July 20, 2025 • 42 mins
Bogleheads favorite Jon Luskin, CFP® drops in for part 2 of his masterclass on embracing simplicity. He specializes in providing hourly advice to do-it-yourself investors and is a long-time advocate of simple, low-cost investing. In this second part he shares with us:
-
Simple Investor Policy Statement (IPS)
-
All-in-One Funds: target date and balanced/life-strategy funds as "default simple" solutions
-
Disability, life, and (if appropriate) long-term care insurance
This is the second part of a 2 part episode. Click here to listen to part 1.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:01):
at the very least, you wanna talkabout your time horizon your goals,
and then getting into the numbers.
How you're gonna execute that whatpercent in funds and then monitoring
it, which is certainly the shortfallI see with do it yourself investors,
maybe they'll put together an investorpolicy statement, maybe they'll invest
in the funds, but then rebalancing issomething that is exceedingly rare.
(00:26):
I see folks that are rebalancing in atimely manner and doing so properly,
which is why I love keeping thatinvestment piece as simple as possible.
All in one funds take care of themonitoring for you because I just
mentioned a lot of folks miss themark when it comes to monitoring their
investment portfolio, especially ifit's on the more complicated side
(00:48):
So you're trying to tell me thatV-T-S-A-X and chill and forgetting
so you're trying to tell me that v's.
Not something that the communityof the target date fund and chill.
You're a proponent for sort ofthe target date fund and chill.
Target date fund and chill can be agreat way to go for a lot of folks.
So what is nice about theV-T-S-A-X and chill is that, , it
(01:08):
doesn't need any implementation.
It doesn't need any monitoring.
Assuming we're okay with takingthe complete wrong amount of risk
for our investing plan, right?
All in one funds you can take theright amount of risk and it can
also be zero maintenance, which iswhy I love these things so much.
Rick Ferry has a quote, that thejourney of an index fund investor
(01:30):
born into darkness learns aboutindex funds, overcomplicates,
everything, embraces simplicity, right?
If you haven't gotten to thatlast step, embrace simplicity,
consider that you might, right?
And then, so consider are you settingup a lot of work for a future self who's
not really gonna be into spreadsheetsanymore, 1, 2, 3, 4, 5 years from now I
(01:52):
think about one gentleman I work with.
Had a manager, learned about Lowcostindex funds, fired the manager and then
created his own 10 fund portfolio, right?
And then a year went by and he workedwith me for the first time and he
said to me, I'll never forget this.
I regret making myportfolio so complicated.
, And that's been a pretty common theme inthe folks that I work with regretting the
(02:16):
complexity of their existing investments.
(08:58):
Now, Jon, I do have a question onbehalf of someone in our Facebook group.
They were specificallyasking about long-term care.
And I guess long-term care insuranceis what people usually mean.
What are your thoughts around that?
Let's say she's in forties, 50,something like that, and she's
trying to figure out how should I belooking at long-term care insurance?
(09:21):
What is the best strategy to get started?
Kind of making sure thatshe has provided for proper
provisions when it comes to that.
Yeah.
And one postscript to your commentabout tax advantage accounts not
applying for a wash sale considerations.
If you sell an investment at aloss in a taxable account and you
buy it back in a tax advantageaccount, you're also not right.
(09:43):
IRS is also gonna say, Hey, hey,you can't do that cause you still
have the same investment exposure.
Long-term care.
I touched on earlier in going over thetopic areas that I review with folks,
the biggest thing I look at is howwell funded are you for retirement?
So let's to say if you've got moremoney you can possibly spend, you got
millions of bucks, it's pretty hardto make a case for long-term care.
(10:04):
But if you're on the fence and yourplan's not looking very robust then
long-term care might be a valuablerisk management tool for you.
Now there's other considerationsthat are gonna show up when looking
someone's big financial picture.
Another example is gonna be, arewe investing appropriately, right?
So let's say you are wellfunded for retirement, but
your investments are a mess.
(10:25):
And that can be the case for somedo-it-yourselfers that I work with.
And maybe a mess means I've got abunch of legacy investments that I'm
refusing to sell for tax purposes.
Or maybe I'm taking too muchor too little risk, right?
So if your investment portfolioisn't on point, as inefficient as it
sounds, at that point, a long-termcare insurance policy can help
(10:45):
manage your risk in that scenario.
Cause you have more risk fromyour investment portfolio.
How do you balance thatrisk somewhere else?
This insurance can balancethe risk in that situation.
Now again, that's pretty inefficient.
I wouldn't recommend that.
Ideally you have the right portfolioand then we're better able to
self fund for long-term care.
The bad news about long-termcare, it's gonna be expensive.
(11:07):
You really do get what you pay for here.
It doesn't make sense to buy atiny policy with a small benefit.
'cause then you canself-fund for that amount.
And it is gonna be aquote unquote bad deal.
All insurance is.
If it wasn't, the insurancecompany wouldn't exist.
We're not buyinginsurance to win one over.
On the insurance company, we'rebuying insurance to manage a risk.
(11:29):
And again, for some folks, along-term care insurance can mean
an important part of managingrisks for their retirement plan.
Now, ideally, absent any healthconditions you want a plain vanilla
long-term care insurance policy.
One where you pay the annual premiumsIdeally, you can qualify for that
traditional policy you probablydon't want a hybrid policy that
combines long-term care insurancewith another type of insurance product
(11:52):
like life insurance or an annuity.
You wanna buy one product that doesone thing well as opposed to another
product that does two things poorly, butagain, depending on health conditions.
So folks might not be able toqualify for the pure traditional
long-term insurance product.
And at that point, that hybridpolicy might be their only option.
Now a lot of folks sometimes aresaddled with these weird, complicated
(12:14):
insurance products that someinsurance salesman sold in the past.
They already have a whole lifeinsurance policy, or they already have
some sort of IUL or some weird thing.
Maybe in that situation it makessense to convert that to some other
insurance product that does havea long-term care insurance, right?
Or on the situation onthe policy, etcetera.
a few options for folks to consider whenshopping for long-term care insurance
(12:37):
and figuring out if it's right for them.
Yeah.
And when they're shopping for it,where is the best place to start?
The long-term care insuranceindustry is broken.
They can't get it right.
When they first started, 20 so yearsago, there's been so many changes, they
underestimated what the payouts would be.
So a lot of us are cautious when it comesto even buying long-term care insurance.
(13:01):
Like where should they start inevaluating policies and figuring
out what makes sense for them.
Yeah, so as I mentioned earlier it'sinsurance that you're gonna lose.
That's the way it works.
Again, if that wasn't the case, theinsurance company wouldn't exist.
You buy an insurance policy, you'reprobably gonna come out behind the
insurance company with respect to dollarsgoing in, dollars coming out, investment
(13:23):
return on those dollars, et cetera.
Again, we're not buying insurance'cause we're gonna beat the
insurance company at the game.
We're buying insurance to helpus manage a particular risk.
Now, in the past the insurancecompanies got the numbers wrong
on long-term care insurance.
So actually in the past you were able towin one over on the insurance company.
Now, that ship has sailed andthere was an exception to the rule.
(13:45):
It doesn't mean long-term careinsurance can't be a valuable
tool for managing risk.
So aaltci.org ltctreat.com, prep smart.com.
These are a few places you canshop for long-term care insurance.
Now in shopping for, policies considerthat you get what you pay for.
A policy that's gonna have a lowerprice relative to the benefit
(14:09):
provided, don't think there's nota catch, there's gonna be a catch.
And the catch is that insurance companyis stretching itself financially to
provide that higher benefit for alower amount that you're for a premium.
So I wouldn't necessarilygo for the cheapest.
Rather, you might, consider doingthe opposite because that means the
insurance company is gonna be morefinancially solvent, better ensuring the
(14:30):
insurance company is gonna be around bythe time you need to claim benefits.
I feel like me and Bill are right aroundthat age where we probably should be
looking for long-term care insurance.
What age do you usually recommend yourclients start looking at long-term care
Yeah.
Rule of thumb is age 50 to60 is when you're gonna start
(14:50):
looking in these policies.
