Deep Risk by William Bernstein

[Lsbcal]

Meanwhile, back to something knowable, what Wm Bernstein says in this latest little book: Anyone notice what he gave as his reason for preferring a "value tilt" in his world investments? Firm level leverage. We ignore this kind of advice all the time, when we rush to pay off very low rate mortgages and school loans, and advise others to do the same.
...

Ha, I'm not quite sure what you are getting at here but can guess. I probably have not got to that point in the book yet.

I personally have a value tilt based firmly on past results .

BTW Ha, you get the gold medal for the day for getting back to the thread topic.

 

[haha]

He just through it out in passing. I took it to fit in with his thesis of inflation being the #1 concern. Value stocks are usually not those with extremely good capital utilization, high asset turnover and high profit margins-therefore they tend to carry more debt than so called growth companies.

I haven't gone back to check my understanding, so it may not be correct.

Ha

 

[Refresher]

No mention to I bonds which may work best for both inflation and deflation.

 

[Mulligan]

No mention to I bonds which may work best for both inflation and deflation.

I wish treasury notes would tick up enough to where they would add a fixed rate component again to the IBonds.

 

[Refresher]

I wish treasury notes would tick up enough to where they would add a fixed rate component again to the IBonds.

Maybe...the 10 year is at 3% right now

 

[modhatter]

I think the distinction between millionaires (entrepreneurs) and well paid company men, is what they are exposed to most glaringly in their working years. If you work for a company that promotes savings through either pension plans, and or 401 K plans, with matching $, you naturally become interested in the stock market as your vehicle for your retirement. When you start your own business, all your energy is focused into making the business a success, and the stock market only a blip on the radar if it effects your business.

Have you noticed the posters who come on here from time to time looking for advise with a wad of cash they are not sure what to do with? - Entrepreneurs. Also, it is the nature of entrepreneurs as someone else stated, not to like to give up control of their money to a machine that they have little control over themselves. I speak from experience here.

Real Estate is a more tangible asset. I say this even after the crash that we just experienced. If you weren't heavily leveraged to a point of it not making financial sense, you still were OK. You could still rent the property, and like the stock market, it's value will soon start to re-coup. The crash could not wipe you out or stop your cash flow. And it created some wonderful buying opportunities (just like the stock market) I think it is inherently a safer investment than stocks. The only difference is that it is not a passive investment as the stock market is. It comes with WORK and plenty of headaches.

 

[daylatedollarshort]

The thing that struck me from those stats is that the millionaires in the IRS data, on average, either didn't have the majority of their net worth tied up in either the stock market or a single business.

When we have talked to the Fidelity people and mention TIPS or I bonds, it just seems to be something outside their trained talking points. They will say you need stocks for growth, and we'll say well we have TIPS, I bonds, SS and a pension with COLA, a CD ladder, floating rate funds and a fixed rate mortgage and and they just give us a blank look and repeat, you need stocks for growth.

Then they have also mentioned needing 80% of gross annual income for retirement, which is silly because we weren't spending 80% of gross income on living expenses while we were both working megacorp jobs.

So we have grown pretty skeptical about anything they tell us, and maybe even the whole mutual fund idea in general.

I don't have any answers. I am just trying to think outside the box. Call me stupid, maybe I am, but I am not so sure, especially the older we get, that putting a majority of our life savings into stock mutual funds and expecting them to go down 50% in a given year is such a great idea.

 

[Gatordoc50]

IMO, the millionaire data and Bernstein suggestions

 

[haha]

The thing that struck me from those stats is that the millionaires in the IRS data, on average, either didn't have the majority of their net worth tied up in either the stock market or a single business.

When we have talked to the Fidelity people and mention TIPS or I bonds, it just seems to be something outside their trained talking points. They will say you need stocks for grow, and we'll say well we have TIPS, I bonds, SS and a pension with COLA, floating rate funds and a fixed rate mortgage and and they just give us a blank look and repeat, you need stocks for growth.

Then they have also mentioned needing 80% of gross annual income for retirement, which is silly because we never spent that much even when we both had megacorp jobs, and then they would still push the 80% rule.

So we have grown pretty skeptical about anything they tell us, and maybe even the whole mutual fund idea in general.

I don't have any answers. I am just trying to think outside the box. Call me stupid, but I am not so sure, especially the older we get, that putting a majority of our life savings into stock mutual funds and expecting them to go down 50% in a given year is such a great idea.

I doubt you are alone. Prior to the boomer generation people who were not wealthy, or who had not worked as brokers or similar, usually did the large majority of their retirement saving in banks and CDs. They knew what might happen to them if those stocks and funds didn't bounce back, and pretty quickly.

