Bogleheads® Conference 2017 - Panel of Experts

00:00:00.000 | The moderator for this year's Q&A with the experts panel is my good friend and Bogoheads

00:00:19.380 | conference team member Mel Turner.

00:00:22.600 | Many of you know him as Tom, which stands for the other Mel because the two of us is

00:00:27.680 | very confusing.

00:00:29.840 | Mel is a retired airline pilot.

00:00:31.880 | He's a fellow Marine who flew A-4 Skyhawks over South Vietnam and Laos.

00:00:36.720 | He has flown all over the world and his last assignment was flying Boeing 757 and 767s

00:00:43.720 | out of Philadelphia to Europe.

00:00:46.920 | While his employment was as a professional pilot, his avocation was the world of finance.

00:00:52.560 | He bought the first mutual funds in 1978 and made his first investment in Vanguard in 1978.

00:01:00.080 | Jack Bogo continues to be his financial hero.

00:01:04.240 | He's read hundreds of books on the subject and was thrilled when he ran across the San

00:01:08.920 | Diego chapter of the Bogoheads.

00:01:11.760 | At age 68, he decided to jump into the certified financial planning program at UCLA where he

00:01:22.040 | finished 78 classes while maintaining an A average.

00:01:28.080 | He sees his mission now as returning his good fortunes in good Bogoheads fashion by helping

00:01:32.840 | others with their finances.

00:01:35.420 | When not traveling, he resides in San Diego with his wife, Kathy, and spends about four

00:01:40.440 | months a year in Maui.

00:01:42.680 | Please welcome my good friend, Mel Turner.

00:01:55.440 | Well welcome to all the first timers.

00:01:58.960 | Welcome here for all the other people that have been here before.

00:02:01.500 | Welcome back.

00:02:02.500 | We hope you enjoy the conference that's here.

00:02:04.800 | So I asked for questions to everybody.

00:02:06.960 | I got 22 pages, single space questions, hundreds and hundreds of questions.

00:02:11.800 | And I went through them.

00:02:12.800 | I apologize that all of the questions aren't going to be available.

00:02:17.200 | I tried to get one's all levels of expertise from beginners to advanced, from people just

00:02:23.040 | starting out to people that are in retirement.

00:02:25.340 | So I hope it covers the spectrum.

00:02:28.480 | I had to overlook some of them.

00:02:31.720 | Peggy, I've given your question to Mike Piper for Social Security so you can see him if

00:02:37.120 | you can work your way through the crowd that surrounds him wherever he travels in the place.

00:02:42.980 | I'm not going to be able to answer the questions about how to finance your remodeling project

00:02:47.280 | or how to invest if there's a nuclear holocaust.

00:02:51.600 | That's a true question that I received.

00:02:57.000 | So although I'll ask a question, I ask all the panelists to go ahead and respond and

00:03:03.280 | interact with each other.

00:03:04.280 | This year it was different.

00:03:05.520 | Last year it was like technical questions, like how does an IRA operate and the rest

00:03:08.920 | of that.

00:03:09.920 | This year there was more behavioral and discipline and emotional kind of things.

00:03:15.040 | It was interesting in the questions.

00:03:17.160 | So the panel, we're very fortunate to have them.

00:03:22.240 | We're all here to honor Jack, of course, and we're here to learn something.

00:03:25.880 | But as you learn something, hopefully you'll take it out and help other people.

00:03:30.720 | One more note, everybody here pays the same.

00:03:33.800 | The panelists paid 275.

00:03:36.320 | I pay 275 as Mel pays 275.

00:03:39.440 | There's only one person that doesn't pay.

00:03:41.760 | Guess who that is?

00:03:44.000 | So our first panelist is a cofounder of Efficient Frontier Advisors and author of several successful

00:03:49.860 | titles on finance and economic history.

00:03:52.400 | My favorite is the Pillars of Investing.

00:03:55.200 | Please welcome the real Boglehead favorite, Dr. Bill Bernstein.

00:04:03.080 | Our next panelist is a Morningstar director of personal finance and a senior columnist

00:04:07.240 | at Morningstar, one of the better financial interviewers that I've ever seen.

00:04:12.200 | Please welcome Christine Benz.

00:04:17.920 | Next on the panel is Jonathan Clements.

00:04:22.080 | Our next panelist is the first Boglehead conference, but hopefully it won't be his last.

00:04:26.400 | He's an author at the Wall Street Journal, former author at the Wall Street Journal and

00:04:30.820 | a Boglehead favorite.

00:04:32.320 | And just on a personal note, I have to say that Jonathan inspired me.

00:04:38.520 | He inspired me so much that I have a four-inch binder of stuff that he used to do in the

00:04:42.920 | Wall Street Journal from 1997.

00:04:45.480 | I've saved it.

00:04:46.760 | And I thought I was the crazy one and somebody walked up and said, "You know, I have a binder

00:04:50.320 | of his stuff too."

00:04:51.320 | So please welcome Jonathan Clements.

00:04:59.240 | Our next panelist is a CFA and professor of retirement income, a Ph.D. program for financial

00:05:04.200 | and retirement planning at the American College of Bryn Mawr.

00:05:07.680 | Please welcome Dr. Wade Fowle.

00:05:13.600 | Next panelist is a Missouri CPA and the author of several books, 11 books, a blog, Oblivious

00:05:21.720 | Investor, award-winning blog.

00:05:24.320 | He also does digital books.

00:05:29.380 | My favorite is Social Security Made Easy, but please welcome Mike Piper.

00:05:38.440 | Our next panelist, I ran across a quote, he says, "My professional goal is to never be

00:05:43.940 | confused with Jim Cramer."

00:05:48.160 | Our next panelist is a founder of WealthLogic.

00:05:50.700 | He's an author and contributed to AARP Financial Planning Magazine, the Wall Street Journal.

00:05:55.640 | Please welcome Alan Roth.

00:06:01.240 | So the first question is in honor of Taylor Laramore.

00:06:04.860 | He sent me an email and requested that I submit this question, so this question is for him.

00:06:11.040 | You know how we always bump into somebody that's 20 to 25 years old and we've got like

00:06:14.680 | 15 or 20 seconds to be able to influence them?

00:06:18.120 | His question is for the whole panel, what is the single most important financial advice

00:06:22.480 | you would give to a new investor?

00:06:30.560 | I can put this in Twitter form.

00:06:33.080 | Minimize expenses and emotions, maximize diversification and discipline.

00:06:44.140 | People aren't as smart as they think they are, and using a very simple portfolio instead

00:06:49.780 | of trying something fancy is perfectly fine.

00:06:53.120 | And I think I'm just going to reiterate what two other panelists said.

00:06:56.640 | If somebody asks me for financial advice, go and buy a talk-of-date retirement fund

00:07:02.120 | with expenses below 20 basis points, contribute to it regularly and hang onto it for the rest

00:07:07.120 | of your life and you'll be very happy.

00:07:09.720 | Well, a follow-up with that, would you recommend a talk-of-date retirement fund or a life strategy

00:07:17.260 | fund or build a three-portfolio fund?

00:07:20.180 | If somebody's starting out, a talk-of-date retirement fund where you don't have to actually

00:07:24.360 | worry about three different parts of the portfolio seems like a very good idea.

00:07:28.160 | That way you're not going to get unnerved because U.S. stocks have a bad year and foreign

00:07:33.280 | stocks have a good year and you think about swapping around.

00:07:35.380 | If you buy that talk-of-date fund, all you have is a single share price to look at each

00:07:38.640 | day, and that's going to hide a lot of the mess that's going on underneath the hood.

00:07:43.960 | Plus, you know, a talk-of-date retirement fund is going to rebalance for you every year.

00:07:48.360 | You don't have to worry about that part of it either, which you would have to with a

00:07:50.940 | three-fund portfolio.

00:07:53.060 | Just to accentuate Jonathan's point on that, we have this investor return data, which is

00:07:56.880 | dollar-weighted return data that looks at the timing of investors' cash flows, and the

00:08:02.340 | goal is to capture investors' actual return experience.

00:08:07.100 | What we see when we look at the target date universe is a really beautiful thing in terms

00:08:11.500 | of investors buying these funds and staying the course and really capturing the returns

00:08:16.560 | that they earn.

00:08:17.820 | We've been puzzling over why that is.

00:08:19.660 | It might just be something to do with the 401(k) setting where a lot of target date

00:08:23.460 | buyers are 401(k) buyers, and so they have their investments on autopilot.

00:08:28.480 | But whatever it is that's working for target date funds, it appears to be really good from

00:08:33.940 | a behavioral standpoint, so I would underscore the virtue of that one-stop vehicle, certainly

00:08:39.620 | for accumulators.

00:08:40.620 | And the only thing that I would add to that is, if at all possible, don't ever look at

00:08:47.380 | your account balance.

00:08:51.660 | Someone else should to make sure that no one's committing fraud on it, but you shouldn't

00:08:54.500 | know what it is.

00:08:59.420 | One - I mean, this is a minor point - but one thing I like about the life strategy funds

00:09:03.500 | relative to the target retirement funds is that they force you to think about your personal

00:09:08.380 | risk tolerance a little bit.

00:09:09.940 | You have to actively choose whether you want a more aggressive allocation or a more conservative

00:09:14.300 | one.

00:09:16.940 | That said, I have no qualms whatsoever about recommending a target date fund to somebody

00:09:22.420 | if it's low cost.

00:09:23.620 | I'm sure that Alan is going to compete vigorously for being the most controversial person on

00:09:28.460 | this panel, but I'd like to at least get an early head start.

00:09:32.580 | I think that when you look at services like Betterment and Wealthfront, where they're

00:09:38.540 | charging you 25 basis points or more in order to get a portfolio index fund, and all they're

00:09:45.220 | offering you over and above a target date retirement fund is tax loss harvesting, why

00:09:53.380 | would you pay that 25 basis points?

00:09:55.060 | A lot of people who are enrolling in Betterment and Wealthfront are people in low tax brackets

00:10:00.980 | anyway.

00:10:01.980 | Often they're buying within retirement accounts.

00:10:04.340 | It seems to me like anybody who's drawn to Betterment and Wealthfront would be a lot

00:10:08.020 | better off buying a target date retirement fund that begins with the letter V.

00:10:12.980 | I hate to agree with Jonathan after what he just said about that, but even at 25 bps,

00:10:21.500 | they have to add some complexities to them.

