Comments on: Review: The Four Pillars of Investing http://www.thesimpledollar.com/2007/10/12/review-the-four-pillars-of-investing/ Simple, applicable personal finance advice for the modern world Sun, 22 Nov 2009 01:08:33 -0800 http://wordpress.org/?v=2.8.4 hourly 1 By: valerie r. porterboyce http://www.thesimpledollar.com/2007/10/12/review-the-four-pillars-of-investing/comment-page-1/#comment-86857 valerie r. porterboyce Sun, 14 Oct 2007 08:34:20 +0000 http://www.thesimpledollar.com/2007/10/12/review-the-four-pillars-of-investing/#comment-86857 hello sir i'm 48 years old and e-5 in the military(ARMY)and do have the TSP saving plan. Do you know about this TSP. Mr. Ramsey has taken the fear out managing my money. My children Valerie 11 and David 9 has had to do a budget for the last 2 years or so. David writing was pretty bad, but he did it. We love Dave. Anyway, can you tellme more about what i need to do. I have a Fidelty Destiny 2 account that I bought from USAPA IRA(old name) the new name is Frist Command Bank. hello sir
i’m 48 years old and e-5 in the military(ARMY)and do have the TSP saving plan. Do you know about this TSP. Mr. Ramsey has taken the fear out managing my money. My children Valerie 11 and David 9 has had to do a budget for the last 2 years or so. David writing was pretty bad, but he did it. We love Dave. Anyway, can you tellme more about what i need to do. I have a Fidelty Destiny 2 account that I bought from USAPA IRA(old name) the new name is Frist Command Bank.

]]> By: Aaron Stroud http://www.thesimpledollar.com/2007/10/12/review-the-four-pillars-of-investing/comment-page-1/#comment-86002 Aaron Stroud Sat, 13 Oct 2007 06:37:12 +0000 http://www.thesimpledollar.com/2007/10/12/review-the-four-pillars-of-investing/#comment-86002 Trent, I would go one step further and say reading many investing books from different perspectives is *essential* if one wants to be on track for success. Like most things in life, sorting the truth from half-truths becomes easier the more one reads. For example, how long do most investors have to search before discovering that beating the market really isn't possible? Billions are made on investments and books/magazines arguing the exact opposite! Trent, I would go one step further and say reading many investing books from different perspectives is *essential* if one wants to be on track for success.

Like most things in life, sorting the truth from half-truths becomes easier the more one reads. For example, how long do most investors have to search before discovering that beating the market really isn’t possible? Billions are made on investments and books/magazines arguing the exact opposite!

]]> By: Oswegan http://www.thesimpledollar.com/2007/10/12/review-the-four-pillars-of-investing/comment-page-1/#comment-85984 Oswegan Sat, 13 Oct 2007 06:18:42 +0000 http://www.thesimpledollar.com/2007/10/12/review-the-four-pillars-of-investing/#comment-85984 Helpful advice Aaron and Trent. Thanks, ~Oswegan http://oswegan.blogspot.com Helpful advice Aaron and Trent.

Thanks,

~Oswegan
http://oswegan.blogspot.com

]]> By: Trent http://www.thesimpledollar.com/2007/10/12/review-the-four-pillars-of-investing/comment-page-1/#comment-85847 Trent Sat, 13 Oct 2007 02:30:39 +0000 http://www.thesimpledollar.com/2007/10/12/review-the-four-pillars-of-investing/#comment-85847 I agree with the idea that Dave is a great starter (getting people motivated to get debt free) but maybe not the best finisher (investment advice). I've found it to be really useful to get a lot of input from a lot of different financial books to get a broad picture of how things work. I agree with the idea that Dave is a great starter (getting people motivated to get debt free) but maybe not the best finisher (investment advice). I’ve found it to be really useful to get a lot of input from a lot of different financial books to get a broad picture of how things work.

