"Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

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"Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by Rick Ferri » Fri Aug 02, 2019 1:35 am

.
Here is the Podcast you have all been waiting for!

"Bogleheads on Investing" episode 012 with guest Larry Swedroe, and your host Rick Ferri

You will not be disappointed, but maybe a bit surprised!

Enjoy!
Rick Ferri
Your Host
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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by Rick Ferri » Fri Aug 02, 2019 7:29 am

Larry graciously offered to answer any questions you may have posted under my previous podcast announcement:
larryswedroe wrote:
Wed Jul 31, 2019 5:10 pm
Rick and I finished our interview and we got too many questions, if I did not get to yours you can always email me at lswedroe@bamadvisor.com.
Larry
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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by HippoSir » Fri Aug 02, 2019 11:31 am

Great episode! Thank you both Larry and Rick for taking the time!

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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by Housedoc » Fri Aug 02, 2019 12:52 pm

Enjoyed the episode while at the gym today. Not sure why the drama about certain people posting things on this forum. I try for a drama free day everyday.

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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by Artsdoctor » Fri Aug 02, 2019 1:37 pm

Listened to it this morning. Great interview!

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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by YRT70 » Fri Aug 02, 2019 2:16 pm

Rick Ferri wrote:
Fri Aug 02, 2019 1:35 am
.
Here is the Podcast you have all been waiting for!

"Bogleheads on Investing" episode 012 with guest Larry Swedroe, and your host Rick Ferri

You will not be disappointed, but maybe a bit surprised!

Enjoy!
Rick Ferri
Your Host
Thank you for the podcast Rick. What part did you think was surprising?

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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by Whakamole » Fri Aug 02, 2019 2:33 pm

Great episode as usual. Thanks, Rick and Larry.

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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by Stinky » Fri Aug 02, 2019 3:08 pm

YRT70 wrote:
Fri Aug 02, 2019 2:16 pm

Thank you for the podcast Rick. What part did you think was surprising?
+1

What was surprising?

(great podcast, as always)
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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by iceport » Fri Aug 02, 2019 3:13 pm

Stinky wrote:
Fri Aug 02, 2019 3:08 pm
YRT70 wrote:
Fri Aug 02, 2019 2:16 pm

Thank you for the podcast Rick. What part did you think was surprising?
+1

What was surprising?

(great podcast, as always)
That they're actually on very friendly terms?
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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by stlutz » Fri Aug 02, 2019 3:44 pm

I think Rick said that "you" might be surprised, not that he was... Perhaps when more people listen they can say what they have found surprising. (I'm at work so not listening now).

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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by Day9 » Fri Aug 02, 2019 3:55 pm

Thank you very much Mr Ferri and Mr Swedroe. Thank you for asking & answering my question! I asked about the Vanguard Multifactor fund and was pleased with the answer.

I loved learning more about Larry's personal life. And I loved Larry's answer to the "risk parity" question where he said you should weigh the risk factors you are more confident in more highly; you should not immediately aim to weigh all the risk factors equally without first considering your very personal level of confidence in them. Thank you again!
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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by iceport » Fri Aug 02, 2019 6:33 pm

I liked Larry's take on umbrella insurance. I've been meaning to drop collision on my 11 year old car and add umbrella coverage, for a net decrease in insurance costs. This was a great reminder.
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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by columbia » Fri Aug 02, 2019 7:23 pm

Good stuff.

How about 3 hours next time? :P

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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by RCL » Fri Aug 02, 2019 7:35 pm

This was great...Thanks!! :sharebeer
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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by nedsaid » Fri Aug 02, 2019 9:47 pm

Hi Rick. I wanted to thank you for hosting these podcasts. I have listened to the Swedroe podcast and the Wes Gray podcast. Both were excellent. These take time to put together and want to let you know that your efforts are very much appreciated.
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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by bikechuck » Fri Aug 02, 2019 9:59 pm

It was interesting to hear Larry state that his current allocation is 30/70 which aligns with Rick's suggested default allocation for retirees.

It has me rethinking my target of 45/55. I am currently 66, retired at 64 and my equities have drifted up this year to 47%. I thought that I was being conservative but perhaps not.