00:10:24.540 | Now they're getting into factor based smart beta types of things, which is not a free

00:10:30.180 | lunch.

00:10:31.180 | Guess what?

00:10:32.180 | Large cap growth has been the strongest performing part of the market, not the smart beta hasn't

00:10:38.100 | been so smart lately.

00:10:43.380 | The next question was asked by four different people, so I'll just combine them into the

00:10:47.580 | same.

00:10:48.580 | There's a little fear out there.

00:10:50.000 | Stock markets are hitting record high interest rates or record lows.

00:10:55.120 | This is from Trey Parrish and Steve Bruns.

00:10:58.260 | He says, "The million dollar question for every retail investor who is asking, with

00:11:03.260 | the stock market all times higher, interest rates all time low, cash returning 1%, endless

00:11:08.420 | market optimism, no fear, where should an investor put capital?

00:11:12.860 | It's easy to say stay the course when you look back at eight years of a bull market,"

00:11:16.940 | he quotes, "but come on, in 10 years, am I really going to get any material returns?"

00:11:28.880 | First of all, interest rates are not at an all time low.

00:11:33.260 | You could go back to 1980, you could earn 12% on a CD, Treasury, guess what?

00:11:39.880 | Inflation was 15%.

00:11:42.180 | So I've always argued the purpose of fixed income isn't actually income.

00:11:47.540 | It's the stable part of your portfolio.

00:11:50.420 | Who knows what equity returns will be in the future, but stick to an asset allocation.

00:11:55.460 | If you can't be right, at least be consistent.

00:11:59.580 | Yeah, I mean, there are a couple of different ways to look at that.

00:12:07.200 | Let's assume we're now at the 10th anniversary, pretty close, of the last market high right

00:12:13.100 | before the global financial crisis.

00:12:16.900 | Stocks have still been the place to be over the past 10 years, even starting from that

00:12:20.900 | point.

00:12:21.900 | The S&Ps returned, I think, something like 7% annualized.

00:12:25.660 | Since then, the worst case scenario is foreign stocks, which returned maybe 2%.

00:12:30.540 | That's still better than bonds, or at least better than short bonds and CDs.

00:12:36.960 | So that's one way to look at it.

00:12:38.320 | Another way to look at it is if you're rebalancing, you're probably doing some selling of stocks

00:12:44.700 | right now.

00:12:45.700 | And even if you're in a saving process, if you're using a value averaging path and just

00:12:53.360 | keeping yourself at a fixed allocation as you put money in, you're probably just putting

00:12:58.200 | new money into bonds right now.

00:13:01.780 | So I don't really see that there's much of an issue, at least in the long term.

00:13:11.020 | Your starting point in building a portfolio is the global market portfolio.

00:13:14.000 | The global market portfolio is roughly divided into four components-- US stocks, US bonds,

00:13:20.060 | foreign stocks, foreign bonds.

00:13:22.480 | And I would say that if I was wearing my market strategist hat, which I don't wear comfortably,

00:13:29.960 | you could argue that three of those four are relatively expensive.

00:13:33.480 | The one area of the global markets that is not so expensive are foreign stocks.

00:13:39.520 | And what I would say is, if you're massively overweighted in any one of those four sectors,

00:13:46.280 | in terms of three of them-- US stocks, US bonds, and foreign bonds-- you could have

00:13:51.320 | an unhappy outcome.

00:13:52.400 | So make sure that you own at least a portion of-- you spread pretty widely among those

00:13:58.580 | four, so that if one of them has a really bad outcome over the next 10 years, you're

00:14:02.800 | not too unhappy, and you don't end up with the retirement you don't want.

00:14:06.680 | I just mentioned, too, about how the problem changes a little bit when you get to retirement

00:14:11.600 | and you start taking distributions, that that will really amplify the impact of investment

00:14:16.640 | volatility.

00:14:17.640 | And at this point, with the market run-ups, you may be ahead of schedule, as Bill says.

00:14:22.120 | If you've already won the game, stop playing.

00:14:24.440 | So if you are getting to the stage where you're going to be taking distributions from your

00:14:27.880 | assets for retirement, this is a good opportunity to think about locking in some of those gains,

00:14:33.800 | moving some of that into individual bonds to cover short-term retirement expenses, or

00:14:37.720 | even simple income annuities that will provide that lifetime income.

00:14:42.040 | Yeah, I would agree with that.

00:14:44.400 | I write a lot about this bucket approach, and I know some of you agree with it.

00:14:48.320 | Some of you don't agree with it.

00:14:49.400 | But the basic idea is, if you are looking for cash flows from your portfolio in this

00:14:56.280 | very low-yield environment, your best source of cash flows, if you're retired, if you have

00:15:01.040 | equities in your portfolio, are hiding in plain sight, and that's selling some of your

00:15:05.740 | equity position down and filling up some of the positions in safer assets.

00:15:11.000 | So I think that that strategy makes a lot of sense.

00:15:13.280 | There's often this temptation when we have these little bouts of market volatility, and

00:15:17.280 | we haven't had many recently at all, but people sort of rush to say, "Everyone should sit

00:15:22.320 | tight.

00:15:23.320 | No one should sell."

00:15:24.320 | And I think, you know what?

00:15:25.320 | In the past few years when we've had these little shocks in the market, use those as

00:15:29.640 | impetus to sell as kind of a wake-up call of what it can feel like when things are falling.

00:15:34.960 | I apologize if I'm stating the obvious here, but when expected returns are low, asset allocation

00:15:44.800 | only goes so far to solve the problem.

00:15:48.080 | Often what you need to be thinking about is saving more if you're in the saving stage,

00:15:52.600 | or spending less if you're in retirement.

00:15:56.720 | Asset allocation can help, but think about other things, too.

00:16:02.320 | I hesitate to utter the word "Social Security" in Mike's presence, but there's another thing

00:16:09.920 | here which is unsaid.

00:16:10.920 | I think it's obvious to everybody up here, but just to state the obvious, which is that

00:16:14.480 | before you buy a TIPS ladder, before you buy an annuity, spend down your retirement assets

00:16:21.920 | so that you can defer Social Security until 70.

00:16:25.840 | That is the best annuity that money can buy.

00:16:29.880 | Okay, so the next question has with overweighting different asset classes.

00:16:35.520 | Four different responses, or five different questions about this.

00:16:38.720 | Joel Goodman says, "Does investing in dividend aristocrats provide some kind of a downside

00:16:45.080 | protection?"

00:16:46.320 | Trey wants to know, "Why don't I buy some high-dividend stocks to protect myself?"

00:16:50.800 | Steve Lelulio says, "How would you allocate emerging markets as a percentage of your total

00:16:55.040 | international assets?"

00:16:56.040 | In fact, I think Jonathan wrote an article endorsing emerging markets, and from Brent

00:17:02.320 | Hunsberger, "Is there a value premium still, and if yes, how would you convince an investor

00:17:08.440 | of that?"

00:17:09.440 | So they're all about overweighting different sectors of the market.

00:17:12.040 | How do you feel about that?

00:17:14.960 | Bill.

00:17:17.760 | Gosh, well, let me do the last two, which are emerging markets and then factor tilts.

00:17:29.080 | Emerging markets, the conventional wisdom is that about 10% of your equity portfolio,

00:17:35.640 | so if you're 60, 40, 6% of your total portfolio should be in emerging markets.

00:17:41.760 | I've always thought that's a little high, and the thing I like to say about emerging

00:17:45.560 | markets stocks is the nice thing about them is that from time to time they get to be really

00:17:49.520 | cheap.

00:17:51.560 | This is actually one of those times.

00:17:53.600 | They're still probably the least expensive segment of the equity markets around the world.

00:18:00.140 | So I mean, I think now is the time to maintain a good weighting in emerging market stocks.

00:18:06.680 | Factor tilts, again, that's almost completely an imponderable.

00:18:11.600 | It's a risk premium, and it's probably more of a risk premium now than it ever was.

00:18:19.140 | And the risk is that you're going to underperform the market, which in fact value stocks have

00:18:24.960 | done over something like the past 10 years.

00:18:29.560 | And the other problem is that everybody else is chasing that factor as well.

00:18:35.200 | It was the case 20 years ago, there was really only one company that chased it well, and

00:18:38.800 | that was DFA.

00:18:39.800 | And now there are other companies that do it, so there's more capital that's thrown

00:18:43.440 | up against it, that's thrown into it, and I think the returns are going to be lower.

00:18:47.980 | And so I think that whatever advantage the factor tilt had over just owning the total

00:18:52.200 | stock market is less than it was.

00:18:54.320 | I think it's still there, but I'm less enthusiastic than I was about it 20 years ago.

00:18:59.800 | Hey, Bill, can I ask you a follow-up question on the EM issue?

00:19:04.560 | Because I have heard this, that EM emerging markets may be cheap relative to the rest

00:19:09.760 | of the world.

00:19:10.760 | But I guess the thing I wonder about is if we're concerned about the U.S. market maybe

00:19:14.360 | being a little expensive and potentially subject to some volatility, I mean, since when does

00:19:20.000 | emerging markets not tumble when the U.S. market tumbles?

00:19:24.360 | That's my concern about recommending that people look at EM.

00:19:28.780 | That's a good point.

00:19:29.780 | There's no question that if the S&P 500 goes down 5% tomorrow, the emerging markets indexes

00:19:36.080 | will be down by a lot more than that.

00:19:39.040 | And if that's your definition of risk, then they are certainly riskier, and that's certainly

00:19:43.400 | a concern.

00:19:44.400 | I view risk in a very sort of Spockian sort of manner, at least I try to, which is long-term

00:19:52.840 | risk.

00:19:54.560 | So that when I look at, say, the 10-year period, the most awful 10-year period you could possibly

00:19:58.800 | imagine, which would be the one between, let's say, 2000 and -- excuse me, 2000 -- well,

00:20:06.600 | 1999 and 2008, all right, it's a 10-year period, you had two awful bear markets in there, and

00:20:13.320 | you found that emerging market stocks, although they tumbled something like 65 or 67% from

00:20:18.440 | top to bottom from '07 to '09, over that whole 10-year period, emerging market stocks had

00:20:24.040 | triple-digit total returns, all right, whereas the S&P 500 lost 20%.

00:20:29.800 | So I think that in the short term, you're right about valuations.

00:20:34.000 | In the long -- over the very long term, if you're looking at long-term risk, I think

00:20:38.720 | valuations are what drive risk, and that valuation risk in emerging market stocks right now,

00:20:44.720 | I think, is a lot lower than it is in U.S. stocks.

