Book Review: Behavioral Investment Counseling by Nick Murray

Murray is the author of one of my favorite investing books of all time, Simple Wealth Inevitable Wealth, and I’m reviewing this later book partly as an excuse to call attention to his earlier book, SWIW.

But Behavioral Investment Counseling by Nick Murray stands on its own quite well.

The book’s bedrock idea – captured right there in the title – is that investor behavior determines an individual’s wealth prospects, rather than “markets.”

Now this strikes me as 100%, Capital T, True, although an uncomfortable truth for many.

Ask me “how are the markets doing?“ and the right answer – as I’m certain Murray would agree – is “Doesn’t matter, how’s your behavior doing?”

Since Murray’s audience for this book is not individual investors but rather investment advisors, the logical lesson is that advisors need to focus on the beliefs and behaviors of their clients, rather than spend much time on asset or manager selection.

I’ve never wanted to be an investment advisor, but the way Murray describes the “behavior investment counselor” makes the profession seem especially noble.

I dig his voice. He’s a wise and slightly weary zen master who has seen all of the investment behavior mistakes possible, and can describe them to you before you even make them.

behavioral_investment_counselingOn many an important point he acknowledges the unknowability or unprovability of his point. Nevertheless, not doing what he says – not intuiting the essential wisdom – leads to grievous error. You’re welcome to persist in your own stubborn views, he seems to say, and best of luck to you.

I’m not as old as Murray but I find myself adopting that same attitude at times. I mean, people enjoy their investment fantasies. Who am I to disillusion them

In my own words, the message of the book is

  1. The entire value of an investment advisor is captured in the making of a plan taking into account the client’s specific situation – and then the ocassinol behavioral counseling at key moments (mostly when the market crashes, but also possibly when it is on a tear upwards and there’s a need to rebalance back to the original plan.)
  2. Readers of SWIW will not be surprised to learn that the best plans will rely heavily on diversified equities (rather than fixed income) as this is the only way to grow one’s money, and avoid the most important risks – loss of purchasing power and outliving one’s money.

For actual investment advisors, Murray’s book offers what seems to me a tremendous amount of self-evident wisdom about what an advisor does, how an advisor should go about building a practice, and how an advisor should first ‘pitch’ prospective clients.

If you haven’t read any Nick Murray yet, do yourself a favor…

Please see related reviews:

Simple Wealth Inevitable Wealth by Nick Murray

The Game of Numbers by Nick Murray

 

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Ask An Ex-Banker: 100% Equities Even In Retirement?

retirementHi Michael,

I enjoy and look forward to your advice every week. I am about to do as you (and a lot of other smart people) recommend and move our investments to several diversified equity index funds. My question: would you still suggest no index bond funds for someone in our age bracket? I am 71, and my wife is 65. We have a comfortable railroad pension and this year I started my Required Minimum Distribution (RMD.)  We have modest money to transfer ($145,000) from Morgan Stanley to I was thinking Vanguard.

–Bob in San Antonio

Thanks, Bob for your question, which refers to my recent exhortation that 95% of people should have 95% of their money invested 95% of the time in diversified 100% equity index funds, and never sell.

The quick answer to your question is yes.

I still would give you the same advice, although with a few caveats. The first caveat of course is that this advice is free, and you get what you pay for!

Also, I don’t know your full situation so I’ll make base-case scenario assumptions and you can fill in the details. The key to the choice to remain 100% in equities (instead of bonds or some other fixed income) is your time horizon. Above a 5-year time horizon (my minimum for ‘investing’) then people should be in diversified equities rather than ‘safe’ bonds or savings.

Now, you are 71 and your wife is 65, which puts your expected remaining lives (according to this Social Security actuarial table) at 13.4 and 20.2 years respectively. Given the way probabilities work, you should want to maximize your investment account for 20 years or longer, at least to support your wife (who is likely to outlive you). If you have heirs, your time horizon will be longer than even 20 years, and might really be measured in many decades.

required-minimum-distribution table
Divide retirement assets by the divisor to calculate RMD

I’m assuming all along that you will not have to sell the funds in your account, and you won’t be spooked by market volatility, which can and will be substantial over the next 20 years. At the worst moments, sometime in the next 20 years, risky assets like stocks could lose 40% of their value from their peak, the sky will look like its falling (it won’t be), and you have to know yourself well enough to know whether you could stomach that kind of volatility without selling.

