Bogleheads® Conference 2023 - Jonathan Clements and Bill Bernstein in Conversation
00:00:00.000 | (applause)
00:00:06.680 | >> This one-- these two panelists need no introduction,
00:00:10.920 | but I'll-- so I'll be short and sweet.
00:00:13.560 | William Bernstein-- Bill Bernstein
00:00:15.480 | is a Bogle Center board member.
00:00:18.520 | He's a neurologist-turned-financial advisor
00:00:21.660 | and author, as many of you know.
00:00:24.800 | His books are outstanding, and he has written several of them.
00:00:29.500 | Most recently, he updated what is still my favorite
00:00:32.840 | Bill Bernstein book, "The Four Pillars of Investing,"
00:00:35.840 | came out with a second edition.
00:00:38.100 | And as Bill has said, the Shakespeare piece of investing
00:00:42.720 | and of our financial journeys
00:00:44.480 | has taken greater prominence in his latest book.
00:00:48.520 | Jonathan Clements is also here.
00:00:50.460 | He is someone who we always welcome at this conference.
00:00:54.220 | Jonathan is an author,
00:00:57.460 | long-time columnist at the "Wall Street Journal,"
00:00:59.900 | now is in charge of the "Humble Dollar" website,
00:01:03.360 | where Jonathan makes his own contributions
00:01:06.240 | and also has a lot of other external contributors
00:01:09.840 | who contribute to "Humble Dollar."
00:01:12.480 | Most recently, Jonathan presided over a terrific book himself
00:01:18.240 | called "My Money Journey,"
00:01:20.220 | which is a series of essays from real people
00:01:23.780 | about how they found their way to financial wellness.
00:01:29.760 | So I'm thrilled to introduce these two.
00:01:31.600 | I just want to make a quick note
00:01:33.020 | because I keep forgetting about this.
00:01:34.960 | We have questions, moderators in the audience here.
00:01:39.500 | And Mel Turner, he's standing up.
00:01:41.260 | Mel is one of the original Bogleheads
00:01:44.440 | and still a tremendous friend of the Bogleheads
00:01:48.240 | and former Bogle Center board member.
00:01:50.880 | Mel is going to be here moderating your questions.
00:01:53.640 | He'll be collecting your questions
00:01:55.040 | for Jonathan and Bill.
00:01:56.720 | So thanks to Mel and his wife, Kathy,
00:01:59.780 | for always being such a huge part of this event
00:02:03.520 | and for being such a huge component
00:02:05.520 | of Bogleheads historically.
00:02:07.320 | So let's get into this discussion.
00:02:09.260 | Join me in welcoming Jonathan and Bill Bernstein.
00:02:12.560 | (applause)
00:02:18.540 | >> Good morning, everybody.
00:02:20.100 | When Christine emailed me about this session today,
00:02:23.980 | she said, "Well, what we'd like is for Bill Bernstein
00:02:27.780 | "to spend 50 minutes asking you questions."
00:02:31.240 | And my immediate reaction was,
00:02:33.420 | "That is completely inappropriate.
00:02:36.460 | "There's no way that I should be the one
00:02:39.420 | "receiving the questions from Bill.
00:02:41.360 | "You know, I consider Bill to be easily my peer,
00:02:44.400 | "if not-- and certainly my intellectual superior."
00:02:46.920 | So I said, "We should be asking each other questions."
00:02:50.500 | I've known Bill since the late 1990s,
00:02:54.760 | when I was at the Journal.
00:02:57.000 | He was one of those people who would send me
00:02:59.540 | these emails with ideas.
00:03:02.280 | But unlike most of the emails I got with article ideas,
00:03:05.180 | his actually made sense.
00:03:07.280 | (audience laughing)
00:03:08.720 | And after about the 10th email, I was like,
00:03:11.680 | "Okay, there's this neurologist in North Bend, Oregon,
00:03:15.780 | "and I'm gonna quote him in my column."
00:03:18.360 | And that has become the start of a great friendship.
00:03:23.700 | You know, we've now known each other for a quarter century.
00:03:26.600 | Bill has written forwards to two of my books.
00:03:29.560 | I've written forwards to two of Bill's books.
00:03:33.000 | He really has become a wonderful friend.
00:03:37.540 | I've also got to know Jane over the years,
00:03:40.280 | Bill's wonderful wife.
00:03:42.180 | So it's really a great pleasure to be up here
00:03:44.080 | and talking to Bill.
00:03:45.780 | >> Yeah, I could easily return the compliment,
00:03:49.320 | but with respect to the compliment
00:03:51.060 | coming in my direction,
00:03:52.060 | you obviously have not talked to my children.
00:03:54.800 | (audience laughing)
00:03:56.100 | Yeah, and again, the format here
00:03:58.600 | is we're gonna be tossing questions at each other.
00:04:02.400 | You know, Jonathan has a wealth of knowledge
00:04:05.700 | and experience in the industry.
00:04:08.640 | You know, you saw that yesterday
00:04:10.000 | with his conversation with Charlie Ellis.
00:04:11.840 | Initially, I was tapped to do that,
00:04:13.640 | and I said, "No."
00:04:14.640 | I said, "Jonathan knows more about the investment business
00:04:17.640 | "and about Charlie Ellis than I ever would,"
00:04:19.440 | and you could see what an excellent job
00:04:21.180 | he did with that yesterday.
00:04:24.020 | >> So without further ado,
00:04:25.980 | my first question for Bill.
00:04:30.060 | So you're well-known as an advocate for value investing,
00:04:33.960 | and yet it's been a little bit of a thin 12 years.
00:04:37.760 | So are you still a believer in the value effect?
00:04:41.040 | Do you think that maybe it's a behavioral phenomenon
00:04:45.700 | that's been priced out, or will value stocks come back?
00:04:49.480 | >> Yeah, well, let me first say
00:04:50.780 | that I can't be right about everything.
00:04:52.620 | (audience laughing)
00:04:54.220 | And with respect to how well value has done,
00:04:59.860 | I do want to point out that value has done very well abroad,
00:05:05.720 | both in developed markets and in emerging markets.
00:05:08.260 | If you invested in the value components
00:05:11.600 | of the Total International with DFA,
00:05:16.300 | if you had access to that, or with Invesco,
00:05:19.340 | or even Vanguard had a relatively weak T version
00:05:22.880 | of international value, you're a pretty happy camper.
00:05:25.920 | You're better off with value exposure abroad.
00:05:30.080 | Now, why is that?
00:05:31.360 | Well, it's because it's a risk premium,
00:05:34.160 | and the risk shows up.
00:05:36.120 | And the lower your sample size, the higher that risk is.
00:05:39.100 | So when you're dealing with the US,
00:05:40.900 | you've only got one country, okay?
00:05:43.260 | Whereas internationally, you are spreading your bets
00:05:46.260 | among the individual value effects of multiple countries,
00:05:49.700 | and that is a much higher probability bet.
00:05:53.180 | So that's the first thing.
00:05:56.220 | Has it been priced out?
00:05:57.320 | I do worry about that, because 25 years ago,
00:06:00.380 | you really only had one choice
00:06:02.180 | when you wanted the value exposure, of course,
00:06:04.460 | and that was dimensional fund advisors.
00:06:08.060 | And now, everybody and their dog has small value
00:06:10.560 | and large value funds, and they're easier.
00:06:12.300 | So has that been arbitraged away?
00:06:14.360 | Well, if that were the case, you would see the spreads
00:06:18.140 | between the balance sheet metrics
00:06:22.980 | between value and growth stocks narrowing
00:06:25.420 | as people bought up growth stocks, value stocks,
00:06:28.380 | and sold their growth stocks off.
