 Today's session with the experts, and the moderator for this year's Q&A with the experts is my good friend and mobile heads conference team member, Ed Ray. Every time there is a very executive human resources from mobile board cooperation in 1996, we discovered the mobile heads in 2001 and he and his wife had attended their first mobile head conference in Denver in May 2004. And importantly, I am the local very coordinator for our Washington DC mobile heads conference. I live in Oregon with Jim, business and masters in organizational development. Please welcome him to the stage. I was certainly glad that now, at large, I was last year. That was my first opportunity to get up here, and so this year, I'm honored to be hosting this portion of the program. Questions that have come from the attendees here today, so I'm going to give those first track, and there's no particular order and no power here, just the way they fall on my desk. Before I do that, I want to introduce the members of the panel. He's founder of Energy Partner, the low cost investment management from all of the solutions. He's the author of six investment related books. A board of dot com columns and a Wall Street Journal expert contributed. Please welcome Rick here. Next to Rick is Bill Bernstein, who was here at the prior session. He's founder of efficient frontier advisors, author of several successful titles on finance and economic history. Please provide a real welcome to a total of my favorite, Bill Bernstein. Next to him is Alan Roth. He's the founder of Roth Logic. He's an author and an AALB economist. Please welcome Alan Roth. And last to talk to me is a colleague, copyrighted by some CPA, and the author of the blog, oblivious investor. He's offered a number of very successful digital books, including one of them, Mike Iver. He wants everyone to know. Okay, the first question here, this is from Bob Ruffin. The question is, for investors who can deal with the liquidity issues, what do you think about using private equity for a 10 to 20 percent component of a diversified investment portfolio? I'm running the private equity, put some money in private and get the same return to the small cap value index fund, or you could just buy a small cap value index fund. You know, I consider private equity to be a 2 to 20, meaning it's a 2 percent expense ratio and 20 percent of the upside. And I've never seen, in a purely efficient market, you know, one can't add an endo is, in my opinion, a private equity markets aren't perfect. This is Bob Bernstein. I had a value averaging for the last 90 years. It seemed like this technique is fully adopted. I'm feeling a bit lonely. What are your current thoughts on value averaging? It's basically nothing more and nothing less than a combination of dollar cost averaging and re-balancing. Okay, so I think it's slightly advantageous with respect to dollar cost averaging, as long as you have the liquidity to execute when it tells you to buy a whole lot of stock when the market is down. Value averaging has done pretty well over the past nine years in which you've gone to the web and market. So you've bought at fairly good prices. That's about the best case scenario, the worst case scenario for value averaging and dollar cost averaging. It's just a gradually rising market. It is almost all the time inferior to some investing, but the trick is that most people don't have that option. They're saving continuously. They don't have this enormous sum of money they only acquire in saving. So for someone who is periodically saving, who has a 401k plan, I think it's a firm in their assets. Okay, the next question is from Phil Evensson. Is it a myth that international funds need active management because global knowledge is needed for the markets that is not needed for the U.S.? There's no evidence to support that on the international side because the normally active market itself does poorly. That's hence international managers seem to. The fact is that the data over the long term doesn't show the U.S. So it would have emerging markets in there, it would have Canada, which is not in the ETH index. So I think that one of the problems is that active performance against a bad benchmark. Morningstar on the Bank of International, whether it's the ETH. You'll see that over the last five years it's performed indexing for people of average. Well, the answer, I did a little research, I'm going to write about it. Search for me, what they showed is that the average forward exposure to emerging markets and emerging markets over the last five years has been improved. Clougie, the A1 who makes that statement, says I haven't looked at the data, I haven't even looked at what the best thing internationally is. The markets might be less efficient so there are more opportunities to find stocks that are undervalued or get out of stocks that are overvalued, thanks to that nature. And so there we're talking about the efficient market hypothesis, but Jack always talks about the costs matters hypothesis, which is that the higher the costs, the higher the cost than passive funds. So by definition, after expenses, on average they're going to perform markets that's the cost matters hypothesis and it applies