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Bill Bernstein- 1% of investors

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  • Bill Bernstein- 1% of investors

    Hello WCI community,

    This is my first post here. I am a soon to be graduating 4th year medical student, 26 y.o. A little about my financial life- I will be graduating without any debt and have low 5-figures saved in my Roth IRA from some money I made in college and 1 "gap year" before med school. I understand that I am in a very fortunate financial position and am very grateful to have no debt.

    I have been a avid disciple of index investing ever since reading "A Random Walk Down Wall Street" when I was 22. For a while I was 100% in a total market fund, but lately I have been thinking more about my desired asset allocation going forward. What I'm thinking is something like 90/10 stocks to bonds with 1/3 of stocks being in an international index fund. I have been toying with the idea of 10% of my total allocation being in REIT index fund. One reason why I think this might be a reasonable idea is that I plan on renting for the foreseeable future and so it would be reasonable to get some more exposure to real estate in my portfolio. I also wonder if I should just be 100% in stocks, because I have a long term outlook and have relatively little invested. I don't think I am at risk for "panic selling", and if anything I get antsy when the market climbs. Having said all that, I understand that there are "many roads to Dublin", and so discussions over minor tweaks in AA aren't that important.

    I have read WCI's book and listened to many of the podcasts. Recently I listened to one of his older podcasts #107 with Bill Bernstein. I have to say that I was somewhat perplexed by Dr. Bernstein saying that 1% of people should be handling their own investments. He was also essentially saying that the U.S. has a terrible social system for retirees. My interpretation of this is that he believes government should take care of people's investments because 99% of people aren't smart enough or can't be bothered to invest how they see fit. To me, this came off as very "elitist". To be fair, I haven't read his books and I'm sure he is a brilliant guy. It just seems odd to me that he would be saying this when if anything, investing has become MUCH easier to execute over time with index funds and the internet. Heck, WCI talks about how he can manage his portfolio with "1 hour per year". I understand that there is a lot more to personal finance than investing in index funds, ie asset location, taxes, loans, housing/ real estate etc., but again, I feel like I have more faith in the population than Dr. Bernstein.

    If he is right, I hope I am part of his 1%!!! Does anyone have any thoughts about this?

  • #2
    Originally posted by Aquemini View Post
    If he is right, I hope I am part of his 1%!!! Does anyone have any thoughts about this?
    hes usually right.

    you are also dealing with the 1% here. so its a self selecting group.

    Comment


    • #3
      Congratulations! You are doing better than 99.9%!
      I listened to that podcast, but not recently. I have read Bernstein’s books, and heard him speak many times.

      My guess is that he intended the following:
      1. less than 1% of the US population makes sound investment decisions (99% spend too much, save too little and make poor decisions)
      2 . People once had jobs that offered good pensions but that is no longer true
      3. Many people would benefit from a fee only advisor to help craft a plan.
      4. be careful when hiring an advisor, because currently they are a lot of salespeople pretending to be advisors. I have heard him say more than once: “treat all advisors like hardened criminals”
      5. It would be nice if the government would try to force all advisors to act in the best interest of clients (fiduciary rule)

      I don’t want to speak for him, but that would be my guess. I could be wrong.

      Comment


      • #4
        It's probably true that only 1% of people CAN/SHOULD handle their own investments. 99% of people have the opportunity/chance to learn the basics and develop the skills needed to successfully handle their own finances. We have a terrible social situation for retirees because we don't teach people what they need to retire because they depend on the government. Our situation could change but it starts with financial education and would likely take several generations to start seeing the results. Most Americans can't make the right decisions in the present so it's impossible to think they can be forward-looking with their decisions.

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        • #5
          We are the 1%! It seems so easy once you learn the basics that it sounds ridiculous that the average person cannot do it. But the average person doesn't care. That is the trouble. It is not complicated but that doesn't make it easy. Most people cannot get past the not spending all their income part.

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          • #6
            The recipe for achieving wealth and health is simple, but human nature gets in the way. Most of us are human.

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            • #7
              1% of people should manage their own investments is probably high.
              i'm not even sure that 1% of doctors should be doing it.
              you need a working knowledge of asset allocation and almost more importantly you really need to understand market fluctuations and what they mean for your future.*


              * nothing

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              • #8
                Bernstein is correct. He is not an elitist, but rather, a realist. He has a lifetime of experience in medicine, as well as finance, seeing how average Americans make poor financial decisions, with social security as their primary source of retirement income.

