The worst 10 year period of any backtest is the next 10
years. Michael Batnik
My image of how hurricanes and retirement planning are similar. The real path never matches what you plan for...
RETIREMENT FINANCE AND PLANNING
By boosting returns through a combination of broader asset
class and strategy diversification, considering lower fee options for passive
exposures, and nailing down how retirement spending will evolve over time, we
can arrive at retirement success projections that are both more reflective of a
retiree’s actual situation and more in line with historical experience.
I think there are many parallels between selecting a
spending strategy and selecting an asset allocation. That is, in each case you
have an endless list of options, and there’s a ton of research on the topic.
But no matter how sophisticated the research, nothing can actually tell you the
future.
Now comes United Income, a new money manager backed by some
of the biggest names in retirement, pitching big data as a solution. It’s
deploying huge sets of stats on investment performance, retiree spending,
longevity, and other crucial factors to simulate innumerable outcomes. The
software estimates the chances that each client’s personalized retirement
strategy will actually succeed, then refines the plan if it won’t, based on as
many as 18 million simulations per client, UI said. The aim is to make
retirees’ money go a lot further than other planning software, which Founder and
CEO Matt Fellowes scorns as hopelessly out of date. [ count me skeptical that
more data and more sims will create gold from lead.]
Drawing Down Retirement Savings - Do Pensions, Taxes and Government Transfers Matter Much for Optimal Decisions? MacDonald et al.
Our primary finding is that consideration of pensions, taxes
and transfers does often alter the rankings of drawdown strategies for retirement
savings. Notably, and contrary to nearly all the research on this topic,
annuitization is not always the best strategy once pensions, taxes and
government transfers are modeled. Second, including consideration of pensions,
taxes and transfers differentially alters the ranking of drawdown strategies –
the effects are not uniform between males and females, across people at
different points in the income distribution, and at different levels of risk
aversion. Last, the drawdown strategy choice can be very important to the
retirement financial welfare of some seniors, and nearly inconsequential for
others – an issue ignored when only the drawdown of savings alone is
considered. Our findings show the
importance of treating the evaluation of alternative drawdown strategies as a
comprehensive and integrated problem by including all sources of income –
including pensions, taxes and government transfers. Using restricted measures
risks leading to simplistic, and possibly misleading, conclusions. [ " contrary to nearly all the research
on this topic " ?? not so sure about that.
I think they need to do a deeper dive on the "literature
review"]
Defined Ambition Schemes: An Alternative Approach to Risk Sharing, Benedict Davies
The Dutch hybrid-system requires employers to contribute a
fixed percentage of salaries and wages into approved pension schemes. Employers
bear no additional liability if the investment of the plan performs poorly or
if the metrics, such as the discount rate, used to value the liabilities
changes. Under the Dutch arrangements, if a plan becomes underfunded, rather
than the employer “topping up”, the plan’s governing body agrees on steps to
address the funding position through a combination of one or all of the
following: Reducing indexation, Lowering future accrual rates, Reducing
accrued rights. As a result of the changes, the investment and longevity risks
have been transferred from the
employer to employees; but not individually, as a group.
Investment Taxes: 10 Questions to Ask, humbledollar
WANT TO BOOST your after-tax wealth? Grab copies of your
latest tax return and investment statements—and ask yourself these 10 questions
Tax-Managed Thinking, Thinknewfound
Our perspective is that investors will likely have to work
hard to make many marginal, but compounding, improvements. Improvements may include reducing fees,
thinking outside of traditional asset classes, saving more, and, for investors
in retirement, enacting a dynamic withdrawal plan. Another potential opportunity
is in tax management. [true, true, true, true, and true]
Academic Research Insight: Do Dividends Still Matter?
AlphaArchitect
Research has shown that dividends constitute a greater
contribution to the returns of a value versus a growth strategy. However, the
question remains as to whether or not dividends matter within a style category…
Introducing a high dividend exposure in the midcap and small cap universes of
growth stocks (low BE/ME) produced a significant increase in the monthly return
(a four-fold increase). A high dividend payout also had a comparable impact on
the risk to variability metric for growth and value universes.