People talk about our experiences in 2008-til March 2009. It is unlikely that things would have come roaring back as they did, without the gigantic sums that the Federal Reserve was throwing at our financial system. What if they had not? Or what if some future stress did not lend itself to doing that all over again, as it seems that it has left us with a huge financial hangover that may be more trouble to deal with than we anticipate.

The boomers may decide that we have essentially had enough drama, and see what else might be around.

Ha

 

[unclemick]

Thanks for posting this. T

I do think that attempting very long, self supported absence from paid employment or active business is essentially a heroic undertaking, that most of us might avoid if we really understood the risks. Too late now! Banzaii!

Ha

1993-2013, 20 years. Soooo - does this forum give out HERO metals, gold watches or just atta boys?



A lot of life cycle index (with foreign stock), some water, oil and and natural gas(a few good stocks for the hormones because it's football time again). Plus a Passport and a grumpy attitude.

heh heh heh - Katrina gave me a new appreciation of agile and mobile and traveling lite. I may be on the Kansas side now but I am on high ground - with tornado insurance and a basement.

I always liked Bernstein but right now I'm too cheap to buy his books.

 

[Lsbcal]

...(snip)...
I always liked Bernstein but right now I'm too cheap to buy his books.

I get his books from the library.

This thread discusses his latest ebook offering which is only $5 if purchased on Amazon.

 

[Mulligan]

The thing that struck me from those stats is that the millionaires in the IRS data, on average, either didn't have the majority of their net worth tied up in either the stock market or a single business.

When we have talked to the Fidelity people and mention TIPS or I bonds, it just seems to be something outside their trained talking points. They will say you need stocks for growth, and we'll say well we have TIPS, I bonds, SS and a pension with COLA, a CD ladder, floating rate funds and a fixed rate mortgage and and they just give us a blank look and repeat, you need stocks for growth.

Then they have also mentioned needing 80% of gross annual income for retirement, which is silly because we weren't spending 80% of gross income on living expenses while we were both working megacorp jobs.

So we have grown pretty skeptical about anything they tell us, and maybe even the whole mutual fund idea in general.

I don't have any answers. I am just trying to think outside the box. Call me stupid, maybe I am, but I am not so sure, especially the older we get, that putting a majority of our life savings into stock mutual funds and expecting them to go down 50% in a given year is such a great idea.

I struggle with my investable assets, too. Especially since I have a pension that more than covers all my needs. My assets are small compared to the self funding retirement people on this forum, but I still want it to grow reasonably without undo risk, even though my intentions are to never use it. I already have enough stock exposure for my needs and dump $500 a month into Total Stock Index. I have about 50k in pay nothing short term CDs and passbook savings. I already buy the limit on IBonds yearly. I really want to put this 50k in a TIPS or 5-10 year treasury note, but don't know when to pull the trigger. Everything I read says TIPS are horrible in a rising interest rate, low inflation environment like we presently are in. It is never this simple, but I wish the treasury would quit buying altogether and see if the 5-10's shot up with no corresponding jump in inflation, then I would just dump it all in at 4%. I am willing to wait a year, but with my luck I will give up and do something dumb with it at the wrong time.

 

[daylatedollarshort]

I struggle with my investable assets, too. Especially since I have a pension that more than covers all my needs. My assets are small compared to the self funding retirement people on this forum, but I still want it to grow reasonably without undo risk, even though my intentions are to never use it. I already have enough stock exposure for my needs and dump $500 a month into Total Stock Index. I have about 50k in pay nothing short term CDs and passbook savings. I already buy the limit on IBonds yearly. I really want to put this 50k in a TIPS or 5-10 year treasury note, but don't know when to pull the trigger. Everything I read says TIPS are horrible in a rising interest rate, low inflation environment like we presently are in. It is never this simple, but I wish the treasury would quit buying altogether and see if the 5-10's shot up with no corresponding jump in inflation, then I would just dump it all in at 4%. I am willing to wait a year, but with my luck I will give up and do something dumb with it at the wrong time.

We sold most of the TIPS earlier this year when rising rates seemed like more of a sure thing. Yields had gone so low there wasn't much downside to selling and doing a little profit taking.

We decided now to probably build a TIPS ladder before too long with some of our retirement money and future rates can do what they will. We'll get the laddered average.

 

[Gatordoc50]

We sold most of the TIPS earlier this year when rising rates seemed like more of a sure thing. Yields had gone so low there wasn't much downside to selling and doing a little profit taking.

We decided now to probably build a TIPS ladder before too long with some of our retirement money and future rates can do what they will. We'll get the laddered average.

Were you in a tips fund?

 

[daylatedollarshort]

Were you in a tips fund?

I had some of both but mainly individual bonds.

 

[Midpack]

Interesting thread. Just bought the eBook, but I am saving it to read inflight on Sunday. Looking forward to the read, my AA has been pretty much Dr B's Four Pillars ever since it was first published.