Bogleheads University 501 2023 - Advanced Q&A at the 2023 Bogleheads Conference

00:00:00.000 | (audience applauding)

00:00:03.160 | Okay, we have 10 times as many questions

00:00:09.680 | as we're gonna get to.

00:00:10.520 | I want you guys to be aware of that from the beginning.

00:00:13.860 | But the good news is this is day one.

00:00:15.640 | None of these guys are going anywhere.

00:00:17.180 | So hunt them down over the next few days

00:00:19.780 | and we'll try to get everything answered as we can.

00:00:22.380 | All right, let's get started.

00:00:25.160 | Define market timing.

00:00:27.960 | I reduced my bond duration prior to

00:00:30.120 | the Federal Open Market Committee raising rates.

00:00:32.600 | Is that market timing?

00:00:34.440 | Should I buy long bonds now and wait for rates to go down?

00:00:37.080 | If market timing doesn't work,

00:00:38.220 | how does prime cap and capital opportunity beat the market?

00:00:41.120 | Anyone wanna volunteer for that one?

00:00:44.000 | Yes, that is market timing.

00:00:49.700 | And this is one of the problems that we all,

00:00:54.080 | most of us don't believe in market timing,

00:00:56.840 | but we use it and that's a hard one

00:01:01.120 | because market timing can be systematic

00:01:04.640 | by some sort of following a trend,

00:01:07.020 | following line of some sort.

00:01:09.420 | Or it can be what we call the ICSIA market timing system.

00:01:14.420 | I can't stand it anymore.

00:01:17.100 | And the moment it becomes an emotional decision,

00:01:22.400 | remembering there's always a pile of good news

00:01:25.560 | about any trade and a pile of bad news.

00:01:28.440 | And so as a market timer,

00:01:31.920 | you're fighting trying to figure out which is more powerful.

00:01:35.940 | So I'm not an advocate of it,

00:01:37.640 | although half of my portfolio is market time.

00:01:40.440 | - You're gonna have an allocation between

00:01:46.680 | stocks, bonds, cash, real estate,

00:01:48.400 | and you're gonna stick with that.

00:01:51.040 | And if you're supposed to rebalance, you rebalance.

00:01:55.500 | And if you deviate from that

00:01:58.600 | because you see something out there in the economy

00:02:00.600 | or interest rates of the Fed or China

00:02:02.520 | or Middle East or whatever,

00:02:05.520 | and you're gonna make these decisions saying,

00:02:07.080 | I don't like what I see out there,

00:02:08.280 | I'm gonna change my asset allocation in some way,

00:02:11.960 | that's market timing.

00:02:13.000 | - Okay, let's do the next question.

00:02:15.680 | We're gonna do this one rapid fire.

00:02:17.200 | We're gonna go across the stage.

00:02:18.560 | We'll start with me and go across.

00:02:20.040 | Here's the question.

00:02:20.860 | If you got a kid with a Roth IRA,

00:02:23.640 | should they be putting it in a target retirement fund

00:02:26.460 | or a total stock market index fund?

00:02:28.460 | - Yeah, so generally Roth money, from what I've seen,

00:02:32.400 | is the last money that anybody ever spends.

00:02:34.180 | It generally goes to the kids

00:02:35.300 | because it goes to them tax-free.

00:02:37.140 | And then they have 10 years

00:02:38.160 | of which to distribute the money tax-free.

00:02:40.220 | So it's generally 100% equity.

00:02:41.860 | - This may sound like a commercial.

00:02:46.860 | One of those three free books,

00:02:49.420 | two of those three free books

00:02:51.180 | are focused on target date funds.

00:02:54.140 | And what we do recommend is you look at the implications

00:02:58.340 | of a target date fund and 10% small cap value.

00:03:03.340 | (audience laughing)

00:03:06.420 | - I will say that if you're going to do small cap value

00:03:10.540 | and you actually believe the premium

00:03:11.940 | is actually gonna happen,

00:03:13.660 | that putting it in a Roth is not a bad idea.

