 Okay folks, we're going to get started. We're going to cut the introduction short. The moderator for this Q&A with the experts session is my good friend in Bogo Hitch, conference team member Mel Turner. Please welcome Mel. Thank you. Before we start, if I could have everybody just wait. We're trying to stay in touch with Paul, then San Diego. We're texting back and forth. So if I can everybody wait, I want to take a picture of you real quick, and I'll send it to him. So, okay, that's good. Perfect, perfect. He'll appreciate it, I tell you. He's like hanging on the edge of his seat. So my name is Mel Turner. Better known as Tom, you know the story behind that, so I won't get into that. Thanks for all the first timers that come here. We appreciate you making the effort, and also for the people that are coming back. Welcome back. We hope you enjoy it. I also need to recognize my wife. This year is our 50th year of marriage. So, I'm not sure how she puts up with it, actually, this insanity that I go through. So who are we? We represent inside the room 31 states. We have three countries until Nicaragua had to back out. Mary flew all the way from Germany. She's by far the farthest, and she came out here just for the conference. That's pretty amazing to me. About a third of you are the first timers, and two-thirds of you have been here before, and that stays true almost every year, year after year. So we're glad to have the new people that are in here all the time. I've collected the questions. I've got about 20 pages of single-spaced questions. I've tried to sort them out, made some for the young people, for the old people, for the beginners, the novice investors, and also for some more experts. So try to spread them out as best I can. I've changed the wording on a lot of them. I've amended them, but I'm sure you'll recognize your question. I've tried to give priority to everybody that's in this room, so your questions are going to be asked first, or at least your name will be mentioned first. So the goal is to finish up about 10 minutes early. Mel said he'd give me a heads-up, and then we're going to allow each panelist to have the last two minutes each and just kind of tell what they're doing, what their goals are, last-minute thoughts, nuggets that they've saved. Oh, I wanted to say that. That's going to be their chance to be able to say that. So this session is all about you. These are your questions, and we're here to listen to what the panelists have to say. So I'd like to go to the introductions in alphabetical order. Last year I said in alphabetical order, and I introduced Bill Bernstein first, and I saw body language of Christine Benz saying, where is Benz Bernstein? What's up with that? And I just realized after I got home, oh, I messed up, so we're actually going to do it in alphabetical order today. So our first panelist is a Morningstar director of personal finance in the senior columnist for Morningstar.com. She's a prolific financial writer, and in my opinion one of the best financial interviewers that's around. Please welcome Christine Benz. Our next panelist is co-founder of Efficient Frontier Advisors and author of several successful titles on finance and economic history. His book Four Pillars of Infest, and I consider to be a classic, but he's also written books about the history of trade and the influence of the media. He has a PhD in chemistry, and he's also an MD, he practiced neurology until he retired and then he went over to something real simple like investing. And I wish I had half of his eloquence. So please welcome a Boglehead favorite, Dr. Bill Bernstein. This is a second visit for our next panelist, and he's a Boglehead favorite. After 20 years of writing columns in the Wall Street Journal, he's also written nine books, including his most recent From Here to Financial Happiness, which was released in September. And he, just on a personal note, inspired me back in the late 90s. I collected every one of his getting-going columns, and I have a three-ring binder at home that I still save to this day. So please welcome Jonathan Clance. Our next panelist is the founder of Portfolio Solutions and the author of several investment books, including the Power of Passive Investing, all about index funds, the ETF book, and all about asset allocation. He's been a supporter of the Bogleheads right from the beginning, and we are fortunate to once again have him on the panel. He also does a Boglehead podcast, and you can find his new website just by typing in Rick Ferry at Core 4, and it'll pop right up. So welcome my fellow marine aviator, Rick Ferry. Our next panelist is the founder of Wealth Logic. He holds a CPA, CFP, and an MBA, and he served as a corporate finance officer of two multi-billion-dollar companies. He has decades of research and portfolio construction, but does his best to keep investing simple for his clients. I personally recommend how a second grader beats Wall Street. I loaned the book to my friend who had a broker with UBS and he wouldn't give it back to me. And I said, hey, Bob, give me this book back. I can't do it. I said, why are you keeping it? He says, I'm moving everything from UBS over to Vanguard just because of the book. So I... Check's in the mail. Thank you. So if I had a new battle with Wall Street financial machine, I'd want him on my side. His professional goal is to never be confused with Jim Kramer. Please welcome Alan Law. Our next panelist is here for the first time. He became a personal finance columnist. The Wall Street Journal in 2008 continues to write a weekly column, The Intelligent Investor. Before that, he wrote columns in Money, Time, Forbes Magazine. He's written several books. My favorite is Your Money or Your Brain. And he was the editor of the revised edition of Benjamin Graham's Intelligent Investor. This is his first visit to the Boglehead conference, and we hope it won't be his last please walk of Jason's wife. So the first question, if Tater was on there, I always ask him the first question, and to honor Tater Laramore, for those who don't know, he was one of the founders of our Boglehead group. Back in April, I emailed him and said, Tater, I want you to have the first question. What do you want it to be about? We went back and forth several times about what subject we're bringing out. And as you know, he's a man of few words, but he's succinct, and he gets right to the point. I told him about my story of messing up. 28 went to a personal finance class with my wife. Out of that, you got a free one hour with a CFP, and we were lambs to the slaughter, walked out of there with a whole life life insurance policy, a limited partnership that confused my taxes for decades. And he sold me Oppenheimer Regency Fund with an 8.5% load before I knew what load was. So, Tater decided, you know, everybody thinks these experts never make any mistakes. So he says, why don't you pass this on? He says, what was your biggest mistake of each one of the panelists, and what did you learn from it? Anybody can go first on this one. I'll go first. Back when I was the mutual funds editor at Forbes, this would date back to 1992. Jonathan had the job before me. I thought about how I should work the match in my 401K, and believe it or not, I've learned a lot in 26 years, believe it or not, and I said to myself, I don't want to contribute up to the max because I can do better with my own money than these guys at the firm that managed our 401K at the time, which wasn't Vanguard, by the way. And so I didn't contribute up to the max. And about 10 years ago, I calculated what my opportunity cost was and I was buying on my own brilliance. And 10 years ago, it was about $280,000. Go for the match, and the max. I'm competitive. I'm going to beat you, Jason. I took my college graduation money in 1980 and put $6,684 into 10 gold coins when