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                • #9
                  The biggest obstacle to successfully managing your money is behavior, not the knowledge required. That is where the 1% becomes an issue.

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                  • #10
                    I would agree with others that he is far closer to being correct than not and behavior is the problem. My understanding is that his opinion was informed by his observations of how his clients behaved during and after the 2008 downturn. The other current problem is that the alternatives to DIY are generally pretty bad. The minority of people have fiduciaries managing money and the government certainly could step in to help in this area.

                    And if you enjoy reading finance books (and/or history books), I would recommend his highly.

                    Comment


                    • #11
                      Even here among the "1%" we routinely have members trying to time the market, trade options cause "smarts" and bail on equities at start of Covid this March. Basically we'd all do better on autoinvest to an AA via indices. But we can't stop ourselves from "doing" stuff.

                      Emotions are the problem, not smarts. Doctors have plenty of smarts, but excess hubris and average emotions. Hence Bernstein believes (from experience) doctors are worse investors. Best investors - engineers, teachers.
                      Last edited by beagler; 12-20-2020, 03:39 PM.

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                      • #12
                        Yes I certainly agree that behavior is the hard part. However he was saying things like DIY investors would really need to take financial studying very seriously and was comparing it to approaching finance/investing with the same intent as we approach the study of medicine. Honestly I listened to this a couple weeks ago and I don't want to misquote him but that was the impression I gathered.

                        And I find it strange because as far as I can tell I could honestly just pile money into a target date fund for the next 40 years and not think too much about investing and not read Barron's or bogleheads or anything, and that would be quite an effective and extremely passive investment strategy.

                        I am definitely not trying to say he's wrong and I understand he's a well respected guy in this field. I just find it hard to reconcile these ideas with everything else I know about investing, namely invest in low-fee index funds for the long term and there's no need to follow the markets too closely. In fact you are probably better off behaviorally the less closely you follow the financial news. Maybe I am young and naive, but it just doesn't seem like this huge rigorous intellectual undertaking.

                        I certainly will pick up one of his books soon. Have a lot of free time as a 4th year student in a pandemic.

                        Comment


                        • #13
                          Originally posted by Aquemini View Post
                          Yes I certainly agree that behavior is the hard part. However he was saying things like DIY investors would really need to take financial studying very seriously and was comparing it to approaching finance/investing with the same intent as we approach the study of medicine. Honestly I listened to this a couple weeks ago and I don't want to misquote him but that was the impression I gathered.

                          And I find it strange because as far as I can tell I could honestly just pile money into a target date fund for the next 40 years and not think too much about investing and not read Barron's or bogleheads or anything, and that would be quite an effective and extremely passive investment strategy.

                          I am definitely not trying to say he's wrong and I understand he's a well respected guy in this field. I just find it hard to reconcile these ideas with everything else I know about investing, namely invest in low-fee index funds for the long term and there's no need to follow the markets too closely. In fact you are probably better off behaviorally the less closely you follow the financial news. Maybe I am young and naive, but it just doesn't seem like this huge rigorous intellectual undertaking.

                          I certainly will pick up one of his books soon. Have a lot of free time as a 4th year student in a pandemic.
                          You are not really wrong. If you save 20% of your income and stick it in a target date fund automatically for 30-40 years you win. That is enough to put you in the 1% of investors.

                          Tax management, asset location, tax lost harvesting, roth conversations, etc. You do not need these things. They are just to optimize and will not move the needle much if you don't have the important stuff in check.

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                          • #14
                            Why is studying and "knowing the ins and outs" of market useful if the broad market beats out 90%+ of certified fund managers who I assume are well studied/certified in this field? Nothing with starting early, picking a reasonable asset allocation and sticking with it no?

                            Comment


                            • #15
                              Originally posted by burritos View Post
                              Why is studying and "knowing the ins and outs" of market useful if the broad market beats out 90%+ of certified fund managers who I assume are well studied/certified in this field? Nothing with starting early, picking a reasonable asset allocation and sticking with it no?
                              i mentioned this in another recent thread, but as a member of the wall st ecosystem myself, the money is made charging access to that ecosystem, not with actual stock picks. Very few make money that way. But pretty much everyone makes a lot of money charging those fees for access.

                              My original comment was regarding SPACs (fees for IPOing this way are 25% ish!!! Vs 5%ish for a normal old IPO), but it really is an answer to a lot of the confounding questions out there.

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