Pensions & Social Security act like a bond anyway

Another factor specific to your situation that makes 100% equities even more acceptably prudent is that your railroad pension looks and smells and acts like a bond. Meaning, it probably pays the same amount every year without any volatility, or maybe it adjust slightly upward for cost of living changes. Social Security works the same way. The fact that a huge portion of your income is fixed income and bond-like and safe and snug should make you even more comfortable with the idea that you can remain exposed to volatile equities.

Without your pension & social security – If you had only your equity portfolio to cover your expenses – you might be forced to sell some equities to cover your costs at an inopportune time, and then 100% equities would be less of a slam dunk.

Adjust for RMD?

Speaking of selling, the RMD could change your decision (and my advice) slightly.

You know you’ll have to withdraw some required minimum distribution (RMD) each year, based on the IRS rules and your expected lifespan. A reasonable case could be made that you should keep at least one year’s RMD in cash, since you know your time horizon on that amount of money is very short. Many reasonable people might advocate a few years’ RMD in cash for the same reason.

I think its just as reasonable, however, to decide instead to keep the account fully invested in 100% equities, betting that equities will outperform bonds more years than not, and that your twenty year time horizon still justifies the decision.

asset_allocation
I totally disagree with this suggested asset allocation

The deciding factor between these reasonable scenarios, in my mind, is how ‘comfortable’ the ‘comfortable railroad pension’ really is. If your lifestyle costs are fully covered by the pension, and the retirement account subject to RMD rules is just extra money, then you can think of that investment account as intergenerational money. If you have heirs or a favorite philanthropy to pass money to, for example, then the time horizon for your account can be measured in decades, and you should undoubtedly stay 100% in equities. I’m confident that with a 20 year time horizon or greater, there will be more money in the end via equities than there would be if you invested in bonds.

With plenty of interim volatility, of course.

Good luck!

Michael

 

Please see related posts:

Hey Fiduciaries: Is It All Financially Unsustainable?

Stocks vs. Bonds – the probabilistic answer

 

 

 

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How To Invest

Keep_it_simple_smartyRather than say, “this is how you should invest,” I prefer to say (and write about) “this is how you should NOT invest.”

I can think of at least three reasons for my preference.

First, I know many more terrible ways to invest than I know good ways.

Second, exotic bad ideas make for more interesting conversation (and reading) than boring good ideas.

Third, by focusing on the negative exhortation, I safely hide behind the critic’s shaming attack of “You didn’t do THAT did you?” rather than the advisor’s defensive apology, “I’m sorry I suggested you do THAT and it didn’t work out. But hey! The theory was solid!”

This is all a lead-in before I poke my head out of my turtle shell to give positive advice about how you should invest, before I quickly return to my more comfortable space of how not to invest.

How to Invest

Are you ready for the most important, boring, good idea on how to invest?

You should invest via dollar-cost averaging in no-load, low-cost, diversified, 100 percent equity index mutual funds, and never sell. Ninety-five percent of you should do that, 95 percent of the time, with 95 percent of your investible assets.

Phew, I said it. That paragraph right there is a trillion dollar financial advisory industry sliced, diced, chopped, shredded, sautéed, and reduced to two sentences, and served on a beautiful platter for you. If you don’t understand all the words, don’t worry, just print them out, bring them to your financial advisor and demand only that. Every time he tries to deviate from that plan, just point back to those two sentences and say, “I want only this.”

You’re welcome.

How Not To Invest

Ok, now let me retreat to my more comfortable critic’s shell and tell you how – given that central piece of advice – you should NOT invest.