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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by HueyLD » Fri Aug 02, 2019 10:15 pm

Thanks for the podcast.

One minor correction in the narrative. St. Louis is in MO (Missouri) not in MS (Mississippi).

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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by Big Dog » Fri Aug 02, 2019 10:18 pm

That was excellent. Thanks to Rick and Larry.

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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by westiemix » Fri Aug 02, 2019 11:08 pm

Glad that I finally decided to tune in. Really enjoyed the podcast. I will definitely be going back and listening to some additional episodes.

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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by S_Track » Fri Aug 02, 2019 11:24 pm

stlutz wrote:
Fri Aug 02, 2019 3:44 pm
I think Rick said that "you" might be surprised, not that he was... Perhaps when more people listen they can say what they have found surprising. (I'm at work so not listening now).
All of these are great, seem to get better with each episode. thanks Rick! As for a surprise, when Rick mentioned that retirement withdrawals could be determined by dividends and interest your portfolio gives off. I thought Bogleheads were total return folks?

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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by stlutz » Fri Aug 02, 2019 11:41 pm

S_Track wrote:
Fri Aug 02, 2019 11:24 pm
All of these are great, seem to get better with each episode. thanks Rick! As for a surprise, when Rick mentioned that retirement withdrawals could be determined by dividends and interest your portfolio gives off. I thought Bogleheads were total return folks?
I had a chance to listen and that was the most surprising comment to me as well!

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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by HueyLD » Sat Aug 03, 2019 6:50 am

Yes, some BHs are "total return" folks while some others are in the "spending interests and dividends" camp. Different strokes for different folks. Just like Larry's 30/70 portfolio blended with some non-BH spices, such a portfolio is optimal for Larry, but not for everyone else.

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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by peppers » Sat Aug 03, 2019 7:09 am

Larry raised some good points about elder care, dementia and estate planning. Thanks to Larry and Rick for this discussion.
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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by lostdog » Sat Aug 03, 2019 8:16 am

peppers wrote:
Sat Aug 03, 2019 7:09 am
Larry raised some good points about elder care, dementia and estate planning. Thanks to Larry and Rick for this discussion.
+1

Thank you for the valuable information. I also enjoyed Larry's opinion on cash allocation. I had too much cash so I moved my short term cash to a short term bond fund.
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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by dharrythomas » Sat Aug 03, 2019 8:39 am

I listened yesterday morning. Quality work as always. Thank you Rick.

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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by WhyNotUs » Sat Aug 03, 2019 8:45 am

Thanks to both gentlemen, who have been consistently generous with their most scarce resource... time.
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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by Seasonal » Sat Aug 03, 2019 9:38 am

Very nicely done.

Rick: regarding sustainable withdrawal rates, you recommend people in retirement withdraw an amount equal to dividends and interest plus some unstated amount of principal. Please expand on this.

Larry: you talked about cognitive tests. Recently dealing with some elderly relatives, I've found cognitive tests to be very blunt instruments. You can have terrible memory and judgement and still pass standard tests. They tend to ask things such as whether you are oriented (know who you are, where you are, today's date, some idea of major current events), can you draw a clock face, can you remember a few words for a few minutes and the like. Are your documents set up with something more sophisticated and, if so, what?

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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by Rick Ferri » Sat Aug 03, 2019 10:03 pm

HueyLD wrote:
Fri Aug 02, 2019 10:15 pm
Thanks for the podcast.

One minor correction in the narrative. St. Louis is in MO (Missouri) not in MS (Mississippi).
:oops:

Fixed!
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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by pascalwager » Sat Aug 03, 2019 10:11 pm

S_Track wrote:
Fri Aug 02, 2019 11:24 pm
stlutz wrote:
Fri Aug 02, 2019 3:44 pm
I think Rick said that "you" might be surprised, not that he was... Perhaps when more people listen they can say what they have found surprising. (I'm at work so not listening now).
All of these are great, seem to get better with each episode. thanks Rick! As for a surprise, when Rick mentioned that retirement withdrawals could be determined by dividends and interest your portfolio gives off. I thought Bogleheads were total return folks?
If you rebalance regularly, then it can still be total return.

