Boglehead Core Principles - Sound Theory?

[SecondCor521]

Bogleheads isn't the only place this happens (I'm not talking about here). Just a few weeks ago on another finance forum I posted about this very issue as it had mostly killed the forum. While agreeing the forum was dieing most responses insisted they weren't the problem. Go figure.

I saw your post on that other forum and agree with you on that aspect of that forum in general. I didn't bother reading or replying to any of the responses because it would have been a waste of time and typing because of the very problem you point out. It's sad.

There still are some decent threads over there, so I just read and reply selectively.

 

[street]

I saw your post on that other forum and agree with you on that aspect of that forum in general. I didn't bother reading or replying to any of the responses because it would have been a waste of time and typing because of the very problem you point out. It's sad.

There still are some decent threads over there, so I just read and reply selectively.

I see that strong my way or no way here on certain subjects by just a few. It does stay in check for the most part but true colors still shows up on occasions.
I maybe wrong and pay the price for saying that but it also may make it a better place. Always room for improvement no matter how good you are.

 

[FD1000]

I like your tutorial and view a lot and is spot on IMO. BH was a good site find for me right off the bat for the simple criteria. But ER seems to have that extra knowledge and strength going once retired.

ER is the rock for retirement people by far.

Your #2 Risk view is opposite of my view. I don't believe I will ever change my pattern on AA. I will stay at the 80% range in equities for my life till death. I always have done the unorthodox way compared to all most every degree of what you should do though.

Hi street,
What is ER? Expense ratio.
Is risk tolerance an individual matter? Absolutely.
Most investors think of risk in terms of the percentage allocated to equities. I don’t. For me, risk is maximum drawdown, the largest percentage loss I might experience at any point, across all market environments. That’s the risk I want to understand and control.
I cared more about absolute performance than relative. That helped me with LT performance. If the SP500 falls 30% and my portfolio falls 15%, it sounds good, but not for me. I never want to lose more than 3%.

This perspective explains why, in 2022, when both stocks and bonds declined, I was still able to make over 9%.

In general, as I got older and my portfolio grew, I steadily reduced risk. By the time I retired, I had accumulated enough. I knew I could meet my needs using specialized bond funds alone—and in practice, I’ve done better than expected. So why take unnecessary risk? Even with little or no equity exposure, I’ve outperformed many portfolios holding 50–60% in stocks.

When you have “enough,” you don’t need to take much risk at all. You could hold anywhere from 20% to 80% in risky assets, or none. In fact, I could invest entirely in CDs for the rest of my life if I chose to.

Earlier in my career, during my accumulation or “go-go” years, my situation was different. Until I reached my first million, I was more than 90% in equities.

 

[Out-to-Lunch]

I am not Street, but I feel confident he meant "Early-Retirement.org"

 

[SnowballCamper]

For me, risk is certainly not volatility. Nor is it the largest price decrease that I might experience. The risk is the likelihood that I choose to sell when the price is low (relative to my inflation adjusted purchase price). Now that I'm a few years into early retirement I'm creeping toward a higher stock allocation, not just from stock price growth but adjusting the allocation higher also.

 

[Yegey]

I think my former FA was Boglehead-ish. He left me with a 3 or 4-fund portfolio, apparently believed the tech-heavy S&P 500 was not diversified enough and so had me in even broader equity index funds, and his approach to the topic of retirement was "work as long as you can." I had only vague familiarity with the name Jack Bogle, and if I had known my FA was basically just following a well-known philosophy and that there was a discussion forum based around it I would have fired that FA 20 years ago instead of 2 years ago.

I actually think the FA did you a favor. If you take a look at a portfolio generated by a typical FA, it will look like a giant maze with 50 ETF. When the FA is fire, it becomes a herculean task to unwind everything. The main idea is that they need to look like they are doing something.

In addition, in my opinion, the FA's main role is not to generate and managed your portfolio but to help you plan. I would be asking questions like when can I retire, how do I fund my kids college, do I do a roth conversion, etc.

 

[street]

FD1000 yes, Early Retirement, Thanks Out-to-lunch.
I'm risking that if I lose half I will still be fine to the end. If I gain more then more for my Legacy to leave behind. So, my risk is to having my portfolio grow and time will tell if I made the right choice or not.