]]> By: Aaron Stroud http://www.thesimpledollar.com/2007/10/12/review-the-four-pillars-of-investing/comment-page-1/#comment-85846 Aaron Stroud Sat, 13 Oct 2007 02:26:38 +0000 http://www.thesimpledollar.com/2007/10/12/review-the-four-pillars-of-investing/#comment-85846 Oswegan, thanks for the response. It's good to hear that he talks about inflation in his books. I haven't read any yet, but I have been listening to his show at least a couple of times a week for several months (mostly for research...) The problem with advocating mutual funds that **have averaged** 10-12% returns is the old saying that previous performance doesn't guarantee future performance... Lots of funds have done well, especially considering the strong stock market returns for the past couple of decades. So a lot of bad mutual funds would qualify. I'd be a lot happier if he emphasized the importance of "index funds" which solve a couple of major investing challenges (namely bad management and higher expense ratios). I think I remember hearing index funds discussed on his show a couple of times which isn't enough considering their importance. Bernstein discusses the problem with 10-12% expectations in his Four Pillars book. One of the key problems with this expectation is that it ignores how the rising price to earnings ratio (P/E) has affected stock returns. The price to earnings ratio simply describes how much money investors are willing to pay per dollar of after tax earnings. For example, a P/E of 20 means investors are willing to pay $20 for $1 in earnings (a 5% return). As Bernstein explains, (disclaimer: I'm operating from memory, my copy isn't handy) the past few decades have seen investors become increasingly willing to pay more per dollar of earnings. In the past, companies have sold at P/Es of 10 and even lower. Now the average is much higher, let's say 20. So, in order to see 10-12% returns, people are going to either (1) be willing to pay even higher prices for few dollars in earnings, (2) companies will need to be significantly more profitable to warrant higher prices (so the P/E will stay the same or drop), or (3) the market will need to experience a major correction to set the stage for big returns again. I'm not trying to belittle Dave Ramsey. I have great admiration for him and his advice. However, Dave's advice is more of a starting point rather than a final destination (although one could do much worse)... Oswegan, thanks for the response. It’s good to hear that he talks about inflation in his books. I haven’t read any yet, but I have been listening to his show at least a couple of times a week for several months (mostly for research…)

The problem with advocating mutual funds that **have averaged** 10-12% returns is the old saying that previous performance doesn’t guarantee future performance… Lots of funds have done well, especially considering the strong stock market returns for the past couple of decades. So a lot of bad mutual funds would qualify.

I’d be a lot happier if he emphasized the importance of “index funds” which solve a couple of major investing challenges (namely bad management and higher expense ratios). I think I remember hearing index funds discussed on his show a couple of times which isn’t enough considering their importance.

Bernstein discusses the problem with 10-12% expectations in his Four Pillars book. One of the key problems with this expectation is that it ignores how the rising price to earnings ratio (P/E) has affected stock returns.

The price to earnings ratio simply describes how much money investors are willing to pay per dollar of after tax earnings. For example, a P/E of 20 means investors are willing to pay $20 for $1 in earnings (a 5% return).

As Bernstein explains, (disclaimer: I’m operating from memory, my copy isn’t handy) the past few decades have seen investors become increasingly willing to pay more per dollar of earnings. In the past, companies have sold at P/Es of 10 and even lower. Now the average is much higher, let’s say 20.

So, in order to see 10-12% returns, people are going to either (1) be willing to pay even higher prices for few dollars in earnings, (2) companies will need to be significantly more profitable to warrant higher prices (so the P/E will stay the same or drop), or (3) the market will need to experience a major correction to set the stage for big returns again.

