Rob Bennett

Rob Bennett’s A Rich Life blog aims to put the “personal” back into “personal finance” — he focuses on the role played by emotion in saving and investing decisions. Rob developed the Passion Saving approach to money management; Passion Savers save not to finance their old-age retirements but to enjoy more freedom and opportunity in their 20s, 30s, 40s, and 50s — because they pursue saving goals over which they feel a more intense personal concern, they are more motivated to save effectively. He also developed the Valuation-Informed Indexing investing strategy, a strategy that combines the most powerful insights of Vanguard Founder John Bogle and Yale Professsor Robert Shiller in a simple approach offering higher returns at greatly diminished risk. Tom Gardner, co-founder of the Motley Fool web site, said of Rob’s work: “The elegant simplicty of his ideas warms the heart and startles the brain.”

 

A) Education and Early Career

 

Rob Bennett graduated from Temple University, in Philadelphia. He majored in Political Science. He holds a law degree from the Columbus School of Law at Catholic University of America, and a Masters in the Law of Taxation from George Washington University School of Law.

Rob covered the IRS and Capitol Hill beats for The Daily Tax Report, a newsletter published by The Bureau of National Affairs, Inc., in the 1980s.  He then wrote the Tax Politics column and managed the Tax Notes Today database for Tax Analysts. After two years at Tax Analysts, he was employed at the National Tax Department of the Ernst & Young accounting and consulting firm for nine years. He rose to the level of Director. He resigned on August 1, 2000, with enough money saved for his family of four to live off of the earnings from his investments while he built his internet writing business.

 

B) Passion Saving

 

Foreseeing the power of the internet to revolutionize our understanding of personal finance, Rob began building the Retire Early discussion board into the most successful board in the history of the Motley Fool site (www.fool.com) in late 1999. His special report, Secrets of Retiring Early, was the #1 best-selling report in the history of the www.Soapbox.com site and he was hired by Motley Fool to serve as an instructor for its online retirement planning course. Thousands of the most effective savers in the world came to congregate at Rob’s board, and the insights developed through the discussions held there became the engine for his book Passion Saving: The Path to Plentiful Free Time and Soul-Satisfying Work. 

The book argues that the key to effective saving is for the saver to pursue a goal other than an old-age retirement because only goals that can be realized within five years supply sufficient ongoing motivation to support a strong saving effort.  Rob explains that saving buys financial freedom and that financial freedom provides huge benefits at all stages of life, not only when one’s working days have come to an end. Motivated savers are effective savers and effective savers experience little trouble financing their old-age retirements when the time comes to do so, according to the book.

Tom Gardner, co-founder of the Motley Fool site, said of the book: “The elegant simplicity of his ideas warms the heart and startles the brain.” Mark Michael Lewis, host of the Money, Mission and Meaning talk show, said: “You’ve accomplished something radical with your idea of Passion Saving.” Dollar Stretcher Book Reviewer Beatrix Fernandez called the book “The Your Money or Your Life book for a new generation.” MSN Money Columist Liz Pulliam Weston featured Rob’s saving ideas in a profile of three couples who left the corporate world to do the kinds of work that satisfied them. ABC News said of Rob’s unconventional saving approach: “This is pretty exciting!”

Today, Rob authors the “A Rich Life” blog and the articles that appear at the www.PassionSaving.com site.Significant articles on saving available at the www.PassionSaving.com site include: (1) 8 Paths to Financial Independence; (2) Unconventional Mid-Life Career Change Tips; (3) The Meaning of Work — A Love Song; (4) Give Up Television and Grow Rich; and (5) 10 Reasons for Paying Off the Mortgage.