 

[Yegey]

Keep in mind that there is a difference between boglehead keys principle and boglehead forum members. The principle is sort of neutral and mainly about living below your means, invest passively with low expense and educate yourself. You can read and use the principle without the forum.

The members themselves are sort of separate because the tone changes over the years. I recall earlier years like in early 2000's there were more talks of factor investing. Recently, it seems to be more about bonds. This shows even BH is subsceptible to recency bias.

However investment forums do have different tones that may change over the years. Some BH members in my opinion can get a bit rough or at least very opinionated. I don't mind because I grew up having parents who never mince words so often feel people are just voicing their opinion and I can choose to accept or ignore them. It may not be the best forum for newcomers. I am pretty sure my wife would take things very personally if she was interested. It is always nice though to have people help you out. The large volume means often someone will answer your questions even if you don't like the answer.

There is also a BH reddit, but I am not sure what the difference are except that the demographics may trend younger.

 

[big-papa]

There is also a BH reddit, but I am not sure what the difference are except that the demographics may trend younger.

According to several posts on the BH forum, the owners are aware of the BH Reddit community but it is independent of the forum itself.

Cheers.

 

[JBTX]

As a BH poster for about 8 years and only more recently came here and post less frequently here-

I would generally agree with the core principles stated in the OP, but as to BH posters, beyond those core principles, there can be quite a bit of diversity on other issues, including

Include ex US funds vs 100% US
Have emergency fund vs no emergency fund
Buckets are OK buckets vs are a mental error
Allocation includes bonds vs 100% stocks forever
TIPS good vs TIPS not good
Bond funds good vs being suboptimal to ladders or individual holdings
Varying philosophies of traditional vs Roth / Roth conversions
Target date funds good vs TD funds being suboptimal
Bonds in tax advantaged, stocks in taxable vs the opposite
Stocks should be in Roth vs doesn’t matter much
CAPE10 and other PE multiples are useful information vs worthless noise that should be ignored
4% withdrawal rate is safe for even very early retirement vs perhaps not so safe beyond 30 years

The subscriber base there is quite large and the opinions quite diverse. The occasional stereotypes of BH I see here are generally incorrect.

 

[Lorenzo]

I actually think the FA did you a favor. If you take a look at a portfolio generated by a typical FA, it will look like a giant maze with 50 ETF. When the FA is fire, it becomes a herculean task to unwind everything. The main idea is that they need to look like they are doing something.

In addition, in my opinion, the FA's main role is not to generate and managed your portfolio but to help you plan. I would be asking questions like when can I retire, how do I fund my kids college, do I do a roth conversion, etc.

I agree the FA having set up a 3 or 4-fund Boglehead-ish portfolio was better than if he had set up an overcomplicated one to make it look like he was working hard for me, but still ... it's a hard lesson that I was paying around 1% for something that so many on this forum and, of course, on Bogleheads, had been doing on their own for many years.

In fairness, the FA helped with some of my questions, but I felt he mostly deflected them. "Work longer" was not an answer to a retirement strategy, and when they finally did offer to generate a plan for me I felt they dragged their feet, asking questions that if I knew the answers to I could probably have set up a plan myself. But I digress.

 

[Yegey]

Ah, in that case, it would be right to fire the FA. While working longer would be an answer, it's probably means the style of the FA doesn't match yours.

Too many people I know are too afraid to do their finance and don't want to bother with learning. Even when they do learn, many still seek out FA because retirement is more complicated. Another use for FA is if you feel you will become more mentally incapacitated as you age. However, this may be better served by using a family member than a FA. Another use is if you have a spouse who refuses to learn finance and you need the FA just in case you pass before your spouse.

In my opinion, some limited education even if you do not plan to DIY should be done so you don't fall pretty to predatory FA. In my opinion, 1% is a lot, it's like 3% rule now.

 

[big-papa]

As a BH poster for about 8 years and only more recently came here and post less frequently here-

I would generally agree with the core principles stated in the OP, but as to BH posters, beyond those core principles, there can be quite a bit of diversity on other issues, including

Include ex US funds vs 100% US
Have emergency fund vs no emergency fund
Buckets are OK buckets vs are a mental error
Allocation includes bonds vs 100% stocks forever
TIPS good vs TIPS not good

Many of the TIPS good vs TIPS not good arguments there are people talking past each other, where some are talking about the returns and volatility of TIPS bond funds, and others talking about the cost of building a ladder when yields change, though sometimes the "I don't know how long I will live" argument comes up regarding ladders. This, by some of the same people who are otherwise planning for their portfolio to provide for them for a fixed number of years.

