Most of the best financial decisions are slightly uncomfortable at the time you make them. -Ben Carlson
CHART OF THE WEEK
RETIREMENT FINANCE AND PLANNING
Prepare for the Rising Cost of Living in Retirement, US
News. the average annual inflation rate since the government started keeping
track in 1913 is approximately 3.2 percent. That doesn't sound too bad until
you realize that at that rate, prices will double every 20 years. The fact is
that everything will be more expensive and that needs to be factored in when
determining how much you really need to save.
How Much You Should Spend In Retirement Depends On How LongYou Think You’ll Live, Retirement Researcher (McDonald). Using the RMD rules to set withdrawal rates
for each year of retirement presents a viable alternative to using constant
inflation-adjusted withdrawal amounts.
Recommended Assumed Annual Rate of Investment Return LoweredAgain, Ken Steiner. Based on the data in
the table above, I have decided to lower my recommended discount rate and
inflation rate by 0.5% to: Recommended discount rate: 4.0% Recommended
inflation rate:2.0%
The Perks Of Being A Flexible Spender In Retirement, Wade
Pfau. Retirees will not play the implied
game of chicken by keeping their spending constant as their portfolios plummet
toward zero. It is an unrealistic assumption…With flexibility, the initial
withdrawal rate can increase by more than one might think on account of the
synergies created through decreasing sequence risk. In this regard, estimates
obtained with a constant inflation-adjusted spending assumption may be overly
conservative for those willing and able to adjust their spending over time….With
inflexibility to adjust spending, a more conservative spending rate is the
primary risk management technique for a total-returns investment portfolio…In
an investments world, even a little discretion to adjust spending can go a long
way toward boosting retirement spending.
[comment: this is correct and follows most people's intuition as well as a relatively large and growing body of research that supports variations on flex spending in retirement. The only caveat I would make here, based on personal experience, is that downward adjustments in spending are WAY harder than upward adjustments. That's intuitive, too, right?]
[comment: this is correct and follows most people's intuition as well as a relatively large and growing body of research that supports variations on flex spending in retirement. The only caveat I would make here, based on personal experience, is that downward adjustments in spending are WAY harder than upward adjustments. That's intuitive, too, right?]
MARKETS AND INVESTING
Indexing Is Capitalism at Its Best, Cliff Asness. That most
of us and most of our dollars don’t have to pick stocks, or to price air
conditioners, is a great benefit and taking advantage of it makes us honest
smart capitalists, not commissars.
Train Your Brain for Trading (No, Really!), Bloomberg. Theory of mind may explain how uninformed
traders infer new information and act on it in such a way that prices quickly
come to fully reflect it—as is posited by the efficient markets hypothesis, a
cornerstone of finance theory…subsequent research also supports the idea that
theory of mind may explain how information flows through markets. “We have more
evidence for it,” he said in an e-mail, citing papers that show connections
between theory of mind and market bubbles.
Forty years of indexing: from folly to fear,
AbnormalReturns. A good product at a
fair price is not the mantra of the investment management industry…Twenty years
ago, the idea that you could get a globally diversified, index-centric
portfolio for 0.08% a year in fees would have seemed like a fantasy. Forty
years ago, nobody probably including John Bogle, thought index funds would get
so popular that we would be discussing the idea of them taking over investment
management. Not only does this highlight the speed in which technologies are
changing our world it also underlies the fact that we really have no idea where
all this is going. Who knows, maybe 100 years from now, the whole idea of
investing itself, will seem like a quaint pastime.
ALTERNATIVE RISK
A Game of Chicken with No Volatility, Attain. Like we’ve said before, investing in an
alternative strategy after volatile markets fly doesn’t do you or your
portfolio much good. Then again, if you’re sitting on your hands with a bunch
of cash sitting on the sideline, there is a good argument for keeping powder
dry until we get through the election cycle.
How Lending Club’s Biggest Fanboy Uncovered Shady Loans,
Bloomberg. If you knew where to look
inside the loan company, things were worse than anybody realized.
Justify Your Smart Beta Methodology, ETF.com Alternative weighting is mainly what drives
the smart-beta concept—indexes are no longer all about market capitalization.
Here, representatives of five of the most prominent and well-established
smart-beta methodologies explain why their firm’s approach is the best.
Value Bias Overlooked these days, Research Affiliates. Statistics and theory reinforce the
robustness of value strategies as a structural source of excess return for
those with a long horizon and the staying power to hold through periods of
adversity. Yet value investing is increasingly overlooked as a meaningful
contributor in portfolio construction, and for many investors, is actually
viewed as a risk to be diversified away.
Is Momentum Investing Dead? Or Is It Just Painful?
AlphaArchitect.
SOCIETY AND CAPITAL
Why Luck Plays a Big Role in Making You Rich, Bloomberg. Winning a competition with a large number of
contestants requires that almost everything go right. And that, in turn, means
that even when luck counts for only a trivial part of overall performance,
there’s rarely a winner who wasn’t also very lucky.
Settlement skullduggery, John Cochrane. When the government goes after big companies
such as banks, and obtains huge out of court settlements, just where does the
money go?
The Idle Army: America’sUnworking Men, WSJ. Not even in dysfunctional Greece
or “lost generation” Japan
has the male flight from work proceeded with such alacrity. The paradox is that
Americans—those who do have jobs—are still among the rich world’s
hardest-working people. No other developed society puts in such long hours, and
at the same time supports such a large share of younger men neither holding
jobs nor seeking them.
Conditions Are Ripe for a Big-City Exodus, Bloomberg. It's likely that the experience of the stock
market from the late 1990s through the next decade, when valuations of
large-cap stock and small-cap stocks ended up converging, will be replicated in
the housing market.
The Big Pivot: Interest Rates and Emissions as GlobalPopulation Growth Hits a Turning Point. Gregor.us. Perhaps it would be a
better use of time within the financial community to prepare for a long, rarely
interrupted phase of slow growth and low interest rates instead of decrying the
system’s failure to return to higher rates of growth. Data across the entirety
of the OECD suggests strongly, for example, that Europe
and the United States
are in the process of joining Japan
in a secular era of this type. Energy use, fertility rates, GDP, all point in
this direction. … high interest rates, not low interest rates, are history’s
anomaly.
13 Scientific Reasons Explaining Why You Crave Infographics,
VisualCapitalist.
Low-Volatility Strategies’ Hidden Risks, CIO. Investors in low-volatility strategies may be
doubling up their exposure to government bonds and interest rate risk,
according to research.
Women Often Quit Work to Help Parents, Boston
College
The Global Demography of Aging: Facts,Explanations, Future; Harvard U. Population ageing is the 21st century's dominant demographic phenomenon. Declining fertility, increasing longevity, and the progression of large-sized cohorts to the older ages are causing elder shares to rise throughout the world. The phenomenon of population ageing, which is unprecedented in human history, brings with it sweeping changes in population needs and capacities, with potentially significant implications for employment, savings, consumption, economic growth, asset values, and fiscal balance. This chapter provides a broad overview of the global demography of aging.It reviews patterns, trends, and projections involving various indicators of population aging and their demographic antecedents and sequelae. The chapter also reviews theories economists use to explain the behavioral changes driving the most prominent demographic shifts. Finally, it discusses the changing nature of aging, the future of longevity, and associated policy implications, highlighting some key research issues that require further examination.
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