Lessons W. Bernstein learned over decades

[saratoga]

William Bernstein on two lessons he learned over decades of investing experience:

humbledollar.com/2022/01/a-day-to-remember/

[retiredat48]

Hi saratoga...I read the piece.

I'm a Bernstein fan...but I take issue with two things.

He states young investors need to find their risk tolerance for bear markets. In their 401.Ks, he suggests they go 50/50 bonds through the next bear market. Then if they did not panic, increase stock allocation going forward.

I have recommended the reverse. Young'ins should go 100% stock funds, then experience a bear market. If you weathered it well emotionally, rinse and repeat, staying with stock funds...to $150,000.  If you did panic, then go to a bond allocation component.

In the Bernstein way, you give up a lot in performance, just to test yourself. One has a lifetime of investing left if you panicked and sold.

I also take issue with retirees holding ten years of withdrawals in "safe" bond funds, but that is a story for another thread.

R48

[Deleted]

During retirement holding 10+ years of expenses in cash/bonds is interesting. I guess reason is to 1. ride out any downturn and 2. And any unexpected expenses one did not plan for. Ie. We might end up spending more than planned. With 20% increase in prices we had last year, I am sure lot of peoples plan will be affected. ( I know inflation is 7% but prices I am seeing are much higher from pre covid prices)

Generally people said keep x% in bonds instead of in terms of years of expense.

[retiredat48]

Yes waffle, but Bernstein meant cash and/or very short duration/safe bonds, to cover ten years of withdrawal needs.

R48

[steadyeddy]

Rule #1: Do not lose money; Rule #2: See rule #1 ---- I believe this is attributed to Buffett. I practice this.

[chang]

I agree with retiredat48’s two points. Bear markets are too infrequent to rely upon to fine tune your AA. Better to test your mettle fully during the first one you meet.

It’s a great and engaging article, with many excellent points, such as the “human capital” element. However, I dislike the modern, politically correct habit of using “she” instead of “he”. It looks silly and distracts from what the author is saying.

[Chahta]

Jan 16, 2022 20:14:32 GMT retiredat48 said:

Hi saratoga...I read the piece.

I'm a Bernstein fan...but I take issue with two things.

He states young investors need to find their risk tolerance for bear markets. In their 401.Ks, he suggests they go 50/50 bonds through the next bear market. Then if they did not panic, increase stock allocation going forward.

I have recommended the reverse. Young'ins should go 100% stock funds, then experience a bear market. If you weathered it well emotionally, rinse and repeat, staying with stock funds...to $150,000.  If you did panic, then go to a bond allocation component.

In the Bernstein way, you give up a lot in performance, just to test yourself. One has a lifetime of investing left if you panicked and sold.

I also take issue with retirees holding ten years of withdrawals in "safe" bond funds, but that is a story for another thread.

R48

As much as a young person can put away and the faster the better. All into equity index funds from the first paycheck until 60 years old. Buy and hold and don’t look back. Then worry about safety. A 20 something owning bonds is rediculous.

10 years of safe funds are a bit too much. A couple years should be enough.

[saratoga]

I appreciate Bernstein's main points but not necessarily all his prescriptions.

1. Survival of a portfolio is most important.

You need ammunition to fight tomorrow's war.

I started with 100% equity portfolio and I would not normally advise 50% bond portfolio to a young person. However, I know around me someone whose portfolio consists of zero equity and another who basically gambled his fortune away. They may be extremes but there are many like them.  A good advice is no good if not followed. Try advising 100% equity portfolio to someone who reacts hostilely to the suggestion of increasing her equity allocation to 10%.

2. Having a floor of safe assets in a retirement portfolio has many benefits - psychological or otherwise.

I have built a modest storm shelter in my portfolio. RMDs from this shelter and PRWCX are not large. But together with pension and SS, they provide a minimum adequate and stable income for me. I derive significant emotional benefit from this floor and they also allow me to be more aggressive with my portfolio.

[FD1000]

I like several of Bernstein (ideas), but don't like others.

Like:
1) "20-25 times your residual living expenses (after pensions/Social Security) invested solely in safe assets."
FD: Fidelity says 10-15. My own calculation show 20-25 times is enough.  I retired with 25+ times.

Don't like:
1) "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: if you don't have enough, keep working.
FD: Right now working more is doable, but for many years it wasn't. Many times older people can't find a job. How many people can retire with the above? a huge % can't achieve 20-25 times. Should they work until they die? Using Bernstein bond ideas is another bad idea. As usual, most analysts do a good job with stocks ideas because it's easier, but not with bonds.

2) "young investor, then, needs to discover his real-world risk tolerance. Start with, say, a 50% stock-50%"
FD: terrible idea for young investors

[johntaylor]

Re Bernstein's Politically Correct "she", my old professor archly said to use "he" because "man embraces woman"

[galeno]

I'm a big fan of Bernstein. But I think he complicates things more than necessary.

He likes to base retirement withdrawals on LMP (liability matching portfolio). I like to use the easy and simple SWR. Using Bernstein's LMP (20 yr of "safe assets") we should be 30/70. We feel that's too underpowered for a 31 year retirement term. So we hold a 50/50 port. 

He seems to favor multiple fund "slice and dice" portfolios. I like the simplicity of the 2-fund port.