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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by pascalwager » Sat Aug 03, 2019 10:13 pm

Greatly enjoyed the interview. Thanks Rick and Larry.

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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by whodidntante » Sat Aug 03, 2019 10:17 pm

Day9 wrote:
Fri Aug 02, 2019 3:55 pm
Thank you for asking & answering my question! I asked about the Vanguard Multifactor fund and was pleased with the answer.

I loved learning more about Larry's personal life. And I loved Larry's answer to the "risk parity" question where he said you should weigh the risk factors you are more confident in more highly; you should not immediately aim to weigh all the risk factors equally without first considering your very personal level of confidence in them. Thank you again!
I doubt that Larry's assertion that the Vanguard multi-factor fund offers less factor exposure for the buck compared to Bridgeway SCV will prove to be correct. But I'm not able to refute it because of the short track record of VFMF. Ask in a year.

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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by Grt2bOutdoors » Sat Aug 03, 2019 11:42 pm

Great interview, really enjoyed listening to it. Thanks Larry and Rick.
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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by Wildebeest » Sun Aug 04, 2019 6:06 am

Seasonal wrote:
Sat Aug 03, 2019 9:38 am
Very nicely done.

Larry: you talked about cognitive tests. Recently dealing with some elderly relatives, I've found cognitive tests to be very blunt instruments. You can have terrible memory and judgement and still pass standard tests. They tend to ask things such as whether you are oriented (know who you are, where you are, today's date, some idea of major current events), can you draw a clock face, can you remember a few words for a few minutes and the like. Are your documents set up with something more sophisticated and, if so, what?
I enjoyed the interview. My thanks to the both of you.

I am also very curious as to what Larry suggests what cognitive testing is done. MMSE, Montreal Inventory congnitive testing. An Amyvid PET scan? How often.

Would not an annuity in addition to your Social security and pension to cover your yearly expenses be more straight forward?
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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by larryswedroe » Sun Aug 04, 2019 7:46 am

Re cognitive testing, answer is simply to do your homework when choosing a doctor to do the test, making sure it is a strong test. Remember it's the other spouse who gets to choose.

Re annuities, they obviously remove the possibility of draining assets used to buy the annuity, but do not prevent con artists and even family members from gaining access to other assets nor to bank accounts which can be drained. My book covers some real life examples.

As to Vanguard factor fund, no need to wait, it's simple math, taking the expense ratio difference and then comparing loadings times the factor premium. They provide very little loading (by design) but at very low costs. Just as example if expect say a factor premium of 3% and you get even .1 more loading, that's 30bp in expected return. Now of course the savings in ER is certain. That has to be considered.

Best wishes
larry

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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by HippoSir » Sun Aug 04, 2019 12:03 pm

larryswedroe wrote:
Sun Aug 04, 2019 7:46 am
As to Vanguard factor fund, no need to wait, it's simple math, taking the expense ratio difference and then comparing loadings times the factor premium. They provide very little loading (by design) but at very low costs. Just as example if expect say a factor premium of 3% and you get even .1 more loading, that's 30bp in expected return. Now of course the savings in ER is certain. That has to be considered.

Best wishes
larry
Hi Larry, I'm curious what data source you use to determine this? With portfoliovisualizer I get the following results:

Image

https://www.portfoliovisualizer.com/fac ... e&total1=0

I agree that by design the vanguard multi-factor fund is much lighter on value exposure (it is after all, a multi-factor fund), but the vanguard value factor fund seems to obtain quite deep factor exposure.

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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by CWRadio » Sun Aug 04, 2019 12:05 pm

At the end of the podcast Larry stated to talk about what type of portfolio a person should have in retirement. That would be an interesting discussion.
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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by larryswedroe » Sun Aug 04, 2019 1:35 pm

Hippo
Portfoliovisualizer is fine, but have to understand that for value only looking at btm.
Which is why I would also look at other metrics like P/E and P/CF and P/S, which also have been shown to carry premiums (value is highly robust to definitions)
Here's Vanguard tool you can use to replace M* which no longer provides it
https://advisors.vanguard.com/web/c1/compare-products/

As side note the SV fund I use is BOSVX, which has significant loading on QMJ as it uses multiple value metrics (like p/e and p/cf which provide that exposure indirectly).

