Me too!
Hi stemikger -

Indeed! As Mr. Bogle always recommends "Stay the course"!

Hope all is well.
Thanks Tony, everything is great. Hope all is well with you also.
Yes indeed. Since it is fall, I think it is time to start a new "no international thread!"
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Sandtrap
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Re: Peter L. Bernstein: Cash BETTER than Bonds

Post by Sandtrap » Wed Oct 04, 2017 9:08 pm

An old and very wealthy self-made mentor who made a fortune in R/E and investment finance once told me something like, "cash is not an investment, but in hard times it gives you the most options." I think what she was getting at was encouraging me to save for a rainy day.
I don't know how that actionably applies to Bernstein but it seems an appropriate aside.
j
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stemikger
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Re: Peter L. Bernstein: Cash BETTER than Bonds

Post by stemikger » Thu Oct 05, 2017 6:51 am

Posted by Abuss368
Yes indeed. Since it is fall, I think it is time to start a new "no international thread!"
LOL. Coming soon!
Last edited by stemikger on Fri Oct 06, 2017 3:07 am, edited 1 time in total.
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rotorhead
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Re: Peter L. Bernstein: Cash BETTER than Bonds

Post by rotorhead » Thu Oct 05, 2017 10:29 am

Re: Peter L. Bernstein: Cash BETTER than Bonds
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Post by stemikger » Wed Oct 04, 2017 9:58 pm

rotorhead wrote: ↑Wed Oct 04, 2017 8:40 pm
Re: Peter L. Bernstein: Cash BETTER than Bonds
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Post by stemikger » Wed Oct 04, 2017 10:42 am

No disrespect to the late Peter Bernstein, but he wrote one of my favorite papers entitled the 60/40 solution only later to retract it. I would listen to Jack Bogle instead. 60/40 stocks/bonds (all U.S.).
stemikger, that 2002 article about the 60/40 solution by Bernstein is one of my favorites. I keep a copy of it as attachment to my IPS, among other such articles; and periodically refer back to it as a reminder.

I would be interested to know when he retracted it; and the context. Can you direct me to a link?

Thanks.
rotorhead, sorry unfortunately I can't. I read that he retracted it in John Bogle's book Enough. I believe he favored some sort of tactical (market timing strategy) after that. I also have the 60/40 article saved. It made sense then and it makes sense now. IMHO market timing never made sense. I will provide this Youtube link by Morningstar that agrees with us when it comes to the good old fashioned 60/40 buy and hold with other tactical strategies.

https://www.youtube.com/watch?v=mYilk7ZFxlk
Thanks stemikger, for the reply. Haven't read Bogle's book, "Enough" yet. Will look for his mention of Bernstein.

Slothmeister
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Re: Peter L. Bernstein: Cash BETTER than Bonds

Post by Slothmeister » Thu Oct 05, 2017 11:20 am

In an aging bull market, I like my fixed-income in CDs. It helps establish a strong disparity between it and my equities. Plus, it will deter me from tinkering.

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Re: Peter L. Bernstein: Cash BETTER than Bonds

Post by JBTX » Thu Oct 05, 2017 11:44 am

VictoriaF wrote:
Mon Oct 02, 2017 8:19 pm
nisiprius wrote:
Mon Oct 02, 2017 7:58 pm
VictoriaF wrote:
Mon Oct 02, 2017 7:51 pm
I have just re-listened to Russ Roberts's 2009 interview with Nassim Taleb on EconTalk. It took place in March 2009, when the market was at its lowest point. (Obviously, they did not know that at the time.) Roberts and Taleb have agreed that the 2008-2009 crisis has demonstrated that cash is an asset class. In 2009, one could buy a lot of other assets on sale, if one had cash.

Victoria
Traditional asset allocation pie charts have three sectors, "stocks" (or "equities,") "bonds" (or "fixed income,") and "cash" (or "short-term reserves.") Up until the late 1990s it was customary for model portfolio recommendations to include a cash allocation, and the Vanguard LifeStrategy Funds had a "short-term reserves" allocation for quite a long time.
Thank you, nisiprius, for the context.

Did cash lose its status as an asset class in the 1990s? Today, I see numerous references to cash as a "performance drag." If we get a repeat of 2008-2009, cash may become again a "performance drug."

