It’s hard to know the difference between “Be patient” and
“Change your mind when the facts change.”
Morgan Housel
CHART OF THE DAY
Withdrawal rates in retirement vs retirement duration in terms of fail rate estimates.
If I remember correctly this was from retirementresearcher.com.
RETIREMENT FINANCE AND PLANNING
Pension Section News – Sep. 2016, Society of Actuaries.
Selected Articles:
- Thinking About Spending in Retirement: Findings From SOA and EBRI Research By Anna M. Rappaport
- Decumulation Strategy for Retirees: Which Assets to Liquidate By Charles S. Yanikoski
- Decumulation for a New Generation By Elizabeth Bauer
- Multiple Objective Asset Allocation for Retirees Using Simulation By Kailan Shang and Lingyan Jiang
- Decisions Misaligned With Priorities: The Non- Annuitization of Retirement Savings By Paul J. Yakoboski
Keys to Retirement Planning in a Low-Yield World,
Finke. It’d be nice to believe that
market returns in the 21st century will be as high as they were in the 20th.
The science suggests that they won’t.
How Much Should You Leave to Your Kids? Darrow
Kirkpatrick.
Are Retirement Spending Strategies Different For IndividualsAnd Institutions? Pfau. The balance to
strike is how and when to reduce spending to avoid creating too much spending
volatility and uncertainty, while simultaneously maintaining future potential
spending and avoiding even bigger subsequent cuts. Retirees can easily apply
endowment spending rules to their own personal situations.
Do Worker Expectations of Never Retiring Indicate a Preference or an Inability to Plan? Hanna et al. Ohio
State U.
of Alabama
Die Young or Live Long: Modeling Subjective Survival Probabilities, Wu
et al. UNSW. …our data suggests that
individuals tend to expect to either die young or to live long. We propose a
new model to incorporate cohort- and target age-varying subjective survival
beliefs and illustrate the effect of these variations on optimal life cycle
consumption plans. The proposed model contributes to the explanation of both
the retirement savings puzzle and conservative spending patterns in retirement.
MARKETS AND INVESTING
Analysts Fret Over Rising Asset-Class Correlations,
CapitalSpectator.com Correlations
between asset classes have been trending up lately, a directional bias that
could be a warning sign, according to several market observers.
Research Review | 30 Sep 2016 | Managing Volatility Risk. Capital Spectator.com
- Volatility
Managed Portfolios, Alan Moreira and Tyler Muir (
- Abnormal
Stock Market Returns Around Peaks in VIX: The Evidence of Investor
Overreaction? Valeriy Zakamulin (
- Can Exposure to Aggregate Tail Risk Explain Size, Book-to-Market, and Idiosyncratic Volatility Anomalies? Sofiane Aboura and Yakup Eser Arisoy (Université Paris)
- Volatility Weighting Applied to Momentum Strategies Johannes Paulus Du Plessis and Winfried G. Hallerbach (Robeco Asset Mgt.)
- Volatility
Derivatives and Downside Risk Yueh-Neng Lin (
- Tail protection for long investors: Trend convexity at work Tung-Lam Dao (Capital Fund Management), et al
- A
Theory for Measures of Tail Risk Fangda Liu (China Institute for Actuarial
Science) and Ruodu Wang (
A shock to the covariance system, NewFound. By decomposing the risk structure into
independent sources of risks and systematically stress testing those
components, we can arrive at a solution that models the fat-tailed nature of
crises and is entirely rules-based and bias-free. [sure]
When Risk Offers No Rewards, Swedroe.
The Difference Between Life Insurance and Credit DefaultSwaps, Michael Batnick. The difference
between risk and uncertainty also illustrates the difference between life
insurance and credit default swaps…In the first case, we are in the calculable
domain of risk; in the second, we are dealing with uncertainty…The best way to
combat the illusion of control is to deeply understand the limitations of your
strategy.
On the perverse economic effects created by ETFs,
FT.com We have a consensus now in America
that everyone, or certainly every voter, deserves above-average investment
returns, low risk and high liquidity.
These benefits, or rather, entitlements, should be delivered
continuously at low cost, with no real or even apparent conflicts of interest
on the part of portfolio managers. If
these benefits are not delivered, then the responsible portfolio managers, and
any other complicit Wall Streeters, should be punished civilly and criminally,
not only as institutions but as individuals.
