Dr William Bernstein gave the following advice when asked: “How much exposure should people have to stocks?”

“A lot of people had won the game before the [2008] crisis happened: They had pretty much saved enough for retirement, and they were continuing to take the risk by investing in Equities.

Afterward, many of them sold either at or near the bottom and never bought back into it. And those people have irretrievably damaged themselves.

I began to understand this point 10 or 15 years ago, but now I’m convinced: When you’ve won the game, why keep playing it?

How risky stocks are to a given investor depends upon which part of the life cycle he or she is in. For a younger investor, stocks aren’t as risky as they seem. For the middle-aged, they’re pretty risky. And for a retired person, they can be nuclear-level toxic.”

– White Coat Investor

In another interview, Dr Bernstein further elaborates what he meant by “won the game”.

“When you have acquired enough money to sustain you for the rest of your life, stop risking it. If you are financially independent but still working, you can dramatically lower the financial risks in your life by continuing to save and letting your investments compound, even if you use a less risky portfolio.

You may go from a 4% initial withdrawal rate to a 2% withdrawal rate. Perhaps you can go from a 60% stock portfolio to a 40% stock portfolio. You do not have to invest on margin either. FI without RE can allow you to lower risk.”

Dr William Bernstein wrote the book “The Four Pillars of Investing”, which is a pretty good data-driven book if you wish to understand markets and why longer-term investing works.

As I grew older, I tend to pay attention to folks who have dived deep into subjects like these and are older. I realize that with age, you tend to balance your technical views with real-life experiences.

Dr Bernstein probably has enough friends who got caught in this investing game even though in his opinion they do not need to.

Why We Continue to Stay In the Game

There are a few reasons why they still do:

1. They do not know that they have won the game. Either they didn’t measure, do not know how to measure whether they have enough. If you do not know whether you have enough, you assume you do not have enough, and just keep ongoing
2. Fear of missing out. It does not make sense to leave money on the table when it is there for you to earn
3. Not understanding that being invested has downsides. This downside is that in the short term, your wealth could suffer from severe downside volatility
4. It is a sport for them. This is more ego-driven

We overestimate our ability to take a lot of downside volatility. When you are young, you can take it because you could take reference that your future earnings potential is many times the unrealized losses in your portfolio, or that your unrealized losses are just 1 year of your annual salary.

De-risking Your Portfolio When you Have Sort of Won

When you are older, near the tail end of your official earning years, the unrealized losses are many years of your annual salary. Thoughts that you are making the gravest mistake of your life will soon cloud your judgment and force you to do irrational things.

If you needed $1 million for your purpose and you have $1.2 million, do you still need a high rate of return?

Perhaps not. You could make do with a lower required rate of return.

To achieve that, instead of a 100% equity 0% bond allocation, you can shift to a 50% equity 50% bond allocation.

In an equities bear market, the returns for this 2 asset class may be as follows:

A 60-year-old investor didn’t realize that he can have exposure to the markets and have a much lower maximum downside risks. A $150,000 unrealized loss on $1 million is more liveable, less haunting, and you have a night of better sleep than a $400,000 unrealized loss.

He still thinks he needs the 7-8% a year return when in reality he can make do with a 4-6% a year return.

How do We Gauge That We have Safely Won the Financial Game?

I was asked recently: How do we know whether we have won the game?

This is a subjective question.

I believe most people have an adverse side to them.

By asking this question, most likely they wish to find out that they have to build up enough wealth such that they do not need to entertain the prospect of going back to work, when they are out of the workforce for so long, just to make ends meet.

I believe the answer is: Your financial situation is so comfortable that you have adequate buffers. Given a few possible downside scenarios your financial situation will still work out comfortably.

You have not won the game if there are some very realistic scenarios that could still derail your plan.

Examples Where You May Not Have Safely Won the Game

For example, you think you need an income of $50,000 a year to provide for your expenses. Based on the 4% withdrawal rate, you have accumulated $50,000/0.04 = $1.25 million.

We can think of certain future low return scenarios where $1.25 million might still not be enough. In some situations, you do not know how long you will live and if you lived longer, you might need more.

If it is an initial 3.5% withdrawal rate, I think it is a pretty reasonable balance between saving enough and a high probability of working out well enough for 30 to 40 years.

