 One thing we started last year and I'd like to repeat it again this year is all these lovely people who came here on their own dime and I like to give them a few minutes to either talk about their latest project or something that they find interesting or just something they want to talk about so Alan you're down at the end. I got my MBA from Kellogg back in 1982 and you know I went to school to learn how to beat the market in the long-term for Malkill's random walk down Wall Street. You know Fama French is a little new in investing since then but behavioral finance is a subject that really excites me. I don't know how I graduated thinking that was a logical rational being. I'm using hindsight bias to see that. Projects I'm just starting, writing the book was the hardest thing I ever did. I'm a math and Bill Fallinan who I guess is not here giving me a contract with a due date who guided the discipline to do it. I'm just starting to get the itch for a second book which would be a little bit broader than investing and include you know all the aspects of financial planning from taxes, estate planning, budgeting in kind of some simple terms and would be called something like Roth's rules of common sense because common sense is not really all that common. You know just a couple of philosophical newsings. I considered myself unbelievably lucky I didn't have to get paid $1,550 a year for my medical school tuition and my graduate school I got for free and then I started working in 1980 and got the soccer lace on the scene amount of money with the pension rules and then got these you know security returns in the 80s and 90s that were just beyond believe. I sort of felt sorry for you know until very recently for the kids who you know were dealing you know with you know coming out with enormous amounts of debt from school and with overvalued securities to buy into their retirement plans and I sort of almost felt guilty about it. Now I don't feel so guilty I think you know someone who was 25 or 35 years old who was socking money again is going to get you know more than agreeable returns perhaps the kinds of returns that I thought. I mean a good creek in 1981 you could get 13% CDs you know which have a real rate of return at 9% or 8%. In terms of you know where I'm going and what I'm doing I'm always writing. I'm always trying to be on this learning curve and I've got to explain to a lot of you I've got a project that I'm working on on communications technology and politics and political power. It's about 93% done and hopefully it will be out next year as far as financial publishing. I don't have any great plans. I'm thinking of doing some de-publishing just just you know putting out cable books on my own maybe not even books I mean you know somebody explained to me several weeks ago a book is a social contract it's becoming a social construct and you know there's no reason why you can't sell 10,000 words for you know for two dollars as easily as you can sell a hundred thousand words for twenty five dollars so I may wind up doing little trips and drives so you know encapsulate the subjects and doing it that way. You can find the ones you want and believe the ones you don't want. Is Mike Piper still here? Mike are you still in the audience? Where are you? Oh he had to leave too bad. I can say this without even being here. I'm embarrassing him. Mike is 27 years old and he is the future of our organization. Him and others like him. There's some other posters on our Bogle Heads board who are in their 20s, their mid 20s and they are a dynamo out there going called Bogle Heads who are helping to spread the word to their and Mike it is unusual the first time I read something that Mike wrote. I thought he was in his mid 40s or 50s even in the 60s who had been retired and he turns out to be had been about 25 at the time. Mike is doing what Bill is talking about. He's publishing small books and he's financing his this is how this is his living selling these books but the way he's doing it he's using the internet in the medium of the young folks if you will to get the message out about the Bogle. It's not unlike what we're trying to do in the board but just taking it to three or four, five or 25 different levels. I was at the pleasure of being a financial blogger's conference the very first one they had a couple weeks ago it was all these 20-somethings out here and they're all networking and interconnected and doing all this thing and Mike is in the middle of all that spreading the Bogle head message and so he's the future and the young people of the future of the Bogle Heads and if he was here I would have recognized him and he's got the right idea with small books and I think Bill has realized that and I've realized that and the projects that I might be working on in the future are just going to be if I was going to have a 300 page book I just break it down into three or four sixty to eighty page books and you know sell them for what I'm going to sell them for but in order to try to spread the Bogle head message you know we're doing a wiki is fantastic I don't know if you had a chance to look at what we're doing out there with wiki it's wonderful and what they're doing and and now we're on Facebook and now we've got people like Mike Piper out there spreading the word to the young community I mean this is this is the future of the Bogle heads this is spreading the message and e-technology if you will is one way of doing it and I planted to do what I can so that you know that's that's what that's what I'm doing and then I just wanted to give credit to the young folks that are here today that are say under the age of 40 because you are the future of the Bogle Heads. I'll second the endorsement of the wiki site I did just before coming here I sent a message to some of my