gold was surging, making sure it was going to triple. Today, it's not quite double that, meaning that it hasn't kept up with inflation. I did the math, had I instead invested in Jack Bogle's S&P 500 index fund, I'd have well over $400,000 more. Well, I have invested in Palladium Futures, based mutual fund, active mutual fund performance, wasn't smart enough to buy a house in Los Angeles when we moved there in 1976. But by far, by far the biggest mistake that I would made, which probably runs to seven figures, was not understanding that the optimal strategy for someone who is deep early into their saving years is to simply put 100% into equity every single month, every single year. And that really is probably the biggest mistake dollar sign-wise that I made, of all the dozens of mistakes, smaller mistakes that I've made. Okay, I'll go. Would you like to go? Okay, go ahead. So before I admit to my mistake, you should just notice the way the panelists set up. What they decided to do was to make sure that Rick and Alan were the two extremes, so it's less likely to come to fisticuffs. No. But if it does, one, I'm in the wrong place, and two, I've bet on the Marine. You're safer on this end of the table than that. Unless you attack first. I was a Cub Scout. At least you had adult supervision. So during the course of my adult years, I've managed to lose half of my wealth three times in the bear market that started in March 2000, the bear market that started in October 2007, and when my wife left me. And I've learned exactly nothing from all of those experiences. I am still invested in the stock market, and I recently got remarried. The triumph of hope over experience. So I'll talk about three mistakes that I made in my 20s because I can't decide which one was the worst. So I bought fake dolly prints in my 20s. I bought a, first stock I ever bought was an artificial intelligence stock. It was highly recommended by Money Magazine. It went to zero in about six months. And the third thing I bought as an investment was a timeshare. And those are my three big mistakes. I'll go ahead. I have a long list. But I think the one that I reflect most on and feel the worst about is actually one that didn't have such a big effect on me personally, but I still feel guilty and complicit about having covered a lot of growth-oriented mutual funds when I was an analyst in the late 90s and just not pushing back hard enough on that whole phenomenon and not pushing back on fund managers enough and not asking all of my stupid questions for fear that I would somehow show myself to be not so knowledgeable. So I guess I've been trying to atone for that in one way or another ever since because I feel guilty about whatever role I had in helping investors take part in that mania. So I hope you don't feel so bad now about your mistakes. We all make them. If you don't make mistakes, you're not trying very hard. So the next question is kind of a carry-over from the last conference we had. Sue asked a question about Bitcoin and everybody was getting a big laugh out of it because they said, well, it's going to be the last one holding the bag is going to get stuck with a Bitcoin. One of our panelists picked up the mic and said, I bought some Bitcoin. There were so many people that inhaled it sucked the air out of the room. In the meantime, Bitcoin has been from 4,200 up to over 19,000, as you saw on Jack's slide today. Right now, I don't follow it, but it's like 6,200 or something like that. So we'd like to ask Alan Roth what you've learned in the last year, who's buying Bitcoin, and then we'd like to ask the panel as a whole, do you think it's a real deal or do you think it's a scam? For the record, I think I also disclosed about $200 worth of Bitcoin so that I could basically fact-check everything people were telling me about buying Bitcoin so that the article was accurate. With that said, and I'm up by 50% still, but again, I don't even know if I could have sold it when it hit $19,000. It's probably going to be worth zero in 10 years, but with that said, it does solve a problem when I buy something on Amazon and get 2% cash back on my credit card. Amazon is being charged more than 2% on that. Bitcoin makes the transaction virtually free or maybe a dime. So I'm not convinced it's likely to be worth zero. There are thousands of different cryptocurrencies. I'm thinking of creating Rothcoin. Raise your hand if you want to buy it. Can you show us your coin after the conference? I want to see what it looks like. It's virtual. And it seems like they're always being investigated or challenged or something. My gardener, I asked him if he'd save and he says I'm investing in Bitcoin. That scared the daylights out of me. Bill, I'd like to know what's your opinion. What's the deal in Bitcoin? You study the financial markets and that part of the academic part of it. Well, I think that the academicians have been trying probably since the time of De La Vega to mathematically define what a bubble looks like. You can't do it. Some very smart people have tried to do it and you can't define it mathematically, but you can define it sociologically. It's when you see that it's top-of-the-gay at a social gatherings check. People quit good jobs. Quit doing brain surgery to become crypto coin investors. Check when you get pushback of an extreme sort when you express skepticism. I can't keep out of my mind the image of what John McAfee promised to do on national television if Bitcoin didn't reach a half a million dollars. You can look it up and you can Google it. Finally, when you see extreme predictions, it checks all of those boxes. It'll be one more item in the history of bubbles that gets written every 10 or 15 years. While there is a limited amount of any particular cryptocurrency, there are an unlimited potential number of cryptocurrencies, and if there is an unlimited supply, economics tells us the price will be zero. When even Alan Roth is going to have his own coin, you know that there's just... The supply will swamp demand and the price will inevitably head towards zero. Did Rick Berry pay you to pick on me? I applaud Alan Roth for buying Bitcoin. I would have done the same thing. Not really. Anyway, so let's not confuse blockchain technology with Bitcoin. Blockchain technology is real. It's a way of accounting and verifying transactions. A lot of companies are going to blockchain technology. They will be in the not too distant future mutual funds that are based on blockchain technology. Not to invest in it, but I mean the coin itself. There are already things called initial coin offerings which are based on company equity as opposed to going on to a stock market. This is coming. So blockchain technology is real. It's coming. We're going to see more of it. Now, Bitcoin is simply a currency which was created based on this blockchain technology. And the idea was that it's going to be a global currency. I don't know if we're ever going to see global currencies because the Federal Reserve likes to be able to control money to be able to control our own interest rates. So I think that the government will stop eventually if these things do become used for transactions globally that if it begins to affect our own money supply and the Federal Reserve's ability to operate that we're going to see a lot of clampdown on this and we're already seeing it in other countries. So let's not confuse Bitcoin with blockchain technology. I just wanted to make sure that you understand there's a big difference. And I would just add one quick note to what Rick just said which is that to the extent that blockchain technology is real and has enormous potential to transform the way financial transactions are conducted and I happen to agree. I think it probably does. Then the ultimate form of digital currency we're likely to see would be