But still, we can think of low return bond or equity, high inflation scenarios that may jeopardize the plan. Strictly speaking, the game is not won.

Examples of Scenarios Where the Game is More or Less Won

Now suppose, like what Dr Bernstein said, you have so much that your initial withdrawal rate is just 2%. This means you have $50,000/0.02 = $2.5 million.

The 4% withdrawal rate already factors in some atrocious high inflationary, deflationary periods and is the worst-case scenario.

A 2% withdrawal rate ensures that you spend an even smaller initial amount. If you are living in retirement and your wealth gets shaved 50%, you are spending a 4% withdrawal rate. There are some crazy buffers.

Realistically, you could live with a 50/50 equity/bond allocation to balance growth and volatility.

There are some crazy ones who could have a withdrawal rate of 1%!

Another measure that you have won the game is that your expenses are $50,000, but you buffer in 50% more expenses ($75,000 a year in total) and you can cover this with a bond ladder averaging a 2% interest yield. You need $75,000/0.02 = $3.75 million.

Bond ladders protect against inflation because there is always a bond maturing in the coming year which can be invested in higher coupon bonds in an inflationary environment. The downside is that you need a lot of money to make it work.

In both the very low withdrawal rate and the bond ladder, inflation is considered.

Why It Is So Hard for Someone Who Has “A Lot” To Know He has Won the Financial Game

You will only know you have won the game if

1. you have really good knowledge or have someone who is a real subject matter expert in this area to validate and tell you that
2. your financial independence strategy is fundamentally sound
3. you have adequate buffers
4. your annual expenses are well rationalized, and you have enough money

The above is hard to find because frankly speaking, you can have someone validate your situation and you do not believe them.

You either question their (or your) competency, the reasoning behind why they (or you) think you have enough.

There is a lack of trust.

And so the game may be won but you do not believe you have won it.

There are many who get trapped in this.

Do Like Me on Facebook. I share some tidbits that is not on the blog post there often. You can also choose to subscribe to my content via email below.

I break down my resources according to these topics:

1. Building Your Wealth Foundation – If you know and apply these simple financial concepts, your long term wealth should be pretty well managed. Find out what they are
2. Active Investing – For the active stock investors. My deeper thoughts from my stock investing experience
3. Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
4. Dividend Stock Tracker – Track all the common 4-10% yielding dividend stocks in SG
5. Free Stock Portfolio Tracking Google Sheets that many love
6. Retirement Planning, Financial Independence and Spending down money – My deep dive into how much you need to achieve these, and the different ways you can be financially free
7. Providend – Where I work doing research. Fee-Only Advisory. No Commissions. Financial Independence Advisers and Retirement Specialists. No charge for the first meeting to understand how it works

Trade and Industry Minister Mr. Chan Chun Sing has an interesting dialogue at a public policy conference on Friday.

The Today newspaper posted some parts of what he raised during the dialogue. Mr. Chan raises some of the people that looked to him for help to make their lives better in his ward:

Providing examples from his personal experience, Mr. Chan said he met a single mother of six children who came to his Meet-the-People session to seek help for employment, and financial assistance of S$300 through the Community Care Endowment Fund (ComCare) for lower-income households.

In contrast, there was a young couple in their 20s — who earned a combined five-figure monthly income — who expressed frustration that they had received only half of an S$20,000 grant from the Housing and Development Board.

The difference in their needs, and the way they had asked for help was a “surreal experience” for him, said Mr. Chan.

– There is a difference between elites and those with elitist attitudes: Chan Chun Sing

This might sound very WTF to some people at first glance. The mother with six children clearly needed financial help.

If you put that things this way, the young couple in the 20s don’t need so much help.

Everyone is Trying to Give Themselves a Fighting Chance

This might befuddle the Minister because for someone growing up struggling and having “made it”, he can see along the spectrum of Singaporeans ranked by wealth, which set of Singaporeans needed help the most.

The problem is… the people don’t see it that way.

The mother of six is struggling, and to be fair the young couple is also “struggling”.

Living in today’s society is not easy.

If a couple earns a five-figure salary in their 20s, it gives them a leg up (going by my wealthy formula, they have a massive advantage here).

