Words of Wisdom William Bernstein_chat w/Ben Carlson

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EvelynTroy
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Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by EvelynTroy »

[Post merged into here, see below. --admin LadyGeek]

30 min. discussion with Ben Carlson discusses the current situation and give some context around how this current crash looks through the lens of financial market history:

https://awealthofcommonsense.com/2020/0 ... bernstein/

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William Bernstein interview about the corona crisis

Post by CULater »

You might be interested in what Dr. Bill has to say about the current situation:

https://awealthofcommonsense.com/2020/0 ... bernstein/
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Re: William Bernstein interview about the corona crisis

Post by VictoriaF »

Thank you for the link. I appreciate Bill's calm assessment of the current situation. A nice surprise came at the very end. When Bill pointed to the papers in his office as an illustration of his writing process.

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Re: William Bernstein interview about the corona crisis

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Huge Bernstein fan.
Thanks for posting this.
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Re: William Bernstein interview about the corona crisis

Post by Elysium »

Excellent interview. Sharp as ever, the closest that we would get to what Jack Bogle would say about the current environment in similar manner of putting complex things into perspective.
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Re: William Bernstein interview about the corona crisis

Post by Noobvestor »

CULater wrote: Thu Apr 02, 2020 6:49 pm You might be interested in what Dr. Bill has to say about the current situation:

https://awealthofcommonsense.com/2020/0 ... bernstein/
A+++ Started not sure I'd end up watching the full 30 minutes, but it was worth the time. :dollar
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Re: William Bernstein interview about the corona crisis

Post by nix4me »

Great Interview! I like his advice - go hard when your young, a bucket of fixed/t-bills to live on the rest of your life - and leave the stocks alone forever.
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Re: William Bernstein interview about the corona crisis

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Bookmarked and added to tomorrow’s todo list.
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Re: William Bernstein interview about the corona crisis

Post by iceport »

That was an awesome interview! Thanks!

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Re: William Bernstein interview about the corona crisis

Post by livesoft »

As I watched the video, I was thinking that people like Dr. Bernstein started about 40 years ago, so he will be replaced by some of the people interviewing him in another 20 to 30 years. That is, Ben Carlson will be interviewed during a financial crisis of 2050 by a younger person in a 3D holographic video giving wisdom to those that participate.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by LadyGeek »

I merged EvelynTroy's post into the on-going discussion. The software sorts by time, EvelynTroy's post is first.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by Leesbro63 »

I’ll listen tomorrow, but it would be nice if someone would post the summary highlights.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by livesoft »

Leesbro63 wrote: Thu Apr 02, 2020 8:32 pm I’ll listen tomorrow, but it would be nice if someone would post the summary highlights.
Click on the link, scroll down below the video and the highlights are there.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by CULater »

Toward the end of the interview, Dr. Bernstein discusses the significance of big "up" days in the market such as we've seen recently in this one. He draws a comparison with the 1930s and 2008-09 when we saw the same thing. He says, that's volatility and that volatility is bad; and that "up" days and "down" days mean the same thing. Well worth remembering right now.

I was also struck that as an older investor, it sounds like he might be pretty heavy into T-Bills; pointing out that Warren Buffett has a pile of T-Bills too. He suggests that for older investors, stocks are toxic, and we certainly see that clearly now. He says older investors should be managing stocks not for themselves but for beneficiaries. My thought is that not every older investor has that option unfortunately and that's either too bad or a failure of planning, IMO.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by Retired1809 »

Thank you for posting this interview.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by livesoft »

BTW, pro-tip for watching these videos: Turn on close-captioning and set the playback speed to 2X, so a 30 minute video is done in 15 minutes.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by imak »

Thank you so much for posting this!
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by retiringwhen »

livesoft wrote: Thu Apr 02, 2020 9:17 pm BTW, pro-tip for watching these videos: Turn on close-captioning and set the playback speed to 2X, so a 30 minute video is done in 15 minutes.
I love listening to Bill's inflections, he says alot in his verbal queues. He in particular is probably seriously reduced by such an approach. But, I do do that for some podcasters.