00:06:32.080 | In fact, that spread has increased
00:06:33.880 | to historically high levels.
00:06:36.880 | And as I basically talked about yesterday
00:06:40.660 | with respect to international versus US,
00:06:43.860 | you can buy the US small value market now
00:06:46.700 | for about 10 or 12 times earnings.
00:06:49.000 | You're paying twice that, okay,
00:06:51.420 | for the big names in the total stock market.
00:06:54.900 | And so, you know, to catch up with that,
00:06:57.960 | basically the large growth stocks
00:07:00.280 | are going to have to grow their earnings twice as fast
00:07:03.440 | over the next 10 or 20 years as the small stocks will.
00:07:06.220 | That's not a bet I wish to make.
00:07:07.880 | Now, it is a bet, okay?
00:07:09.820 | I think that value stocks,
00:07:11.060 | and particularly small value stocks,
00:07:12.920 | will outpace the market over the next 10 or 20 or 30 years.
00:07:16.680 | But like everything else in finance,
00:07:18.820 | that at best is a 55/45 bet.
00:07:22.160 | >> So Bill, two quick follow-up questions on that.
00:07:24.240 | First, you say it's a reward for extra risk.
00:07:27.640 | What is the extra risk in owning value stocks?
00:07:31.040 | >> Well, we sure as heck saw that risk
00:07:33.280 | during the global financial crisis
00:07:35.280 | when large value and small value stocks
00:07:38.840 | had even larger losses.
00:07:40.980 | And we also saw that during the Great Depression as well.
00:07:45.260 | Why is that?
00:07:46.260 | Well, the answer is very simple.
00:07:47.480 | As value stocks tend to be more heavily leveraged,
00:07:50.220 | they tend to have greater exposure to debt.
00:07:57.560 | They're more highly leveraged, in other words.
00:08:00.100 | And the other thing about a growth stock
00:08:02.660 | is that its cash flows are further off into the future.
00:08:07.300 | And the lower that interest rates fall,
00:08:09.640 | the more valuable those become, all right?
00:08:12.340 | And that's what happens during a financial panic,
00:08:14.180 | is rates fall, or at least when safe assets, they fall.
00:08:18.840 | So we saw that happen over, really,
00:08:21.740 | the 10 years between 2010 and 2020,
00:08:24.740 | and then unwound with a vengeance as rates rose in 2022.
00:08:31.120 | >> And my follow-up question.
00:08:32.420 | So let's say I am a total stock market investor.
00:08:35.300 | I've got $100,000 in a total stock market index fund.
00:08:39.420 | It's in a retirement account.
00:08:40.500 | There's no tax consequences to changing.
00:08:42.800 | And I want to add a value tilt to my portfolio.
00:08:47.900 | How much of that $100,000 would it be prudent
00:08:51.840 | to move towards value?
00:08:53.380 | >> Oh, 20%, 25% at most, I would think.
00:08:57.240 | Rick Ferry, yesterday, talked about a very nice paradigm,
00:09:02.580 | which is that beta is free, okay?
00:09:04.660 | You pay nothing, literally nothing, to buy VTI,
00:09:07.860 | to buy the total stock market, or VTSAX.
00:09:12.420 | And so, if you're going to get value exposure,
00:09:15.860 | you don't want to buy somebody else's product
00:09:17.660 | that has large and small.
00:09:19.440 | You want it concentrated.
00:09:20.440 | You want to buy a small value fund,
00:09:22.880 | say, from Avantis for 25 basis points.
00:09:25.200 | So a quarter of that, no cost for the total stock market.
00:09:28.920 | Your overall stock exposure, at least in the US,
00:09:31.720 | is only going to cost you 7 or 8 basis points.
00:09:34.080 | And that's probably how you should do it,
00:09:35.480 | and that's the major strategic change I made
00:09:38.020 | between the two versions of my books.
00:09:39.460 | I was a slice-and-dice, four-corner person,
00:09:42.560 | large, small, small value, large value.
00:09:46.860 | And now, I think you really only need two funds,
00:09:49.500 | total stock market and small value.
00:09:52.240 | >> Is your name Paul Merriman?
00:09:53.740 | >> Uh... (laughing)
00:09:56.700 | Well, when I heard Paul and Rick going at it yesterday,
00:10:01.620 | I thought to myself, "I'm pretty much halfway
00:10:03.180 | "between the two of them."
00:10:04.180 | I agreed largely with both of them.
00:10:08.280 | All right, time for me to turn the tables.
00:10:10.280 | (audience laughing)
00:10:12.620 | Okay, you know, you've had this long and storied career,
00:10:18.000 | despite the fact that, you know, you look so young.
00:10:20.660 | You've had decades in the industry,
00:10:23.360 | and you started out with a conventional career
00:10:27.240 | in journalism, and now, you are off on your own private venture,
00:10:32.400 | the Humble Dollar website.
00:10:35.080 | What have you learned from working
00:10:38.380 | with individual investors on the Humble Dollar site
00:10:42.620 | more closely than you did working
00:10:45.580 | at, say, the "Wall Street Journal"?
00:10:48.760 | >> So I started writing my column
00:10:50.700 | for the "Wall Street Journal" in 1994,
00:10:53.620 | at the absurdly young age of 31.
00:10:57.100 | I mean, to imagine I actually knew anything about finance
00:10:59.540 | at that point is embarrassing,
00:11:01.240 | but the journal didn't give me a column,
00:11:04.340 | and I made my name as a columnist
00:11:07.500 | of the journal in the 1990s
00:11:10.180 | by pounding on the theme relentlessly
00:11:14.380 | that people should index.
00:11:17.980 | Well, guess what?
00:11:18.980 | You know, we won.
00:11:21.260 | You know, you will not get any credit
00:11:23.860 | for banging the table and telling people
00:11:25.400 | to index at this point.
00:11:26.720 | Certainly, you won't make that as a financial writer.
00:11:29.700 | You know, we have won,
00:11:31.900 | and it's a credit to the bogleheads.
00:11:34.760 | It's a credit to everybody who looked at the evidence
00:11:37.940 | and said, "It is a fool's errand to try to beat the market."
00:11:43.680 | My readers today, in many cases,
00:11:46.480 | the same people who read me during the 1990s,
00:11:49.520 | they grew up with me.
00:11:52.080 | And so, in the 1990s, you know,
00:11:55.480 | we were a merry band of individuals
00:11:58.460 | who were devoted to indexing,
00:12:00.460 | and we're drinking the Kool-Aid together.
00:12:02.560 | Now, here we are, you know, almost 30 years later,
00:12:07.500 | and, you know, we have a little bit more gray hair.
00:12:11.300 | In fact, some of it's pretty much white.
00:12:14.140 | And our interests have moved on.
00:12:16.400 | So, today, in running Humble Dollar,
00:12:19.620 | you know, there's no need to fight over indexing.
00:12:22.340 | That argument has been won.
00:12:23.720 | Instead, the real interest for my readers today
00:12:26.580 | is retirement in all its facets,
00:12:28.860 | and it's not just, you know,
00:12:30.960 | "Should I use the 4% withdrawal rate?"
00:12:32.700 | It's thinking about, you know, Medicare,
00:12:35.760 | Medicare Advantage, Medigap plans,
00:12:37.700 | thinking about long-term care,
00:12:39.760 | thinking about what we'll make for a fulfilling retirement.
00:12:43.340 | Now, I've amassed all this money.
