Why not do as Buffett?

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Beensabu
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Re: Why not do as Buffett?

Post by Beensabu »

conservativeX2 wrote: Tue Nov 15, 2022 1:16 pm If a person has defined benefits providing 40% of retirement funds while maintaining a 12-18 month emergency fund, why not follow this plan?
Is this person a multi-billionaire? Or do they at least have a high 7-figure / low 8-figure portfolio balance?
conservativeX2 wrote:On a 90/10 AA, my wife and I could easily live for 4 years solely on defined benefits and drawing down our treasury account (10% AA).
On a 90/10 AA, Warren Buffet's heirs (wife + a few more generations) could live for the rest of their lives solely on the 10% short-term treasury allocation.

Asset allocation is personal and situational. I would not base mine on that of someone with an entirely different situation than me.
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saver7007
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Re: Why not do as Buffett?

Post by saver7007 »

AdrianC wrote: Wed Nov 16, 2022 2:13 pm
Interview from 2014:

https://fm.cnbc.com/applications/cnbc.c ... script.pdf

Page 4:
BECKY: You also-- revealed something in the annual letter this year, where you said--
you laid out the terms of your will, what you've set aside for your wife. Which, I didn't
know any of this.

BUFFETT: Yeah.

BECKY: And--

BUFFETT: Well, I didn't lay out my whole will. There's hope for some of you who
haven't been mentioned yet. The-- but I did explain, because I laid out what I thought
the average person who is not an expert on stocks should do.

And my widow will not be an expert on stocks. And- I wanna be sure she gets a decent
result. She isn't gonna get a sensational result, you know? And since all my Berkshire
shares are going-- to philanthropy-- the question becomes what does she do with the
cash that's left to her?

And I've been-- part of it goes outright, part of it goes to a trustee. But I've told the
trustee to put 90% of it in an S&P 500 index fund and 10% in short-term governments.
And the reason for the 10% in short-term governments is that if there's a terrible period
in the market and she's withdrawing 3% or 4% a year you take it out of that instead of
selling stocks at the wrong time. She'll do fine with that. And anybody will do fine with
that.
It's low-cost, it's in a bunch of wonderful businesses and it takes care of itself.


Bolding mine.
Here's a link to the video if interested, the snippet transcribed above starts around the 8:59 mark.

https://buffett.cnbc.com/video/2014/03/ ... rview.html

He's pretty clearly saying he thinks anyone who is not an expert on stocks would do OK on this plan. The part about her withdrawing 3%-4% per year aligns with a 25x - 33x portfolio size, whatever the annual withdrawal amount is.

To add to this stock-heavy idea, read what he wrote in the 2011 letter on p.17 under the heading "The Basic Choices For Investors and the One We Strongly Prefer".

https://www.berkshirehathaway.com/letters/2011ltr.pdf

He lays out an argument that investments "denominated in a given currency includ(ing) money-market funds, bonds, mortgages, bank deposits, and other instruments ... are thought of as 'safe.' In truth they are among the most dangerous of assets. Their beta may be zero, but their risk is huge".

I find this all to be a consistent viewpoint he has given over many years, and not intended for billionaires and rich heirs who can't possibly run out of money, but for BRK shareholders and TV viewers. He says in the 2011 letter that stocks are "by far the safest" in the long run compared to either currency-denominated or non-productive assets. That is, the big risk to worry about in investing is loss of purchasing power in the long run, and productive assets (businesses, farms, or real estate) are the only major category of investments that protect you from that risk. So if you believe stocks are actually by far the safest investments and bonds are actually hugely risky, then 90/10 makes sense. It's at least food for thought.
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squirrel1963
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Re: Why not do as Buffett?

Post by squirrel1963 »

saver7007 wrote: Wed Nov 16, 2022 11:47 pm
AdrianC wrote: Wed Nov 16, 2022 2:13 pm
Interview from 2014:

https://fm.cnbc.com/applications/cnbc.c ... script.pdf

Page 4:
BECKY: You also-- revealed something in the annual letter this year, where you said--
you laid out the terms of your will, what you've set aside for your wife. Which, I didn't
know any of this.

BUFFETT: Yeah.

BECKY: And--

BUFFETT: Well, I didn't lay out my whole will. There's hope for some of you who
haven't been mentioned yet. The-- but I did explain, because I laid out what I thought
the average person who is not an expert on stocks should do.

And my widow will not be an expert on stocks. And- I wanna be sure she gets a decent
result. She isn't gonna get a sensational result, you know? And since all my Berkshire
shares are going-- to philanthropy-- the question becomes what does she do with the
cash that's left to her?

And I've been-- part of it goes outright, part of it goes to a trustee. But I've told the
trustee to put 90% of it in an S&P 500 index fund and 10% in short-term governments.
And the reason for the 10% in short-term governments is that if there's a terrible period
in the market and she's withdrawing 3% or 4% a year you take it out of that instead of
selling stocks at the wrong time. She'll do fine with that. And anybody will do fine with
that.
It's low-cost, it's in a bunch of wonderful businesses and it takes care of itself.


