 Hello everyone, let's get into our next session. I'd like to introduce our ace moderator here, Karen DeMotto. You'll be seeing her on several sessions throughout the conference. Karen is joining us on a volunteer basis. She has been a great addition to our Bogleheads team over the years and we're so happy to have her here. Karen is very good at asking questions and it's probably not surprising because she has had a long, fabulous career asking questions and answering questions and reporting on financial matters. She was an assistant managing editor at Time Money Brand and before that spent more than 30 years as a writer and editor at The Wall Street Journal. She's now the content manager of a major New York law firm and has graciously donated her time to be here and to moderate a number of sessions for us. So, Karen, I'll let you take it from here. Well, thank you all very wonderful to see so many people here to see so many first time Bogleheads attendees. Thank you to Bill and Jason for kicking us off with an amazing session two incredibly smart, thoughtful people who made us laugh a lot as well who shared a lot which we appreciate. I'm enjoying towering over Jason's why. I don't think I've ever had bad experience before. So for our panel on investing, we welcome back Bill and Jason. I'm the ringer. And you know our other panelists as well, but let me take a moment to introduce them as well. Rick has worked in the investment industry for about 35 years. He is the founder and CEO of Fairy Investment Solutions, which serves individuals on a fixed rate and hourly fee basis. He's written several books and is the current president of the John C. Bogle Center for Financial Literacy. And Jim Dolly is our second outstanding representative from the medical community. Jim is an emergency room doctor, a writer, a speaker. He started the white coat investor website in 2011 to provide investing and personal finance advice to the medical community. And yesterday, many of you heard Jim as the host and a panelist at Bogleheads University. He was very busy for a good chunk of the day. This is a little intimidating starting a panel on investing after the setup we got from Bill and Jason talking about how many errors people make in looking at the markets and in our own emotions and trying to make sense of what's going on outside and then bringing it back to our personal portfolios. I think it's fascinating that we're having this conversation. We did a panel about 15 months ago, maybe a little more a year and a half ago, when the major questions we got from people attendees ahead of time were about stock prices are so high, I can't find any bargains, bond yields are so low, what am I going to do? So obviously we have a very different environment now to talk about. And many of us should be gleeful whether we really truly feel gleeful is another story. So just looking at the environment we find ourselves in a year of steep losses across stocks and bonds around the globe, high inflation, possible recession, just big picture. How should I be thinking about the environment we find ourselves in? And Bill, why don't you kick us off because you went halfway there in the previous session. Well, let me let me get the other half of the way there and say that I'm as optimistic now as I have been in a long time. Why? Because if you're an accumulator, you can buy stocks cheaply now. Okay, for the most part, not all of them, but a lot of sectors are very inexpensive. And if you're a geyser, and you don't have any human capital left, you can now, as I said earlier, de-fees your future liabilities, your future living real living expenses with very plump tips yields. Now, you know, I think things may actually be worse on the short term than than we think they are. I mean, I think there is a good chance we're looking at a new global financial crisis. Well, the market already knows that. Okay, that's why it's going down 25%. During a real financial crisis, markets go down 50%. Well, what the 25% fall in the market is telling you is that the market thinks there's a 50% probability of that. And if it doesn't occur, markets going to rebound. And if it does occur, it's going to go down, but not an awful lot more. I have two announcements that I was told during the break. Social security will increase by 8.7%. That's the CPI or the inflation increase next year. I bonds, the number we've all been waiting for, will be 6.48, basically the inflation rate with no interest. But still, getting back to Bill's point, I like to look at things. I wish that the market never went up a lot in 2021. And I wish that real estate didn't go up a lot. And I wish that NFTs and cryptocurrencies and all of these things, the speculation that occurred in there didn't happen. And that stock prices didn't go up 20 some odd percent in 2021, because if they didn't, then where would we be today based on where things were at the end of 2020? And we'd all be looking saying, things aren't really too bad. I mean, the market's up a little bit. Interest rates are maybe up a little, but not too bad. But what happened was not what's happening this year. What's happening this year is everybody's focusing on what happened from January until