However, a $6,000 a month income would most likely put you with colleagues that spend like they more than $6,000 a month. The peer pressure is going to be massive.

And judging by this meet the people’s session, they lived in a ward where the flat or home is not so cheap.

The most challenging part? Not everyone has a good grasp of this wealth formula of success.

If you try to line everyone up based on certain metric so that you can rank how rich and poor each household are, you could probably do a reasonable job.

The 5-year household expenditure survey is one way.

However, we got to know that the mother of six and the young couple do not know each other. Both might have a faulty operating system when it comes to money.

If you are confident, you would think that you are in the top 2 deciles in the wealth spectrum. If you are less confident you would think that you are at the 3rd decile from the bottom.

It befuddles the minister because he has that meter to judge people but the people don’t have. He has this idea that those who are in a good position do not know that they are in a good position.

But I don’t care really because all I care about is that I am struggling and I am trying to get better for myself.

To put it in a very harsh way, those who are really poor need help. Those who are pretty OK, think they are not in a good situation, and sought to try and squeeze every drop out of the system.

You cannot fault them, because you created that system.

No Different from the HDB System

In recent months, the government has made it even easier for those who have not graduated to obtain their BTO flat.

This has always been the most befuddling thing for me. I guess it is befuddling to me because I look upon it as a subsidized way so that those that needed it the most can have a home.

Perhaps the way I look at it is wrong.

They wanted it to be a way where ALL can have a home at an affordable price, regardless of your income level. If we think like this, it may be what they are looking for.

It makes BTO sometimes of a lottery because those nearer to the central part of Singapore is more expensive. To comfortably afford them, your income must be high enough. Closer to central is desirable. They appreciate faster.

So this system widens the rich and poor divide in a way. It does not serve to help social mobility for the not so well off.

The well off ones are also the smart ones that can game the system.

The system allows this to be gamed.

So the minister should not be surprised by this because it is human instinct to game the system as much as they can.

So is Elitism a Big Problem?

If I were to comment on the main topic of discussion, I really have no idea.

It sort of makes it seem like being an elite is a vulgar thing.

My problem is… I dunno whether if someone is elite it is actually a compliment or we are pigeoning them into a rich and poor class.

If you treat being an elite as someone really good at what they do and therefore are acknowledged to be “sibeh strong” then it is a good thing.

However, I feel it is the latter we are talking about.

And even as the latter, I wonder how much wealth, status, and power you need to be an elite.

Anyway, if you are not there, you don’t like the elites.

If you are there, those truly elite probably don’t think they are one. Those that are not so elite, would think they are elite.

That is my take.

Me? I am an elite financial blogger.

Do Like Me on Facebook. I share some tidbits that is not on the blog post there often. You can also choose to subscribe to my content via email below.

I break down my resources according to these topics:

1. Building Your Wealth Foundation – If you know and apply these simple financial concepts, your long term wealth should be pretty well managed. Find out what they are
2. Active Investing – For the active stock investors. My deeper thoughts from my stock investing experience
3. Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
4. Dividend Stock Tracker – Track all the common 4-10% yielding dividend stocks in SG
5. Free Stock Portfolio Tracking Google Sheets that many love
6. Retirement Planning, Financial Independence and Spending down money – My deep dive into how much you need to achieve these, and the different ways you can be financially free
7. Providend – Where I work doing research. Fee-Only Advisory. No Commissions. Financial Independence Advisers and Retirement Specialists. No charge for the first meeting to understand how it works

Do you wish to test your trading skills, beat the pants out of professionals and be rewarded for it?

Now your chance is here!

Investing discussion group platform InvestingNote.com is partnering with SGX and Societe Generale to organize an active trading tournament for traders.

You can be part of this competition. All you have to do is click the Register for FREE blue button, and you are on your way.

Registration will be from 21 Sep 2019 til 8 Nov 2019

The tournament will consist of 2 rounds and one voting period:

• Elimination Round (14th Oct – 8th Nov 2019): A free-for-all trading simulation that includes all participants. Top 10 traders based on highest total portfolio returns will be selected. A minimum of four trades for each participant is also required to be the top 10 traders.
• Final Round (18th Nov – 29th Nov 2019): Top 10 traders will compete against each other. The top 3 traders with the highest portfolio returns will win a prize. A minimum of four trades for each participant is also required to be the top 3 traders.
• Voting Period (18th Nov – 29th Nov 2019): The 10 traders into the final round will garner for votes from the public during this period. The trader with the highest number of votes will win the “People’s Choice Award”

What you will be trading are Daily Leverage Certificates or DLC for short. I have written about DLC in the past when SGX first released them here.

