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Old 09-05-2013, 11:43 AM   #41
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For what is it worth, here is a list of the top 10 assets owned by millionaire households ($2M+) in the U.S. based on estate tax data, 2007 - 2009. Publicly traded stocks are 12.9%:

The Top Ten Assets Owned by Millionaires
I wouldn't read too much into that list - it's an average, not representative of any one individual. I would say the most common way to get wealthy in the US is to own a business. For most of these business owners, the vast majority of their wealth is tied up in their business (i.e closely held stock). So there will be a large subset of these "millionaires" who are not investing in the stock marketat all because they don't have any liquid funds to do so, and they also believe (right or wrong) they should get a better return on investing in their own business instead of in Apple or GE.

Also, wealthy people tend to buy individual stocks over mutual funds because they have a broker investing for them and the broker will convince them that they are better off paying a 1% or more assets under management fee for an actively managed portfolio vs. the 0.1% or so from a Vanguard Index Fund. Even though most of these managed portfolios end up looking a lot like the total stock market, but with a lot more fees and taxes due to the broker's constant churning of the investments.

A lot of the "real estate investment" property likely consists of vacation homes - not really an income generating investment.
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Old 09-05-2013, 11:44 AM   #42
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Originally Posted by brewer12345

Seems to me that real estate is heavily driven by favorable tax treatment as well.

Different strokes. I think the liquidity driven risk is way overblown, but de gustibus non disputandam.
+1 on tax favored treatment of real estate. The difference is that you can get the tax favored treatment regardless of income with real estate. I think that is also why you see the wealthy invested in insurance products. Tax deferral and asset protection. So maybe the portfolios of millionaires are not a function of diversification as I initially mused but rather a way to maximize tax efficiency and wealth preservation. I didn't invest in real estate because of my fear of stocks but I am hesitant to sell all of it now and invest in stocks due to fear.
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Old 09-05-2013, 11:49 AM   #43
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I have not finished the book but from past Bernstein books he likes to take on some slivers of PME and other diversification assets. He used to call himself sort of an asset allocation junky ... or words to that effect. I don't think he recommends much of this stuff.
Yes, this is indeed a continuation of his past recommendations, albeit made in a mild manner.

I just don't quite understand the reasoning, notably in a deep risk context. He does state himself that gold isn't such a good hedge against inflation somewhere in the booklet. He show some numbers illustrating why (counter-intuitively) it might help against sustained deflation, but again, not terribly convincingly. And finally, if gold is 5% of your portfolio, I find hard to believe this would help very much in a sustained, decade-long, Japan-like scenario.

So I was a bit surprised that he kept such recommendation as part of the summary at the end. Maybe he's just being balanced, and saying 'yeah, you should consider it... but think twice about it!'.

On my side, I kept gold as one possible diversifier at some point in time in my investment plan, but... I'm on the fence, can't seem to convince myself to actually do so, and this booklet didn't convince me either. Rick Ferri's point that gold does NOT really appreciate on the long run, hence is a poor investment by nature, keeps resonating in my ears...
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Old 09-05-2013, 12:07 PM   #44
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Also, wealthy people tend to buy individual stocks over mutual funds because they have a broker investing for them and the broker will convince them that they are better off paying a 1% or more assets under management fee for an actively managed portfolio vs. the 0.1% or so from a Vanguard Index Fund.
That is pretty much the opposite of what is in the Stanley books. He says most MNDs ignore or at least discount the advice of stock brokers, and view them more as salesmen than investment advisers.

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the vast majority of their wealth is tied up in their business (i.e closely held stock).
If that is true, it is not showing up in the top ten assets list averages. The averages show a broad range of diversification, and 14.5 percent in closely held stock.

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A lot of the "real estate investment" property likely consists of vacation homes - not really an income generating investment.
" 64% of the millionaires surveyed never owned a vacation home, beach bungalow or mountain cabin, not even a lean-to or a tree hut in the woods. "

From Stop Acting Rich -

http://www.thomasjstanley.com/blog-a....._Part_I.html
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Old 09-05-2013, 01:25 PM   #45
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To recommend 15 to 20 x (expenses - COLAed pensions) in cash and ultra safe fixed income is a big psychological shift.......and a good one IMHO.
I think this "cash and ultra safe fixed income" recommendation is part of Bernstein's new thinking after seeing his clients dump their stocks in a panic in 2008-2009. I doubt it reflects his opinion of the best way (objectively) to preserve and grow a retirement portfolio that will support a 40 year retirement, but instead represents a response to the behavior of typical investors. If you're not this typical investor and won't sell your equities when they take a 50% loss, then I think you should feel free to disregard his recommendation.
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Old 09-05-2013, 01:27 PM   #46
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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.