00:20:47.040 | In other words, I think we're set up for another period that may look like from 1999 to 2008.

00:20:55.440 | So are you saying we should overweight emerging markets or keep our allocation the same?

00:20:59.640 | I'm saying that perhaps 10% of your total equity portfolio is not inappropriate right

00:21:04.600 | now, and, you know, if they do really bounce back, you should probably look to trimming

00:21:10.120 | that back.

00:21:11.120 | Boy, is that a non-Boglehead thing to say, but yeah.

00:21:16.240 | You know, I may be disagreeing in public with the smartest guy on the planet, but, you know,

00:21:23.400 | I charge $450 an hour to tell people that I don't know the future, and it's really good

00:21:29.240 | advice.

00:21:30.240 | I did not know that international was going to outperform the U.S. this year, and if I

00:21:35.680 | had had a crystal ball knowing what's going on with North Korea right now, I would have

00:21:40.080 | avoided the Korean stock market, and South Korea I think may be the single best-performing

00:21:46.280 | emerging, well, depending upon whether you call it emerging or developed markets, because

00:21:52.000 | the Vanguard emerging market doesn't have South Korea, but predicting the future is

00:21:57.800 | a really hard thing to do, and like I said, small-cap value, the factor tilting, more

00:22:04.220 | money has poured into cap-weighted indexing, even on a percentage basis, than what Vanguard

00:22:11.840 | calls, I'm sorry, what Morningstar calls fundamental index, or strategic beta, smart beta in other

00:22:20.200 | words.

00:22:21.200 | So money tends to flow to whatever has done better, and that consistency is incredibly

00:22:28.280 | important, and again, that means you have to sell.

00:22:30.720 | I had to be buying international in spite of what Jack was telling me, and Jack, I think

00:22:35.080 | the world of you, but just stick to owning the world and owning, I would say, three out

00:22:43.560 | of four of those sectors, I still think international bond, even with Vanguard's product, is expensive.

00:22:52.000 | Just to put a quick plug in for emerging markets, I mean, the reason that I'm such a fan of

00:22:57.200 | emerging markets, and I would encourage people to have at least a market weight holding,

00:23:03.600 | is because of demographics, and as people say, demographics are destiny.

00:23:07.120 | If you look at the U.S. economy, historically, we've had 3% real economic growth, 1.5% of

00:23:13.880 | that has come from increasing the size of the civilian workforce each year, and the

00:23:17.560 | other 1.5% has come from productivity gains.

00:23:21.480 | We already know what the story looks like for the years ahead, it's about 0.5% a year

00:23:26.680 | in terms of growth in the civilian workforce, versus 1.5% over the past 50 years.

00:23:32.320 | That means that we're going to lose one percentage point out of economic growth.

00:23:36.800 | I don't care whether you're a Republican or a Democrat, or you're not meant to talk about

00:23:39.920 | politics on this panel, economic growth is going to be slower.

00:23:44.080 | We're going to get something very close to 2% long run economic growth, not the 3%, and

00:23:49.320 | all the political promises in the world are not going to make any difference to that.

00:23:52.760 | By contrast, if you look at emerging markets, their demographic problems lie roughly 60

00:24:02.400 | years into the future.

00:24:04.480 | I don't know whether I'm going to be out of emerging markets by then, but I think I will

00:24:08.720 | be gone from this earth.

00:24:10.240 | So at least for the rest of my life, emerging markets seem like they should have a permanent

00:24:14.560 | part of my portfolio.

00:24:16.720 | Okay, thanks.

00:24:19.840 | The next question is going to be aimed at Dr. Wade Fowl since he studies this subject.

00:24:25.400 | Studies show that people are not saving up enough.

00:24:27.600 | This is from Mel Turner.

00:24:28.760 | I think I know that guy.

00:24:29.760 | He says, "Average savings accumulated at 65 is around $100,000.

00:24:34.800 | Defined benefit plans are being phased out, only 14% of the people are covered.

00:24:39.680 | Average workers contribute half of what they should be contributing.

00:24:43.880 | Social security is unsustainable.

00:24:45.840 | The Center for Retirement Research at Boston College states that 53% of the working age

00:24:51.560 | households were at risk of having inadequate retirement resources.

00:24:56.040 | So what's the outcome of this?

00:24:57.280 | How does this end?"

00:24:59.160 | Yeah, that's a great question, and I do tend to focus more on the people that have been

00:25:04.960 | saving.

00:25:05.960 | But in terms of solutions for the Americans who haven't been saving enough as they should

00:25:11.920 | have been, part-time work to the extent that that's possible will help to fill some of

00:25:16.280 | the gap.

00:25:17.280 | And then the two major assets for American households are their social security benefits

00:25:21.760 | and their home equity.

00:25:23.320 | And they just need to really make sure that they make good decisions on both with at least

00:25:27.480 | a high earner generally delaying social security to 70.

00:25:31.480 | And then with home equity, just thinking about how to, for example, with a reverse mortgage,

00:25:37.320 | be able to include that as part of the retirement income plan and help support some retirement

00:25:41.440 | spending from that.

00:25:43.120 | Otherwise it is going to be tough.

00:25:44.560 | A lot of Americans will simply be living on their social security benefits.

00:25:49.240 | And at some point there may be some cutbacks, although I think it's way too dramatic to

00:25:53.780 | assume zero social security benefits in the future, as I know is a common rule of thumb

00:25:58.120 | for planning.

00:25:59.120 | But no, it's going to be tough and people will struggle.

00:26:04.240 | Anybody else on the panel have an opinion about how it ends?

00:26:06.920 | Bill, you study this kind of stuff.

00:26:08.640 | Yeah.

00:26:09.640 | Not well.

00:26:10.640 | You mentioned the Center for Retirement Research, that's Alicia Manel's group at Boston College.

00:26:25.320 | And they've had this at-risk index for the past three decades.

00:26:28.720 | It started out somewhere around, what, 33 or 35 percent were at risk.

00:26:33.200 | Now it's 53 percent.

00:26:36.280 | And if that sounds bad enough, you have to realize the algorithm they use to arrive at

00:26:41.040 | that number, which is they assume that when everybody retires, they take all their retirement

00:26:46.680 | assets and they annuitize them.

00:26:49.840 | And it also assumes that they reverse mortgage their homes.

00:26:53.800 | So that at-risk percentage is almost certainly much higher than 53 percent.

00:26:59.080 | So it doesn't end well.

00:27:05.040 | This is sort of an alternative universe within the bounds of this room.

00:27:08.800 | But outside of this room, it's not going to be pretty at all.

00:27:13.120 | I read somewhere that there's going to be three trends.

00:27:15.740 | People are going to work longer, and you've already seen that.

00:27:18.920 | Another one, they're going to turn to annuities as they start to panic because they can guarantee

00:27:23.200 | income and reverse mortgages is probably the third one, it's what I read.

00:27:28.000 | So here's a question from Ron Mason.

00:27:30.280 | And it was also discussed at our last San Diego Boglehead meeting.

00:27:34.960 | It has to do with how much in an emergency fund.

00:27:37.280 | It says the usual amount is three to six months of expenses, although some people are saying

00:27:41.480 | they have even a year or two years of cash.

00:27:44.700 | How do you determine the amount that should be kept?

00:27:48.040 | And should you consider your Roth IRA as an emergency fund?

00:27:54.720 | >> I can take a stab at that one.

00:27:57.400 | Three to six months is the -- I remember that's the rule of thumb I learned in the CFP coursework.

00:28:02.440 | But the fact of life is that for higher income earners, people with more specialized career

00:28:07.960 | paths, I think it makes sense to take that higher because it will likely take a longer

00:28:14.220 | time to replace that higher earning, more specialized job if it's lost.

00:28:18.560 | And another group that I think needs to think about this emergency funding is the gig economy

00:28:26.200 | workers, which I'm sure we all know someone who's working as a contractor or is not a

00:28:30.720 | full-time employee somewhere.

00:28:33.120 | And if you know any of these folks, chances are you know that they can have long work

00:28:38.000 | interruptions, that when they are working, that their work may be very lucrative, but

00:28:43.400 | they may have long periods where they're out of work.

00:28:46.120 | So that constituency, too, I think should think about having a larger cushion, certainly

00:28:52.000 | than three to six months.

00:28:53.880 | Regarding the idea of whether a Roth IRA could be used in sort of a multitasking way, this

00:28:59.920 | is something I've written about.

00:29:01.120 | I think it actually can be a neat idea for a young accumulator to think about the having

00:29:07.640 | at least part of the emergency fund stashed within the Roth IRA.

00:29:12.840 | Best case scenario, you never touch it, but it's there and can be tapped without penalties

00:29:17.920 | or taxes if they need it.

00:29:20.120 | So it's something to think about.

00:29:21.240 | I think you just need to think about what that money gets invested in.

00:29:24.800 | And so if that's your plan to stash part of your emergency fund in the Roth IRA, you need

00:29:29.640 | to make sure that that money isn't in long term assets, that if you needed to invade

00:29:34.240 | it in a pinch, that you wouldn't be selling stuff or run the risk of selling stuff when

00:29:38.280 | it's down.

00:29:41.240 | I think the answer is it depends.

00:29:43.960 | And if you're a tenured professor at a university, a federal employee, have a very stable job,

00:29:53.040 | you need less than if you're working for a startup company, where your employment may

00:29:58.400 | end in a day.

00:30:00.620 | As far as Roth, and by the way, it's not cash, it's access to cash that you need for that

00:30:07.040 | emergency.

00:30:09.320 | And on the Roth, I mean, versus living under a bridge, yes, I would tap the Roth, but the

00:30:14.160 | Roth is the last money you want to spend.

00:30:19.040 | Just a few quick comments on this, four things.

00:30:21.320 | One is we always talk about emergency funds.

00:30:23.200 | It's not an emergency fund.

00:30:24.520 | It's an unemployment fund.

00:30:26.140 | Any other financial emergency you can think of, you cover it.

00:30:29.640 | The dishwasher breaks, you put it on your credit card, you pay it off when the bill

00:30:32.840 | arrives.

00:30:33.840 | If you have to get a new car, you get the insurance proceeds, you add a little bit of

00:30:39.560 | your own money and you buy it.

00:30:41.160 | An emergency fund is an unemployment fund.

00:30:43.720 | Second, we're talking about covering, not replicating your income, but replicating your

00:30:48.900 | living expenses.