BTW, I am sending this interview to my kids and niece/nephew as a little taste of how to look in the big picture (they are already well introduced to sound investing principles, but reinforcement never hurts.)

Bills natural good cheer telling a story mixed with hope and gloom is worth time.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by livesoft »

^I agree and I watched the video at normal speed, but some folks may not have time. Or maybe a quick view first, then when they have more time they can playback at 1X.
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Re: William Bernstein interview about the corona crisis

Post by Fallible »

Elysium wrote: Thu Apr 02, 2020 7:42 pm Excellent interview. Sharp as ever, the closest that we would get to what Jack Bogle would say about the current environment in similar manner of putting complex things into perspective.
Another Bernstein fan here and I was thinking the same about it being close to what Jack would say, but then I've seen similar from our other Boglehead pros such as Rick Ferri, Allan Roth, Larry Swedroe, Jonathan Clements, etc. Am thankful to have them all, especially now.

OP, thanks for posting.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by SimpleGift »

Lots of good Bernstein advice in this podcast, and well worth a half hour of one's time.

As one of the best popular financial historians of our time, Mr. Bernstein's strong belief in the resiliency of free-market capitalism was refreshing to hear, not only because it conforms with my own perspective, but because it's an important, hopeful message in the midst of a pandemic and market crash.

To paraphrase, look beyond the dreadful earnings of U.S. companies in 2020 to their earnings in the decades ahead.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by vipertom1970 »

awesome pod cast, thank you !
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Re: William Bernstein interview about the corona crisis

Post by rascott »

CULater wrote: Thu Apr 02, 2020 6:49 pm You might be interested in what Dr. Bill has to say about the current situation:

https://awealthofcommonsense.com/2020/0 ... bernstein/
Great video. Everyone should watch.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by north2016 »

Definitely worth the time. Thanks for posting this.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by xxd091 »

Really good stuff
Calm reassuring advice and comments from an experienced financier which are a real requirement/ help for amateur investors at this turbulent time
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by Harry Livermore »

Thanks for posting this.
I really love Bernstein's advice to have your "future living expenses" in bonds, and your "next generation" money in equities. I think that might be a little overly cautious and didactic for me personally, but I think an ideal for me would be a nice mix of bonds/ bond funds that were 25x-30x living expenses, and some amount above that (8x-20x?) in equities, to hopefully grow/ outpace inflation, or leave to the kids.
I guess it's just a framing device, like buckets. But I always enjoy taking in a new perspective on old ideas.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

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:thumbsup :thumbsup
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

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Great Interview. Thanks.

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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by abuss368 »

Thank you for sharing.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by boomergeneration »

I needed this. Thanks for the link.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by aj76er »

Nice podcast. Thanks for posting. So at what age do equities become “toxic”? When life expectancy is within 20yrs? 15yrs? Less?
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

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aj76er wrote: Fri Apr 03, 2020 7:53 pm So at what age do equities become “toxic”? When life expectancy is within 20yrs? 15yrs? Less?
Most likely it comes when one feels that their nest egg is "enough," rather than at any particular biological age.

One usual definition of enough is 25x annual expenses in retirement, invested in safe, high-quality bonds — though this will vary with each investor. Only funds beyond this base amount of safe assets, which are not going to be needed for foreseeable consumption needs, could be ventured into the stock market.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by whodidntante »

Will this go viral?
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by arcticpineapplecorp. »

thank you for the link. I will check it out. Would listen to anything Dr. Bernstein has to say.