 

C) Valuation-Informed Indexing

 

In recent years, Rob’s focus has been on helping investors make the shift from the failed Buy-and-Hold model to the investing model of the future, Valuation-Informed Indexing. The series of internet discussions initiated by Rob in May 2002 – “The Great Safe Withdrawal Rate Debate” – has become the most controversial and the most exciting series of investing discussions ever held on this new communications medium. Numerous boards and blogs have banned Rob and others arguing that investors must take valuations into consideration when setting their stock allocations on grounds that it would be “dangerous” for investors to learn that the academic research has shown for 30 years now that the chances of Buy-and-Hold ever producing good results for the long-term investor are precisely zero. But both big names and ordinary investors have applauded Rob’s efforts to bring reason to discussions of investing by persuading Buy-and-Hold advocates to acknowledge that encouraging investors to stay at the same stock allocation when valuations rise to insanely dangerous levels always brings on a stock crash and an economic crises. Rob’s Valuation-Informed Indexing approach combines the most powerful insights of Vanguard Founder John Bogle and Yale Professor Robert Shiller into a strategy that actually works in the real world. Rob argues that Bogle and Shiller go together like chocolate and peanut butter!

Michael Harr, founder of Walden Advisors, has described Valuation-Informed Indexing as “a very solid approach to investing.” Norbert Schenkler, a financial planner, performed an analysis of the historical record showing that: “The evidence is pretty incontrovertible. Valuation-Informed Indexing…is everywhere superior to Buy-and-Hold over ten-year periods.” Bill Schultheis, author of The New Coffeehouse Portfolio, exclaimed upon discovery of the investing materials available at www.PassionSaving.com: “Holy Toledo! This is great stuff!” Carl Richards, owner of Clearwater Asset Management, wrote: “I have read everything I can about Valuation-Informed Indexing, and I agree with you that Buy-and-Hold Passive Investing is extremely problematic…. I think what you are doing has huge value.”

John Walter Russell, a retired government engineer, met Rob during the Motley Fool discussions and devoted the last eight years of his life (John died in October 2009) to researching the investing strategies they developed together (with help from the hundreds of community members who participated constructively in The Great Debate discussions). John and Rob together developed four unique calculators:

 

1) The Stock-Return Predictor

 

This stock valuation calculator performs a regression analysis of the historical stock-return data to reveal to investors the most likely 10-year return for a broad U.S. index starting from any of the possible starting-point valuation levels. For example, the Return Predictor told investors that the most likely annualized 10-year return at the prices that applied in 1982 was 15 percent real and that the most likely annualized 10-year return at the prices that applied in 2000 was a negative 1 percent real. Investors learning these realities know when to increase or lower their stock allocations to obtain far higher returns at greatly diminished risk — Investor heaven!

 

2) The Retirement Risk Evaluator

 

This calculator is the first retirement calculator that reports the safe withdrawal rate (SWR) accurately. Earlier calculators (used by 90 percent of today’s retirement planners) fail to include a valuation adjustment and thus claim that the SWR (the percentage that retirees can remove from their portfolios each year with virtual assurance that their retirements will survive 30 years) is a constant number (4 percent). The Risk Evaluator shows that the SWR varies from a low of 2 percent (for retirements beginning at timess of super-high valuations) to a high of 9 percent (for retirements beginning at times of super-low valuations). The retirement planning implications of this finding are of course far-reaching.

 

3) The Investor’s Scenario Surfer

 

This portfolio allocation calculator permits investors to compare various rebalancing (Buy-and-Hold) strategies with Valuation-Informed Indexing strategies over a 30-year time-period in which the return sequence is consistent with those we have seen throughout the historical record. It shows that long-term timing (Valuation-Informed Indexing) beats rebalancing in 90 percent of the possible returns sequences. It turns out that market timing (the long-term variety, not the discredited short-term variety) works afterall!

 

4) The Investment Strategy Tester

 

This investment strategy calculator allows investors to design up to four investment strategies and compare how they perform in 1,000 possible return sequence. Knowing the odds for a particular strategy helps the investor know whether the risks associated with it are worth taking on. The Strategy Tester generally shows that super-safe asset classes like Treasury Inflation-Protected Securities (TIPS) offer a better long-term value proposition than stocks when stocks are selling at insanely inflated prices (as they were for the entire time-period from January 1996 through September 2008).