Bernstein takes thinking farther than the usual retirement advice, but it doesn't really seem so special to me, other than he emphasizes that it is really a hard job to survive a long time without somebody else giving you money, whether that someone else be customers, taxpayers, a pension fund or paid employment.

But that has been said before, and it has not sold well.

Ha
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Old 09-05-2013, 02:09 PM   #47
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I have found it interesting that in the Thomas Stanley research I've seen, most millionaires don't have a huge percent of assets invested in stock mutual funds -

"The problem with mutual funds is that every year they've got to declare a dividend, and you're going to pay tax on that. The wisest investors, and the majority of the millionaires we've interviewed, are people who own stocks directly and don't trade much. They're not taking capital gains. They're not taking dividends. They're building a portfolio. Other unrealized income might come from a business. You might have a factory or a company that's growing, and you're putting money back into it. You're not taking it as income, and the business becomes more and more valuable. Or someone owns scrap metal. The more scrap metal he has, the more wealth he has."

Excerpt from How The Millionaire Next Door Got That Way Save. Don't spend. When you do have to spend, be frugal. Then someday you, too, could be a millionaire. Really! - August 17, 1998
That's pretty bogus about mutual funds. They don't have to declare a dividend, they only have to pass on what's left of collected dividends after taking out their expenses. That will be less than what the fund collects from their portfolio of stocks. I hadn't thought about it that way before, but those expenses are kind of paid pre-tax. The millionaires my choose only non-dividend paying stocks, but that has the same diversification problems as choosing all dividend stocks. You can find funds that don't trade much too, creating minimal capital gains. Index funds certainly have those characteristics.
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Old 09-05-2013, 02:20 PM   #48
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You can find funds that don't trade much too, creating minimal capital gains. Index funds certainly have those characteristics.
I don't have any individual stocks, but this is something I am thinking more about. With individual stocks there would be a more detailed level of control in taxable accounts to sell off individual losers each year and hang on to the winners.
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Old 09-05-2013, 02:37 PM   #49
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With individual stocks there would be a more detailed level of control in taxable accounts to sell off individual losers each year and hang on to the winners.
That might be useful as a way to tailor taxable income (through tax loss harvesting, etc). It's probably not useful as a way to maximize pre-tax returns. Anybody really capable of accurately picking "winners and losers" in the equities market is wasting their talent if they are just working with their own personal portfolio--MFs, pension funds and others would pay tremendous bonuses to anyone who can do it reliably. Or, just use the talent to buy/sell futures: a handful of consecutive accurate highly-leveraged predictions can turn $1000 into a million dollars in short order. If it were easy, everyone would be doing it.
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Old 09-05-2013, 03:40 PM   #50
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I don't have any individual stocks, but this is something I am thinking more about. With individual stocks there would be a more detailed level of control in taxable accounts to sell off individual losers each year and hang on to the winners.
Yes it definitely one of the benefits of owning individual stocks. It makes managing your income for tax purposes easier. I think the next bear market year, will also be the first year that I can qualify for subsidy under ACA.
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Old 09-05-2013, 06:39 PM   #51
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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.
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Old 09-05-2013, 08:16 PM   #52
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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
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Old 09-05-2013, 08:24 PM   #53
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No mention to I bonds which may work best for both inflation and deflation.
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Old 09-05-2013, 09:01 PM   #54
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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.
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Old 09-05-2013, 11:20 PM   #55
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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
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Old 09-06-2013, 01:05 AM   #56
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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.
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Old 09-06-2013, 10:37 AM   #57
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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.
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Old 09-06-2013, 10:47 AM   #58
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IMO, the millionaire data and Bernstein suggestions
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Old 09-06-2013, 10:51 AM   #59
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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
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Old 09-06-2013, 11:08 AM   #60
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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.
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