  1. You should not invest your money for less than 5 years. When I say ‘invest,’ I don’t mean buy some investment product with a view to selling it the next day, the next month, or even next year. I think five years is kind of the minimum investment horizon I’d endorse. Also, when investing, the best time horizon for selling is ‘never.’
  2. You should not invest in ‘safe’ products, like money markets and bank CDs, annuities and bonds. Since this contradicts most of what the banking and financial industry advocates, perhaps I should clarify this point. Money markets and banks CDs work wonderfully for saving money – to buy a fancy new pantsuit or a personal robot, for example, or some other essential purchase. Unfortunately, saving money offers almost no return on your money, and often a negative real return after taking into account taxes and inflation. Saving money is not the same as investing money. Annuities and bonds offer a wonderful psychological feeling of comfort. But that comfortable feeling is also not the same thing as investing. Parking money – when you can’t afford to lose any principal – is different from investing money. Investing money always involves the possibility of loss. Incidentally, I know your investment account is currently allocated to 60 percent stocks and 40 percent bonds (because everybody’s is.) I’m not your investment advisor, you’re not paying me one way or the other, so I don’t really care, but I’ll just point out that 40 percent of your investment account is poorly allocated.
  1. You should not invest in funds without checking the cost of the fund. Most of us would not dream of buying an ice cream sandwich at the Dollar Store without verifying its price first. I mean, I’ll take it out of the freezer and bring it to the cashier without knowing the price (maybe!) but I’m not too ashamed to ask ‘Hey, by the way, how much is this thing?’ (Although admittedly there are some things I wouldn’t do for a Klondike bar.) Can we have a show of hands from mutual fund investors who know the cost of the funds they bought? In my anecdotal experience, not even one in three investors knows the management fees of their funds. People who have worked in the finance industry usually know enough to ask, but even there I don’t think even one in two bothers to check ahead of time. FYI, it’s costing you a lot more than the price of an ice cream sandwich.
  1. Speaking of upfront payments, there is absolutely no reason to pay upfront fees for a fund, known as the fund’s ‘sales load.’ No reason at all. Do not do this. Oh, you didn’t know how much you’re paying in ‘sales load?’ See rule number 3.
  2. Don’t time the market. If you have investible assets ready to go right now into the market, just put them in the market, and forget what I wrote above about dollar-cost averaging. If, instead, you invest based on your monthly surplus, just set up autopilot investing from your paycheck or bank account and never alter that based on ‘timing’ concerns. There’s never a good time or bad time to be in the market. I mean, obviously there is, but there’s absolutely no reliable way you’ll know it ahead of time.1 Every academic study ever done concludes the same way: Timing is a mug’s game. You can’t win that way.
  3. If you’re not a financial professional, try not to spend too much time, energy, or brain space on this investing task. Simplicity and modesty can actually put you way ahead of the pros trying to do fancy things with their investment portfolios. Most of the exotic products don’t work better than the simple products, but they do tend to cost more, and they tend to go wrong in unexpected ways, at the most inopportune times. Keep it simple, smarty.

 

So that’s about it. If that all doesn’t work out for you, I’m sorry. But hey! The theory was solid.

A version of this appeared in the San Antonio Express News

 

 

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  1. Well, the best time to be in the market is always thirty years ago. But you can’t get there from here unless you start today.

Are Stocks Like A Casino? No. But YES!

poker_losses
I hate money

I hate money. Apparently the feeling is mutual.

I know this because I am writing this from a hotel room near the Golden Nugget in downtown Las Vegas, following a typical encounter between a poker table and me.

Here’s how this usually goes, and also how it went again today:

I sit down, feeling relaxed and ready to have a fine time with my close personal friend, money. A few minutes or hours later my money – that ungrateful Judas – goes home with someone else.

Gambling is evil

I should stop at this point to state the obvious. Gambling is terrible for you. It’s terrible for society.

When I am finally appointed Lord of all Catan and get to set the rules for everything everywhere, gambling will be outlawed in this country except in tiny pockets of sin like Las Vegas and Atlantic City. Like many, I see a big difference between what’s “fair for me” – I personally like to play poker – and what’s “fair for society” – most people should never gamble.

In the same spirit, I deliver the following Public Service Announcements: Kids, don’t do drugs! Also, definitely avoid intimate contact until marriage!