today. Stocks went down, bond interest rates went up, bond prices went down, of course, crypto and everything else, everything speculative went down. But if you started this whole evolution two years ago and you said, well, where are we from two years ago, you'd have a whole different opinion. So if you were able to do the rip ban Winkle thing invested two years ago and just look at where we are today, it would be kind of a non-event. This conversation, this question wouldn't even come up. Fair enough. Let's talk a little bit more about the U.S. stock market. So when you look at the market, are there areas of the market that are still overvalued and where do you see the greatest opportunities, areas that seem most undervalued? Well, that's a tough question. Overvalued and undervalued is in the eye of the beholder. And the truth is that the market is probably smarter than any of us individually. And so theoretically, it's never overvalued or undervalued. And it's a tough question you're asking because you're saying in the U.S. market, what do you see as being undervalued or overvalued? And when I start looking for value, the U.S. market is not where I look these days. I mean, I would just echo what Jim said. I mean, I think international markets on a relative basis are a lot more attractive than the U.S. And I think there are a lot of people in the audience who would be happy to hear that. You know, we got a number, we got questions from people about a perennial Boglehead's question of investing in, can you just invest in U.S. stocks or should you also have international stock exposure? One of the questions from the audience was, will international equities ever outperform U.S. equities or even equal perform? That's an easy question. The answer to that is yes. The hard question to answer is when. You'll all remember, well maybe you won't all remember, but you should remember if you've been a student of market history as Bill has recommended you be. A decade, we called the lost decade was not that long ago in which people all said U.S. stocks stink. Why would you invest in U.S. stocks? U.S. stocks haven't returned anything in a decade. That wasn't that long ago. And now I'm hearing the exact same thing about international. Well, what did great the last 10 years U.S. stocks did? You know, Jack Bogle was always saying the pendulum swings back and forth. It returns to the mean. And it tends to do that. You don't know exactly when but over time every asset class has its day in the sun and you want to be in it when it has its day in the sun. And the only way to really do that is to own it in the long term. And in the stock market in particular, staying in the stock market, do you recommend investing with a total stock market dollar weighted type approach? Or do you tilt your portfolios large small growth value? Well, just to, you know, put a point on it, obsessing over precisely what your asset allocation is. Do you tilt? Don't you tilt? How much international? How much U.S. That pales in importance to the question, how disciplined are you? In other words, sticking with your asset allocation is far more important than picking the right one. And so the wrong thing you do right now would be if you did have a total, if you did have a significant foreign allocation would be to abandon it right now at a 55, 45 probability. That's probably a bad bet. So I'd write it up or make the analogy between a cake, the icing on the cake and the decorations on the cake. Okay, we tend to focus on the decorations, right? What's going up now? What's not going up now? The icing on the cake is should you have small value? Should you have more international? Should you have the international? What the real thing that you eat and that you bring it home with you, what really matters is your asset allocation between risky and non-risky assets. The thing that Bill was talking about earlier, this drives 90% of your return, 90% of the variability of your portfolio. How much you have in safe assets? How much you have in risky assets? Everything else after that is these icing on the cake, such as how much in international, how much in US, what factors you have, if you decide to have factors. And then there's the sprinkles, which seems to be the thing that occupy a lot of time. These are the cryptocurrencies and all of these other things that really don't matter. They're sort of shooting stars. And what we spend an awful lot of time looking at shooting stars rather than the ingredients that go in the cake. Let's talk about the bond markets. We had a number of questions from the audience about bonds. One was a request for your views on the choice of duration and quality and your rationale. So short treasuries versus intermediate treasuries versus total bond. And similar a question, is total bond funds still considered good enough for the bond portion of a 60-40 portfolio for a retiree? Yes. Now it is. I'm a big fan of staying pretty safe with bonds. I tend to take my risk on the equity side and I take a lot of risk there. And so I tend to be pretty safe on the bond side. I've divided my bonds into nominal and inflation indexed bonds, 50-50. And the nominal ones, if I could, would all be in the safest bond investment