Bolding mine.
Here's a link to the video if interested, the snippet transcribed above starts around the 8:59 mark.

https://buffett.cnbc.com/video/2014/03/ ... rview.html

He's pretty clearly saying he thinks anyone who is not an expert on stocks would do OK on this plan. The part about her withdrawing 3%-4% per year aligns with a 25x - 33x portfolio size, whatever the annual withdrawal amount is.

To add to this stock-heavy idea, read what he wrote in the 2011 letter on p.17 under the heading "The Basic Choices For Investors and the One We Strongly Prefer".

https://www.berkshirehathaway.com/letters/2011ltr.pdf

He lays out an argument that investments "denominated in a given currency includ(ing) money-market funds, bonds, mortgages, bank deposits, and other instruments ... are thought of as 'safe.' In truth they are among the most dangerous of assets. Their beta may be zero, but their risk is huge".

I find this all to be a consistent viewpoint he has given over many years, and not intended for billionaires and rich heirs who can't possibly run out of money, but for BRK shareholders and TV viewers. He says in the 2011 letter that stocks are "by far the safest" in the long run compared to either currency-denominated or non-productive assets. That is, the big risk to worry about in investing is loss of purchasing power in the long run, and productive assets (businesses, farms, or real estate) are the only major category of investments that protect you from that risk. So if you believe stocks are actually by far the safest investments and bonds are actually hugely risky, then 90/10 makes sense. It's at least food for thought.
I'm not going to presume what Warren Buffett actually meant and to whom he was giving advice, but a 30x portfolio in retirement just will not work with 90/10.
Equities drawdown during the 1929 market crash was 89% and change.
That means that if you had 30x in April 1930 (27x stocks, 3x treasuries), then in July 1932 you'd have 3x in treasuries and about 3x in stocks. But because you retired in April 1930 you already spent 2x of treasuries. And the market recovery was quite slow after that. I don't see how the math would work out.
If you had retired in 1929 it would be even worse.
All of this assumes you had the iron stomach to handle 89% drawdown without doing panic selling, something that very few people have.
So no, a 30x portfolio cannot possibly be 90/10.
On the other hand I can see a 100x portfolio work out quite well at 90/10.
LMP | Liability Matching Portfolio | safe portfolio: TIPS ladder + I-bonds + Treasuries | risky portfolio: US stocks / US REIT / International stocks
saver7007
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Re: Why not do as Buffett?

Post by saver7007 »

squirrel1963 wrote: Thu Nov 17, 2022 12:50 am I'm not going to presume what Warren Buffett actually meant and to whom he was giving advice, but a 30x portfolio in retirement just will not work with 90/10.
Equities drawdown during the 1929 market crash was 89% and change.
That means that if you had 30x in April 1930 (27x stocks, 3x treasuries), then in July 1932 you'd have 3x in treasuries and about 3x in stocks. But because you retired in April 1930 you already spent 2x of treasuries. And the market recovery was quite slow after that. I don't see how the math would work out.
If you had retired in 1929 it would be even worse.
All of this assumes you had the iron stomach to handle 89% drawdown without doing panic selling, something that very few people have.
So no, a 30x portfolio cannot possibly be 90/10.
On the other hand I can see a 100x portfolio work out quite well at 90/10.
I've never thought to compare this before, but how well did the bond market do during the 1929 crash and the Great Depression years?
dbr
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Re: Why not do as Buffett?

Post by dbr »

squirrel1963 wrote: Thu Nov 17, 2022 12:50 am
I'm not going to presume what Warren Buffett actually meant and to whom he was giving advice, but a 30x portfolio in retirement just will not work with 90/10.
Equities drawdown during the 1929 market crash was 89% and change.
That means that if you had 30x in April 1930 (27x stocks, 3x treasuries), then in July 1932 you'd have 3x in treasuries and about 3x in stocks. But because you retired in April 1930 you already spent 2x of treasuries. And the market recovery was quite slow after that. I don't see how the math would work out.
If you had retired in 1929 it would be even worse.
All of this assumes you had the iron stomach to handle 89% drawdown without doing panic selling, something that very few people have.
So no, a 30x portfolio cannot possibly be 90/10.
On the other hand I can see a 100x portfolio work out quite well at 90/10.
The actual data shows that a 3.33% withdrawal rate worked just fine in 1929. Use this data set, stocks 90, bonds 10, and inflation indexed withdrawal of $33,333 on a $1M starting portfolio.

https://engaging-data.com/visualizing-4-rule/

The portfolio lasts 30 years and ends up from starting in 1929 at $824k real.

The worst year to retire for this set up is actually 1966, which still survives and has $230k left 30 years later.

To get any past year to fail you have to increase the withdrawal rate to 3.7% and then 1966 fails. At 100/0 1966 and 1969 barely fail. At 100/0 and 30x funding nothing fails in 30 years.

It turns out that the conditions for different asset allocations to fail under withdrawal are not as intuitive as you imagine.
dbr
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Re: Why not do as Buffett?