just as well to international as it does to US, just like moms, just like everything else. Your passive lens of attraction no longer works, we don't even need all references. Okay, so I was at an ETF conference a couple of weeks ago and Goldman Sachs announced their new series managed ETFs. So it's all this factor based investing and we can get into factor based investing questions if we have them, but here was the thing about the Goldman Sachs funds. Nine basis points. What they said was they wanted to take pricing off the table on the active versus passive debate and they were bringing these active funds and they are at indexing level so that their strategies actually outperform on a net basis. So we will see, I mean, you know, if that's the new thing, now active management is going to cost less than or equal to indexing and all things being equal, that should level the play, but it doesn't make active management outperform because it's still a zero sum game. Rick? Rick, the Goldman Sachs is going to earn nine basis points. Don't the profits completely disappear? No, because here are such good products. The value of these shares are going to explode and people are going to pile billions of dollars. Goldman Sachs only cared about their clients. Now, I'm trade mark and brilliant beta which is smarter than smart beta. Coming through to the next question, this is from an alternative. Assume that money is not needed for winning this question. Are there any strategies for receiving requirement of distribution? Is it best to burst the year into the year monthly? Generally speaking, the longer you can keep your money in a tax advantaged account, tax advantaged accounts. There are probably some cons, but a Q-LAC qualifier, what does it say on the end of the year? Well, you've got up to $125,000 and you're essentially buying longevity insurance that comes with the cost. It won't stop you from having to take RMBs. It will just make your RMBs somewhat smaller. This is exactly what Alan was getting at, saying that it has drawbacks, is that a Q-LAC can be a way to minimize your RMBs or rather reduce them. But it only makes sense if you want to buy a deferred annuity in the first place. It doesn't make sense purely as a tax planning tool if you have no use for deferred annuity. If you needed, or as Mel was saying, to pay taxes in April, will you take it in March? If you needed it before, as he was saying, Christmas presents in December, will you take it in November? But don't forget to take it when you're in trouble. So, I think from a tax perspective, whether you take it early, take it every single month, ends up being de minimis. Would you agree with that, Mike? Yes, yes, not one of the most important factors in your account. Yeah, so you just take it when it's best for you. You don't ever want to take taxes at least from me. But it would seem to me that you could almost make the opposite argument that one average return on the stock market is positive. So if you take it on the first of the year, what average would you be taking less at all at the ordinary income rate? And you would be getting that growth for even a certain year at the long-term capital gains rate. So you could make the opposite argument. You could make an opposite argument to that. And that is what depends what you do with the money. Because if you take it out at the beginning of the year, you could put it into a cashier tax. If you spend it, you're right. The opposite might actually happen. Sorry, I'm going to stick with taking anything. If you're making the argument that why just take out your R and D? Why not take out everything or a lot? Why not take out the top of your cash bracket and just do that? Why not do that? And that's because the growth, while it's in the account, even if it's the tax deferred account, you're not paying tax on the growth. It's an unusual distinction, but that's why it makes sense in the first place, really. I'm sticking with life. That's really different. It doesn't matter much. It's not one of the top thousand things in the investment. And there was a perfect example of Taylor's statement quote. Any approach to that? So the next question is from Paul Sutton. Please explain the global men's volatility fund. It appears to be a global division growth fund with currency hedging. Is this a Vanguard fund? Yes, it is. I haven't studied it, so I'm going to pass them. Have you studied this fund? I'm certainly not an expert on it, but very well. I spoke with John Emmerich yesterday over at Vanguard. I think there's some good logic to it. But when so many firms were launching the same type of fund and money flows into what has been hot, I worry about it, so I'm not a fan of it. I always worry who are my fellow shareholders? I think what is happening increasingly is that smart data is beating the dumb money. Okay, the next question is from Karen Bennett. This is for everyone if you care to share it. What is your personal asset allocation and why? What drives that allocation? The second part is do you take special security precautions with your financial accounts, i.e. you need passwords, frequency of changing passwords? Well, my asset allocation is 80% equity, 20% emergency fund, and it's