These are instruments meant for speculation on the short term.

I need to put this out there. They are not good for the average wealth builder’s health most of the time.

The prices to be won:

• 1st Prize: $4,000
• 2nd Prize: $2,000
• 3rd Prize: $1,000
• People’s Choice Award: $1,000

Usually, these tournaments are good for newbies who are curious to see how they fare. The interactions and the knowledge look up during this period may increase their interest to dive deeper into this.

This will be how they started their trading journey. But this could be a terrible introduction.

But this could be some good clean fun to figure out how DLC work. As a longer-term investor, sometimes you got to be challenged behaviorally on a consistent basis. Short term trading does increase the frequency you see larger swings in your portfolio, so this may give you a good perspective.

Do Like Me on Facebook. I share some tidbits that is not on the blog post there often. You can also choose to subscribe to my content via email below.

I break down my resources according to these topics:

1. Building Your Wealth Foundation – If you know and apply these simple financial concepts, your long term wealth should be pretty well managed. Find out what they are
2. Active Investing – For the active stock investors. My deeper thoughts from my stock investing experience
3. Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
4. Dividend Stock Tracker – Track all the common 4-10% yielding dividend stocks in SG
5. Free Stock Portfolio Tracking Google Sheets that many love
6. Retirement Planning, Financial Independence and Spending down money – My deep dive into how much you need to achieve these, and the different ways you can be financially free
7. Providend – Where I work doing research. Fee-Only Advisory. No Commissions. Financial Independence Advisers and Retirement Specialists. No charge for the first meeting to understand how it works

Last week, I wrote a post on Providend titled Here are the Top 3 Attributes of a Good Financial Adviser.

I thought it will give you some good examples how you could go about assessing a prospective financial adviser if you wish to engage one.

After I have published the article, I would like to share some thoughts about what goes into the thought process.

When I wanted to write such an article, I could not write it from my point of view since I have been more of a consumer, rather some of the feedback that I got from within the firm.

So this post sought to add more color and personal thoughts to it.

Why I left out Adviser Competency or Sophistication

An advisers ability to help you plan is very important and it is one of the main reasons we will go about engaging a financial planner in the first place.

However, one adviser explained to me why THEY normally do not include it as a good attribute. That is because your adviser SHOULD be sophisticated in their ability to plan. It is the reason why you engaged them.

This week, I came across an interview that explained this better:

But that’s assuming you’re doing a great job, you see. Doing a good job of what you do. And this is what it’s important for advisors to process. That’s not a value-add.

The fact that you’re really smart and good at what you do is no different than my cardiologist is really smart and good at what he does. I don’t want a bad cardiologist. And so it’s a hygiene factor. It’s not a value proposition.

I expect you know financial planning.

You’re a CFP, doggone it. I expect this is your expertise. And so what happens is that advisors go to great length trying to profess that they’re smarter than the next guy instead of just experientially demonstrating they’re better and more professional and more personal and more trustworthy, more relatable than the next guy. And the brains part of it comes out as well.

– Matt Oechsli

Matt has a point. If I was hired to administer a server, you expect me to be professional and have that necessary competency to do that. There should not be so much thought process going into whether Kyith could administer it.

However, just in like IT world, we have to ask that question a lot of our colleagues because… the world is getting more complex. There are a lot of different kind of server administration. Over time, it is a challenge to stay current and know everything.

The Parallels to IT or Financial Outsourcing

More so, it is a question of whether standards are upheld.

Some of my friends who are current managers, or have to manage outsourced teams complained to me the problems of outsourcing.

Firms outsource their areas of work that they deemed less strategic, or where cost can be optimized.

That is OK (other than your friends losing their job and unable to find out in their domain) if it works.

My friends struggled with managing the offshore and outsourced vendor because they are severely lacking in the basic competency. It would have been better if you have some local staff here that are trained in this area.