CWRadio
First in retirement have to understand that sequence risk matters a great deal, which means IMO you want to consider how you can reduce the potential dispersion of potential outcomes and cut that left tail risk which can cause portfolios to blow up. Reducing the Risk of Black Swans, 2018 edition is all about that.
Second, in retirement your ability to take risk falls as no longer have labor capital to replace losses and cannot wait out a bear market as need if withdraw. Willingness to take risk also likely falls. But you also have to consider still have long horizon to plan for. Age 65 if healthy couple should plan on at least 35 years. So cannot get too conservative. And need to have a Plan B, the actions you will take to avoid plan failing if left tail shows up. Want to have that plan in place so not making panicked decisions.
For most this means having to reduce market beta risks, and given current bond yields for many will mean finding other unique sources of risk with at least equity-like expected returns, but uncorrelated or low correlation, to cut that tail risk without lowering expected returns too much. Personally that is what I've done, creating more of a risk-parity type portfolio.

Hope that is helpful
Larry

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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by Angst » Sun Aug 04, 2019 2:50 pm

larryswedroe wrote:
Sun Aug 04, 2019 1:35 pm
Hippo
Portfoliovisualizer is fine, but have to understand that for value only looking at btm.
Which is why I would also look at other metrics like P/E and P/CF and P/S, which also have been shown to carry premiums (value is highly robust to definitions)
Here's Vanguard tool you can use to replace M* which no longer provides it
https://advisors.vanguard.com/web/c1/compare-products/

[Snip...]
Thank you Larry for linking to this tool. I'd never come across it before and it's very helpful. For those exploring it, the "Composition" tab opens up most of what you're probably looking for. Really nice thing to have.

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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by Munir » Sun Aug 04, 2019 5:24 pm

bikechuck wrote:
Fri Aug 02, 2019 9:59 pm
It was interesting to hear Larry state that his current allocation is 30/70 which aligns with Rick's suggested default allocation for retirees.

It has me rethinking my target of 45/55. I am currently 66, retired at 64 and my equities have drifted up this year to 47%. I thought that I was being conservative but perhaps not.
Great interview. Agree that it is very interesting that Larry advocates for a 30% equities: 70% fixed income ratio for retirees- if I understood him correctly. Doesn't it contradict what some are recently saying about raising the equity % in later stages of retirement? I hope we continue to see more discussions of managing investments during retirement on this forum.

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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by larryswedroe » Sun Aug 04, 2019 5:42 pm

Munir
I'm not advocating for any ONE allocation. The right allocation is right for the individual and unique to them based on their ability, willingness and need to take risk as well as ability to deal with tracking variance (I don't like the commonly used tracking error as it implies a mistake).

IMO the best way to address it is to run MCS on various AA and withdrawal rates and then run say once a year (or after big moves in markets or when life events alter the assumptions) to see if changes needed so plan will not fail.

So example, say in 2005 we set a $200k SWR for a client, then 2008 happens. That client had a Plan B to lower withdrawal to $150K so plan would not fail, which it might have with too high odds of likelihood if kept withdrawing $200k The ability to lower spending allowed client to take spend more and enjoy the benefits, unless the left tail risk showed up, which it did.

The whole idea of set it and forget it in terms of AA and SWR makes no sense to me. The plan has to be a living document that gets adapted to changing circumstances. And of course having a 2 or 4% withdrawal rate for 95 year old makes no sense either. AS we age the assets have to last a shorter time.

Hope that is helpful

Larry

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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by HippoSir » Sun Aug 04, 2019 6:10 pm

larryswedroe wrote:
Sun Aug 04, 2019 1:35 pm
Hippo
Portfoliovisualizer is fine, but have to understand that for value only looking at btm.
Which is why I would also look at other metrics like P/E and P/CF and P/S, which also have been shown to carry premiums (value is highly robust to definitions)
Here's Vanguard tool you can use to replace M* which no longer provides it
https://advisors.vanguard.com/web/c1/compare-products/

As side note the SV fund I use is BOSVX, which has significant loading on QMJ as it uses multiple value metrics (like p/e and p/cf which provide that exposure indirectly).
Thank you for the explanation Larry, just FYI Morningstar still has that information, they just made it tougher to find for some reason! :oops: It's over on the portfolio tab, under stock style->factors).