mostly invested in the Vanguard total stock market. Actually, sorry, Jack. It's not because I'm at a brokerage firm, so I have to use ETFs as opposed to open-ded funds, because it's more costly to trade open-ded funds. Even Admirals shares have mutual fund companies that need ETFs, so to get the same thing, you trade it or you buy cheaper using ETFs as a commission. But anyway, as Jack was saying, it's an operational issue. And then I also have a DFA, Small Value Fund. But I'm going to get my Social Security and so forth, and my wife will get Social Security, so pretty much my expenses when I retire will be covered in Social Security, and I won't have to withdraw much money from my retirement accounts, so I can be more aggressive. So it depends on what else you have. You can't just look at the asset allocation. I would agree with that. I mean, I'm 40-60 because the 60 is what I'll need to retire for a generous margin of error. The 40% really isn't my money. I'm just running it. And, you know, I can't believe it. As you all know, in a long game, you stop. You play. Also, my forward is pretty darn aggressive. It's female or closer to my guess what it's referred to, but it's an ordinary portfolio, which I'm not as enthusiastic about as I was 10 or 20 years ago. But I still think it's a... 45-55 of my 45, 30 percentage point there in the U.S. and sorry, Jack, 15% international. My core buildings I've made mistakes, including my first S&P 500 index fund, was a driver's index fund. And of my 55% fixed income, I have an incredibly tiny pension. Roughly 70 percentage points are in CDs and the 30% in bond funds, of which total bond and inflation protected would be the core. And then I've recently started playing with a little bit of brokered CDs buying on the secondary market where a couple weeks ago you could get a 3.2% return on a CD that had maybe 3.75 years remaining. Taylor's favorite quote, there are many roads to doubling. I always like his other favorite quote, which is the majesty of simplicity. My portfolio is 100% Vanguard Life Strategy growth fund. I had the other question about security. I just tried to use a complex password and I used two-factor authentication, so... Because he's under 50? He lives a mile from me now. Okay, now these questions are coming from questions submitted on the ProTem.org. The catalyst is Vanguard introduced total international taxable bond funds, ETFs, which are currency heads. How do we hedge international bonds fit into a retirement portfolio? I would say not at all. As Jack's point out, the yields are very low. But basically, a hedged sovereign fixed income fund, foreign income fund, it goes almost identically to a U.S. market. You've got higher expenses, it's pretty much the same performance. The diversification that you get out of it is going to go, I even bother. I'm pretty agnostic about it. If you look at the four asset classes, U.S. stocks, international stocks, U.S. bonds, international bonds, it's the single largest asset class. So there's no argument to hold some of it. But when you look at the total fees between hedging and I strongly believe if you're going to own international bonds, they ought to be hedged to U.S. dollar if you live here in the U.S. not server stocks, but for bonds. So it's the extra fees. It's done incredibly well. I believe we're down to 0.99%. I think Frank Kinnery looked at that yesterday when we were talking. So I don't think it's going to make a break out of portfolio. So I would say agnostic, but the fees at 0.25%, including the hedging, are much more expensive than total bonds. I mean, one other fast thing, which is that this is very exploitative. I mean, we were having lots of harvest on the life cycle funds. That's not a reason not to own them. Yeah, they've got a reason not to own them. Yeah, but what's also on the life cycle funds are being targeted to ironing funds in spite of the fact that they have international bonds. And it's just not that much of a drag. I mean, you did agree with my own portfolio. If I was using a DIY allocation, frankly, I probably would not have included international bonds. But I'm using a life strategy fund. Banker put them in there. I mean, that would be incredibly cynical. I think that Banker put the international bond fund in the life strategy funds because they needed to fund that fund. That's my guess. I might have built, by the way, in the rest of the panel. I don't think we do need international bonds. I don't know if I ever did. But I've done the research. I don't see a purpose. It doesn't do anything to the portfolio. And it does cost more with the hedging overlap than U.S. bonds. I'm not... If you do it because you believe in it, fine. I mean, it's so de minimis again whether you have it or don't have it. It's fine, but I don't see a purpose. Okay, the next question is short and sweet. Are they still on the fat day through the summer? Short term, no. They're a risky asset. And, you know, with the bad stuff, it's the manipulating system. And, you know, all risky assets go down. Beats will do that, too. In the long run, I think they do provide some diversification. They've gotten to do it a little cheaper. I think their yields are not somewhere more than 