“Cupidity is seldom circumspect.” Anonymous Investor
CHART OF THE WEEK
College and childcare cost more but toys and TV less. Um....yea? Maybe not.
RETIREMENT FINANCE AND PLANNING
What Type Of Retirement Spender Will You Be? Pfau at
Forbes. And so, what is the best
baseline assumption to use: constant inflation-adjusted spending, decreased
spending, or a retirement spending smile as you age? This is a big question
that is still not fully resolved.
Achieving American Retirement Prosperity by Changing Americans' Thinking About Retirement, Peter Huang; Univ. of CO Law School. Ineffective retirement planning causes
Americans to experience decreased financial wealth, health, objective living
standards, and subjective well-being in addition to suffer increased anxiety,
depression, stress, and worry. This Article advocates and analyzes changing
Americans’ thinking about retirement by educating Americans to utilize the
thinking tools of thinking architecture and thinking technology in addition to
thinking more mindfully and socially about retirement. This Article’s proposals
are based on and introduce to economic analysis of law the field of cognitive
economics.
Living Past 100 Isn't for Everybody, Bloomberg. So while raising the retirement age for
pensions makes obvious sense as lifespans grow longer, it also obviously
shortchanges those who don’t live as long. And while transitioning from career
to career over six decades of working life sounds like great fun for London
Business School
Ten Strategies for Using a Reverse Mortgage to Help FundRetirement, Dirk Cotton. This post is a
summary of strategies – not an exhaustive list, by the way – compiled from the
books, research papers and blog posts referenced in the endnotes below, that
retirees might use to incorporate a HECM into a retirement plan.
Three Questions To Evaluate Longevity Risk For Retirees,
Pfau at Phorbes. As a first step to
measuring longevity risk, it is important to understand what the data says
about mortality and survivorship rates.
Baby boomers have trouble making new friends in retirement,
research shows.
Retirement-Planning Assumptions: Yes, You Can Be TooConservative, Morningstar. However, I
think there's a risk--albeit an underdiscussed one--that well-meaning retirees
and retirement-savers can take caution too far. For example, I've run into
75-year-old retirees who, in the interest of playing it safe, are spending just
2% of their portfolios annually; at that pace, they're very likely to leave a
very large kitty behind. That may be what they want, but it may not be.
How Long Can Retirees Expect To Live Once They Hit 65? Pfau
at Phorbes. Though demographers debate
extensively whether humans have reached the peak of our potential longevity, or
whether we are on the verge of seeing someone make it to 150, it is reasonable
for planning purposes to at least expect such longevity trends to continue. If
longevity improves by about one year per decade, today’s thirty-five-year olds
could expect to live three years longer than today’s sixty-five-year olds. [Comment: someone using "average life
expectancy" in a retirement plan probably needs to push it out a bit;
someone not contemplating the effect of longevity -- and longevity uncertainty
-- on a retirement plan needs a new plan]
Rethink Retirement, an advisor focused article by Dan Richards.
Reducing Retirement Savings Leakage, ERBI. A recurring issue with defined contribution (DC) savings plans such as the 401(k) is the risk of “leakage” -- pre-retirement reductions in plan savings by workers, either through loans, hardship withdrawals, or payouts at job change. There have been widely varying estimates of how big of a problem leakage actually is, and what the potential reactions may be by both retirement plan sponsors and participants if new pre-retirement access restrictions were imposed.
MARKETS AND INVESTING
Book Review: Wiped Out, alephblog.com. How I lost a fortune in the stock market
while the averages were making new highs.
The Upside of Losing Half Your Money; the importance ofextreme diversification. Fool.com. The benefits of diversification are well
known. But I wonder how many index fund owners realize half their hard-earned
money is going up in flames – by design.
The 'Holy Grail' hedge fund strategy to handle a black swanthe size of World War I, International Business Times. That thought experiment is really frightening
to me. You followed very sound modern portfolio management advice back then and
still in ten years your portfolio is gone. I don't think we are really learning
the lessons of history, especially now that the global economy is so much more
interconnected than it was before."
The Virtues of Bond Laddering, Larry Swedroe
Optimizing Mean Variance Optimization, Wesley Gray. all who strive to understand Harry
Markowitz’s portfolio optimization methods should think very hard about what
they are trying to accomplish. Even the Nobel Prize winner himself was still
not convinced of his own methods even decades later when he was discussing the
1987 stock market crash.
Why Gauging Inflation Is So Hard, Ritholtz.com
Until there is a substantial and sustained increase in wages (or a huge
drop in the dollar), inflation may very well remain below the Fed's 2 percent
target for a long time to come.
Tactical Asset Allocation Software, Meb Faber I thought I’d summarize a handful of websites
that focus on tactical asset allocation software, tools, and backtesters.
3 Big Flaws in “The Market” Portfolio, Cullen Roche.
Forecasting Fixed-Income Default Rates, CFA Institute. “Most
projected default rates in the marketplace…are based on a calculation method
that takes the spread over Treasuries and subtracts a fixed illiquidity
premium,” Fridson said. “This is wrong for a number of reasons.”
How do negative interest rates work? Blackrockblog. I find that there is a lot of confusion about
what a negative interest rate really means. How does it work? If I buy a German
government bond, do I have to send them a coupon payment? Are they going to
bill me? Let me try to demystify what a negative yield is and how it works.