I know of, which is the TSPG fund. My entire TSP from my time in the federal service is in the G fund, which is basically bond yields with money market risk. Hasn't been the right investment for the last 16 years until this year, but this year it's the right investment. It's a great investment. But it's not risky at all. It's a very safe investment. And then on the inflation index side, it's primarily tips and, you know, I bonds basically insured by the federal government, backed by the federal government. And so I don't take a lot of risk. I don't own corporates. I don't own junk bonds. You know, if I'm going to take risk, I take real risk. You know, I take it in my real estate holdings. I take it into my stock holdings, but I don't do it on the bond side. So the only risky thing I've got over there in the nominal side is some muni bonds. I'm forced at this point to hold some of my bonds in a taxable account. And so I have a Vanguard municipal bond index fund there. I don't know if it's an index fund. It's a bond fund from Vanguard, which is very index like. And it hasn't had a great year this year like every other bond fund. But it certainly isn't a risky bond fund. It's just getting clobbered. So I mean, half of investing is math. And the other half is Shakespeare. And, and the you gear the fixed income part of your portfolio to deal with the Shakespeare being able to sleep in the worst states of the world, probably 90%, excuse me, 90% of your returns derived from how you behave in the worst 2% of the time. All right. And it may be that the T bills that you have used to yield close to zero were the best performing highest performing assets in your portfolio because they enable you to stay the course with with the rest of it. Jason, you can correct me if I'm wrong, but I think at any one moment, about 20% of Berkshire is is in T bills. There's a reason why one Buffett likes T bills. Yeah, I mean, I would just add, I would just add one very quick note, which is to a group like the bogal heads. I mean, Treasury Direct is like candy. I mean, a lot of people find the government website kind of old fashioned and annoying and hard to use. I think for bogal heads, that probably isn't an issue. And, you know, building a building a ladder of either nominal or, or real treasuries in the form of tips is is really easy on Treasury Direct. And I mean you getting like a 4% yield on short term treasuries, probably more today. That's nominal. And you're getting a real return on tips of, you know, as we've talked about, like in the 2% range. That's, I mean, to me that's like a free lunch. So let's talk a little bit more about tips. This morning, CPI report inflation in September was running 8.2% prices 8.2% higher than a year ago. Core inflation the highest since 1982 inflation index bonds sound great. And yet when people have looked at their portfolios and you see the Vanguard tips funds so far this year is down 13%, not much less than total bond down 15%. Jim, do you want to talk to us about why let's just start with understanding what has happened this year with the tips. This is one of my biggest frustrations of the year and I was discussing this with Bill at dinner last night. You know, I hold these tips for years and years and years and years for this moment of unexpected high inflation. And I just know that's going to be their day in their son and they're going to do awesome. And while everything else is plummeting, at least I'm going to have those tips. And then this year, you know, you look at intermediate treasuries and they're down 11%, 12% and you look at the Vanguard tips fund, which has a slightly longer duration. So it's a little bit riskier in that respect down 13%. It's kind of disappointing to me. And that even with that inflation factor into it, there's still bonds, they still act like bonds when rates go up, their value goes down and rates have gone up a lot this year, both nominal rates and real rates. And it turns out that I think that factor is a bigger factor than the inflation adjustment is. And I'm going to let Bill give you the answer he gave me last night when we were having this discussion. Yeah, he looked at from 50,000 feet. It's pretty simple, which is that nominal short treasuries are riskless in the short term, but they're very risking the long term because you got to reinvest them and you never know what you're going to reinvest that. And you could wind up reinvesting at a terrible rate, which is what's happened over the past 10 years. On the other hand, tips are riskless as long as you hold them to maturity. So, you know, I just bought some 20 year tips the other week, and they're going to be absolutely riskless the year I turned 94. All right. And, and which is important to me because I don't want to be eating cat food when I'm 94. But, but, but tomorrow they may not be riskless. And, you know, what's, you know, simply because you believe a certain preset in finance doesn't relieve you of the duty, the absolute duty of estimating expected returns. And so if you were buying tips a year and a half ago, you were buying them a negative or the short end in five years at a negative 1.5% return, which means that basically to get if you if you put