Fedcoin, Eurocoin, B.O.J. coin and B.O.C. coin with the Bank of Japan, the Bank of China, the Fed and the European Central Bank all issuing their own crypto currencies and when they do that it's going to be very hard for private crypto currencies to compete. I think the problem that a lot of speculators have made because I would not call anybody including Alan of course who invests in Bitcoin an investor because they're not investing, they're speculating. The problem that all these cryptocurrency speculators have made is that they've confused a very good fundamental idea, the idea that currency could be digital and facilitate electronic transactions globally with the inevitability of any particular cryptocurrency being the one that succeeds in exactly the same way that in 1999 and early 2000 people confused the undeniable enormous potential of the internet for the idea that I can pick the internet stock that is going to be the great money. Christine, have you written about it at all? No, we keep passing around the Bitcoin specialty but we have not delved into Bitcoin in any great depth. Okay, let's go on to the next subject and it's kind of a carryover from the last conference that we had, one of the questions that were there. It says, here's another follow-up question from last year's conference. Several panelists suggested emerging markets were undervalued and would be a good place to invest. Since last year, Vanguard Emerging Market Stock Index fund, Admiral shares are down 8%. Over the last 10 years they've only returned 3%. So this is from Danielle. It says, last year Jonathan Clemens suggested that due to demographics, emerging markets have more potential for growth in the next half century. I would like the panel's views on this, especially Mr. Clemens. It's a classic example of the mismatch between the way financial markets operate and our own expectations of returns. If emerging markets are down 8% over the last 12 months, I am 8% more excited about them. I'll be told to buy low and sell high if you thought emerging markets were a good idea last year and I certainly did. I have no reason to think that there are any worse ideas today and in fact at the current prices I'm more excited by them. So yeah, I have as much in emerging markets as I did a year ago, maybe even somewhat more and I fully expect over the next 10 plus years that they will be a great investment and I would not advise anybody to put their entire portfolio into emerging markets but if you have say 10% of your stock portfolio into emerging markets I don't think that's unreasonable. The nice thing about emerging markets stocks is that from time to time they get to be really cheap and of course on the way getting there they can lose you a lot of money. Now, in terms of finance theory you would predict that emerging markets should have higher than average realized returns because they're riskier. I'm not sure that the data are convincing on that subject and in fact when you look at the very longest time series going back to the year 1900 of what looked like emerging markets stocks then actually have returns that are lower than developed markets and there are possible reasons why that's so having to do with rule of law and shareholder rights. What I like to say about Chinese stocks is that a country that doesn't present its children from like contaminated toys is not likely to also protect the interests of foreign minority shareholders. That said, I think that a small part of them is a reasonable part of diversified portfolio. If for no other reason than rebalancing reasons, they're very volatile, the prices go way up and the prices go way down and if you're a disciplined long term asset allocator that's a good thing. I think there's also a myth out there that faster growing economies relate to faster growing stock markets and Jason I believe that's not necessarily true. And then just one other thing, people, even advisors chase performance. I profiled Dimensional Fund Advisors, DFA a few years ago and their largest single fund was their emerging markets fund because after it had performed well, money moved in. I don't know when emerging markets are going to turn around so I'm going to give you my long term investment view of it if you have a total international stock index fund or a global equity fund, Vanguard's VT fund, you're invested probably as much as you should be invested in emerging markets. In the short term, when the US sort of does something as small as we're not getting political but tariffs, emerging markets get crushed from that. So everything we do in this country just has a domino effect and really hits some of these emerging markets very hard. So I don't know when they are going to recover. I imagine they will eventually. My allocation would just be whatever your allocation is to the international index fund. It's got emerging markets in it. Or if you're doing VT, whatever the emerging market allocation is, is good. Yeah, in fact, I think that's a good point. And I think that actually the market allocation from VT or from a total international fund is actually an upper bound because that puts your VT, your emerging markets are going to be about 10% of your stock allocation. And I think that's kind of an upper bound. I think that it should never exceed that and probably in many cases might even be lower than that unless you're going to invest in VT. So DFA was mentioned a second ago. So I'll jump down a few questions. And DFA is based on pharma French. Small cap value is supposed to give added return without added risk. So I pulled out the numbers for Vanguard's small cap value and also DFA's small cap value. So three years, Vanguard's eight tenths better. Over five years, Vanguard is 2% better. 10 years, Vanguard is 5% better. 15 years, Vanguard is 0.5% better. Why would anybody invest with DFA? Plus you have to go through a broker that's been screened some kind of an exclusive thing. It reminds me of Costco. You know, you've got to go through this broker thing to be able to even buy the DFA funds. Why would anybody do that? Okay, so I'll answer that. If you don't mind, I'll start. First of all, it's not a broker. It's an advisor. They have to have gone through DFA's two-day course and then they have to be accepted by DFA to be able to use their funds. The advisor doesn't get any commission or any kind of benefit from using DFA versus using Vanguard or iShares or anybody else. It's exclusive though, right? Not everybody can just start selling DFA funds. Don't you have to go through the course? You have to go through their training. Plus a lot of the brokerage industry, you can't use them if you're a broker. But I should add that the rigor of that training process equilbrates to being able to fog a mirror. If you're able to survive this two-day conference, you can survive the DFA training. Okay, anyway. So with that, as far as, you know, whether Vanguard's small cap value fund outperforms DFA's small cap value fund, it's irrelevant. Vanguard calculates small cap value differently than how DFA calculates small cap value. DFA uses a one-factor model, basically book-to-market, which is the reverse of price-to-book. Vanguard uses a multi-factor model to do it. So, you know, sometimes price-to-book is the better outperforming value factor. Sometimes it's not. And when it's not, the Vanguard model, which is a multi-factor model, will outperform. So I don't really put any... looking at past performance saying Vanguard's way of doing it is better than the way DFA is doing it. You know, by the time you get your money invested in Vanguard and you took it out of DFA, I guarantee you that's exactly the day it's all going to reverse. You know, I think DFA are one of the good guys. They're just not Vanguard good. And when I profiled them, they were quite clear that it wasn't a free lunch. It was compensation