4% now. So they're not bad asset asset class in terms of valuation. And they're not great. But, you know, you're hoping for periods like, you know, 2000 to 2005. They got nailed in 2002. Over that 5-year period, the return was much higher than the S&P 500. It's the true of all risky asset classes. They don't help you at all in terms of risk reduction in the short term or in the long term. They can give you a little help. I think... I own REITs, and often I recommend them. I mean, REITs did very well during the dot-com bubble, not so well. Obviously, during the real estate bubble. The stock index fund owns REITs. So, therefore, am I over-weighting the answer in relative to the stock market? Yes, but most real estate is not owned by the public market. So, you know, I have some REITs and I rebalance when they've done well on selling when they haven't done well on buying. I wrote an article, you know, called the Total Economy Portfolio. Total equal to 4% if you want to place it. And what I did was I took a look at GDP data and I said where does the economy earn money? How is money earned in the economy? And I stripped out individual pay and so forth and asked that allocation of the economy would be as opposed to the asset allocation of the industry as they make up the stock market. Because the stock market is made up of corporate board decisions. They decide whether they're going to capitalize using stocks or debt and private equity. And so, those are corporate board decisions and then the investors decide what the valuation of those are. So, there's a lot of industries out there that capitalize using and real estate is certainly one. So, when you look at the Total Economy and you say if I created an asset allocation of industries based on the economy as opposed to the stock market then you would actually have an allocation of about 10% to a REIT index bond. And that's one argument for it. So, if you want your portfolio to look more like the economy than the stock market then you might add more REITs. And also what Bill says, in the long term the correlation between REITs and the stock market fluctuates. Sometimes it's high, sometimes it's low and the correlation between REITs and the returns from bonds or interest rates also the correlation fluctuates. Sometimes it's positive, sometimes it's negative. So, there is a diversification benefit to having a slice in REITs. And you could add, I figured this out one time as I explored an article about it a couple of months ago. I thought maybe it was a year ago I'm losing perspective these days. But 10 to 15 basis points long term return to your portfolio by having a 10% slice in REITs. There are mortgage REITs, there are hybrids and then there are equity. And so, I agree with Bill that there is a long term benefit to it. There's also a benefit to it if you based on what the economy is as opposed to what the stock market is. So, I'm in agreement with REITs except for the ones I need to sell. Oh, yeah. We're going to do four more Wall Street firms now being going after by the SEC for selling private REITs. I'm pure brilliant interest and that's investing in the news. It's both of God's $3,000 shoots and no naps. And the guy who was on their front cover for doing deals just about every single week for the past year is a guy named Nick Shulch who will surely be wearing orange juice. There's a lot of private real estate business. Thank you. Next question is for Mike Piper. What do you see as the likelihood of social security means to have to be adopted? Does the potential for means testing change claiming strategies? For example, if current recipients are unlikely to be subject to any such rules is that a factor to consider in deciding to defer payment until age 70? I think that of some sort of means testing, but it's already that it's means tested in a variety of ways including the way it's taxed right now. So additional means of testing certainly doesn't seem out of the question. How that should play a role in claiming strategies is a tricky question because there would be a lot of ways to means test social security in a lot of different ways. We could just change the way it's taxed to further change the calculation of benefits in the first place. The end point formula, if you're familiar with that, it sounds like the person who asked the question is likely to be familiar with it to make it so that income was over the course of your career the less benefits you get in which case that wouldn't really change the claiming strategy. But there's a lot of ways that it could be implemented that would change the claiming strategy. So really given that we don't know what's going to happen and we don't know what means testing would look like much less whether necessarily it will happen I wouldn't make it a make-up. This is the kind of statement that only a registered developer would make. But the good news is that if you don't need the money it's probably not going to matter if it gets me tested. If you do need the money you're not... Okay, next question I'm curious if the panelists have any specific advice for long-term travelers e.g. six weeks or longer it used to be sell or may go away with the availability of around the clock around the