29:20 in:
"The only black swans are the history you haven't read"--William Bernstein

take that Nassim.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

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aj76er wrote: Fri Apr 03, 2020 7:53 pm Nice podcast. Thanks for posting. So at what age do equities become “toxic”? When life expectancy is within 20yrs? 15yrs? Less?
Check about 10 minutes into the interview when he discusses the risk of stocks for the older investor; at about 11 minutes he suggests that stocks are "three-mile island toxic" for older investors. He discusses this more in "The Ages of the Investor". Generally, stocks become "toxic" when one has used up human capital and all their capital is concentrated in investments. At this point, he suggests that investors consider dividing their financial capital into two "buckets." Bucket #1 contains safe, inflation-protected assets and should be sufficient to provide living expenses for at least 20-25 years. If there is any capital remaining, it can go into Bucket #2, which can optionally be invested in riskier assets such as stocks. It is intended to provide discretionary spending and bequests. One would not count on this bucket for regular withdrawals for living expenses.
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T-Bills...Warren Buffet Annual Reports

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Bernstein said that Warren Buffet listed a page of disadvantages of T-Bills in his annual report. Then Buffet said that knowing these disadvantages, we will hold all of our reserves in T-Bills.

At 16:40 Bernstein talked about selling a T-Bill for 100.01 for a food bank. He said that he didn't get par back because of commission.

The message of Bernstein and Buffet? Maybe, short treasuries are good to have. I've read Bernstein say this in his books, but I have followed L. Swedroe's advice that intermediate is the sweet spot. After 2008 and the recent bond market turmoil, Bernstein and Buffet's advice looks good.

I've never considered owning a T-Bill because other products like CDs or savings accounts were paying more.
I will probably buy one just to see.

Vanguard is showing this: 3 Month United States Treas Bill 0.061% 99.984 0.000 7/14/2020
How do you figure out the payout on the 3 mo bill?
Can I get one T-Bill for $1000?

UPDATE: On Vanguard, I tried to buy a $1000, 3 Month T-Bill. The error message came up, "$5000 minimum". I put in $5000, another error message came back, "closed...come back during business hours Monday".

UPDATE2: I could buy 1K one and three month T-Bills easily after 8am. I bought 5K total; then I easily sold them all the next day. There were no commissions. I lost about 50 cents to learn how to buy and sell T-Bills.
Last edited by hudson on Wed Apr 08, 2020 8:26 am, edited 3 times in total.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by CULater »

So, right now the yield on the 3-month bill is 0.10% and the yield on the 5-year note is 0.39%, a difference of 0.29%. If you own an intermediate treasury fund, you'll pay 0.05% ER, so your net return is about 0.24%. For the added duration risk of the 5-year you will earn a whopping 24 basis points more than ultra-safe T-Bills. You really think it's worth it?
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by hudson »

CULater wrote: Sat Apr 04, 2020 9:01 am So, right now the yield on the 3-month bill is 0.10% and the yield on the 5-year note is 0.39%, a difference of 0.29%. If you own an intermediate treasury fund, you'll pay 0.05% ER, so your net return is about 0.24%. For the added duration risk of the 5-year you will earn a whopping 24 basis points more than ultra-safe T-Bills. You really think it's worth it?
CULater,

Only for educational purposes because some day things might be different.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by CULater »

hudson wrote: Sat Apr 04, 2020 9:11 am
CULater wrote: Sat Apr 04, 2020 9:01 am So, right now the yield on the 3-month bill is 0.10% and the yield on the 5-year note is 0.39%, a difference of 0.29%. If you own an intermediate treasury fund, you'll pay 0.05% ER, so your net return is about 0.24%. For the added duration risk of the 5-year you will earn a whopping 24 basis points more than ultra-safe T-Bills. You really think it's worth it?
CULater,

Only for educational purposes because some day things might be different.
Unfortunately, the best predictor of what you'll earn on bonds between now and the future is the current yield. So while you are waiting for things to be different you'll be earning 24 basis points on intermediate treasuries. Maybe it would make some sense to own T-Bills while you wait? I'm not really sure if intermediate treasuries are going to provide much diversification benefit going forward either, since rates are on the floor now. Very difficult situation. I'm pretty much giving up on bonds and going mostly to T-Bills and I-Bonds. At this point I'm more interested in the return of my money than the return on my money.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by hudson »