The catch with that approach.
Is that if you get some sort ofhealth condition that precludes you
from being able to purchase long-termcare insurance at age 49, well then,
you're out of luck at that point.
So yes, you can buy it late, you canmake the decision to buy it later, but
there is some risk with that approach.
So bear that in mind in making thedecision to buy long-term care insurance
(15:13):
later, you might not be able to inthe event of a health condition.
Good point.
I have not purchased it yet.
Bill have you already purchasedor looked at purchasing a
long-term care insurance policy?
No, we're planning on self-insuringand there are other ways to do it
and we have the assets to do it.
You talk about needing a policy of500,000 each in order to be able to
(15:33):
make it viable given today's cost.
Is that correct?
You certainly wanna buy a policythat is a meaningful amount
of benefit coverage, right?
So, don't go buy a $50,000 benefitpolicy because most folks, at
least the folks that I work with,are able to self-fund for $50,000.
If you're feeling tight with your pursestrings and you don't wanna spend the
money, I wouldn't buy something little.
If you're only going to buysomething little, it might make
(15:54):
sense not to bother at all.
You wanna buy a meaningful amountof coverage, one that's gonna
provide a substantial benefit.
I can tell you long-termcare expenses are not cheap.
I can think of one family I work with.
It was a couple sisters.
They were working with me to managethe finances of their father.
Father was in assisted living.
His cost for assisted livingper year was $300,000 a year.
(16:20):
Now that is certainly thehighest I've ever seen.
On average, you are looking fivefigures per month, though 10,
$12,000 for assisted living.
That's what care costs nowadays,and unfortunately, historically the
rate that has increased over timehas been more than general inflation
thank you for stepping us through that.
I thought it was a great question inthe Facebook group and I'm like, Hey,
we got Jon Luskin, he's the CFP and heknows this stuff, so she's gonna really
(16:44):
appreciate that you addressed this.
And that's something I needto be thinking about myself.
Well, these are all the pieceswe have to put together with you.
Before we even begin to talk about aninvestor policy we've mentioned this
before, what generally are the componentswhen you get down to the math, the money,
the investments, what generally are thecomponents of an investor policy statement
(17:05):
that our audience should be looking up?
So first I'll say that the investor policystatement is certainly, all us being
equal, something that's gonna be, maybe alittle bit more for those folks who really
like to get geeky with their investments.
Gosh, I mean, I could certainly argue ifyou kept your investments ultra simple
(17:25):
you could probably make the investorpolicy statement process a lot easier.
But if you're gonna nerd out on yourinvestments, which again, a lot of
do-it-yourselfers like to do, we alllike our spreadsheets, et cetera.
There's a lot of topic areas to coverin the investor policy statement.
But at the very least, you wanna talkabout your time horizon your goals,
and then getting into the numbers.
How you're gonna execute that whatpercent in funds and then monitoring
(17:50):
it, which is certainly the shortfallI see with do it yourself investors,
maybe they'll put together an investorpolicy statement, maybe they'll invest
in the funds, but then rebalancing issomething that is exceedingly rare.
I see folks that are rebalancing in atimely manner and doing so properly,
which is why I love keeping thatinvestment piece as simple as possible.
(18:13):
All in one funds take care of themonitoring for you because I just
mentioned a lot of folks miss themark when it comes to monitoring their
investment portfolio, especially if it'son the more complicated side, especially
if they are really super investment nerds.
Especially if they're tax sensitiveespecially maybe if they have a life and
(18:33):
they're busy, if they're not a retireewith ample time on their hands et cetera.
So, broken record warning keeping thatinvestment piece ultra simple, really
the way to go all in one funds canbe an absolute great way to do that.
So you're trying to tell me thatV-T-S-A-X and chill and forgetting
so you're trying to tell me that v's.
Not something that the communityof the target date fund and chill.
(18:53):
You're a proponent for sort ofthe target date fund and chill.
Target date fund and chill can be agreat way to go for a lot of folks.
So what is nice about theV-T-S-A-X and chill is that, , it
doesn't need any implementation.
It doesn't need any monitoring.
Assuming we're okay with takingthe complete wrong amount of risk
for our investing plan, right?
All in one funds you can take theright amount of risk and it can
(19:17):
also be zero maintenance, which iswhy I love these things so much.
just as much work as a VTSAX and chill strategy.
But we're better diversified and we'realways taking the right amount of risk
for our particular plan by using beit a target date fund for some folks
maybe a target date, ETF, if we'redealing with a taxable account or maybe
allocation ETFs or Life Strategy Fund.
(19:40):
It depends upon whatyour circumstances are.
There's a lot of different,all-in-one funds to choose from.
Whatever your situation is,there's probably an all-in-one fund
out there that's right for you.
And with it requiring zeromaintenance, it can be a really
good solution for almost everyone
(20:00):
So John, when you're saying all inone funds, is that pretty much the
same thing as a target date fund?
Yeah, so I'd say all-in-onefunds fall into two categories.
Target date funds is onetype of all-in-one fund.
The other type of all in one fund is gonnabe something like an allocation or life
strategy fund, where it's like a targetdate fund in that we've got us stocks,
we've got international stocks, we've gotUS bonds, we have international bonds.
(20:23):
But instead of changing yourstock bond mix over time, it's
gonna be a fixed mix, right?
Maybe it's gonna be a 60 40 portfolioand it's gonna be a 64 20 portfolio
today until the end of time.
Or maybe there's gonna be a 40 60, theinverse or maybe a 2080 or maybe an
80 20 or maybe even a hundred percentstock portfolio for folks that might
be an appropriate option at thatpoint in their life, given perhaps,
(20:46):
more retirement income than they canever possibly spend, for example.
so which flavor are we typicallyseeing in like a 401k or
the employer sponsored plan?
I seem to see the target datesmore often than necessarily
the other type you mentioned.
it's rare that I see somethinglike a life strategy fund.
(21:07):
I have seen the Vanguard BalanceFund a few times in a workplace 401k.
Now the Vanguard Balance Fund,not my first pick, 'cause
it's missing international.
So it's not ideal for that reason.
And then there are targetretirement income funds, which are
a fixed portfolio stock bond mix.
Usually they're too conservative.
(21:27):
For most folks, and that's also achallenge with target date funds
generally as well as you get closerto that target year, they might be
too conservative for some folks.
So if you're in retirement or nearretirement you may be better off
with a static fund, something likea 60 40 that you'll have forever.
That might be a better choice thana target day fund, which might just
continue to get too aggressive tooconservative for most situations..
(21:51):
Okay.
And I think this is something that's true,but I wanna get your confirmation on it.
So we know that a lot of employersare auto enrolling their new
employees into the 401k or theemployer sponsored retirement plan.
Are they typically defaultingto a target date fund when
they do the auto enrollment?
Oh yeah, absolutely.
(22:12):
It almost certainly makessense for that situation.
'cause if we're not in retirement, atarget day fund can almost certainly be
a really good solution for most folks.
Now, if we're retired, thosefunds might be too conservative.
Depends on the fund,depends on the situation.
But if we're still working,we're still earning defaulting
to a low cost target date fund.
(22:33):
It would be unusual if that wasn'tthe best option for most folks.
Yeah, that's what I've been seeing.
I think it's probably been over adecade ago, but they would put them
in the most conservative thing,which wasn't always that great.
If you're 28 and they're putting you insomething conservative, it's like, ouch.
So it feels like it's an improvementthat they are defaulting you into
(22:54):
a target date retirement fund.
So if we had to ask you, you'rethumbs up on all in one funds and
target date retirement funds, right?
Because we get a big debate onthis, people on one side or the
other
T he simplicity principleis ascribed to here.
I mean, and there's lots of otherreasons other than just keep it simple.
Avoid the need to rebalance andhave your own glide path built in.
(23:15):
There's also sort of psychobehavioral reasons to do
this as well as we get older.
It becomes maybe harder to manage ourportfolio and there's cognitive decline.
Isn't that anotherreason to consider this?
Oh gosh.
absolutely.