Anyway, like I said, gambling is terrible. (Also, its super fun!)

All joking aside, I have an important message today – a non-hypocritical Public Service Announcement – inspired by my visit to the Golden Nugget.

Market as Casino?

When I taught a course for adults recently called “Get Rich Slow” one of my students asked whether the stock market ‘just represented one big casino.’

stock_market_not_a_gamble
Appears like gambling, but if done right, it isn’t

A retired widow herself, she commented that young people see investing in stocks as a ‘a rigged game, only benefitting the wealthy.’ Is it true, she asked?

She is dead wrong.

Also, she is righter than she knows. I feel very strongly about this, both ways. I’ll explain.

Dead wrong

Investing in stocks is not gambling at a casino.

Investing in stocks for the long run, in fact, is the exact opposite.

Stocks (in particular diversified stocks) held over the long run (at least 5 years, but 20 years is better) will make you money.

Gambling at a casino, in the long run, guarantees the gambler will lose money. In the long run, the more you gamble, the more likely you are to see your money go home with someone else.

I’ve played blackjack, craps, and roulette. I’ve played poker and sat down in front of slot machines. I’m not proud of any of this.

Roulette Board

The casinos understand the odds, and they set all of these up as unwinnable games, over the long run. Casinos simply don’t offer games that lose money for them in the long run.

We can summarize this idea as “the house always wins.’

I’m not saying I haven’t walked away from a roulette table richer than I started, because I have. On any given day, of course an individual gambler can come out ahead. It happened in the Dominican Republic to me once, involved witchcraft, and it’s a long story I won’t recall here. But that just represents the improbable and occasional victory of witchcraft over math.

Just remember, the more you gamble at a casino, the more the mathematics work against you. There’s just no way around it.

Righter than she knows

The widow from my class is right in a difference sense, however, that investing in stocks is a rigged game. Here’s my strongest statement on the topic, addressed specifically to the young person wondering about the stock market:

In our capitalist system, the stock market is a ‘rigged game,’ in the sense that over the long run, stocks always win.

hot_stock_to_buy
Always ignore garbage like this

Let me clarify what I mean by stock market investing for the long run. By “stock market investing for the long run” I don’t mean that particular form of gambling shilled by the Financial Infotainment Industrial Complex that you can watch on MSNBC, CNBC or Fox News after the closing bell. I don’t mean what’s referred to by the nonsense headlines “Hot stocks to buy now!” or “Best Fund Managers 2015!” being sold by Hot Money Magazine or whatever glossy garbage rots on newsstands this week. I really, really, don’t mean the ‘investing tips’ of day-trading e-news updates filling up your browsers on a moment-by-moment basis.

I specifically mean purchasing a broadly diversified, low-cost (probably indexed) mutual fund, and never selling. I mean a holding period of at least 5 years, but preferably for 20 years or more. I mean purchasing diversified stocks with no end date, no sale date, in mind.

pocket_aces

Stock markets go up, stock markets go down. Businesses grow and businesses die. People buy and people sell. It doesn’t matter if you’re the long-term owner of stocks, because you will make your impressive percentage return on your money in the long run, no matter what.

Please understand: If you are a long-term investor in the stock market, you are not the gambler, you are the house, and the house always wins.

 

Please see my post on my visit to downtown Las Vegas and the “Downtown Project.”

Tourists, and the Antidote – Exploring Las Vegas’ Downtown Experience

The downtown monoculture problem – Las Vegas and San Antonio

The limited role of government in curing a downtown monoculture

and an upcoming post, The role of the visionary billionaire in curing a downtown monoculture

Please see other related posts:

Book Review: Simple Wealth, Inevitable Wealth, by Nick Murray

Book Review: All The Math You Need To Get Rich, by Robert L Hershey

Sin Investing

Interview With Mint.com – I Give ALL The Answers

A version of this post on casinos and stocks appeared in the San Antonio Express-News

 

 

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Interview with Mint.com – I Give ALL The Answers

Finance website Mint.com asked me some good questions for their blog. You can visit them there or enjoy the repost below.
Interview_mint_Bankers_anonymous
As a former Wall Street insider, what do you think is the average person’s largest misconception about investing?

