Weekend Links - Retirement Finance, Alt Risk, Markets

QUOTE OF THE DAY

"Such is the speed of our culture that immortality itself never lasts more than a month anyway."  Jim Harrison

CHART OF THE DAY

RETIREMENT FINANCE AND PLANNING

Early Retirement and Comparative Advantage, The Finance Buff. "we come to the conclusion that early retirement is a luxury but it’s worth it. After paying a high price in buying your time, it doesn’t quite make sense to me to turn around and spend the precious time on activities you don’t enjoy only to save money." 

Early Retirement and Opportunity Cost, The Finance Buff. " the largest cost of early retirement isn’t housing or health care. It’s the opportunity cost — the income he’ll give up if he retires early." 

The Longevity Illustrator (graphical tool). "This tool, developed by the American Academy of Actuaries and the Society of Actuaries, is designed to provide you with perspectives on your longevity." 

What Would A 4% Fixed Withdrawal Actually Have Felt Like In2009? By me.  "How would it have felt as a real live retired person and what would I have done? I would have lost my mind…up to 50% risk of failure?! If I had done that math in 2009 it would have made things worse than they were; I probably would have thrown up." 

Asset Allocation Confidence Intervals in Retirement. Gordon Irlam.  "For the scenario I study the 95% confidence interval for a 65 year old retiree with $400k in assets allocated between stocks and bonds is 10 to 82% stocks. Larger confidence intervals apply to retirees with small or large portfolio sizes." 

The Best Approach to Adjustable Retirement Withdrawals, Tomlinson. "Without the decision rules, the failure outcomes turn nightmarish. Consumption volatility is low, but that sends a false signal."  http://www.advisorperspectives.com/articles/2015/05/12/the-best-approach-to-adjustable-retirement-withdrawals  and The Advantages of a Dynamic Retirement Income Strategy, 

Spotting Trouble With Retirement Withdrawals [2011], Financial Advisor.  "It is going to happen. At some point, a retiree's current withdrawal rate will be too high for a retiree's or his planner's comfort level. If 4% is a safe initial rate, it is reasonable to think that a current rate of 5% or 6% is less safe and at some level the current rate is outright unsafe." 

New [2013] Research on How Much Clients can Spend in Retirement, Wade Pfau, Advisor Perspectives. "Frank, Mitchell and Blanchett explained that the current withdrawal rate is directly connected to the probability of failure. They framed the issue in terms of the maximum probability of failure at which retirees should retrench. They suggested that a 30% failure rate is an important upper bound — beyond this point, retirees will experience more drastic spending reductions if action is not taken. Retrenchment can be avoided until a 30% probability of failure is reached." 

Adjust the 4% Rule Enough and You Might End up withSomething as Good as the Actuarial Approach, Ken Steiner.  " I believe the Schwab approach can probably produce a reasonable spending budget for a certain type of retiree. … Of course, rather than making all these adjustments to the 4% Rule, the retiree could simply use the Actuarial Approach." 

Does Your Retirement Plan Account For Your Own CognitiveDecline? Wade Pfau.  "…financial literacy tends to decline by about 1% per year after age sixty, but financial confidence remains the same." 

3 ways your retirement will be different from your parents’  BlackRock Blog.  "…it’s unrealistic to expect that most workers will be able save enough over the course of a 40-year working life to fund a possible 30-year (or longer) retirement. There should be no hard boundary on where work ends and retirement begins…we need to think in terms of a new “life script” that allows for greater flexibility, time off or part time work mid-career, more opportunities for education and retraining across our life course, and “phased retirement” in which people reduce their hours, shift into less demanding roles, and so on, but do not abruptly leave the workforce at some pre-set (and arbitrary) age." 

MARKETS AND INVESTING

Defining Risk Part 2, The Personal Financial Engineer. " Expectation implies there is a belief about what should happen while acknowledging that there is a range of possible outcomes. It inherently places a certain level of responsibility on the practitioner to acquire knowledge regarding what could happen. While we don’t have control of the outcome, we do have control of our expectations." 

