16: William Bernstein: Lump Sum Investing vs. Dollar Cost Average
By Sam Marks / Johnny FD
William Bernstein is a financial theorist, neurologist and Best Selling author of several books, including one of our favorites, The Intelligent Asset Allocator. He shows independent investors how to build a diversified portfolio without the help of a financial advisor. In this episode we talk the possible risk tolerance of an all stock portfolio and what age you should be when investing. We discuss major advantages and disadvantages of lump sum investing over a dollar cost average approach especially over a 12-month period. Lastly the importance of knowing financial history to choose the best time to buy stocks and how it correlates with GDP. Listen to the end to hear Williams advice he would like to give to his younger self and other inspiring investors. Relevant links for guest: Williams Website – http://www.efficientfrontier.com/ Where are we: Sam – Bangkok Bill – Portland, Oregon Recommended Books: William Bernstein – The Intelligent Asset Allocator William Bernstein – The Four Pillars of Investing: Lessons for Building a Winning Portfolio William Bernstein – A Splendid Exchange: How Trade Shaped the World William Bernstein – The Investor’s Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between Discussed (relevant links): Modern Portfolio Theory – http://www.efficientfrontier.com/ef/996/basics.htm Efficient Market Hypothesis – http://www.efficientfrontier.com/ef/700/studio54.htm The Bernstein Portfolio model – http://www.efficientfrontier.com/ef/996/cowards.htm Do not dollar cost average for more than 12-months – http://www.efficientfrontier.com/ef/997/dca.htm Time Stamp – Topic: 06:00 – How Bill got into finance 06:45 – A quantitative approach to finance 07:15 – The Intelligent Asset Allocator 08:15 – Modern portfolio theory 10:35 – The Bernstein asset allocation model 11:50 – Dialling up the stock exposure 12:15 – Stocks vs. bonds 13:00 – Risk tolerance 15:00 – Why stocks can be toxic in retirement 16:00 – Buying the basic asset allocation of funds 17:20 – The importance of sticking with an allocation 20:40 – Rebalancing your portfolio 22.15 – Simple vs. highly diversified portfolios 23:00 – Lump Sum investing vs. Dollar Cost Averaging 27:30 – The psychological part of investing 28:32 – Do not dollar cost average for more than 12 months 30:50 – What DCA buys you insurance against 32:00 – The importance of financial history 33:55 – GDP is not always correlated with stock returns 36:00 – What does Bill wish he knew 40 years ago 37:20 – Bill’s advice to young people If you enjoyed this episode, do us a favor and share it! Also if you haven’t already, please take a minute to leave us a 5 star review on iTunes and claim your bonus here! Copyright 2016. All rights reserved. Read our disclaimer here.