a dollar into the now in five years you're going to be getting 92 cents worth of consumption value. Maybe you could justify that on theoretical grounds, but I couldn't. And so, you know, it paid, you know, good things, good things come to come to those who wait and that's particularly true of stocks and it's also true of tips. Two comments just for clarification. Well, Bill said is correct. If you buy new issue tips, then you'll, you'll get the positive rate of return. You'll get your money back because the government guarantees if you put $100,000 into a new issue tip that at maturity you get 100,000 back. If you bought a 20 year tip that has it and you want to make it this right. So if you bought a tip that was issued 10 years ago, okay, at a certain level, you could lose money on that tip if you didn't buy it at the new issue price. So new issue tips are guaranteed to get to get the money back, but buying a used tip, if you will, something that's been out there for a while, second to remark a tip that may not be the case. If it was issued at a price that was higher than, excuse me, if it was lower than what you bought it at, that's the base price. So if the new issue tip was issued at a price that was lower than what you bought it at, it could actually lose a value between now and the time that it matured. There's one exception to that. Now we're really getting to the weeds. There's one exception to that and that is there is a tips that matures in February or January, I forget of 2043, which is the one I'm talking about, which if you multiply the inflation factor times its market price is still less than par. And it's got a one eighth of a point coupon. So you're basically buying a zero. It's so there's one exception to that rule. One more thing I just wanted to clarify what Jim was saying. So the correlation between inflation and a tips index fund isn't very high, in which we've seen my negative 13%, right? But the correlation between short term tips and inflation is much higher. So if you're buying tips for the inflation hedge, you would really want to focus on short term like the Vanguard short term tips fund. And I guess a related question that we often come up against in bond investing is buying individual bonds versus buying funds. So if I want tips exposure as an inflation hedge, do I have to buy the individual bonds or do I buy the fund and I just avert my eyes when the price fluctuates? I personally, I think that it's either if you wanted to do a bond ladder that works fine. If you wanted to just do a fund, the duration is going to be the same. So I don't see much difference and I used to manage a lot of money in bonds and I really don't see much difference. Okay, so it's just a psychological one. I have to just not look right. Yeah, I own both. So in my 401ks, I use a tips fund and now that I'm having to buy some in my taxable account, I'm just buying them a Treasury Direct. I'm buying the individual issues. And they both have pluses and minuses. And, you know, if those pluses and minuses matter a lot to you, then choose one over the other. But for most of us, it's probably not a big question when it comes to your portfolio construction. Yeah, I guess I would just add one distinction, which is if your choice for whatever reason is between buying one single issue of tips and buying a fund, I would definitely buy the fund. But if you can build a ladder or diversified portfolio of individual tips, then I don't really think there's much difference. Thank you. Let's talk about real estate. So REIT funds are among the many asset classes that are off sharply this year. The Vanguard REIT fund is down about 32%. One question we had from the audience is, are REITs still considered a separate asset class? Are they worthwhile to have an portfolio? You can take those two separate but related questions. I'm the real estate guy now. I treat them as a separate asset class. My portfolio is 60% stocks, 20% real estate, and 20% bonds. Of that real estate allocation, 5% is simply in the Vanguard publicly traded REIT index fund. I own all the publicly traded REITs there. I technically own them also in my total stock market fund. They're all there. I'm overweighting it. The reason I overweight it is because there's an awful lot of real estate in this country and in this world that is not publicly traded. Much more so than other businesses. I think you can justify overweighting real estate from that argument. I also have about 15% of my portfolio that is not in publicly traded real estate. It's in private real estate. The reason there is because I find some aspects of those investments to be attractive. I see an illiquidity premium there. I see some high expected returns. I find that I have enough money that I can actually diversify in that space, which is a tough thing for a lot of investors to do. I'm a big fan of real estate. I do think it is a separate asset class. The real downside of publicly traded REITs is that their correlation with the overall stock market is moderate to high. That's disappointing when you're looking for something that has high returns but low correlation with your stocks. Publicly traded REITs do that somewhat but not awesome. Okay. There is periods