ALTERNATIVE RISK
All the Fun Is Going Out of Hedge Funds, Ritholtz. Although the recent focus has been on 2 and
20, this doesn’t encompass all of the costs of investing in a hedge fund. Less
attention gets paid to the third part of that equation: operating charges. Fees
and expenses, including for travel and entertainment, are a less visible cost
of being a hedge-fund investor. These can add up in a way that is neither
transparent nor well understood, and therefore ripe for abuse.
Use Caution With Low Vol Strategies, ETF.com While it may not yet be resolved whether the
low-volatility and low-beta anomalies can be well explained by exposures to
other well-known factors, the popularity of the strategy certainly has changed
the valuation metrics of low-volatility stocks. At the very least, this should
raise a flag of caution for investors who have been enticed by the historical
data. Forewarned is forearmed.
Why Alternative Mutual Funds Are Better Than ETFs,
Barron's. Liquid alternatives can aid
investors who want hedge fund strategies without high fees and lockup periods.
In Scramble for Yield, Pension Funds Will Try AlmostAnything, WSJ. Options strategy used by
pension funds aims to work like a volatility dampener
Maybe Skip these alts,
Attain.
Style Investing in Fixed Income, AQR. Systematic style investing is increasingly
popular in equity markets but much less frequently applied in fixed income
markets. In this paper, we show that the classic style premia that have been
applied to stock selection and equity country allocation — value, momentum,
carry, and defensive — could have also performed well in fixed income markets,
whether in selecting government bonds or corporate bonds. Fixed income may be
the next frontier for style investing. [comment: probably for the first time ever it
looks like I was 5 years ahead of the times; this is more or less what I have
been doing since ~2011]
Managed Futures: Understanding A MisunderstoodDiversification Tool. AlphaArchitect. Managed
Futures have been a great diversifier for stocks but a mixed bag diversifier
for bonds.
Alternative Context, AlphaBaskets. Putting it in terms I’ve used before,
alternatives are diversifiers. For many investors, their equity portfolio is
where their growth will come from with bonds as a ballast to equity market
volatility. If rates do go up, then bonds will not so easily offset equity
market volatility. Further, if your diversifiers/alternatives are your best
performers, then chances are things aren’t going well in the rest of the world.
Alternatives hopefully offer diversification from both equities and fixed
income.
Paul Tudor Jones & the Nature of the Beast, Ben
Carlson. The problem is that these
things don’t always work out in a 1:1 ratio. You’re not guaranteed anything on
the return side of the equation simply because you accept more risk in your
portfolio
Diversifiers in Name Only: Clarifying True Diversification,LongBoardFunds.com. Nearly every alternatives manager claims his strategy will
diversify traditional 60/40 stock and bond portfolios. Very few can give a
simple description of what risks they are taking. Fewer still can truly
diversify. We call these DINOs: diversifiers in name only. These strategies may
make money, but they take too much equity or bond risk to help during market
declines. They might belong in a portfolio, but based on their historical
performance, it’s best not to lean on them for diversification.
SOCIETY AND CAPITAL
Why Women Are No Longer Catching Up To Men On Pay,
fivethirtyeight. It isn’t a simple
story.
Where Median Incomes Have Fallen the Most, Bloomberg. I see a clear pattern on the downside: The
states that have struggled the most tend to have manufacturing-intensive
economies.
The Health Benefits of Decoupling Money and Masculinity, Atlantic . New research shows Millennial men's
well-being improved from staying at home, while women's improved by being the
breadwinners.
Being vegan isn’t as good for humanity as you think, Qz. The
bottom line: Going cold turkey on animal-based products may not actually be the
most sustainable long choice for humanity in the long term.
Automation and Job Loss: Leontief in 1982, Conversable
Economist.
Job Flexibility and the Gender Pay Gap, St. Louis Fed. Research
suggests that the gender pay gap is at least partly due to women working jobs
with more flexible hours, which tend to pay less than those with more rigid
hours.1 An article in The Regional Economist examined the changes in patterns
of working jobs with flexibility in hours for both men and women.
The Politics of Negative Interest Rates, Yanis Varoufakis, a
former finance minister of Greece ,
is Professor of Economics at the University
of Athens
The aging paradox: The older we get, the happier we are,
SCL. Research suggests that your overall mental health, including your mood,
your sense of well-being and your ability to handle stress, just keeps
improving right up until the very end of life.
France’sfarmers on suicide watch as wheat crop fails, politico.eu. Desperate French farmers are increasingly
turning to newly created suicide hotlines as the worst wheat harvest in a
generation devastates their livelihoods.
Follow The Money: A Look At The Best Paying Government Jobs,
FinancialSamurai.com [there is a case
study in there on why the Laffer curve can sometimes be relevant]
Are Index Funds Communist? Mat Levine @ Bloomberg. pure indexing -- everyone passively throws
money at everything that there is, with no judgment at all -- is an imaginable
fourth answer, and is strictly worse than the others... The Fraser-Jenkins
thesis is that algorithmic investing runs the risk of destroying capitalism by
abandoning the pursuit of knowledge. But the really fun alternative is that it
runs the risk of destroying capitalism by perfecting that pursuit: Once you
have solved the socialist calculation problem, what do you need markets for? [this is a fun article that would be great to
explore with a couple friends after a few drinks]
Most Welfare Dollars Don’t Go Directly To Poor People Anymore, fivethirtyeight.com. The result
has been a dramatic shift of resources away from cash assistance and toward spending
on other programs.
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