colleagues at Morningstar.com saying that what you all have done there I think has evolved into the most useful deep resource for personal finance on the web so I just think it's an extraordinary achievement I'm sure it'll continue to grow and get even deeper and broader but what you've done so far is absolutely tremendous I'm honored to be here honored to be up on this panel as Mel's intro of me alluded to I spent most of my career at Morningstar focusing on mutual funds and helping people select mutual funds and the longer I did that the longer I became convinced that we were just sort of toiling in the margins of people's financial lives so whether they selected the right large growth fund or whatever they did really paled in comparison to did they save enough did they make semi-sane acid allocation decisions did they not completely undermine their financial plan by selling everything at the wrong moment so I'm really happy in my current role to be able to address a lot of these things to tap resources like a lot of you and external resources and write up about a whole lot of topics they write about four or five columns a week and and really busy but tremendously enjoy what I'm doing I have become more and more interested in the logistics of retirement planning so have been writing an awful lot about that another topic that's of tremendous interest to me is the decline in cognitive functioning as people age and how they must prepare their financial plans for that possibility I know that many of us have experienced that in our own families I'm undergoing that right now with my dad so it's become front and center with me and thankfully he has me to help him but a lot of other elderly folks do that so that has become a real cause of mine helping people even dedicated to it yourself or so have been very effective over their lives helping them prepare for that day that they may not be able to do so so I've been focusing a lot on that it's a sensitive topic I know that some users have gotten a little offended by things that I've written but I mean well and I think it's a really important and critically under discussed topic could I just ask that we've recognized once again all of the people who are in the infrastructure of the political heads wiki and Alex and stand up and wherever else is here who are involved in the actual what goes on I'll second that as well you know a well-running discussion board or site is is like a tropical garden that needs weeding about 170-10 minutes and if you don't weed it very quickly becomes unhabitable the people on the discussion board to do that really deserve my gratitude well Rick and Christine both talked about the wiki and I think that's probably one of the most under utilized and unrecognized resources available and it is a vast vast knowledge base so I've been using the bully pulpit for us to do a series of wiki to try to get to more recognition for it and that's one of the nice things I really don't like having a deadline and I told Christine earlier that she's my idol I don't know how she does it batting out column after column after column every time I love on the morning start there's Christine with a new column Laura and I share a column that is a bi-weekly column which means Laura writes one week and then two weeks later I have to write which means I'm writing one column a month and here's Christine betting now what seems like one a day so I've really got to do it but it's a lot of work writing a book is a lot of work writing columns are a lot of work especially when you're supposed to be retired and playing golf and things like that but I figured I felt that I you know we were we were given a column at Ports and it gives us a choice to spread the bogey it's worth to a lot of people who aren't really getting the bogey message so even though it's a chore I feel that it's it's worth the effort and that's basically you know the thing that I love to hate having a deadline because I thought I packed that in years ago yes Alex looking at how people are using the site what's interesting phenomena is the regular posters readers and not to use the wiki that much however we're getting more and more traffic from people who've never been to the site and they do a Google search on something and basically the more sort of complex the query or you know the something like non-deductive IRA tent is leading people to the wiki so you like anything I don't know if the quality is there the content is there it eventually gets failed so there is getting more and more traffic on it so it may not be seen as much on the form part of it and we've talked we're going to be doing something to figure out a way to better integrate the two or at least make people more aware of it from there the regular users but people aren't you know there is a lot of activity from people reading the well that's great now we get back to the Q&A a question from Alex what about low cost variable annuities for someone like Vanguard or TIA crap to fill out any income gaps in retirement so you're talking about a variable annuity instead of a instead of a speed right get that off I'm not sure what the variable annuity in retirement is that's a hard one I think for certain investors in the saving phase but a very low cost variable annuity can be useful and here are my criteria for using one first of all person should be young because the compelling advantages of an annuity are greater the longer you are so the perfect candidate for annuity is actually one who's 15 years old can we can we stop right there for a second we want to make sure he's talking about not qualified annuities not qualified correct correct so the second criteria is you don't have any space for sheltered assets anywhere else so you don't have enough in your in your IRAs and in your 401s okay