00:12:45.680 | Now, it's my time to enjoy it.
00:12:47.780 | How do I make sure I enjoy it?
00:12:49.380 | How do I go from being a saver to a spender?
00:12:51.880 | Those are the sort of issues that I think about today
00:12:55.680 | and that my readers are concerned about,
00:12:57.780 | which reverberate with them.
00:12:59.820 | And the reason I have this set of readers,
00:13:03.680 | it goes back to the 1990s and the journal
00:13:06.760 | and the people who followed me there,
00:13:07.860 | because they've continued to follow me
00:13:10.220 | through until this point.
00:13:13.160 | >> Yeah, but the question that I have, Jonathan,
00:13:15.700 | is what have you learned from your readers
00:13:20.240 | and your participants and your, you know,
00:13:21.740 | the people who are writing for you also at Humble Dollar
00:13:24.600 | that you didn't learn at the Wall Street Journal?
00:13:27.940 | And if I can be a little catty,
00:13:30.400 | do you find one group more congenial than the others?
00:13:33.780 | >> Well, again, Bill, I'll go back to what I said,
00:13:36.820 | which is my readers are older than they were in the 1990s,
00:13:41.260 | and one of the things that we all learn as we grow older
00:13:46.060 | is how flawed we are and how many mistakes we've made
00:13:50.660 | and how there aren't answers always be found in spreadsheets.
00:13:56.600 | You know, not everything comes down to numbers.
00:13:59.180 | There is a huge personal element to personal finance,
00:14:03.500 | and I do believe that my readers today
00:14:06.440 | are perhaps less arrogant,
00:14:09.920 | less sure of themselves than they were 30 years ago.
00:14:13.380 | There is a reason the site is called Humble Dollar.
00:14:16.120 | These folks are much more interested
00:14:17.920 | in the human side of money and how to take their money
00:14:20.760 | and build a meaningful life with it.
00:14:25.900 | >> Okay, just so I can, you know...
00:14:27.540 | >> You're going to pound on me a couple more times on this one.
00:14:30.040 | >> Yeah, just one more fast question about that point.
00:14:32.380 | It seems to me that they're not the same population of people,
00:14:35.880 | especially when I look at the comments section
00:14:38.140 | in the Wall Street Journal.
00:14:39.380 | They seem to be, as a group, a good deal more self-confident
00:14:43.620 | than the people on your website.
00:14:47.080 | >> I think that's true.
00:14:48.180 | I moderate the comments pretty carefully on Humble Dollar,
00:14:54.700 | and if there's anybody who's out there, you know,
00:14:57.800 | pounding some particular political point of view,
00:15:00.900 | you know, I either delete their comments
00:15:03.240 | or I screen them much more carefully.
00:15:05.440 | I don't want the sort of political infighting
00:15:08.140 | that goes on on so many websites on Humble Dollar.
00:15:12.780 | If there are any sort of vicious personal attacks,
00:15:16.640 | I make sure that those comments head into the trash can
00:15:20.620 | and then every couple of days, I go and review them.
00:15:23.420 | I mean, it's amazing what people will write.
00:15:26.900 | I had a contributor who talked about her concerns
00:15:34.600 | and included concerns for her daughter,
00:15:37.640 | and somebody wanted to post a comment,
00:15:40.380 | "Is your daughter a drug addict?"
00:15:43.640 | And I guess on a lot of websites,
00:15:45.600 | that comment would be allowed to appear,
00:15:47.380 | and on Humble Dollar, it isn't.
00:15:49.280 | And so one of the consequences
00:15:50.820 | of carefully moderating the comments is that the tone
00:15:56.280 | on Humble Dollar's comment section is remarkably civil,
00:16:00.120 | and I am bound and determined to keep it that way.
00:16:04.520 | >> Yeah, and this is my opportunity
00:16:07.260 | to thank Sue Kennedy, Lady Geek, and her crew
00:16:10.640 | on the Vanguard Diehards Forum for doing exactly that same
00:16:16.420 | thing, it's remarkably civil, and it makes the forum exactly--
00:16:21.620 | oh, there you are, very good.
00:16:25.000 | Thank you, too.
00:16:27.360 | You know, it makes the forum exactly what it is.
00:16:31.100 | >> All right, Bill, my turn.
00:16:33.140 | So you've advocated that retirees keep perhaps 20 years
00:16:38.140 | of required portfolio withdrawals
00:16:40.140 | in a low-risk investment.
00:16:43.580 | Isn't that an awful lot of money?
00:16:46.440 | >> Yeah, it's aspirational, and I've found myself having
00:16:49.820 | to backpedal a little bit, but not very much from that.
00:16:54.160 | Maybe not 20 years of full living expenses,
00:16:56.320 | but certainly enough money to keep you out from under a bridge
00:17:01.500 | or a soup kitchen for 20 years.
00:17:03.560 | You should at least be able to keep your body
00:17:05.340 | and soul together.
00:17:07.440 | But the plain fact of the matter is that the reason why the rich
00:17:12.140 | get richer is because they have a large pile of safe assets.
00:17:17.720 | If you, in fact, do have 20 years of living expenses
00:17:21.740 | in perfectly safe assets, you are much more likely to buy
00:17:26.180 | at the bottom from the person who doesn't have that,
00:17:30.160 | and that is how the rich get richer.
00:17:32.600 | As I said yesterday, and I'll say again, you know,
00:17:35.520 | that's why Warren Buffett has 20% of his money in T-bills.
00:17:38.080 | He doesn't care when the market crashes by 60%
00:17:40.980 | because he can still buy cheeseburgers.
00:17:44.520 | >> So is that aspirational 20 years
00:17:47.960 | of portfolio withdrawals sitting in cash investments,
00:17:51.160 | is that so people can sleep at night
00:17:53.360 | and not panic during market declines,
00:17:55.700 | or is it a source of firepower
00:17:58.500 | so they can buy stocks when the market's down?
00:18:00.840 | >> It is both, all right?
00:18:02.700 | And that pile now owns considerably.
00:18:05.960 | >> Bill, did I hear somebody shout "market timer"?
00:18:10.300 | >> I plead guilty, I plead guilty.
00:18:12.800 | Just because you believe in the efficient market hypothesis
00:18:17.820 | and you believe that you can't time the market
00:18:20.320 | does not absolve you from the responsibility
00:18:22.920 | of estimating expected returns, all right?
00:18:27.720 | On the forum, there was a very hearty debate
00:18:29.600 | a couple of years back between people who thought
00:18:33.180 | that it was really a good idea to put 20% of your portfolio
00:18:37.260 | into long treasuries, all right?
00:18:40.560 | On the theory that you would rebalance out of them
00:18:43.420 | at a profit when the market crashed.
00:18:47.600 | And they ignored the fact that the real expected return,
00:18:50.860 | judged by TIPS, on a 30-year treasury was, in fact, negative.
00:18:57.140 | And in fact, was as low as interest rates had been
00:18:59.880 | for 5,000 years of human history, all right?
00:19:03.220 | Maybe if that's market timing, then I plead guilty, all right?
00:19:08.660 | I think that you have to take those sorts of things
00:19:13.500 | into consideration.
00:19:14.500 | Now that TIPS are yielding, you know, 2.5%,
00:19:17.760 | I want to own more of them than I did last year,
00:19:19.740 | and certainly more of them than I owned two years ago,
00:19:22.600 | because their expected returns are simply higher.
00:19:27.740 | All right, do you want to follow that up,
00:19:29.680 | or can I turn it around?