Taleb made another interesting point in that interview. We always adopt the most recent worst case as the worst case ever. We forget that before the last worst case, there was another, milder, worst case. There was the worst case of the 23% drop, and people used it in models until the 27% drop has replaced it. Then we had the 50% drop in 2008-2009, and so now we think that the worst that can happen is another 50% drop. But just as in the -27% age we were unaware of the possibility of the -50% age, in the -50% age we are oblivious to the possibility of the -65% age or -80% age.

Victoria
When you look at what happened during the Great Depression, or look at Japan, and look at our overall increasing debt burden to GDP in both the US and the world, and high relative equity valuations, with the right series of world economic or geopolitical shocks 50+ % drop in equities is certainly plausible.

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Re: Peter L. Bernstein: Cash BETTER than Bonds

Post by Grt2bOutdoors » Thu Oct 05, 2017 11:56 am

nedsaid wrote:
Wed Oct 04, 2017 7:04 pm
David Scubadiver wrote:
Wed Oct 04, 2017 5:21 pm
Cash is the only thing that is stable when a financial crisis hits. Whether it is worrh having versus investing in bonds is open to debate. Certainly there is a place for cash in a diversified portfolio.
If you define cash as Treasury bills, you are correct. Money market funds had other short term instruments in them such as commercial paper. Recall that AAA rated GE could not roll over its commercial paper during the 2008-2009 financial crisis and took a bailout from Warren Buffett. So it depends on how you define cash.
^Thank you! I was banging the proverbial table back in 2008 that it is essential for the individual investor to have access to liquidity at all times, returns be damned for that portion that permits you to SWAN. If GE had trouble accessing credit and it was a AAA rated entity back then with diverse operations and strong cash flow, what makes the common man believe they will have better luck? How you structure your liquidity is up to you, but to believe that equities, corporates and other long dated marketable instruments are liquid? is IMO a huge behavioral error. And many people, not just corporations found out how true that became. I hold cash, EE and I bonds - all easily liquid and available in days if not hours. Even CD's - there is no requirement for the issuer to "break" it, penalty or no penalty, they usually do if asked but all bets are off if there were a severe shock to the financial system. A HELOC or credit card is not liquid, it can easily be frozen or closed with the flip of a switch, without you even being made aware. This is basic personal finance 101.
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Re: Peter L. Bernstein: Cash BETTER than Bonds

Post by nedsaid » Thu Oct 05, 2017 12:45 pm

Grt2bOutdoors wrote:
Thu Oct 05, 2017 11:56 am
nedsaid wrote:
Wed Oct 04, 2017 7:04 pm
David Scubadiver wrote:
Wed Oct 04, 2017 5:21 pm
Cash is the only thing that is stable when a financial crisis hits. Whether it is worrh having versus investing in bonds is open to debate. Certainly there is a place for cash in a diversified portfolio.
If you define cash as Treasury bills, you are correct. Money market funds had other short term instruments in them such as commercial paper. Recall that AAA rated GE could not roll over its commercial paper during the 2008-2009 financial crisis and took a bailout from Warren Buffett. So it depends on how you define cash.
^Thank you! I was banging the proverbial table back in 2008 that it is essential for the individual investor to have access to liquidity at all times, returns be damned for that portion that permits you to SWAN. If GE had trouble accessing credit and it was a AAA rated entity back then with diverse operations and strong cash flow, what makes the common man believe they will have better luck? How you structure your liquidity is up to you, but to believe that equities, corporates and other long dated marketable instruments are liquid? is IMO a huge behavioral error. And many people, not just corporations found out how true that became. I hold cash, EE and I bonds - all easily liquid and available in days if not hours. Even CD's - there is no requirement for the issuer to "break" it, penalty or no penalty, they usually do if asked but all bets are off if there were a severe shock to the financial system. A HELOC or credit card is not liquid, it can easily be frozen or closed with the flip of a switch, without you even being made aware. This is basic personal finance 101.
I noticed that Pershing, which is the platform for a lot of brokerages, switched from a money market account to FDIC Insured Deposits for cash. It seems that some money market funds have switch to Treasury Bill only. AAA rated commercial paper ought to be extremely liquid, but the extraordinary circumstances from the 2008-2009 financial crisis froze up the credit markets in a way that we may not see again in our lifetimes. I have often said that I believe in good old fashioned money in the bank.
A fool and his money are good for business.