00:30:50.400 | So the lower your living expenses, if you're a frugal boglehead, the smaller the emergency

00:30:55.000 | fund you need.

00:30:56.000 | Figure out what your fixed living costs are each month, and then you keep three to six

00:31:00.960 | months of that, depending upon the risk of your human capital, which Alan just mentioned.

00:31:05.840 | Third, as we grow older, we tend to accumulate assets in our regular taxable account.

00:31:11.320 | At that point, if you've got $300,000, $400,000, $500,000 sitting in your regular taxable account,

00:31:17.480 | what's the point in having a separate emergency fund?

00:31:19.520 | I'm not sure there is any point at that juncture.

00:31:23.340 | And four, and this actually gets some heat on this, but I'm not sure why, given that

00:31:27.960 | an emergency fund is really an unemployment fund, why anybody who is retired would have

00:31:32.680 | an emergency fund.

00:31:35.540 | What job are you going to lose?

00:31:43.040 | Anyone else?

00:31:46.520 | The next question is similar to the one that Tater asked, and it's from Stuart Halpert,

00:31:53.720 | and it just happened to us the other day.

00:31:55.560 | Kathy likes the aisle and I like the window, and the guy that sat between us is 26 years

00:31:59.940 | old, and he said, "Where are you going?"

00:32:01.580 | I'm going to an investment conference, and boy, it set him off.

00:32:03.900 | He starts talking about expense ratios, and the next thing he starts talking about, I'm

00:32:07.660 | buying stock now, and I made money here, and I made money here, and I said, "Do you know

00:32:11.780 | the stock market goes down sometimes?" but he, 26, he had never seen it go down.

00:32:17.060 | It was only up, and I just went through my head, what do I say to him, you know, to convince

00:32:22.260 | him?

00:32:23.260 | So this is from Stuart Halpert.

00:32:24.260 | He says, "This is a toughie.

00:32:25.260 | If you have to make an elevator pitch, that is, you have about 45 seconds or less to sell

00:32:29.820 | passive investing as compared to active investing, better known as a dark side, what do you say?"

00:32:39.120 | So consider yourself coming down the Empire State Building.

00:32:42.240 | You can take as much time as you want, but if you could give some feedback on that.

00:32:48.840 | I would say your odds are about the same as being obese, smoking three packs of cigarettes

00:32:55.320 | a day, and living to age 100 over your lifetime on the active investing.

00:33:02.720 | Mike, what would you say to him?

00:33:07.360 | I mean, I would just turn to what Jack always says.

00:33:12.680 | The math shows that the average low-cost, passively-managed dollar will and must beat

00:33:20.200 | the average actively-managed dollar, so you're just playing your odds.

00:33:24.240 | That's all there is to it.

00:33:27.120 | Sort of along the same lines.

00:33:28.120 | I mean, the logic is brutal.

00:33:29.560 | Before costs, investors collectively match the performance of the market averages.

00:33:34.000 | After costs, investors collectively must earn less.

00:33:37.700 | If you hold down your costs, you're going to lag the market by less than other investors

00:33:41.960 | who are incurring the huge expenses charged by actively-managed funds, and thus over time

00:33:47.280 | compounded, you're going to accumulate far more money.

00:33:54.040 | You have to add one more thing to that, which is the comeback to that is, "Yes, I'm going

00:34:02.040 | to pick only the best active managers," and you have to know the comeback for that as

00:34:07.840 | well.

00:34:08.840 | But, you know, 45 seconds in an elevator, I try to avoid doomed people, so I wouldn't

00:34:16.560 | even make the effort.

00:34:18.400 | Well, there's also an idea, too, that people are used to thinking you have to pay more

00:34:23.840 | to get quality, and that's just simply not the case in investing, and so maybe to try

00:34:28.640 | to chip away at that notion that there's really no such thing as an expert who can pick investments

00:34:34.420 | better than the index.

00:34:36.360 | So you're really just wasting money at that.

00:34:38.120 | You don't get better quality by paying more when it comes to investing in finance.

00:34:43.720 | Christine, what would you say?

00:34:46.840 | Well, maybe to offer a little bit of a contrarian view on costs.

00:34:53.680 | One thing that, certainly costs matter, but we find that when we look at the lowest cost,

00:34:59.720 | say quintile of active funds, actually you have a fighting shot at beating an index,

00:35:05.240 | so it's just costs matter.

00:35:06.560 | Whatever product type you choose, and certainly ETFs and TIFs have lower costs, so that's

00:35:12.800 | a nice, simple way to run a portfolio, but if you choose the subset of low-cost active

00:35:19.720 | funds to look at, that you probably have a fighting shot at doing reasonably well, too.

00:35:28.400 | Anybody else?

00:35:31.200 | The next question comes from Lady Geek, and I put the question in, there she is, right

00:35:37.080 | here.

00:35:38.080 | I put the question in, and then I said, "You know, that's a silly question," and I took

00:35:40.700 | it out, and then I started thinking about it, and I figured that Lady Geek knows more

00:35:44.960 | than I do about what's going on on the forum, and what's being discussed.

00:35:49.840 | The question has to do with cryptocurrency.

00:35:51.680 | Does everybody know what that is, like bitcoins and blockchains, and all that kind of stuff?

00:35:57.880 | So the question is, from Lady Geek, says, "The popularity of cryptocurrency in the

00:36:02.400 | Bogle Heads Forum has exploded exponentially within the past month.

00:36:07.520 | We have a number of forum members who are enthusiastically helping investors on the

00:36:12.400 | appropriate amount for their portfolio.

00:36:15.120 | Unfortunately, new investors are assuming this activity means they should hold cryptocurrency

00:36:20.320 | in their portfolio.

00:36:22.160 | To stem the tide, we've put a 5% recommendation.

00:36:25.720 | Can you elaborate on the role of cryptocurrency in people's portfolios?"

00:36:30.680 | I'll give my opinion.

00:36:31.680 | It's going to be the last person holding the bag.

00:36:37.520 | So what do you think?

00:36:41.880 | I just bought Bitcoin.

00:36:44.120 | Let me explain.

00:36:47.760 | I wrote about it for AARP, and as I was learning how to buy it and the like, I really felt

00:36:53.860 | like I needed to actually buy it to make sure that everything I was writing was accurate.

00:37:00.480 | And what do I think my 200—by the way, my $200 is now worth about $250.

00:37:05.920 | $250 or $2,000?

00:37:12.040 | $250.00, not comma.

00:37:16.480 | What do I think it'll be worth in five years?

00:37:19.000 | Probably zero.

00:37:20.000 | But it does solve some problems.

00:37:21.240 | I mean, it really—there's 2.3 billion people that have smartphones but not bank accounts.

00:37:30.440 | There's no 4% commission that the credit card company charges.

00:37:37.280 | There will never be more than 21 million Bitcoin.

00:37:40.440 | On the other hand, there's over 1,000 cryptocurrencies.

00:37:44.800 | Who's to say I can't invent Rothcoin that does better than Bitcoin?

00:37:49.480 | So I personally am not going to buy more than what I bought.

00:37:53.760 | But it's not a completely baseless item either.

00:38:01.400 | Does Morningstar follow cryptocurrency?

00:38:03.640 | No, not yet.

00:38:05.120 | In fact, I was just thinking we had a thing going around the office a couple weeks ago.

00:38:08.280 | It was some internet joke about like your own craft beer could be named after your grandfather's

00:38:15.040 | profession plus some concept that you don't understand.

00:38:17.840 | And one of my colleagues said, "Candyman Bitcoin."

00:38:20.880 | We just don't feel like we have our arms around it.

00:38:25.040 | It's not to say that we would never cover cryptocurrencies in some fashion, but I don't

00:38:29.720 | know that anything's on the radar in the near term.

00:38:34.240 | I'm definitely not at all an expert in cryptocurrency.

00:38:38.840 | General principle I follow, though, is that I'm not eager to add anything new to my portfolio

00:38:44.800 | ever.

00:38:45.800 | I'm happy to watch it and learn.

00:38:48.560 | So happy to hold zero, probably will be happy to hold zero for another decade and then we'll

00:38:53.920 | see.

00:38:54.920 | Yeah, there's another thing here which goes unsaid, which is that people get confused

00:39:03.000 | by Bitcoin and they're not able to separate out the asset itself, which is almost certainly

00:39:09.880 | a bubble, from the technology, the blockchain technology, which may or may not prove to

00:39:16.280 | be extremely important and transformative.

00:39:19.200 | But you're not going to profit from that by buying Bitcoins.

00:39:27.080 | So with that, I'd like to go back to a subject that you touched on, but it wasn't a direct

00:39:30.840 | question.

00:39:31.840 | Four people asked about it, Tim Sung, Joel Goodman, SimpleSauce from the Boglehead forum,

00:39:37.680 | but I'm going to read Andrew Jacob's question.

00:39:41.600 | I'm going to direct it at Jonathan first.

00:39:45.200 | He says, "In Bogle on Mutual Funds, Mr. Bogle explains why international investing has risk

00:39:51.960 | and perhaps investors should keep their money on U.S. stock.

00:39:55.240 | It concerns me that virtually no other passive investing author agrees with Mr. Bogle.

00:40:01.920 | Can you expand more on the risks that Bogle discusses and if international stocks and

00:40:07.080 | bonds are even necessary?"

00:40:12.600 | Sorry, Jack.

00:40:19.000 | So we go back to the market portfolio.

00:40:22.400 | Four quadrants, U.S. stocks, U.S. bonds, foreign stocks, foreign bonds.

00:40:27.600 | I do not hold the global market portfolio, even though as an indexer, arguably I should.

00:40:36.320 | Because the global market portfolio reflects the wisdom of all investors worldwide.

00:40:43.560 | They've voted with every security they bought and sold and decided that this is the fairly

00:40:51.240 | valued collection of securities that you ought to have.

00:40:55.500 | As a U.S. investor who will retire and buy wheelchairs and early bird specials and nursing

00:41:05.600 | homes in U.S. dollars, I am not willing to have quite that much foreign currency exposure.

00:41:14.480 | So when I build my portfolio, I focus on just three of the four.

00:41:18.080 | I don't own international bonds.

00:41:20.480 | I just own international stocks, U.S. stocks, and U.S. bonds.

00:41:25.960 | These days I own them in roughly equal amounts.

00:41:31.000 | If I do that, I end up with about 30 percent foreign currency exposure, which I think is

00:41:42.000 | a bit high.