Post by dbr »

saver7007 wrote: Thu Nov 17, 2022 8:54 am
squirrel1963 wrote: Thu Nov 17, 2022 12:50 am I'm not going to presume what Warren Buffett actually meant and to whom he was giving advice, but a 30x portfolio in retirement just will not work with 90/10.
Equities drawdown during the 1929 market crash was 89% and change.
That means that if you had 30x in April 1930 (27x stocks, 3x treasuries), then in July 1932 you'd have 3x in treasuries and about 3x in stocks. But because you retired in April 1930 you already spent 2x of treasuries. And the market recovery was quite slow after that. I don't see how the math would work out.
If you had retired in 1929 it would be even worse.
All of this assumes you had the iron stomach to handle 89% drawdown without doing panic selling, something that very few people have.
So no, a 30x portfolio cannot possibly be 90/10.
On the other hand I can see a 100x portfolio work out quite well at 90/10.
I've never thought to compare this before, but how well did the bond market do during the 1929 crash and the Great Depression years?
In this tool you can highlite different years and see the distribution of returns for stocks and bonds for the retirement. It does not plot those distributions by time line, but you could put in a 0/100 portfolio and see where it lost or gained compared to a 100/0 portfolio. You click on or hover over the year to highlite the trace for a year.

https://engaging-data.com/visualizing-4-rule/

https://engaging-data.com/visualizing-4-rule/
chassis
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Re: Why not do as Buffett?

Post by chassis »

conservativeX2 wrote: Tue Nov 15, 2022 1:16 pm Warren Buffett famously gave his heirs investing advice upon his passing...90% in a low cost S&P index fund and 10% in a short term treasury index fund.

90% in VOO
10% in VGSH

If a person has defined benefits providing 40% of retirement funds while maintaining a 12-18 month emergency fund, why not follow this plan?

Please offer critiques and potential modifications.
Do do as Buffett does, buy individual stocks with criteria he outlines in books, letters and speeches. The latest quarterly filing for Berkshire Hathaway has all of the information needed to do as Buffett does.
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squirrel1963
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Re: Why not do as Buffett?

Post by squirrel1963 »

dbr wrote: Thu Nov 17, 2022 9:01 am
squirrel1963 wrote: Thu Nov 17, 2022 12:50 am
I'm not going to presume what Warren Buffett actually meant and to whom he was giving advice, but a 30x portfolio in retirement just will not work with 90/10.
Equities drawdown during the 1929 market crash was 89% and change.
That means that if you had 30x in April 1930 (27x stocks, 3x treasuries), then in July 1932 you'd have 3x in treasuries and about 3x in stocks. But because you retired in April 1930 you already spent 2x of treasuries. And the market recovery was quite slow after that. I don't see how the math would work out.
If you had retired in 1929 it would be even worse.
All of this assumes you had the iron stomach to handle 89% drawdown without doing panic selling, something that very few people have.
So no, a 30x portfolio cannot possibly be 90/10.
On the other hand I can see a 100x portfolio work out quite well at 90/10.
The actual data shows that a 3.33% withdrawal rate worked just fine in 1929. Use this data set, stocks 90, bonds 10, and inflation indexed withdrawal of $33,333 on a $1M starting portfolio.

https://engaging-data.com/visualizing-4-rule/

The portfolio lasts 30 years and ends up from starting in 1929 at $824k real.

The worst year to retire for this set up is actually 1966, which still survives and has $230k left 30 years later.

To get any past year to fail you have to increase the withdrawal rate to 3.7% and then 1966 fails. At 100/0 1966 and 1969 barely fail. At 100/0 and 30x funding nothing fails in 30 years.

It turns out that the conditions for different asset allocations to fail under withdrawal are not as intuitive as you imagine.
Very interesting thanks. I guess ballpark calculations are not that useful.
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AdrianC
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Re: Why not do as Buffett?

Post by AdrianC »

saver7007 wrote: Wed Nov 16, 2022 11:47 pm Here's a link to the video if interested, the snippet transcribed above starts around the 8:59 mark.

https://buffett.cnbc.com/video/2014/03/ ... rview.html

He's pretty clearly saying he thinks anyone who is not an expert on stocks would do OK on this plan. The part about her withdrawing 3%-4% per year aligns with a 25x - 33x portfolio size, whatever the annual withdrawal amount is.
Thanks, and indeed. This is not his advice just for his wife. This is his advice for anyone - "for the average person who is not an expert on stocks".
I find this all to be a consistent viewpoint he has given over many years, and not intended for billionaires and rich heirs who can't possibly run out of money, but for BRK shareholders and TV viewers. He says in the 2011 letter that stocks are "by far the safest" in the long run compared to either currency-denominated or non-productive assets. That is, the big risk to worry about in investing is loss of purchasing power in the long run, and productive assets (businesses, farms, or real estate) are the only major category of investments that protect you from that risk. So if you believe stocks are actually by far the safest investments and bonds are actually hugely risky, then 90/10 makes sense. It's at least food for thought.
Agreed.

I'm currently 87/13. I'd be 90/10 but I've been holding back (market timing) my contributions for quite a while... :-)

I don't take Warren's advice re 90% in S&P500. I have a good chunk in Berkshire, some more tilted to value and about 15% international.
90% S&P500 or 90% Berkshire would probably have been better.

Note, at 12:01 in the video he also says "Vanguard would be fine, and Berkshire would be fine...I wouldn't want to be touting Berkshire".
cjcerny
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Re: Why not do as Buffett?

