Bill Bernstein- 1% of investors

[EntrepreneurMD]

Definitely. 99% of those here should have someone manage their finances or just index, perhaps just dabbling token amounts into their curiosities otherwise.

The 1% think very, very differently from what I see versus the conventional wisdom commonly discussed. I know a lot here take it as elitist but then they admit they don't want to do the work, don't care beyond FI, etc. Reality is you can't really be part of the herd if you wish to accomplish any significant upward mobility, because anyone can do that. For the masses, accepting index returns keeps a ceiling on returns and hence inflation, thereby limiting the erosion of buying power for billionaires, decamillionaires, etc. Of course the 1% themselves don't want just 7 or 8% long term annualized returns, or 2-3% real after inflation/taxes. Hence they buy growing businesses, leveraging RE, outperforming sectors, fine art, rare collectibles thereby continuing to grow their wealth much faster than market averages, with the added benefit of lower tax rates than the masses, due to these investments. Maybe many roads to Dublin, fewer roads beyond though. Ambitions for a comfortable retirement with average spending - conventional wisdom is fine. I've chosen a more aggressive route that has paid off significantly more dividends over 2 decades with just a little more effort, certainly easier than the red tape and administrative hassles of practicing medicine, and that drives me since it's a bigger bang for my efforts.

The minimum threshold for the 1% by NW is about $11M and by salary essentially breaking into the top tax bracket. Not many docs get there especially by NW as it's quite difficult with indexing due to our late career starts, especially if you have an income (growth) cap as an employee. Whether it's business ownership, RE leveraging, or outperforming sector funds, a fog is lifted on the high speed road towards success. It takes effort, but the 1% have added the turbochargers, racing tires and carbon fiber parts - representing the greater effort and tools necessary for accelerate financial compounding.

You're off to a great head start, and I like your independence of thought. Recognize the subconscious impact of social media articles on your freedom of thought. There are a lot of very wealthy people/corporations that want you think a certain way for their benefit. Whether it's about how you should earn, spend, save or invest. You read it enough times, it must be true right? Wrong. Too many get caught in that trap. The 1% aspirations are keenly aware of this. Just another roadblock on that road to be circumvented.

[Tim]

Hence Bernstein believes (from experience) doctors are worse investors. Best investors - engineers, teachers.

Anecdotal I am sure. Every teacher I know has a pension. Not sure teachers pensions are better than police and firefighters. Btw, great insurance benefits for most unions too. Might be his experience from a medical point of view. I would be curious a little of the rational for his conclusions.

[jfoxcpacfp]

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

Thank you for stating that. Couldn’t agree more.

As for Bernstein and his experience with “average Americans”, his experience is with doctors, which is a skewed group that does not typically depend upon SS for retirement. So I understand his opinion in this area, but the part about the American retirement system leans a little political for me. With sincere respect, would prefer he stick to his core experiences.

Back to the OP’s question, we typically recommend a 5% - 10% allocation to REITs, with the understanding that this is an asset class just as Large Cap and International are asset classes. And we do not recommend stocks, but mutual funds and ETFs (all index b/c that is what our clients ask for, although I’m agnostic on active v passive in this area).

[FIREshrink]

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?

It's not the math, or the mechanics. It's the behavior; the psychology . I think maybe 5-10% of folks have the interest, the dedication, and the talent to do a good to great job with their money. Everyone else would be better off with a 0.5-1.0% AUM fiduciary advisor. IMO.

[VentAlarm]

I would not slice and dice a low 5 figure portfolio. As long as you have equity risk and a low fund expense, you’ve done what you need to do.

The most important things you can do in the next 3-10 years are:
marry well
get disability insurance
avoid consumer debt
Learn about finance
get a good job

Think about it like this: you’ve got it made. You can screw up plenty as long as you get the big rocks right. 10% reits on 20k doesn’t matter when you’ll put 100k/y in as an attending.

[VentAlarm]

I would not slice and dice a low 5 figure portfolio. As long as you have equity risk and a low fund expense, you’ve done what you need to do.

The most important things you can do in the next 3-10 years are:
marry well
get disability insurance
avoid consumer debt
Learn about finance
get a good job

Think about it like this: you’ve got it made. You can screw up plenty as long as you get the big rocks right. 10% reits on 20k doesn’t matter when you’ll put 100k/y in as an attending.

And while you’re at it:
don’t get a dui and don’t sleep with any nurses.

[Brains428]

Saving, debt reduction, and STAYING invested is important.

The biggest advantage the WCI community has over other investors is higher than average compensation (many well above average) and to work in an industry that is well preserved in times of economic distress (COVID proving to be the exception). So, we have the advantage of being able to lose money, and remain employed when everyone else loses jobs, and with such job security not have to liquidate savings and assets to survive.

Even with all that- people still manage to screw up the saving, debt reduction, and staying invested. That's not even arguing about asset allocation. So yes- many people can't manage their finance and investing. The percentage is unimportant- the concept would be hard to challenge.

[artemis]

Maybe I am young and naive, but it just doesn't seem like this huge rigorous intellectual undertaking.

It’s not a huge intellectual undertaking. It’s a huge EMOTIONAL undertaking. When the market crashes, it’s extremely difficult to force yourself to sit on your hands and do nothing. The more money you have invested, the harder it is. In a bad bear market, far too many people panic sell and lock in losses (usually because they were taking too much risk in the bull market before the bear hit).