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JoMoney
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Re: Peter L. Bernstein: Cash BETTER than Bonds

Post by JoMoney » Thu Oct 05, 2017 1:50 pm

nedsaid wrote:
Thu Oct 05, 2017 12:45 pm
...the extraordinary circumstances from the 2008-2009 financial crisis froze up the credit markets in a way that we may not see again in our lifetimes...
We can hope, but it seems to me the consolidation of financial institutions, and proliferation of various types of derivative financial products, at even higher levels, doesn't look like we're headed in a direction to prevent such panics or make them less painful to unwind in the future.
nedsaid wrote:
Thu Oct 05, 2017 12:45 pm
... I have often said that I believe in good old fashioned money in the bank.
:thumbsup
Even having some emergency physical cash secured isn't a bad idea. Are ATM machines working in Puerto Rico ?
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nedsaid
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Re: Peter L. Bernstein: Cash BETTER than Bonds

Post by nedsaid » Thu Oct 05, 2017 2:21 pm

JoMoney wrote:
Thu Oct 05, 2017 1:50 pm
nedsaid wrote:
Thu Oct 05, 2017 12:45 pm
...the extraordinary circumstances from the 2008-2009 financial crisis froze up the credit markets in a way that we may not see again in our lifetimes...
We can hope, but it seems to me the consolidation of financial institutions, and proliferation of various types of derivative financial products, at even higher levels, doesn't look like we're headed in a direction to prevent such panics or make them less painful to unwind in the future.
nedsaid wrote:
Thu Oct 05, 2017 12:45 pm
... I have often said that I believe in good old fashioned money in the bank.
:thumbsup
Even having some emergency physical cash secured isn't a bad idea. Are ATM machines working in Puerto Rico ?
Well shoot. You are probably right. I am just trying to be optimistic. Yes, this could happen again there are trillions worth of derivatives sloshing around out there doing heaven knows what.
A fool and his money are good for business.

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Re: Peter L. Bernstein: Cash BETTER than Bonds

Post by Jcraz13 » Thu Oct 05, 2017 3:42 pm

This what I do as well with CDs. I don’t trust myself to not tinker . :oops:

Slothmeister wrote:
Thu Oct 05, 2017 11:20 am
In an aging bull market, I like my fixed-income in CDs. It helps establish a strong disparity between it and my equities. Plus, it will deter me from tinkering.

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Re: Peter L. Bernstein: Cash BETTER than Bonds

Post by Copernicus » Fri Oct 06, 2017 7:22 pm

HomerJ wrote:
Wed Oct 04, 2017 8:42 pm
Copernicus wrote:
Mon Oct 02, 2017 7:10 pm
the 1989 article
Total Bond Market Index Fund has returned about 6% a year since 1989. How much has cash returned?
I have really enjoyed reading the replies to my post! The whole point of the original post was not about maximizing returns from each asset class, but searching for a portfolio that yields higher returns at the same or similar risk level using cash instead of bonds.

Bonds may move up and down during the same periods as the stocks - not every time, not all the time, not for very long time - , whereas cash just sits there. Therefore, it should be possible to raise the percentage of stocks in a portfolio combining cash and, in the long run, achieve better portfolio returns than a portfolio combining bonds.

Footnote: I agree with one comment in a reply that with the well-diversified, total bond market portfolio adjusting portfolio to maintain a shorter duration, the superiority of cash as a diversifier might not be as much as in old times, but still, the tactic should be considered.

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Re: Peter L. Bernstein: Cash BETTER than Bonds

Post by itstoomuch » Fri Oct 06, 2017 8:45 pm

(YMMV)
YmethodMV
:mrgreen:
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Re: Peter L. Bernstein: Cash BETTER than Bonds

Post by itstoomuch » Fri Oct 06, 2017 11:43 pm

viewtopic.php?f=10&t=229219
The Bogle 3% Solution.
Cash, with little market risk @ .01% doesn't look so bad against a long-term future average equity index return of 3% real.
YMMV :mrgreen:
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