of time when REITs have been negatively correlated with the rest of the market. I know we haven't had one of those times but there are times when it occurred. It's a very variable thing and lately, yes, it has had high correlation. I think you have to look at REITs. By the way, the return of REITs versus the private market has actually been a little bit better. I did a podcast with Auntie Ilmanin from AQR recently. Maybe some of you caught that podcast. We were talking about real estate and we were talking about private real estate versus REITs. In his research, REITs have done better. REITs are a little leveraged perhaps and that's what he believed was the reason. I thought his view on REITs were good though. He was basically saying that the dividend yield that the REITs are providing. If you have a REIT index fund which right now is probably close to a 3% dividend yield, is probably the real return over inflation that you're going to get from that investment because the real estate portion of that is going to eventually increase with the inflation rate. If inflation goes up by 3%, the price of the REITs eventually will reflect that and they'll go up by 3% and the dividend yield on top of that that you're getting, the other 3% is what your real return is. That's probably pretty accurate. He also said that real estate was probably expected to return a little bit less than equity. Somewhere between equities and fixed income. I do think that having real estate in your portfolio as a separate asset class makes sense because as Jim said there's so much of it out there and so much of the real estate is privately owned that if you want your portfolio to more reflect what the economy is and what GDP is rather than what the stock market is then you would own a little more real estate. I wanted to hit on another question about dividends. This was a question from the audience. It's a more philosophical question. Do dividends matter? That is on a fundamental level. Why should a corporation pay a dividend and create unwanted income for taxable investors? Boy, isn't that a good question. There's something called Miller Modigliani theory that says it doesn't matter whether a company gives the dividend out to you or reinvests it. There's a school of thought that says that companies shouldn't pay dividends out at all. They should just be buying back their own stock, which is actually more tax efficient. But the history of finance suggests that companies do not make good use of eternally generated capital. Think Snapple. Think Time Warner AOL. In general, my philosophy is that it's better that companies give you those dividends. Now it also, companies that have a high dividend rate is also a marker for a value company as well, for the value factor, which also suggests a slightly higher return as well. So I'm a big fan of dividends because you can use that capital a lot better than some mega-lomeniical CEO can. I would just add one note. Many years ago, back in the 80s, I think it was Hugh Leitke, who then was the CEO of Pensoil, said that he had come to believe in what he called the bladder theory of dividends, which was it was good for companies to pay them so they wouldn't piss their money away. So I just want to make a comment on dividends. It has to do with taxes. Okay, so if your dividend-paying stock is in your taxable account, then you have to pay taxes on that. If it's a U.S. total market fund, usually it's long-term capital gain about 90%. If it's an international fund, only 70% would be long-term capital gain, and the other would be ordinary income. So if you're looking for dividends in your taxable account to live off of, you could say, well, I could have some internationally, I could have some U.S., or I could do something Alan Roth, who's sitting over here, suggested one time, is that by a U.S. total market fund in your taxable account, which pays low dividend, and if you need to sell some stock, at least when you sell it, it'll be at a long-term capital gain. So you're going to pay that rate. But if you don't need to sell it because you don't need the money, then just leave it in there. So from a tax standpoint, you really got to think about dividends and your taxable accounts. I just wanted to bring that up. Let's talk a little bit more about taxes. So obviously with the market down a lot, there are people who will have losses from when they purchase some of their investments that they can do tax loss harvesting. I'd be interested in your thoughts on how helpful tax loss harvesting is in any particular strategies or ways you think people should be thinking about that this year. So my view on a taxable portfolio, again, because we're talking tax loss harvesting, is you want forever funds in your taxable account, total stock market, total international. Things are going to hold forever. That's what you want in your taxable account. But if you have the opportunity to do a tax loss harvest using tax lots, because you bought in over time because you have different tax lots, some that might be down, you want to go ahead and sell the Vanguard total stock market and you buy the iShare total stock market. You want to sell the Vanguard total international, you want to buy the