for taking on more risk. And roughly 15 years ago, I did an experiment. I put maybe 5% of my assets in DFA and 95% at Vanguard. Today I'm about 2% DFA and 98% Vanguard. And my biggest disappointment was really the tax inefficiency of a firm that says they're very tax-efficient. So the next question is the most often asked questions, and I hope I can express it. I'll read three people's different requests, but they all kind of fall into the same theme. They're basically worried about the rise of interest rates and why should it be in bonds. So the first one's from Fred Berry. He should be in the room here somewhere. He says, first thanks for organizing the conference. My question is for fixed income, part of our asset allocation, what are the pros and cons of using CDs or CD ladders instead of a U.S. bond fund? And he says, no, I don't have any international bonds. And then Trey Parrish, he said, also be in the room here somewhere. The rising interest rate environment is a CD or Treasury ladder better than going into a bond fund. And Mark Miller is also in the room with rising interest rates. What other lower risk options should one look at as an alternative to bonds? Should we just sit it out or should we put it in there and accept that our principal's going to go down? You can take the CD for sure. Thank you, Jason. First of all, what I don't do is ladder CDs. We buy longer-term CDs that have very easy early withdrawal penalties, and it's essentially a put the right to sell it back to the bank if interest rates go up rather than take the loss. Total bond fund in an extreme example would lose, I just calculated, 19.27% if interest rates rose 4 percentage points in one year. With, let's say, an ally bank CD, you earn roughly the same interest, but with a five-month penalty, you'd make 1.75%. That's the first part of it. The second part, it's an incredible myth that we are in a rising rate environment. We, rates have risen just a bit. The Fed controls the overnight rate, nothing more. Top economists have called the direction of the 10-year Treasury right up or down 30% of the time less than a coin flip. So we don't know what rates are going to do. So I use a combination of CDs and bond funds. You know, right now with the flatter yield curve, if clients want some short-term bond index fund, I'm absolutely fine with that because last I looked, there was only about a 30-bip difference in yield. I think Alan's absolutely right, and I would say it comes down to time horizon. If someone has a time horizon of fewer than two years, then I think cash probably is the right investment, true cash instruments, and then stepping out from there where presumably you aren't going to need to get at that money for spending, I think you can afford to endure maybe a little bit of interest rate-related volatility if that continues, and you probably will earn a higher return over time in exchange for being willing to tolerate that volatility. So I do think time horizon and thinking about your spending horizon is key when deciding the right allocation between cash and bonds. I would also mind inflation because we have begun to see inflation look a little hotter than it has in years past. So for people who are actively drawing upon their portfolios, I think maintaining an allocation to inflation-protected bonds makes sense as well. Yeah, two minor points. Number one is that there's very stocks have a very slight tendency to mean revert. Bonds have zero tendency to mean revert, so if rates go to 10%, either at the short of long-end or both, you shouldn't reassure yourself that they can only fall as people to their chagrin found out in the late 1970s. Second, Alan, correct me if I'm wrong, but I think the last I looked a couple of days ago at the short end, Treasury's actually had higher yields than CDs. I think you can buy five-year CDs at about up to 3.2% now. I'm pretty sure that five-year Treasury is... 3.06 or 3.09% plus their state tax free. Yeah, that's true if you live in it. And for a long time, I've been writing Stash Your Cash rather than a Vanguard money market fund, Stash It At A High-Yield Savings Account. Right now, I think the Vanguard Treasury, and that's not the default fund you have to ask for it, and it's a $50,000 minimum, is yielding just over 2% and the state tax exempt. Yeah, I mean, I guess the only thing I would add is that tax exempt money market funds, particularly Vanguard, are quite attractive to people who live in high-tech states like me and Jonathan. And many people in this room. I mean, you can get a pre-tax yield of 150 basis points and up, and if it's just your cash that you're keeping around for liquidity, that's a very attractive carry after tax. So just two quick points. One, you know, all of this has to do with expectations. Alan just described Apocalypse, the bond market. We have a 4% point rise in interest rates, the total bond market plan is down 19%. The 4% point rise in interest rates from here in the short term would be extraordinary, and yet you would lose 19%. I mean, if you're a stock market investor and you're not prepared to lose 19% tomorrow, you know, you shouldn't be in stocks. Our expectations for the bond side of our portfolio are so different from our stock side of our portfolio. We expect, you know, our money to be there, and I think that's why people get freaked out by rising interest rates. But I'd say you have a five-year time horizon and you're choosing between a five-year CD or buying, you know, a short, intermediate-term bond fund. I would bet that over that five-year period, returns are likely to be very similar. What you get with the CDs, or a two-fold one, you know, there is a sort of, the comfort of knowing precisely what you're going to have after five years. You know, you're going to get pretty similar with that short, intermediate-term bond fund. The result is not going to be that different, but, too, the CD does have that valuable option, which means you can bail at any time and pay the other withdrawal penalty and then reinvest it at a higher rate. So to that extent, the CD does have a slight edge, but I'm not sure that, you know, given the potentially lower yield that I would pay up for that option. So there were three parts to this rising interest rate question. The first one was, there's a lot of buying CDs, and Allen has been a big advocate for buying CDs, and as far out as you can, and then pay the penalty, and I don't think there's anything wrong with that. I mean, you're FDIC insured. You just have to be careful. You don't go past. I think it's the $250,000, and you see you need to do a different one. Do you actually need to kind of keep an eye on it and manage that portion of your portfolio rather than just putting in a fund? It's easy. So there's nothing wrong with the CD idea that Allen has. The second thing was, should you do a bond ladder versus buying a bond fund? Well, I think when you look at most intermediate-term bond funds, they're pretty much a ladder anyway if you look at the structure of the maturities. So you can go out and you can buy individual bonds. What do you do with the interest where you would have to reinvest it? Bonds come due. You have to reinvest it. That's pretty much what an intermediate-term bond fund does anyway. So I don't see the big benefit of buying individual bonds versus buying a bond fund. I would just make it easy and go with the bond fund. The last thing was, what do you do to lower your risk? And Christine mentioned tips, Treasury Inflation Protected Securities, where if you think that interest rates are going up because inflation is going up, then tips make good sense. However, realize that there are two parts to the return of tips. One is the inflation component and one is the real return component. And if inflation doesn't go up, but the real return on interest rates do