00:03:17.660 | - I would say, woo, all stock portfolio

00:03:21.620 | because it's probably going to be an addendum

00:03:24.300 | to their own retirement account,

00:03:25.940 | which is probably in a target date fund anyway.

00:03:28.340 | - Yeah, I'm pretty much agreeing.

00:03:31.080 | The whole issue of asset location

00:03:33.060 | would suggest that with the Roth,

00:03:34.860 | that would be where the stocks

00:03:36.740 | and the small cap value, if you're gonna have it,

00:03:39.300 | would be best positioned.

00:03:40.540 | - Is mine on?

00:03:45.580 | - Nothing different here, total stock market index.

00:03:47.940 | You said it was for the child, right?

00:03:50.020 | Like an 18 year old.

00:03:51.260 | Yeah, absolutely, I'd go 100% stocks.

00:03:54.100 | - I'm the different voice up here, apparently.

00:03:56.020 | My kids are in target retirement funds.

00:03:57.980 | And I'll tell you the reason why.

00:03:58.820 | - Come see me afterwards.

00:03:59.900 | (audience laughing)

00:04:01.220 | - I'll tell you the reason why.

00:04:02.540 | I'm managing about 50 investment accounts,

00:04:05.340 | between 34 529s for nieces and nephews,

00:04:09.180 | between our own retirement accounts,

00:04:10.500 | between my kids, we each have three accounts.

00:04:13.420 | It's a lot of accounts.

00:04:14.300 | So I'm looking for simple solutions.

00:04:15.780 | And the benefit of a target retirement account

00:04:17.380 | is I get a simple solution.

00:04:18.660 | And when they inherit it, they will have a simple solution.

00:04:20.920 | If they forget about it for 20 years, it's fine.

00:04:22.980 | They've got US stocks, they've got international stocks,

00:04:25.100 | they've got a very tiny amount of bonds.

00:04:27.180 | You really think total stock market's

00:04:28.500 | gonna dramatically outperform a portfolio

00:04:30.540 | that's 90% stocks?

00:04:32.300 | No, probably not.

00:04:33.300 | So that's why I chose it.

00:04:35.060 | It's one of those questions,

00:04:35.940 | probably doesn't matter that much, to be honest.

00:04:38.900 | Okay, next question.

00:04:39.980 | This one's from Mary Beth Franklin.

00:04:43.300 | Is there a reason one of us should not wait

00:04:46.580 | until presumably 70 to collect Social Security benefits?

00:04:51.380 | I agree for married couples

00:04:52.980 | that splitting the difference, you're hedging your bets.

00:04:55.620 | Have the one with the bigger benefit wait 'til 70,

00:04:58.820 | have the other spouse, if he or she's not working,

00:05:01.860 | claim early at 62, bring cash into the household.

00:05:05.260 | If they are working and subject to earnings restrictions,

00:05:08.420 | wait 'til full retirement age.

00:05:11.060 | Okay, here's a more controversial question.

00:05:14.020 | What's the amount of cash or cash equivalent

00:05:16.220 | one should have on hand in retirement?

00:05:18.120 | Recommendations are all over the map.

00:05:20.300 | - Well, you do wanna have some sort of

00:05:27.140 | liquid contingency fund, and whether that's cash

00:05:30.300 | or whether that's some other buffer asset,

00:05:32.740 | something, it's hard to give a specific recommendation.

00:05:36.620 | Usually you hear like six months,

00:05:38.260 | something along those lines,

00:05:39.260 | but can't really get any more specific than that.

00:05:42.420 | You definitely do need something.

00:05:44.580 | - I'm gonna say the amount that lets you sleep at night,

00:05:47.660 | and so I've seen those numbers be all over the place.

00:05:50.420 | For high-income spenders, I've seen people

00:05:52.340 | that need to have $200,000 in cash set on the side,

00:05:55.700 | it's just what makes them feel comfortable,

00:05:57.420 | and people that are comfortable with 10,000,

00:05:59.860 | as long as they have their defined paycheck coming in.