iShare total international, ETF. You want to take the tax loss. Then you can take that tax loss, you can write off $3,000 worth of ordinary income, and you can use it to write off long-term capital gains that you may have later on down the road as well. And if you die, your kids get a stepped up basis, or your ears get a stepped up basis, so they never have to make it up. So there's no recapture of that. Can you really get away with that? I mean, aren't the iShares and say the Vanguard fund substantially similar? I worry about that. It's a practical issue. It may not be a part. So you don't worry about it. All right. All right. I don't worry about it. If it's got a different QCIP number, does anybody know anybody who's ever been audited over their tax loss harvesting? I've asked this question to a lot of audiences, and nobody's ever raised their hand. I'm not worried about that swap at all. And those are the two partners I use. So when I was getting my master's, I did a paper on tax loss harvesting. What does this substantially identical mean? And you have to go back years to find cases of tax law that says, there was this case that was brought up in front of a tax court where they sold a five-year Treasury bond, and they bought another five-year Treasury bond, but the coupon was a half a percent different. Sell one five-year Treasury by another five-year Treasury, half a percent difference in the coupon rate. The judge threw out the case, not substantially identical. The coupons were different. So certainly if you have a fund that's issued by Vanguard and you sell it and you buy a fund issued by iShares, it can't be substantially identical. I totally agree with that. The value of tax losses beyond the $3,000 a year really depends on how you're going to use them. If those are shares you're going to sell later anyway, you're just deferring taxes on them. Maybe you can defer them to a time when you're in a lower capital gains bracket and you get a little bit of an arbitrage there, but it really depends on how you're going to use those and whether you're going to have a use form. And possible uses down the road for collecting hundreds of thousands of dollars of tax losses might be if you're going to sell a really valuable house, for instance. Remember only your first $250,000 or first $500,000? If you're married, if your house gains are tax-free after that, it's a capital gain. If you're going to sell a small business, for example, that would be something you could use all of those tax losses for. So even though I've got enough tax losses to subtract $3,000 a year from my taxes every year from now until the time I'm 150, I'm still grabbing those tax losses for other purposes, for other capital gains I could have down the road. So I think it's an exercise worth doing. It's not very hard to do. I'm not in there every day trying to do it. I'm not hiring an advisor to do it. If you just check every couple of months in a bear market, that's enough tax loss harvesting for most of us to have enough losses to do at least the $3,000 a year for the rest of our lives. Let's talk a little bit about rebalancing. Just going across the panel. I'd be interested in how often you rebalance your portfolio, how often you think people should look at their portfolio and rebalance. Well, I guess one quick note I would mention is that Jack Bogle didn't really believe in rebalancing. But everybody else does. You know, I'm quirky. I have an HSA. Christine will be happy to know I shovel as much money into that thing as I can. And I rebalance that every paycheck. I don't know why, but it makes me feel good somehow. And elsewhere in my portfolio, I rebalance very, very seldom. And typically what I do is I rebalance by harvesting some losses. And that's the way I do it. I think the data is pretty clear that the ideal interval to rebalance is greater than a year. It's between one and three years, I think, is what most of the data has shown on that. What do I do? Well, I'm still enough of an accumulator that I'm pouring enough money into the portfolio every year that I can just rebalance with new contributions. So I invest once a month. I take all the income from all sources that I have in the previous month, add it up, determine how much of it is going to be invested. And then I tend to look at my investments and go, well, what's behind? Let's throw all the money in there. But I can tell you over the last 16 years or so that I've been investing 18 years, I've come to worry much less about having my portfolio exactly in balance. Close enough is good enough. This is a horseshoes and hand grenades terrain. Yes, if you've gone from an 80% portfolio to a 50% portfolio, you need to rebalance. But if we're talking about 80 and 77%, those portfolios perform almost identically anyway. I certainly wouldn't accumulate any tax cost or transaction cost to do a rebalancing like that. Yeah, I mean, the pluses and minuses of rebalancing aren't all that big. The one thing we haven't talked about is, are you in a taxable or sheltered environment? In a taxable environment, the cost of rebalancing is substantial. Whereas if you're in a tax-free or sheltered environment, it's not. I think that you rebalance for two other