AQR Interview with Harry Markowitz, AQR.com  "…the user of MVA gets to choose its universe, make its estimates and set its constraints. The optimizer finds efficient portfolios based on these estimates subject to these constraints. The analysis is blind as to whether the members of this universe are standard investments or alternative investments." 

A Tonic for Pessimists: AlephBlog.com.  "Things are rarely as bad as they seem.  Be willing to be a modest bull most of the time."  

Bold, Confident & WRONG: Why You Should Ignore ExpertForecasts, getaltu.com " The following paragraphs offer abundant and incontrovertible evidence condemning expert judgment for the great sham it really is. We also offer some practical ways to cope with the terrifying reality that no one is in control." 

Global Asset Allocation [in effect a book review of Meb Faber's Global Asset Allocation].  "The conclusion is rather straightforward and one that is key to every asset allocation strategy. Diversifying among a greater pool of assets improves the chances of finding assets that are temporarily under-performing and undervalued–valuations matter." 

Expectations of Inflation, Econbrowser.com. "The FOMC and professional forecasters expect the Fed eventually to achieve its 2% inflation target. The market seems more skeptical." 

Predicting Stock Market Reactions to FOMC Meetings viaTwitter Feeds, MIT Sloan School. "the authors construct a simple hypothetical trading strategy based on this data. They find that a tweet-based asset-allocation strategy outperforms several benchmarks, including a strategy that buys and holds a market index as well as a comparable dynamic asset allocation strategy that does not use Twitter information."  

Commercial Essay/Book Review on Concentrated Investing. Boolefund. 

Two Sources of Outperformance. ThinkNewFound.  " We believe there are two key sources of outperformance: exploiting investor behavior and being compensated for bearing risk. "  

When Active Managers Fall to Earth.  Ritholtz.com.  "The gap was so wild that it was probabilistically a once in a multi-thousand year event due to chance alone.  In other words, they were specifically bad for your money, can’t blame it on luck… The results will only surprise those who are just now heeding attention." 

The Good Enough Portfolio, Meb Faber. "If more asset allocators abandoned the false pursuit of the optimal portfolio I suspect they would perform better. Instead, they’ve let perfect become the enemy of the good." 

The Sweet Simplicity of Core & Explore, AlphaBaskets.  

ALTERNATIVE RISK - Hedge Funds

Private Equity vs. Hedge Funds: A Battleof Expectations, Chief Investment Officer. "Investors had “more ambitious return targets” for private equity than hedge funds, but were under-allocated to the asset class, according to Preqin."  

Hedge funds haven’t delivered on their promise, Economist.com.  "…are there enough opportunities to sustain an industry with 10,000 individual funds and $2.9 trillion of assets? Nowhere near."  

Hedge Fund Crowding and Mean-Reversion, Price Action Lab Blog.  "…momentum is a crowded trade that has caused the longest consolidation period in the recent history of the stock market. The crowded trade was a result of a “bandwagon effect” caused by the persistent promotion of momentum methods in financial and printed media. What is possibly a data-mined temporal anomaly has been presented as a structural effect of the market that will be manifested in price series forever."  

A Victim of its Own Success, TheReformedBroker.com.  "Success attracts the ambitious and profits attract imitation. The industry is a victim of its own success." 

Is Your Asset Manager Telling the Truth? CIO. "Asset managers are attempting to “fudge their way to success” through unclear performance reporting—and the problem is “getting worse,”" 

ALTERNATIVE RISK - Factors and More...

3 Diversified Factor ETFs Making Traction In This Market, FMD Capital. 

The High Price of ‘Low Volatilty’ Funds, Jason Zweig, WSJ. "The potential for overvaluation is “a valid concern,”… However, such stocks were so cheap to begin with…that on average they are only “slightly above the market now, not at extreme values…" [however] The higher your expectations for a low-volatility portfolio, the more likely you are to be disappointed." 