00:06:09.020 | - My wife and I, at the first of each year,

00:06:11.060 | we take out 5% of whatever we have for retirement,

00:06:16.060 | and that's our money for the year.

00:06:19.140 | But on the other hand, the retirement,

00:06:22.100 | the buy and hold part is 50% bonds and 50% stocks,

00:06:26.820 | and a lot of the bonds are short-term.

00:06:29.960 | So they aren't cash, but they are the same as cash,

00:06:34.760 | and so I think that you should, when you can,

00:06:39.760 | keep that cash working at something better

00:06:42.880 | than the return for cash.

00:06:44.800 | - Yeah, so there's a difference

00:06:48.680 | between philosophy and strategy, right?

00:06:50.560 | Philosophy, we're all bogleheads,

00:06:52.840 | we all believe you should have some sort of an emergency fund.

00:06:56.600 | I don't like to call it an emergency fund.

00:06:58.040 | I like to call it a reserve fund,

00:06:59.520 | because emergency fund is too, I don't know,

00:07:01.200 | dramatic for me.

00:07:02.480 | So how much should you have?

00:07:04.860 | This is strategy, which means strategy is individual.

00:07:08.600 | I don't know how much you should have.

00:07:10.920 | I mean, it all depends on you.

00:07:12.120 | What's your situation?

00:07:13.160 | How much cash do you need?

00:07:14.200 | I mean, are you doing RMDs?

00:07:17.360 | I mean, a hundred different things.

00:07:19.760 | Are you covered, are your expenses covered

00:07:21.560 | by Social Security and maybe a pension of some sort?

00:07:24.020 | Do you need to have a lot of cash?

00:07:26.320 | Or maybe you wanna spend a lot of cash.

00:07:29.160 | So strategy is individual.

00:07:31.840 | And how much you have in a reserve fund

00:07:34.940 | when you're retired is really an individual decision.

00:07:37.460 | I don't think there's any rule of thumb

00:07:39.760 | that can cover that.

00:07:41.220 | - I like the idea of years,

00:07:44.520 | because if you have a year like 2022

00:07:46.120 | when stocks and bonds are down,

00:07:47.680 | well, you withdraw from the cash.

00:07:49.240 | So I like the idea of having two or three years worth,

00:07:51.860 | but there's obviously a cash drag to that.

00:07:54.060 | All right, next question, cybersecurity.

00:07:57.560 | Any quick questions to reduce the risk

00:07:59.360 | of financial accounts being compromised by cyber criminals,

00:08:02.600 | i.e. multi-factor authentication,

00:08:04.440 | diversifying among multiple companies or accounts, et cetera.

00:08:07.440 | - I'll tackle that one

00:08:13.800 | because we have to deal with those regulations.

00:08:17.200 | I mean, anything that has multi-factor, I would turn it on.

00:08:20.720 | So if you can have a, where it sends a text message

00:08:24.040 | and you have to put that code in,

00:08:25.560 | or a Google authenticator app

00:08:28.380 | that you can add to the account.

00:08:29.760 | So you have to put a six digit code in

00:08:31.460 | every time you log in.

00:08:33.020 | I think that's the most effective thing

00:08:35.440 | and really educating yourself on what not to click on.

00:08:40.160 | And so we had an employee for a while who would click on,

00:08:43.920 | I mean, he could fall for every email that came in

00:08:46.680 | that you shouldn't click on.

00:08:48.280 | And so, understanding that, just don't click on stuff.

00:08:53.160 | You would never put your account number in

00:08:56.400 | from a link that you would click on in an email.

00:08:58.700 | You would always go directly to that website to log in.

00:09:01.800 | So educating yourself is one of the biggest ways

00:09:04.640 | you can prevent those things from happening.

00:09:07.600 | - Is it okay to have all your money at Vanguard?

00:09:09.960 | - Say yes.

00:09:13.440 | - Anybody disagree with that?

00:09:14.880 | All right, next question.

00:09:17.620 | Let's start with you on this, Wade.

00:09:19.080 | And if anybody else wants to weigh in, they can.