globe internet access is there anything one still should do? Don't take your way to the result. Make sure you path forward. I also have to tell you this little card that you can get now I'll pull it out. If you're playing to Canada this is no good. I found out when I was trying to fly into Canada about three months ago to go to a conference I ended up having to fly to Detroit and drive into Canada because this car is no good if you're going... you can walk you can take a car it's called a passport car and when I got my passport I signed up for this because I said I'm in Detroit a lot and I need to go to Canada once in a while so I can just use this but I have to get to the airport and they're from Kansas City somewhere wherever I was and they said okay we need your passport and I pulled out this proud card and they said no I said what are you talking about and they said well look on the back and they helped to say this is good for talks about you can't land in Canada with this but you can get in any other way so I'm just warning you if you don't go to Canada you can't raise money what about the panel's view on factor investing what do you call it that's a great question if you're walking and you allege together if you have any factor exposure it may be a percent of extra return so you used all this you're not I mean certainly no more than you made some points extra about 20 to 30 I just started a couple of attendees what is factor investing oh I can hear you about the whole market the entire US total stock market but then within the market you can start dividing out groups like small cap versus large cap value versus growth and then you can start comparing risk and return and small versus large value versus growth and we find out that historically the value of growth now why has it outperformed growth is a different story I'll get to that or maybe Bill can talk about it because he knows and I don't but be I made you up for that one so you say well if value outperforms growth then if I put value in my portfolio then I should outperform the market and historically that has been correct so the premium by which it outperforms the market I will explain being in value stocks is actually more risky than being in growth stocks it's strange as that sounds therefore you should get paid more if you're in value stocks than being in growth stocks and the difference is a risk premium for being in value so now if you have the total market and you're going to take a value still if you really are going to put some in value the question is what is the exposure over the market and then how much of this factor this risk factor should you add to your data or total market portfolio that's really the question and the question becomes is that risk premium that you get from value going to be high enough going forward because value investing is always more expensive than data because beta is basically almost free so go ahead Bill I'll try and give you a box of operation which is that there's a value factor which is about 5% which sounds really great and it's pretty much everywhere you look every country, every time you hear it and so that's the bottom of my tractor which is value minus growth so for starters it's a long short portfolio so the best of all worlds you're going to get about half of that which is 2.5% and that's nobody else knows about it because nobody else knew about it and so what is it now that everybody and his dog Jack who jacked that for his last year is investing in it it's going to be less than 2.5% that's what's been historically marginally marketed and I think it's going to be less whether it's 0 or whether it's 1% it's certainly not going to be much better than 1% why is it there well I think it's a 2.5% which is this part of it is that value just doesn't do the quality in the United States of the world it doesn't even work so 29, 32 07, 109 value stocks did much worse than what 55% down those 55% that doesn't sound terrible but it's the difference between what we were being worth and 35 cents or 31 cents on the dollar at the bottom there's actually a year to do that for bread stocks they probably always will so I'm not as enthusiastic about it as I used to be that gets to the value portfolio which is basically all small value convertible data so we get 37 new portfolio and 30 is all small value and that's basically the market return the SMU 500 return over the past 30 or 40 years it's not going to work that well and that's the difference number one is because that 70% of the value that's been there was five year bonds, five year returns and nobody invests in those not even in DFA and it would not do that well moving forward and then the other reason is because you know the value can even be what used to be I just wrote a profile on dimensional budget visors DFA and there are core two factors small cap value and DFA is one of the good guys I just don't think they're very good when I asked them the question do they think the premium from small cap and value is a free lunch or compensation for taking on more rest they quickly replied compensation for taking on more rest so my question to them was if you were going to have let's say 60-40 portfolio of the DFA small cap