1
Low Rates Are Here to Stay, Bloomberg. Probably the most important long-term
determinant of the interest rate is just the pace of economic growth…One force
holding back the economy is slower productivity growth…But the most powerful
force is probably just aging. Developed countries are have gotten much older,
and with fertility rates below replacement, most continue to do so.
Understanding the low interest rate era. Monevator.
Understanding the New Normal:The Role of Demographics, Finance and Economics Discussion Series Divisions of
Research & Statistics and Monetary Affairs Federal Reserve Board, Washington ,
D.C.
Hard Work Leads To Investment Success, FMD. Let’s face it, no one is truly passive. Even investors who think they are still have
homework they need to complete while their money is working towards their
goals. They need to be on the lookout
for investment vehicles with similar or better features and lower costs. They need to be scheduling regular checkups
to ensure their asset allocation is in line with their risk tolerance and
goals. They need to be avoiding any
outside noise that conflicts with their philosophy and putting in time to
review their chosen path. Being passive
is actually a lot of work.
U.S. Treasuries, Former Diversifier, Dies After Long Illness- Beloved member of traditional portfolios is survived by a distant cousin,municipal bonds.
Loangboardfunds.com
Turning Over Accepted Wisdom with Turnover, Cliff
Asness. Lasse shows that once you add
necessary turnover into real world indexing – which can come from additions and
deletions to the index or from corporate actions – the ironclad tyranny of
Bill’s math is broken. And once you add information asymmetry (not a big
assumption as indexers, by definition, claim and have no information) you
restore an important role for active management.
ALTERNATIVE RISK
Timing “Smart Beta” Strategies? Of Course! Buy Low, SellHigh! Rob Arnott, Research Affiliates. Selecting
strategies with sound structural alpha—sound performance when controlled for
rising valuation multiples—currently trading at a discount to historical norms
may deliver performance higher, not lower, than the backtests. Smart beta is
crowded space, consisting of some good ideas, some not-so-good ideas, and some
good ideas that are temporarily overpriced. Look before you leap!
Investing In Consumer Loans Comes Into Focus, Swedroe. Online peer-to-peer (P2P) lending is emerging
as a provider of credit to individuals as well as small businesses, with the
potential to benefit borrowers (by reducing the high cost of bank credit,
credit card debt and payday loans) and lenders (by providing opportunities to
earn higher yields). A significant hurdle for investors, however, is the
information asymmetry between the borrower and the lender.
Option Pricing Methods in the Late 19th Century,
Quantpedia.
Diversification Key To Factor Investing, Swedroe. no matter how strong the evidence regarding
the persistence and pervasiveness of an investment factor’s return premium,
there’s some chance that the factor will experience long periods of
underperformance.
Hedging on Liquid Alternatives, CIO. Can liquid alts provide the same benefits as
a traditional hedge fund—or are they just a cheap knock-off?
Skew risk, volatility risk, and managed futures. mrzepczynski.blogspot. Put differently, one may expect that managed
futures will do a good job of diversification when there is an increase in
volatility from some macro event. It may actually perform well during these
periods of stress and higher volatility. The same cannot be said when there is
heightened skew in the distribution of asset prices from jump risks.
Want to Learn Way Too Much About Stock Market Factors? ReadThis Paper. Alpha Architect. Stambaugh and Yuan (2015) say they can solve
this problem by constructing two composite factors, each of which is made up of
clusters of anomalies that are similar to and better represent the
single-characteristic factors in the parsimonious models.
Momentum Crashes, AQR,
Since part of these crash periods are predictable, we use bear market
indicators and volatility estimates to forecast the conditional mean and
variance of momentum strategies. Armed with these estimates, we create a simple
dynamically weighted version of the momentum portfolio that approximately
doubles the Sharpe ratio of the static strategy — and does so consistently in
every market, asset class and time period we study.
The Obvious Follow-Up Question, Josh Brown.
So Many Hedge Funds, So Little Alpha, Ritholtz. Jim Chanos of Kynikos Associates pointed out
that 30 years ago, there were only about 100 hedge funds, almost all of which created
alpha. Today, there are more than 11,000 hedge funds, and according to Chanos,
it's about 100 that seem to always generate positive returns after fees for
investors.
The Case for Put Writing in an Expensive Market ,
econompicdata.com
What Is The Best “Risk-Off” Asset For Trend-Followers? Alpha
Architect.
