Bernstein Says to Stop Playing When You Win The Game

win the game

When you win the game, that is, when you have saved all you need to save to enjoy a comfortable retirement, Dr. Bill Bernstein says it’s time to stop playing the game.

I have a very different attitude. I prefer not only to continue playing the game, but to take risks that I wasn’t comfortable taking before. It helps that I’m relatively young, able to continue making money, and in a position to lose money and still be OK.

We may not be as far apart as it appears, though. When asked at the inaugural WCI conference (in which I had the frightening pleasure of speaking after the good doctor) about an asset allocation for someone with a very low withdrawal rate, he stated that someone living on 1% of their portfolio annually could go with 100% stocks and still sleep well at night.

What’s your plan once you win the game? This article from Dr. Jim Dahle was first published on The White Coat Investor.



William Bernstein, MD trained originally as a neurologist but developed an interest in investing mid-career.  I credit his book, The Four Pillars of Investing, with having the biggest influence on my investing career.  I attended Bogleheads 8 when Jack Bogle wasn’t able to go due to medical problems.

But I wasn’t too disappointed since I got to meet Bill Bernstein there.  I was a Bernstein-head before I ever found the Bogleheads.  So I’m always interested in what he has to say.  Plus, it helps that he can speak “Doctor.”

In conjunction with the marketing for his book, The Ages of the Investor, he did an interview with CNN. In that interview, there were several ideas worthy of discussion, most importantly, knowing when and how to reduce your level of risk to be a winner at the retirement game.


Stop When You Win The Game


Bernstein was asked “How much exposure should people have to stocks?”  He answered:

A lot of people had won the game before the [2008] crisis happened: They had pretty much saved enough for retirement, and they were continuing to take risk by investing in equities.

Afterward, many of them sold either at or near the bottom and never bought back into it. And those people have irretrievably damaged themselves.

I began to understand this point 10 or 15 years ago, but now I’m convinced: When you’ve won the game, why keep playing it?

How risky stocks are to a given investor depends upon which part of the life cycle he or she is in. For a younger investor, stocks aren’t as risky as they seem. For the middle-aged, they’re pretty risky. And for a retired person, they can be nuclear-level toxic.

The reason why stocks aren’t very risky for a young person is that you have a lot of “human capital” (ability to make money working) left.  On the eve of retirement, you don’t have any of that.



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How Much Is Enough?


Bernstein recommends a rule of thumb, based on annuity payouts and spending patterns late in life, that you should have 20-25 times your residual living expenses (after pensions/Social Security) invested solely in safe assets.  No stocks at all.  This should be in TIPS, SPIAs, and short-term bonds.  If you have more than that, that’s your “risk portfolio,” which he describes this way:

Anything above that, you can invest in risky assets. That’s your risk portfolio. If you dream about taking an around-the-world trip, and the risk portfolio does well, you can use it for that. If the risk portfolio doesn’t do well, at least you’re not pushing a shopping cart under an overpass.

This is a little bit of a different way to think about things.  The 4% Rule was developed based on keeping a significant portion of risky assets in the mix.  The Trinity Study showed that having fewer stocks in the retirement portfolio INCREASED your risk of running out of money early.

But Bernstein is suggesting that once you hit your number (which is about the same number you’d hit using the 4% Rule) you put all your money into safe assets.  If you want a “risk portfolio” then you need to keep working a while longer.  If you buy into Bernstein’s theory, you’d better plan on working a little longer, saving more, or spending less in retirement.


William Bernstein’s Thought Experiment

I did a little thought experiment in which I calculated how many years it took people starting work in different years to make their number. I realized that the cohort that started working during the worst of economic times is the one that did the best.  The last cohort that actually was able to make their number started their careers in 1980, and they made their number in 19 years. And the graph ends in 1980, because no cohort that started work after 1980 actually made the number.

I’m sure the book goes into more detail on this point, but it does illustrate that when you retire is at least as important as any other factor you can control.

I have family members who retired in the late 80s and rode the bull market for the first decade of their retirement.  They couldn’t have timed it any better.  Other family members who were going to retire in the early 2000s ending up having to work a few more years to get to a less comfortable retirement.



