Sacramento Area Bogleheads Meeting Summary (September 12, 2015)

This summary of the September 2015 Sacramento Area Bogleheads Meeting is a guest article by Bogleheads® forum member digarei.

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Location of SABH’s sixth meeting in 2015

The Sacramento Area Bogleheads sixth meeting in 2015 convened at 10:30 am on September 12, 2015. Fourteen people attended.

A chapter distance record was broken this month by one of five new members who joined us for the first time. I didn’t think to ask but by the map (and Google search) she logged a drive time of 3 hours or more to reach Sacramento—that sums to, if arithmetic means anything (x= 3 + 3) at least six hours of driving!

We’re getting fairly accustomed to investors driving an hour or more to attend our gatherings. I wish there were more active Bogleheads chapters in the rural parts of California, especially north of Sacramento (Chico-Redding), in the San Joaquin Valley and in the Sierras.

However distant you are from Sacramento, if you identify as a Boglehead (or ascribe to a buy-and-hold, low cost investing philosophy) and want to be part of our group, you’re welcome here. We provide a place to talk about personal finance, money and retirement with friendly people every month.

Following introductions, we exchanged impressions on the August drop and this year’s market volatility and recent declines.

Intermezzo

Maybe it was because the August flash crash was just that, a flash. “Poof—it’s gone!”   This multiple-day market hiccup did not compel any of the Bogleheads who met together at Aioli Bodega’s two Saturday’s ago into rash or counterproductive actions.

It may be dangerous to rely on past performance when deciding whether or not to invest in a mutual fund (“A Random Walk…”Malkiel. 1973) but humans can be relied upon most of the time to act and behave as they have in the past. It’s this provisional reliability that leads me to think that when we again face a significant market correction (20…30…40%+) only a small percentage of BH investors will decide to abandon their investment policy statement (IPS) and sell off a large proportion of their broad index stock ETFs and mutual funds. The company one keeps (the books one chooses to read) will certainly influence the investor’s behavior—including mine.

Short of hero worship (sorry! Jack Bogle is not my hero. Just a really smart guy—a good guy, with good instincts and an idea that has aged well–as he has). I’ll test my resolve and share my concerns, if I have them, with people I’ve learned to respect. The short list would certainly not exclude Jack, although we’ve never met, and would definitely include my fellow Bogleheads chapter members, as well as many on the forum.

That should be enough for anyone; it is certainly enough for me.

Discussion

Members admitted to some rebalancing, a few to ‘adjusting’, ‘profit-taking’ or ‘buying on the dip’ but the majority stood steady. Instead, the flash crash prompted a wide-ranging discussion that touched upon asset allocation, capital preservation, the bright prospect of down markets for early accumulators, and the perils of an extended market decline that could jeopardize the spending plans (now and in the future) of recent retirees.

Those present agreed in an informal voice vote that the topics of Modern Portfolio Theory and The Efficient Frontier would be rescheduled in favor of ‘Safe Rates of withdrawal’ during retirement and ‘Savings Rates’.

Safe withdrawal rate

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Establishing a Safe Withdrawal Rate (SWR) can be tricky business. It is oversimplified by the financial popular press and in so-called retirement guides targeting non-investors/non-savers in their 50s (presumably, to scare them into taking action before it’s too late); and nearly always in conversation. They suggest that a specific percentage of one’s portfolio can be withdrawn annually over a 30 year period with minimal or no danger of depletion. The rates most often promulgated are in the neighborhood of 3 or 4 percent.¹

Whether 3 or 4 percent is a good starting point for withdrawals depends on the investments held (asset allocation) and whether the rate is subject to adjustments for inflation or market performance, and on other factors such as expected longevity (related to age & health), starting value, annual expenses and other sources of income.

Bogleheads forum members seem to favor methods that use multiple inputs and back-testing, especially Variable Percentage Withdrawal (VPW).² This method is most appropriate for retirees with low fixed expenses in relation to total spending. In a down market, net asset values decline, resulting in a smaller portfolio and withdrawal amounts. A discussion of other withdrawal methods is found on the Wiki pages linked in the footnotes. For a soup-to-nuts retirement planning guide, see the special Wiki section that covers the entire process. Bogleheads® retirement planning start-up kit.

Savings rate

There’s no end to the financial web sites, publications, blogs and pbs celebrities who assert, often supported with studies and pretty charts, that X% is the right amount of money to save.

  1.  Two percent of net income, saved over a lifetime.
  2. Five to ten percent for 10 years, then nothing more. “Jill started investing sooner and stopped after 10 years. But she still came out ahead of Pam, who was clueless and actually (snort!) tried to catch up by investing more!”
  3.  50-85% of gross income (m-m-minimum) more, if possible:  learn to catch insects at dusk (best if fresh: place insects in  blender with 2 1/2 oz. orange juice, surprisingly nutritious) Don’t use toilet paper – ever!

There is no one-size-fits-all answer that would work for everyone. In accepting a ‘recommended saving rate’  one must assume that their own personal values, ability to budget, lifestyle, age, income and expenses match all of the criteria as used by the author—a dubious proposition.

In a recent post,³ Boglehead Forum member ruralavalon gave this advice: “At your age (26) the most important thing is to keep your savings rate as high as you can comfortably sustain.”
This seems like good advice for accumulators in any age bracket.

The meeting was adjourned at 12:30 pm. Before lunch, one member demonstrated an aptitude for the correct aiming of a 10 x 7 inch flat camera (an iPad) and cast about for willing victims. The results include a group photo.

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Notes

¹ Description of the origins of the SWR, the Trinity Study (1998) and Bengen (1994):
see the Wikipedia article, linked below. For a more thorough discussion of SWRs and
the Trinity Study, including criticism, click the Bogleheads Wiki page links:

² For a clearly written overview of different approaches one can take to ensure
a well-funded retirement, start by reviewing these Bogleheads Wiki pages:

³  ruralavalon post with advice re savings rate:

 

About

Barry Barnitz, administrator of both the Bogleheads® wiki and of Financial Page, a Bogleheads® blog

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