00:41:43.520 | But once I get to retirement, I intend for it to be somewhat lower.

00:41:49.280 | So I do believe that there is currency concerns in investing too heavily in the international

00:41:55.720 | markets, which is why I don't own international bonds.

00:41:58.600 | But I also do believe that including international stocks in a portfolio not only adds important

00:42:06.040 | diversification, it not only gives you exposure to a part of the global financial markets,

00:42:14.520 | which is arguably cheaper than the other three major sectors, but finally, and this is one

00:42:22.640 | thing that doesn't really keep me up at night, not very much does, but the one investment

00:42:27.840 | concern that sits in the back of my mind is what's going to be the next Japan.

00:42:35.240 | If you were a Japanese investor in 1989 who had a strong home bias and you were fully

00:42:43.640 | invested in Japanese stocks, a quarter century later you would not be a happy camper.

00:42:51.680 | I, on the off chance that the U.S. market turns out to be the next Japan, which I don't

00:42:57.560 | think it will be, I think it's a very low probability, but we talked about Pascal's

00:43:03.440 | wager earlier today, we have to think not only about probabilities but also about consequences.

00:43:08.960 | If perchance the U.S. stock market turns out to be the next Japan, I do not want to have

00:43:14.280 | too many of my eggs, I don't want to have the majority of my eggs in that particular

00:43:17.880 | basket.

00:43:18.880 | Yeah, the thing that I like to say is I can't predict the future, therefore I diversify

00:43:28.480 | and I live by that, and the only problem with that is that diversification works whether

00:43:34.040 | you want it to or not, and what I mean by that is in the past 10 years that foreign

00:43:40.640 | diversification hasn't worked well, but if you believe in mean reversion, that means

00:43:44.440 | that your odds are pretty good going forward, which is also based on valuations.

00:43:50.560 | So Alan, what's your opinion on this?

00:43:52.000 | I have half the amount of stock that's recommended by Vanguard, I have zero international bonds,

00:43:58.240 | you know, half the amount of international stock.

00:44:00.680 | Is that wrong?

00:44:02.280 | I do own Vanguard International Bond, but really the same thing as Bitcoin, I stuck

00:44:08.880 | my toe in the water when it first came out and I haven't bought any more of it.

00:44:13.640 | But, you know, I wouldn't only buy Colorado stocks, so therefore I argue we shouldn't

00:44:19.680 | only buy U.S. stocks, we should also own some international.

00:44:23.040 | I overweight the U.S., and if I had access to a low-cost index fund to buy stocks in

00:44:29.360 | companies from other planets, I would do that.

00:44:32.160 | Jack, can you launch that please?

00:44:40.920 | One point I would make on this whole thing is, and we've looked at this at Morningstar,

00:44:44.000 | is this issue of country of domicile as being the organizing principle behind what gets

00:44:49.600 | classified as a U.S. stock and what's a foreign stock, and as we all know, many of these companies,

00:44:54.520 | whether U.S. or foreign, are very global.

00:44:57.280 | So it's feeling more and more like a vestige of a bygone era to be looking at country of

00:45:03.080 | domicile when deciding what's a U.S. or foreign company, which I guess is a long way of saying

00:45:08.280 | that I think the more diversified you can be, the better, because the organizing classification

00:45:16.080 | system for foreign versus U.S. just isn't very useful.

00:45:22.600 | So the next question is aimed at Bill Bernstein, since he studies this.

00:45:26.920 | This is from Brent Hunsberger.

00:45:29.280 | He's a financial writer.

00:45:30.720 | In fact, could I have a raise of hands, how many people are in like the financial business,

00:45:34.720 | you know, advice, manage money, write for it, and just a curiosity.

00:45:39.640 | Okay, it's quite a few.

00:45:42.600 | But Brent writes, and I know you asked Jack of this, so Bill, if you'd give your response,

00:45:49.680 | a lot of discussion that a point can be reached where there's too much investing.

00:45:54.320 | Is that possible?

00:45:55.320 | Well, if you're an economic historian, you'll say, of course, you know, you get to something

00:46:03.440 | I think it's a very obscure term called a periwig society, where everybody is a rentier,

00:46:08.600 | where they're just they own bonds or stocks, and they just collect income.

00:46:13.600 | And Jack writes about this, and he writes about this very eloquently.

00:46:17.040 | I don't know what the percent of S&P earnings are for financial services companies, but

00:46:22.320 | it's on the order of, what, 20, 25 percent, something like that.

00:46:26.920 | Yeah.

00:46:27.920 | Jack, Jack nods, and he says, yeah, that's about right.

00:46:31.200 | And that's too much.

00:46:32.200 | All right.

00:46:33.200 | The job of the financial sector is to reallocate capital, and it is not healthy to have that

00:46:39.440 | part of your economy be that big.

00:46:43.240 | I mean, think about a society in which 90 percent of corporate profits and of income

00:46:49.840 | comes from finance.

00:46:52.920 | That's going to be a pretty miserable and cruel place.

00:46:56.600 | So yeah, you certainly can have too much finance, and I think we have too much finance right

00:47:00.160 | now.

00:47:01.160 | You know, if the entire financial industry was replaced by Gus Sauter clones, you know,

00:47:08.920 | the industry would be about 99.5 percent smaller.

00:47:15.540 | Anyone else?

00:47:16.540 | The next question is aimed at Mike Piper.

00:47:19.680 | This is from Abjeet Dittar.

00:47:22.120 | I'm sorry I pronounced your name incorrectly.

00:47:24.640 | He says, I have a 401(k) at work, and I don't know what to do.

00:47:28.080 | Should I dump $18,000 in the first day of the year, or should I space $1,500 a month?

00:47:35.360 | If you have the cash flow earlier, it's better.

00:47:42.400 | Well, actually, before you dump in your 18 grand, you should find out how the company

00:47:47.000 | matches your contributions, because some companies will match based on the total amount as of

00:47:54.720 | the end of the year, and others will match pay period by pay period.

00:47:58.360 | So if you put in your 18 grand on January 1, you may find you miss out on the match

00:48:03.200 | for all the other subsequent pay periods.

00:48:06.520 | Super good point.

00:48:07.520 | Totally wrong what I just said.

00:48:10.760 | Could I have that in writing?

00:48:16.680 | Everybody's got an opinion, right?

00:48:20.720 | So the next one is from Victoria F. She writes on the forum quite a bit.

00:48:27.140 | It has to do with fixed income.

00:48:28.720 | It's going to be aimed at Alan.

00:48:31.280 | Thanks for giving us an opportunity to ask a question.

00:48:33.760 | Here's my question.

00:48:34.760 | What are the best current strategies for fixed income securities?

00:48:38.160 | CDs, tips, tip funds, bond funds, short-term, long-term, intermediate, and how do you feel

00:48:43.960 | about brokered CDs?

00:48:46.920 | Yes.

00:48:52.920 | My portfolio, by the way, it's roughly 45% equities, 55% fixed income, and by the way,

00:48:58.720 | fixed income so far this century has beaten global stocks.

00:49:03.160 | So of my fixed income, I have roughly two-thirds in CDs.

00:49:09.060 | So there's two strategies.

00:49:11.600 | Strategy number one are banks like Ally Bank or Sallie Mae Bank that are paying what a

00:49:17.120 | total bond would pay, and then they have a five-month for Ally, six-month for Sallie

00:49:23.720 | Mae early withdrawal penalty.

00:49:25.600 | So if interest rates ever go up, it's a way of having a put, the right to sell it back.

00:49:32.920 | And the second strategy that I use that's probably only about 25 or 30% of the CD strategy

00:49:39.160 | are brokered CDs purchased on the secondary market.

00:49:43.480 | And the sweet spot tends to be in the neighborhood of a seven, eight-year duration, and those

00:49:51.200 | yield an extra 40, 50 bps over the market.

00:49:56.160 | I was meeting with John Emmerich at Vanguard yesterday, and I said to him, you know, because

00:50:01.880 | he manages the Quant Active Strategy Group, if he could beat the market by 40, 50 bps,

00:50:07.480 | would he consider that successful, and his answer was yes.

00:50:10.800 | Well, the CD strategy does beat the total bond by probably 50, 60 bps per year with

00:50:20.720 | a little bit less risk.

00:50:22.480 | So that's my strategy on fixed income.

00:50:25.520 | I was on a global indexing panel a few months ago in California, and I was going over that

00:50:32.120 | idea.

00:50:33.120 | And my other two panelists, one was arguing for high-yield bonds, aka junk, and the other

00:50:39.200 | one was arguing for safe dividend stocks like Eastman Kodak and General Motors.

00:50:46.400 | And I looked at the two, and I said dumb in front of the much bigger audience than this,

00:50:51.120 | dumb and dumber.

00:50:54.560 | I think you're right on, Jonathan, on me being controversial.

00:50:58.000 | But this is a friendly group.

00:51:03.640 | A follow-up to that, Stuart Halbert wants to know, what about my low-risk fixed income?

00:51:09.100 | Should it be tips, treasuries, or investment grade?

00:51:14.080 | Seriously, yes.

00:51:17.720 | All of them.

00:51:18.720 | All.

00:51:19.720 | Okay.

00:51:20.720 | No junk.

00:51:23.320 | So this is for Bill Bernstein.

00:51:25.200 | He says, for all my taxable investors in the highest tax bracket, do you have an updated

00:51:30.680 | asset allocation for taxable TED?

00:51:33.800 | He's the lucky guy to have this problem.

00:51:35.440 | He's in the highest tax bracket.

00:51:38.240 | What do you recommend on fixed income?

00:51:41.480 | For fixed income, again, I think that the taxable bracket is not really that relevant.

00:51:49.560 | It's really more important that you diversify.

00:51:52.000 | The lion's share should be in CDs and in treasuries.

00:51:57.880 | If you're really high income and you have a very large amount of assets, Alan's strategy

00:52:04.020 | of doing brokered CDs in the secondary market is going to be very hard work, because those

00:52:08.800 | are bought in generally very small lots.

00:52:12.480 | But if you've got the time and nothing better to do, it's a good way of earning the 50 or

00:52:19.440 | 60 extra dips.

00:52:21.880 | And then, you know, what part do munis play?

00:52:24.400 | We have a 40% limit in our practice on munis, no matter how much assets you have.

00:52:32.480 | They may be a little more tax efficient, but they're also riskier as well, particularly

00:52:37.960 | in the teeth of the financial crisis.