VFVA:

Image

BOSVX:

Image

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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by utvolfan » Sun Aug 04, 2019 6:14 pm

Just listened to the very informative podcast, and have a question regarding Rick's "live off dividends & interest" versus Larry's "total return" discussion.
Does Rick's method involve only dividends and interest or also long term capital gains? I have often read on here that some people stop reinvesting these first because you are already paying tax on all three if you are in the 22%+ tax bracket, and if toether they aren't enough, they will then sell part of the portfolio to supplement. Rick didn't mention the LTCGs so I was wondering if they should be included in his method. Thanks.

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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by Grt2bOutdoors » Sun Aug 04, 2019 7:19 pm

utvolfan wrote:
Sun Aug 04, 2019 6:14 pm
Just listened to the very informative podcast, and have a question regarding Rick's "live off dividends & interest" versus Larry's "total return" discussion.
Does Rick's method involve only dividends and interest or also long term capital gains? I have often read on here that some people stop reinvesting these first because you are already paying tax on all three if you are in the 22%+ tax bracket, and if toether they aren't enough, they will then sell part of the portfolio to supplement. Rick didn't mention the LTCGs so I was wondering if they should be included in his method. Thanks.
Not Rick, but I don't believe LTCG is included, only dividends and interest.
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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by whodidntante » Sun Aug 04, 2019 7:40 pm

larryswedroe wrote:
Sun Aug 04, 2019 7:46 am

As to Vanguard factor fund, no need to wait, it's simple math, taking the expense ratio difference and then comparing loadings times the factor premium. They provide very little loading (by design) but at very low costs. Just as example if expect say a factor premium of 3% and you get even .1 more loading, that's 30bp in expected return. Now of course the savings in ER is certain. That has to be considered.
I would like to use a common time period for all funds to make it fair. After doing so, the t-stat for all funds is lower than I would like. So I don't think I should be drawing conclusions just yet.

I don't think expected returns are relevant when determining cost for factor loading. Though cost for expected returns would be relevant if you want a very high factor loading and are willing to pay up for it.

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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by utvolfan » Mon Aug 05, 2019 11:45 am

Grt2bOutdoors wrote:
Sun Aug 04, 2019 7:19 pm
utvolfan wrote:
Sun Aug 04, 2019 6:14 pm
Just listened to the very informative podcast, and have a question regarding Rick's "live off dividends & interest" versus Larry's "total return" discussion.
Does Rick's method involve only dividends and interest or also long term capital gains? I have often read on here that some people stop reinvesting these first because you are already paying tax on all three if you are in the 22%+ tax bracket, and if together they aren't enough, they will then sell part of the portfolio to supplement. Rick didn't mention the LTCGs so I was wondering if they should be included in his method. Thanks.
Not Rick, but I don't believe LTCG is included, only dividends and interest.
Would you be willing to give your opinion on using the LTCGs from a taxable account along with the dividends and interest for retirement living expenses? I know this inhibits growth in the account, but if taxes have to be paid on them anyway is it acceptable to use them? Would it matter if our tax bracket changed to 12% where they weren't taxed but we still needed the income or wanted to use them to invest in something else? In thinking about it myself, I suppose that is dependent on whether taxable is where you plan to make your withdrawal in the first place (versus 401k, 457b, Trad. Ira, Roth...). Am I on the right track? Thanks!

retiredjg
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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by retiredjg » Mon Aug 05, 2019 11:53 am

utvolfan wrote:
Mon Aug 05, 2019 11:45 am
Would you be willing to give your opinion on using the LTCGs from a taxable account along with the dividends and interest for retirement living expenses? I know this inhibits growth in the account, but if taxes have to be paid on them anyway is it acceptable to use them?
I think there may be some confusion over the use of the term "LTCG" (long term capital gains) in your question.