Post by cjcerny »

Probably not a big distinction, but I did want to point out that Buffett did not recommend putting 10% in a t-bill fund, but in actual t-bills in his 2013 letter, quoted above.
Tamalak
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Re: Why not do as Buffett?

Post by Tamalak »

I'm 90% VT and 10% BND.. close enough? :P
cjcerny
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Re: Why not do as Buffett?

Post by cjcerny »

I don’t think Buffett’s recommendation is wrong, but it also isn’t for everyone. Given a long or unlimited horizon, 90 or 100% is going to beat the pants off of a lower stock %. It is a difficult road, though, and few of us have that horizon or grit. If you track down the 10th anniversary edition of Bogle’s Little Book of Common Sense Investing, you will find that Jack was in agreement on the all stock portfolio and on the difficulty of the same—it’s in the appendix on balanced funds.
Pistachioicecream
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Re: Why not do as Buffett?

Post by Pistachioicecream »

Someone may have already noted this upthread and I missed it, but I can't find a NYTimes obituary indicating Warren Buffett has died. I did find this however: https://en.mediamass.net/people/warren- ... hhoax.html

Pistachio
Last edited by Pistachioicecream on Fri Nov 18, 2022 5:41 pm, edited 1 time in total.
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JoMoney
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Re: Why not do as Buffett?

Post by JoMoney »

cjcerny wrote: Fri Nov 18, 2022 1:44 pm Probably not a big distinction, but I did want to point out that Buffett did not recommend putting 10% in a t-bill fund, but in actual t-bills in his 2013 letter, quoted above.
He didn't say "fund", but he also didn't say "t-bills" either:
Warrent Buffett in 2013 BRK Letter wrote: https://berkshirehathaway.com/letters/2013ltr.pdf
... Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.)
We're picking nits here, but "Government Bonds" is broader than just Treasuries, and short-term "bonds" is different than "bills"
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
AdrianC
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Re: Why not do as Buffett?

Post by AdrianC »

Tamalak wrote: Fri Nov 18, 2022 2:13 pm I'm 90% VT and 10% BND.. close enough? :P
My wife has all her retirement funds in VTTSX - Target date 2060. Pretty much the same.
protagonist
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Re: Why not do as Buffett?

Post by protagonist »

conservativeX2 wrote: Tue Nov 15, 2022 1:16 pm Warren Buffett famously gave his heirs investing advice upon his passing...90% in a low cost S&P index fund and 10% in a short term treasury index fund.

90% in VOO
10% in VGSH

If a person has defined benefits providing 40% of retirement funds while maintaining a 12-18 month emergency fund, why not follow this plan?

Please offer critiques and potential modifications.
Buffett's net worth is quoted as $107.6B .
Even if the stock market went to zero, his heirs would still have roughly $10,760,000,000 to live on.
A market crash probably would not significantly threaten their lifestyle.

That said, if you are young enough and have a very secure, good paying job, and high tolerance for risk, that would not be unreasonable. Your risk level would be far less than, say, retirees with barely enough to fund their retirement. One size does not fit all.
Last edited by protagonist on Sun Nov 20, 2022 1:55 pm, edited 1 time in total.
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Re: Why not do as Buffett?

Post by drk »

tibbitts wrote: Tue Nov 15, 2022 4:47 pm When I read the subject I thought this was going to be a thread asking why not use Netjets.
Or why not own Netjets.

To the OP: since you used present-tense, it would actually be 100% BRK.A. Why not do that? Well, the company has had great success, but it appears to have significant key-man risk at the top that might make it hard to deploy its significant pile of cash into profitable opportunities.
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Re: Why not do as Buffett?

Post by cegibbs »

I think Warren Buffett’s advice is spot on if your drawdown is relatively small. My wife retired over ten years ago and I’ve been retired for over seven years. We are totally living off our portfolio and SS. During that time our portfolio has grown significantly even though we are drawing down funds. Our overall allocation is 85/15. Holding more cash than we’d like. We are more diversified than VOO. Our holdings in descending order of size are: BRK.A, BRK.B, VOO, VIG, and SCHD.
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burritoLover
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Re: Why not do as Buffett?

Post by burritoLover »

Hero worship is not a way to invest your portfolio.
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Re: Why not do as Buffett?

Post by Doctor Rhythm »

protagonist wrote: Fri Nov 18, 2022 5:39 pm
conservativeX2 wrote: Tue Nov 15, 2022 1:16 pm Warren Buffett famously gave his heirs investing advice upon his passing...90% in a low cost S&P index fund and 10% in a short term treasury index fund.

90% in VOO
10% in VGSH

If a person has defined benefits providing 40% of retirement funds while maintaining a 12-18 month emergency fund, why not follow this plan?

Please offer critiques and potential modifications.
Buffett's net worth is quoted as $107.6M .
Even if the stock market went to zero, his heirs would still have roughly $10,760,000 to live on.
A market crash probably would not significantly threaten their lifestyle.
I thinks that actually a “B” as in $107,600,000,000. A 10% fixed income/cash position would leave him and his heirs a measly $10 Billion in the event of catastrophic market conditions. He might have switch to generic, store brand cola.
protagonist
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Re: Why not do as Buffett?

