At this time, I'd like to introduce the experts panel for the Q&A with the experts. Our first panelist is Director of Personal Finance for Morningstar and Senior Columnist for Morningstar.com. She is the author of "30-Minute Money Solutions, a Step-by-Step Guide to Managing Your Finances." She is also co-author of "Morningstar's Guide to Mutual Funds, Five-Star Strategies for Success, a National Best Seller." Before pursuing her current role in 2008, she also served as Morningstar's Director of Mutual Fund Analysis.

She served as editor of several of Morningstar's publications over the years, including "Practical Finance," "Morningstar Mutual Funds," and "Morningstar Mutual Fund Investor." She has worked as an analyst and editor at Morningstar since 1993. She holds a Bachelor's Degree in Political Science and Russian East European Studies from the University of Illinois at Urbana-Champaign.

Please welcome Christine Benz. Our next panelist is a retired neurologist who helped co-found Efficient Frontier Advisors. He's written several titles on finance and economic history, although his early formative training in economics was confined to brief stints in the U.S. Postal Service during Christmas breaks. His two finance books, "The Intelligent Asset Allocator" and "Core Pillars of Investing," as well as the content on his website, efficientfrontier.com, have made him uncomfortably popular among the financial press.

He's also a big believer in the value of creative non-fiction process. During the past seven years, he's written two volumes of economic history, "The Bird of the Plenty" and "A Splendid Exchange." His latest book, "The Investor's Manifesto," has turned out to be another winner. He holds both a PhD in chemistry and an MD.

Please welcome one of the smartest guys I know, Dr. Bill Bernstein. Our next panelist is, without a doubt, one of the very best contributors to our forum and to the Bogleheads community. In recognition of her value to the Bogleheads community, Taylor and I crowned her the Queen of the Bogleheads at Die Hard 6 in D.C.

four years ago, so that she could take her rightful place as one of the recognized leaders of the Bogleheads community. She joined Rick, Taylor, and I on the book committee on the new Bogleheads Guide to Retirement Planning. She's also a forum columnist and shares the writing duties with me for our bi-weekly Bogleheads View column.

Please welcome our queen, Laura. Our next panelist is a CEO of Portfolio Solutions, a low-cost investment management firm. He earned a B.S. in business administration from the University of Rhode Island and a master's in science and finance from Walsh College. He also holds the prestigious Charter Financial Analyst designation.

He's written five books on low-cost investing, including All About Index Funds and All About Asset Allocation. His ETF book is considered by many to be the Bible in the industry. He was a member of the book committee on the Bogleheads Guide to Retirement Planning, and his latest book, The Power of Passive Investing, has received wide acclaim.

And if that's not enough, he's also a Forbes columnist. Please welcome Rick Ferry. Our next panelist is the founder of WealthLogic, an hourly-based financial planning and investment advisory firm that advises clients with portfolios ranging in size from $10,000 to $50 million. He's mocked on a fairly regular basis by some financial professionals for his hourly fee business model and its obvious inability to make him rich.

He's also the author of How a Second Grader Beats Wall Street, and he writes the Irrational Investor blog at cbsmoneywatch.com. He teaches behavioral finance at the University of Denver and is an adjunct faculty member at Colorado College. He has a lot of meaningful credentials after his name. He's a CFP, a CFA, and an MBA, but claims he can still keep investing simple.

His goal is never to be confused with Jim Cramer. Please welcome Alan Roth. And as I said, Bill Schultes was scheduled to be with us, but he couldn't make it. So we've had several questions from attendees and from the forum. So let's get right to it. We have a question.

When I call a question from the attendee, if they would stand up just so that we know who you are and we can respond to you. This is from Bob, also known as Shellcroft, Bob Shell. Bob asks, "The amount of national debt in several nations, Iceland, Greece, Italy, and Ireland as examples, has become so serious that unpopular austerity measures have been implemented to calm lenders, stabilize and reduce debt, and avoid more financial crisis.

With so many countries confronting these same and very large debt problems, what in your view are investors in U.S. equity index funds and investors in international equity index funds likely to experience in terms of volatility and returns over the next 10 years?" That's a good question. We'll start with, on the end, we'll start with Rick.