I do agree that whichever field you are in, competency is hygiene. It is necessary and should be expected. The reality is that when standards are not upheld, end users like ourselves get the short end of the stick.

Why Trust and Integrity is Not Included

I did not include Trust and integrity because firstly, they are sanitary but more so, the advisers find that it is hard to measure.

If you meet someone representing their firm in a sales role, they will definitely say that they have your utmost interest at heart and they wish to deliver value.

You are looking up for a trusted financial planner because you do not believe the above is the case for all advisers.

There is no way to know unless someone you know have assessed their competency, and their integrity by engaging the adviser to plan for them previously.

So thus this is not included.

I think Competency and Trust are Uncommon because of the lack of Standards Enforcement

In reality, what was assumed to be sanitary to the clients, happens not to be there.

So even before we move on to talk about what separates the good adviser from the not-so-good, you might get into a more financial destructive position than being enhanced.

It is tough to find someone that have both sophistication and trust. You have friends that say they fully trust their adviser. However, when you reviewed the planning for them, you just shake your head.

Then on the opposite end of the spectrum, some planners comes across as competent. The plan comes out to be sophisticated.

So sophisticated enough that the client cannot figure out how the fees and how much fees they are actually paying, why their wealth is not going up even after 5 to 6 years.

What was Written in My Article Cannot be Easily Assessed as Well

I wrote three attributes that a good financial adviser should have:

1. Knowledgeable
2. Experience
3. “Good Bedside Manners”

In truth, you do realize that you cannot use these attributes to suss out a good financial adviser at first glance.

You could only know if someone you trusted have engaged their services and have given you a good account about their services.

However, what are the metrics to ask your friends and colleague whether this adviser is good or not?

You can try and use these three attributes to see if your friend’s adviser is a good adviser that you can also engage.

I think Standards are Pretty Important

The problem is that most assessment may be based on how the adviser make you feel good.

You friend might not realize that their planner have given them a horrendous plan. They think it is a sophisticated plan. This is like your physician recommending that joining the kidney and the heart together is a good idea based on your circumstances.

We have been conditioned to be comfortable to go to most doctors when we have problems because we believe that the competency for most doctors are there. They have gone through a lot of professional training and the local medical standards in a developed country can be trusted.

However, when we hear more negligent cases, cases of private doctors having an economic bias in their recommendation, you will begin to feel that you have to be more sophisticated and personally managed your medical situation.

You can see the parallels to financial planning.

We do not wish to take learning all these things up, but the reality of the situation forced us to need to take necessary education so that we watch out for our own, and our friends well-being.

Explaining Things Easily shows Competency

When we talked to fellow investors, you can tell the depth of someone’s knowledge from the things that comes out of their mouth a lot.

If someone can explain something you are struggling to understand in a clear and succinct manner, that is a rare skill.

These concepts are already pretty hard for us to figure out, apply in investing. I do find that once you mastered it, and be able to repeatedly use it, you will probably be able to explain it better.

My colleague told me my original segment was not good enough and that I should use a better analogy.

I should use a documentary.

I do not watch documentary. I do watch a lot of cute anime like this:

After you watch the whole anime, I have a better visual understanding of what some of the things that happen in my body.

I think that is a good example.

One of my colleagues has a problem trying to explain some theological stuff to their kids. So she showed this to us:

Not trying to push some religion stuff but these probably helped a lot to explain something you felt it is important for them to know, in a correct and animated manner.

Let me know what you think.

Do Like Me on Facebook. I share some tidbits that is not on the blog post there often. You can also choose to subscribe to my content via email below.

I break down my resources according to these topics:

1. Building Your Wealth Foundation – If you know and apply these simple financial concepts, your long term wealth should be pretty well managed. Find out what they are
2. Active Investing – For the active stock investors. My deeper thoughts from my stock investing experience
3. Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
4. Dividend Stock Tracker – Track all the common 4-10% yielding dividend stocks in SG
5. Free Stock Portfolio Tracking Google Sheets that many love
6. Retirement Planning, Financial Independence and Spending down money – My deep dive into how much you need to achieve these, and the different ways you can be financially free
7. Providend – Where I work doing research. Fee-Only Advisory. No Commissions. Financial Independence Advisers and Retirement Specialists. No charge for the first meeting to understand how it works