Bond funds good vs being suboptimal to ladders or individual holdings
Varying philosophies of traditional vs Roth / Roth conversions
Target date funds good vs TD funds being suboptimal
Bonds in tax advantaged, stocks in taxable vs the opposite
Stocks should be in Roth vs doesn’t matter much
CAPE10 and other PE multiples are useful information vs worthless noise that should be ignored

Yep!

4% withdrawal rate is safe for even very early retirement vs perhaps not so safe beyond 30 years

I think this is broader than that because there is a large contingent of us who wouldn't trust any so-called SWR of and have chosen to amortize with tools like TPAW, VPW, or our own spreadsheets.
And don't forget gold, factors (and tilting), "sinning a little with a small part of your portfolio", RBDs (really bad days), Fixed AA's, Glide paths, etc.

The subscriber base there is quite large and the opinions quite diverse. The occasional stereotypes of BH I see here are generally incorrect.

100% correct - the fact that there are some quite vocal members who believe there is only one road to Dublin (theirs), doesn't negate the fact that a quite large contingent of us on BH believe that personal finance is personal.

Cheers.

 

[OldShooter]

... as to BH posters, beyond those core principles, there can be quite a bit of diversity on other issues ...

I used to be tempted to read BH every year or two, but I have outgrown that. The posts are often self-rightous and almost always boring for anyone (like me) who has decades of investing experience. I get it that many enjoy wallowing in that pond, but it's not for me.

 

[Diogenes]

There’s a lot to say, so let’s start at the beginning.
BH(BogleHead) investing is a great and simple approach, especially for people who don’t know much about investing. It also works well for most investors because even professionals rarely beat it over the long run.
At the core of BH investing are funds like VOO, SPY, or VTI for stocks and BND for bonds. The stocks ones are among the best indexes ever created, largely because they are built on the U.S. economy, arguably the greatest engine of opportunity and capitalism in history.

That said, a few additional thoughts are worth considering:

• Concentration vs. the index:
  If the S&P 500 is one of the best indexes, then its top companies should be even better. Technology now drives much of the global economy, and over the last 15 years QQQ has nearly doubled the performance of VOO, about 1,190% versus 619% (see chart). That raises the question of whether the SP500 is always optimal.

That's a crucial point, deserving its own thread. Why has technology, and specifically American technology, been so dominant? Is it a fluke/trend, albeit a protracted one, now lasting for some 30+ years? Or is it a law of the stock market, that despite high volatility (see below), in the long run, the high technology of the era, will tend to ourperform?

For me, risk is certainly not volatility. ...

For me, "volatility" is large and wrenching oscillations in my investments, but with understanding that with infinite horizon, they'll eventually recover and flourish. "Risk" means going to zero, or short of that, interminable decline.

I view the S&P 500 has being potentially high volatility but zero risk. I view buying a house as low volatility but high risk, based on my own experience, where the value of my house fell after I bought it, and never recovered (I sold 20 years later at a substantial loss).

 

[TheWizard]

I used to be tempted to read BH every year or two, but I have outgrown that. The posts are often self-rightous and almost always boring for anyone (like me) who has decades of investing experience. I get it that many enjoy wallowing in that pond, but it's not for me.

I used to be active there but I got fed up with the obnoxious over moderation. So I left...

 

[TheWizard]

...I view buying a house as low volatility but high risk, based on my own experience, where the value of my house fell after I bought it, and never recovered (I sold 20 years later at a substantial loss).

Sounds like a boomtown phenomenon...

 

[big-papa]

Some go to BH to teach
Some to learn
Some, I'm convinced, just want to stir things up.

 

[TheWizard]

Some go to BH to teach
Some to learn
Some, I'm convinced, just want to stir things up.

That apparently happened here twenty years ago during the h o c u s years...

 

[big-papa]

That apparently happened here twenty years ago during the h o c u s years...