Rick told me to make sure Alan answered all the questions. Alan and Christine have to answer all the questions today. What does it mean in terms of volatility? Yeah, there's going to be more volatility, but that means that there's also going to be less people investing in equity, so there'll be a higher risk premium paid to the people who hang in there.

In my opinion, the risk premium on U.S. equity anyway, particularly large cap U.S. equity, is going to be higher than what it's been. I'm estimating that the equity risk premium is going to be about 6% over the next decade or so, maybe even a little higher than that for large cap U.S.

equity. Internationally, it might be a little bit lower. A lot of money went into emerging markets. There might have been too much money going in there. Europe's going to take a while to resolve their issues. I'm not a market timer, but I can have an opinion just like everybody else.

In my opinion, the U.S. equity risk premium is going to be good. It's going to be a little bit higher than average over the next decade. That's my opinion. -Ellen, any thoughts? -Does it seem like the market is much more volatile today? I just looked it up. Wilshire gave me some great data.

The monthly standard deviation of the last 10 years is 4.7%. The previous 30 years was 4.6%. A tiny bit more volatile, perhaps more volatile on a daily basis. Today, we have sovereign nations that can go under. This time, it's different. The last time, it was different. The next time, it will be different.

Capitalism will survive. -I largely agree with what Rick and Allen said. I might make the case that I think that foreign stocks, particularly European stocks, are even more attractively priced right now. It's not difficult to find continental European stocks selling at single-digit multiples. I don't know what the European index fund is, but it's probably fairly close to 10 right now.

Dividend yield fairly close to 4%. That's discounted a fair amount of bad news, which is pretty much constant with what Rick said. I almost think the emerging markets now are almost becoming fairly valued once again. When I get asked by professional audiences what I think of emerging markets, I say the wonderful thing about them is that from time to time, they can become really cheap.

I think that's about to happen. I'll ask Rick one question, though, which is that in order to see an equity risk premium of 6%, are you expecting more price falls to get there, or do you think we're there already? In other words, you're predicting that an equity risk premium of 6% or about on U.S.

equities, do you think we're there already, or do you think the price is going to have to fall to get there? I think we're there. I think we're there in the way I calculated. This is before inflation, so it's a real equity risk premium, and you have to add an inflation rate on top of this.

I'll get to that in a minute. Right now we have S&P paying 2.1%, 2.2% dividend. If dividends are reinvested, there's actually a compounding effect that takes place over a 10-year period of time. So, in fact, dividend yield over a 10-year period of time would be more like 2.5. So there's 2.5 from dividend payments.

GDP, real GDP, is basically the growth of earnings in a very simplified way. So let's say that real GDP is below normal GDP in this new normal phase that we have, and so add 2.5% for GDP growth over a 10-year period. That gets you to 5. Unlike Jack, I think that the market is discounted quite a bit based on the risk-off trade that a lot of investors are doing, and I think the P/E multiple of the market is actually going to expand as opposed to contract.

So instead of taking off one like Jack did, I'm actually adding one, saying that the P/E of the market is going to go from 12 to perhaps 15, which would be a normal P/E over a long-term period of time, about 15 or 16. And if we get that multiple expansion on equities up to 15 or 16 over the next 10 years, you add another 1%.

So it is 2.5% from dividends, 2.5% from GDP growth, 1% from multiple expansion up to a normal 15 or 16, and then you add on whatever inflation is. So 2% inflation. So that's 6% there, and you add on 2% for inflation to get to 8. - I don't know about the new normal, because the new normal was appraised as a coin by the geniuses at PIMCO in April or May of 2009.

So that's a great call if there ever was one. And low economic growth means low share dilution. It means high buybacks. And so it's not necessarily a bad thing for the owners of the common shares. - One point I would make, I was out at Vanguard yesterday afternoon before everyone else got there and sitting down with some people in their portfolio construction group, the folks who do research on issues such as asset allocation and so forth, and they've got a really compelling paper where they've looked at the connection between economic growth and market performance and found almost no correlation.

So I think that that's a good message for anyone who's looking at compelling growth in emerging markets, weak growth in developed markets, and attempting to make portfolio decisions based on that. What they found is that there really isn't a lot of connection. So I know that it's tempting to pay attention to the headlines, certainly keep an eye on economic news just for our own lives.

