Words of Wisdom William Bernstein_chat w/Ben Carlson

[target2019]

The pre 2009 Bernstein or the post 2009 version?

Seven books, at least 2 best sellers.

Bernstein holds a PhD in chemistry and an MD; he practiced neurology until retiring from the field.

That's cred, nothing like my anonymous posts.

 

[audreyh1]

I enjoyed the interview. Thanks.

I’ve always used an asset allocation, at the same time I’ve mentally compartmentalized my portfolio into short, medium, and long-term duration tranches. The stocks I know I don’t need to touch for 10 years, the fixed income I have some in cash in various forms, short-term bond funds and intermediate-term bond funds. So it was interesting to see him describe it that way too.

 

[Montecfo]

I find Carlson's insights to be helpful as well.

 

[Midpack]

Truth be told, I am not too interested in this question but when discussions like this come along it always reminds me of a Paul Samualson quotation:

"Well when events change, I change my mind. What do you do?"
​

ref: https://quoteinvestigator.com/2011/07/22/keynes-change-mind/

��

Seven books, at least 2 best sellers.
That's cred, nothing like my anonymous posts.

So you don’t own any stocks/funds?

How Much Is Enough?
Bernstein recommends a rule of thumb, based on annuity payouts and spending patterns late in life, that you should have 20-25 times your residual living expenses (after pensions/Social Security) invested solely in safe assets. No stocks at all. This should be in TIPS, SPIAs, and short-term bonds. If you have more than that, that’s your “risk portfolio,” which he describes this way:

Anything above that, you can invest in risky assets. That’s your risk portfolio. If you dream about taking an around-the-world trip, and the risk portfolio does well, you can use it for that. If the risk portfolio doesn’t do well, at least you’re not pushing a shopping cart under an overpass.

https://www.whitecoatinvestor.com/bernstein-says-stop-when-you-win-the-game/

 

[Koolau]

Why COULDN'T folks AND Small Bus. Prepare for C-19?

One of the "throwaways" in the podcast was that (my distillation so forgive the quotes): 'Few folks and especially small business could have actually saved 3, 6 or 12 months of reserves to weather this pandemic.'

RANT ALERT - RANT ALERT - Feel free to skip to the bottom for the real question.

I'm no expert on small business, but I owned (never ran) one for 35 years. True, it was a 'going concern' when I (and sibs) bought it from parents - it WAS distressed at that time. We NEVER had less than 3 (usually much more) months of ALL expenses (NOT counting OUR receivables.) I understand that to be an inefficient business model in terms of maximizing profit (much better, profit wise, to have huge loans on which to make even MORE money.) BUT, as a going concern that was eventually a cash cow to the family, it made more sense to keep the cow healthy and alive vs milking the last drop out and maybe killing the cow the first time she ran out of feed. BUT, let's skip small business since I really know so little about it.

What about individuals? Now, I would be the first to agree that people DON'T prepare for such a situation (crisis of 2007-9 or C-19 pandemic.) But I maintain that most COULD prepare for it - even those who "claim" to live paycheck to paycheck. When you see what those paychecks go for, those of us who reuse dryer sheets could set most PC to PC folks straight. (Oh, oh, I guess that's a value judgement.)

YES there are always some proportion of folks who are unemployed, under employed or are payed so little as to be "working poor." I know OF folks locally who live under blue tarps on the beach but DO (Oops! Did) have a job. Those folks are truly PC to PC.

I would have been paycheck to paycheck for the first 6 months I had a "real" job. I dealt with it by living with my parents for a year, paying a pittance in rent and doing some chores. I SAVED a bundle in order to afford to start a 401(k) AND a 6 month cushion - and the start of downpayment on a house in the hazy future. Okay, I made more than average, but not vastly so. Nor did I yet have a family as I see with most PC to PC people. I made choices to constrain spending so my paycheck was actually more than I needed to live on. I'm trying not to make too much of a value judgement here, but I'm sure it sounds like it. YES you can point to lots of folks who didn't have it as good as I did. But I can point to lots of folks who had it way better than I did and were still PC to PC. (I have previously pointed to a friend who w*rked at the same place I did, doing somewhat the same j*b, making roughly the same money who currently is 75 and has a NEGATIVE half million dollar NW. He lives pretty well on his PC to PC because the paychecks are now "guaranteed." He cares not that he will die in debt. He believes he "won" because he had WAY more toys than I did. He may be right. BUT he may have to eat macaroni box mix at the end of the month.) We make our choices.

END OF RANT - END OF RANT - Here's my question:

So, was Bernstein serious about most folks being UNABLE to prepare or was he simply recognizing reality - most folks will NOT prepare? Serious question NOT meant to be a value judgement. YMMV

 

[donheff]

END OF RANT - END OF RANT - Here's my question:

So, was Bernstein serious about most folks being UNABLE to prepare or was he simply recognizing reality - most folks will NOT prepare? Serious question NOT meant to be a value judgement. YMMV

Yes, we all hear of people living on minimum wage and saving money but, the median US household income in 2017 was $59K and median full time employee was $31K. Is it possible that most, including the half below that level, can realistically save 3-6 months of expenses? I don't see it. If I was born in a very low income household and didn't graduate HS, let alone college, I would very likely be in the same PC to PC boat as "most." We can sit on our portfolios and rain down value judgments on the huddled masses who bring their problems down on themselves, or we can build a safety net that works for the below median half. Right now we are cobbling that safety net together on the fly and I am glad that we are. I got the luck of the draw and will happily pay the full tax rate on my depleted IRA to help keep the nation from going to hell.