go up, then the value of tips isn't really going to help you because it's not. The real interest rates go up and the inflation stays the same. Tips are going to get beat up just like every other bond. So realize there's two components to tips. So to me, if your liabilities are intermediate term, just buying an intermediate term bond index fund works. If your liabilities are short-term or whatever amount is short-term, keeping that money in the money market or keeping it in short-term bond funds makes sense for that portion of your money. So a little change of pace and the privilege of putting this together, I'm going to ask a personal question. So this isn't the average group. Most people can't come up with $500 and I have a feeling that most people in here are flagship members and they've done very well because they focused on investing. So the question I have is, how do you teach your kids character traits like honesty and hard work and compassion for others and not focus on money to convince them that money shouldn't be the center of their world, their character should be the center of their world? Next question. I haven't figured that one out yet. I think you should ask our kids that question now. Two things. I think I said this last year, write a book with your son called How a Second Greater Beat Wall Street. But, you know, look, I knew how to be... I think I lucked out I have a great kid. I'm like any dad. I'm very proud of my child. But I knew how to be an absolutely perfect parent until I had a kid. Not so easy. Simply making conversations about financial and non-financial issues part of dinner time conversation is the key. Just talk about what's important to you, how you conduct yourself in your daily lives, how you manage your portfolio. Talking honestly about mistakes you've made, the things you've done, right? Having those conversations on a daily basis is probably more powerful than anything you can do. You can construct elaborate reward systems to get your kids to do one thing or another, and I certainly did a fair amount of that with my kids. It was sort of fun manipulating them. But simply talking to your kids openly and honestly, I think it's more valuable than anything else you can do. Kids are really good at detecting hypocrisy. I don't think most of what you're going to be doing is non-verbal. They're going to be observing you and watching you. If you're into McMansions and Beemers, there's nothing you're going to be able to tell them about fragility. They're going to be watching how you invest, how you save, and how you spend, and what you're doing is probably what they're going to wind up doing. I'll tell you one story that I did with my daughter about 10 years ago. She's 30 years old now so she was 20 at the time and saved about a couple of thousand dollars. She says, what should I do with it? I want this to be a long-term investment. So I said put it in the Vanguard Total Stock Market Index Fund. So she did. Then the market went down and she got panicky and she wanted to pull the money out because her thousand dollars was only worth $800. So I said to her, let's make a deal. You take the $800 out and what I said to her was if you hold that fund for 10 more years, if you lost money after 10 years, I will make up every dollar you lost. So it is a risk-free investment. However, if it goes up, I get half of the gain. A stock broker, she looked at me and she said, I'm good. You would make a really lousy equity index insurance company salesman. So I had a lesson go wrong. My daughter called me up. She always pooping me. Tonight we are going to talk about zero coupon bonds and how they work. They said get off your soapbox, we are sick of that. She pooped me until she was like 35. She called me up and said I want to buy a share of Apple. I said that is not investing. You are gambling. You buy one, I will buy ten. Son of a gun, if it didn't split seven for one and go right to the moon. Sometimes it can go wrong. Maybe I will jump in because I think there are some people in the room who have young kids and I think one message that I would send to you is be patient with your kids about how they absorb the lessons you are trying to give them. And I will tell a story. When my older daughter was about 14, I guess, she walked into her bedroom and she wasn't there but all the lights were on. Well, this is a room full of bogal heads. You would all be mad, I was really mad. So I turned the lights off and then she came back and got in an argument with me. So I sat down on the bed and I told her my dad's favorite story about how when he was a kid growing up on a farm in New York State, he was the youngest of three boys so he had the worst job, which was to fetch the water in the morning. They had no indoor running water, he had to go out to the pump. And in January and February, it would be 20 or 30 below zero at 4.30 in the morning and my dad's pants would freeze and he would walk into the house with his pants legs clanking. And so on his 16th birthday, my grandfather bought a pump, a power pump, a generator that would pump the water so my dad didn't have to do it by hand. And so the first day, my dad was out there and he pumped the water using the electric pump and he was so excited, he filled the first bucket and he leaned down to fill the second bucket and the next thing he knew he was flying through the air and he smashed against the wall of the barn and my grandfather's fist was in the middle of his shirt and my grandfather, who was an immigrant from Eastern Europe held my dad up against the wall of the barn and said, you'll hear them thumps and in the background the pump was thumping over and over again. He said, every one of them thumps is a nickel. And my dad told me that story when I was 14 and I've never left a light on ever since. And so I tell this story to my daughter and she's like, yeah, okay dad. And I come home the next night and of course all the lights are on. But now she's 24 and when she's passing and she pays her own utility bill and now she turns off all the lights. So the lessons will sink in but it could take years. Yeah, I mean I've got a story which is not quite as good as that but it's in the same vein which is our youngest son was probably the spendthrift of our children and one day, you know, he's 19, he's at college he calls up his mother and he says, you know mom, I just learned something really cool. When you buy frozen orange juice it's cheaper than buying the cartons. And his mother said, yes, I know that. And she says, can I borrow one of your plastic cartons? So the next question is kind of a behavioral question too just like the last one. So I'm going to start with a quote from Will Rogers. It says, too many people spend money they haven't earned to buy things they don't want but the rest people they really don't like. And to give you an example, Alan Averson made $200 million in his lifetime with bankrupt. Nicholas Cage made $150 million with bankrupt. Kurt Schilling $150 million with bankrupt. MC Hammer $50 million with bankrupt. Lindsey Lohan $20 million with bankrupt. So here's the question. I heard the term hedonic adaptation promoting an article by Jonathan Clements and I noticed the behavior of the people I was associated with. I also began to notice that I was bombarded by messages that I should buy stuff because it would make me look smart, make me look successful and make me look beautiful. So what is your recommendation on how to not get caught up in the hedonic treadmill and would you please start by defining it for our group, Jonathan? So the hedonic treadmill, I'm sure many of you do know what it is, is this continuous cycle we go through where we anticipate the next promotion or pay raise or purchase and we have it in our minds that if only we do get the promotion or the pay raise or we buy the new car, we're