But just in terms of predicting market performance, it's maybe not something that you want to use to adjust your portfolio. - Okay. The next question is from Lady Geek. She will preface it with the comment that this thread, this subject has over 31,000 views in a six-week period and contains one of the most intensely argued topics I've seen in quite a walk.

And we'll continue this discussion with the panel, and the answer is yes. So she said, "With regard to a forum discussion on Trinity study authors update their results in which Bill Bernstein contributed a few comments. The first question is, does anyone on the panel recommend changing their target safe withdrawal rate different than the recommended 4%?

For example, should one plan to vary their withdrawal rates as necessary?" I'll comment on that first, and I'm sure everybody will have something to say. But I think it's ridiculous to think that at some point in time, when we retire at 65, that we are going to set a number that can't be changed.

I mean, we've adapted all of our life and adjusted all of our life to situations, and to think that we are never going to make any adjustments once we set this 4% withdrawal rate adjusted for inflation is--to me, it's ridiculous. - Mel, I'll just respond. I agree with you.

In general, although I recently had--probably a year ago, I talked to Harold Deminsky. Some of you may know him. He's a noted financial planner. And I discussed this question of perhaps adjusting withdrawal rates to reflect market action, so bringing withdrawal rates down at certain points in time. And he said, from a practitioner's standpoint, he said, "Unfortunately, sometimes when you're asking retirees to do that, you're asking them to cut out the things that are their real quality of life items." So going out to dinner, going to the movies.

And so he said, "It makes all the sense in the world if you have it on paper, but from a practitioner's standpoint, it can be very difficult to tell people to cut back on certain things that are really contributing to their quality of life in their later years." - Do you want to comment?

Did you comment on that before? - Yeah. I mean, I really don't think that I'd change my view. You know, to me, the guidelines, 2%--what we like to tell people is that, you know, 2% is bulletproof, 3% is probably safe, 4% is starting to take chances, and 5%, you're eating Alpo.

And I really, you know, I think that the value of that sort of paradigm is simply a reality check for people in the saving phase to let them know that, you know, you've only saved, you know, five times or ten times your annual living expenses. You're nowhere near done with the job.

- About two years ago, I did a Monte Carlo simulation for an article I did for Money Magazine, and I felt really good about the simulation because I ran the results by Bill Bernstein, who agreed. You may not remember. But the 4%, I believe, is a theoretical safe withdrawal rate.

It assumes a portfolio, in my model, of a 50/50 low-cost index fund with annual rebalancing. What I also did is I looked at what would the safe return for the average investor who pays the penalty for expenses and pays the 1.5% penalty for emotions. Gold, you know, going into whatever is hot.

And what I found was that the safe withdrawal rate for the average investor paying average expenses and having average emotions is only about 2.5%. - Wow. - I always like to look at a safe withdrawal rate as whatever the cash flow is that's coming off of your portfolio. So if stocks are paying a little over 2% bonds with a combination of total bond market and some high yield, you can actually bump it up to over 4%, so 2.5 and 4.

So I look right now at the safe withdrawal rate of about 3.5. I mean, it would be 4, except that the Fed is kind of getting in the way of this because they're artificially lowering treasury bond rates, which are part of the aggregate bond market. So you're getting less from the aggregate bond market than you really should be as far as the yield.

So right now, my "safe withdrawal rate," and I agree with Alan, it is a theoretical number. I mean, I don't think you should be looking at this as, "Is this the only amount of money you should be taking out of your portfolio?" Because I'm also under the belief that you're not going to live forever.

Do you want your kids to inherit every dime of principal you currently have now on an inflation-adjusted basis, or they get what's left? And you really have to take those things into consideration to determine your longevity and how much you want to leave to the kids when you die.

And the fact is, and I've been saying this for a long time, you don't spend as much money when you're 90 years old as you do when you're 65 on an annual basis. So you have this flattening spending curve that happens, and it's actually what I've seen with my grandparents and my parents is a decreasing spending later on in life as you get up into your 80s because you don't take as many vacations, you don't have two cars, you might sell the vacation home.