00:09:20.840 | How do you balance conversions

00:09:22.040 | from your IRA to your Roth account

00:09:24.160 | with Medicare increasing due to tax increase

00:09:26.440 | from additional income in that year?

00:09:28.240 | - That question probably came in before the session,

00:09:45.800 | but indeed, you definitely want to be paying attention

00:09:48.300 | to those IRMA brackets.

00:09:49.800 | And then I didn't really get a chance to elaborate

00:09:51.820 | on the assumptions.

00:09:53.480 | I was basing it on this year's IRMA brackets,

00:09:55.640 | even though the tax won't come until two years later.

00:09:58.320 | But the issue is you don't know

00:09:59.280 | what those brackets will be two years later.

00:10:01.120 | So I treat it as a conservative assumption

00:10:03.640 | that if I stay under this year's brackets,

00:10:05.440 | and then there's a little bit spare capacity

00:10:07.040 | where if the last day of the year markets went up

00:10:09.440 | and then my RMD is a little bit higher than expected,

00:10:12.160 | I still, hopefully the brackets will be higher

00:10:14.240 | two years later.

00:10:15.600 | But I try to manage based on this year's brackets.

00:10:18.200 | If you don't want to go over that bracket,

00:10:20.080 | make sure you're not getting too close.

00:10:22.500 | And if you're in the RMD phase,

00:10:24.300 | pay attention at the end of the year

00:10:25.620 | because you don't know what your RMD is gonna be

00:10:28.140 | for the next year until December 31st, the market closes.

00:10:31.260 | - Rick?

00:10:34.660 | - I would also agree with that

00:10:35.580 | because you know the IRMA brackets

00:10:37.160 | are now gonna go up every year.

00:10:38.660 | So if you use the current ones,

00:10:40.460 | you're gonna be on the safe side

00:10:41.780 | and you'll have a little more wiggle room.

00:10:44.220 | - Pass that down to Rick.

00:10:45.060 | He's got a comment on this.

00:10:49.420 | - I'm just gonna give a shout out to Stephen Chin

00:10:51.700 | if you're here and newretirement.com.

00:10:55.060 | Good software, good software

00:10:57.300 | for helping figure this stuff out.

00:10:58.740 | It does, very inexpensive.

00:11:00.620 | You just sign up for a subscription.

00:11:02.920 | It's really good to help you.

00:11:04.980 | Gives you data points, gives you more information.

00:11:07.460 | So just a shout out to Steve, did a good job on that

00:11:10.420 | and newretirement.com.

00:11:12.240 | - Herbert Franklin, this one's for you probably.

00:11:17.180 | And this is kind of the counter argument to wait 'til 70.

00:11:20.900 | Are social security benefits payments actuarially adjusted?

00:11:24.420 | Is there really a benefit to waiting 'til 70?

00:11:27.200 | - Well, social security benefits are actuarially fair

00:11:33.060 | if you live 'til average life expectancy.

00:11:36.500 | And you do get this bonus

00:11:38.200 | of these delayed retirement credits of 8% a year.

00:11:40.960 | Back before the social security reforms,

00:11:44.300 | those delayed retirement credits were 3% a year.

00:11:47.940 | No one in their right mind delayed going to 70

00:11:51.820 | because at the time, interest rates were 18%.

00:11:55.040 | So when they came up with the concept of,

00:11:57.020 | hey, let's make the delayed retirement credits

00:12:00.480 | gradually increase to 8% a year, it's a huge bonus.

00:12:05.180 | If you can afford to wait, it really is worth it.

00:12:08.080 | - And just to add to that,

00:12:10.780 | to those actuarial calculations were done in 1983

00:12:13.740 | and people are living longer now.

00:12:15.580 | And also with the high earner,

00:12:17.060 | where that benefit will last

00:12:18.620 | for the joint lifetime of the couple,

00:12:20.900 | that's a different calculation.

00:12:22.180 | The actuarial calculations from social security

00:12:24.380 | were based on single people.

00:12:25.820 | - Okay, next one's a question for me.

00:12:29.100 | How much in rental properties is too much

00:12:30.860 | as a percentage of net worth?