reasons that have nothing to do with return. Number one is you're doing it to limit risk, all right. You don't want to wake up one morning with an 85-15 portfolio and then be devastated when you get hit with a huge stock market fall. It doesn't prevent you from sleeping, and God bless. But the other reason why you rebalance is for emotional conditioning. It customs you to buying low and selling high, and both of those are not easy emotional things to do. And it sort of keeps you in financial shape, which is the reason why I do it, is just to keep my contrarian muscles moving. A lot of times if you're going to run into taxes because all your equity is in your taxable account, and I believe your Roth accounts and your HSA should all have equity in it, because why not take advantage of that tax-free status of those accounts. So that means that you need to have equity in your tax-deferred accounts to do rebalancing and not pay taxes. And if that's the case, fine. Okay, 403B IRA, and if you can do some rebalancing there, that's fine. But eventually what might happen is you might end up with all fixed income in your tax-deferred account, all equity in your tax-free accounts, and then your taxable accounts are the only ones you could really rebalance. And you really can't do much there except if you're doing tax loss harvesting or you're adding more money, then you would just use the cash to do it as best you can. Okay, let's take a break. One more thing. I want to thank the three of you for making me feel like a sick old geezer because we're still having money left in the HSA. And on that note, I think we'll see if there are people in the audience who have questions. Do you want to take one of our mics? And then I'll hand you this one. Okay, just one clarification. I'm investing, as I've posted before, for my mom who's in the near end of life, tax loss harvesting. When a person passes and you have existing losses, that loss gets washed out. So the capital, I forget which way it goes, but be careful if you're in that situation because those capital losses get washed out when they get passed on. Good morning. My question is around ESG investing and trying to make sense of that, get some returns. I've heard different opinions that it's not needed, it's not efficient. At the same time, I know I like to sleep at night knowing that my money is not coming from tobacco companies and the like, so I would like to hear your thoughts on the matter. I have strong feelings about ESG investing, but I'm going to let somebody else go first. Oh boy, yeah, okay, if you think about it from the point of view of equilibrium finance, just because you've sold the stock doesn't mean that someone else isn't going to open it, own it. So if half the people in the world don't want to own tobacco stocks, the other half of those people who do own the stocks who the stocks get sold to are going to be getting at a bargain price and are going to be having a higher return, those stocks will still be owned even if you don't, all right. And so a better way to do it is to own the market, own the sinful stocks, then calculate how much excess returns you've made from the sinful stocks and put that money into advocacy. That's the way to do it. Now, there's another reason why ESG is kind of a scam, which is that, don't get me started, all right, which is that if a company gets cheap enough, it gets taken private, okay. So would you rather be dealing with green energy policy with ExxonMobil or with Koch Industries, all right. So that's the second big reason to do it. And the third reason is just from the investment point of view, the investment industry point of view, it's an enormous scam. They're all these different scales for using them. It's used as a marketing tool. It's a Wall Street, it's a Wall Street hopskip and jump. So if you think about, so Larry Svedro wrote a book about this and I also interviewed a couple of other people on a podcast and I thought about this as well. If you do not own the stock, you have no say in what the company does. So by doing ESG and saying I don't want to own ExxonMobil, you have no say and no vote in what happens. I think there are just far better ways to change the world, you know. If you really care to try to stop a company that you think is bad, lead a boycott of their products, right. Strike in front of Exxon gas stations or, you know, start a letter writing campaign or, you know, pressure their sponsors or there's just all kinds of things that are more effective than picking an ESG fund and patting yourself on the back and feeling good about what you're doing for the world. I just don't think it's very effective in actually changing the world. Yeah, and paying actively managed fees for it. It's just you're far better off just invest in all of them and donate to the charities that are going to change the world. I think you're much better off doing that. Yeah, I mean, I would just add a quick thought. I think ESG has become popular for two reasons. One, actively managed firms on Wall Street view it as their salvation. Because from a marketing point of view, their message is indexing doesn't really work with ESG. You need an active manager to like probe these companies