…the vast majority of your life’s results comes not from
birthright or large external events, but from small behaviors, repeated
thousands of times over the decades. -Mr Money Mustashe
CHART OF THE DAY
When trend following pays:
RETIREMENT FINANCE AND PLANNING
Capital Market Expectations and Monte CarloSimulations. Wade Pfau in Journal of Financial Planning. "I find empirical support for the idea
that portfolio return assumptions for the post-retirement period should be more
conservative than for the pre-retirement period."
Social Security Bill Would Raise Retirement Age, Slow COLAs,
ThinkAdvsior.
A Tale of Woe: Boomers Trying to Build a Retirement Nest Egg,
Thinkadvisor.com "Eight in 10 of
retired middle-income boomers rely solely on Social Security or an employer
pension"
Late-in-Life Risks and the Under-Insurance Puzzle. ebp-projects "Individuals face significant
late-in-life risks, including potential long-term care (LTC) needs. Yet they
hold little corresponding insurance (LTCI). We investigate the degree to which
a fundamental lack of interest, poor product features, and possible behavioral
factors determine low LTCI holdings… We find that flaws in existing products
provide only a partial explanation for this under-insurance puzzle, with
analogous findings for the gap between estimated and actual annuity
holdings."
Global Asset Allocation in Retirement: Buffett’s Advice anda Simple Twist, Estrada - IESE Business
School Barcelona .
Will Long Term Care Ruin Retirement Plans? Crook and
Suteja. " financial plans that
don't incorporate long term care expenses can significantly overestimate the
long-term sustainability of the plan."
“It’s Simply Common Sense” to Develop Your Spending Budgetin Retirement by Carefully Considering How to Deploy All the Retirement AssetsYou Own, Ken Steiner. "The basic
concept of the Actuarial Budget Calculator spreadsheet provided in this website
is to match your retirement assets (including the present value of future
Social Security benefits, pension benefits and future sales of other assets)
with the present value of your future spending budgets and the present value of
your bequest motive (called Desired Amount of Savings Remaining at Death in our
spreadsheet)."
Theory to Practice: Siegel and Waring on Retirement SpendingRules, CFA Institute. Retirement
portfolios can fail us in two ways: living cautiously might “leave too much on
the table” when our money outlasts us, but spending too much can mean running
out of money before we run out of life.
Are Early Claimers Making a Mistake? Munnell et al.
Rough Guides to the Golden Years: Retirement Calculators,
WSJ. While assessing retirement
calculators this past week, I plugged in my own information to see how much
money I should sock away when one of the scariest things I’ve ever seen
appeared on my computer screen. It said I will need to work until I’m 80 to
afford to retire. Or maybe not.
How Do Taxes Affect The 4% Rule? Wade Pfau. For a 20% effective tax rate (implying a
marginal income tax rate of 16%), Bengen estimates that the SAFEMAX fell from
4.15% to 3.67% (a 12% decrease in spending power). If the effective tax rate is
35%, the SAFEMAX drops to 3.38%....While we cannot provide generalized numbers
to show the impact of ongoing taxes on sustainable spending, basic estimates
show that the impact can be substantial.
MARKETS AND INVESTING
Be Uncomfortable While You Can Afford It, Mullooly.net. "Dealing
with short term market volatility for the good of your retired self is not an
easy task, but there are no market gains to be had without some degree of
discomfort."
Is Recession-Risk Monitoring Useful For Investing? Capital Spectator. "…the historical record offers a
different story–and a different lesson, namely: carefully monitoring recession
risk can be helpful for sidestepping the worst of a stock market correction
that unfolds because of economic contraction. Skeptical? Of course you are, and
rightly so.…[but] history suggests that you’re leaving a lot on the table if
recession-risk monitoring isn’t part of your risk-management routine."
Rethinking Bonds: Unbundle And Rebuild, Newfound
Research. "we believe that we can
create a portfolio with an overall risk profile similar to that of core fixed
income, but with a more diversified source of returns, significantly reducing
our overall exposure and reliance on interest rates as a return driver."
What’s the Right Asset Allocation For Young Investors? Ben
Carlson. "Live within your means.
Avoid lifestyle creep. Stay out of credit card debt. Save at least a double
digit percentage of your income. Increase the amount you save each year. Keep
your investment costs low. Diversify. This is simple advice. But even the best
advice doesn’t matter if you can’t follow it. Humans just aren’t designed to
deal with risks that are far out into the future. Take this into account when
creating your plan." [editor's choice award]
Who Bought U.S.Stocks After 2008? Don't look close to home for the answer. Morningstar.
"Edesess' suggestion that mutual fund owners and pension funds
can't be simultaneously wrong goes a step too far"
Evidence-Based Investing Requires Less Religion And MoreReason, Alpha Architect. an
evidence-based investor will conclude that fundamental and technical analysis
strategies can work because they are two sides of the same coin. They are
cousins—because they share the common objective of exploiting the poor
decisions of market participants influenced by biased decision-making. As
Andrew Lo, an influential and forward-looking financial economist at MIT,
correctly observes about the debate between fundamental and technical traders,
“In the end we all have the same goal, which is to forecast uncertain market
prices. We should be able to learn from each other.”