00:19:32.580 | All right, so the question that I have for you is, you know,
00:19:36.020 | the thing that's been the hallmark of your journalistic
00:19:41.560 | and humble dollar career, and the thing that I think
00:19:44.060 | sets you apart from almost all other personal finance writers
00:19:49.160 | is how deftly you handle the subject of happiness.
00:19:54.260 | And so you and I first conversed about this, you know,
00:19:57.960 | 25 years ago.
00:19:58.860 | We've been talking about this, the two of us, you know,
00:20:01.740 | really since we first got to know each other.
00:20:05.100 | And I'm wondering how your feeling about that
00:20:09.140 | has evolved from two different perspectives.
00:20:12.420 | Number one is your interactions with your readers.
00:20:15.260 | And number two, and I don't want to get too personal,
00:20:17.480 | but your own personal experiences as well.
00:20:19.360 | So when I think about happiness, there are really, in my mind,
00:20:26.000 | three components of happiness, three things
00:20:29.800 | that will ensure that you have a happier financial life.
00:20:33.400 | I mean, one is that you want this sense of connectedness.
00:20:37.540 | You want to have a robust collection of friends
00:20:40.980 | and family.
00:20:42.340 | Second, you want to be able to spend your days on activities
00:20:46.960 | that give you a sense of purpose,
00:20:48.680 | that you find fulfilling, that you think are important,
00:20:51.560 | that you find challenging, that you think you're good at.
00:20:54.760 | And third, you want a sense of financial security.
00:20:58.960 | You want this feeling that whatever
00:21:01.240 | goes on in the world, that you are going to be all right.
00:21:04.840 | But the biggest change, I think, in my thinking
00:21:07.780 | over the past 10 years is that even
00:21:09.740 | if you work at all these things, even if you've
00:21:12.000 | got a nice pile of cash, even if you have a robust network
00:21:15.740 | of friends and family, even if you devote your days to things
00:21:19.680 | that you're passionate about, there
00:21:22.160 | is a limit to how much you can move the needle.
00:21:25.760 | So many of you may have seen sort of the happiness pie
00:21:29.520 | chart, where half of happiness is determined
00:21:35.760 | by your so-called happiness set point.
00:21:38.360 | 10% is determined by sort of conditions in your life.
00:21:44.780 | And then 40% is what's called volitional,
00:21:47.240 | that if you put your mind to it, you
00:21:49.040 | can make your life happier.
00:21:53.160 | I think this really overstates the case for how much you can
00:21:59.520 | improve the happiness of your life.
00:22:01.500 | And we all know this intuitively.
00:22:03.600 | I mean, you think about the people you know.
00:22:05.540 | There are some people you know, doesn't matter how much money
00:22:08.760 | they have, it doesn't matter how wonderful the party is,
00:22:12.580 | they are going to be grumpy.
00:22:16.280 | It's just the way they are.
00:22:18.280 | And then there are other people, life
00:22:21.080 | can throw all kinds of horrors at them,
00:22:23.180 | and somehow they come out smiling.
00:22:25.660 | And indeed, this happiness pie chart,
00:22:28.420 | which has got so much publicity, people
00:22:31.320 | are starting to fire back at it and saying,
00:22:34.260 | this is really just a pie chart designed for the personal growth
00:22:37.860 | industry in order to say, hey, you
00:22:40.760 | can make a big change to your life
00:22:42.180 | by doing this, this, and this.
00:22:44.040 | I think that probably the happiness set point,
00:22:47.680 | from what I've read, accounts for maybe 80%
00:22:52.020 | of your happiness.
00:22:53.720 | And that in terms of what you can do,
00:22:56.620 | 10% is going to be your life circumstances,
00:23:00.520 | and maybe 10% is volitional.
00:23:03.400 | The fact that you do actually do things like shorten
00:23:05.920 | your commute, try to be grateful about the good things
00:23:09.860 | in your life, and so on.
00:23:11.360 | So I think there's far less room to improve your happiness
00:23:14.240 | than we are led to believe.
00:23:16.480 | So what was your second question?
00:23:17.900 | Well, no, actually, I was going to make a comment on that.
00:23:22.820 | I largely agree with that.
00:23:24.520 | It's your set point, whether you're just
00:23:27.440 | you're a glass half full or a glass half empty kind of guy
00:23:30.320 | or gal that does that.
00:23:32.080 | But I think there is an environmental component
00:23:35.520 | to that set point that has to do with values.
00:23:38.320 | I look around this room, and I see pretty happy people.
00:23:41.160 | I don't see a lot of grumpy people here.
00:23:43.160 | And the reason that is because it's the bogel head ethic,
00:23:47.760 | is most everybody in this room is perfectly
00:23:50.700 | happy to not fly business class.
00:23:55.700 | They don't feel awful when they pass that
00:23:57.480 | by the people in business class.
00:23:59.580 | And they don't think they're what they wear
00:24:02.040 | or what they drive or what kind of house they live in.
00:24:08.540 | Happiness, one of the definitions of happiness
00:24:11.520 | that I like, I think I've described this
00:24:13.560 | to Scott Burns, who's a finance writer in Dallas, Texas,
00:24:17.660 | is that a happy person is one for whom more money won't make
00:24:21.320 | any difference with what they wear, what they drive,
00:24:24.060 | where they live, or who they sleep with.
00:24:25.860 | All right?
00:24:28.440 | And I think that if you really want a prescription
00:24:31.880 | for misery, it's to collect art, OK?
00:24:35.480 | Because if you collect art, no matter how wonderful your art
00:24:40.240 | and your sculpture and paintings are,
00:24:41.840 | there's always somebody who's got one nicer, something nicer.
00:24:45.920 | Even if you're a multi-billionaire,
00:24:48.060 | there's always somebody who's got more paintings than you do.
00:24:50.660 | And that will make you unhappy.
00:24:53.120 | Just a quick digression.
00:24:58.060 | I'll take issue with your art example.
00:25:02.120 | Yes, if your sense of self-worth is
00:25:05.820 | going to hinge on the car you drive,
00:25:07.560 | and we all know that certain cars are more expensive
00:25:10.060 | than others, and so on and so on, yes.
00:25:13.260 | I can see that totally.
00:25:14.540 | I can see that with homes, totally.
00:25:16.800 | But with art, everybody has different taste in art.
00:25:19.940 | And you may have this great collection of modern art.
00:25:23.400 | And I may think, my three-year-old grandson
00:25:26.080 | could have done that.
00:25:28.260 | So I'm not sure art is as good an example
00:25:30.720 | as commonly available goods like homes and cars.
00:25:34.860 | But to come back to your point, which I generally agree with,
00:25:38.360 | is I think that money is less good at buying happiness
00:25:44.420 | than it is at staving off unhappiness.
00:25:47.740 | And in coming back to the three components of a happy life--
00:25:52.700 | friends and family, sense of purpose,
00:25:55.660 | sense of financial security--
00:25:58.100 | I believe that that third one is the one
00:26:03.440 | that gets the least respect.
00:26:06.100 | Because there's nothing like knowing that you don't
00:26:11.240 | have to worry about money.
00:26:12.820 | I mean, being financially stable is like dealing
00:26:18.120 | with your health.
00:26:19.180 | It's only when you're sick that you want to be healthy.
00:26:25.200 | Similarly, it's only when you're broke
00:26:27.400 | that you want to be in good financial shape.
00:26:29.740 | Once you're in good financial shape,
00:26:31.860 | you're at the point where you don't
00:26:33.500 | have to worry about money.
00:26:35.040 | And that is a wonderful thing.
00:26:38.840 | I never worry about money.