The average person thinks that what Wall Street does is so complex that it requires extremely bright specialists to handle the complex needs of individuals. And the average person thinks implicitly that complexity and special skills naturally justify high fees.

And while it is true that many to most people on Wall Street are bright and there are complex things happening there, all that intellect and complexity is irrelevant for the vast majority of individuals. For most Americans, including high net worth individuals, a very simple and inexpensive approach will serve them best.

If you had the ability to get every person in the United States to adhere to three financial principles, what would those be? Why?

Great question. More than principles, I would go with three financial attitudes. Those would be:

a) Optimism – You kind of have to trust that markets are going to work out fine in the long run, even when the short run and medium run look extremely frightening.

b) Skepticism – Most financial solutions you get pitched with constantly are irrelevant or overly costly.

c) Modesty – Be realistic and modest about your own ability to ‘beat the pros,’ and realistic and modest about the ability of professionals you hire to ‘beat the pros.’ Also, modesty about attributing one’s investment success can avoid mistakes due to excessive confidence.

How does life change when one has more financial literacy? What does it take to be financially literate? How illiterate are most people?

Financial literacy is a process that most people need to engage in, but a process for which there are too few guides. Most of our parents don’t know how to help. Certainly our teachers and professors are mostly unhelpful guides. Most of the ‘experts’ in the media are in fact salespeople in one form or another, so while they can tell you the positive features of what they sell, most are unhelpful in helping us sort out our different options in a suitably skeptical way.

Most well-educated people that I know are very uncertain what to do when it comes to financial decisions. Or worse, they have high certainty, but wrong ideas. Both versions of financial illiteracy can be very costly.

Financial literacy obtained in one’s early twenties, I think, would make the average, middle-class person $1 million richer at the end of their life. That’s the premise of my book. (More on that later, see below, the end of this post.)

For higher earners, the benefits of financial literacy will be many multiples of that.

Investment is something that many people want to do, but don’t seem to fully take advantage of. What are some of the best practices one can employ to become better at investing?

The four biggest determinant of investment results are:

  • Time (longer is better)
  • Asset allocation (risky is better, and for non-experts/non-insiders, diversified is better)
  • Costs (lower is better)
  • Tax advantages (zero, low, or deferred taxes are better)

A powerful way to combine those four advantages – one that anyone can do but not enough of us do – would be to fund your (tax advantaged) retirement accounts (like an IRA or 401(k)), and purchase risky (100% equity) low-cost (probably index) mutual funds while still in your twenties.

A 22 year-old who does that for the next ten years is guaranteed wealth in his or her old age. In fact, it is impossible not to end up wealthy if a 22 year-old does that for ten years in a row.

If you’re not 22 right now, you won’t have as much time – which is a shame – but it’s probably still worth doing all the steps that I described above at any age.

The absence of 50 years of investment growth makes a wealthy old age still likely, but just less guaranteed.

Another important best practice is to employ automatic deduction as your main weapon to fund retirement and investment accounts. By that I mean you have to set up a system with your brokerage firm that automatically transfers money from your paycheck or your checking account every month (or every two weeks, or whatever) into your retirement and investment accounts.

The weird secret is that basically nobody has enough money left over at the end of the month or year for investing. But if we take that money out in small increments through automatic deductions, somehow we find we do have the money. This is one of those weird psychological tricks that make the difference between being wealthy or not being wealthy in our old age.

There seems to be a battle among many individuals who struggle with paying down debt and trying to save. What kind of advice can you give them?