And all these things happen later on in life where your cash flow going out just gets down to your basic living expenses, and that's it. So you put all these things together in a formula, and the question is, what is your safe withdrawal rate starting at age 65? It might be higher than 3.5%.

I always say spend a little more when you're 65 because you're not going to be able to spend it when you're 95. And that's my view on this picture. So I like the Trinity study. I've seen so many financial planners that look at that and say, "You need to cut out your magazine subscriptions because you're not going to have enough money to live on when you're, you know, 113 years old." I just don't buy it.

So I think it's like much more to that than just that mathematical number. Well, a couple of things I'd like to point out. First of all, the Trinity study shows what worked in the past. There's no guarantee that that's going to work in the future. The second thing is is that the Trinity study survival rates use a lot more equities in their portfolios than some retirees want to hold.

So the other thing to address the point that Rick talked about was it mentioned you don't spend as much when you're older as you do in the early years of retirement. But I would say that I would disagree that some people are going to have to spend a lot more because they're going to go in long-term care or assisted living, and that is very, very expensive.

And I can tell you my father, who is 96, is spending an awful lot of money in assisted living. So that's something to keep in mind. But he has you, Mel. I'm all serious about this. The one piece of equity that a lot of people who have children never take into consideration is the fact that they have children.

And their children have done very well, and their children are not going to let them eat dog food. I mean, whether you like it or not, the backup for America is the next generation, the children who are going to help support the parents if they need it. And I know it's never counted in all these formulas, but it exists.

You're not going to let your father get thrown out into the street. You can -- I'd just like to comment also. I think that something like the Trinity Study is useful for people who are not yet retired also. It's just a planning tool, sort of a target to think about.

None of us know what the future is going to bring, but if you're trying to figure out as you approach that date, when can I retire, you've got to have something to sort of give you a feel for that. Part of that is sort of whatever your current expense is, sort of being able to project ahead.

But the farther out you are, the rougher that number is going to be. And I think it's a very good way to do that. So if you can aim when you're in your 20s and 30s to try and hit a 2% rate to cover your living expenses, I think that you're going to be in much better shape than if you're planning for 7% or 8% or whatever it is.

So I just find it useful as a tool. It depends, again, like many things in finance, where you are, what stage in life you are, and where you are in this withdrawal process. We're still contributing. I just want to add to that briefly on what Mel said about the study, about the Trinity study, which is that it's used historical returns with an abnormally high equity risk premium, a sort we're not going to see for a long time.

And so they recognize that. I know Wade Fowley, he did the study on my suggestion in a number of different countries, including Japan, obviously. In most other countries it comes out much more friendly. But there's another aspect to that study which very few people comment on, and it's always useful to keep in mind, which is that almost between about 75% equity and 25% equity, in other words, between 25-75 and 75-25, the survival rates were almost the same.

So what that says is that almost really within reason your equity exposure doesn't matter that much to your survival probability. What matters is that you keep your discipline. And one thing that I see from a lot of clients coming in, mistakes that they've made, is chasing income. I'll have people that come in with portfolios yielding 6%, 7%, 8%, and I look at the total return, and it has been quite negative.

So looking at your total return versus income is important. Don't buy Greek bonds and assume you can have a 65% safe withdrawal rate. The second part of the question is, "Which is the better approach for analysis, Monte Carlo or historical data?" None of the above. You have to look at historical data to try to come up with what your expectations of returns are in the markets.

And I don't mean just doing a naive look back and say, "Well, the return of the equities have been this, the return of bonds have been that. Therefore, that's what it's going to be going forward." And unfortunately, a lot of people who are in this business, that's what they do, and of course they have terrible, erroneous expectations of return.

I agree with Laura. I mean, it's more than that. It's more--it's neither. It's neither Monte Carlo, and it's neither historical numbers. I mean, it's more common sense, or I don't know what you want to call it, but it's not--there's no hard and fast way. I'm a strong believer in Monte Carlo simulation.

And in 2008, Monte Carlo simulation got bashed. And it wasn't the Monte Carlo simulation. It was the incredible assumptions that went into it. I saw advisors using, "Well, the stock market's going to yield this. I'm more brilliant. I'm going to add 2% alpha. I'll know when to get out.