Post by protagonist »

Doctor Rhythm wrote: Sat Nov 19, 2022 11:39 am

I thinks that actually a “B” as in $107,600,000,000. A 10% fixed income/cash position would leave him and his heirs a measly $10 Billion in the event of catastrophic market conditions. He might have switch to generic, store brand cola.
Right! *laughing*
dbr
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Re: Why not do as Buffett?

Post by dbr »

protagonist wrote: Fri Nov 18, 2022 5:39 pm
conservativeX2 wrote: Tue Nov 15, 2022 1:16 pm Warren Buffett famously gave his heirs investing advice upon his passing...90% in a low cost S&P index fund and 10% in a short term treasury index fund.

90% in VOO
10% in VGSH

If a person has defined benefits providing 40% of retirement funds while maintaining a 12-18 month emergency fund, why not follow this plan?

Please offer critiques and potential modifications.
Buffett's net worth is quoted as $107.6B .
Even if the stock market went to zero, his heirs would still have roughly $10,760,000,000 to live on.
A market crash probably would not significantly threaten their lifestyle.

That said, if you are young enough and have a very secure, good paying job, and high tolerance for risk, that would not be unreasonable. Your risk level would be far less than, say, retirees with barely enough to fund their retirement. One size does not fit all.
I guess a question is what does Mr. Buffett have in mind the heirs, or the foundation, are doing with this money. It would not make any sense for someone simply supporting a retirement to have that much money. On the other hand the person might really have in mind supporting spending, or gifting, at, say, a rate of disbursement of 5% of the value of the assets in a foundation every year, just like you or I might spend from our assets.

I'm pretty sure Mr. Buffett said, or at least would say, this asset allocation would be fine for small individual investors. How many of us would actually buy that advice I don't know. I am certainly more conservative than that.
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Re: Why not do as Buffett?

Post by rockstar »

protagonist wrote: Sun Nov 20, 2022 1:54 pm
Doctor Rhythm wrote: Sat Nov 19, 2022 11:39 am

I thinks that actually a “B” as in $107,600,000,000. A 10% fixed income/cash position would leave him and his heirs a measly $10 Billion in the event of catastrophic market conditions. He might have switch to generic, store brand cola.
Right! *laughing*
So convert the 10% into our own situation. How many years of expense do you need to ride out a market downturn? Then back into the percentage based on the size of your portfolio.
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Re: Why not do as Buffett?

Post by carminered2019 »

I don't understand why people think having an AA of 90/10 you have to have a lot of money.
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Re: Why not do as Buffett?

Post by tibbitts »

carminered2019 wrote: Sun Nov 20, 2022 4:56 pm I don't understand why people think having an AA of 90/10 you have to have a lot of money.
I think "people" are rapidly evolving their thought process to include a larger portion in cash, whether stated in the ratio or not.
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Re: Why not do as Buffett?

Post by iamblessed »

carminered2019 wrote: Sun Nov 20, 2022 4:56 pm I don't understand why people think having an AA of 90/10 you have to have a lot of money.
I think it comes from that fact the S&P 500 can be down about five years in a bear. 10% for most people will not get them though that five years in retirement.
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Re: Why not do as Buffett?

Post by Marseille07 »

iamblessed wrote: Sun Nov 20, 2022 6:00 pm I think it comes from that fact the S&P 500 can be down about five years in a bear. 10% for most people will not get them though that five years in retirement.
Are you saying you don't rebalance your portfolio? Why not?

If you do rebalance, then your portfolio becomes 90/10 then you withdraw proportionally from both assets, so your fixed income won't run out in 5 years.
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Re: Why not do as Buffett?

Post by Triple digit golfer »

Marseille07 wrote: Sun Nov 20, 2022 7:22 pm
iamblessed wrote: Sun Nov 20, 2022 6:00 pm I think it comes from that fact the S&P 500 can be down about five years in a bear. 10% for most people will not get them though that five years in retirement.
Are you saying you don't rebalance your portfolio? Why not?

If you do rebalance, then your portfolio becomes 90/10 then you withdraw proportionally from both assets, so your fixed income won't run out in 5 years.
Yes. There seems to be a big aversion to drawing from equities unless they're at a high. If one is truly 90/10 and the market is down, they either rebalance and draw proportionately or they draw from bonds until back to 90/10, then draw proportionately. In the latter case, one will never run out of fixed income unless the portfolio is zero.
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Re: Why not do as Buffett?

Post by Marseille07 »

Triple digit golfer wrote: Sun Nov 20, 2022 7:28 pm Yes. There seems to be a big aversion to drawing from equities unless they're at a high. If one is truly 90/10 and the market is down, they either rebalance and draw proportionately or they draw from bonds until back to 90/10, then draw proportionately. In the latter case, one will never run out of fixed income unless the portfolio is zero.
Correct. I was just tabling a question of rebalancing because the above poster's scenario of running out of fixed income hinges on the idea that you do not rebalance, but that doesn't make sense when you think about it.
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delamer
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Re: Why not do as Buffett?

Post by delamer »

Marseille07 wrote: Sun Nov 20, 2022 7:22 pm
iamblessed wrote: Sun Nov 20, 2022 6:00 pm I think it comes from that fact the S&P 500 can be down about five years in a bear. 10% for most people will not get them though that five years in retirement.
Are you saying you don't rebalance your portfolio? Why not?