00:12:32.620 | I think a reasonable amount of money to have

00:12:34.420 | in real estate is zero to 80%.

00:12:36.420 | So it's a very wide range.

00:12:38.220 | If you're more than 80, I think that's too much.

00:12:40.900 | And the second part of the question is,

00:12:42.220 | can real estate risk be diversified away

00:12:43.980 | by buying properties in multiple regions?

00:12:45.940 | You can diversify away some of your risk by doing that,

00:12:49.620 | but certainly not all of your real estate risk.

00:12:51.740 | All the real estate in the country

00:12:53.220 | and in the world can tank at the same time.

00:12:55.380 | All right, this one's for Wade Pfau.

00:12:58.420 | How can I make a tax map?

00:13:00.020 | - Well, it can be done in Excel spreadsheets.

00:13:04.420 | The preferential income part isn't too rough.

00:13:08.260 | The IRMA brackets are pretty straightforward.

00:13:10.660 | You're gonna have to spend the most time

00:13:12.220 | getting those social security tax torpedoes under control

00:13:15.060 | 'cause it is a multi-step calculation.

00:13:18.380 | But you can ultimately do that in Excel

00:13:20.740 | where you're just looking at,

00:13:21.860 | okay, here's the ordinary income column,

00:13:24.180 | and then you have to keep track,

00:13:25.300 | not just of the federal income tax brackets,

00:13:27.740 | but when the IRMA surcharges happen,

00:13:30.580 | the stacking of preferential income on top of that.

00:13:33.020 | And the hardest part, for sure, the social security,

00:13:36.800 | the percent of your social security benefits

00:13:38.460 | that would be taxed.

00:13:40.460 | - Mm-hmm.

00:13:41.860 | - There is software you can use

00:13:43.540 | that advisors subscribe to.

00:13:44.740 | I don't see why you couldn't subscribe to it either.

00:13:46.820 | We use HolistaPlan.

00:13:48.700 | There's also another one by Covissium.

00:13:51.860 | And so, I just don't know if it's gonna be cost-effective,

00:13:55.980 | but you can run your own tax projections.

00:13:58.440 | And HolistaPlan does an outstanding tax map.

00:14:01.300 | - And the tax map idea, yeah, Covissum,

00:14:05.180 | that's the one that's,

00:14:06.280 | what I'm doing is the most similar to.

00:14:09.640 | - Okay, we're gonna do about two more questions here,

00:14:11.880 | 'cause I know we're just slightly over time.

00:14:14.700 | This one, how is social security claiming strategy

00:14:17.480 | affected by possible future insolvency of the trust fund?

00:14:20.880 | Let's just do a show of hands on this one.

00:14:22.580 | How many people on stage think that

00:14:24.880 | there will be no social security payments

00:14:26.600 | being made in 10 or 15 years?

00:14:28.240 | Okay, I think that answers that question.

00:14:33.600 | How about, how many people on the stage

00:14:35.880 | think that the benefits may be a little bit lower

00:14:39.320 | than what people were expecting?

00:14:41.980 | - Depending on the generation.

00:14:43.640 | - Yeah, okay.

00:14:46.360 | All right, and let's do this one here.

00:14:50.000 | - Can I just say something really quickly?

00:14:51.720 | - Sure.

00:14:52.560 | - We can only act under current law.

00:14:54.920 | We don't know what Congress is gonna do.

00:14:57.800 | If you need the money, grab it early,

00:15:00.400 | and you know it's gonna be reduced.

00:15:01.960 | But if you are taking a benefit early

00:15:04.040 | out of fear of what might happen 10 years from now,

00:15:08.020 | that is like selling your stocks in a down market.

00:15:11.480 | And we all know that no one in this room

00:15:14.640 | cashes out when the mark goes down.

00:15:16.800 | All you do is guarantee that you have locked in a loss.

00:15:20.580 | - Okay, and we're gonna end on this one.

00:15:26.320 | If I can read it here.