Thinking Beyond Stocks Can Fortify Your Accumulation Plan,
PortfolioCharts. The guaranteed best way
to build wealth is with your career and your savings habits, not with your
investments
The Trinity Portfolio: A Long-Term Investing FrameworkEngineered for Simplicity, Safety, and Outperformance, Meb Faber.
Smart guys are the most dangerous. Mark Dow They are the
most prone to overconfidence and the most susceptible to overthinking–both
deadly sins in money management.
If you thought you knew what a ‘safe’ asset was, think again,
FT.com. The concept of safety is no
longer one-dimensional — today it has many faces, and the typical portfolio is
going to need multiple anchors.
Disposition Effect, en.Wikipedia.org. The disposition effect is an anomaly
discovered in behavioral finance. It relates to the tendency of investors to
sell shares whose price has increased, while keeping assets that have dropped
in value.
Ignore the Cliches: A Simple Tip That Will Change the WayYou Invest, sparkfin.com. It’s an
arbitrary price level on the chart, suddenly given significance by you because
of its relative distance to where you bought it. You’ve unwittingly created an
emotional anchor to that price, which otherwise was of zero consequence…All you
should care about is whether the position you have is still valid or not.
ALTERNATIVE RISK
Hedge Fund Industry Assets Recover in Q2/16 Despite NetRedemptions, FinAlternatives.com
Swedroe: New Factors That May Not Be, ETF.com "Factors do not necessarily need to have
a risk-based explanation for us to believe they can persist (as is the case
with momentum). But the lack of a risk-based explanation can raise concerns
about a factor’s ability to persist…"
Trend following as tail risk hedge, sr-sv.com "Typical returns of a trend following
strategy carry features of a “long vol” position and have positive convexity.
Typical returns of long only strategies, such as risk parity, rather exhibit a
“short vol” profile and negative convexity. This makes trend following a useful
complement of long-only portfolios, by mitigating tail risks that manifest as
escalating trends. Options are naturally a cleaner hedge for tail risk, but
have over the past two decades been prohibitively expensive."
Tail Protection for Long Investors: Trend Convexity at Work,
Dao et al Capital Fund.
Ten Misconceptions about Smart Beta, EDHEC-Risk Institute.
What Drives Momentum Performance? econompicdata.blogspot.com "It is the low downside capture during
market sell-offs that has driven the strong relative and absolute long-term
performance of this momentum strategy. "
The Trinity Portfolio: A Long-Term Investing FrameworkEngineered for Simplicity, Safety, and Outperformance. SSRN.
"The name is a reference to the three core elements of the
portfolio: 1) assets diversified across a global investment set, 2) tilts
toward investments exhibiting value and momentum traits, and 3) exposure to
trend following."
What is the Proper Benchmark for Momentum or Trend-FollowingStrategies? BlueSky Asset Management.
"The proper comparison/benchmark for these strategies is to look at
a passively rebalanced asset mix that is invested equal to the average exposure
of the momentum or trend-following strategy."
Online Lending is Tough biz.
ftalphaville.ft.com "Private technology startups are pretty tough
to value, particularly if you’re on the outside looking in."
9 Landmark Smart Beta ETFs
ETF.com "The “smart-beta
movement” in ETFs has gone from a sideshow to a juggernaut in recent years."
Smart Beta in Europe … Intitutional Investor.
The Cost of Quality, 361 Capital. What we used to unquestionably consider to be
alpha has increasingly been found to be systematic exposure to certain risk
premia; a fancy way of saying “beta.”
Alternatives’ Lack-quidity Problem, CIO. You can’t say you
haven’t been warned.
The Unbearable Transience of Alpha, quandl.com
SOCIETY AND CAPITAL
Maybe Negative Yields Are a Sign of Prosperity, Tyler
Cowen. Maybe it’s time we started thinking of negative securities as the
equivalent of fire or earthquake insurance for that wealth. If there is truly
$300 trillion in global wealth, is it so crazy to think that investors would
pay a premium to buy $10 trillion dollars’ worth of insurance?
Utilizing the Gift of Time, US News. Americans are living on average 30 years
longer today than a century ago. How will you spend the time?
Why Pensions’ Last Defense Is Eroding, WSJ. Long-term returns for U.S.
public pensions are expected to drop to the lowest levels ever recorded
A Sneak Peek at Corporate Data—for a Fee, WSJ. A better way
to find the optimal level of disclosure would be to create a market for
corporate data to be bought and sold.
Pumped Up: Renewables Growth Revives Old Energy-StorageMethod, WSJ. Moving water uphill lets
producers of solar and wind power bank energy for use when it is needed most.
How I learnt to love the economic blogosphere, Giles Wilkes
@ FT.com
The Cheapest Generation, TheAtlantic. Why Millennials aren’t buying cars or houses,
and what that means for the economy
Public Pensions on Shaky Ground, Conversable Economist. a
hefty dose of the blame should go to the specific state or local coalitions of
elected officials, public sector unions, and voters that found it easy to
promise future payments, but apparently impossible to assure that sufficient
funds were put aside for those promises.
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