If you do rebalance, then your portfolio becomes 90/10 then you withdraw proportionally from both assets, so your fixed income won't run out in 5 years.
In this scenario, I assume the idea is to only withdrawn from the cash equivalents* while stocks are down. And maybe also spend dividends/capital gains from stock funds rather than reinvest them.

Five years of cash equivalents* in residual expenses should cover most stock downturns. Rebalancing wouldn’t come into play until stocks have recovered.

*If I was following this basic advice, I’d use cash equivalents not bonds. For someone with 25X residual expenses saved, that would give them 20% cash & 80% stocks.
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Marseille07
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Re: Why not do as Buffett?

Post by Marseille07 »

delamer wrote: Sun Nov 20, 2022 7:56 pm In this scenario, I assume the idea is to only withdrawn from the cash equivalents* while stocks are down. And maybe also spend dividends/capital gains from stock funds rather than reinvest them.

Five years of cash equivalents* in residual expenses should cover most stock downturns. Rebalancing wouldn’t come into play until stocks have recovered.

*If I was following this basic advice, I’d use cash equivalents not bonds. For someone with 25X residual expenses saved, that would give them 20% cash & 80% stocks.
Yes, I'd personally spend down from the cash equivalents first if I were following this advice.

I think Beensabu was mentioning something similar, the higher equity allocation the shorter fixed income duration.
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Mr. Buzzkill
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Re: Why not do as Buffett?

Post by Mr. Buzzkill »

Buffett’s 90/10 advice to the trustees for his heirs inheritance from him makes sense for others if there is enough income thrown off by the portfolio to live on no matter what the markets do. I’m sure his heirs will have enough to get by on, even if it doesn’t leave them fabulously wealthy.

https://www.investopedia.com/articles/p ... -sound.asp

If you don’t have as big a portfolio and you need to sell assets for enough income to live, then a less volatile portfolio might be advisable. Every person’s situation is different.

Otherwise if my strategy was to invest like Buffett, I’d buy BRK.B which pays no dividends. I’ll keep my AA, thank you.
A strategy that works only in bull markets isn’t much of a strategy.
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Re: Why not do as Buffett?

Post by dbr »

Mr. Buzzkill wrote: Sun Nov 20, 2022 9:15 pm Buffett’s 90/10 advice to the trustees for his heirs inheritance from him makes sense for others if there is enough income thrown off by the portfolio to live on no matter what the markets do. I’m sure his heirs will have enough to get by on, even if it doesn’t leave them fabulously wealthy.

https://www.investopedia.com/articles/p ... -sound.asp

If you don’t have as big a portfolio and you need to sell assets for enough income to live, then a less volatile portfolio might be advisable. Every person’s situation is different.

Otherwise if my strategy was to invest like Buffett, I’d buy BRK.B which pays no dividends. I’ll keep my AA, thank you.
The study done in that paper is one where the portfolio might be drawn down to zero over a period of time and what is calculated is the chance of that happening too soon. Estrada did not have to do that research as there are dozens of studies going back to the 1990's that show the same result. The result is that historically over the last hundred years or more asset allocation has little effect on the safe withdrawal rate for portfolios drawn down over various terms of time. 90/10 is just as good as anything else for that purpose, but it is not better than other alternatives that are less volatile, 60/40 for example.

The sort of data we are talking about is displayed graphically here: https://engaging-data.com/visualizing-4-rule/

I believe Buffett recommends the 90% stocks investment because he has an unshakable faith in the success of American business and believes the best outcome will result from owning shares in those businesses. He does not want to use his money by loaning it to other people. He does suggest the average personal investor own a stock index fund and not attempt to pick stocks. Lots of investors are more comfortable loaning out money and trusting someone to pay it back. If that someone is the US Treasury then that is probably a reasonable expectation.
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Re: Why not do as Buffett?

Post by Mr. Buzzkill »

dbr wrote: Mon Nov 21, 2022 9:24 am
Mr. Buzzkill wrote: Sun Nov 20, 2022 9:15 pm Buffett’s 90/10 advice to the trustees for his heirs inheritance from him makes sense for others if there is enough income thrown off by the portfolio to live on no matter what the markets do. I’m sure his heirs will have enough to get by on, even if it doesn’t leave them fabulously wealthy.

https://www.investopedia.com/articles/p ... -sound.asp

If you don’t have as big a portfolio and you need to sell assets for enough income to live, then a less volatile portfolio might be advisable. Every person’s situation is different.

Otherwise if my strategy was to invest like Buffett, I’d buy BRK.B which pays no dividends. I’ll keep my AA, thank you.
The study done in that paper is one where the portfolio might be drawn down to zero over a period of time and what is calculated is the chance of that happening too soon. Estrada did not have to do that research as there are dozens of studies going back to the 1990's that show the same result. The result is that historically over the last hundred years or more asset allocation has little effect on the safe withdrawal rate for portfolios drawn down over various terms of time. 90/10 is just as good as anything else for that purpose, but it is not better than other alternatives that are less volatile, 60/40 for example.