00:52:40.480 | So it's really, really, you know, your income and your tax bracket really don't impact that

00:52:44.800 | very much.

00:52:45.800 | I think the strategy is the same for everybody.

00:52:50.880 | Any other comments?

00:52:54.180 | This is from Joel Goodman again.

00:52:57.000 | He says, "You're all writers, and you all get feedback from the articles you write.

00:53:01.020 | What has been the most interest of articles that you've written, and which one has generated

00:53:06.720 | the most disagreement with your readers?"

00:53:17.940 | So when I was at the Journal, and even with my own site now, you know, if I'm feeling

00:53:26.560 | a little down and I want some audience appreciation, you know, I'll write either about money and

00:53:33.360 | happiness or about how I've helped my kids financially, and, you know, the page views

00:53:38.800 | just light up.

00:53:39.800 | It's like crack cocaine.

00:53:40.800 | I feel so good by the end of the day.

00:53:47.400 | In terms of controversial stuff, one of the pieces that I remember from recent years was

00:53:54.840 | a piece where I wrote about why you shouldn't have a budget.

00:53:59.640 | And basically the argument was, as long as you're saving enough, it doesn't really matter

00:54:03.080 | how you spend the rest of your money.

00:54:06.440 | I was really surprised.

00:54:08.360 | I got a boatload of hate mail on that.

00:54:12.560 | It seems that, you know, just having a budget is a sign of virtue, and if you're not doing

00:54:18.040 | it, you're a wayward individual and you're destined for hell.

00:54:24.640 | I would say annuities, bank on yourself whole life type of schemes, gold.

00:54:32.960 | That's where I get the most amount of hate mail and the occasional threat to be sued

00:54:38.160 | if we don't take it off the site or withdraw it or something like that.

00:54:43.120 | And I don't do it to make people mad, and I'll admit, by the way, paying my kids college

00:54:48.280 | tuition or having you all come to a free dinner seminar to sell you something with all the

00:54:54.520 | upside of the market, no downside risk, I would do it, and I would probably think I'm

00:54:58.240 | the force for good, and you guys will be so sorry when the market goes down.

00:55:06.720 | Back in late 2011, Vanguard changed the allocation in their life strategy funds.

00:55:12.480 | It used to have an active management component, and they got rid of that so it was all passively

00:55:17.760 | managed and the cost went down as a result.

00:55:20.280 | So I switched at that time from having a DIY allocation of index funds to putting 100 percent

00:55:26.640 | of our retirement savings into the life strategy growth fund, and that was probably both the

00:55:33.320 | most disagreed with article as well as the one that people got most excited about.

00:55:37.560 | There were so many people who thought, "This is something you spend so much time on and

00:55:41.680 | you're just punting?

00:55:42.680 | You're just putting it in this one fund of funds and calling it a day?"

00:55:47.040 | And then there were other people who thought that was awesome.

00:55:49.160 | They were looking for permission to do the same thing, and I had just given it to them,

00:55:54.520 | basically.

00:55:55.520 | Yeah.

00:55:56.520 | The one that probably got the most positive review was the one where I – it was an article

00:56:02.320 | I wrote in the journal, which has already been quoted as, you know, to stop playing

00:56:06.720 | the game.

00:56:07.720 | Once you've won the game, you stop playing it.

00:56:09.760 | The one that got the most vehement reaction by far wasn't one that I wrote, but that

00:56:15.240 | I was quoted in, and I was asked to comment on the portfolio of a prominent political

00:56:20.160 | person that was very heavy in precious metals equities, and I said that it was one half

00:56:25.120 | step from a cellar full of canned goods and 9mm rounds.

00:56:31.680 | And for some odd reason, that got a lot of negative political comment, but I can't

00:56:37.640 | talk about that anymore, so.

00:56:43.280 | Christine, how about you?

00:56:44.280 | You put out a lot of information.

00:56:45.520 | Oh, thank you.

00:56:47.160 | I would say of the things that I've written that have gotten the most positive feedback,

00:56:53.080 | probably the things that I've done around the topic of elder care, helping my elderly

00:56:58.240 | parents through their final years and dealing with dementia, with my dad's dementia issues

00:57:04.840 | and the financial and the many other implications of something like that.

00:57:10.960 | I think there's a lot of pent-up demand for people to share their experiences, so there

00:57:15.520 | was a lot of feedback on what I wrote, but also just people wishing to share their own

00:57:20.340 | experiences and learn from one another.

00:57:22.240 | So that was and has been a great learning experience for me.

00:57:25.660 | In terms of areas that are the most contentious, gold certainly is one.

00:57:31.320 | I don't tend to write about it really at all.

00:57:34.320 | Anything around Social Security and anything that gets people into that quasi-political

00:57:38.760 | zone would tend to set off food fights, not so much at us, but a lot of sparring among

00:57:45.440 | our users.

00:57:47.180 | In terms of a piece that I would say generated a lot of constructive discussion, one was

00:57:55.640 | about the role of Social Security in your asset allocation, whether Social Security

00:58:00.640 | should affect your asset allocation in any way.

00:58:03.060 | There was a lot of great discussion there with people favoring different approaches

00:58:08.360 | to that particular issue.

00:58:09.880 | How about an article that created hate mail?

00:58:16.440 | Nothing jumps to mind really.

00:58:19.600 | I can't think of a good example.

00:58:21.360 | I certainly do receive my share of feedback, both negative and positive, but I can't think

00:58:26.440 | of any one topic that generated a lot of negativity.

00:58:30.520 | It's hard to hate Christine, it really is.

00:58:34.920 | I'm a much easier target.

00:58:37.560 | Wade, how about you?

00:58:40.880 | You've done some controversial retirement withdrawal things.

00:58:44.420 | Yeah, so the most popular article I wrote was a really dry piece just reviewing statistics

00:58:49.960 | on how long people live past 65, so I have no idea what drives reader interest.

00:58:55.640 | It's really hard to predict in advance what's going to get more page views versus something

00:58:59.800 | else.

00:59:00.800 | But yeah, with controversial topics, a lot of it relates to the investments world still

00:59:05.040 | hasn't caught up with how retirement changes and when you take distributions, how that

00:59:09.880 | amplifies the impact of market volatility.

00:59:12.120 | So much of it is based on assuming an 8% rate of return every year or something like that.

00:59:17.760 | And it doesn't link the assets to the liabilities, the fact that you have to match those assets

00:59:21.800 | to liabilities.

00:59:22.800 | So when I try to explain how simple risk pooling with a simple income annuity is a cheaper,

00:59:28.320 | more efficient way to meet retirement expenses, that can generate a lot of controversy.

00:59:34.240 | Anything I do with regard to the 4% rule, and I really just got started with that because

00:59:38.920 | I looked at the international data and the 4% rule only worked in the U.S. and Canada

00:59:43.260 | and there were 18 other countries where it didn't work, so that got me started on that

00:59:47.520 | kick.

00:59:48.520 | But people really want to have faith in the 4% rule and so I get some negative comments

00:59:54.720 | in that regard.

00:59:56.940 | What about increasing your asset allocation as you age past retirement?

01:00:00.360 | Yeah, so the rising equity glide path I never meant to really be advice for people to use

01:00:06.620 | in their portfolios.

01:00:07.620 | It was more just the point that with lifetime sequence of returns risk, you want the lowest

01:00:12.480 | stock allocation when you're the most vulnerable to losses and that's at the retirement date.

01:00:17.880 | And as a natural consequence of spending conservatively, a lot of people may just see their stock allocation

01:00:23.980 | increases in retirement.

01:00:25.360 | It works as a risk management strategy because worst case scenarios for retirees are bad

01:00:30.600 | market returns early in retirement, good market returns later, and that's exactly what the

01:00:35.540 | strategy would protect.

01:00:37.380 | But I understand there's a lot of behavioral concerns about trying to implement it and

01:00:41.300 | so when people point that out to me, I can accept their criticism in that regard.

01:00:47.880 | What do you recommend as an allocation?

01:00:49.660 | Somebody right at retirement and how high do you take it back up after retirement?

01:00:54.940 | Well that really just depends on a case-by-case basis about their risk tolerance and risk

01:00:59.400 | capacity.

01:01:00.400 | But the examples we were looking at were things like rather than keeping 60% stocks throughout

01:01:04.740 | the whole retirement period, start it at 30% and increase it back up to 60%.

01:01:10.060 | So something in that ballpark I think would be an appropriate way to represent that strategy.

01:01:18.380 | Anyone else?

01:01:19.380 | Yeah, I just would amplify on that a little bit, which is I tend to separate people out

01:01:27.860 | into sort of a spectrum, so all the way at the right side of the spectrum is the person

01:01:32.340 | who's only got five or ten years of residual living expenses saved up.

01:01:36.860 | In other words, they can fund the retirement with fixed income assets for five or ten years

01:01:42.300 | and those people are in very deep yogurt and should probably pretty much annuitize everything

01:01:48.380 | they have after they spend down to get that Social Security at 70.

01:01:54.620 | And someone who's got 30 or 40 times their residual income, which is probably going to

01:02:01.740 | be a lot of people in this audience, can probably own a very big chunk of equity because that

01:02:09.820 | money really isn't theirs.

01:02:11.300 | It's going to go to their heirs.

01:02:12.860 | And then finally, you've got the person all the way to the other side of that spectrum

01:02:17.540 | who has some ridiculous amount of assets, 60, 70, 80, 90, 100 times their annual living

01:02:24.900 | expenses.

01:02:25.900 | And that person is in the Warren Buffett situation.

01:02:27.820 | They can put almost 100 percent of their assets into fixed income because just the dividend

01:02:32.260 | yield alone, even in the worst case scenario, is going to see them through, if they're that

01:02:36.540 | risk tolerant.

01:02:37.540 | The number of people who have both that risk tolerance and that amount of assets is vanishingly

01:02:43.180 | small though.

01:02:44.180 | I meant stocks, I'm sorry, yeah, that's what I meant to say, yeah, sorry.

01:02:51.440 | Anyone else?

01:02:54.100 | The last question, there's going to be two more questions and then we're going to have

01:02:57.940 | the panel just pass on words of wisdom that they learned over the years.

01:03:03.100 | I mean, after all, we look at our portfolio, they live with their portfolio, they do it

01:03:06.900 | all day.

01:03:07.900 | But the next to last question is about long-term care insurance.

01:03:12.420 | I remember five years ago, we asked the question to Bill Schulzeis.

