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"I Embrace Dumb Beta"

Posted: Wed Sep 04, 2019 9:37 am
by Taylor Larimore
Bogleheads:

Morningstar is featuring an interview with Allan Roth,CPA, CFP, and according to Morningstar: "One of the of the pre-eminent hourly financial advisors in the United States." Allan is a fee-only adviser ($450/hr.) and a long-time personal friend. When Allan speaks, I listen:
"I saw a CFP with fiduciary responsibility selling a couple of annuities to a client and he couldn't make up his mind whether to charge commission or a percentage of assets. So, he did both."

"I argue that Jack Bogle, the founder of Vanguard, always said growth was never the goal, trying to put the client first and do something good for the client resulted in growth."

"I've always said investing is simple, but I never said taxes were and withdrawals have tax ramifications."

"I try to help the client imagine the pain they would feel with another 50% decline like we've had twice since 1999, or even a Japan-like scenario."

"The most important decision is committing to stick with an asset allocation."

" I'm a strong believer that take risk with stocks, and the purpose of the bond, the fixed income, is to be the shock absorber of the portfolio."

"I'm a big believer in target-date retirement funds."

"I have my clients invest no more than 20% in muni-bond funds."

"Taxes are very, very important, and all things being equal, you want to be tax-efficient, but you don't want taxes to drive the overall portfolio."

"Not a penny has ever been made in the aggregate in the futures market. It's a zero-sum game before costs."

"The strategy that I use to protect for higher inflation and higher interest rates is the CD strategy with the early withdrawal penalty. But if a client doesn't want to do that, because it does take some time, then a TIPS would be a good strategy."

"Five years ago, I couldn't be at a conference and go more than 60 seconds without hearing smart beta, factor investing--and money pours into part of the market, and that means, all things being equal, it's likely to underperform going forward, it's not a for-sure thing, and small-cap value has underperformed large-cap growth I think the last time I looked at Morningstar over the last five years by almost 10 percentage points a year."

" I embrace dumb beta, just owning the entire market, and there's something really cool about a total stock or total international stock index fund, because if I own that with a 0.04% expense ratio, then I'm guaranteed to beat the average dollar invested in U.S. stocks, because I own the entire market and I owned it at lower costs than most other people do,"

"I give Jack Bogle not only credit for saving people billions and billions of dollars in fees for Vanguard, but in also forcing competitors to lower fees." --"meeting Jack Bogle was like meeting my hero. And the fact that we saw each other once or twice a year, and I could talk to him fairly regularly was just wonderful."

"in the vast majority of the cases, especially for a married couple, it makes sense for one to wait on Social Security, and I call that delaying Social Security the best annuity on the planet."
I Embrace Dumb Beta

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Good advisers give you their personal attention, help you avoid some of the pitfalls of investing, and provide worthwhile asset-allocation services."

Re: "I Embrace Dumb Beta"

Posted: Wed Sep 04, 2019 9:42 am
by JBTX
Excellent advice overall.

Re: "I Embrace Dumb Beta"

Posted: Wed Sep 04, 2019 9:46 am
by Howard Donnelly
Excellent interview and advice. Thank you, Taylor.

Re: "I Embrace Dumb Beta"

Posted: Wed Sep 04, 2019 11:36 am
by Fallible
Thanks for posting these, Taylor.

My favorite one:
I embrace dumb beta, just owning the entire market, and there's something really cool about a total stock or total international stock index fund, because if I own that with a 0.04% expense ratio, then I'm guaranteed to beat the average dollar invested in U.S. stocks, because I own the entire market and I owned it at lower costs than most other people do.

Re: "I Embrace Dumb Beta"

Posted: Wed Sep 04, 2019 11:42 am
by Jack FFR1846
I'd like to argue one of the points in there........but I can't find anything to disagree with.

:D

Re: "I Embrace Dumb Beta"

Posted: Wed Sep 04, 2019 12:08 pm
by nedsaid
Remember that "Dumb Beta" is being led by High Tech/Internet and its superiority to Value might be attributable to just a few stocks, the FAANG stocks in particular. It is a bet that High Tech/Internet leadership of the US Stock Market will continue.

Re: "I Embrace Dumb Beta"

Posted: Wed Sep 04, 2019 12:16 pm
by vineviz
Jack FFR1846 wrote: Wed Sep 04, 2019 11:42 am I'd like to argue one of the points in there........but I can't find anything to disagree with.
Well, the start is right there in the headline quote: no one who understands what so-called "smart beta" refers to would ever use the phrase "dumb beta" to describe a contrasting strategy. It's a classic strawman argument.

Re: "I Embrace Dumb Beta"

Posted: Wed Sep 04, 2019 12:22 pm
by nedsaid
vineviz wrote: Wed Sep 04, 2019 12:16 pm
Jack FFR1846 wrote: Wed Sep 04, 2019 11:42 am I'd like to argue one of the points in there........but I can't find anything to disagree with.
Well, the start is right there in the headline quote: no one who understands what so-called "smart beta" refers to would ever use the phrase "dumb beta" to describe a contrasting strategy. It's a classic strawman argument.
The other part of the strawman argument is that factor investing is obscenely expensive compared to "dumb beta." Lots of strawmen knocked over here all of the time.

The 3 fund portfolio is a good one, I actually use a 2 fund approach in a small pension that I have. I use the 3 fund for a leftover Variable Annuity that I hold at Fidelity. It is just that there are different approaches to investing. Shoot, active management CAN work if the fees are low enough, Vanguard is proof of that. So it is a difference in philosophy and approach and I can live with that.

Re: "I Embrace Dumb Beta"

Posted: Wed Sep 04, 2019 1:00 pm
by sometimesinvestor
I have trouble understanding the praise of ALL of this advice and I would ask in particular why a person in a high tax bracket should have no more than 20% of his/her money in tax free mini funds .Does he mean that person should emphasize individual bonds or stocks or taxable cash or real estate or all of these.I would certainly like to read arguments in favor of this position

Re: "I Embrace Dumb Beta"

Posted: Wed Sep 04, 2019 2:14 pm
by Taylor Larimore
sometimesinvestor wrote: Wed Sep 04, 2019 1:00 pm I have trouble understanding the praise of ALL of this advice and I would ask in particular why a person in a high tax bracket should have no more than 20% of his/her money in tax free mini funds .Does he mean that person should emphasize individual bonds or stocks or taxable cash or real estate or all of these.I would certainly like to read arguments in favor of this position
sometimesinvestor:

You can read Allan's "arguments" in this article:

https://www.etf.com/sections/index-inve ... nopaging=1]What You Get With Muni ETFs[/url]

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "I've always had in the back of my mind this incredibly simplistic idea, that your bond position should have something to do with your age."

Re: "I Embrace Dumb Beta"

Posted: Wed Sep 04, 2019 2:57 pm
by firebirdparts
I am also a dumb beta fan. I've been investing for a while, before Netflix and Facebook and Google and Amazon, and beta worked for me, because of the times. It didn't come in a smart version. I'm just lucky I knew what it was, really. All my money was in a 401k for a very long time and we didn't have a whole lot of choices in there, but I tried. It treated me well as of today. Volatility goes both ways. I like it today.