Let's make the standard deviation of the stock market, you know, 8%." So you put garbage in a good model, and you're going to get garbage out. You have to use history to come up with the assumptions. You have to use common sense coming in with the Monte Carlo simulation.

Using history alone, you know, there's been a lot of criticism that I think is just on Jeremy Siegel's 200 years of history. We really only have, since 1926, really good reliable data on the stock market. So Monte Carlo simulation with real assumptions and common sense. And the final part of the question, "Is the life cycle finance approach anything new?" I'm not quite sure.

That sounds like a financial planner question to me. I'm not sure what the question really is, so hopefully Rick or-- Susan, what did you mean? I meant as part of that Trinity thread, they were throwing up different approaches that come up with the number. And somebody at the end threw in life cycle finance as a Monte Carlo historical, and then it got discussed rather thoroughly.

I thought it was part of the problem to come up with the safe withdrawal rate. But maybe they were going a little bit off. Maybe it was a subtle discussion on something else inside that thread. That's so easy I'm going to let Rick answer. I'm really not sure what-- Alan, you're the new guy in the panel.

Christine, too. Let Mikey do it, Alan. All right, the next question is from Ken Barrett. Did anybody want to address that, or did they understand what the question is? Just discard it then. Maybe it wasn't-- Okay. From Ken Bennett. It says, "The question is a general question for the panel.

"Currently I'm 10 years away from retirement "and hold approximately three months of salary in an emergency fund. "What is the recommended time frame for increasing the amount of cash in reserves, "and how much should I plan on having in that account in retirement?" So in other words, I think the question is, is that while he's working, he has a three-month emergency supply.

Now he needs a cash reserve to live on. When should he start increasing the account so that in retirement he has what would be considered sufficient funds in cash? Tomorrow, three months of living expenses would scale the job result, unless you have really, really, really, really good disability insurance.

That's what I was thinking too, Bill. One thing I've been talking about, those yields on CDs and money markets and everything else are just about as low as they're going to go. I've been talking about the idea of building a two-part emergency fund, so one three-month chunk that consists of true cash and then maybe another portion that consists of a short-term bond fund with some potential for principal fluctuation, but you have that truly cash piece for immediate needs.

So my thought is for most people, they want to nudge that emergency fund out a little bit. They can do that as long as they do have a piece carved in cash. And then in terms of enlarging that, I usually say that retirees should come into retirement with about two years' worth of living expenses in true cash.

I'm sure some others on the panel feel differently, and my bias would be to sort of gradually enlarge that rather than doing that just as you are approaching retirement. Yeah, I was actually going to say exactly the same thing. I think now is the time to start with that on a gradual basis because if you're ten years out, then you've got plenty of time to sort of slowly build up that cash balance.

But I also agree that three months would make me extremely nervous. I mean, unless you've got really, really, really solid employment and disability insurance, and perhaps your portfolio is already large enough that if you suddenly had to stop working tomorrow, it wouldn't be a big problem for you financially.

I don't think I have one month's worth of cash in my portfolio. With that said, I have what I call near cash, and I've written about an Ally Bank CD that's yielded-- it's a five-year CD, but it's yielding about 2% now, and it has a 60-day early withdrawal penalty.

So in other words, after 60 days, I've earned at least as much as the 0.03% that the prime money market is paying. So having near cash or access to cash via a home equity line of credit that the bank cannot cancel-- so having access to cash is more important than cash itself.

Yeah, these are all good points. I agree with Christine that in my own situation where I'm 53 and I'm going to be working for another 10 years at least, I have one year's worth of liquid assets set aside in a separate account, but it's divided into two buckets. I have near-term liquid asset cash, which is actually just sitting in a money market, three months' supply of that, but I have nine months' supply of what corporate America calls permanent liquid assets, which the liquid assets sometimes come down a little bit, so I might end up with two months or something like that, but then I refund it and it goes back up to three.

So there's different levels of money that you have in your emergency fund where once you get past three months and you've got these other nine months there, these permanent liquid assets you can be more aggressive with. I have corporate bond funds in there. I even have some equity funds in there and index funds, equity.

I know that sounds strange to have equity in an emergency fund, but that's way down here at the bottom on my one year's worth of permanent liquid assets, so I've never had to touch it, and it's going to be a higher rate of return with better taxes because these are taxable accounts.