CULater wrote: Sat Apr 04, 2020 9:20 am Very difficult situation. I'm pretty much giving up on bonds and going mostly to T-Bills and I-Bonds. At this point I'm more interested in the return of my money than the return on my money.
I like 5 year CDs, but I need liquidity while the CDs are baking. I'm using intermediate munis for now; my plan is to stick with them. The intermediate muni fund is my only "risky" asset. It wasn't risky from 2009-2019....well maybe.
Last edited by hudson on Sat Apr 04, 2020 9:52 am, edited 2 times in total.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by CULater »

I'd sure like to hear Bill Bernstein's thoughts on this. Is he leaning mostly to T-Bills these days? I think he has suggested mostly TIPS ladders and T-Bills for liability-matching. What about now?
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by hudson »

CULater wrote: Sat Apr 04, 2020 9:44 am I'd sure like to hear Bill Bernstein's thoughts on this. Is he leaning mostly to T-Bills these days? I think he has suggested mostly TIPS ladders and T-Bills for liability-matching. What about now?
Mike Piper quoted Bernstein in his article..https://obliviousinvestor.com/getting-o ... etirement/

For example, the following two quotes come from Bill Bernstein’s book The Ages of the Investor. (Published in 2012)

“As one approaches the end of one’s human capital and hopefully has accumulated enough investment capital to safely offset the expense of retirement living, it makes little sense to put at risk the funds earmarked for retirement living expenses. In other words, once the game has been won by accumulating enough safe assets to retire on, it makes little sense to keep playing it, at least with the ‘number’: the pile of safe assets sufficient to directly provide or indirectly purchase an adequate lifetime income stream.”

“If, at any point, a bull market pushes your portfolio over the LMP [liability matching portfolio] ‘magic number’ of 20 to 25 times your annual cash-flow needs beyond Social Security and pensions, you’ve won the investing game. Why keep playing? Start bailing. After you’ve put enough TIPS, plain vanilla Treasuries, and CDs into your mental LMP, you’re free to start adding again to your RP [risk portfolio].”


I would predict that he would say the same thing today.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by CULater »

hudson wrote: Sat Apr 04, 2020 9:49 am
CULater wrote: Sat Apr 04, 2020 9:44 am I'd sure like to hear Bill Bernstein's thoughts on this. Is he leaning mostly to T-Bills these days? I think he has suggested mostly TIPS ladders and T-Bills for liability-matching. What about now?
Mike Piper quoted Bernstein in his article..https://obliviousinvestor.com/getting-o ... etirement/

For example, the following two quotes come from Bill Bernstein’s book The Ages of the Investor. (Published in 2012)

“As one approaches the end of one’s human capital and hopefully has accumulated enough investment capital to safely offset the expense of retirement living, it makes little sense to put at risk the funds earmarked for retirement living expenses. In other words, once the game has been won by accumulating enough safe assets to retire on, it makes little sense to keep playing it, at least with the ‘number’: the pile of safe assets sufficient to directly provide or indirectly purchase an adequate lifetime income stream.”

“If, at any point, a bull market pushes your portfolio over the LMP [liability matching portfolio] ‘magic number’ of 20 to 25 times your annual cash-flow needs beyond Social Security and pensions, you’ve won the investing game. Why keep playing? Start bailing. After you’ve put enough TIPS, plain vanilla Treasuries, and CDs into your mental LMP, you’re free to start adding again to your RP [risk portfolio].”


I would predict that he would say the same thing today.
Yes, I agree. But I was wondering specifically what he might say about T-Bills given the current interest rate environment.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by CULater »

Here's what he said 7 years ago, but sounds like he'd say the same exact thing now too:
Get over the low expected returns of fixed-income instruments, because you don’t have a choice. If you’ve saved up enough assets to retire on, you still want to put it into relatively riskless assets—T-bills, CDs, things like that that have relatively short maturities. If things mean-revert, you’ll be fine; you’ll be back up to the normal historical yields. The yields we’re looking at are obviously artificially low, and will inevitably reverse.

