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Live Financial Wisdom from Bogleheads VIII -- Day Two

Oct. 2 -9:00 a.m. Panel Discussion
Final Question - How much do the experts really know?
Understanding the economy (which is doubtful) doesn't translate to being a good investor or to giving good investment advice.

Should one buy TIPS or TIPS funds?
Owning the TIPS themselves lowers costs, but there is a cost to sell them. Funds provide more flexibility. If you want longer duration TIPS, you need to go with the TIPS themselves.

Should one invest internationally but exclude developed companies? No. People confuse economic growth with stock returns. Bill Bernstein noted that there is a negative correlation in that the fastest growing countries tend to under-perform the rest of the world.

Do stocks become less risky over longer holding periods?
Bill Bernstein stated that, while the average annual return percentage variation decreases, the variation in total dollars increases over time.

How do I convince my sister to leave her full service broker?

Discussion on the under-performance of full service brokers. It's worth a try, though the sad truth is you probably can't reach people who don't want to hear. Data won't do it. Try the soft touch. And never give up trying.

Should you consider Social Security and pension money as part of your fixed income allocation? Pensions and Social Security are different than bonds since you can't generally liquidate. Perhaps you should include them but discount the value due to liquidity.

Are you worried about the dollar collapsing?

Bill Bernstein responded "no." He believes that the 30% international allocation (percent of equity portfolio) will protect against that. He observed that, historically, when everyone says the dollar will collapse, it tends to do well.

Where are good places to put fixed income (various questions)?

TIPS and short-term high quality bond funds. Don't go long-term as inflation is too uncertain. Rick Ferri recommended using intermediate term for money not needed in the next few years. I agree that the extra two percent intermediates are paying is compensation for taking the inflation risk. I also agree with not taking too much default risk.

Should we convert to a Roth IRA in 2010?

Sue Sevens - yes if you think taxes will go up. (I think you should have some in traditional and some in Roth -- Roth on Roth)

DFA vs. Vanguard - which is better?
Ed Tower presented some performance data comparing Vanguard to DFA (Dimensional Fund Advisors), using comparable funds. The conclusions were as follows:
  • Since 1982, DFA has outperformed Vanguard, excluding adviser fees.
  • Since 1982, with a one percent adviser fee for DFA, Vanguard outperformed DFA.
  • Over the past four years, Vanguard outperformed DFA, even without fees.
Also, Wisdom Tree has underperformed both DFA and Vanguard.

On the panel are experts

  • William Bernstein - Author, financial theorist, and historian
  • Rick Ferri -Author, founder of Portfolio Solutions
  • Ed Tower - Economics Professor, Duke University
  • Laura Dogu - Author, frequent Boglehead poster
  • Sue Stevens - Author, former Morningstar Director, President of Stevens Wealth Management
  • Taylor Larimore - Author, Forum leader
  • Mel Lindauer - Author, Forum leader