I think about someone I work with,and it was less than a decade ago.
They were reading articles on theinternet about the latest cool
(23:35):
biotech company, putting money intoit in their Allied invest account.
And, a few years later, thatsame person is in memory care.
They can't even turn on a computer, right?
And so if your investing plan is mepicking hot stocks or even rebalancing
your portfolio doesn't make senseif your investment timeline, which
(23:56):
is effectively your life, it doesn'tmake sense for your ability to manage
that plan fall short of your lifespan.
I would argue no.
Right?
So that's another benefit ofhaving these all in one funds.,
There are no maintenance.
And cognitive impairment isn't the onlyconsideration, it's also just enthusiasm.
Rick Ferry has a quote, that thejourney of an index fund investor
(24:18):
born into darkness learns aboutindex funds, overcomplicates,
everything, embraces simplicity, right?
If you haven't gotten to thatlast step, embrace simplicity,
consider that you might, right?
And then, so consider are you settingup a lot of work for a future self who's
not really gonna be into spreadsheetsanymore, 1, 2, 3, 4, 5 years from now I
(24:41):
think about one gentleman I work with.
Had a manager, learned about Lowcostindex funds, fired the manager and then
created his own 10 fund portfolio, right?
And then a year went by and he workedwith me for the first time and he
said to me, I'll never forget this.
I regret making myportfolio so complicated.
, And that's been a pretty common theme inthe folks that I work with regretting the
(25:05):
complexity of their existing investments.
But I have never had anyone, I'veworked with over 400 households, i've
never had anyone ever say to me, Iregret making my investments so simple.
Yeah.
I think I'm kind of guilty of that, butI am also following that journey of an
index investor that Ferry talked about.
(25:26):
'cause I guess you could say I'mlosing my enthusiasm a little bit,
but I'm definitely moving towardsthe line that hits simplicity.
'cause I have a daughter thatwill probably take over all
of this and she's not into it.
So when you have an investor policystatement, it sounds like it's also a
good thing in preparation for whetherit's cognitive decline or whoever
(25:49):
might looking at your investmentsor helping you with your investments
past the time that you can actuallydeal with it and do it yourself.
Now, assuming you're still alivewhen you're doing this, but it seems
like that's a good thing as well.
'cause my daughter wouldn't reallyknow what to do and maybe Bill's
wife wouldn't know what to do.
But if I had a policystatement, is that helpful?
(26:10):
can be, it also depends upon.
What's the philosophy of theinvestment policy statement?
Is it, Hey, I'm gonna use the targetdate fund and I'm gonna forget about it.
If so, that can be pretty good.
But if it's gonna be I'm gonna waituntil my small cap value allocation
gets out of alignment by 5% at thatpoint it'll trigger a rebalance.
I mean, that's not gonna be great forthat non-interested spouse, right?
(26:33):
And that non-interest spouse is anexceedingly common situation, right?
So, as mentioned, I do thesetwo hour phone calls with folks.
Sometimes I only get one spouse.
Sometimes I get both.
But if I do get both, it'scertainly obvious that we've got
one spreadsheet nerd and then wehave the more normal spouse, right?
And so I have to think about, toyour point, about legacy planning.
What investments are youleaving for your daughter?
(26:54):
What investments spouse?
Is it gonna be where they've got a pullup the investment policy statement and
pull up your own proprietary spreadsheetthat only you know how it works?
'cause you've created it and maybeyou made your spouse sit through it
once, but they couldn't care lessabout it 'cause it's not interesting.
Is that the sort of investment planyou're gonna be leaving them or
is it gonna be a fund that needszero maintenance on their part?
(27:16):
Consider just how difficult it ismanaging someone's estate or even in the
situation of their cognitive impairment.
Attorney in fact, is the person youappoint powers in your financial power.
You say, Hey, I trust this person tomanage my money when I'm no longer
able to, when I have cognitiveimpairment, that person, they're
called your attorney in fact.
So I'm the attorney in fact for a familymember they have dementia and I had
(27:41):
to go figure out where everything was.
'cause they didn't createan emergency letter, right?
That resource that wetalked about earlier.
So imagine now someone they'vegotta go figure out where all
your accounts are, rifle throughthe stack of papers on your desk.
Figure out what your passwordsare, try to negotiate physically
(28:01):
moving a person with dementia intoan assisted living facility, right?
Manage that process.
So you've gotta do all of that, redirect social security check
payments, you've gotta do all that.
And , now you've gotta go pullup their IPS and follow the rules
and figure out their spreadsheet.
I mean, it almost seems cruel to addthat to the list of to-dos to the
person that you've entrusted to manageyour money for your own welfare.
(28:24):
So legacy planning, huge reason tokeep that investing piece simple.
And here's one more thing I'll add tothat, is that if you're really set on
your micromanaging investing, minutiaeplan go ask your spouse, Hey honey
would you rather I put our investmentsin this one fund that requires you
do absolutely nothing except maybeI need money to sell some shares.
(28:45):
Or would you rather that you'vegotta open up my spreadsheet, read
my investment policy statement, dothe trade order calculations when
it's 4th of September each year.
Right.
Ask them what they prefer and thenlet that answer guide how you're gonna
structure your investments moving forward
I think that's a powerful statement.
And people have worried too thatthese target date funds or life
(29:07):
strategy funds aren't necessarilyso good in on the taxable side
because of the bonds they hold.
But you have a solutionfor that too, right?
In so far as the bonds they hold.
Bonds they generate incometaxable at the marginal rate.
And so, that's a little bit separatefrom the target date fund issue.
But yeah, if you're with a targetdate fund, rather if we're talking
(29:27):
about a taxable account, maybea target date, ETF, that's gonna
be a little more tax efficient.
That's not gonna necessarilydefer your marginal income.
So this is a tax assetallocation or tax location issue.
Michael Kits, again, does a great jobdebunking this rule of thumb, right?
And the rule of thumb is hey, if you havebonds in a taxable account, whether it's
(29:48):
a bond or whether it's bonds that aregenerating income as part of a larger
on one fund then you'll have so muchtaxable income at the marginal rate that
you'll die a slow death of taxes, right.
No, it's cardinal sin to holdbonds in your taxable account.
'cause it's so tax inefficient.
It'll be the worst thing in the world.
Now, That assumption or ratherthat guideline is correct.
(30:10):
If we make two assumptions, firstassumption is you're gonna die
this year, therefore you havea short investment timeline.
And number two, all you careabout are taxes and not the
ultimate wealth that you have.
And the latter being a much bigger number.
'cause your taxes are always gonna bea fraction of what your wealth is.
that's to say.
If you wanna be a real nerd about it,you really wanna look at the numbers,
and again perhaps you guys can link tothe Michael Kites blog post on this.
(30:32):
Then actually you might wannahave bonds in your taxable account
because that leaves space in your taxadvantage accounts to hold stocks.
Why would you wanna hold stocksin your tax advantage accounts?
If they don't necessarilyspit out marginal income?
Because stocks on average lease,historically they grow more than bonds.
So we wanna put the higher growing assetin the tax advantage account because
(30:54):
stocks as tax efficient as they are, theydo still spit out some dividend income
that is taxable, So that's just a littlebit of debunking of the rule of thumb.
Hey, you don't wanna holdbonds in a taxable account.
I would not worry about because whatstrategy is ultimately gonna provide
more wealth over your lifetime.
Bonds and taxable firstbonds and tax deferred.
(31:15):
We're not gonna know until we knowhow long you're gonna live, what your
investment returns are gonna be on stocksfor bonds what future tax rates are
gonna be what the yield distributionsare gonna be on stocks for bonds.
And so only if you make really specificassumptions that you're right about
that short investment timeline, etcetera then yeah, sure, maybe you
don't have bonds in a taxable account.
But for short of that, it's justone of those investment complexities
(31:37):
that require a lot of guesses aboutthe future, which is always silly.
these require a lot ofguesses about the future.
it's just, it's somethingthat i'll worry about.
Yeah, so John, I gotta ask you about this.