value tilt wouldn't it be more efficient to buy a market cap tilt of a equivalent risk of let's say 65-35 you'd have far lower you'd have the same amount of rest far lower cost and much greater tax efficiency didn't answer that one there's a thing called factor crowding even googling factor crowding and what it simply means is there's so much money going into these strategies now it's going to diminish the bill was saying diminish the returns and you have to have this premium now that needs to be spread around many more people I was at an ETF conference a few weeks ago in Chicago and Ben Johnson the head of their ETF research put up a slide that showed that 31% of all money going into ETFs right now are going into these factor funds that's billions of dollars a year going into factor it's going to dilute it's going to dilute the returns and so as Bill was saying I don't know what the returns of being going forward is I'm guessing maybe if you put 20 or 30% of your portfolio in value or small cap value even to try to get a little more you might end up making 25 or 30 basis points extra return in your portfolio over the long term or you may not and I really don't know what the answer is yeah that's what I meant when I said the smart data is meeting the dumb money what is going to happen is the people who are sold these funds while they're more than standing broker are going to be calling that broker yelling and screaming sell during the next quarter and this asset class because of that will probably have significant negative premium which will set the bottom or higher risk base returns in the future smart data is out of that year very cynical about the entire concept decades ago when Jack and Rick were some of the first people writing about passive investing it was counter cultural almost it was most people weren't doing it these days the conventional wisdom is the passive investing is the way to go passive investing beats active that's the conventional wisdom so if you're launching a new fund you need to be able to say oh it's a passive fund but unfortunately you can't make a lot of money by trying to be vanguarded the low cost foreign index fund game they're so good at it but it's just not a way to make money so they need to come up with something that sounds like it's passive but can still make you some good money and I really get the impression that that's a large part of what's going on over the last several years with the explosion of smart data and other similarly big funds so I'm going to steal a joke that you'll hear Joe Dickson say tonight when he says it everybody goes ah we've heard that before okay but it came from Joel so he didn't hear it he said we went to a Halloween party last week and a ball of interest has index funds so when he says it tonight just go ahead and like we always discuss the stock fund for finding for retirement we'll go out for short to provide and say 10 to 15 years in a taxable money that you can grow use years before retirement I'm sorry but you it's asking what what would be a good mix for stocks bonds for shorter periods than for finding for retirement I don't know how to answer that I think you have to look at your entire life and take an asset allocation that you know maximizes the probability that you're not going to run out of money I think people are chasing income which is a mistake the same mistake that people made back in 2008-2009 but I don't look at here's a pot of money for 10 years here's a pot of money for 20 years et cetera it does kind of help mentally to one bucket of money that I'm not going to run out and you can put that but I used to think that picking the right asset allocation was the most important decision I've changed my mind sticking to whatever you pick is even more important I mean the way I do you know putting that would simply be a saving not be saving a lot of money in the future of college okay next question do buy and hold investors of funds like Vanguard Tour and that is to say investment grade core bottom funds need to worry about the emerging issues of bottom liquidity and possible runs on mutual funds and then it goes on to say these concerns seem to be real are leading the SEC to propose exit fees and their swing prices for bottom funds now Vanguard has to make a market they have to come up with a single night and those who want to get out will get out at the NAV and those who want to buy so there's no liquidity problem for within the fund itself are there going to be individual liquidity issues for some bonds individual bonds within that fund perhaps but you don't have to worry about that Vanguard they're my charter have to make a market at the end of the day between the buyers buyers and sellers and come up with a price on which you're going to sell your shares and somebody else is going to buy it and you don't have to worry about not having that we do not spend much on it but a jump bottom fund where some of the bonds of real liquid can have large spreads a total bottom fund is treasury and investment greatness spreads are typically fairly small so if there were a panic Vanguard could probably sell this bond that are relatively you know, thin, margin I actually was a little more worried