01:03:16.500 | His answer was, "I don't know, what do you think?"

01:03:19.140 | And that was his answer and he wouldn't go any farther than that.

01:03:21.980 | So what I'm going to do is bring it up again.

01:03:23.860 | What do you think about long-term care insurance?

01:03:26.740 | When should you buy it?

01:03:27.900 | How much should you buy?

01:03:29.820 | What's your opinions on that?

01:03:36.620 | It's tough.

01:03:37.620 | If you don't have a lot in assets, you shouldn't buy it.

01:03:40.900 | If you have a lot of assets, you should self-insure.

01:03:44.620 | It is pure insurance and I believe in insurance.

01:03:47.820 | The problem is you can't buy a policy outside of a hybrid, which has other problems where

01:03:53.740 | the rates are fixed.

01:03:55.180 | And so many people are coming to me after paying for 10 years, getting a 50, 100% increase.

01:04:03.380 | And they don't know what to do because now they're 10 years closer to needing it.

01:04:07.780 | So it's a very tough call.

01:04:11.540 | And we tend to think of how much we're going to pay when we're in long-term care.

01:04:18.020 | But we fail to think about we're no longer going to need a house, a car, insurance, eating

01:04:23.300 | out, traveling, et cetera.

01:04:25.820 | So you have to take that into account.

01:04:28.060 | And then long-term care covers a nursing home.

01:04:31.580 | There are things that we're going to need in between probably that aren't covered.

01:04:35.980 | So it's a very tough call.

01:04:38.260 | I don't have it.

01:04:41.420 | There are four options to fund long-term care, self-funding, Medicaid, which is by far the

01:04:46.180 | biggest provider of funding, the traditional long-term care insurance, and then the hybrid

01:04:51.100 | policies that connect long-term care with either life insurance or an annuity.

01:04:56.180 | And one area to emphasize, I know a lot of people plan strategies to protect assets to

01:05:01.900 | be able to qualify for Medicaid.

01:05:04.500 | And I think that may be a mistake with demographics.

01:05:08.180 | If you can afford to pay for your long-term care, you probably are going to feel pretty

01:05:12.300 | bad if you're in a situation where you're in a Medicaid-funded long-term care facility.

01:05:17.860 | So I would caution people against specifically trying to plan strategies so that Medicaid

01:05:23.060 | would pay for their long-term care.

01:05:25.020 | The traditional long-term care insurance has had a lot of problems.

01:05:29.180 | Policies today should be in better shape because part of the problem was just interest rates

01:05:33.860 | coming down so much and staying at low sustained levels.

01:05:36.700 | The insurance companies hadn't planned for that, as well as just the lapse rates were

01:05:42.580 | not as high as insurance companies were expecting.

01:05:45.060 | So today's policies should be priced better in terms of not seeing as many premium increases.

01:05:51.260 | And just as you can't wait too long to get long-term care insurance because at some point

01:05:55.220 | you may no longer qualify.

01:05:57.940 | The rule of thumb, sweet spot, tends to be around age 50 to start thinking about that.

01:06:02.420 | But certainly younger or older could still be appropriate.

01:06:06.420 | John, what's your opinion on it?

01:06:10.020 | I really hate the long-term care question because I just don't think there is a good

01:06:17.020 | solution.

01:06:18.020 | The good solution is to be a bogal head, save a lot of money, index, and make sure that

01:06:22.580 | you have more than enough assets so that you don't have to buy long-term care insurance.

01:06:26.740 | That is the good answer.

01:06:27.740 | For people who are in that difficult spot between maybe $300,000 and a million dollars

01:06:32.300 | in assets who need to consider long-term care insurance, you know, I would hold your nose

01:06:39.020 | and buy either traditional or hybrid policy.

01:06:42.580 | But I find it really tough to recommend policies because, you know, this is an area where once

01:06:48.660 | again the insurance industry has not covered itself with glory.

01:06:51.900 | I've had so many emails from people over the years, bought long-term care, you know, held

01:06:57.380 | it for years, and then the insurance companies come along and asked for a premium increase

01:07:01.940 | that they simply cannot afford.

01:07:04.340 | And you know, I don't want to be responsible for people ending up in that bind.

01:07:08.500 | I wish that we could get to a point where there was a long-term care insurance product

01:07:12.580 | that people could buy that I could happily recommend.

01:07:15.180 | Yeah, I do this annual compendium of long-term care statistics, and one number really jumped

01:07:21.100 | out at me, and I don't have the specific, but it was something like 10 years ago there

01:07:26.700 | were 50 companies selling long-term care insurance.

01:07:29.720 | Now I think there are like eight.

01:07:31.660 | So there are simply companies getting out of that business altogether, many companies,

01:07:36.820 | and since when is that sort of environment ever good for consumers?

01:07:40.740 | So the hybrid products, Alan, you mentioned them, and they seem to be coming on strong

01:07:46.100 | and replacing the straight long-term care policies.

01:07:48.940 | I'm curious, have you done any work on those?

01:07:51.380 | Because I haven't examined them in detail, but it seems like they're kind of tricky to

01:07:56.780 | cost compare and not as transparent as they could be.

01:08:01.260 | I have, and a hybrid comes with a whole life component, and it's just extra.

01:08:06.940 | Or an annuity, right?

01:08:07.940 | Yeah.

01:08:08.940 | I mean, those are the two types.

01:08:10.820 | So they're just extra fees in there, and then as I tell my clients, what they're really

01:08:16.020 | doing when they're buying long-term care is protecting money from the errors against the

01:08:22.940 | fact that they may spend, statistically very unlikely, especially for men, to spend 10,

01:08:28.660 | 12 years in a home.

01:08:30.460 | So what they're really doing is protecting their kids, protecting their heirs, and that's

01:08:34.260 | not the main purpose of the portfolio.

01:08:36.740 | And I also point out that, statistically speaking, since the insurance companies and the agents

01:08:41.860 | expect to make money, they're likely to leave more money to their heirs if they don't have

01:08:46.340 | it.

01:08:47.980 | Yeah, let me just go around and ask the other panel members.

01:08:53.060 | Alan, I think, threw out a figure that implicitly said at a million dollars of assets, you don't

01:08:57.340 | need long-term care insurance, or maybe Mike did, I forget which of you did.

01:09:01.220 | It was you.

01:09:02.540 | Okay.

01:09:03.540 | Well, the bottom line is that, do other people agree with that?

01:09:07.420 | Do the other panel members think that a million is sufficient to avoid long-term care insurance?

01:09:13.620 | I don't.

01:09:14.620 | I think that you would need more, and I always share my personal experience on this front,

01:09:18.660 | which is that my dad needed long-term care, which we had provided in the home for several

01:09:23.700 | years and then eventually determined that it was going to be a better setting, safer

01:09:28.100 | setting for him to be out of the house in a long-term care facility.

01:09:31.760 | But at that point, my mom had developed a care need.

01:09:34.840 | So we had two, my parents had been advised to self-fund long-term care, and they were

01:09:41.260 | fine in the end, but we had two long-term care funding needs going on at the same time,

01:09:47.740 | and that can happen legitimately with married couples where they need care delivered in

01:09:52.660 | two different settings.

01:09:54.340 | So that's another thing to keep in mind, that I think those thresholds or the rules of thumb

01:09:58.260 | for when you'd want to self-fund long-term care, I think that people should set the bar

01:10:04.260 | a little higher than maybe what had been used in the past.

01:10:07.980 | Can you give me a number?

01:10:10.980 | I can't, Bill, really, but I would be nervous about setting one million as an appropriate

01:10:17.420 | threshold to think about self-funding.

01:10:18.940 | Yeah, that's what I was going to touch on, that's implicit in what Christine is saying,

01:10:26.460 | is the threshold definitely has to be higher for a married couple.

01:10:31.180 | And Wade was talking about this a little bit earlier, is that Medicaid will step in at

01:10:35.340 | some point, and for an unmarried person, that's not so, it's a better situation being Medicaid-provided

01:10:44.700 | care rather than a married couple, because for one of two people in a married couple

01:10:49.620 | to qualify for Medicaid, the couple has to spend down their assets.

01:10:53.540 | And there's some protections for the other spouse, but they're limited.

01:10:58.500 | So if spouse A needs long-term care and has to spend down their assets to qualify for

01:11:03.700 | Medicaid, spouse B can be in a bad situation.

01:11:08.700 | Right, and just one other comment about couples.

01:11:13.060 | Because women tend to live longer, they tend to, you have some risk-sharing within the

01:11:17.180 | household, but it's often the wife takes care of the husband, the husband dies, then the

01:11:21.580 | wife needs long-term care after that, so she's really in a more vulnerable position.

01:11:26.380 | And so when you're thinking about any sort of long-term care protection to have that

01:11:30.820 | in mind as well.

01:11:34.380 | And the wife is likely to live longer in long-term care.

01:11:37.140 | So there's an argument that if you're going to buy it, especially if the two spouses are

01:11:42.460 | the same age or the wife is younger, to buy more for the wife.

01:11:47.940 | And you could easily go through a million dollars, number one, you can spend that down

01:11:51.900 | to $300,000 before you go into the home, and therefore you might not have enough.

01:11:57.540 | So it's hard to say, and it also depends on how nice you want the nursing home to be.

01:12:05.180 | Okay, the last question has two parts to it.

01:12:10.860 | One is, how do you encourage young people to take an interest in becoming financially

01:12:15.460 | secure?

01:12:16.460 | It's more of a motivational question, since you're writers, you're always motivating people.

01:12:21.500 | The second one, since this is an advanced group, most of us have made it, we've become

01:12:25.420 | financially independent, how do you give assets to a younger generation without decreasing

01:12:31.060 | their ambition?

01:12:33.860 | Well, Warren Buffett put it very nicely, he said he wanted all of his descendants to have

01:12:43.220 | enough money to do anything they wanted to do, but not enough money to do nothing.

01:12:49.460 | And that's good advice, basically what he's saying is you pay for education.

01:12:54.540 | A good way to give money to children is you can endow them, you can give them a fair amount

01:13:01.100 | of assets and have them have substantial portfolios, but they have to know that you're watching,

01:13:07.420 | and they have to know there's more money behind that coming from you when you pass away, and

01:13:13.980 | you're going to watch and see how well they steward the first aliquot.

01:13:22.020 | When they're eight years old, do you have them help you write a book called How a Second

01:13:25.300 | Grader Beat Wall Street?