So, as you know, this yearwe've been challenged with
some crazy stock market swings.
not,
had that liberation day thatthe market ,poof' dropped
like a rock in just two days.
(31:57):
So is there a place in the investorstatement policy that talks about what
they're gonna do when the market drops?
Because it almost seemed likeall that goes out the window when
you really see it and you're likeholding your heart, like, oh no.
So how do you advise your clientswhen it comes to severe market
(32:18):
drops like we've seen this year?
I always tell folks that, thisindex fund buy-and- hold strategy.
It only works if you can stick with it.
And so if this isn't something thatyou're committed to for the long term
if market movements scare you if you'rescared of investment losses in the short
term you don't wanna do the strategy'cause it's, it's not gonna work.
This is only gonna work ifyou have that iron stomach.
(32:40):
And so in that situation, market drops,great financial crisis, coronavirus,
crash, liberation day, whatever.
You're gonna do practicallynothing right now.
Maybe if you've got the more complicatedportfolio where you've got a lot of
funds in there and if you want to,or it makes sense for you, maybe at
that point it makes sense to rebalanceor if you've got an all-in-one
fund, it's gonna rebalance for you.
(33:01):
Which is again, why thoseall one funds are fantastic.
But I always tell folks, and I'm notsure if I had it in the sample writeups,
but at least in the writeups I have nowI've got it in bold, highlighted text.
You will have losses.
It's a normal part ofthe investing process.
You can expect losses.
And you can have that in bonds too.
Not just stocks.
(33:21):
If you hate that idea, youdon't wanna use a strategy.
' 'cause it's not gonna work.
Thereafter.
I always tell folks, best way tomake that happen is don't look at it.
And that's another greatreason of all one funds.
You don't even need to look at it sinceyou don't have to rebalance it, I mean,
there's no reason to ever look at theseNow if you're doing the more complicated
approach then you're looking at it'cause you might need to rebalance.
And that adds in that human elementthat Bill touched on, which is
(33:44):
always gonna get in the way.
When it comes to investingsuccess I talked to one dude
in software I worked recently.
He said he had a lot of a successdeleting the various custodial
apps off his phone, right?
helped him not look at it.
So to turn off the news,don't log into your accounts.
Leave it alone.
And that's a lot easier to do whenyou have these all one funds, right?
Because you don't even have an excuseto look at it to rebalance, makes
(34:06):
that investing piece really simple.
so would you have anything like thisspecifically written, like a paragraph
written into the investor policy statementor, I know that it's assumed in a lot of
different areas, like the investment partin your allocation, but I almost feel
like it's just so easy to veer from that.
So do you specifically write inor suggest that people write in a
(34:27):
section to talk about market drops?
Yeah.
Great question.
Certainly I think if someoneneeds that or wants that, great.
All IPS's are gonna say, hey,this is a long-term strategy.
So there's a little bit ofthat that's implied in there.
But if you wanna put inadditional info about, Hey,
It's just so.
long, but if you wanna put inadditional info on one fund,
we're gonna do absolutely nothing.
(34:49):
Great.
I think that would be quitea reasonable way to go
Yeah, i've become more and of anadvocate for simplicity over complexity.
I'm kind of an investor that has migratedfrom the 10 funds for life down to the,
the three funds portfolio, more or less.
And you've made a compelling argumentfor the target date fund especially
now that I know I can do it onthe taxable side as well and make
(35:11):
life simple for my wife and kids.
So, maybe I will get there.
I'm not quite there.
I still enjoy it and I stillfiddle probably too much at times.
And I don't dare to be dull.
My sister who checked the box, aggressiveinvestor, when she became a professor at
Emory 20 years ago even though it wasn'tin a target date fund, it was in a very
sort of complex self, styled portfolio.
(35:34):
Four aggressive based on that institution.
She just checked the box.
20 years later, she woke upand decided she wanted to learn
about finances and dig into it.
Looked under the hood and realized, ohmy God, the best decision I ever made
was to not look at this for 20 years.
And now she wants to fiddleand she doesn't know what to do
.Yeah, I think Bill, I think both you and I are very guilty of loving this stuff.
(35:55):
We are a podcast co-host on a financialpodcast, but I think that we are both
moving towards that journey to simplicity.
Like you just consolidated a bunch ofyour accounts to one broker, right?
Or primarily one broker.
I've been ratcheting down.
I have an individual stock portfolio,so I've been simplifying that.
Eventually I may even just getrid of that, but also I have
(36:16):
one go-to fund that I use.
I don't need to look at 20 fundsevery time I need to, get into
a stock index fund or whatever.
So we are working on it.
John?
Wonderful.
it seems like you're an involvedhuman being, an involved
investor and involved advisor.
It's been a pleasure tohave you on the show today.
I look forward to seeing your talk on theall-in-One funds at bogleheads this year.
(36:39):
I believe you're giving a talk on that.
Thank you for helping us promotethe Bogleheads initiative in the
Jonathan Clemens domain as wellas in general with regards to
financial literacy and education.
We'll put links to all of these thingswe've talked about today on the show
notes, and we look forward to having youback as individual issues that may be
too complex for us need to be simplified.
(36:59):
John, thank you for being withus here on Catching up to Fi.
Yeah, of course.
Yeah.
And John I guess one last quick thing.
We obviously cater to late starters,so I would be remiss if I didn't ask.
You see a lot of clients, so that's whyI'm so interested in your perspective.
Anything unique to late starters?
Late starters would be people thatmaybe they wake up in their thirties,
in their forties, forties, theyhaven't done any investing, and they're
(37:22):
like, oh my God, I am way behind.
How do I catch up?
Typically Bill and I see that theywanna, like you mentioned, immediately
go to investments, but anythingin particular for late starters,
Yeah great question.
With respect to target date fundsprobably want to consider a target
date ETF in a taxable account.
You'll have some tax efficiencyconsiderations with mutual
(37:43):
funds in a taxable accounts.
ETF can be possibly a better solutionif we're talking about investing
dollars in a taxable account Withrespect to late starters, certainly
just like anyone else, there's gonnabe the desire to optimize investments.
I don't think that'swhere the value add is.
It's strictly just gonna be a math issue.
It's just saving more spending less.
(38:05):
You still want to be thinking aboutmanaging your risks if you're a late
starter probably means you need to be moreserious about long-term care insurance
and how that can manage your risk.
If you need a lot of your working yearsto help you shore up your retirement
savings, then all the more reason tomake sure that you do have high quality
disability insurance because if youcan't work then your plan doesn't work.
(38:25):
So disability insurance is still gonnabe a valuable tool in that situation.
Life insurance, if youhave dependents as well.
So pretty much all the samethings, although super boring.
But what I like to call important urgentprojects equally critical if not moreso.
Always caution folks thatworkplace long-term disability
insurance policy, really not great,really has a lot of weaknesses.
(38:50):
That means you've gotta go out andyou've gotta buy a very expensive
private disability insurance, right?
So if you're a late starter itmeans you're older in age, which
means that disability insuranceis gonna be more expensive.
Life insurance too.
It's something that I wouldencourage you not to skimp on.
Think about that very thoughtfully.
'cause again.
Your plan works only ifyou work and earn money.
(39:11):
Disability insurance is one productthat helps manage that risk.
Unfortunately, these things can be alittle complicated, there is a lot of
fine print in there that you need to getright when purchasing these policies.
To be a real nerd about it, thatmeans an own occupation definition.
That's language you wanna see.
Own occupation, regularoccupation until age 65.
You want an inflationprovision, an inflation writer.
(39:32):
You want a partial disability provision.
I do talk a little bit more aboutthis on a podcast episode we did
with a disability insurance agent.
I'm not sure if you guyswanna link to that or not.
That can be a resource for folks.
But I'd to echo your point I would resistthe urge to micromanage your investments.
It's just not where you'regonna make an impact.
It's gonna be saving more andmaking sure to manage your risks
(39:56):
Yeah.
Thank you so much, John.
I definitely wanted your insight on that.
Thank you for sharing thatwith our late starters.
Thank you so much for spendingpart of your day with us.