ALTERNATIVE RISK
Quant funds saw increased interest, as family offices
boosted their exposure to the strategy to about 6.4% of their hedge fund
holdings. Including all types of investors, not just family offices,
computer-driven hedge funds have increased their assets under management
(paywall) to $932 billion as of March, following eight straight years of
inflows since 2009, according to data-tracking firm HFR.
There Is Value in the Value Factor, cfainstitute.
We analyzed six well-known factors — value, size, low
volatility, momentum, quality, and growth — using definitions close to academic
standards, such as Fama-French, for example…We determined how well-priced a
factor was by applying the difference in book value multiples between the long
and short portfolios. This is equivalent to valuing stocks based on their book
value multiple or other fundamental metrics…
Public Quant Funds Aren't Always What They Seem, Aaron Brown
No one has a trademark on “quant equity” and fund marketers
can use the term however they like. But investors should appreciate the
distinction between funds that select small-cap stocks and those that deliver
exposure to the size factor.
Embracing The Downside, Swedroe
Using equity index options prices, they showed that the vast
majority of the equity risk premium derives from accepting downside risk versus
seeking participation in the upside. They found that, over the period 1986
through 2014, greater than 80% of the equity risk premium was explained by the
willingness to accept downside risk…. Given investors’ well-documented aversion
to risk, both theory and evidence suggest that those willing to accept downside
risk should be rewarded well.
SOCIETY AND CAPITAL
Lower-Status Men Don’t Ask for Raises, Either, melmagazine
That negative response is called social backlash: Women who
ask for raises are seen as too aggressive by stepping outside the more
deferential feminine role we prescribe them. Turns out, this same social
backlash happens to men, too, but only if they are low-status. In both cases,
it’s because men and women are violating something called “communality,” also
known as concern for others.
Finance: How it Made Civilization Possible, cfainstitute
“Finance is a technology,” Goetzmann, the author of Money
Changes Everything, explained. “The simplest kind of financial technology is a
loan. I borrow money today and I pay it back tomorrow. But if you don’t have
that dimension of time, it’s not finance. Finance really requires that there be
some passage of time between the beginning of a contract or agreement and the
fulfillment of the agreement.”
The market is damned when it works and damned when it
appears not to. Price gouging is the common pejorative for sharp price
increases when, as a disaster looms, the demand for consumer goods — such as
gasoline, batteries, and bottled water — rises abruptly. The phenomenon is so
widely despised that many states and localities have outlawed or limited such
price spikes… What upsets people is that the law kicks in at full force when
the demand for gasoline, batteries, and bottled water is especially acute….
Appearances of exploitation can deceive, however… The real choice is between no
goods at a low price and some goods at a high price. Government threats do
nothing to increase the supply — but they may well keep the supply from
increasing, making a bad situation even worse.
How Far You Have To Drive To Leave Florida ,
Metric Maps
[this drives me insane]
Personal health care costs can skyrocket with a new
diagnosis or accident, often leading to catastrophic financial costs for
people. Health insurance plays an important role in protecting individuals from
unexpected large financial shocks as a result of adverse health events. Just as
homeowner's insurance helps protect you from financial devastation if your
house burns down, health insurance helps protects you from burning through your
savings because of a heart attack. This 2008 report from the Commonwealth Fund
shows that the uninsured are far more likely to have to use their savings and
reduce other types of spending to pay medical bills.
Is GDP a good measure of well-being? FRED blog
GDP has been used as a measure of economic well-being since
the 1940s: It measures the total economic output by individuals, businesses,
and the government and is a tangible way to quantify the state of the economy.
However, some economists have questioned how well GDP measures well-being: For
example, GDP fails to account for the quality of goods and services, the
depletion of natural resources, and unpaid jobs that are nevertheless important
(e.g., household chores). Although this criticism may be well founded, GDP is
highly correlated with other measures of well-being, such as life expectancy at
birth and the infant mortality rate, both of which capture some aspects of
quality of life.
Market Complexity Could Trigger the Next Crash, Visual
Capitalist
For those looking to find returns in these moves, it’s far
too difficult to time these markets when weather events like Hurricanes happen.
Like trying to catch a falling knife where the consequences of not timing it
perfectly can be drastic. The better approach would be to try and capture an
overall rise in commodity volatility based on an overall rise in Global Weather
Volatility
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