And you CAN’T ignore the financial news in a bad downturn, no matter how hard you try to. It will be coming at you from all directions. The only person unaware of the huge crash in 2008 was Rip Van Winkel. Anyone who was actually conscious knew the economy and the stock market was melting down. Until you’ve gone through a real bear market, it’s hard to understand how much fear they can generate even in normally level-headed investors.

[racelari]

dude, I definitely agree with Bill Bernstein. If you read "Your Money and Your Brain" this will reinforce the behavioral economic biases that prevent 99% of people from investing money themselves, assuming that they even have the intelligence and education to attain the basics of personal finance.

Also, your comment might reflect a behavioral economic bias as well, the "availability" bias or another one "confirmation" bias. you are doing awesome in your finances man! But that is because you are constantly reading and learning and exposing yourself to the WCI community, so you think all people are financially literate because that is what is most "available" in your brain. And likely you're talking to only your classmates that are financially literate, "confirming" that this stuff is easy.

To break this bias, try talking to your classmates who you don't normally talk to and ask them about their asset allocation- bet you'll get blank stares.

Or go back into your memories that are even more remote and not as available. Did you play high school football? I don't know about you, but I bet you I am the only one in the Hillsborough NJ high school football team I played on to know about regular investment in a 401k and choosing an appropriate asset allocation. even outside of football, I bet only 16 people out of a school of 1600 kids in my old high school are financially literate (1%). Hopefully nobody from my high school is reading this . . .

Speaking of which, said football team is where I had a teammate who became a Northwestern Mutual Financial "advisor" and duped me into buying whole life insurance. Managing money myself led me to trust a salesman and lose $50K in whole life insurance to NWM Despite me being on this forum, I myself should not be considered in that 1% that properly manages my money. I am that 99% that Bill Bernstein speaks of where if he had been my advisor instead of my high school buddy, I would be $50k + compound interest wealthier.

[Larry Ragman]

While the sentiment that the vast majority would benefit from a good (trustworthy, brave, loyal...) financial advisor is probably right, I find myself doubtful that it is 99%. Rather I suspect there is a huge number that don’t have enough investable resources to really benefit. Some, mostly those with pensions, will do ok. Others, who do not have pensions and never invested in their 401k, will be living very small retirements on social security. I’m not sure a FA helps much in either case. These folks will spend what they have and that is what it is. (My parents were in this camp and did fine.)

But that still leaves a lot of folks who are trying to save and invest their way to retirement or FI. I meet otherwise successful people everyday who should not be making investment decisions on their own because either they do not have the inclination or the knowledge. The whole FA solution really only applies to the former. And even then there is still the minefield of finding one who is not going to over charge on AUM or sell unnecessary financial products, so it is no panacea. Better to stumble through than actively get led down a primrose path. The latter group who are motivated but lack knowledge should be able to educate themselves (as we all have). Well, everyone should be able to do so, but I acknowledge they may not. But whether 1% or 10%, millions will be fine on their own.

Back to the original question, OP of course you can do it if you are motivated to do so. You have all the knowledge resources you need on this site (I mean the blog, though the Forum offers a lot of practical advice) and others like it, not to mention books galore. As several commentators have said already, the behavioral aspects present the greatest challenge, but knowing that allows you to take effective steps in mitigation. Get started and enjoy the journey.

[Bev]

Yes, I think the 1% quoted is very correct.

I conducted an informal test of three very successful doctors who live in our neighborhood. All three are in their late 40s/early 50s age group. (I just picked doctors, but could have easily chosen lawyers.)

I asked them what they thought of the Secure Act moving the goal post on RMDs to age 72 rather than age 70.

All three of them asked me what was an RMD.

I was fairly surprised.

I did my best to explain, but there was pretty much no interest level at all.

All three have a financial planner who handles everything.

[Hatton]

OP I think Bernstein formed his opinions in a very different time. I am 63 and he is a few years older than me. Back in the dark ages an individual really had to use a stock broker as an advisor. Using a non-fiduciary salesman led to a lot of mistakes. Most figured this out and eventually either found a FA or became DIY. Now it is so easy to invest yourself and to find the info you need free of charge on the internet. As others have said many are simply not interested or too prone to panic to DIY. The people who post here are not the norm even for physicians. There are a lot of great pearls in this thread. You are doing great BTW. I think it does not matter too much about REITS. BTW I own a small position in VNQ. At some point you will need to hold your nose and buy bonds. The only reason to do so now is to prevent panic when stocks take a 50% dive. How did you react in 2-3/2020?

[Kamban]

I think most Americans would do best if they had the "opt out" policy for retirement, as espoused by Richard Thaler. Every company should take out 10% of your salary, match some percentage and put it in the 401K that is only index stocks and bonds. Pretty much most people would do well when the time comes to retire, since they will have the trifecta of Medicare, SS and now an income stream from the compulsory retirement plan. But as a nation I don't think we have the will power to enforce it. Everyone thinks they can do better with that 10% managing it themselves, including those 1%ers.

[Random1]

Every company should take out 10% of your salary, match some percentage and put it in the 401K that is only index stocks and bonds.

Is this what SS is all about ? The government takes a fixed percentage (12.4%) out of your paycheck and "invests" it for your retirement.

[CordMcNally]

Is this what SS is all about ? The government takes a fixed percentage (12.4%) out of your paycheck and "invests" it for your retirement.

That would be ideal and actually would probably be a great program but that is far from what happens.