It’s very unfortunate that bonds have a negative expected real return right now. Unfortunately, the best thing to do is just to grin and bear it, because the alternatives—mainly extending durations or buying lower credit quality—are probably going to bite you at some point in the not-too-distant future.
https://www.etf.com/sections/features/1 ... bills.html

T-Bills, CDs, stuff that preserves your initial capital investment but not much more than that.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by Bill Bernstein »

Thanks for all the kind words.

I still like T-bills, though at present they offer only a marginal return over a mattress. (As opposed to most of the rest of the developed world, where the mattress comes out on top.)

Bill
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by CULater »

Bill Bernstein wrote: Sat Apr 04, 2020 10:21 am Thanks for all the kind words.

I still like T-bills, though at present they offer only a marginal return over a mattress. (As opposed to most of the rest of the developed world, where the mattress comes out on top.)

Bill
Bill -

Thanks for your input. As for yourself, are you putting most or all of fixed income into T-Bills currently?
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by Bill Bernstein »

Readers of my recent books will know that I favor short Treasuries and CDs for emergency money, upcoming consumption needs, and dry powder.

There's nothing wrong with having some municipals and corporates, but you can't count on them during periods when you're going to need capital the most. You always want to be sure there are plenty of T's and CDs in front of them.

Finally, TIPS are usually a fine holding for defeasing years and decades of upcoming consumption needs, though their current prices and yields are atrocious.

Bill
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by CULater »

Bill Bernstein wrote: Sat Apr 04, 2020 12:24 pm Readers of my recent books will know that I favor short Treasuries and CDs for emergency money, upcoming consumption needs, and dry powder.

There's nothing wrong with having some municipals and corporates, but you can't count on them during periods when you're going to need capital the most. You always want to be sure there are plenty of T's and CDs in front of them.

Finally, TIPS are usually a fine holding for defeasing years and decades of upcoming consumption needs, though their current prices and yields are atrocious.

Bill
Thanks. I'm assuming from an earlier interview with you that you do not favor bond ETFs but direct Treasury purchases as well as TIPS held to maturity? Or is it OK to have some ETFs in back of some direct purchases? It's more convenient to use ETFs if possible. I wonder about TIPs ETFs though.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by RooseveltG »

Dr. Bernstein:

Enjoyed the interview and appreciate your time and contributions.

Regarding Municipal Bonds, are you implying that they a problem only if you need liquidity or do you think they should not be held by investors who will not need to sell them to raise capita?

Thanks in advance for any thoughts.

Roosevelt.
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Re: Words of Wisdom William Bernstein_chat w/Ben Carlson

Post by aj76er »

SimpleGift wrote: Fri Apr 03, 2020 8:06 pm
aj76er wrote: Fri Apr 03, 2020 7:53 pm So at what age do equities become “toxic”? When life expectancy is within 20yrs? 15yrs? Less?
Most likely it comes when one feels that their nest egg is "enough," rather than at any particular biological age.

One usual definition of enough is 25x annual expenses in retirement, invested in safe, high-quality bonds — though this will vary with each investor. Only funds beyond this base amount of safe assets, which are not going to be needed for foreseeable consumption needs, could be ventured into the stock market.
In my (personal) situation, prior to the market decline, I had accumulated 30X of living expenses at 43 years of age. Technically I had won the game at a relatively young age. Part of me wanted to de-risk my portfolio, but it seemed like a horrible bet over my 40yr - 50yr life expectancy.

I was 80/20 prior to the decline, so now my portfolio is down to about 20X of expenses. But the market drop hasn’t bothered me a bit, and I recently overbalanced to 85/15 when the market hit 30% down from the peak. Obviously, I’m still working (harder than ever) and saving (as much as I can), and I feel like this is probably my last real chance to be aggressive at buying equities at attractive prices.
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle
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