to see whether they really are E and S and G. And of course that's BS. But it's good marketing and it's very effective at the institutional level like pension funds are very lightly indexed in ESG. They've decided they and their consultants have decided that you need active management if you do ESG. So I mean, that's the first thing you should realize. I mean, if you're a buglehead because you're skeptical about active management, you should be really skeptical about active ESG management. The second thing, which to me is more personal, is I worry that ESG investing is a way of shifting the responsibility for making the world a better place from each of us to somebody else. I mean, I can't tell you how many times I've like been in a grocery store parking lot and seen somebody get out of their like Land Rover SUV, no offense to the Land Rover owners in the room. They get out of their Land Rover SUV and they leave the motor running while they go into the grocery store and like a half hour later they come out with their grocery cart. I mean, if that's you and you want to buy an ESG fund, then I have a big problem with that and it's not the fund. Okay, my question is around market timing. So we're all bugleheads and we're not supposed to market time, but I think generally we all love tips right now, it seems like. So is that market timing? And if it is, what could go wrong? What are we not seeing about tips that we should be worried about? I mean, I've owned tips for 16 years is 10% of my portfolio. I own 10% last year, I own 10% this year, I'll own 10% next year. So, you know, this year has not been good to me in that particular asset class, but I don't see any market timing there. I don't change my portfolio based on the fact that tips yield 1.7% this year. But it sounds like Bill might. So let's give this question to him. Yeah, I mean, I'll repeat what I said before, which is just because you believe in the efficient market hypothesis doesn't mean you shouldn't be looking at expected returns. And if an asset class has gotten particularly cheap, well, okay, I'm guilty. I'm a market timer. I knew you were. Short-term bonds for the last 15 years. I knew it. Okay, tips are the only investment grade bond that is not included in the Total Bond Market Fund. Okay, so if you wanted to have a total, total bond market U.S. fund, then you would have to include, say, 10% of your portfolio and tips anyway, just to have the market. Of course, you're leaving out the international bonds, if that's all you're doing. Well, I'm just saying. Hi, my question has to do with buying on the dip and rebalancing. Is there anything wrong with rebalancing now? Well, your equities are down twice as much as your bonds and putting your bonds more into equities to buying the dip to rebalance. I'm not sure which dip you're talking about. You're talking about the dip in bonds or the dip in stocks? They're actually both. They're actually both, but the equities are down twice as much as the bonds. There's nothing wrong with doing that. No, you're rebalancing. There's a lot of market timing going on in every little daily decision we make. Are you going to invest your monthly wad that you have to invest today, or are you going to do it tomorrow? Every month you got this question. Are you going to rebalance this month or am I going to rebalance next month? You'll drive yourself crazy if you're thinking about this every time you have to make a little investing decision. Try to automate as much as possible. Try to just do it blindly as much as possible. And I think that's better behaviorally, even if there are times when it is not as good mathematically. I think your behavior in the long run trumps the math in that respect. I'm in my mid-60s, and... No, you're not. And... Get out of here. I receive a pension from my career that I left some years ago. I work now still, part-time, when I want my own terms. I enjoy my work. I've postponed taking Social Security for a few more years late at 70. I own my house outright. Am I an accumulator? Am I a retiree? Am I an accumulator IRA? Am I a retireeater? I'm just trying to figure out what this breakout session I should be doing. I think we'll take that as a great reminder that it's time to wrap up this session. I think you raise a good point, though, that applies to everything we talk about in personal finance, that we are all multi-faceted individuals. And we can't put ourselves into a bucket and say, well, you're this or that. You have pieces of each of those. And so I would encourage you to look at all the sessions and figure out the particular topics or speakers that most seem relevant to you and don't worry which label. And I like the idea of coming up with new labels and certainly an issue for people as retirement becomes a very different thing than it was decades ago. And people are trying to redefine that next episode of their life. So maybe you will come up with the right label for us. And I think on that note, we're going to wrap up this session. Thank you to four amazing panelists. Thank you also to the audience, your questions in this session and the previous session were amazing, thoughtful, and really got our panelists to say some very interesting things.