SOCIETY AND CAPITAL
Trusts No More: Rethinking the Regulation of RetirementSavings in the United States,
Boston College United States
begins with the premise that employer-sponsored plans resemble traditional
donative, or gift, trusts. Accordingly, the Employee Retirement Income Security
Act of 1974 (ERISA) famously “imports” major principles of donative trust law
for the regulation of private employer-sponsored pension plans. Statutes
regulating state and local government pension plans likewise routinely invoke
the structure and standards applicable to donative trusts. Judges, in turn,
adjudicate by analogy to the common law trust.
This Article identifies the flaws in the analogy and analyzes the
shortcomings of a regulatory framework that, despite dramatic changes in the nature
of modern pension benefits, still regards employees as gift recipients, grants
both settlor and trustee rights to employers, and increasingly relies on
trust-based fiduciary obligations to prevent employers from prioritizing the
interests of their non-employee stakeholders over the interests of pension plan
participants. [beware of smart people
with good intentions...]
You are way more likely to be killed by deer than by sharks,bears, and gators combined, VOX The
deer is the deadliest animal in America . h
The Rich Are Also Different From One Another, Tyler
Cowen. The richest Americans are much
less likely to have inherited their wealth than their counterparts in many
supposedly more egalitarian countries. They’re not remarkably rich in degrees
from elite universities. Rich Democrats have more social connections than rich
Republicans.
The math that we should all be worried about, The Thought
Factory. If reducing the expected return
assumption from 7.5% to 7.0% results in an additional $400 – 500 million a year
of taxes, then moving the liability discount rate to something closer to a
risk-free rate of 3% may imply additional $5 billion in additional
contributions.
Why Americans Feel Poor, in One Chart, Bloomberg.
Wealth and the Income Tax, Ari D Glogower. This article claims that accounting for both
a taxpayer’s wealth and annual income provides a more complete measure of
ability to pay, and therefore a more appropriate basis for progressive taxation.
[ Comment: Ari either hates his aging parents and/or retirees in general. When he retires I want to be there take some of or maybe all of his accumulated savings because he will be "rich" and therefore able
to pay for, well, for whatever I want him to.]
The Shrinking Middle Class, AIER. According to Pressman’s measurements, the U.S.
has the smallest middle class among the nine developed countries he examined,
as of 2010, the last year data was available for all of those countries.
Besides the U.S. ,
this group also includes Canada ,
the United Kingdom ,
Germany , France ,
Italy , Finland ,
Sweden and Norway .
[…maybe…depends on the analyst and definitions…]
How to be Happy, Rich, and Save the World , Mr. Money
Mustache. The project, of course, is to
try to get the people of the world’s rich countries excited about separating
the idea of lifetime happiness, from the idea of buying expensive shit with
which to pamper yourself.
The Invisible Revolution: How Aging Is Quietly Changing America ,
TheAtlantic. Of the many significant
forces shaping the U.S. economy—including globalization, automation, and
housing supply—none is so inevitable and invisible as the sheer march of time
for today’s adults. In the 1950s, at the height of the U.S.
manufacturing supremacy, less than 10 percent of the country was older than 65.
That share will double to 20 percent by 2050. The greying of America
will touch every station of economic and political life: the size of the labor
force, the jobs the economy will require, the ethnic makeup of the country, and
the productivity of the workforce. In short, aging affects everything.
Price of Long-Run Temperature Shifts in Capital Markets,
Bansal et al. We use the forward-looking
information from the US
and global capital markets to estimate the economic impact of global warming,
specifically, long-run temperature shifts. We find that global warming carries
a positive risk premium that increases with the level of temperature and that
has almost doubled over the last 80 years. Consistent with our model, virtually
all US equity
portfolios have negative exposure (beta) to long-run temperature fluctuations.
Wind Is the New Corn for Struggling Farmers, Bloomberg. Wind energy, the fastest-growing source of
electricity in the U.S. ,
is transforming low-income rural areas in ways not seen since the federal
government gave land to homesteaders 150 years ago. As commodity prices
threaten to reach decade lows and farmers struggle to meet debt payments, wind
has become the newest cash crop, saving family farms across a wide swath of the
heartland.
Snapshots of Global Poverty and Inequality, Timothy
Taylor. If you combine these sorts of
estimates, you can divide up total global economic inequality into
within-country inequality and between-country inequaltiy, and see that the
first is rising while the second is falling.
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