Now, my plan is, personally, when I retire, whenever that is, at age 65 or whenever, I'm going to have, as Christine suggested, two years of liquid money in this account, so I'm going to increase it. I may not have to increase it that much because probably my expenses might go down when I retire, but that's my plan, so I agree with Christine.

Yeah, I mean, when you consider a liquid asset, I just have a nice range of opinions, and I think it's a wonderful, wonderful exposition of it. Certainly I don't mean money markets or money stuffed in the mattress. I would define cash as anything that at the end of the financial world you're not going to take more than a couple percent of your head on.

I wouldn't put corporate bonds in there. I'm not putting short munis in there. I would certainly put CDs in there as well. So, you know, I certainly don't mean you have to have that much, you know, a year or two's worth of cash in a money market. Well, one of the things that I've long advocated as an emergency fund are I-bonds.

I-bonds, of course, once they get to the one-year spot, they're like cash, and yet if you don't need them, you're earning a very reasonable return, especially if you bought back when I told you about it. (laughter) Those puppies are yielding over 8% right now for those who didn't get them.

But the point is, is that there's so much flexibility once you get to the one-year spot that you can redeem them at any point, and yet you're not suffering with low yields, and you're not--if you're looking for the long haul, you're not getting ravaged by inflation. Yeah, Mel, it's funny.

I've been working on a thread with some of our users on Morningstar.com and one of the retirement forums, and I asked them what their biggest surprises were in retirement, happy and otherwise, financial and otherwise, and a few posters said, "Thank God for those I-bonds," and I think they actually took the hat to you guys for it.

(applause) And don't forget, Mel's unloaded. Mid-cap seat. (laughter) Okay, the next question, "Should TIPS be part of the portfolio of a younger person, "say under 40? "If so, how much of one's bonds should be in TIPS?" I'm sure there's a lot of different opinions on this, but basically, when you're working, normally your wage increases are going to help keep you up with inflation.

So I don't think it's that important for a younger person, but it's still a good investment, and there's nothing to keep a young person from getting that. My bond portfolio is fixed. I mean, it doesn't matter if it's somebody who's in their 60s or somebody who's in their 20s.

It's simply 60% Vanguard aggregate bond market, total bond market. What's missing out of the Barclays capital aggregate bond market are two asset classes. One of them are TIPS. TIPS are not included in that. So if you wanted to have a total bond market, you would have to add TIPS.

The other side that's not included in that index is high-yield corporate bonds. So if you wanted to have a total bond market index, you'd have to actually include some high yield. I put 20% in TIPS, 20% in high yield, 60% in the total bond market. It seems to work so that somebody who's young, even though they might only have 20% fixed income in their portfolio because they have a lot of human capital in front of them and many years to work, whatever that bond portion is, if it makes sense-- because sometimes it doesn't make sense because they don't have a lot of money to invest-- but if it makes sense, I think a 20/20/60 strategy has worked very well.

It gives you a little bit of a hedge against unanticipated inflation. Inflation rate is inherent in all fixed income, including TIPS. What TIPS gives you a hedge against is a jump in the unanticipated inflation, an actual jump in inflation that nobody was expecting. I think we were talking about between 2% and 2.5% expected inflation over the long term.

So if it jumps to 5%, it jumps to 6%, it jumps to 7%, that's what your TIPS are going to give you, that hedge. So I think it's important to have some in a portfolio. I think this was addressed last night at Vanguard, too, when they were discussing the makeup of the Target Retirement Funds and why they did not include TIPS in the funds for the long-term funds and that they did include them in the shorter-term funds.

Yeah, I often look at the data that Ibbotson puts together on asset allocation, and Ibbotson is under the Morningstar umbrella, so I'm able to harness what they do. I believe that their TIPS allocations for retirement portfolios actually run as high as 30% of the fixed income portfolio, and for younger investors it's more in the range of 20% of the fixed income portfolio.

So it sounds like we're all kind of in the same general ballpark. I use behavioral finance as a reason to be a little bit active on TIPS, and I think that as humans we tend to think in nominal terms rather than in real terms, inflation adjusted, that matters. In 2008, when the financial system was doomed, TIPS should have been the safest investment out there, and as Bill mentioned, they plummeted.