00:26:42.220 | I have never wake up in the middle of the night
00:26:45.840 | worrying about money.
00:26:47.140 | I worry about a lot of other things in the middle of the
00:26:48.680 | night, but money is not one of them.
00:26:51.240 | And I think that's probably true for everybody in this room.
00:26:55.920 | It is not, unfortunately, true for the vast majority
00:26:59.360 | of people in this country.
00:27:00.660 | A lot of people spend a lot of time worrying about money,
00:27:05.260 | even as they head off to the shopping mall on Saturday
00:27:08.300 | and spend the money that could give them
00:27:10.660 | that sense of financial security.
00:27:12.840 | If you want to know what will give you more happiness,
00:27:15.780 | $5,000 sitting in the bank or $5,000 spent at the shopping
00:27:19.940 | mall, you already have the answer.
00:27:24.240 | OK.
00:27:25.560 | So if I can turn one more question around to you,
00:27:29.760 | which is that you've also written
00:27:32.060 | about how experiences have a better payoff, a higher
00:27:37.300 | payoff in terms of well-being than do consumer purchases,
00:27:41.940 | direct material consumer purchases.
00:27:43.900 | And I wonder, are there any other things
00:27:47.340 | that money buys that makes you happy,
00:27:49.700 | aside from being able to go to sleep at night
00:27:53.540 | and not worry about money?
00:27:56.780 | Well, first of all, in terms of the experiences
00:28:00.080 | versus possessions thing, I think
00:28:02.020 | we should be a little bit more nuanced about that.
00:28:04.640 | I mean, first of all, as you get older,
00:28:08.520 | it's understandable that experiences
00:28:10.120 | start to be more valuable than possessions,
00:28:12.320 | because at this point, we have less time.
00:28:14.760 | We have less time to enjoy the possessions that we purchase.
00:28:18.620 | So it's not surprising that younger people
00:28:23.040 | tend to value possessions more than older people.
00:28:26.760 | It isn't simply that they're young and stupid
00:28:29.200 | and haven't had a chance to learn.
00:28:31.340 | It's also that they do indeed have more time
00:28:36.320 | to enjoy those possessions.
00:28:38.020 | The second thing about the experience
00:28:40.520 | versus possession question is there
00:28:42.680 | are a lot of possessions that, in fact,
00:28:45.080 | facilitate experiences.
00:28:47.560 | I don't own a car, but I know that if I had a car,
00:28:52.520 | it would have the potential to facilitate experiences.
00:28:55.240 | We could get in the car and drive into the country
00:28:57.960 | for the weekend.
00:28:59.400 | We could more easily go on vacation, driving vacations.
00:29:06.280 | So to the extent that you value a car for what
00:29:08.540 | it can do for you, as opposed to being a status symbol
00:29:12.840 | that you can show off to the neighbors,
00:29:14.680 | I think the possessions can indeed
00:29:17.680 | be useful towards experiences.
00:29:18.980 | And we shouldn't be that dismissive of possessions.
00:29:22.060 | We should just think about them in terms
00:29:23.820 | of what are they going to do to make our lives happier,
00:29:26.600 | rather than what are they going to do to impress the neighbors.
00:29:31.400 | Let's see.
00:29:32.440 | So beyond the experience versus possession question,
00:29:38.200 | what else should we do to boost our happiness?
00:29:41.280 | Yeah, exactly.
00:29:42.180 | I mean, I think we're reaching the point
00:29:44.880 | of diminishing returns.
00:29:45.920 | I think you've pretty much covered
00:29:47.280 | all the things you'd want to.
00:29:48.520 | But if you can think of anything else, let me know.
00:29:51.420 | I think the only other thing that I think is important--
00:29:55.180 | again, it actually becomes more pressing as one gets older--
00:29:59.260 | is that the thing that money can do for you is buy you time.
00:30:05.040 | Obviously, you can never buy more time,
00:30:06.740 | but you can buy control over your time.
00:30:09.040 | So to the extent that you can use your time to unload chores
00:30:14.080 | that you find distasteful, if you really
00:30:15.920 | hate cleaning the house, if you really hate cutting the lawn,
00:30:19.240 | whatever it is, if you can buy your way out of that problem
00:30:23.080 | so you can use that time to do things that you enjoy,
00:30:27.060 | I think that is a very valuable use of money.
00:30:29.920 | Yeah, I mean, again, we've sort of skirted
00:30:33.420 | around the edges of something that's
00:30:35.200 | called self-determination theory.
00:30:36.700 | Jonathan has hinted at it.
00:30:39.000 | I've hinted at it.
00:30:39.840 | Mike Piper talked a bit about it,
00:30:41.680 | which is the three things that everyone
00:30:43.440 | needs to have to be happy are connectedness.
00:30:47.340 | And the second thing is competence,
00:30:50.220 | which I think gets to a lot of the boglehead ethic.
00:30:52.620 | Jim Dolley talked last night about do you really
00:30:55.260 | have to keep cheaping out at the supermarket
00:30:59.320 | if you've got a seven- or an eight-figure portfolio?
00:31:02.160 | And I think you do, because I think
00:31:03.860 | that that gets to my sense of competence, OK?
00:31:06.320 | If I go to a supermarket and I pay $5
00:31:08.540 | for a brick of cottage cheese, I have morally
00:31:11.340 | failed as a human being, all right?
00:31:14.640 | It's just as if I were in the clinic with a patient
00:31:17.440 | and I did a bad job or in the woodshop
00:31:19.680 | and did a bad job there.
00:31:21.240 | You want to exert competence.
00:31:22.540 | But the third thing and the most important thing,
00:31:24.620 | it doesn't get talked about enough, is autonomy.
00:31:27.420 | And that may be the most important thing
00:31:29.760 | that money buys.
00:31:30.820 | It's the FU money, OK?
00:31:34.420 | That may be the most important money that we have.
00:31:37.860 | So my turn to ask Bill a question.
00:31:39.720 | You may have seen at various points over the weekend
00:31:43.360 | that Bill has got excited.
00:31:45.560 | And it's normally at the mention of tips.
00:31:49.880 | Tips is the one thing that apparently Bill
00:31:52.000 | is most excited about right now.
00:31:54.700 | So Bill, tell us why you are so enthusiastic.
00:32:00.800 | And for those of us out there who
00:32:02.980 | are not going to build a 30-year complicated tips ladder,
00:32:08.380 | what would you suggest that we do?
00:32:11.220 | I would-- first of all, that is the ideal way to do it.
00:32:15.420 | It's a lot of work up front.
00:32:17.360 | But once you've got that tips ladder set up
00:32:20.560 | and you're maturing, and you've told your kids and your spouse
00:32:24.220 | about it, if you become demented,
00:32:26.960 | that thing will just follow all the way through.
00:32:29.040 | It's basically a fire and forget portfolio.
00:32:31.440 | Now, the alternative to a tips portfolio
00:32:34.640 | is to buy a couple of funds, a short fund and a long fund.
00:32:39.340 | And the problem is you're constantly rebalancing that.
00:32:42.380 | The theory is this.
00:32:43.540 | Let's say you've got a 30-year survival horizon
00:32:47.280 | that you want to fund, OK?
00:32:48.960 | You want the average maturity of that ladder or of the funds
00:32:53.600 | that you're buying to be half that, OK?
00:32:56.600 | So you basically want an average maturity of 15 years,
00:32:59.500 | whether it's tips or whether it's nominal bonds,
00:33:01.840 | to defease a 30-year lifetime.
00:33:05.340 | You want to basically split the middle.