If we have trouble paying down debt and saving, then we have to employ a series of Jedi mind tricks to get it done. Those Jedi mind tricks could involve three methods: a) automatic deduction b) budgeting, and c) radical transparency.

a) Automatic deduction, which I mentioned above, is probably the most powerful of these. You have to figure out a way to get your money out-of-sight, out-of-mind before you spend it. If you’re in debt, that means setting up automatic payments toward your high interest debt. If you’re trying to save or invest, that means setting up automatic payments out of your checking account and into a hard-to-reach savings vehicle or brokerage account.

b) Budgeting, which I hate to do – along with 99% of the rest of the planet – is not for me a long-term sustainable solution in itself. But over the short-term, it can actually help you alter your behavior when you start to write down every single freaking, nitpicky little transaction. The act of recording all transactions – even just for a couple of weeks or a month – I believe could change your behavior. That’s because you realize just how many non-essentials you purchase. It gets annoying writing down that packet of tic-tacs, and the latte, and the iTunes download, but then you realize you made $173.52 in non-essential purchases last month. And if you could dedicate the $173 extra to debt payments per month, you might actually be able to get rid your debt in this lifetime.

c) Radical transparency means announcing to your group of friends, or a single friend, or a debt-counseling group, your intention to get debt free in a set amount of time. Then you commit to regular (daily?) updates to your support person. The publically-stated intention, along with the support you will get from the group, may be the Jedi mind trick you need to actually kill your debt. There’s something powerful that AA members have figured out, which is that if you admit your powerlessness, and then you ask for help from an understanding group, you may be able to achieve the previously impossible-seeming task.

What do you think are some of the biggest challenges regarding debt (getting out of it, staying out of it, paying it off, etc)?

Debt exists in that psychological area of shame in which, like a cat with a broken leg, we want to hide our injury from others. We don’t want to admit our debts to others, and we don’t want to ask for help. We may even engage in self-destructive behavior – “Hey, let me buy this lunch for everyone!” – in order to hide our shame.

People stuck with excessive debt probably also have a fatalistic approach; they may believe that it’s not possible to reduce or manage their debt, so why even try? For people for whom this sounds familiar, I’d recommend a classic from the 1930s called The Richest Man in Babylon.

It may seem cheesy at first to the modern reader, but I think it effectively captures the psychology of a debtor’s resistance to getting out of debt. The book also has extremely practical steps toward becoming debt-free and then building wealth.

You say on your site that politicians are able to take advantage of citizens because those citizens are not as aware of financial matters as they should be. Please provide an example of this and how financial literacy can help fix this problem.

‘Taking advantage of’ is too strong a phrase. But I think citizens cannot properly police their officials if they don’t understand concepts like compound interest, which affects the future growth of government debt, public pension obligations, and Medicare and Social Security obligations.

Young people entering the professional world oftentimes come into adulthood with debt from student loans. What advice would you offer to these individuals?

The best situation would be to minimize student loan debt up front, but I suppose that line of thinking would get us talking about unlocked barn doors and horses that have already left the premises. It’s at least worth mentioning, however, that borrowing big sums of money to get a name-brand educational degree may not make as much financial sense as loading up on credits on the cheaper side (e.g. two years of community college, then transfer) before purchasing an expensive educational certificate.

Once you have a pile of student loan debt, I think the situation has to be tackled with optimism (student debt can be paid off) but realism (you may not be able to pursue your artist’s dream right now).

Stealing a page from the aforementioned The Richest Man in Babylon, I would suggest students do NOT forget to start an investment account. The author of that book has an interesting formula that, while it may not work for everyone, at least has the virtue of simplicity.

It goes like this:

1. Arrange your lifestyle such that you can live off of 70% of your take-home pay on a monthly basis. (I know, I know, this seems impossible. But still, it’s probably your only chance ever of making it all work out in the long run. Basically, yes, we’re talking about rice & beans, a subpar vehicle, and an apartment in a rougher neighborhood than you would prefer.)

2. Dedicate the next 20% of your take-home pay to paying off your debts.

3. Dedicate the final 10% of your take home pay to investments. In the beginning, this should to be channeled to an Individual IRA or 401(k).

When indebted, it seems like step #3 is an impossible kick-in-the-pants suggestion, because there’s no extra money to make this happen. The problem with skipping step #3, however, is that a student-loan-burdened individual will never get around to starting investing, until age 40. By then, it’s almost twenty years too late to get started.