I’m not trying to belittle Dave Ramsey. I have great admiration for him and his advice. However, Dave’s advice is more of a starting point rather than a final destination (although one could do much worse)…

]]> By: Oswegan http://www.thesimpledollar.com/2007/10/12/review-the-four-pillars-of-investing/comment-page-1/#comment-85728 Oswegan Fri, 12 Oct 2007 21:36:53 +0000 http://www.thesimpledollar.com/2007/10/12/review-the-four-pillars-of-investing/#comment-85728 Actually, he strongly advocates mutual funds that average 10-12% returns over the past ten or twenty years (a proven track record). Inflation averages around 4% a year which he points to as one of the reasons it is necessary to average 10-12%, or better, over the long haul. Thus, I disagree that he ignores the impact of inflation on investment returns. We can agree to disagree on that though. Cheers, ~Oswegan http://oswegan.blogspot.com Actually, he strongly advocates mutual funds that average 10-12% returns over the past ten or twenty years (a proven track record).

Inflation averages around 4% a year which he points to as one of the reasons it is necessary to average 10-12%, or better, over the long haul.

Thus, I disagree that he ignores the impact of inflation on investment returns.

We can agree to disagree on that though.

Cheers,

~Oswegan
http://oswegan.blogspot.com

]]> By: Aaron Stroud http://www.thesimpledollar.com/2007/10/12/review-the-four-pillars-of-investing/comment-page-1/#comment-85720 Aaron Stroud Fri, 12 Oct 2007 21:16:44 +0000 http://www.thesimpledollar.com/2007/10/12/review-the-four-pillars-of-investing/#comment-85720 I had lunch with Bernstein once; he's a sharp guy and I loved the Four Pillars (the lunch was with a small group of investing enthusiasts). Trent, regarding your note at the bottom: it's true Bernstein falls on the more conservative end of the spectrum. His advice is far more responsible than most authors/financial companies who treat the stock market as a sure thing over the long haul. But, if investment returns are disappointing for the next three to four decades, there are going to be a lot of broken dreams...and people scrambling to make up for lackluster returns. On the other hand, if returns are great. Then investors who have been taking the more "conservative" approach can slow their contributions down or they can choose to retire early. @ Oswegan - Dave Ramsey is great when it comes to aggressively pursuing success and kicking debt out of your life. However, he presents an overly simplistic view of stock market returns (he acts like the stock market will always offer high returns over the long haul and (on his show at least) he ignores the impact of inflation on investment returns). Bernstein definitely offers a more complex and safer asset allocation than the KISS breakdown you described. Wading through Four Pillars will take more work than reading a Dave Ramsey book, but you'll have a better understanding of the investing challenges the younger generations face. I had lunch with Bernstein once; he’s a sharp guy and I loved the Four Pillars (the lunch was with a small group of investing enthusiasts).

Trent, regarding your note at the bottom: it’s true Bernstein falls on the more conservative end of the spectrum. His advice is far more responsible than most authors/financial companies who treat the stock market as a sure thing over the long haul.

But, if investment returns are disappointing for the next three to four decades, there are going to be a lot of broken dreams…and people scrambling to make up for lackluster returns. On the other hand, if returns are great. Then investors who have been taking the more “conservative” approach can slow their contributions down or they can choose to retire early.

@ Oswegan – Dave Ramsey is great when it comes to aggressively pursuing success and kicking debt out of your life. However, he presents an overly simplistic view of stock market returns (he acts like the stock market will always offer high returns over the long haul and (on his show at least) he ignores the impact of inflation on investment returns).

Bernstein definitely offers a more complex and safer asset allocation than the KISS breakdown you described. Wading through Four Pillars will take more work than reading a Dave Ramsey book, but you’ll have a better understanding of the investing challenges the younger generations face.

]]> By: Mrs. Micah http://www.thesimpledollar.com/2007/10/12/review-the-four-pillars-of-investing/comment-page-1/#comment-85629 Mrs. Micah Fri, 12 Oct 2007 18:37:54 +0000 http://www.thesimpledollar.com/2007/10/12/review-the-four-pillars-of-investing/#comment-85629 I'll look for it at the library. I don't know if I plan to follow his advice, I rather like the Couch Potato portfolio, but I think it'd be a valuable chance to learn more about investing and actually understand! Thanks for sharing. I’ll look for it at the library. I don’t know if I plan to follow his advice, I rather like the Couch Potato portfolio, but I think it’d be a valuable chance to learn more about investing and actually understand! Thanks for sharing.

