Short Takes: 4% Rule Troubles, Factor Investing, and more

In a very small sample size I’ve noticed that owners of short-term rental places seem to be offering better than usual terms for letting renters cancel without penalty.  It’s hard to tell if it’s just a coincidence or if the owners recognize that a COVID-19 upsurge is a worry for renters.  I’m still hoping to go east to golf this fall and head south for the winter.  Fortunately, these owners have let me book without worrying about getting my money back if I can’t go due to the ongoing pandemic.

In the past two weeks I reviewed a book of a different type than my usual:

How to Retire Happy, Wild, and Free

Here are some short takes and some weekend reading:

Chris Mamula objects to Vanguard’s report on the shortcomings of the 4% rule for FIRE enthusiasts.  His objection isn’t with any of Vanguard’s technical points; he just thinks the FIRE community already knows about the problems with the 4% rule.  While it’s true that there are FIRE bloggers who have made these same points (as well as other bloggers, including me), the majority of FIRE enthusiasts certainly don’t understand all of these points.  We don’t get to define the FIRE community narrowly to only include a small number of knowledgeable people.  Like any large group of people, the range of knowledge levels is very wide, and it makes little sense to pretend they all have similar knowledge levels.  Mamula says “Vanguard has bought into the myth that this is a community of naive investors and planners.”  The FIRE community has brilliant people, naive people, and everything in between.  Further, there are plenty of people around who disagree with Vanguard’s sensible take on the 4% rule.  In particular, it’s not hard to find people who think drawing 5%, 6%, or more annually from a portfolio is safe.  I applaud Vanguard for trying to counter confusion and misinformation about how to draw down a portfolio over many decades.

Larry Swedroe discusses how factor premiums decline or even disappear after they are identified and publicized.  I’ve tended to be skeptical of most factors, mainly because trying to exploit them increases investment costs.  You have to hope that enough of the factor premium will hang around to cover these higher costs.  I have a tilt to small value stocks, but other than that, I stick to broad cap-weighted indexing.

Preet Banerjee interviews Peter Mansbridge to discuss some of the stories behind big moments in his career.