if you've got plenty of room in there you certainly don't need a variable annuity the third thing is it has to be in an asset class which is inherently very tax inefficient okay and that's junk and that's rates all right so if you can meet those three criteria I think that owning a variable annuity is a reasonable thing to do but very few people need that criteria a low cost variable and yeah low cost one personal cost is part I would say almost always no you're converting a tax efficient long-term capital okay in retirement not oh in a retirement yes so you want tax deferral within a tax no it's people who just need an income stream that is greater than 3% or 4% and don't really care about leaving well actually it could work to leave so many towards an errors if there's a low cost variable annuity you could guarantee yourself that 5% stream in retirement and still leave something for your errors but you're gonna have costs that make generally speaking a the average mutual final cheap I know there's a lot of professors my parents are among them who are living off of these sorts of things you know with all rates that they couldn't have if they were to follow you know 3% or 3.5% or something or what are they invested in Alex no but I mean what's the traditional and you know I mean they've structured their product inside an annuity but it's not what I think of when I think of a variable annuity and I use Vanguard variable annuities all the time but as a 1035 to get into something ugly into something you know much much much less ugly but still not great the T tradition by the way until about eight months ago it was an amazing deal because if you if you if you qualify for it means that you had to have received some money at some point in your life from an educational or a public institution which probably 90% of people would qualify for it and basically what amounted to money market yield and still does yield 3% and all you had to do is put it inside of an IRA and money was perfectly liquid in and out I contacted Vanguard and my question to the Vanguard people last night was on the variable annuity side because I'm not going to talk politics or anything here but if taxes on long-term capital gains go up to an ordinary income tax rate and taxes on dividends from stock will go up to an ordinary income tax rate then all of a sudden the Vanguard variable annuity becomes very attractive on a taxable accounts and we've been talking with Vanguard for the last year and a half I mean it looks like this could occur could occur I'm saying it will but it could about how we can structure using how we can manage accounts at our company using Vanguard variable annuities because right now there's no system at Vanguard to allow money managers to actually manage portfolios of variable annuities in a very efficient way rather than calling up individually and talking with somebody on the phone and trying to manage 500 client portfolios like maybe 500 individual phone calls I mean it doesn't work so they're working on the system to allow investment advisors like us to be able to efficiently manage variable annuities just like we can manage the Vanguard funds and I think it's an important step if the tax laws change that would make very low-cost variable annuity products particularly attractive and a lot of asset classes were right now not and one other thing that hasn't been touched on but in a lot of states variable annuities or sheltered from creditors so there are some people like that are subject to lawsuits that might consider doctors and others who are subject to lawsuits this is a question about small cap and value and tilting does anyone like to share the thoughts on either yes or no oh no I'm not saying do it I'm saying is that with the core portfolio is beta I mean it stocks bonds US stocks I'm international I like to use reads I call it the core or very simple that gets you most people out there that's a that's all you need I mean you're there you're done even maybe something more simple than that you know total global total bond you're finished right to and that's better than how 99% of investors are investing just doing that but you start to break it out and you start to become more interested in how the markets work and all the different risks that are out there and breaking it apart might say well I'm gonna have a certain portion in the US certain portion in international maybe some in emerging markets maybe some of you start to break apart your portfolio a little bit because each of these components have different risks different returns and they work differently together in a portfolio when you might enhance your return comes to small cap value in the long run not all the time there have been many long-term periods of time five years ten years where small cap value stocks have underperform the rest of the market but in the long run you tend to they tend to outperform because I believe there's more risk in owning small companies there's more risk in owning value companies like Europe if you will be talking about that and there is in owning the whole board basket so because there is these extra risks out there you're entitled to an extra return and if you understand how the markets have broken down and you decide you want to take these extra risks in your portfolio then it's just fine to allocate a portion of your portfolio to say a small cap US or small cap international fund but you knowingly are doing it I mean and you're knowingly paying more money for it this doesn't come cheap you could buy beta the Vanguard total stock market for seven basis point zero seven percent if you venture off from that and you go into small cap value you're going to pay more money but the idea is the excess return that you're going to get from the risk premiums make up for and