So as impossible as it may seem, my advice for the student-loan-indebted recent graduate is to follow all three of the steps above. 70% for living expenses, 20% for debts, 10% for investments. Wash, rinse, repeat, every month. Rice and beans will suck for a while. But wealth will follow.

What are your thoughts on retirement and preparing for retirement? What about those who have already retired and are scared of outliving their money?

For people who are already putting away money in their tax-advantaged retirement accounts (IRAs and 401(k)s), the most important decision is probably their allocation to risky assets (like stocks) vs. non-risky assets (like bonds). The mistake most people make, in my opinion, is to dedicate too much money to the non-risky category.

This mistake is exacerbated by 98.75% of all investment advisors who tell their clients to invest in a mix of 60% stocks and 40% bonds. This piece of advice – which I strongly disagree with – serves the investment advisor well because you will not panic when the market crashes, and therefore you are less likely to fire your investment advisor for losing you money.

I think this advice serves the individual less well, since most people would end up far wealthier in the long run if they invested a higher percentage of their assets in the risky category.

My further thought process, which owes a heavy debt to the amazing book Simple Wealth, Inevitable Wealth by Nick Murray, goes like this:
a) Retirement accounts, by definition, are long-term investments. Even if you’re already retired, you need retirement money to last many years – often a few decades.

b) The longer your time horizon, the higher the probability that risky (like stocks) beats non-risky (like bonds).

c) Using the historical experience of the last 100 years, we can say the following: with a five-year horizon, stocks beat bonds 70% of the time. With a 10-year horizon, stocks beat bonds 80% of the time. With a 15-year horizon, stocks beat bonds 90% of the time. With a 20-year horizon, stocks beat bonds 99+% of the time.

d) Because most retirement money is invested for the longest time period, by allocating your retirement money to bonds you are basically saying that you believe that history is no guide at all, “it’s different this time,” and that odds-be-damned, you want to make a very low probability bet. That’s fine, and that’s what 98.75% of investment advisors tell you to do, but personally I think that’s a crying shame and a terrible choice, as well as a way to reduce your wealth in your retirement.

e) Although risky assets (like stocks) are extremely volatile in the short and medium run, a longer investment time horizon (plus automatic deduction dollar-cost averaging!) makes equity volatility less of a risk and more of an opportunity.

f) The real risk of investing your retirement money is actually with bonds, an allocation to which – for many people – will cause them to outlive their retirement funds. After taxes and inflation, bonds lose purchasing power. I understand this is contrary to conventional wisdom and contrary to what 98.75% of all investment advisors say, but that doesn’t make it any less true. Again, for a more articulate presentation of these ideas a) through f), I highly recommend Nick Murray’s Simple Wealth, Inevitable Wealth.

By the way, I’m not an investment advisor, so I suffer exactly zero consequences for people taking my advice on this topic or not. And that’s precisely why I have credibility on the issue. I’m not worried about being fired as somebody’s investment advisor when the market crashes.

And by the way, the market will definitely crash. I don’t know when, or by how much, but it will crash multiple times over the course of your investing lifetime. The key, however, is to not panic, and instead keep on doing what you were doing. Ideally, this means automatic deduction investing, so that you can dollar-cost average your stock investments at more advantageous prices when the market crashes.

Please share anything additional that you would like individuals to know about Bankers Anonymous.

I’m passionate about teaching finance. I’m on a mission!

My book Oh The Wealth You Will Grow! is for the smart 20-something college graduate just starting out trying to navigate the highly consequential financial choices regarding car loans, debt, savings, home-ownership v. renting, insurance, entrepreneurship … even philanthropy and retirement planning.

Oh, and by the way, my book doesn’t exist yet except on my laptop and in my head.

Who wants to pre-order it? Should I do a Kickstarter campaign? Or just make it available as an e-book downloadable from my site when I get it all written? Should I perhaps charge 99 cents per chapter, or $14.99 for the whole thing?

Please let me know! Seriously!

 

Please see related posts:

Book Review: The Richest Man In Babylon, by George Clason

Book Review: Simple Wealth, Inevitable Wealth by Nick Murray

Book Review: The Automatic Millionaire by David Bach

How To Be A Money Saving Jedi

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