going to be endlessly happy and when we finally get the news that we can take it over at the car or we're getting the promotion, we are indeed thrilled. But then in the days and weeks to follow, we become increasingly dissatisfied back in the same place where we started. So in other words, money has not bought happiness and indeed the long-term statistics tell us this. In 1972, 30% of Americans describe themselves as very happy according to the General Social Survey. In 2016, the latest General Social Survey, exactly 30% of Americans describe themselves as very happy. In the intervening 44 years, US inflation adjusted per capita disposable income rose 119%. So we lived twice as well, more than twice as well as we did four decades ago and yet our reported level of happiness has not budged. So the question is, how can you get off the hedonic treadmill and squeeze more happiness out of the dollars that you have? And I contend that there are sort of three keys to getting greater happiness out of your dollars. First, money is sort of like health. It's only when we're ill that we realize how great it is to feel good. Similarly, it's only when we're broke that we realize how great it is to be in good financial conditions. So simply having your finances in decent shape so you don't worry about money on a daily basis is one of the benefits you can get out of money. Second, money allows us to spend time with friends and family particularly times with friends and family where we have great experiences. One of the things that you discover when you talk to people as they grow older is they become less focused on buying material goods and more focused on creating memorable experiences with friends and family. Going out to dinner, arranging the family reunion, taking everybody to Disneyland, God forbid. They do these... Going to Bogelheads. Going to Bogelheads, bringing the whole family, right. And then the third way that you can use money is you can achieve a level of financial freedom where you can design a life for yourself, where you spend your days doing what you think is important, what you're passionate about, what you find challenging. And for many people, that moment arrives when they retire. If you're really smart about money, you start saving from a young age and maybe that you get into your 40s and your 50s and you can change careers, get out of that boring corporate job and stuck in that cubicle and go and do something that maybe may pay you a smaller paycheck but could make you feel like you're contributing more to the world. So that is my three-part prescription for getting off the hedonic treadmill. Any other suggestions? I have a simple one, spend less time on your cell phone. That's good. So most of us in this room use Jack Bogel's philosophy of investing, which is to diversify broad-based, passively managed index funds. And here's a quote from the intelligent investor from Jason's Weig's article. It says, The market is a pendulum that ever swings between unsustainable optimism, which makes stock too expensive to unjustified pessimism, which makes them too cheap. The intelligent investor is a realist who sells to optimists and buys from pessimists. Warren Buffett also said, buy when there's blood in the street, even if it's your blood. To the novice investor, they get confused. What was that? To the novice investor, they get confused because sometimes it sounds like there's a little bit of market timing that's taking place in there. So for the novice, they're trying to figure out, what do I do? Do I buy something to stay the course or am I waiting for the stock market to go down to buy it? I think the answer to that is for an investor who wants to maybe harness that sentiment a little bit, but not engage in market timing, I think rebalancing is a great suggestion, especially given that we are 10 years into the current equity market rally. We're all 10 years older. I do think that investors who, especially those who are say over 50 and starting to think seriously about retirement and when it will be or if you're already retired, certainly. I think of rebalancing as kind of a chicken way of making sure that you are selling high. So I advocate rebalancing, especially for people who are getting close to retirement for younger investors. I think it's maybe less essential, but perhaps worthwhile to look at sort of intra-equity exposures. So maybe the value to growth split in terms of your style box exposure if you've been hands-off, and you have multiple funds that compose your equity exposure. You might look at whether you're listing to the growth side of the style box, and similarly with the U.S. versus international exposure. Take a look at that and see where you stand if you've been hands-off. Your international equity component would be down probably relative to even a total international index. One of my favorite quotes is from John Templeton who said that bull markets are born in despair, rise on pessimism, mature in optimism, and die in euphoria. The best time to buy is at the point of maximum pessimism. So that kind of suggests that maybe you should wait until the market crashes to buy. The problem is that's not what the data show. In most cases, you're just better off summing whatever point that you're at. At least that works two-thirds of the time, a third of the time it doesn't, so the odds are in your favor. You can dollar-cost average over a period of time, and that is suboptimal, okay? But it's a wonderful psychological crutch because, you know, as Casey, I think it was Yogi Berra who supposedly said that 90% of this game is one-half mental. And if you can win the mental game, you can win the psychological game, then you can generally win the investing game. And dollar-cost averaging, although suboptimal, is a good way to do that. In other words, another way of saying that is that a suboptimal strategy you can execute is better than an optimal one you can't. Well, so just a quick thought. You know, in his autobiography The Confessions, St. Augustine famously said, oh Lord, make me virtuous, but not yet. When he was living a life of sin. And I think the easiest thing for investors to do is to say I will buy when blood is running in the streets, even if it is my own. But even if it's not your own and the blood is running in the streets, it is much harder to buy than you could possibly imagine. And, you know, I think it's great if you are one of the people who can buy when blood is running in the streets. And if you do have an extremely long horizon, you know, a half century or longer. I did it in 2008 and 2009, and it was not easy or comfortable. In a column I wrote about a year or two ago, I guess. I went back and looked, and between October 2007 and March 2009, I made 53 additional discretionary purchases in my Vanguard index funds, in addition to the dollar cost averaging I was doing automatically. So 53 separate times as the market was going down, I put more money in. And I stopped on, I made my last, my last of those purchases on March 6, 2009, because I couldn't stand it anymore. And the market bottomed on March 9. And when I did it, I said, watch everybody, I'm going to make the market go up because I can't stand it anymore. And of course it happened. But the thing is I kept it a secret from my wife, from whom I keep no secrets, because I knew if I told her she'd kill me. And now she tells everybody that she's really glad I did it. The most profitable purchases you will ever make will be when you feel like throwing up. Could you ask that last, the actual question one more time? Yeah, what was it anyway? I'm not sure I can go back and find it, Rick, I'll be honest. I flipped so many pages here. Can I just add one thing? Oh, here. We have short memories. Go ahead. I'm sorry, Tom. It says novice investors get confused because it sounds like there might