This has been so great.
We loved having you and youare invited back anytime.
We love brilliant people on our show.
And Bill, shall we goahead and wrap it up?
Yeah, let's just tell our audiencethat look forward to more good content
(40:18):
next week on Catching Up To Fi.
Thank you, Jon Luskin.
at the very least, you wanna talkabout your time horizon your goals,
and then getting into the numbers.
How you're gonna execute that whatpercent in funds and then monitoring
it, which is certainly the shortfallI see with do it yourself investors,
maybe they'll put together an investorpolicy statement, maybe they'll invest
in the funds, but then rebalancing issomething that is exceedingly rare.
(00:26):
I see folks that are rebalancing in atimely manner and doing so properly,
which is why I love keeping thatinvestment piece as simple as possible.
All in one funds take care of themonitoring for you because I just
mentioned a lot of folks miss themark when it comes to monitoring their
investment portfolio, especially ifit's on the more complicated side
(00:48):
So you're trying to tell me thatV-T-S-A-X and chill and forgetting
so you're trying to tell me that v's.
Not something that the communityof the target date fund and chill.
You're a proponent for sort ofthe target date fund and chill.
Target date fund and chill can be agreat way to go for a lot of folks.
So what is nice about theV-T-S-A-X and chill is that, , it
(01:08):
doesn't need any implementation.
It doesn't need any monitoring.
Assuming we're okay with takingthe complete wrong amount of risk
for our investing plan, right?
All in one funds you can take theright amount of risk and it can
also be zero maintenance, which iswhy I love these things so much.
Rick Ferry has a quote, that thejourney of an index fund investor
(01:30):
born into darkness learns aboutindex funds, overcomplicates,
everything, embraces simplicity, right?
If you haven't gotten to thatlast step, embrace simplicity,
consider that you might, right?
And then, so consider are you settingup a lot of work for a future self who's
not really gonna be into spreadsheetsanymore, 1, 2, 3, 4, 5 years from now I
(01:52):
think about one gentleman I work with.
Had a manager, learned about Lowcostindex funds, fired the manager and then
created his own 10 fund portfolio, right?
And then a year went by and he workedwith me for the first time and he
said to me, I'll never forget this.
I regret making myportfolio so complicated.
, And that's been a pretty common theme inthe folks that I work with regretting the
(02:16):
complexity of their existing investments.
(08:58):
Now, Jon, I do have a question onbehalf of someone in our Facebook group.
They were specificallyasking about long-term care.
And I guess long-term care insuranceis what people usually mean.
What are your thoughts around that?
Let's say she's in forties, 50,something like that, and she's
trying to figure out how should I belooking at long-term care insurance?
(09:21):
What is the best strategy to get started?
Kind of making sure thatshe has provided for proper
provisions when it comes to that.
Yeah.
And one postscript to your commentabout tax advantage accounts not
applying for a wash sale considerations.
If you sell an investment at aloss in a taxable account and you
buy it back in a tax advantageaccount, you're also not right.
(09:43):
IRS is also gonna say, Hey, hey,you can't do that cause you still
have the same investment exposure.
Long-term care.
I touched on earlier in going over thetopic areas that I review with folks,
the biggest thing I look at is howwell funded are you for retirement?
So let's to say if you've got moremoney you can possibly spend, you got
millions of bucks, it's pretty hardto make a case for long-term care.
(10:04):
But if you're on the fence and yourplan's not looking very robust then
long-term care might be a valuablerisk management tool for you.
Now there's other considerationsthat are gonna show up when looking
someone's big financial picture.
Another example is gonna be, arewe investing appropriately, right?
So let's say you are wellfunded for retirement, but
your investments are a mess.
(10:25):
And that can be the case for somedo-it-yourselfers that I work with.
And maybe a mess means I've got abunch of legacy investments that I'm
refusing to sell for tax purposes.
Or maybe I'm taking too muchor too little risk, right?
So if your investment portfolioisn't on point, as inefficient as it
sounds, at that point, a long-termcare insurance policy can help
(10:45):
manage your risk in that scenario.
Cause you have more risk fromyour investment portfolio.
How do you balance thatrisk somewhere else?
This insurance can balancethe risk in that situation.
Now again, that's pretty inefficient.
I wouldn't recommend that.
Ideally you have the right portfolioand then we're better able to
self fund for long-term care.
The bad news about long-termcare, it's gonna be expensive.
(11:07):
You really do get what you pay for here.
It doesn't make sense to buy atiny policy with a small benefit.
'cause then you canself-fund for that amount.
And it is gonna be aquote unquote bad deal.
All insurance is.
If it wasn't, the insurancecompany wouldn't exist.
We're not buyinginsurance to win one over.
On the insurance company, we'rebuying insurance to manage a risk.
(11:29):
And again, for some folks, along-term care insurance can mean
an important part of managingrisks for their retirement plan.
Now, ideally, absent any healthconditions you want a plain vanilla
long-term care insurance policy.
One where you pay the annual premiumsIdeally, you can qualify for that
traditional policy you probablydon't want a hybrid policy that
combines long-term care insurancewith another type of insurance product
(11:52):
like life insurance or an annuity.
You wanna buy one product that doesone thing well as opposed to another
product that does two things poorly, butagain, depending on health conditions.
So folks might not be able toqualify for the pure traditional
long-term insurance product.
And at that point, that hybridpolicy might be their only option.
Now a lot of folks sometimes aresaddled with these weird, complicated
(12:14):
insurance products that someinsurance salesman sold in the past.
They already have a whole lifeinsurance policy, or they already have
some sort of IUL or some weird thing.
Maybe in that situation it makessense to convert that to some other
insurance product that does havea long-term care insurance, right?
Or on the situation onthe policy, etcetera.
a few options for folks to consider whenshopping for long-term care insurance
(12:37):
and figuring out if it's right for them.
Yeah.
And when they're shopping for it,where is the best place to start?
The long-term care insuranceindustry is broken.
They can't get it right.
When they first started, 20 so yearsago, there's been so many changes, they
underestimated what the payouts would be.
So a lot of us are cautious when it comesto even buying long-term care insurance.
(13:01):
Like where should they start inevaluating policies and figuring
out what makes sense for them.
Yeah, so as I mentioned earlier it'sinsurance that you're gonna lose.
That's the way it works.
Again, if that wasn't the case, theinsurance company wouldn't exist.
You buy an insurance policy, you'reprobably gonna come out behind the
insurance company with respect to dollarsgoing in, dollars coming out, investment
(13:23):
return on those dollars, et cetera.
Again, we're not buying insurance'cause we're gonna beat the
insurance company at the game.
We're buying insurance to helpus manage a particular risk.
Now, in the past the insurancecompanies got the numbers wrong
on long-term care insurance.
So actually in the past you were able towin one over on the insurance company.
Now, that ship has sailed andthere was an exception to the rule.
(13:45):
It doesn't mean long-term careinsurance can't be a valuable
tool for managing risk.
So aaltci.org ltctreat.com, prep smart.com.
These are a few places you canshop for long-term care insurance.
Now in shopping for, policies considerthat you get what you pay for.
A policy that's gonna have a lowerprice relative to the benefit
(14:09):
provided, don't think there's nota catch, there's gonna be a catch.
And the catch is that insurance companyis stretching itself financially to
provide that higher benefit for alower amount that you're for a premium.
So I wouldn't necessarilygo for the cheapest.
Rather, you might, consider doingthe opposite because that means the
insurance company is gonna be morefinancially solvent, better ensuring the
(14:30):
insurance company is gonna be around bythe time you need to claim benefits.
I feel like me and Bill are right aroundthat age where we probably should be
looking for long-term care insurance.
What age do you usually recommend yourclients start looking at long-term care
Yeah.
Rule of thumb is age 50 to60 is when you're gonna start
(14:50):
looking in these policies.
The catch with that approach.
Is that if you get some sort ofhealth condition that precludes you
from being able to purchase long-termcare insurance at age 49, well then,
you're out of luck at that point.
So yes, you can buy it late, you canmake the decision to buy it later, but
there is some risk with that approach.