01:13:29.980 | You know, it is really hard to convince people that they need to save, and probably one of

01:13:36.900 | the biggest ahas in my practice, which should have been obvious, is people that came to

01:13:42.140 | me saying, "Can I retire?"

01:13:45.520 | Those that thought, "Oh my gosh, I'm pretty sure I can," in two years, had maybe a $50,000

01:13:51.420 | net worth.

01:13:52.420 | Those that said, "I'll never be able to retire," in some cases had tens of millions of dollars.

01:13:57.980 | And it's the fact that those that weren't concerned about retirement never learned to

01:14:04.620 | defer spending, and you can invest like Warren Buffet if you're not saving anything, you're

01:14:09.740 | not going to get to retirement.

01:14:11.140 | So I don't have a particularly good answer to how you get somebody to change behavior.

01:14:18.300 | You know, the client that comes to me that hasn't saved anything needs a psychiatrist

01:14:23.060 | or psychologist, not me.

01:14:29.180 | I've written one of my monthly newsletters this year, which is devoted to this whole

01:14:33.940 | topic of ambition, partly because I see what's going on with my kids, and I see what's going

01:14:41.060 | on with a number of their friends.

01:14:45.020 | They all grow up in comfortable, upper-middle-class households, and almost universally, they

01:14:53.860 | are not driven to make money.

01:14:56.860 | And I look at that, and I think, "Okay, maybe that is the privilege that comes with an affluent

01:15:04.220 | society that we raise kids for which making money is not their uppermost concern."

01:15:13.580 | I've sort of made my peace with that, but what I worry about is kids who have no ambition.

01:15:20.100 | So even if you're not driven to make dollars, at least you should be driven to make the

01:15:25.020 | world a better place.

01:15:27.540 | And fortunately, my kids, even as they are not driven to make money, do seem to be driven

01:15:33.020 | to make the world a better place.

01:15:35.380 | My daughter works for an education non-profit, my son is getting a PhD in Middle East history

01:15:40.620 | at Yale, neither of them will be rich.

01:15:46.060 | I worry more about their friends who graduate from college, I hear this again and again,

01:15:52.220 | and they graduate from top universities, Harvard, Yale, Princeton, and then they just drift.

01:16:02.460 | Two years traveling the world, only to return to become a barista.

01:16:09.900 | And that really concerns me, not because they're not doing anything with their lives.

01:16:15.660 | What concerns me is, and I hope you all feel the same way, that there is great pleasure

01:16:21.340 | to be had in working hard at something that you think is important and you find challenging

01:16:26.860 | and you're passionate about, and they're missing out.

01:16:31.060 | And that really bothers me, and I'm not sure how to inculcate that ambition other than

01:16:38.300 | to talk constantly at home about how wonderful it is to work hard at something that you think

01:16:45.100 | is important.

01:16:46.100 | They don't have to go out there and want to make multi-million dollars, but you want them

01:16:52.700 | to go out there and want to change the world.

01:17:00.840 | So there was a two-part question.

01:17:02.780 | As far as getting young people interested in investing, I guess it depends how young

01:17:08.700 | we're talking about.

01:17:10.140 | If they're just out of college and they still don't quite get it, I don't really know what

01:17:15.340 | to say.

01:17:16.340 | But I've told this story a number of times.

01:17:19.780 | It's what my mom did with me when I was eight or nine, maybe.

01:17:24.100 | She gave me, or maybe suggested I bought it with some savings, I don't honestly remember.

01:17:28.900 | But it was a share of Procter & Gamble stock, and we went to the grocery store, and we looked

01:17:39.620 | at all the different Procter & Gamble products there.

01:17:42.280 | And there's a million.

01:17:43.280 | I mean, a ton of things that you see in your house or in your friends' houses, and kind

01:17:48.280 | of explained that any time somebody buys one of these things, now as a shareholder, you're

01:17:54.780 | going to earn a little money.

01:17:56.380 | And it was so tangible, so concrete.

01:17:59.820 | And it was a big thing for me.

01:18:03.820 | And I'm tearing up talking about it.

01:18:11.520 | So it was a big deal.

01:18:12.520 | I thought it was the neatest thing in the world.

01:18:14.420 | And we didn't talk about mutual funds or the fact that the share price goes up and down.

01:18:19.540 | It was just, you own this business, a small, small piece of it.

01:18:24.460 | And when people buy the products, you can make some money.

01:18:28.460 | And that's powerful.

01:18:29.460 | And I thought that was so cool.

01:18:33.060 | Yeah, just one or two more things on the spending side.

01:18:39.320 | Your kids learn from example.

01:18:40.700 | I mean, if you're driving a 20-year-old Honda and are living in a small house, you've done

01:18:46.660 | your kids a service.

01:18:47.660 | If you're driving a Beamer and living in a McMansion, you probably doomed them.

01:18:52.940 | And I had thought I had done everything that I could possibly do to make my kids frugal.

01:18:57.180 | And I thought I pretty well succeeded until I read a column that Jonathan wrote, which

01:19:02.300 | he gave me two extra little wrinkles that I hadn't thought of and I kicked myself for

01:19:05.800 | not thinking of, which is, number one, you give them their allowance through an ATM card

01:19:11.220 | so that they're not asking you for money.

01:19:12.740 | And when the money's gone from the ATM account, the bank account, it's gone.

01:19:15.740 | They have to wait until next time.

01:19:17.560 | And the other one, which was even more brilliant, was to give them a dollar every time they

01:19:22.780 | could do with water at a restaurant instead of buying the soda.

01:19:27.140 | Okay, we are at the end of it.

01:19:31.020 | We appreciate you giving your time and all your words of wisdom and all your investment

01:19:36.180 | knowledge.

01:19:37.180 | You've each got one minute to give us a gem, just something that you've learned over the

01:19:42.580 | years that you think is really valuable that you'd like to pass on.

01:19:45.860 | If we could just go down the panel, Christine, could you start it?

01:19:49.340 | Sure.

01:19:50.340 | I guess the point I would make or one piece of wisdom is even though a lot of folks here,

01:19:56.620 | in fact, most of you here may be do-it-yourself type investors, get some help as you get older.

01:20:03.380 | Get some sort of an investment buddy, whether it's a trusted adult child who you think is

01:20:07.260 | reasonably financially savvy or whether you take the step of hiring some sort of a fee-only

01:20:13.180 | financial advisor.

01:20:14.380 | Just get some help to keep your plan on track in case, for whatever reason, you're unable

01:20:20.180 | to do it yourself.

01:20:21.340 | I think that's my one piece of advice.

01:20:26.340 | That's great advice.

01:20:27.340 | I think really most of the wisdom I've received about investing came from the Bogleheads community,

01:20:31.940 | so I don't really have much to tell this group.

01:20:34.300 | I could probably talk longer to other groups, but keep it simple, low-cost, and focus on

01:20:40.060 | the long-term.

01:20:41.060 | The one thing that I missed, that I realized way, way too late, is that the risk of owning

01:20:50.100 | stocks depends upon how old you are, so that if you're very young and you're constantly

01:20:57.060 | adding money and you're constantly saving, stocks are not risky at all because at some

01:21:01.180 | point you're going to wind up buying very low and you'll wind up doing very well.

01:21:05.060 | On the other hand, for the reasons that Wade explained, if you are someone who is in the

01:21:11.620 | distribution phase, then stocks are three-mile island toxic, dangerous as all heck.

01:21:17.580 | I wished that I had understood that at a much earlier age.

01:21:24.180 | I'm sure that you all imagine that we who write, write for you.

01:21:29.020 | That actually is completely fallacious.

01:21:32.680 | We solely write for ourselves, and every time I write on a topic it's because I'm thinking

01:21:37.180 | about it in my own life.

01:21:39.380 | One of my hobby horses in recent years has been this notion that the distinction between

01:21:45.740 | working and retirement ought to disappear.

01:21:48.860 | It's a horrible separation.

01:21:52.860 | What we should start to think about is how we can have lives where, as I was mentioning

01:21:58.420 | earlier, we can engage in activities that we think are important, we find challenging,

01:22:03.780 | we feel we're good at, that we're passionate about, and how we can do that throughout our

01:22:09.660 | lives, and that doesn't change when we retire.

01:22:12.580 | The only difference is we don't have to worry about whether that work comes with a paycheck.

01:22:17.260 | As you approach retirement, don't think about how you're going to play golf, or sit on a

01:22:23.780 | beach, or travel.

01:22:25.860 | All those are fine things to do.

01:22:27.480 | Think about what you're going to do with those years that's going to give you a sense of

01:22:31.160 | purpose, that's going to get you out of bed in the morning, and that you are going to

01:22:35.460 | be passionate about, and will make your days feel fulfilling.

01:22:42.220 | I would say beyond the low cost diversification, keep it simple, stupid.

01:22:48.300 | Whenever I violate that policy in life, I tend to regret it, and that includes investing.

01:22:55.340 | Resist those instincts of what I think is going to happen based on whatever the political

01:23:00.120 | environment is, whatever country is going on, etc., and then three, make sure you're

01:23:08.100 | not having any fun with investing.

01:23:11.180 | If you're starting to enjoy it, you're probably doing something wrong.

01:23:16.180 | Not only should it not be, it should actually be painful.

01:23:21.540 | I would love to tell you that I confidently bought stocks in 2008 to rebalance, but boy,

01:23:27.780 | it hurt like heck.

01:23:34.460 | Don't assume that what people who you think are experts are going to be wrong sometimes.

01:23:39.980 | Just a minute ago, a question was directed directly to me about 401k contributions, and

01:23:45.020 | I got it 100% wrong, and Jonathan jumped in, fortunately, and covered for me, but that'll

01:23:52.940 | happen.

01:23:53.940 | It happens in articles and major publications.

01:23:54.940 | You'll see things about taxes or social security that just aren't right, so before you make

01:24:00.580 | any irreversible decisions, double-check things.

01:24:05.020 | Check with more than one source, and similarly, to flip it around, sometimes you'll be the

01:24:09.700 | one making the mistakes, so double-check your own conclusions.

01:24:13.900 | If you decide something, there's a good chance that there's some information you haven't

01:24:20.060 | considered.

01:24:21.060 | Again, before making any big decisions that you can't switch, double-check, both double-check

01:24:25.420 | your own reasoning and double-check whatever sources you're relying on.

01:24:29.820 | Let's have a hand for the panel, and we'll start back up at 1 o'clock, 1 o'clock in here.

01:24:41.780 | Thank you.

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