be some market timing involved in both of those statements. So what is it? Buy and hold, stay the course, or wait for the markets to go down and buy? Okay. I would just argue we have very short memories. I guess the answer is if you've been on a, if you had a plan, and your plan was to invest regularly, like most people who are working and putting money into a 401K, just continue to do it. Like Jason said, you have a long time horizon. If you happen to get a windfall, that I'm not talking about a windfall from retiring and getting a 401K, that was 60, 40 in stocks, and then you have to convert that to cash. And now you've got all this cash. What should you do with it? In my opinion, since it was already invested, you just take that and invest it the way it needs to be. But I'm talking about an actual windfall of money that comes from, say, winning the lottery. Whatever. That is a little bit more difficult. In that case, you might dollar-cost average. I actually wrote an article about dollar-cost averaging and when to do it. Bill is correct. Most of the time you're not there off mathematically, dollar-cost averaging. But depending how you get the money, and how it comes to you, sometimes it just feels better to dollar-cost average. And there's a higher probability that you're going to stick with your plan if you dollar-cost average. So that's what you should do. Well, follow up to that. Everybody says, why don't we just put it in the index funds and not look at it. So there's another question that asks later in the panel here. If indexing is a way to go, how do you explain the performance of beating the market? Why not just put it in an active and fun like that that's doing so well? Okay, so let's get away from this future prediction of beating and just call it have-beaten past tense. We don't know prime cap that's done very well. There is going to be active managers who outperform. We know that. We just don't know who they are going to be going forward. Is it going to be prime cap? I don't know. I have just four words as an answer to that, which is like Mason value trust. For those who are unfamiliar with it, it beat the S&P 500 not just over a 15-year period but for 15 consecutive years. If anybody looked like a winner, it was Bill Miller. And in about three short years he gave back all of that 15 years of outperformance. So let me ask one more question and then we're going to go to the panel. I hate you to get about two minutes or so. This will be the last question that we get to ask. Sorry, we have 30 questions and we only got to ask about 15, which was typical last year also. So the question is why should I own bonds paying 3% when I can own a dividend paying stock that's paying out more than 3% and has potential upsides besides. For example, Pepsi has is a dividend aristocrat, which means it's raised as dividend in the last 25 years and it's paying 3.25% while with 10-year treasury it's only paying 3.05%. So if the share price goes down I don't really care because I continue to get the dividend. There's 24 dividend aristocrats that are paying over 3%. So why should I own a bond if I can get a dividend aristocrat? That's an easy one. General Electric. Eastman Kodak. General Motors. So goes GM, goes America. Boy, I'm glad that wasn't true. Total Return. Master Limited Partnerships. They're just safe alternatives to a bond. It's a toll road. The oil and the gas has to flow through it. It's just a 6% safe return until they lost a third of their value. Yeah. I have two words for someone who wants to buy Pepsi Cola which is sugar tax. In the Great Recession, 2008-2009 market decline the dividends paid by the S&P 500 companies dropped I believe was 23%. So anybody who bought S&P 500 companies thinking that they could just live off the dividends and it was a substitute for owning bonds would have seen the income they received drop 23%. That did not happen with tertiary bonds. Alan Roth. I'm going to give him credit again. My gosh, what's happening to me? I must be getting old. Alan wrote an article about the total return. A dividend is the cash that a company pays but what if you just sold a little bit of your equity every year and because dividends have been going down it just has to do with the way companies have been capitalizing themselves. They're buying back stock when you look at stock buybacks or the buyback dividend it's not included in the cash dividend. However, Alan wrote a good article about if you just treated the buyback you looked at how much buyback was going on and you actually sold that much stock and you paid yourself a dividend it's all the same. So it doesn't have to be dividends. If you're buying a total stock market fund and you need 4% from it you get 2% from the dividend and then you just sell 2% and a lot of that is simply the buybacks that have been taking place which caused the market to go up. So correct me Alan if I'm wrong but it's not about you're wrong. Am I wrong? Because I quoted you is that what I'm doing? But that's there's no...dividend paying stocks kind of make you feel good I'm getting a dividend. But in reality the way the stock market works is that the total return of the market is dividend, capital gains, buyback buybacks, everything and it doesn't matter whether you're buying stocks that pay higher dividends or you're buying stocks that pay no dividends in theory the total return of each group is going to be the same. So I think it just makes you feel good. That's it. Okay so that's the end of our session questions. I have a lot more questions I'd love to be able to get to. So we'd like to give each panel a couple minutes to reveal any projects they're working on. We'd like to ask them to take a moment to tell them what inspired them to take the path they've chosen or to share any gems of wisdom that they have. Any way that we can all become better investors. So could each of you just give a couple minutes of what you're thinking and we could use? Well if you want to learn to be a better investor let me go first because at the end of the table is Alan. Okay well first of all I'm going to be giving a little presentation in about about 1.30 here in the room about a new book that I'm working on called The Education of an Index Investor and it's sort of the mindset of what people go through to get to a certain to get to John Bogle's level if you will. What actually happens in your head to get to that point and it's quite a bit and it's a long journey and it's a long journey in addition to that I'm no longer the owner or involved at all in portfolio solutions my company was acquired and it's a long story there it's on my website but I'm working on another company called Core for Investing which is a model portfolio company that you'll be able to go on and see very simple portfolios using four or less index funds and I'm working on that it should be up it's all free content in addition to that in April when my non-compete is over with I'm actually emulating Alan's model and I am and he's been helping me quite a bit in formulating the hourly advising that I'll be doing and I thank Alan for giving me a lot of advice in there so that's what I'm up to. So most of my days are devoted to running this website humboldollar.com which I've been I've had to go in since early last year more and more people are discovering it if you haven't been to humboldollar.com please go I put out a free newsletter twice a month there's something new on the website every day so I encourage you to check it out my latest book came out last month it's called From Here to Financial Happiness and the book is designed to help people figure out what they want from their financial life and then help them settle on the steps that they need to take one of the principal drivers of the book is the fact that most of us are really bad at figuring out what we want from