So bear that in mind in making thedecision to buy long-term care insurance
(15:13):
later, you might not be able to inthe event of a health condition.
Good point.
I have not purchased it yet.
Bill have you already purchasedor looked at purchasing a
long-term care insurance policy?
No, we're planning on self-insuringand there are other ways to do it
and we have the assets to do it.
You talk about needing a policy of500,000 each in order to be able to
(15:33):
make it viable given today's cost.
Is that correct?
You certainly wanna buy a policythat is a meaningful amount
of benefit coverage, right?
So, don't go buy a $50,000 benefitpolicy because most folks, at
least the folks that I work with,are able to self-fund for $50,000.
If you're feeling tight with your pursestrings and you don't wanna spend the
money, I wouldn't buy something little.
If you're only going to buysomething little, it might make
(15:54):
sense not to bother at all.
You wanna buy a meaningful amountof coverage, one that's gonna
provide a substantial benefit.
I can tell you long-termcare expenses are not cheap.
I can think of one family I work with.
It was a couple sisters.
They were working with me to managethe finances of their father.
Father was in assisted living.
His cost for assisted livingper year was $300,000 a year.
(16:20):
Now that is certainly thehighest I've ever seen.
On average, you are looking fivefigures per month, though 10,
$12,000 for assisted living.
That's what care costs nowadays,and unfortunately, historically the
rate that has increased over timehas been more than general inflation
thank you for stepping us through that.
I thought it was a great question inthe Facebook group and I'm like, Hey,
we got Jon Luskin, he's the CFP and heknows this stuff, so she's gonna really
(16:44):
appreciate that you addressed this.
And that's something I needto be thinking about myself.
Well, these are all the pieceswe have to put together with you.
Before we even begin to talk about aninvestor policy we've mentioned this
before, what generally are the componentswhen you get down to the math, the money,
the investments, what generally are thecomponents of an investor policy statement
(17:05):
that our audience should be looking up?
So first I'll say that the investor policystatement is certainly, all us being
equal, something that's gonna be, maybe alittle bit more for those folks who really
like to get geeky with their investments.
Gosh, I mean, I could certainly argue ifyou kept your investments ultra simple
(17:25):
you could probably make the investorpolicy statement process a lot easier.
But if you're gonna nerd out on yourinvestments, which again, a lot of
do-it-yourselfers like to do, we alllike our spreadsheets, et cetera.
There's a lot of topic areas to coverin the investor policy statement.
But at the very least, you wanna talkabout your time horizon your goals,
and then getting into the numbers.
How you're gonna execute that whatpercent in funds and then monitoring
(17:50):
it, which is certainly the shortfallI see with do it yourself investors,
maybe they'll put together an investorpolicy statement, maybe they'll invest
in the funds, but then rebalancing issomething that is exceedingly rare.
I see folks that are rebalancing in atimely manner and doing so properly,
which is why I love keeping thatinvestment piece as simple as possible.
(18:13):
All in one funds take care of themonitoring for you because I just
mentioned a lot of folks miss themark when it comes to monitoring their
investment portfolio, especially if it'son the more complicated side, especially
if they are really super investment nerds.
Especially if they're tax sensitiveespecially maybe if they have a life and
(18:33):
they're busy, if they're not a retireewith ample time on their hands et cetera.
So, broken record warning keeping thatinvestment piece ultra simple, really
the way to go all in one funds canbe an absolute great way to do that.
So you're trying to tell me thatV-T-S-A-X and chill and forgetting
so you're trying to tell me that v's.
Not something that the communityof the target date fund and chill.
(18:53):
You're a proponent for sort ofthe target date fund and chill.
Target date fund and chill can be agreat way to go for a lot of folks.
So what is nice about theV-T-S-A-X and chill is that, , it
doesn't need any implementation.
It doesn't need any monitoring.
Assuming we're okay with takingthe complete wrong amount of risk
for our investing plan, right?
All in one funds you can take theright amount of risk and it can
(19:17):
also be zero maintenance, which iswhy I love these things so much.
just as much work as a VTSAX and chill strategy.
But we're better diversified and we'realways taking the right amount of risk
for our particular plan by using beit a target date fund for some folks
maybe a target date, ETF, if we'redealing with a taxable account or maybe
allocation ETFs or Life Strategy Fund.
(19:40):
It depends upon whatyour circumstances are.
There's a lot of different,all-in-one funds to choose from.
Whatever your situation is,there's probably an all-in-one fund
out there that's right for you.
And with it requiring zeromaintenance, it can be a really
good solution for almost everyone
(20:00):
So John, when you're saying all inone funds, is that pretty much the
same thing as a target date fund?
Yeah, so I'd say all-in-onefunds fall into two categories.
Target date funds is onetype of all-in-one fund.
The other type of all in one fund is gonnabe something like an allocation or life
strategy fund, where it's like a targetdate fund in that we've got us stocks,
we've got international stocks, we've gotUS bonds, we have international bonds.
(20:23):
But instead of changing yourstock bond mix over time, it's
gonna be a fixed mix, right?
Maybe it's gonna be a 60 40 portfolioand it's gonna be a 64 20 portfolio
today until the end of time.
Or maybe there's gonna be a 40 60, theinverse or maybe a 2080 or maybe an
80 20 or maybe even a hundred percentstock portfolio for folks that might
be an appropriate option at thatpoint in their life, given perhaps,
(20:46):
more retirement income than they canever possibly spend, for example.
so which flavor are we typicallyseeing in like a 401k or
the employer sponsored plan?
I seem to see the target datesmore often than necessarily
the other type you mentioned.
it's rare that I see somethinglike a life strategy fund.
(21:07):
I have seen the Vanguard BalanceFund a few times in a workplace 401k.
Now the Vanguard Balance Fund,not my first pick, 'cause
it's missing international.
So it's not ideal for that reason.
And then there are targetretirement income funds, which are
a fixed portfolio stock bond mix.
Usually they're too conservative.
(21:27):
For most folks, and that's also achallenge with target date funds
generally as well as you get closerto that target year, they might be
too conservative for some folks.
So if you're in retirement or nearretirement you may be better off
with a static fund, something likea 60 40 that you'll have forever.
That might be a better choice thana target day fund, which might just
continue to get too aggressive tooconservative for most situations..
(21:51):
Okay.
And I think this is something that's true,but I wanna get your confirmation on it.
So we know that a lot of employersare auto enrolling their new
employees into the 401k or theemployer sponsored retirement plan.
Are they typically defaultingto a target date fund when
they do the auto enrollment?
Oh yeah, absolutely.
(22:12):
It almost certainly makessense for that situation.
'cause if we're not in retirement, atarget day fund can almost certainly be
a really good solution for most folks.
Now, if we're retired, thosefunds might be too conservative.
Depends on the fund,depends on the situation.
But if we're still working,we're still earning defaulting
to a low cost target date fund.
(22:33):
It would be unusual if that wasn'tthe best option for most folks.
Yeah, that's what I've been seeing.
I think it's probably been over adecade ago, but they would put them
in the most conservative thing,which wasn't always that great.
If you're 28 and they're putting you insomething conservative, it's like, ouch.
So it feels like it's an improvementthat they are defaulting you into
(22:54):
a target date retirement fund.
So if we had to ask you, you'rethumbs up on all in one funds and
target date retirement funds, right?
Because we get a big debate onthis, people on one side or the
other
T he simplicity principleis ascribed to here.
I mean, and there's lots of otherreasons other than just keep it simple.
Avoid the need to rebalance andhave your own glide path built in.
(23:15):
There's also sort of psychobehavioral reasons to do
this as well as we get older.
It becomes maybe harder to manage ourportfolio and there's cognitive decline.
Isn't that anotherreason to consider this?
Oh gosh.
absolutely.
I think about someone I work with,and it was less than a decade ago.
They were reading articles on theinternet about the latest cool
(23:35):
biotech company, putting money intoit in their Allied invest account.
And, a few years later, thatsame person is in memory care.
They can't even turn on a computer, right?