00:15:33.000 | Is this the time for a around 70-ish year old couple

00:15:37.440 | getting Social Security at seven

00:15:39.320 | to consider seriously buying a deferred income annuity

00:15:43.040 | with our bond funds?

00:15:44.220 | - Yeah, I wanna get back to philosophy,

00:15:52.800 | strategy, discipline, the three key things

00:15:55.760 | that make you successful.

00:15:59.080 | The Boglehead's philosophy is not against annuities.

00:16:02.960 | Whether it works for you when you're a strategy or not

00:16:05.540 | is really unique to your situation.

00:16:07.400 | So I actually can't answer that question

00:16:09.400 | unless I knew the whole situation.

00:16:11.420 | - Go ahead, Dana.

00:16:16.040 | - We use something we call a coverage ratio.

00:16:18.480 | So we look at how much of your cash flow

00:16:20.200 | is covered by guaranteed sources of income already.

00:16:23.500 | And if that's under 50%,

00:16:25.780 | it's when we bring up a discussion

00:16:27.680 | around do you want additional guaranteed income?

00:16:30.520 | Is that important to you?

00:16:32.180 | And so that could be one metric that you could look at.

00:16:35.400 | I completely agree with what Rick said, right?

00:16:37.680 | It's so personal.

00:16:39.820 | The other issue is cognitive decline.

00:16:41.840 | So we have seen strange things.

00:16:45.040 | Once we had the spouse of a client

00:16:46.840 | who was ordering things off of QVC

00:16:48.800 | and burying them in her backyard.

00:16:51.080 | And it took the husband months to figure out where,

00:16:54.080 | it was like $3,000 to $4,000 a month,

00:16:56.280 | months to figure out where was this extra money going.

00:16:59.080 | And so, you know, a deferred income annuity

00:17:02.200 | could protect you against yourself.

00:17:04.560 | And I know that sounds like a strange thing to say,

00:17:07.020 | but it is absolutely guaranteed.

00:17:09.320 | And if the older you was prone to falling

00:17:12.400 | for investment fraud or making some strange decisions,

00:17:15.540 | it does offer some additional protection.

00:17:17.520 | And I don't hear that talked about all that often.

00:17:20.220 | - And as a preview for tomorrow,

00:17:23.240 | Jim and I will have a session together

00:17:24.720 | where we'll be able to unpack that some more too.

00:17:27.440 | - Yeah, for sure.

00:17:28.320 | Annuities can be very useful,

00:17:29.680 | particularly those that barely have enough

00:17:31.720 | or almost have enough.

00:17:33.360 | That can be a great way to fill that gap.

00:17:36.080 | All right.

00:17:36.920 | Well, this has been Bogleheads University.

00:17:39.080 | This is not supposed to be part of the conference,

00:17:41.040 | even though you all showed up a day early and came to it.

00:17:43.960 | So thank you for your attendance.

00:17:45.320 | Thank you to these wonderful people

00:17:47.000 | who out of the goodness of their heart.

00:17:48.520 | (audience applauding)

00:17:51.680 | (audience cheering)

00:17:54.680 | Came out here for the most part at their own expense.

00:17:59.560 | Most of us are paying our own conference fee as well,

00:18:02.080 | just like you are,

00:18:03.280 | and are just here out of the goodness of our hearts

00:18:04.780 | to share this information with you.

00:18:06.680 | Thank you to you guys.

00:18:07.760 | That's been wonderful.

00:18:08.600 | Thanks to everyone for coming.

00:18:09.520 | The party starts at five.

00:18:11.640 | It's in the room next door.

00:18:12.960 | It's cocktail hour.

00:18:13.900 | That's the traditional start to the Bogleheads conference,

00:18:17.000 | but it's been wonderful to share the afternoon with you.

00:18:18.900 | And thank you everyone for showing up early.

00:18:20.760 | (audience applauding)

00:18:23.340 | (audience cheering)

00:18:26.340 | (upbeat music)

00:18:28.920 | [BLANK_AUDIO]

Bogleheads University 501 2023 - Advanced Q&A at the 2023 Bogleheads Conference

Chapters