more make up for the extra cost that you're you're taking but I think you venture into this knowing what you're getting into and knowing or deciding how much you risk you want to actually allocate to that area yeah I was fascinated to hear Gus Sotter last night talk about this issue and what I thought I heard him say was yeah small value stocks do have higher returns but I'm not willing to bet the company on it and he basically came out and admitted that Rick's exactly right first of all it doesn't come cheap the DFA US small value fund excuse me has probably captured about half of the small value premium the other half that I think it's lost to transactional costs because maintaining a highly tailored small value fund is very expensive in terms of transactional in terms of transactional costs I think that a large part of it is a risk story and we sure as heck saw that you know 0809 with what small value funds did ending there had small value funds existed in 1929 to 32 it would have been even worse but I think there's also a behavioral component as well to it so you know as long as you can tolerate it and you know what you're doing your time arises long enough sure go for it knock yourself out but but you know if you want to you know use rick's core for approach I think that's wonderful too now there's one usual fun but I would recommend to if you know somebody who has access to it in 401k plan which is the DFA 6040 global portfolio which is has a fairly nice healthy tilt to it it is global it owns everything reads emerging markets all that stuff you know domestic it's very balanced the bond portion of it is very balanced and it's one fun and if you you know the person who doesn't want to think about investing who wants to use one fun to the 401k if that one's available I would not recommend that I could not recommend that one highly enough if they're willing to bear a bit of a tail I do believe in the form of French three-factor model but you know don't lose sight that small cap and value is compensation for additional risk so you may not completely agree with me on that point with that some pristine correct me if I'm wrong small cap value is about 3.3% of the total market in the vanguard style box so my own portfolio I have an extra 1% tilt people that come to me with a portfolio that 50% of their equity is in small cap value in my opinion that's many times too risky and one thing I would add is that when we look at the universe of actively managed funds to the extent that anyone uses them what we see is that almost across the board you've got a smaller cap tilt than the broad market that active managers typically do underweight the indexes largest constituents the one thing I would point out though is that if you look at the long historical data plus the live fund data that a 6040 conventional US stock bond portfolio has a higher return has a lower return and a higher risk than a 4060 small value bond portfolio you know so at least in terms of mean variance preference you are better off the small value of how to look at the market of course you have to bear this very attractive risk you have to be willing to have a negative return in here like 1998 when your neighbors were making 40% I can make an argument that having more small cap value in a portfolio is it is a good idea if your intent is to more mirror the economy rather than try to mirror the stock market what I mean by that is half of our economy is not securitized in the form of equity and that half that's not securitized in the form of equity most of it are very small companies which tend to be bought and sold at value stock type prices so if you want your portfolio look more like GDP look more like the US economy what you would do is you start out with the total stock market and that add or magnify small cap value because that gets your portfolio more away from what the stock market is which is nothing more than companies deciding how they're going to capitalize themselves towards what the US economy is it pushes it that direction I think that's a good justification for doing it I think that's a deeper than say a point we're back to the high water mark if you're a 60 40 portfolio investor whatever your high water mark was at the end of maybe you know 2007 November you know October 13th 2007 when the market if you have a 60 40 conventional portfolio you're doing just great but if you're the average American worker it really sucks and the small value tilted portfolio more closely mimics that so I think it's a great point well here's a case of where risk showed up I got a news flash in these days when we've all been temporary residents of Pennsylvania or the local news is reporting that Harrisburg the state capital has filed for bankruptcy I don't know whether the mobile heads had anything to do with that but the risk did show up and the question that is asked is this a domestic crisis or is this just noise well I come from Rhode Island of course we had central falls the first one to go under and the states will come in and take over when the cities are no longer able to pay their bills this is not a city this is the state capital the city though but it's the state capital where all the politicians reside they don't live on their guards but I think all the states will come in and they will bail out the cities restructure them take over management of them get them back on their feet it's gonna take a while but it will and in the case if a state ever going bankrupt the federal government will step in so I don't think there's any risk at all to say the vanguard intermediate term is one point which has thousands of securities in it I don't think it's gonna make a difference though for a fund over individual bonds and for a nationally diversified fund over a single state fund unless you are in