Rob has recorded 200 podcasts exploring in considerable depth various aspects of the Valuation-Informed Strategy and the emotional impulses that draw us to Buy-and-Hold strategies despite their poor track record. Five of the most significant are: 1) RobCast #8, The Coming Revolution in Investing Advice; 2) RobCast #72,When Stock Losses Are True Losses and When They Are Not; 3) RobCast #132, Cash Is a Strategic Asset Class; 4) RobCast #137 – Nine Valuation-Informed-Indexing Portfolio Allocation Strategies; and 5) RobCast #171 – 30 Investment Myths in 60 Minutes.

The investing book that Rob is working on will be entitled Investing for Humans: How to Get What Works on Paper to Work in Real Life.

 

D) Personal

 

Rob is 53. He lives in Purcellville, VA, with his wife Mary (she goes by “Boo”) and their two boys, Timothy (age 10) and Robert (age 8). His free time is spent reading novels exploring Catholic themes (Michael O’Brian, Graham Greene, Flannery O’Connor, etc.) and playing Monopoly and Stratego with the boys. His three favorite songs are: (1) Mrs. Robinson; (2) Get Back; and (3) Blind Willie McTell.

 

Trackbacks

  1. [...] Logic of course dictates an allocation shift in the opposite direction when the P/E10 level is 32 rather than 12 or 18. At that valuation level, the most likely annualized 10-year return is 0.21 real and the best return you can realistically even hope for is 3.21 percent real. It makes no sense to take on the risky-ness of stocks in exchange for the pleasure of earning a lower return than what is available risk-free from TIPS, or, in a best-case scenario, earning only a slightly higher return than the return that is available risk-free from TIPS. Rob Bennett is a fan of the book Unexpected Returns. His bio is here . [...]

  2. [...] You can ask me where I think stock prices are headed and I’ll tell you. But I will never engage in any guesswork. It’s not my thing. I’m not a bear any more than I am a bull. I am an investor who informed himself about what Shiller’s research says and who came to believe that the man is on the right track. Rob Bennett has written extensively on what causes stock price changes. His bio is here. [...]

  3. [...] The social norms in our country call for free discussion of all sorts of issues. We all feel shame for having gone along with a Social Taboo prohibiting free discussion in this one area for so long. We just won’t feel right about ourselves until the ban is lifted. As I have noted on many occasions throughout the first nine years of discussions, that’s when the real fireworks (the good kind!) begin! Rob Bennett believes that life itself is a free lunch and that it would be a terrible mistake not to take advantage of it despite what the “experts” say about how such a thing cannot possibly exist. Rob’s bio is here. [...]

  4. [...] it to us. It’s us doing it to us. Rob Bennett has written about stock picking for indexers. His bio is here. For background on the Big Fail of Buy-and-Hold and on the need to move to Valuation-Informed [...]

  5. [...] We find the 9 percent number shocking because we have grown accustomed to the Buy-and-Hold way of thinking about things, a way of thinking about things that is now discredited by 30 years of academic research. 9 percent is a perfectly appropriate SWR when stocks are priced low. The problem has never been with the New School SWR calculations. The problem is with us and our inability to accept that we got it all so wildly wrong during the Buy-and-Hold years. Rob Bennett favors watching pennies but not pinching pennies. His bio is here. [...]

  6. [...] My belief is that it is better to know the real numbers. The numbers on your portfolio statement today just don’t matter unless you are planning to spend all the money today. What you need to know is how much your portfolio will be worth five years from today and ten years from today and 20 years from today. To know that, you need to look at how stocks have performed throughout history starting from various valuation levels. The historical record (and the academic research based on it) tells us that today’s portfolio values cannot be trusted, regardless of how complacent they make us feel. Rob Bennett has written an article titled Why Buy-and-Hold Investing Can Never Work. His bio is here. [...]

  7. [...] I believe that investors of the future will indeed be taking Life Cycle considerations into account. I don’t think they will be doing so precisely in the way Bernstein says they should be doing so. I see his advocacy of Life Cycle Investing as a positive but incomplete and thus flawed step forward. Rob Bennett has written an article titled The First Retirement Calculator That Gets the Numbers Right. His bio is here. [...]

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