00:33:08.040 | So that's what you could do.
00:33:09.540 | And it's a little bit less work up front just to buy two funds.
00:33:14.140 | And there's a short--
00:33:15.120 | Vanguard has a good short-term tips fund.
00:33:17.780 | Unfortunately, there's only one even half-decent long-term tips
00:33:22.160 | fund, and that's from Boo Hist, PIMCO, OK?
00:33:25.720 | And they charge 20 basis points.
00:33:27.220 | Hopefully, that will change.
00:33:29.420 | But why am I excited about tips?
00:33:31.760 | Because you can guarantee yourself, at maturity,
00:33:35.400 | a 2.5% real return, all right?
00:33:39.340 | That is more than historically the real return of bonds.
00:33:43.140 | Any time that I can get a historical-- guaranteed
00:33:45.980 | a historical, good historical rate of return,
00:33:48.580 | I'm going to do it.
00:33:49.620 | And when you look around the world
00:33:51.520 | and you say, what can I get with stocks,
00:33:54.820 | 2.5% is not far from the lower bound.
00:33:57.160 | Yes, the US and a lot of other developed nations
00:34:00.060 | have had returns of 5% to 7%.
00:34:02.760 | But there are any number of countries
00:34:04.460 | that, over the course of the 20th century,
00:34:06.200 | had real returns on stocks that were below that.
00:34:11.800 | So I just find them wildly attractive.
00:34:14.740 | Not necessarily, maybe, for a young accumulator
00:34:18.000 | who should be more aggressively invested in stocks.
00:34:20.280 | But if you're an older person who
00:34:21.980 | is worried about your burn rate, then that
00:34:25.620 | is why I am very excited about this.
00:34:27.680 | I mean, what I like telling people a couple of years ago
00:34:29.960 | is I would have given my right arm
00:34:31.780 | to be guaranteed a 0% real return on my portfolio
00:34:34.760 | at that point, all right?
00:34:36.760 | And now I can get 2.5%.
00:34:38.600 | I'm pretty happy about that.
00:34:41.160 | So Bill, if someone's a retiree in their 60s, their 70s,
00:34:45.840 | they've got a mix of stocks and bonds,
00:34:48.480 | would you-- and they're comfortable
00:34:51.500 | with their portfolio, their mix of stocks and bonds--
00:34:54.180 | would you advise them to sell stocks at this point
00:34:56.420 | to buy TIPS?
00:34:57.820 | It depends upon their burn rate, OK?
00:34:59.820 | And that's the thing that gets really left out
00:35:03.220 | in the discussion of what should my portfolio look
00:35:05.260 | like in retirement.
00:35:07.260 | If your burn rate is 1% or 2%, and I'll
00:35:10.200 | bet there are a whole lot of people out here
00:35:12.020 | that I'm looking at that have 1% or 2% burn rates,
00:35:14.640 | it doesn't matter what you're invested in.
00:35:17.340 | You're probably going to be fine.
00:35:19.340 | You could even have 100% stocks if you can stomach the losses.
00:35:22.780 | Because your global portfolio is now
00:35:25.380 | going to be yielding a 2.5% average dividend yield,
00:35:31.140 | 2.5%, 3%, depending upon how much foreign you have.
00:35:35.080 | And that alone will be enough to pay your expenses.
00:35:38.420 | And as we know, except in the very, very worst of times,
00:35:41.400 | that dividend stream really doesn't fall.
00:35:43.600 | If your burn rate, though, looks like it's
00:35:46.060 | going to be 4%, 5%, 6%, and you have good space
00:35:51.040 | in the sheltered part of your portfolio, which is really
00:35:53.640 | where TIPS belong-- they belong in a traditional IRA,
00:35:56.100 | for the most part--
00:35:57.840 | then I think that TIPS need real consideration
00:36:00.580 | in your portfolio.
00:36:01.720 | And as I said yesterday, personally, I
00:36:03.720 | don't need TIPS in my portfolio.
00:36:06.040 | I'm fine without TIPS.
00:36:07.220 | But I really like sleeping at night.
00:36:08.820 | Your turn.
00:36:13.100 | OK, one last question, which is that--
00:36:21.080 | and this is sort of my bottom of the barrel question
00:36:23.840 | here before we turn to the--
00:36:25.920 | before at least I run out, which is that consumption smoothing
00:36:32.380 | is something that gets talked about a lot
00:36:34.080 | by financial economists.
00:36:35.480 | In other words, in the most extreme version of it,
00:36:37.660 | you want to be borrowing money when you're young
00:36:39.800 | so you can have the bigger house and the nicer car.
00:36:42.460 | And then you'll pay back that debt when you're older.
00:36:46.500 | So that's an extreme form of consumption smoothing.
00:36:48.960 | Another form of consumption smoothing
00:36:50.800 | is borrowing money for educational expenses,
00:36:53.600 | which if done prudently is a good idea.
00:36:55.840 | Where do you fit on that spectrum?
00:36:58.880 | So obviously, some level of consumption smoothing
00:37:00.940 | is a smart idea.
00:37:03.380 | In your late teens, early 20s, there's
00:37:08.580 | nothing wrong with borrowing money to go to college
00:37:10.820 | so that you can have higher lifetime earnings.
00:37:13.220 | There's nothing wrong with having
00:37:15.220 | to take out that car loan so you have a vehicle to get to work.
00:37:17.800 | There's nothing wrong with taking out a mortgage
00:37:19.760 | so you can buy a house.
00:37:20.860 | What you're doing there is consumption smoothing.
00:37:22.900 | You're buying things that you can't currently
00:37:24.780 | afford in order to jumpstart your financial life.
00:37:29.180 | But this notion that you want to have essentially
00:37:32.280 | the same income throughout your life
00:37:36.120 | does not speak to human psychology.
00:37:39.220 | I am absolutely thrilled to be staying in a Marriott
00:37:42.360 | because you should see some of the places
00:37:44.260 | I stayed early in my adult life.
00:37:47.860 | If I had been staying in Marriotts in my 20s,
00:37:51.240 | if this wasn't happening in the Four Seasons,
00:37:53.140 | I would be really disappointed.
00:37:55.060 | You want that gradually rising standard of living.
00:37:59.100 | If you're used to flying coach, on those few occasions
00:38:02.640 | when you can use your points to get upgraded to business class,
00:38:06.080 | it is a real treat.
00:38:08.480 | I have eaten in some really dumpy restaurants
00:38:12.360 | over the years.
00:38:13.280 | The fact that I can actually go out
00:38:15.460 | to the most expensive restaurants in Philadelphia
00:38:18.620 | and afford it and not worry about the size of the bill
00:38:23.840 | at the end of the meal, that is a wonderful thing.
00:38:27.000 | A gradually rising standard of living
00:38:30.080 | is a huge source of happiness.
00:38:32.100 | And if you want to feel sorry for anybody,
00:38:34.680 | feel sorry for the children of super wealthy families
00:38:38.320 | who will never get that pleasure.
00:38:41.040 | If you grew up with the silver spoon in your mouth,
00:38:45.460 | it's basically all downhill from there.
00:38:48.760 | I couldn't have put it better.
00:38:50.920 | My favorite line from the Succession TV series
00:38:54.720 | was from Tom Wamsgams, if I can get his name right,
00:38:57.600 | the Matthew McFadden character, who
00:39:00.540 | was just terrified at the prospect of losing
00:39:03.940 | a lot of his money and losing his job
00:39:05.700 | and having to eat at three-star Italian restaurants.