Edit: I see my post reads a little harsh and judgmental. The above rant (and most like it) usually cite people who were in "our" situations and made choices to have all the glitzy toys and forgo savings and then grouse about being unable to retire. It is reasonable to tsk, tsk about those people because they are irresponsible. But most of Bernstein's "most" people are in firmly in the bottom half. Very tough to survive a job loss or a health crisis. If they are lucky enough to dodge one of those bullets and end up 70 years old with a paid off bungalow, Medicare, and SS they will be able to live out the rest of their lives in relative comfort on the median income -even in the face of major recessions. It's just hard to picture them piling up a cushion while paying that rent or mortgage and raising kids on a paltry income.

 

[Midpack]

So, was Bernstein serious about most folks being UNABLE to prepare or was he simply recognizing reality - most folks will NOT prepare? Serious question NOT meant to be a value judgement. YMMV

If you’re making $10/hr it would take some serious discipline to save up 6 months income. It could be done, but I wouldn’t expect many would have the will.

However, I’d guess more people who “can’t save” owe it to poor choices or discipline. An example from my work life, I watched this play out first hand for 18 years:

When I retired in 2011, I had hourly employees who made approximately $18, $22, $26, $30, $34 and $38/hr. I had employees at each wage level, including $18/hr, who managed to save money and live decent lives, even put kids through college with a working spouse. I also had employees at each level, including $38/hr, who couldn’t save money and insisted (many openly in meetings) they couldn’t get by on what we were paying - “no one could live on what you’re paying AND save money, we’re just getting by.” Many of my hourly employees had more expensive cars than I did, and they came back from expensive vacations more than once/year that DW and I wouldn’t go on more often than every 10 years. Occasionally when a few of them from higher pay grades would go on a rant about pay in a meeting, I’d ask them how the $18/hr employees managed to save **? I didn’t do it often because I knew it wouldn’t change their expensive choices, and it didn’t change a single one of the complainers. Some Americans think they’re entitled to a much grander lifestyle than their jobs will support, and it’s someone else’s fault they can’t make it work.

If you’ve read The Millionaire Next Door, you know there are people with very high incomes and little to nothing in savings. That’s purely bad choices.

** I had access to all their 401k contribution amounts and withdrawal activity until late in my career

 

[donheff]

If you’re making $10/hr it would take some serious discipline to save up 6 months income. It could be done, but I wouldn’t expect many would have the will.

However, I’d guess more people who “can’t save” owe it to poor choices or discipline. An example from my work life, I watched this play out first hand for 18 years:

When I retired in 2011, I had hourly employees who made approximately $18, $22, $26, $30, $34 and $38/hr. I had employees at each wage level, including $18/hr, who managed to save money and live decent lives, even put kids through college with a working spouse. I also had employees at each level, including $38/hr, who couldn’t save money and insisted (many openly in meetings) they couldn’t get by on what we were paying - “no one could live on what you’re paying AND save money, we’re just getting by.” Many of my hourly employees had more expensive cars than I did, and they came back from expensive vacations more than once/year that DW and I wouldn’t go on more often than every 10 years. Occasionally when a few of them from higher pay grades would go on a rant about pay in a meeting, I’d ask them how the $18/hr employees managed to save (I had access to all their 401k’s)? I didn’t do it often because I knew it wouldn’t change their expensive choices, and it didn’t change a single one of the complainers. Some Americans think they’re entitled to a much grander lifestyle than their jobs will support, and it’s someone else’s fault they can’t make it work.

I agree with this description BUT, all of the workers in this example are above the median. It is fair to say many of these people are irresponsible but that still leaves "most" workers who are in more dire straights.

 

[Midpack]

I agree with this description BUT, all of the workers in this example are above the median. It is fair to say many of these people are irresponsible but that still leaves "most" workers who are in more dire straights.

I acknowledged truly low pay workers in my first sentence.

My $18/hr employees were $37,440/yr - not rich. And my point was I had first hand daily experience with employees at 6 levels from $18/hr to over double that for 18 years, through births, marriages, adult children and every other milestone. Savings and lifestyle did NOT correlate wage level. And there’s no reason to believe the behavior I witnessed is unique to the wage range I had first hand experience with. I saw who drove what, who bought which house, who took what vacations, who had working spouses, etc.

Poor choices can occur at any wage level, from $20K/yr to $200K/yr and beyond. Anyone can live beyond their means, how many millionaire athletes, celebrities and business titans go broke in public? How many low wage workers do you see with the latest iPhone and a very nice car? Sometimes there’s a good explanation, some times it’s just living beyond their means.

 

[Koolau]

My 'rant' not withstanding, my real question was about Bernstein's viewpoint IN the podcast.

Does HE believe 'most' folks actually can not prepare for 3 to 12 months of job loss? I would assume that every financial 'god' our ER community has touted has at one time or another strongly advocated for significant emergency funds. Is Bernstein the exception to this rule? Alternately, has Bernstein, after 40+ years of experience simply given up on people doing what would seem to be in their own best interest - namely, putting a little aside for the occasional black swan or pandemic? I was just surprised to hear him seem to "give up" on the idea of emergency funds. YMMV