I'm not sure if this is proper, but I think of "a capital gains distribution" and "capital gains" as different things. The "capital gains distribution" is a capital gain that is distributed each year whether you want it or not and yes, you do pay tax on that....whether you spend it or not.

But your taxable account also contains what are called "unrealized capital gains". These are gains that are NOT paid out each year and are NOT taxed each year. You only pay taxes on these gains when you actually sell shares. These are what you are probably taking about when you refer to LTCG.


With this distinction in mind (even if I have clobbered the terms) can you ask your question again?

YRT70
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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by YRT70 » Mon Aug 05, 2019 12:14 pm

HippoSir wrote:
Sun Aug 04, 2019 6:10 pm
just FYI Morningstar still has that information, they just made it tougher to find for some reason! :oops: It's over on the portfolio tab, under stock style->factors).
Nice! I was looking for that info for quite a while. Thanks.

utvolfan
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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by utvolfan » Mon Aug 05, 2019 1:38 pm

retiredjg wrote:
Mon Aug 05, 2019 11:53 am
utvolfan wrote:
Mon Aug 05, 2019 11:45 am
Would you be willing to give your opinion on using the LTCGs from a taxable account along with the dividends and interest for retirement living expenses? I know this inhibits growth in the account, but if taxes have to be paid on them anyway is it acceptable to use them?
I think there may be some confusion over the use of the term "LTCG" (long term capital gains) in your question.

I'm not sure if this is proper, but I think of "a capital gains distribution" and "capital gains" as different things. The "capital gains distribution" is a capital gain that is distributed each year whether you want it or not and yes, you do pay tax on that....whether you spend it or not.

But your taxable account also contains what are called "unrealized capital gains". These are gains that are NOT paid out each year and are NOT taxed each year. You only pay taxes on these gains when you actually sell shares. These are what you are probably taking about when you refer to LTCG.


With this distinction in mind (even if I have clobbered the terms) can you ask your question again?
Sorry for the confusion. You nailed it on the first definition. I am asking about using the LTG distributions that are distributed each year and are taxed/not taxed according to your bracket. Is it plausible to use these and the dividends/interest as part of your withdrawal strategy to produce income (or to reinvest somewhere else if desired) since you declare them anyway? I know if reinvested the portfolio will grow, but when withdrawing is necessary anyway is it a poor strategy to use them first? Thanks for tackling my question!

retiredjg
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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by retiredjg » Mon Aug 05, 2019 2:06 pm

utvolfan wrote:
Mon Aug 05, 2019 1:38 pm
Sorry for the confusion. You nailed it on the first definition. I am asking about using the LTG distributions that are distributed each year and are taxed/not taxed according to your bracket. Is it plausible to use these and the dividends/interest as part of your withdrawal strategy to produce income (or to reinvest somewhere else if desired) since you declare them anyway?
Yes. Your capital gain distribution and your dividends would be the first income stream flowing into your checkbook to use for living expenses each year. You are paying tax on that money and you might as well spend it if you need to spend money.

If that is enough money for you to live on, that would be "living off the dividends". (***See note below). This is only possible if your needs are small in relation to the size of your portfolio. Few people can actually live off the dividends only.

If you need more money than that to live on, you would need to sell some shares. This would result in capital gains (if you sell in taxable) or simply taxable income if you sell in a tIRA or 401k type account.


***Note: Some people try to juice the this dividend income stream a bit by skewing their portfolios in various ways to get more dividends or larger capital gains distributions. I suppose a little of that is OK, but many people carry it too far and end up with a portfolio that is not as safe or stable as it should be.

This is why some (including Vanguard) encourage people to live off "total return". The total return of your portfolio includes the cap gains distributions and dividends as well as increases in the value of your shares.

I know if reinvested the portfolio will grow, but when withdrawing is necessary anyway is it a poor strategy to use them first?
Absolutely not. In fact, it is what you should do.

utvolfan
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Re: "Bogleheads on Investing" episode 012 - guest Larry Swedroe, host Rick Ferri

Post by utvolfan » Mon Aug 05, 2019 7:29 pm

Thanks, retiredjg, for taking the time to clearly explain that concept. It makes perfect sense!

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