00:39:09.320 | When I go to a three-star Italian restaurant,
00:39:11.200 | I hug myself.
00:39:14.260 | So I think what we'll do at this point--
00:39:16.300 | Yep, I've got the first question for you.
00:39:18.780 | If there are any more, and Mel has a fistful more.
00:39:21.840 | But we'll start with this one, and I'll take those from you.
00:39:24.440 | So Bill.
00:39:25.140 | OK, thank you.
00:39:30.820 | Bill, you keep saying if you've won the game,
00:39:35.420 | stop playing, or stop playing with money that you really
00:39:38.120 | need, I think is the exact quote.
00:39:40.300 | What does that portfolio look like,
00:39:42.220 | and what percentages in stocks?
00:39:44.300 | It really depends upon what your burn rate and, of course,
00:39:48.200 | your risk tolerance are, and, of course, your age as well.
00:39:52.100 | How many years of living expenses do you have to fund?
00:39:54.940 | And if you've got the 1% or 2% burn rate, you've won the game,
00:39:59.220 | and you're probably fine.
00:40:01.340 | And it really doesn't matter.
00:40:02.680 | You can keep the same portfolio.
00:40:04.580 | But if you are 55, 60 years old, and your burn rate
00:40:09.380 | looks like it's going to be 4% or 5%,
00:40:12.760 | that's the time when you have to seriously think
00:40:15.060 | about lowering your stock allocation
00:40:17.700 | so you don't wind up with a bad sequence of returns problem,
00:40:21.100 | which is what Wade talked a lot about yesterday.
00:40:26.700 | So it really depends.
00:40:27.700 | And, of course, if you're 70 or 75 years old,
00:40:30.700 | that's less of a problem because you don't have as many years
00:40:33.420 | to fund.
00:40:35.620 | In other words, what you have to do
00:40:37.120 | is do the sequence of returns test.
00:40:39.620 | Ask yourself, if we get the same sequence of returns
00:40:44.560 | that we got starting, say, in 1966, how am I going to do?
00:40:48.360 | And if the answer is you run out of money in 5 or 10 years,
00:40:51.200 | you want to start bailing out of stocks.
00:40:54.440 | All right, so we're into the weird part
00:40:56.260 | of the session, the point at which
00:40:59.300 | I ask a question to myself.
00:41:02.340 | This is one of the questions that came in.
00:41:04.640 | How do you overcome the sense of insecurity about money
00:41:08.380 | even when you're financially independent?
00:41:11.140 | And this is a question to Jonathan.
00:41:12.920 | Do you have any thoughts on that, Bill?
00:41:14.620 | Go ahead.
00:41:15.820 | So I think that even if you have amassed
00:41:19.760 | a decent amount of money--
00:41:20.920 | I know that people do still feel financially insecure--
00:41:25.720 | I think there are a couple of different ways
00:41:27.500 | to try and address that.
00:41:30.200 | One is to bucket your portfolio so
00:41:33.160 | that you have a certain amount of money for the years ahead
00:41:36.540 | and then a larger pool for the years beyond that.
00:41:40.380 | So you might say, OK, I want to make sure I'm absolutely
00:41:43.380 | certain that I know where money's
00:41:44.680 | going to come from for the next 5 years or 7 years or 10 years.
00:41:48.380 | And you put that into a portfolio
00:41:49.960 | of relatively conservative investments,
00:41:51.980 | and you know that's how you're going
00:41:53.660 | to pay the bills over the next 10 years.
00:41:55.360 | And then you look beyond that, and you invest that money
00:41:58.100 | more aggressively.
00:41:59.600 | I think you can also address concerns
00:42:03.460 | by simplifying your portfolio.
00:42:05.740 | The larger and more diverse the funds you own,
00:42:09.840 | the less reason you're going to have to fret over
00:42:13.880 | your investment performance.
00:42:15.540 | I mean, my largest single stockholding or fundholding
00:42:20.120 | is the Vanguard Total World Stock Index Fund.
00:42:23.380 | Who knows on any given day what sort of chaos
00:42:26.180 | is going on within that portfolio?
00:42:28.620 | But when I look at the share price,
00:42:30.220 | it moves relatively sedately.
00:42:32.160 | I don't see all of that sturm und drang that's
00:42:36.460 | under the surface.
00:42:38.600 | And the final thing I would say is there's great comfort
00:42:41.100 | in just having a big pile of cash in the bank.
00:42:44.600 | The Consumer Financial Protection Bureau
00:42:47.640 | has this financial well-being study,
00:42:50.320 | and they have dozens of questions in that.
00:42:54.980 | And what they found was that the leading correlate
00:42:58.680 | with people's sense of financial well-being
00:43:00.960 | was so-called liquidity, basically the amount of money
00:43:03.200 | they have sitting in the bank.
00:43:04.920 | And if you have $5,000 or more sitting in the bank,
00:43:10.740 | your sense of financial well-being
00:43:13.840 | is something like 50% higher than people
00:43:18.040 | who only have $250.
00:43:19.800 | And the more you have in the bank, the better it gets.
00:43:23.240 | So if you have a sense of financial insecurity,
00:43:27.720 | even though you're reasonably well off,
00:43:29.680 | just keep a lot of money in the bank.
00:43:31.220 | Why not?
00:43:31.720 | You can probably afford to do it.
00:43:33.760 | It's a good thing that Mel isn't here,
00:43:35.360 | because as soon as I started to talk about politics,
00:43:38.720 | he would start getting very nervous
00:43:40.620 | and giving me the fish eye.
00:43:42.260 | But this feeds directly in through what
00:43:44.660 | we're looking at politically in the country today,
00:43:47.900 | the polarization we're seeing, which
00:43:49.740 | is that if you have $5,000 in the bank,
00:43:53.100 | you're going to be very secure.
00:43:54.780 | Well, the problem is that half the people in this country
00:43:57.080 | can't fund a $400 car repair.
00:44:01.120 | And that does not lead to--
00:44:03.820 | and their existence, financially,
00:44:06.120 | is very precarious.
00:44:07.560 | And that sense of insecurity feeds directly
00:44:11.120 | through in the politics we're seeing in the country today.
00:44:14.060 | So Bill, I think this is for both of us, but I'm going to--
00:44:19.500 | Well, wait, wait, wait.
00:44:20.540 | I want to ask Truss the question back to you,
00:44:22.540 | though, which is I thought it was a very interesting point
00:44:25.580 | about the sense of personal security.
00:44:28.540 | And the thing that I've observed is
00:44:30.220 | that people who were raised in abject poverty
00:44:32.940 | don't feel financially secure, no matter
00:44:34.860 | how much money they have.
00:44:35.920 | If they had a hardscrabble childhood,
00:44:37.860 | they never feel financially secure.
00:44:39.580 | And I know you had some experience with that,
00:44:42.160 | personally, as well.
00:44:43.160 | You have an interesting family history,
00:44:44.860 | which you've written about in forming your own view of money.
00:44:48.960 | So for those who don't know it, when
00:44:51.900 | my great-great-grandfather died in Liverpool, England,
00:44:57.640 | in 1889, according to newspaper accounts,
00:45:03.380 | he was one of the richest men in England.
00:45:08.220 | It was a family fortune built, I hate to say it, on cigarettes.
00:45:12.720 | There's a brand called Cope Cigarettes, which is now
00:45:16.320 | owned by Nippon Tobacco, I think.
00:45:20.300 | And that family fortune was inherited
00:45:24.700 | by a single daughter.