Determining When to Reduce Risk

[In the middle of your career] you need to start bailing out of risky assets as you get closer to achieving that liability-matching portfolio—when you can “win the game” without taking so much risk.  Instead of cutting your stock allocation one percentage point a year — the standard formula — in a year with absolutely spectacular returns, you might want to take 4% or 5% off the table. In a series of years when stock returns have been poor, you don’t take anything off the table. And over time you start laying down a floor of safe assets with the proceeds from the stocks you’ve sold.

While this approach smacks of market timing, it’s entirely based on past performance, not future performance and so requires no predictive ability.

He’s just suggesting that your gradual transition from a 75% stock portfolio to a 25% stock portfolio doesn’t have to occur in an even manner.  It’s okay to reduce the risk level using broad strokes, especially after a good year or two.  Seems wise to me.


Bernstein Believes the Average Investor Needs a Financial Advisor


I had a long conversation with Bill about the ability of investors to do it on their own.  I’ve mentioned before that each of us has two jobs — practicing the profession we trained for and then our moonlighting gig as a portfolio manager.

Bill used to think that most people can manage their portfolio successfully.  But the longer he’s in investing, the more he realizes that it’s really quite a tiny sliver of the population that can successfully manage their own portfolio.  He explains it this way in the interview:

I’ve flown airplanes, and as a doctor, I’ve taken care of kids who can’t walk. Investing for retirement is probably harder than either of those first two activities, yet we expect people to be able to do it on their own.

An alternative would be to have a pension system such as in Singapore, where the government forces people to put money into a dedicated investment pool that it manages at minimal expense. And when people get to be of retirement age, they are forced to annuitize some of those savings, which turns into safe income.

I have to admit I share his opinion.  When I first learned a little about investing it seemed so easy that I figured anyone could do it.  The more people I meet and talk to about money, the less I’m convinced that most doctors, much less most people, can do it on their own.  Many readers of this blog are in this small, capable sliver, but you certainly shouldn’t feel bad if you’d prefer having a financial advisor or two helping you out.



How to Choose An Advisor


Bill was asked, “How do you find a good advisor?”  This was his suggestion:

Interview one and say, “Look, this is my portfolio now,” and you show him or her a simple, cheap index-fund portfolio.

And if he says, “You know, this is really good, you’ve got the right idea, I think we can diversify you a little more by using some more cheap index funds,” that’s the answer you want to hear. You’ve probably found an honest adviser. And someone who adheres to an index-fund portfolio will probably be more likely to adhere to the policy because you’ve got someone who has some humility and realizes he doesn’t know how to time the market.

As usual, there’s a lot of wisdom there.  Thanks, Dr. Bernstein for all you’ve done for investors, doctors, and those of us who like to wear both hats!

If you aren’t already a fan of Dr. Bernstein, here are links to a few of his best-selling books, many of which I review on my Best Financial Books for Doctors list. Enjoy!

If You Can
The Investor’s Manifesto
Investing for Adults
The Four Pillars of Investing
The Birth of Plenty



What do you think of Dr. Bernstein’s rule of thumb? How have you reduced your level of risk in retirement? Comment Below!

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10 thoughts on “Bernstein Says to Stop Playing When You Win The Game”

  1. “Can you sleep at night” seems to be a common rule about investing in stocks.
    I wonder, though, about sleeping at night when you see your gas station raise its prices from $2.25 before Jan 6 to $3.25 today, while your ‘safe’ bank acct is earning 0.50% And then, what if you live in the Northeast, and your gas station just ran out because of this pipeline shut down…you own 0 stocks but now have no gas. Are you sleeping at night OK? What if you are a Republican and the Congress is very close to passing House Bill/Senate Bill #1, which will destroy the integrity of the elections process? What if you have 2 young daughters that will have to put up with men in their rest rooms because Bill #5 becomes law, allowing any man to declare himself a woman and enter any women’s rest room or locker room. How can you sleep at night with that in the wings?

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  3. YES. There is no contradiction between what PoF believes and what Bernstein believe. They are just using different priors.