And so if your investing plan is mepicking hot stocks or even rebalancing
your portfolio doesn't make senseif your investment timeline, which
(23:56):
is effectively your life, it doesn'tmake sense for your ability to manage
that plan fall short of your lifespan.
I would argue no.
Right?
So that's another benefit ofhaving these all in one funds.,
There are no maintenance.
And cognitive impairment isn't the onlyconsideration, it's also just enthusiasm.
Rick Ferry has a quote, that thejourney of an index fund investor
(24:18):
born into darkness learns aboutindex funds, overcomplicates,
everything, embraces simplicity, right?
If you haven't gotten to thatlast step, embrace simplicity,
consider that you might, right?
And then, so consider are you settingup a lot of work for a future self who's
not really gonna be into spreadsheetsanymore, 1, 2, 3, 4, 5 years from now I
(24:41):
think about one gentleman I work with.
Had a manager, learned about Lowcostindex funds, fired the manager and then
created his own 10 fund portfolio, right?
And then a year went by and he workedwith me for the first time and he
said to me, I'll never forget this.
I regret making myportfolio so complicated.
, And that's been a pretty common theme inthe folks that I work with regretting the
(25:05):
complexity of their existing investments.
But I have never had anyone, I'veworked with over 400 households, i've
never had anyone ever say to me, Iregret making my investments so simple.
Yeah.
I think I'm kind of guilty of that, butI am also following that journey of an
index investor that Ferry talked about.
(25:26):
'cause I guess you could say I'mlosing my enthusiasm a little bit,
but I'm definitely moving towardsthe line that hits simplicity.
'cause I have a daughter thatwill probably take over all
of this and she's not into it.
So when you have an investor policystatement, it sounds like it's also a
good thing in preparation for whetherit's cognitive decline or whoever
(25:49):
might looking at your investmentsor helping you with your investments
past the time that you can actuallydeal with it and do it yourself.
Now, assuming you're still alivewhen you're doing this, but it seems
like that's a good thing as well.
'cause my daughter wouldn't reallyknow what to do and maybe Bill's
wife wouldn't know what to do.
But if I had a policystatement, is that helpful?
(26:10):
can be, it also depends upon.
What's the philosophy of theinvestment policy statement?
Is it, Hey, I'm gonna use the targetdate fund and I'm gonna forget about it.
If so, that can be pretty good.
But if it's gonna be I'm gonna waituntil my small cap value allocation
gets out of alignment by 5% at thatpoint it'll trigger a rebalance.
I mean, that's not gonna be great forthat non-interested spouse, right?
(26:33):
And that non-interest spouse is anexceedingly common situation, right?
So, as mentioned, I do thesetwo hour phone calls with folks.
Sometimes I only get one spouse.
Sometimes I get both.
But if I do get both, it'scertainly obvious that we've got
one spreadsheet nerd and then wehave the more normal spouse, right?
And so I have to think about, toyour point, about legacy planning.
What investments are youleaving for your daughter?
(26:54):
What investments spouse?
Is it gonna be where they've got a pullup the investment policy statement and
pull up your own proprietary spreadsheetthat only you know how it works?
'cause you've created it and maybeyou made your spouse sit through it
once, but they couldn't care lessabout it 'cause it's not interesting.
Is that the sort of investment planyou're gonna be leaving them or
is it gonna be a fund that needszero maintenance on their part?
(27:16):
Consider just how difficult it ismanaging someone's estate or even in the
situation of their cognitive impairment.
Attorney in fact, is the person youappoint powers in your financial power.
You say, Hey, I trust this person tomanage my money when I'm no longer
able to, when I have cognitiveimpairment, that person, they're
called your attorney in fact.
So I'm the attorney in fact for a familymember they have dementia and I had
(27:41):
to go figure out where everything was.
'cause they didn't createan emergency letter, right?
That resource that wetalked about earlier.
So imagine now someone they'vegotta go figure out where all
your accounts are, rifle throughthe stack of papers on your desk.
Figure out what your passwordsare, try to negotiate physically
(28:01):
moving a person with dementia intoan assisted living facility, right?
Manage that process.
So you've gotta do all of that, redirect social security check
payments, you've gotta do all that.
And , now you've gotta go pullup their IPS and follow the rules
and figure out their spreadsheet.
I mean, it almost seems cruel to addthat to the list of to-dos to the
person that you've entrusted to manageyour money for your own welfare.
(28:24):
So legacy planning, huge reason tokeep that investing piece simple.
And here's one more thing I'll add tothat, is that if you're really set on
your micromanaging investing, minutiaeplan go ask your spouse, Hey honey
would you rather I put our investmentsin this one fund that requires you
do absolutely nothing except maybeI need money to sell some shares.
(28:45):
Or would you rather that you'vegotta open up my spreadsheet, read
my investment policy statement, dothe trade order calculations when
it's 4th of September each year.
Right.
Ask them what they prefer and thenlet that answer guide how you're gonna
structure your investments moving forward
I think that's a powerful statement.
And people have worried too thatthese target date funds or life
(29:07):
strategy funds aren't necessarilyso good in on the taxable side
because of the bonds they hold.
But you have a solutionfor that too, right?
In so far as the bonds they hold.
Bonds they generate incometaxable at the marginal rate.
And so, that's a little bit separatefrom the target date fund issue.
But yeah, if you're with a targetdate fund, rather if we're talking
(29:27):
about a taxable account, maybea target date, ETF, that's gonna
be a little more tax efficient.
That's not gonna necessarilydefer your marginal income.
So this is a tax assetallocation or tax location issue.
Michael Kits, again, does a great jobdebunking this rule of thumb, right?
And the rule of thumb is hey, if you havebonds in a taxable account, whether it's
(29:48):
a bond or whether it's bonds that aregenerating income as part of a larger
on one fund then you'll have so muchtaxable income at the marginal rate that
you'll die a slow death of taxes, right.
No, it's cardinal sin to holdbonds in your taxable account.
'cause it's so tax inefficient.
It'll be the worst thing in the world.
Now, That assumption or ratherthat guideline is correct.
(30:10):
If we make two assumptions, firstassumption is you're gonna die
this year, therefore you havea short investment timeline.
And number two, all you careabout are taxes and not the
ultimate wealth that you have.
And the latter being a much bigger number.
'cause your taxes are always gonna bea fraction of what your wealth is.
that's to say.
If you wanna be a real nerd about it,you really wanna look at the numbers,
and again perhaps you guys can link tothe Michael Kites blog post on this.
(30:32):
Then actually you might wannahave bonds in your taxable account
because that leaves space in your taxadvantage accounts to hold stocks.
Why would you wanna hold stocksin your tax advantage accounts?
If they don't necessarilyspit out marginal income?
Because stocks on average lease,historically they grow more than bonds.
So we wanna put the higher growing assetin the tax advantage account because
(30:54):
stocks as tax efficient as they are, theydo still spit out some dividend income
that is taxable, So that's just a littlebit of debunking of the rule of thumb.
Hey, you don't wanna holdbonds in a taxable account.
I would not worry about because whatstrategy is ultimately gonna provide
more wealth over your lifetime.
Bonds and taxable firstbonds and tax deferred.
(31:15):
We're not gonna know until we knowhow long you're gonna live, what your
investment returns are gonna be on stocksfor bonds what future tax rates are
gonna be what the yield distributionsare gonna be on stocks for bonds.
And so only if you make really specificassumptions that you're right about
that short investment timeline, etcetera then yeah, sure, maybe you
don't have bonds in a taxable account.
But for short of that, it's justone of those investment complexities
(31:37):
that require a lot of guesses aboutthe future, which is always silly.
these require a lot ofguesses about the future.
it's just, it's somethingthat i'll worry about.
Yeah, so John, I gotta ask you about this.
So, as you know, this yearwe've been challenged with
some crazy stock market swings.
not,
had that liberation day thatthe market ,poof' dropped
like a rock in just two days.
(31:57):
So is there a place in the investorstatement policy that talks about what
they're gonna do when the market drops?
Because it almost seemed likeall that goes out the window when
you really see it and you're likeholding your heart, like, oh no.