The sort of data we are talking about is displayed graphically here: https://engaging-data.com/visualizing-4-rule/

I believe Buffett recommends the 90% stocks investment because he has an unshakable faith in the success of American business and believes the best outcome will result from owning shares in those businesses. He does not want to use his money by loaning it to other people. He does suggest the average personal investor own a stock index fund and not attempt to pick stocks. Lots of investors are more comfortable loaning out money and trusting someone to pay it back. If that someone is the US Treasury then that is probably a reasonable expectation.
That’s great if one’s retirement or other financial plans span “the last hundred years or more”. But:
1) past does not equal the future with any certainty and
2) sequence of returns is a factor for accumulation and withdrawal phases of a portfolio-based plan.

People generally fear loss more than they want to gain, and providing reasonably high degree of probability of not running out of money in old age is important to most people who, by the way, don’t have portfolios of the size that will be left to Buffet’s heirs.
A strategy that works only in bull markets isn’t much of a strategy.
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Re: Why not do as Buffett?

Post by woody245 »

I think it's a good plan, as long as you have a few million in retirement accounts. S&P can ride out any market downturn in a few years, having 10% non-stocks and an emergency fund will ride out any downturn in stocks. I might start at 10% VGSH or some kind of bond, and gradually increase with time to 20%. I do not have a defined benefits plan and assume social security will be worth nothing in my retirement.
conservativeX2 wrote: Tue Nov 15, 2022 1:16 pm Warren Buffett famously gave his heirs investing advice upon his passing...90% in a low cost S&P index fund and 10% in a short term treasury index fund.

90% in VOO
10% in VGSH

If a person has defined benefits providing 40% of retirement funds while maintaining a 12-18 month emergency fund, why not follow this plan?

Please offer critiques and potential modifications.
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Re: Why not do as Buffett?

Post by FelixTheCat »

climber2020 wrote: Tue Nov 15, 2022 2:40 pm Warren Buffett has 100 billion dollars.
I’m curious. What does this have to do with anything?

Bonds are safety. Equities are growth. Buffett is simply telling us have enough money in treasuries to ride out a down market and put most of your money in growth assets. His plan works for anyone that has the willpower to ride the equity roller coaster.
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Charles Joseph
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Re: Why not do as Buffett?

Post by Charles Joseph »

saver7007 wrote: Wed Nov 16, 2022 11:47 pm He's pretty clearly saying he thinks anyone who is not an expert on stocks would do OK on this plan. The part about her withdrawing 3%-4% per year aligns with a 25x - 33x portfolio size, whatever the annual withdrawal amount is.
90/10 has a lower success rate than 60/40 at a 4% withdrawal rate.
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Re: Why not do as Buffett?

Post by Archie Bunker »

climber2020 wrote: Tue Nov 15, 2022 2:40 pm Warren Buffett has 100 billion dollars.
And as much as he had incredible admiration for the index style of investing (I understand he and Bogle had a tremendous amount of mutual respect for each other from
what Ive read), theres no way hed be worth that if he bought just index funds.

Has anyone ever run an analysis on how much Buffett would have had to start with at age 25 or 30 to end with $100B now? I am genuinely curious.
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Re: Why not do as Buffett?

Post by 7eight9 »

FelixTheCat wrote: Wed Nov 23, 2022 6:01 pm
climber2020 wrote: Tue Nov 15, 2022 2:40 pm Warren Buffett has 100 billion dollars.
I’m curious. What does this have to do with anything?

Bonds are safety. Equities are growth. Buffett is simply telling us have enough money in treasuries to ride out a down market and put most of your money in growth assets. His plan works for anyone that has the willpower to ride the equity roller coaster.
Buffett's heirs (wife) lose 90% (i.e. their equity investment) - still eating lobster and filet mignon. My wife and I lose 90% of our money - cat food.

Big difference.
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Re: Why not do as Buffett?

Post by Leesbro63 »

Charles Joseph wrote: Wed Nov 23, 2022 8:04 pm
saver7007 wrote: Wed Nov 16, 2022 11:47 pm He's pretty clearly saying he thinks anyone who is not an expert on stocks would do OK on this plan. The part about her withdrawing 3%-4% per year aligns with a 25x - 33x portfolio size, whatever the annual withdrawal amount is.
90/10 has a lower success rate than 60/40 at a 4% withdrawal rate.
Interesting statistic. I guess the question is this: if you start investing at age 22 at 90/10, how much more will you have at age than if you invested at 60/40 or even 70/30? And how much lower an SWR will that substantially bigger stash allow? Will 2% of a long term 90/10 portfolio be substantially higher than 4% of a long term 60/40 portfolio?
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Re: Why not do as Buffett?

Post by tibbitts »

Leesbro63 wrote: Wed Nov 23, 2022 9:38 pm Interesting statistic. I guess the question is this: if you start investing at age 22 at 90/10, how much more will you have at age than if you invested at 60/40 or even 70/30? And how much lower an SWR will that substantially bigger stash allow? Will 2% of a long term 90/10 portfolio be substantially higher than 4% of a long term 60/40 portfolio?
Although I understand the point it's entirely possible that after 30-40 years you'll have less with 90/10 than you would with 60/40. Just because we haven't experienced recently doesn't mean it can't happen, so it's very misleading to ask how much "will" you have, vs. "would have you have had historically" or some such.
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Charles Joseph
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Re: Why not do as Buffett?