about the PINCO total return because there are everything from investment great to junk and then as people build with the divorce with Bill Gross and the end of performance I actually thought their end of performance would be a little larger than it has been although I do believe over the last year it's under the form total bond you know, the other issue is municipal bonds, the median municipal bond that trades less than once per year so that the trading model is the issue of those of us who help the end of our union bonds funds which are very great through crisis saw that liquidity saw that liquidity often or significant any really falls that have nothing to do with the intrinsic debt worthy of the issuers for buyers of union bonds credit I've seen was 10.25% and the client, believe it or not was an attorney with the SEC this is a rush in of Rick and Alan with current devaluation and increasing public debt across all countries it's still safe to have all the investable assets involved safe to invest everything in U.S. company question is primarily while currency impact on assets do they increase the deficit and each country trying to lower the rates? Raise to the bottom I was like I'm going back for Bill by the way for many many years and Bill was saying I think Rick would one of the things we work for a bit about China here is that it's a communist country and there's one thing I learned that communist countries lie so we don't really know how bad things are in China right now I heard estimates that their actual GDP might be at least 2% below what they're saying it is well that affects all the other emerging markets around China and supply China and we're seeing some issues we are getting ready for another round of sovereign debt default and emerging markets which happens once in a while that's what I believe it fits into the questions per se but we were talking about a single country credit risk so I think that that is the risk in the marketplace maybe I wish the US government weren't doing such deficit spending and I blame it on the republicans democrats, independents with that said I'm not going to put everything in gold so I don't know where else to invest I diversified global portfolio I would invest in stocks and other planets if I knew how to do that I would have a solution I would have never forgotten I hope there will be some fiscal responsibility eventually now you struggle with the things that you predict all the things that are obvious now that's what history teaches us and since you can't predict the future you should diversify this is sort of in the same vein this is general foreign investing for a long term investor if foreign investors investment could be held in the native currency as opposed to the individual foreign currency would it be desirable to do so I think we answered that I would not do a currency a currency volatility that comes from owning international stocks because it may not be correlated with the US stock market the lapse of the dollar let's say you're going to get the return on currency it's not a prediction currency is going to do better it's just an extra form of diversification volatility that's not correlated is a good thing I mean there's a good quantitative work that suggests that your currency exposure should be equal in your portfolio should be equal to your stock and foreign stock exposure and the default way of doing that the way we almost all do it is we own the international stock index funds that we own that are not hedged and then our domestic bonds are hedged and foreign ones they're hedged too now if you think about it there's no reason why you couldn't do it the opposite way around if you have 20% of your portfolio with international stocks you can hedge all of that and no 20% international bonds of our image because the dollars in the end and the euros in your portfolio the English accounts in your portfolio don't know that there would stop your bonds today but that's adjustably much more difficult to do so we don't do it the way we do it by default which is these big international index funds that are not hedged and we hopefully aren't investing in unhedged international bonds Hey what's your guidance about buying municipal bonds versus CD in the tax of the workhouse? I mean the CD's obviously are better off than the tax deferred accounts and for a you don't want to own communities in your tax deferred account you know my own view I think I've said this before some of you are newer but you know meetings represent about 10% of the investment grade market bond market I wouldn't go more than let's say 2.5x and you know my big concern is with 2-3 trillion of unfunded pension liabilities and that's assuming 7.5% you know returns for the pensions themselves if Jack is right that stocks are in 4% and bonds are in 3% in 10 years with all the baby boomers retiring in this pension and health care liabilities being paid out there could be stress on the new market so I wouldn't over weight it and I am not narrative with you I don't look like narrative with you I am not conservative narrative with you I have a question for that what risk should I be aware of that your intermediate term tax and debt fund and investors share well