Yields were up to 3.5%, 4%. Boy, would I love to go back. We did. A lot of the boy would instead because that was pointed out. And I did as well. But TIPS are yielding-- I don't completely agree with you, Bill, on TIPS funds. The Vanguard TIPS fund is now yielding CPI minus about 0.3%, so I've been taking some out of TIPS, which I believe in, and moving into CDs.

Yeah, I mean, again, the question was addressed to the younger saver. As I said with Jack earlier, I think that for the retired person, TIPS are wonderful because it allows them to be certain of their consumption ability 5 years, 10 years, 15, 20 years, hence. But I really got religion in '08, '09 about TIPS, and it made me think more clearly about portfolio construction.

For the young investor who is stock-heavy, there are really only two asset classes. You've heard me say many times before, there's risky assets and there are riskless assets. And the riskless assets are there to help you sleep at night. They're there so that you can buy stocks when they're cheap.

They're there so you can pay your living expenses when you lose your job. And they're there for when your annoying neighbor with the corner lot you've had your eye on for the past 10 years suddenly needs liquidity. And you can be a nice guy and give it to them.

And TIPS are neither fish nor fowl. They're not going to help you when you really, really, really need them. And I think for the younger investor, I think that a huge 1% in your bond portfolio is fine. I think 0% is fine. Well, I think one thing that amazes me--Alan just touched on it-- that the TIPS and the TIPS funds are showing negative returns.

But that's negative real returns. So people will sell TIPS and go buy a 1, 1.5% CD, which in reality has a negative return of 1.5%. So you need to think in terms of real return as opposed to just looking at the posted real return that's on Vanguard and think that if you get more than -0.58 that you're actually doing good.

But people are looking at the nominal return and ignoring what the real return is. So what you really have to do is make sure that you try to convert the nominal into real and then compare apples to apples. The next question is from Willella. Am I pronouncing that correctly?

She says, "I sit on the board that oversees my employer's pension plan. The plan's expected ROI over 10 years is 8%. I think this is too high, but the plan advisers don't. What does the panel think? Are there any references or sources I can cite to make my case to the board?" I think you need to check that you're a board member who stole their medications and to ask what they've been smoking.

If you have a typical 60/40 portfolio, the return of your bond, the real or the nominal expected return of your bond portfolio is 2% or 3%. And so to get to 8%, you have to assume an equity return of, I don't know, in the low teens. Good luck with that.

Yeah, but all of the government pension funds are 8%, so why shouldn't I be? That's all I'm using as a benchmark. I mean, I'm looking at what all the governments are saying is their expected rate of return, and obviously I'm as good of an investor as any state government.

Therefore, why shouldn't we use 8% on my foundation? I mean, that's the thinking. I would reckon with the state of Florida pension people. Aren't they the ones that keep losing hundreds of millions of dollars? I did a lot of work with somebody from the St. Petersburg Press on the Florida state pension fund, and what they're disclosing is they're spending $400 million or $500 million a year on their $100 billion fund, but they're not disclosing the hidden cost of paying the hedge fund managers an incentive.

They won't disclose that because they say it's confidential. But anyway, so I think the 8% is clearly too high, as Bill said. I mean, realistically, 6% is a realistic number to have on these funds, and this 8% is simply to try to--from the pension fund side, it's simply to not have to fund their liabilities.

They say, "Well, we're perfectly--we're well-funded here," or "We're close to being well-funded because we're using such a high discount rate on our future liabilities," which is just completely unrealistic. It's going to bite them in the butt, but it makes politicians look good, balances the budget. So this is what they go with, and unfortunately foundations then look at that and naively say, "Well, if this is what the state thinks they're going to get, then that's probably what we should use," but it's the wrong assumption.

I think they call it kicking the can down the road. It's reality versus politics, and politics always win. Rick, you hinted at the presence of alternatives in a lot of these pension accounts, and it's a good opportunity to check up on what exactly they've got in there because I know in the state of Illinois they have increasingly been shifting assets into alternative assets in an effort to boost their expected return, and I think we can all agree that there are great risks in doing so, and it's a dangerous trend.

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