a state with very high state tax and you personally tax bracket in fact vanguard does have a long-term in Spain tax free so I'm sure that I mean the classic mistake that a lot of small investors do the older ones with all of their money into individual bonds from their own home state it's just the classic case of the tax tax tail where you know in wagging the investment talk that's an incredible thing now I don't have some opinions about that municipal bond so I'll yield it for $100 we say I had a deep insightful comment I'm a big believer that if you own muni bonds you want to diversify fund I think that the muni bonds scare me and I think many bonds have a new risk that they haven't had in the past remember the question of the 8% assumption well muni bonds are municipalities and states have a large unfunded liability using fairly aggressive assumptions so the purpose of the bond portfolio in my opinion is mostly to be that is a shock absorber if stocks go down now think about it if stocks do go down significantly this is not a prediction I am not meritive winning but if stocks have a bad run for the next 10 15 years if there's some terrorist events if you know country default is going to be greater than those municipalities are going to be under bigger stresses they're going to have bigger unfunded liabilities and yes they can do things to try to cut costs but remember you know these are elected officials and politicians don't generally make the tough decisions so that in my opinion and this is not a prediction this is a consequence of a low probability situation that if our stock portfolio goes down defaults and our municipalities could go up just when we really don't want them to happen so what proportion of a fixed income portfolio should the average person in this audience have in munis of zero 20% well that's an easy answer it you can I I think you know first of all you've got to be in the taxable situation where they make sense you know the goal is not to pay the least amount of taxes the goal is to make the most amount after taxes on a risk-adjusted basis municipalities are about 8% of the total US bond market and I would be hesitant to go much above you know 12% or so okay we'll take one more question this is appropriate for this time period is for dr. Bernstein doc there are a number of threads on the forum about the current state of the bond market and how to invest are avoided previously I remember you stating that you feel that the risk versus the reward of anything longer than cash and short-term bonds is a fool's errand the other professionals here basically are championing stayed the course with intermediate bonds please clarify if you would your current thinking of well as I said the Christine yesterday I can't be right about everything you know I you know I'm going to stay the course of my particular recommendation I mean the dumbest thing that I could do now would be to eventually because you know I mean how much upside is there left in bonds really at this point so I continue to believe that and you know I think the more important than having an opinion and shifting around is simply to stay to stay your course I've always been a believer that short generally that's in general that's been a terrible strategy for the past 30 years or so but I'm reasonably certain that you know that they will come when that will look like a good strategy again and I'm going to wait for it thinking the past you've said you were an asset junkie bill that's a class junkie so this question might be appropriate it says on gold Jack recently said that this is speculation but if you must own it one two three or even five percent in gold isn't the worst thing you can do does the panel agree anyone more accommodating to owner a greater percentage or even making it part of one strategic asset allocation gold was the best investment I ever made when I graduated college in 1979 I knew everything my parents gave me some college graduation money and I bought gold and silver even with the recent surge it has not kept up to inflation it taught me that I wasn't as smart as I thought I was I still believe in gold as an asset class or I actually like the precious metals mining I wish the vanguard precious metals mining had not taken in non-precious metals I think Van Nek has a great GDX gold miners ETF I think it can make a lot of sense I think that probably 99% of people who've gotten in there and in the last two or three years you're doing it for performance chasing for just the wrong reasons so I selling as it's been going up to rebalance yeah I mean as Jack said yesterday people discovered diversifying asset classes only after they've had high returns the day will come when people will no longer be interested in gold when as in the year 2000 and 1999 all the talking heads said it wasn't part of the portfolio central banks were selling it and that'll be the time to put it back in the portfolio long-term mean variance point of view either gold or precious metals equities will work on a precious metals activities just because they're easier to handle they deal with dividend I too and almost beyond words at what Van Nek did several years ago with the precious metals fund they always do these things at the wrong time and this is not the time yeah those of you who were here last year well yeah I just got a steal 30 years ago I made an investment in gold and has been a fabulous investment that's a wonderful dividends including three wonderful children here's the investment man was 53 years ago just a quick point on the timing question I had to do a CNBC retirement roundtable a month or so ago and that was one of the topics they wanted to cover and actually the other panelists were pretty bullish on gold and I I just stepped back and said so if you told me that you had