So how do you advise your clientswhen it comes to severe market
(32:18):
drops like we've seen this year?
I always tell folks that, thisindex fund buy-and- hold strategy.
It only works if you can stick with it.
And so if this isn't something thatyou're committed to for the long term
if market movements scare you if you'rescared of investment losses in the short
term you don't wanna do the strategy'cause it's, it's not gonna work.
This is only gonna work ifyou have that iron stomach.
(32:40):
And so in that situation, market drops,great financial crisis, coronavirus,
crash, liberation day, whatever.
You're gonna do practicallynothing right now.
Maybe if you've got the more complicatedportfolio where you've got a lot of
funds in there and if you want to,or it makes sense for you, maybe at
that point it makes sense to rebalanceor if you've got an all-in-one
fund, it's gonna rebalance for you.
(33:01):
Which is again, why thoseall one funds are fantastic.
But I always tell folks, and I'm notsure if I had it in the sample writeups,
but at least in the writeups I have nowI've got it in bold, highlighted text.
You will have losses.
It's a normal part ofthe investing process.
You can expect losses.
And you can have that in bonds too.
Not just stocks.
(33:21):
If you hate that idea, youdon't wanna use a strategy.
' 'cause it's not gonna work.
Thereafter.
I always tell folks, best way tomake that happen is don't look at it.
And that's another greatreason of all one funds.
You don't even need to look at it sinceyou don't have to rebalance it, I mean,
there's no reason to ever look at theseNow if you're doing the more complicated
approach then you're looking at it'cause you might need to rebalance.
And that adds in that human elementthat Bill touched on, which is
(33:44):
always gonna get in the way.
When it comes to investingsuccess I talked to one dude
in software I worked recently.
He said he had a lot of a successdeleting the various custodial
apps off his phone, right?
helped him not look at it.
So to turn off the news,don't log into your accounts.
Leave it alone.
And that's a lot easier to do whenyou have these all one funds, right?
Because you don't even have an excuseto look at it to rebalance, makes
(34:06):
that investing piece really simple.
so would you have anything like thisspecifically written, like a paragraph
written into the investor policy statementor, I know that it's assumed in a lot of
different areas, like the investment partin your allocation, but I almost feel
like it's just so easy to veer from that.
So do you specifically write inor suggest that people write in a
(34:27):
section to talk about market drops?
Yeah.
Great question.
Certainly I think if someoneneeds that or wants that, great.
All IPS's are gonna say, hey,this is a long-term strategy.
So there's a little bit ofthat that's implied in there.
But if you wanna put inadditional info about, Hey,
It's just so.
long, but if you wanna put inadditional info on one fund,
we're gonna do absolutely nothing.
(34:49):
Great.
I think that would be quitea reasonable way to go
Yeah, i've become more and of anadvocate for simplicity over complexity.
I'm kind of an investor that has migratedfrom the 10 funds for life down to the,
the three funds portfolio, more or less.
And you've made a compelling argumentfor the target date fund especially
now that I know I can do it onthe taxable side as well and make
(35:11):
life simple for my wife and kids.
So, maybe I will get there.
I'm not quite there.
I still enjoy it and I stillfiddle probably too much at times.
And I don't dare to be dull.
My sister who checked the box, aggressiveinvestor, when she became a professor at
Emory 20 years ago even though it wasn'tin a target date fund, it was in a very
sort of complex self, styled portfolio.
(35:34):
Four aggressive based on that institution.
She just checked the box.
20 years later, she woke upand decided she wanted to learn
about finances and dig into it.
Looked under the hood and realized, ohmy God, the best decision I ever made
was to not look at this for 20 years.
And now she wants to fiddleand she doesn't know what to do
.Yeah, I think Bill, I think both you and I are very guilty of loving this stuff.
(35:55):
We are a podcast co-host on a financialpodcast, but I think that we are both
moving towards that journey to simplicity.
Like you just consolidated a bunch ofyour accounts to one broker, right?
Or primarily one broker.
I've been ratcheting down.
I have an individual stock portfolio,so I've been simplifying that.
Eventually I may even just getrid of that, but also I have
(36:16):
one go-to fund that I use.
I don't need to look at 20 fundsevery time I need to, get into
a stock index fund or whatever.
So we are working on it.
John?
Wonderful.
it seems like you're an involvedhuman being, an involved
investor and involved advisor.
It's been a pleasure tohave you on the show today.
I look forward to seeing your talk on theall-in-One funds at bogleheads this year.
(36:39):
I believe you're giving a talk on that.
Thank you for helping us promotethe Bogleheads initiative in the
Jonathan Clemens domain as wellas in general with regards to
financial literacy and education.
We'll put links to all of these thingswe've talked about today on the show
notes, and we look forward to having youback as individual issues that may be
too complex for us need to be simplified.
(36:59):
John, thank you for being withus here on Catching up to Fi.
Yeah, of course.
Yeah.
And John I guess one last quick thing.
We obviously cater to late starters,so I would be remiss if I didn't ask.
You see a lot of clients, so that's whyI'm so interested in your perspective.
Anything unique to late starters?
Late starters would be people thatmaybe they wake up in their thirties,
in their forties, forties, theyhaven't done any investing, and they're
(37:22):
like, oh my God, I am way behind.
How do I catch up?
Typically Bill and I see that theywanna, like you mentioned, immediately
go to investments, but anythingin particular for late starters,
Yeah great question.
With respect to target date fundsprobably want to consider a target
date ETF in a taxable account.
You'll have some tax efficiencyconsiderations with mutual
(37:43):
funds in a taxable accounts.
ETF can be possibly a better solutionif we're talking about investing
dollars in a taxable account Withrespect to late starters, certainly
just like anyone else, there's gonnabe the desire to optimize investments.
I don't think that'swhere the value add is.
It's strictly just gonna be a math issue.
It's just saving more spending less.
(38:05):
You still want to be thinking aboutmanaging your risks if you're a late
starter probably means you need to be moreserious about long-term care insurance
and how that can manage your risk.
If you need a lot of your working yearsto help you shore up your retirement
savings, then all the more reason tomake sure that you do have high quality
disability insurance because if youcan't work then your plan doesn't work.
(38:25):
So disability insurance is still gonnabe a valuable tool in that situation.
Life insurance, if youhave dependents as well.
So pretty much all the samethings, although super boring.
But what I like to call important urgentprojects equally critical if not moreso.
Always caution folks thatworkplace long-term disability
insurance policy, really not great,really has a lot of weaknesses.
(38:50):
That means you've gotta go out andyou've gotta buy a very expensive
private disability insurance, right?
So if you're a late starter itmeans you're older in age, which
means that disability insuranceis gonna be more expensive.
Life insurance too.
It's something that I wouldencourage you not to skimp on.
Think about that very thoughtfully.
'cause again.
Your plan works only ifyou work and earn money.
(39:11):
Disability insurance is one productthat helps manage that risk.
Unfortunately, these things can be alittle complicated, there is a lot of
fine print in there that you need to getright when purchasing these policies.
To be a real nerd about it, thatmeans an own occupation definition.
That's language you wanna see.
Own occupation, regularoccupation until age 65.
You want an inflationprovision, an inflation writer.
(39:32):
You want a partial disability provision.
I do talk a little bit more aboutthis on a podcast episode we did
with a disability insurance agent.
I'm not sure if you guyswanna link to that or not.
That can be a resource for folks.
But I'd to echo your point I would resistthe urge to micromanage your investments.
It's just not where you'regonna make an impact.
It's gonna be saving more andmaking sure to manage your risks
(39:56):
Yeah.
Thank you so much, John.
I definitely wanted your insight on that.
Thank you for sharing thatwith our late starters.
Thank you so much for spendingpart of your day with us.
This has been so great.
We loved having you and youare invited back anytime.
We love brilliant people on our show.
And Bill, shall we goahead and wrap it up?
Yeah, let's just tell our audiencethat look forward to more good content
(40:18):
next week on Catching Up To Fi.
Thank you, Jon Luskin.
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