Low Vol Bubble forming? Josh Brown: Everything You Need to Know About Sentiment Right Now.  "Now, putting aside the fact that volatility is the mothers’ milk of future returns…this trade may continue to work for awhile. Unfortunately, it won’t work forever. Because nothing does." 

Alternative Beta Can Be Great: But Beware Of Data-Mining!Alpha Architect. " Our results lend support to the cautions in recent literature regarding backtest overfitting and lack of robustness in trading strategy performance during the ”live” period (out of sample)."  

How Low Vol Emerging Market ETFs Differ, ETF.com 

Marketplace Lending Takeaways, Economic Musings. " While I am encouraged that technology folks are focused on the financial sector, and I’m hopeful that incremental improvements can be made, it appears that “disruption” will not be fast & furious. Instead, they will be forced to earn the trust of Wall Street investors who have not too distant scars from the financial crisis less than a decade ago."

SOCIETY AND CAPITAL

Gaming Pension Liabilities or The High Cost Of High ExpectedReturns, The Thought Factory. " As absurd as this may sound, some of the largest borrowers in the world are playing this exact game. Pension plans are generally allowed to select what rate they would like to discount their future obligations in order to determine liabilities. Selecting the appropriate discount rate has real economic and political decisions tied to it, and  choosing a discount rate that makes liabilities look smaller plays into our human behavioral biases." 

The Cost of Not Going to College, AIER. "…the benefit of a higher education is growing faster than the cost of higher education… So, as tuition rates rise, income levels for those who do not hold a bachelor’s degree are converging downward, while income levels for those with a bachelor’s degree are diverging upward. Obtaining a four-year college degree is becoming increasingly beneficial, but it’s also becoming increasingly costly. While educational attainment seems to be the key to upward income mobility, educational access appears to be the roadblock."  

Symposium: Inequality Beyond Income, Journal of Economic Perspectives. Papers on inequality other than income: consumption, mortality, health insurance, family, and crime.  

A Money-Based Caste System, NYT.   

Solar Shift: Falling Costs Make Owning Better Than Leasing, ComputerWorld. "…tremendous drops in hard and soft costs has lowered the installation price for rooftop solar panels to about $3 to $4 per watt of installed capacity; the average installation today is 5kW (kilowatts, according to a report by the Lawrence Livermore National Laboratory. That puts the cost of a typical system at between $15,000 and $20,000." 

Solar Power Is Contagious, vox.com.  

Harvard Scientist, Longtime Solar Skeptic, Now Sees theLight, Bloomberg.com. "“I was wrong,” largely because the fundamentals of solar power have changed." 

Where Not to Die, Ritholtz.com. 

Is Globalization Really Fueling Populism? Project Syndicate. " Calling the rise of populism in Europe a revolt by the losers of globalization is not just simplistic; it is misleading." 

How Capitalism Took Over Sports Movies, The Atlantic. " In popular culture, businessmen and managers have ousted teams and players as dramatic heroes." 

Is Human Progress Real or An Illusion?  Farnham Street. 

Capitalists Invest in Human Ingenuity, Not Gold, Tony Isola.  " Gold Bugs are not capitalists. An employee who contributes to a 401(k) is investing in human progress, not betting on a medieval future of plague, pestilence, slavery and war." 

Economic and Political Challenges of Stranded Suburban Commercial Real Estate Assets, Csen.tumblr  

The Middle Class Is Shrinking Almost Everywhere, Tyler Cowen.  

A Larger Deficit Won’t Cause Hyperinflation, Pragmatic Capitalism.  "We’re living in a time of extraordinarily low inflation, a shortage of safe financial assets, weak household balance sheets and a period where monetary policy is obviously weak." 

What Should the Minimum Wage Be? Polina Vlasenko, PhD, Senior Research Fellow AIER. "The data suggest that a minimum wage somewhere between $10 and $11 an hour is sufficient to both restore its position relative to other wages in the economy, and to restore its real purchasing power back to the historical heights seen in the 1960’s. Raising the minimum wage to $15 an hour goes far beyond any past historical experience."