some asset that was up 25% on an annualized basis and you were going to add it to a portfolio to decrease risk in the portfolio I'd say you were crazy I wouldn't care what asset it was and that's what we were looking at with gold returns so I I believe that it can probably be part of a long term strategic portfolio but I agree that the timing is as our parents taught us you know if you're playing poker and you look around the table and you don't know who the patsy is you are you are probably buying it from someone who bought it for $300 an ounce in 1984. Who's the patsy? Jeremy Siegel has stocks for the long run. He used to have an Trinaloid version or edition he's on right now but years ago in stocks for the long run he had a chart that looked at the price of gold going all the way back to the 1800s and there were little blips along the way but it was an adjusted for inflation the price of gold adjusted for inflation and although you looked at this chart and there were little blips along the way during the war times and during the 1980s 1990s and now we have another blip but in the long run the price of gold is the inflation rate it is the inflation rate and right now in my opinion the price of gold is going way ahead of where of inflation so two things are going to happen either the gold bugs are right and we're going to have terrible inflation and they might be right I mean I don't know if they're going to be right or not or they're wrong and when everything comes down around the world and hopefully we fix some of these problems that we have with sovereign debt and such in our own depths it starts to hopefully reverse that the price of gold will come back down to the inflation rate which currently I take it somewhere around $600 an ounce where it should be trading at so one of those two things are going to happen I just don't know which I mean not only are you really an insightful but you also know what intrinsic value of gold is so I want to I don't accomplish anything. All right at this time I'd like to do some wrapping up of the event and I would be really repussed if I did not recognize the people who helped me pull this off I have a real all-star staff and I'd like to call them up and recognize them. Ed, Raver, Marlene, Linda, Paul and Linda Gloverson and Gail. Come on up. As I said in business I used to delegate and wonder whether the people some people are going to be able to carry out a task and sometimes you spend time chasing after them worrying about whether they already have something done with these people I give them an assignment and I cross it off the list because I know it's done and I know it's going to be done properly and these people have really really worked through the last year every every one of these events takes a year to plan and carry out. To recognize the other important people here and that's you the attendees it's really great to see new faces every year and young new faces that's really exciting and it's also nice to see people who return and we feel like we we know a lot of these people from two, three, four, five, six events we have one individual here at TEMI who's been to all of TEMI events so hopefully you've had a good time hopefully you enjoyed yourself and learned something and would like to see some of your faces back next year if not all. Thank you everybody but there's a guy who does an unbelievable job but he spends an immense amount of time and he's continuously working on this and we really really should thank Mel. When Taylor and I started this in Miami, this was going to be a one-time event, Jack had said he'd like to get together with us in a non-resort place and it turned out that Taylor found out that Jack was speaking at the Miami Herald Making Money seminar and he knew that I was a snowbird so he called up and said Mel, should we invite at that time that we were called the vanguard of diehards and should we invite the diehards to come to Miami and have lunch with Jack and Taylor and I were gonna pay for the event and we said well what if the whole world comes you know you're not gonna limit this thing somewhere so we said okay $50 ahead 100 people will go for $5,000 and that's how we set up the first one and we thought it was a one-time event but then so many people wanted to come it was very sure to notice a lot of people couldn't come but they said when's the next one next one so it's like what happened one of the one of the forum members who I did not know and emailed and said I'm on a forum in Pennsylvania and I'm willing to host the event and it's right close to vanguard and you know we'll be able to visit vanguard so that's how the second event came about and then Morningstar was gracious and said would you guys like to have your next event in conjunction with the Morningstar conference so all the sudden we went from a one-time event to and later on when we were writing the book we didn't have time to have an event Jack said Mel when we're gonna have the next event I mean Jack Jack really loves this and it's amazing and but we were always trying to tie our events in with another event where Jack was appearing Jack has to deal with his wife that he's gonna be home on the weekends and so kept trying to tie it in with an event that Jack was speaking at and we ended up in Denver with the CFA group and after that Jack said I'll go wherever you guys want me doing the things on our own so what started out as a lunch with Jack in Miami in 1999 has now turned into this which is our 10th event so hopefully this are going for a long time and one of our many people in the audience might someday be doing this job so I can go play golf but in the meantime I love what I do and I love with the people I'm working with but anyway thanks for coming I hope you had a good time and we'll see you all next year