The personal finance director is a mix of analytical and practical. Her analytical side says that US growth stocks are overvalued, so she advises investors to load up on foreign stocks and cheaper US value stocks. The practical side of it is the feeling that Americans worry about their mortgage or saving enough to send their kids to college, and they want common-sense solutions that allow them to sleep through the night.
Benz, whose firm predicts the stock will earn less than 1.6% annually over the next decade, encourages retirement savers to take calculated risk to achieve income goals. But she also advocates for “allocations of peace of mind” such as paying off the home mortgage early or keeping a decade’s worth of living expenses in cash and secured bonds.
named one of Barron’s 100 Most Influential Women in US Finance in 2021Benz, 50-something, studied political science and the Russian language in college. He started out as a copy editor at Morningstar nearly 30 years ago, and immediately fell in love with its “sense of intellectual curiosity.” He ran a team of fund analysts before taking his current job 15 years ago.
We drove to Benz at his home in suburban Chicago. The edited version of the conversation follows.
Baron’s: You trained as an analyst at Morningstar and yet you often advocate for practical solutions to personal finance. How did this happen?
Christine Benz: I’m definitely gravitating towards the practical side of bookkeeping. I was the youngest of six children, including a sister with an intellectual disability. My mom was very practical – we often joked that she could take the army into battle. I was impressed by my mom focusing so much on working.
I’ve been able to take personal finance guidance and fill it in with hard-core investment specifics. But how much people save and how much they spend is more important than fixing the property choice.
Morningstar has a particularly pessimistic outlook for equity returns over the next decade. How can one save enough for retirement, if you are right?
This is a pessimistic view. But one thing I would note is that this only applies to the next decade. So if I’m a young retirement saver, and that means anyone under 50 still has a long runway until retirement, and we expect returns to normalize after what we expect , which may not be a great decade ahead. I certainly won’t be plugging 1.6% into my retirement calculator forever.
What about those who have retired or are getting closer?
The potential for such meager returns is dire, and suggests to me that pre-retirees and new retirees do not need to create a plan for the next decade to accommodate potentially higher returns from stocks and bonds. Is.
what kind of plan?
Well, I guess you can adjust in a few ways. One is to ensure that your portfolio is properly asset-allocated to address the possibility that we could be another lost decade for equities.
I . write a lot about Bucket Approach to Retirement Planning, But the basic idea is that you’re setting aside a runway of safe assets that you can spend if you retire in a really bad time period for stocks.
Also, our team is expecting better returns from non-US stocks than from US stocks. So those who have not looked into that composition of their equity portfolio for many years should do so.
Retirees should be prepared to take lower withdrawals if a weak market environment takes hold early in their retirement.
Is 4% Withdrawal Rate Still Safe?
If they want the equivalent of that paycheck, if they want a steady amount from year to year, our research would argue that something in the lower 3% range, such as 3.3%, is a better starting point.
You’re talking about someone who would start with a draw of 3.3% and increase it every year at the rate of inflation?
Yeah, so if I have a portfolio of $1 million, I’m getting $33,000 a year. Then in two years, it’s probably $34,000 and depending on what the inflation is.
Many parents use “529” education savings plans. How can they protect themselves from the stock market crash just before their child starts college?
The good news is that target date funds have become better equipped to address this risk, especially age-based 529s. But for those doing it themselves, yes, it absolutely makes sense to risk-free a large portion of that portfolio. And that’s because periods of decline during college spending are much faster than periods of decline during typical retirement.
So is college savings more vulnerable to market crashes?
The duration of matriculation for the college is fixed. If for whatever reason, your retirement portfolio wears out and you’re able to continue working for a few more years, you probably can. With 18-year-olds, it probably won’t fly to tell them they need to wait another two years because your portfolio is in the dumps.
Does tax efficiency become more important in a low return environment?
That’s right. I think it’s one of the few attractive leverages that retirees have or have in an environment with diminishing returns. Taxes are what they are, and to the extent you can manage them through asset placement and tax-efficient drawdowns, this is a valuable strategy to explore.
What are the investments that do not belong to a taxable brokerage account?
Anything that closes out ordinary income. This includes fixed-income funds, any type of actively managed equity fund and target-date funds that can generate tax bills as they rebalance. Real estate investment trusts are required to pay 90% of their operating earmarks and are taxed as ordinary income, so this is a good category to put in a tax-sheltered account.
What are investments that are not in a tax-sheltered account?
Anything that has tax-sheltered characteristics. Muni would be the best example where you are accepting a lower yield for the benefit of holding them in a taxable account. Many annuities emulate the characteristics of a traditional IRA or other tax-deferred vehicles. This will make them something you keep out of a tax-sheltered account.
And what are some investments that aren’t in a Roth account?
In most cases, you’ll want to keep short-term, low-return assets out of a Roth. You’re better off saving it for high-risk, high-profit assets that you want to tap later in life or even pass on to heirs.
People worry that the government will start taxing Roth accounts in the future. Is this a possibility?
The deal has been that you’re able to enjoy tax-free withdrawals – and the idea that the government will back out of that agreement to me seems politically improbable. I’d say never, but I’ll just say it’s a fairly low-risk position. I think what’s probably more realistic is that minimum distributions may be required on Roth withdrawals.
How did someone who studied Russian in college end up being an investment expert?,
It was a winding road. I had a few jobs in publishing, and I was living in the Chicago area, and my dad suggested I check out Morningstar. My dad has always been an avid investor, and he loved what Morningstar was doing in terms of providing him with information. I’ve loved Morningstar ever since I set foot in the office, my sense of intellectual curiosity.
What was your first job?
copy editor. Later I was trained as an analyst.
Why did you move to personal finance?
I thought, God, we’re not talking about all these areas that are even more impressive. Even if we give great investment advice, we’re not really talking about how to put them into a sensible portfolio mix and financial plan.
How far are you from self retirement?
I don’t know The more I know about retirement, the more I think I shouldn’t, mainly because I think having money to retire – it’s a luxury to say – shouldn’t be the main determinant of whether I I am retiring Working longer may be the right thing to do.
If I were to retire, I’d probably want to do some sort of quasi-financial education role – just like I do now and get paid.
How is your money invested?
Probably closer to 80% equity.
Are you planning to be more conservative as you get older?
probably. It’s like my to-do list. On the other hand, both my husband and I are almost like Spock with respect to equity risk. we do not care. We don’t panic. We just know that things will eventually get better.
One thing we did five years ago was that we were paid our house.
We had cash, and we thought it was the right thing to do, especially because we weren’t earning anything on that cash. Everyone is yearning for income. Mortgage payments can be a great way to find a safe return on your cash.
Do you think more people should do this?
I do. It is an allotment of peace of mind. I get a little annoyed when people compare mortgage payments to investing in the market and say you can earn more. In my view it ranges from apples to oranges.
Is there anything else I should have asked you about?
long term care. I’m obsessed with that subject, partly because both my parents needed care for a long time. But I have also noticed in my travels that if there is one topic that will put older adults on their feet, it is a matter of long-term care. Everyone has experience of this. And everyone is worried about this.
What are your thoughts on this?
I think there are no good answers. Pure long-term care policies are expensive, not the deal they once were.
For a lot of retirees I talk to, the conclusion is that self-financing long-term care is probably the best thing to do.
I have wondered if there must be another bucket that people should be thinking about. Maybe it’s long-term care. Maybe it’s money for your kids. Maybe I’ll be 105. Just like your overage bucket. And that bucket should be invested in the most aggressive way possible.
Why the most aggressive?
Those events usually come at the end of your life.
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