Been a while since I've seen the-one-who-shall-not-be-named mentioned on this forum..

 

[TheWizard]

Been a while since I've seen the-one-who-shall-not-be-named mentioned on this forum..

He was on the BH forum as well if I'm not mistaken...

 

[Diogenes]

Sounds like a boomtown phenomenon...

No, it was in the small-town Midwest. The problem was with idiosyncratic risk, not systematic risk. Systematic risk is buying a house when the Case-Shiller index is high, and so, it might become the case, that a 5 or 10 years later, housing market prices haven't budged. Idiosyncratic risk is buying a lemon that should have failed inspection, but didn't, because there were hidden risks.

In a healthy market, idiosyncratic risks don't matter. I've seen neglected and decrepit houses in Los Angeles, ready for condemnation... sell for healthy sums, because of location-location-location. Meanwhile a friend right now is dealing with a deceased relative's house in Indiana, in a dying town. It's a beautiful Victorian-era house, with lovely woodwork etc. But the town has declined, the location is now euphemistically described as questionable, and the house's market-price is about on par with what it would cost to modestly renovate it. In other words, its effective value is $0.

My point here isn't to bash real estate, or to condemn the Midwest as a crummy place to live. Rather, we observe that buying a house is "risky" in the sense of potential high and unrecoverable losses. That's not going to happen if you invest in QQQ.

 

[SnowballCamper]

That's a crucial point, deserving its own thread. Why has technology, and specifically American technology, been so dominant? Is it a fluke/trend, albeit a protracted one, now lasting for some 30+ years? Or is it a law of the stock market, that despite high volatility (see below), in the long run, the high technology of the era, will tend to ourperform?


For me, "volatility" is large and wrenching oscillations in my investments, but with understanding that with infinite horizon, they'll eventually recover and flourish. "Risk" means going to zero, or short of that, interminable decline.

I view the S&P 500 has being potentially high volatility but zero risk. I view buying a house as low volatility but high risk, based on my own experience, where the value of my house fell after I bought it, and never recovered (I sold 20 years later at a substantial loss).

It amazes me how the finance industry has obscured what risk is for the majority of people. Risk is a composite measure of the likelihood (or probability) and the severity of an event (usually an adverse event). Of course anyone can say that risk for them is something else, but this just makes it harder to communicate, and thus keeps people in need of understanding what their risks are, usually from a financial advisor.

So when I describe risk in my post above, the event is a decision to sell at a loss, and the probability is how likely I am to make that decision. This way of thinking puts the focus on what we can control, and the context that drives our decisions. Of course the future is unknown and we can't control everything, and the risks remain.

 

[TheWizard]

No, it was in the small-town Midwest. The problem was with idiosyncratic risk, not systematic risk. Systematic risk is buying a house when the Case-Shiller index is high, and so, it might become the case, that a 5 or 10 years later, housing market prices haven't budged. Idiosyncratic risk is buying a lemon that should have failed inspection, but didn't, because there were hidden risks.

In a healthy market, idiosyncratic risks don't matter. I've seen neglected and decrepit houses in Los Angeles, ready for condemnation... sell for healthy sums, because of location-location-location. Meanwhile a friend right now is dealing with a deceased relative's house in Indiana, in a dying town. It's a beautiful Victorian-era house, with lovely woodwork etc. But the town has declined, the location is now euphemistically described as questionable, and the house's market-price is about on par with what it would cost to modestly renovate it. In other words, its effective value is $0.

My point here isn't to bash real estate, or to condemn the Midwest as a crummy place to live. Rather, we observe that buying a house is "risky" in the sense of potential high and unrecoverable losses. That's not going to happen if you invest in QQQ.

I'm aware of what you say.
I lived my teen years in a small town in central Kansas which has declined in the decades since.

My current house in a metropolitan area I bought 49 years ago and has gone up a bit on value since then...

 

[imjustawarrior]

I used to be tempted to read BH every year or two, but I have outgrown that. The posts are often self-rightous and almost always boring for anyone (like me) who has decades of investing experience. I get it that many enjoy wallowing in that pond, but it's not for me.

I don't spend as much time there as I use to. I still look over every new thread title every day to see if there is something that interests me. I have become very selective. Unless laws change, there really isn't much to learn any more.