William Bernstein Interview #2: No Individual Stocks, Improved Safe Withdrawal Rate Outlook

Dr. William Bernstein is continuing his press tour for the second edition of his classic investing book The Four Pillars of Investing, and I found myself listening/reading to another podcast from The Meb Faber Show: Bill Bernstein on Financial History, Star Managers & The 4 Pillars of Investing.

There was some overlap between his discussion points here and the Morningstar podcast, but it was definitely worth the time spent to get a few more interesting discoveries.

He owns zero individuals stocks. I’m pretty impressed by the discipline level of this. No vestigial stock shares from his youth, no sentimental holdings, not even a humblebrag holding. (“Well, I do have a few shares of Apple that I picked up during the IPO in 1980…”)

Meb Faber: Does Dr. Bernstein have a play account? Do you allow yourself to have some investments you’ll trade around a little bit or are you too strict for that?

Dr. Bernstein: No. For two reasons, number one is, I learned my lesson early on just like you did. And, number two, I also am a co-principal in an IRA firm, and I just don’t want to be dealing with trading individual stocks.

He thinks that safe withdrawal rates are improving.

I am reasonably optimistic, as optimistic as I’ve actually been in 15 or 20 years about securities returns in about people’s ability to spend. What we told people until relatively recently was if you’re a typical 65-year-old retiree, a 2% burn rate is bulletproof, 3% is probably safe, 4%, you’re probably taking some risk, and at 5% burn rate, you’re taking a real risk. And I think that given the increase in real bond rates and the general decrease in valuations almost everywhere in the world except in the U.S. and especially with U.S. large cap stocks, I think that expected returns have increased to the point that you can increase those burn rates by about a percent. And that may not sound like very much, but going from 2% to 3% gives you 50% more spending power each and every year. So, I’m reasonably optimistic about future security returns, both for people who are going to be putting money away, and people who are going to be spending as well, assuming they didn’t get too badly clobbered in 2022.

Adding in that additional percentage point would change the quote to “if you’re a typical 65-year-old retiree, a 3% burn rate is bulletproof, 4% is probably safe, 5%, you’re probably taking some risk, and at 6% burn rate, you’re taking a real risk.” That is a big change, as he says.