]]> By: Oswegan http://www.thesimpledollar.com/2007/10/12/review-the-four-pillars-of-investing/comment-page-1/#comment-85617 Oswegan Fri, 12 Oct 2007 17:47:55 +0000 http://www.thesimpledollar.com/2007/10/12/review-the-four-pillars-of-investing/#comment-85617 sorry for the double post, you can remove whichever one you want I guess. ~Oswegan sorry for the double post, you can remove whichever one you want I guess.

~Oswegan

]]> By: Oswegan http://www.thesimpledollar.com/2007/10/12/review-the-four-pillars-of-investing/comment-page-1/#comment-85616 Oswegan Fri, 12 Oct 2007 17:46:49 +0000 http://www.thesimpledollar.com/2007/10/12/review-the-four-pillars-of-investing/#comment-85616 Wow, nice review. Thanks Trent How do you feel this books compares the the advice given by Dave Ramsey in the Financial Peace program. We currently use Dave KISS - keep it simple stupid - program of a quarter each in growth, aggressive growth, equity and international. Do you feel like this book give different advice? ~Oswegan http://oswegan.blogspot.com Wow, nice review. Thanks Trent

How do you feel this books compares the the advice given by Dave Ramsey in the Financial Peace program.

We currently use Dave KISS – keep it simple stupid – program of a quarter each in growth, aggressive growth, equity and international.

Do you feel like this book give different advice?

~Oswegan
http://oswegan.blogspot.com

]]> By: cms http://www.thesimpledollar.com/2007/10/12/review-the-four-pillars-of-investing/comment-page-1/#comment-85608 cms Fri, 12 Oct 2007 17:27:25 +0000 http://www.thesimpledollar.com/2007/10/12/review-the-four-pillars-of-investing/#comment-85608 Bernstein's other book, The Intelligent Investor, is also very good, but much more dense and econ-like. In case you are looking for a book recommendation, you should really check out "All About Asset Allocation" by Richard Ferri. It gives an EXTREMELY good explanation of how to go about deciding the right asset allocation for you. Ferri, too, focuses on index funds and ETFs, and also discusses the size/style dimension of stocks very well. Bernstein’s other book, The Intelligent Investor, is also very good, but much more dense and econ-like.

In case you are looking for a book recommendation, you should really check out “All About Asset Allocation” by Richard Ferri. It gives an EXTREMELY good explanation of how to go about deciding the right asset allocation for you. Ferri, too, focuses on index funds and ETFs, and also discusses the size/style dimension of stocks very well.

]]> By: demetri http://www.thesimpledollar.com/2007/10/12/review-the-four-pillars-of-investing/comment-page-1/#comment-85592 demetri Fri, 12 Oct 2007 16:21:05 +0000 http://www.thesimpledollar.com/2007/10/12/review-the-four-pillars-of-investing/#comment-85592 Since I have been on the path of financial awarness this is one of only three books I have actually purchased as opposed to getting out of the library. I love this book as well. Its for those people who have a handle on a book like "your money or your life" and are really ready to look more into the investing area. I must admit that while I am still paying my way out of debt and cant necessarily enact all that this book discusses it has been very helpful in my understanding of the way investing "should" work. Since I have been on the path of financial awarness this is one of only three books I have actually purchased as opposed to getting out of the library.

I love this book as well. Its for those people who have a handle on a book like “your money or your life” and are really ready to look more into the investing area.

I must admit that while I am still paying my way out of debt and cant necessarily enact all that this book discusses it has been very helpful in my understanding of the way investing “should” work.

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