a quick risk in a crisis so make sure you are not depending on why Allen recommends why share your taxable sooner or later and also if you want some CDs and some credit risk I would say take risks with stocks and what you want mostly to be bound by the US government I like the Vanguard intermediate term you can use it all the people that this is your long-term investment portfolio just macro municipal risk which by the way municipal bonds are different than corporate bonds corporations can go out of business states can't really go out of business cities can't really go out of business although you know we are in Detroit I know the credit quality rating of municipalities as they sell investment grades sold out of that portfolio extremely low probability that something that's investment grade and say a Vanguard municipal bond fund is going to default the next day so and again you are talking about cities here where they restructure a city just can't go out of business so it's a little different of a city school if it's a single A rating different than a single A rating of a water business or as a school water business they can restructure debt if you have stocks you have zero, if you have bonds you've got 5 cents it's exactly right that you do a great question only a very small percent of municipalities default it's not credit that's your word about this it's purely liquidity risk and you should have other means for that for a municipal bond fund that's more long term so if you need immediate liquidity you really should have an emergency fund to cover your six months or years with a living expense and that could be something else there weren't tens of millions of baby boom in retiree it's going to happen I'm saying that if stocks don't which I believe is right on that there could be some systemic stress and there are libraries that can raise taxes and people can move in the ways they depends on the law they can renegotiate what those liabilities to their employees are they can help employees increase contributions I wouldn't want to be the politician running on a platform that I want to increase taxes and decrease services even for an investor who is 100% taxable I would limit their exposure to many unions to no more than 40 or 50% of your employees if you live in a high tax state and you don't have to pay state income tax on income the next question is is there an obsession in our culture with the number as opposed to a guaranteed year income such as social security pension if so why well you know you got to buy that you know the guaranteed stream of income doesn't come for food you got to buy it you need to come you know you can make points it's a very good point that you do have a certain amount of risk between the time you acquire it and the time you buy that stream for ability for social security but that's the risk it's almost impossible for every reason there's such a focus on it is simply because our retirement system is overwhelmingly defined contribution plans these days which you look at your statement and tell you how much income that translates into it just tells you how much money is sitting there I do think it's a mistake to focus on that so much and clearly I'm always thinking about social security clearly that's one of the reasons why people have reluctant to spend down their portfolio to delay social security even in cases when it's an overwhelmingly good deal to do so is because they've focused on this number for so long and watched it go up and up and up and now the idea of watching it go down even if what you're getting is an incredibly safe very good deal of an income stream the paradigm that I like to use to display that is imagine a pair of 25 to 65 year old retiree twins one who's got $50,000 of annual income bations that is cold that is inflation adjusted where it has a million dollars among some or a gradually improved who do you think is my one of my first who do you think is going to sleep better when he or she is 78 years old for whatever reason everyone in this room was programmed to live with their needs and build up a nest egg and we're different than a lot of other people and doing so leads us to focus we've spent our whole life building up that nest egg we can't spend it down we can't concentrate too much on income and of course lots of brilliant funds like the Schwab Ultra Short safe alternative to Monfa and the Zua Volatility just a free lunch until it lost half of its value we we keep making these same mistakes again so I would focus more on what a safe spin down rate is and I think if you play a perfect game a portfolio of somewhere close to 50-50 a perfect game is 3.5% increasing with inflation which of course you have to do to keep your standard of living the same but income is the biggest threat to people's retirement plans and we are not efficient learners the same mistakes that we made in 2008 where the average bond fund lost 8% total bond fund gained 5.2% total bond fund gained 5.2% we're making again so now you figure out how to have prosperous retirement but then add your few expense check amounts yes yes we're involved in suicide tonight hahahaha hahahaha hahahaha okay then hahahaha hahahaha hahahaha let's get the panel