Who will you trust: Barry Ritholtz or Jim Cramer?

The first could also be considered a must-read by retirees and people nearing retirement: William Bengens, the long-awaited update of his classic book on the much-quoted 4% rule: . First published in 2006, the book was originally geared toward financial advisors, but became extremely popular with the final investing public after gaining extensive press coverage over time.

The 4% rule — which, depending in your interpretation, is more like a 4.7% rule — refers back to the “safe” percentage of a portfolio that retirees can withdraw annually without running out of cash in 30 years, minus inflation. Bengen’s name for that is “SAFEMAX”.

The latest book is supposedly geared toward average investors. Still, I discovered it quite technical, replete with charts and tables which might be probably more accessible to its original audience of economic professionals. With some useful appendices, the book runs to almost 250 pages.

After working through all of Bengen’s tweaks designed to attenuate the impact of inflation, bear markets, and unexpected longevity, my impression was that the unique 4 percent rule stays a fairly good initial estimate of what retirees can safely withdraw in a given yr.

Sure, 3.5% or 3% may technically be “safer,” especially when you expect to live a really very long time or want to go away an estate to your heirs. I’ve even seen arguments that a 2% pension scheme could also be suitable for terribly risk-averse retirees.

On the opposite hand, withdrawing 6% or 7% or more is not too dangerous so long as stock markets and rates of interest cooperate. This is what many retirees do intuitively anyway; They reduce withdrawals in bear markets and indulge slightly in raging bull markets.

It’s also price noting that whether you select 3%, 5%, or higher percentages, this guideline actually only applies to your investment portfolios, whether held in tax-deferred or tax-exempt accounts or in taxable accounts. Most Canadian retirees may also count on the Canada Pension Plan (CPP) and Old Age Security (OAS), not to say the employer pension. Those who lack large defined profit pensions but have plenty saved in RRSPs and TFSAs may decide to retire or semi-retire their nest eggs by purchasing annuities. (For timing see this piece Recently published on my blog.) For this idea we consult with the wonderful book by Professor Moshe Milevsky: .

Make money in any market

Jim Cramer’s is more controversial . I realize it’s fashionable for some mainstream financial journalists to disparage the longtime host and in-house stock-picking guru. I never watch him on TV (MSNBC), but I often take heed to his podcasts while walking or on the gym, normally at 1.5x speed and without interviews with the CEOs of more speculative stocks during which I actually have no interest. Cramer’s critics are likely to be die-hard indexers who swear that it’s inconceivable to consistently pick stocks and “beat” the market over the long run. I are likely to side along with her, but more on that below.

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Obviously, Cramer disagrees and often cites testimonials from Nvidia millionaires who bought this spectacular artificial intelligence (AI) chip the moment he named his dog after it (sadly now deceased). Cramer devotes a whole chapter to this call and mentions it at every opportunity. I also bought this stock despite the fact that I used to be too late and too risk-averse to bet the farm enough to alter my life.

What his critics may not realize is that even Cramer believes in indexing at the very least 50% of a portfolio. In fact, he tells newcomers to stocks that their first $10,000 should go into an S&P500 index fund. It’s hard to argue with that.

Where I actually have to part is his book’s advice to carry only five stocks for the 50% of a portfolio that just isn’t indexed. That would mean holding about 10% of your total portfolio in each of those stocks, which is way more concentrated than most investors would expect. Much of the book is about selecting his favorite long-term growth stocks using modern AI tools like ChatGPT, Grok and all of the others.

I at all times enjoyed the regular a part of his show “Am I diverse?” during which readers submit their five suggestions for Cramer to contemplate. I can be surprised if there was an investor somewhere whose portfolio was so concentrated. Even Cramer’s much-cited charitable trust holds way over five stocks.

How to speculate

This leads me to the third book I recently ordered from Amazon checked by Michael J. Wiener from the blog: Barry Ritholtz’ book . Cramer cynics might joke that this might have been a greater title if it hadn’t already been taken over by Ritholtz; Finally, Cramer famously inspired some ETF corporations to supply “reverse Cramer” funds that short his key long picks.

Ritholtz’s book is nearly 500 pages long, but is sort of readable. It has attracted several testimonials, from William Bernstein (“Destined to Become a Classic”) to DFA’s David Booth, DFA’s Mark Cuban and Motley Fool creator Morgan Housel, who penned the foreword.

Ritholtz divides his book into 4 parts: Bad Ideas, Bad Numbers, Bad Behavior and Good Advice. While Cramer seduces us into individual stock picking, Ritholtz reminds us that few do it well; Also, most of us cannot implement market timing successfully. He devotes numerous space to the query of how bad some experts’ predictions have been prior to now. I had a brand new appreciation for the advantages of indexing, definitely for the core of portfolios, if not their entirety. As he puts it: “Index (mostly). Own a wide range of low-cost stock indexes for the best long-term results.” He lists five advantages of indexing: lower costs and taxes, all winners are yours, higher long-term performance, simplicity and fewer bad behavior.

Fortunately, unusual investors have many benefits over the professionals, similar to not having to follow indices or worry about investors selling a fund, the flexibility to maintain costs low and, in theory, a for much longer investment horizon. But the underside line is that “indexing gives you a better chance of being ‘less stupid’.”