    If inflation rears its head again, putting money in bonds is no longer really “taking it off the table”. My understanding is that Bernstein discounts this possibility because he believes in the inexorable march of capitalism, or something. (He actually wrote a book about this.)

    Inflation has not been an issue since the 1970s. But if government policy is for everything to go up, all the time, it is now a threat. Doubly so if the government has an incentive to use numbers to calculate CPI that are… less than useful.

    I’m not saying Bernstein’s philosophy is wrong. “Bulls do OK, bears do OK, pigs get slaughtered” and picking up pennies in front of steamrollers and all that.

    I AM saying that the FIRE community should have more discussion about what effective “taking money off the table” would really look like in 2021. The best insights I’ve seen in this regard are a bit abstract, but they come from Nassim Taleb and Ben Hunt’s writing at

  4. Hmm. I think this idea needs to be examined.

    “While this approach smacks of market timing, it’s entirely based on past performance, not future performance and so requires no predictive ability.”

    It’s fine if people want to do that, but it is market timing and switching so much money to bonds would be dangerous for people with long retirement horizons.

    Maybe a financial expert (non-doc, no offense) could weigh in?

    • Bill Bernstein is a “financial expert.” He has written financial texts, been a RIA, and managed hundreds of millions of dollars over decades. He is no longer a licensed physician. He has “weighed in” many times.
      Don’t judge him by a quote or blog post. Read his books. You will learn a lot. I guarantee it.
      The actual quote didn’t even come from him, but from a Wall Street Bond trader so it comes from true “financial experts.” Some true experts who I know who are personally worth several hundred million have told me personally the same advice.
      Others such as Dr. Z. Bodie, Dr. L. Kotlikoff, NN Taleb, etc say the same thing about taking risks that you don’t understand and don’t need to take.

  5. Recently Jack Brennan of Vanguard came out in a podcast saying “get out of bonds now ” because they are entering a bear market that could go on for decades.

    He recommended dividend paying stocks for income if you can stomach the risk and have at least 5-year time frame.

    I agree. You cannot make any of these rules of thumb in isolation from the background context.
    Inflation if it shows up for real this time is going to be a game changer and decimate anyone who has 75% in bonds just like it did in the 70s.

    Stocks will get hit but will still do better than bonds. Choose your poison wisely.

    • Enjoyed the article and good comment. I listened to him on a podcast as well. Inflation Is the primary reason I remain 75 stocks/25 fixed. Also thought of a system that I can’t take credit for, “Buckets”. Having 5 years of cash to draw from. I am confident In one thing,Ihave no idea what the future holds.

  6. dude Bill Bernstein is the man! I love his examples of “nuclear level toxic” or “pushing a shopping cart under an overpass.” Creates a lot of salience as a method to remember and teach personal finance- using some neurology voo-doo on his readers!

    I wonder though if his thoughts that only a small sliver of people can be DIY investors really rings true. Given his neurological background would be an authority on changing behaviors as well. I myself am a neurologist and a lot of behaviors, including my own in regards to finance, can be modified with constant reading, behavioral tricks like celebrating small wins and adding friction to poor behaviors, and a supportive community like this one. Maybe now that WCI and PoF exists, that at least in the physician space that small sliver will become a majority, huge piece of pie of DIY investors.

    Then again, maybe the majority of us are just genetically hardwired to fail at finance!

  7. For the cost of some books, I think you can get the knowledge you need. I have been using Alexander’s gone fishin portfolio. It has safety and grow all in one.

  8. Problem not discussed is inflation. Perhaps i missed it? If i knew there would be no inflation i would probably be 25% equities or less. All i had to do is look at the docs who retired in the 1970s on pensions with nothing in equities. Heard some of them were eating dog food 25 years later. BTW have never tasted dog food, maybe it is tasty, but would like to be able to choose. My two cents.

    • Bernstein is well aware of inflation. He accounts for it in all of his writings. All of his numbers are in “real” dollars and “real” returns (after inflation is subtracted.
      The LMP is not designed for growth but does keep up with inflation. There are ways to be safe and still ahead of inflation (Treasury notes, TIPS, & I-Bonds).

      I do share your concern though. Most of my investments are “safe” but I include stocks and real estate partly to better cover inflation risks.


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