our lives and if you disagree with me when you get home go downstairs and check out the basement basements are badly curated museums dedicated to the purchases that we have made we can't yet bring ourselves to trash we are extremely bad at figuring out what we want from our financial lives we pursue careers that make us unhappy we purchase items that we quickly become dissatisfied with so one of the things that I try to encourage people to do in my new book is to think much harder about their financial lives so one of the tricks that I would encourage you to use when you get home is get a piece of paper and write down what you plan to spend money on over the next couple of years it might be a home renovation it might be a vacation it might be a new car it might be buying some new electronic goods whatever it is write it on the list stick it on the refrigerator revise that list and what you will do if you use that strategy is that you will have a much better idea of what you want from your money don't instinctively assume that you know what you want instead to figure out what you want from your money takes substantial amount of reflection drawing up a wish list revisiting it regularly will force you to go through that process of reflection and I think you'll find spend your money much more wisely yeah so I never imagined for a minute that I would ever catch up to Jonathan who wrote 1009 right? 1009 columns for the Wall Street Journal if I write 486 more I'll catch up to you so that's not really that's not really a career ambition of mine by any means but you know when I went to Bogleheads 2 which was the last of these meetings I've been to it was a long time ago now it was 2001 I ended up writing two articles based on that experience one was the one some of you are probably familiar with called Here Come the Bogleheads Victoria's Waving and the other was one that I called I Don't Know and I Don't Care and and in that second piece I realized something important that I had actually learned from those of you who were with me at Bogleheads 2 which is that it's one thing as an investor to say I don't know I don't know whether US will outperform international I don't know whether value will outperform growth I don't know whether small will outperform large or even I don't know whether active will outperform passive although that I don't really think is an open question at this point but it's an entirely different matter to say and I don't care because not caring is hard because it means you go to the barbecue and you listen to the guy who just bought Bitcoin and he bought it at $13 and now it's at $19,000 and you didn't and it means that you can't watch financial television you have to be very focused very disciplined and you can't let your views be contaminated by what other people are saying about what the market is doing and so the importance is that the two beliefs have to go together you have to renounce any interest in knowing the answer to questions that probably can't be answered and you have to get to the point where you don't care that you believe you can't know and so finding new ways to help people get to that resolution is sort of what I'm about at this point yeah the first question is easy I think the thing that most everybody can do that will make them a better investor is to simply pick a simple strategy and then stop obsessing about it maybe look at your portfolio I don't know once every five years or so you know the less it's a proven fact that the less you look at your portfolio the less you evaluate it the better your returns are going to be what I'm doing is writing long form historical nonfiction and one of the joys of doing that is you work for three years and then for six weeks you get to sit bolt up right in the middle of the night in a cold sweat during this wondering whether your publisher is going to accept the manuscript or not so that's where I'm at right now unless I talk about it better I continue to toil on the logistics of retirement decumulation that's a key preoccupation for me in my work on Morningstar.com constructing model portfolios not with an eye toward beating all other in retirement portfolios but just an eye toward showing what a sane in retirement portfolio might look at look like and how you can go about extracting cash flow from that portfolio and not to be confused with pure income because I know a lot of retirees are very fixated on current income so I've been trying to showcase that and talk about that in my work separately I've been talking about some of the other challenges of retirees one of the big ones and I've talked about this here before is the challenge of confronting long term care costs which is I think the huge unaddressed problem for many middle class to upper middle class households and retirement savers people who thought they were doing all the right things to try to ensure a comfortable retirement so unfortunately there aren't a lot of great answers in the long term care space but it's an evolving landscape and we've been trying to talk about some of the new products coming online the good and the bad of them there are ways to think about paying for long term care costs using HSA premiums for example to pay for long term care insurance so I've been talking a lot about those issues and also trying to touch on the softer side of long term care some of the costs that it inflicts on families because much of long term care in this country is shouldered by unpaid family caregivers so trying to address that whole set of hard issues related to long term care is another focus of mine in terms of lessons for investors I think one thing I like to talk about is household capital allocation so beyond just the investment portfolio thinking about your total financial life and looking for the best ROI return on investment for you it may lie outside of your investment portfolio so looking holistically across your capital allocation choice set for a lot of us who have mortgages for example mortgage pay down is probably a better use of your cash than letting the money languish even in a higher yielding savings vehicle so thinking holistically about ROI I think is a piece of advice that I would like to impart Jack I'm sorry you have to hear this but I'm launching a market neutral fund that will short the stocks that Kramer says to buy and vice versa look can I short that fund I'm having the time of my life fitting broke don't fix it I'm going to keep doing the same thing Jack I'm having the time of my life because of you because incredible advice that everyone including Rick fairy at the end has given me and I'm so appreciative so I continue I'm going to write I'm going to do my hourly planning Rick I couldn't be happier that you're going to go that route I'm doing some teaching still I'll chase windmills until I die not as successfully as Jack I think a lot of regulators don't do the right thing I would let the see financial planning be viewed as a profession I am I just wrote a piece I believe it was last week you know noting that the CFP spends a lot of money advertising the higher standard but doesn't actually enforce it so I would really like to see you know regulators and the CFP board do a better job of making the industry fair but it's absolutely Jack Bogle and Vanguard and all of you that did incredible writing that educated people were now 44% of money in US stock funds are in index funds Allen is too modest to to admit that what he really enjoys more than anything else is provoking insurance salesman into legal threats so we'd like to thank you everybody who submitted a question we appreciate it but we especially thank our panel your opinions are well respected your leaders in the investment community and we appreciate what you had to say so let's give a round of applause to our panel and we'll see you after lunch