00:45:27.540 | And she-- if you've seen Brideshead Revisited,
00:45:31.180 | as my mother has said to me, said,
00:45:34.740 | I don't need to watch Brideshead Revisited, darling.
00:45:38.140 | I lived Brideshead Revisited.
00:45:40.220 | [laughter]
00:45:43.080 | So there was this great family fortune.
00:45:45.780 | It passed down to my grandparents' generation.
00:45:52.320 | At that point, there were five siblings.
00:45:55.120 | And four of them blew the money, in short order,
00:45:58.380 | on wine, women, and song.
00:46:00.680 | My grandfather inherited the money.
00:46:03.160 | And he blew it in a more boring fashion.
00:46:05.660 | He blew it on gentlemen farming.
00:46:08.420 | The farms kept getting smaller and smaller.
00:46:10.940 | He would trade down to places with less acreage
00:46:18.080 | so that he could free up some capital
00:46:20.040 | to sustain his lifestyle.
00:46:21.780 | Eventually, the farms got too small,
00:46:23.480 | at which point he retired.
00:46:26.540 | That is what happened to the great family fortune.
00:46:28.720 | And that is the story that I grew up hearing.
00:46:32.920 | And as a consequence, I have always been extremely frugal.
00:46:38.200 | And as true of my two brothers, it's
00:46:40.520 | true of my sisters, we were all greatly influenced
00:46:43.300 | by this great family story.
00:46:44.660 | And that's why we're all extremely careful about money.
00:46:48.400 | Bill, this is really the same question
00:46:53.980 | in another guise, actually.
00:46:55.940 | If you never worry about money, why
00:46:59.540 | shouldn't you allocate 100% of your portfolio to stocks?
00:47:03.720 | Repeat the question.
00:47:04.580 | I want to make sure I understand it.
00:47:06.080 | If you don't worry about money, I guess you would--
00:47:09.820 | in other words, you have a very high risk tolerance.
00:47:11.760 | Right, OK.
00:47:12.660 | Why not allocate 100% of your portfolio to stocks?
00:47:15.560 | Ah, OK, so it's a hypothetical question.
00:47:18.160 | I didn't catch that at first, because I worry about money
00:47:21.160 | every single day of the week, because that's
00:47:24.240 | my family background as well.
00:47:25.480 | My father and mother both lived through the Great Depression
00:47:29.080 | as not even young adults, middle-aged adults.
00:47:32.820 | So that was what I was-- but if you are hypothetically
00:47:35.440 | a person who is perfectly risk-tolerant
00:47:40.220 | and can stand 100% stocks, sure, you
00:47:42.720 | should be 100% stocks as long as your burn rate is less than 2%,
00:47:48.620 | all right, or 3% even.
00:47:51.860 | There's no reason why you can't be 100% stocks.
00:47:54.200 | I'll tell you who else can be 100% stocks,
00:47:57.200 | is the person who has enough Social Security and pension
00:48:01.940 | income to pay 100% of your living expenses.
00:48:04.240 | Because guess what?
00:48:05.300 | Your portfolio ain't your money, OK?
00:48:07.820 | It belongs to your heirs and your charities,
00:48:10.780 | and God bless to Uncle Sam, to whom you owe a great deal,
00:48:14.080 | all right?
00:48:15.760 | There's another kind of person who should be 100% in stocks,
00:48:18.420 | and that's the person, as Merton and Bodie and Samuelson
00:48:21.460 | pointed out, who has an enormous amount of human capital
00:48:25.260 | relative to their investment capital,
00:48:26.800 | namely someone who is just at the beginning of their savings
00:48:30.160 | career.
00:48:31.200 | That person should be 100% in stocks.
00:48:33.500 | And in fact, a la Paul Merriman, that
00:48:36.000 | is the person for whom small value stocks are most
00:48:39.880 | appropriate.
00:48:40.780 | Because even if small value stocks
00:48:42.580 | return a percent less, a full percent less,
00:48:45.340 | than the large market does, you will still
00:48:47.720 | do better dollar averaging into small value stocks
00:48:52.180 | because of the volatility, assuming
00:48:54.660 | you have the emotional wherewithal and the discipline
00:48:57.420 | to do that, which is no small thing.
00:48:59.400 | So I think I've answered that one.
00:49:02.360 | All right, so we have a nice, large stack of questions,
00:49:05.740 | and we are not going to get through them.
00:49:08.440 | But I've got one here that I'm going to ask Bill,
00:49:11.740 | because I'm hoping I'll get an interesting answer from him.
00:49:14.600 | So somebody here asked, what do you think of bucket lists?
00:49:18.020 | But I'm not going to ask Bill that question.
00:49:19.940 | Instead, this is my question for you, Bill.
00:49:22.580 | What is on your bucket list?
00:49:27.260 | Oh, my god.
00:49:30.920 | A National Book Award?
00:49:32.020 | I mean, to be perfectly honest, I have--
00:49:39.400 | and my wife's going to wince when I say this--
00:49:41.460 | but I have fulfilled just about every single material
00:49:46.740 | need that I've ever had.
00:49:49.940 | We spent-- we would take eight-week, 10-week vacations
00:49:53.280 | in the summer with our children abroad,
00:49:56.280 | because we could afford to do it.
00:50:00.680 | I mean, do I want a bigger car?
00:50:01.920 | Do I want the Tesla, the $80,000 or the $100,000 test Tesla?
00:50:06.420 | Hell no, that's not a car.
00:50:07.420 | That's an IQ test, you know?
00:50:10.860 | So my bucket list-- and what else is on my bucket list?
00:50:14.700 | I want to see my grandkids graduate college.
00:50:17.060 | I want to see my great-grandkids.
00:50:19.440 | It's not material.
00:50:21.940 | All right, final question for you.
00:50:25.180 | Is there one book, blog, video you
00:50:28.580 | would recommend to our financially
00:50:30.540 | ignorant millennial child?
00:50:31.880 | Oh, that's-- well, first of all, you
00:50:37.960 | have to understand that I devoutly
00:50:39.620 | believe that it's cheesy to recommend
00:50:41.400 | my own books to anybody.
00:50:42.720 | It just drives me--
00:50:44.620 | self-promoting authors drive me up a wall.
00:50:47.140 | But almost anything by Jack Bogle or Rick Ferry or Larry
00:50:51.460 | Swedrow or Mike Piper.
00:50:53.540 | And my favorite Jack Bogle book, of course,
00:50:55.740 | is The Little Book of Common Sense Investing.
00:50:58.900 | So I would do the plug for you.
00:51:01.940 | Bill has the booklet from how many years ago, if you can?
00:51:06.340 | Yeah, about 12 years ago, yeah.
00:51:09.060 | What is the exorbitant price on Amazon these days?
00:51:12.180 | Well, it's zero if you'd want to download the Acrobat
00:51:15.260 | from any number of websites.
00:51:16.920 | It's $0.99 if you really want it on your Kindle.
00:51:21.660 | But it's totally unnecessary.
00:51:22.940 | You can actually download the PDF,
00:51:24.900 | and then you can email it to your Kindle,
00:51:26.300 | and then you have it on your Kindle.
00:51:27.800 | So don't spend the $0.99.
00:51:29.540 | [laughter]
00:51:31.900 | Thank you, Bill.
00:51:33.680 | And on that very suitable Boglehead moment,
00:51:37.740 | we'll wrap it up.
00:51:39.040 | Thank you.
00:51:40.480 | A round of applause for these two great contributors
00:51:43.620 | to personal finance.
00:51:45.420 | Thank you very much.
00:51:47.460 | you
00:51:49.520 | [BLANK_AUDIO]