Post by Charles Joseph »

Leesbro63 wrote: Wed Nov 23, 2022 9:38 pm
Charles Joseph wrote: Wed Nov 23, 2022 8:04 pm
saver7007 wrote: Wed Nov 16, 2022 11:47 pm He's pretty clearly saying he thinks anyone who is not an expert on stocks would do OK on this plan. The part about her withdrawing 3%-4% per year aligns with a 25x - 33x portfolio size, whatever the annual withdrawal amount is.
90/10 has a lower success rate than 60/40 at a 4% withdrawal rate.
Interesting statistic. I guess the question is this: if you start investing at age 22 at 90/10, how much more will you have at age than if you invested at 60/40 or even 70/30? And how much lower an SWR will that substantially bigger stash allow? Will 2% of a long term 90/10 portfolio be substantially higher than 4% of a long term 60/40 portfolio?
Agreed. And how much bigger would the 10% be?? (I'm 59 and retiring in 3 years so the question is a bit moot for me).
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Re: Why not do as Buffett?

Post by Fclevz »

Charles Joseph wrote: Wed Nov 23, 2022 8:04 pm 90/10 has a lower success rate than 60/40 at a 4% withdrawal rate.
Yes, but the difference is slight, and the potential average upside heavily favors the 90/10.
See finance professor Javier Estrada's paper Buffett’s Asset Allocation Advice: Take It ... with a Twist
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Re: Why not do as Buffett?

Post by Fclevz »

climber2020 wrote: Tue Nov 15, 2022 2:40 pm Warren Buffett has 100 billion dollars.
Which actually doesn't matter because when discussing this on CNBC, he mentioned a withdrawal rate of 3 or 4%, the same kind of numbers we generally talk about here. So with a percentage withdrawal, the absolute amount of money isn't relevant.
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Re: Why not do as Buffett?

Post by 7eight9 »

Fclevz wrote: Wed Nov 23, 2022 10:51 pm
climber2020 wrote: Tue Nov 15, 2022 2:40 pm Warren Buffett has 100 billion dollars.
Which actually doesn't matter because when discussing this on CNBC, he mentioned a withdrawal rate of 3 or 4%, the same kind of numbers we generally talk about here. So with a percentage withdrawal, the absolute amount of money isn't relevant.
Buffett's heirs (wife) lose 90% (i.e. their equity investment) - still eating lobster and filet mignon. My wife and I lose 90% of our money - cat food.

Big difference.
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Marseille07
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Re: Why not do as Buffett?

Post by Marseille07 »

7eight9 wrote: Wed Nov 23, 2022 11:14 pm Buffett's heirs (wife) lose 90% (i.e. their equity investment) - still eating lobster and filet mignon. My wife and I lose 90% of our money - cat food.

Big difference.
Not really. SWR studies show that the 4% rule running 90/10 would have worked in 1929. It would have been more volatile than 60/40 for sure, but you didn't have to downgrade your food quality.
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Triple digit golfer
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Re: Why not do as Buffett?

Post by Triple digit golfer »

Marseille07 wrote: Thu Nov 24, 2022 1:11 am
7eight9 wrote: Wed Nov 23, 2022 11:14 pm Buffett's heirs (wife) lose 90% (i.e. their equity investment) - still eating lobster and filet mignon. My wife and I lose 90% of our money - cat food.

Big difference.
Not really. SWR studies show that the 4% rule running 90/10 would have worked in 1929. It would have been more volatile than 60/40 for sure, but you didn't have to downgrade your food quality.
Sure, easy to say in hindsight, but they didn't know it at the time. Assuming this is true, imagine living it. Must have been gut wrenching. Many people went broke and the ones who didn't and were relying on stocka (who knows how many thos actually was back then) probably assumed they would, if not from the first crash, after the second big drop a few years later.

I would not recommend someone withdrawing 4% hold 90% in stocks. I'd go at least 5 years in bonds or cash and probably more like 7-8 if I needed to withdraw 4% or more every year.
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Re: Why not do as Buffett?

Post by Marseille07 »

Analyzing historical data obviously involves hindsight. And I'm not aware of anyone who knew how their retirement unfolds beforehand.

The problem with 7eight9's argument is that they are incorrectly blaming an allocation for their behavioral issues. Now, they can argue they don't like 90/10 because they would panic if they walk into 1929. However, it is unfair to make it sound like the allocation would run out of money or it'd force them to downgrade food choices when the 4% SWR study says otherwise.
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monkeytypist
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Re: Why not do as Buffett?

Post by monkeytypist »

For me the operative part of Buffet's advice isn't the 90/10 AA, but rather to keep the fixed income portion in cash-like instruments, which I follow.
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Re: Why not do as Buffett?

Post by Dottie57 »

conservativeX2 wrote: Tue Nov 15, 2022 1:16 pm Warren Buffett famously gave his heirs investing advice upon his passing...90% in a low cost S&P index fund and 10% in a short term treasury index fund.

90% in VOO
10% in VGSH

If a person has defined benefits providing 40% of retirement funds while maintaining a 12-18 month emergency fund, why not follow this plan?

Please offer critiques and potential modifications.
If you have the same financial resources as Warren Buffet, it might work for you. Otherwise no.
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