CHART OF THE DAY
RETIREMENT FINANCE AND PLANNING
Sequence-Of-Return Risk Hurts More Than Just Recent Retirees.
M Kitces, Financial-Planning.com. "…the reality is that sequence-of-return
risk is equally relevant for accumulators in the years leading up to retirement
as well."
William Sharpe: Staying Flexible on Retirement Spending
[2010], Stanford Graduate school of Business
Why So Many Americans Work Past 65, in 4 Charts.
ThinkAdvisor. "Almost 20% of
Americans 65 and older are now working, according to the latest data from the
U.S. Bureau of Labor Statistics. That’s the most older people with a job since
the early 1960s, before the U.S.
enacted Medicare."
A Whole Slew of Calculators, Bogleheads.org.
Think Tank Sees Promise in Reverse Mortgages for RetirementPlanning, RMD. “Home equity, we think, is underutilized in retirement
planning,” said G. William Hoagland, senior vice president of the Bipartisan
Policy Center
The Secret to Longer Life: Keep Working, Boston
College
Inverted Withdrawal Rates and the Sequence of Returns Bonus,
Advisor Perspectives. "This article
generalizes some simple decumulation strategies and explains the strengths and
weaknesses of an inverted approach."
Simple Formulas to Implement Complex Withdrawal Strategies,David Blanchett, JFP [2013]. "This paper demonstrates how two simple
formulas can be used to determine the optimal portfolio withdrawal amount each
year during retirement."
Why Don't the People Insure Late Life Consumption? A FramingExplanation of the Under-Annuitization Puzzle, Brown et al. [2008] UI
Urbana-Champaign, Brookings, Harvard. "We posit that consumers evaluate
annuity products using a narrow “investment frame” that focuses on risk and
return, rather than a “consumption frame” that considers the consequences for
lifelong consumption. Under an investment frame, annuities are quite
unattractive, exhibiting high risk without high returns. Survey evidence
supports this hypothesis: whereas 72 percent of respondents prefer a life
annuity over a savings account when the choice is framed in terms of
consumption, only 21 percent of respondents prefer it when the choice is framed
in terms of investment features."
A Mission Statement for Retirement,Part 5, Dirk Cotton. "Successfully
funding our standard of living for the remainder of our lifetimes is a
strategic objective….Selecting an optimal withdrawal rate or asset allocation
are tactical objectives."
An Overview of Retirement Income Strategies, Finke and
Blanchett, Journal of Investment Consulting [2016].
MARKETS AND INVESTING
Your True Risk, Ben Carlson.
"The focus on quantitive risks leads many to miss their more
important, but harder to measure, qualitative risks. Many investors —
professional and amateur alike — have a difficult time figuring out what their
trues risks are in the first place."
How I Learned to Stop Worrying and Love the Market, Luke
Delorme AIER. "It’s also critical to realize that the best way to make
progress toward your goals is to control those things that you can actually
influence. I’ve found that paying attention to my circumstances and controlling
the factors within my grasp, and not trying to beat the market helps me to
sleep better at night."
The Pain Gap, Fool.com "The biggest story in investing
is understanding why so many people have been hurt by, and are skeptical of, a
market that has increased 18,500-fold in the last century."
A New 4 Factor Investing Model, Swedroe, ETF.com. "…we
have a new four-factor model that incorporates anomalies and appears to have
greater ability to explain the differences in returns of diversified portfolios
than some prominent alternatives."
The Asymmetry Zone, ThinkNewFound. "...asymmetry can
become so extreme that in certain scenarios an investor can actually still come
out ahead if their upside-capture is less than their downside-capture."
Soros Increases Bet Against the S&P 500, WSJ. "Billionaire
investor George Soros, who made a fortune betting against the British pound in
1992, on Monday disclosed a big bet on gold during the first quarter and
doubled the wager against the S&P 500, according to a regulatory filing."
Electronic Trading Innovator Predicts Brokerage IndustryCull, FT.com. "Thomas Peterffy, the
billionaire owner of Interactive Brokers and a pioneer of electronic markets,
says there will be a huge cull of the US
brokerage industry in years to come, triggered by falling revenues, rising
costs and a mounting regulatory burden."
The Yale (and Harvard, Stanford, MIT...) Model, CIO. "…when
adjusted for risk using Sharpe ratios, large endowments performed only as well
as smaller ones, and sometimes even underperformed."
Which Institution Has The Best Asset Allocation Model? Meb
Faber. "What’s the most effective
asset allocation model? Turns out, that’s actually, that’s the wrong
question. The correct starting question
is, “Do asset allocation differences even matter?"… Simply by paying [a] mild
fee (that is lower than the average mutual fund, by the way) you have turned
the highest returning allocation into the lowest returning allocation –
rendering the entire asset allocation decision totally irrelevant.”
The S&P 500 is the World’s Largest Momentum Strategy,
Ben Carlson.
A Stunning New Finding: Return Seasonalities Are Everywhere,
Alpha Architect. "Turns out stock
returns are lumpy across the calendar. Stocks don’t earn “average” returns each
month, they earn a lot of return in some months and little to no returns in
other months…and this pattern is predictable, persistent, and powerful." Source: SSRN paper by Keloharju and Linnainmaa: ReturnSeasonalities
Complexity, Chaos and Chance. Robert P. Seawright. "Overall, [investors
seem to] insist on rejecting probabilistic strategies that accept the
inevitability of randomness and error."
How To Stack The Odds In Your Favor, IrrelevantInvestor.com.
"Delaying current consumption to benefit your future self is one of the
simplest ways an investor can stack the odds in their favor."
ALTERNATIVE RISK - Hedge Funds
Hedging on the Case Against Hedge Funds, Cliff Asness, Bloomberg. " all you read about today is that hedge
funds are a failure and investors are fleeing. What was once right is now being
taken too far."
Hedge Funds – Misunderstood, but Still North Worth it,
Pragmatic Capitalism.
Beaten-Up Hedge Fund Billionaires Reminisce About 'GoldenAge' Bloomberg. “Don’t be embarrassed
about making money…”
Hedge Funds Top Choice for Factor Exposures, CIO. "Investors overwhelmingly preferred
multi-factor investing to single-factor strategies, and said they were
attracted to the strategy because of perceived opportunities for volatility
mitigation and return optimization."
How Should Alternative Investments Be Benchmarked?, Ben
Carlson. "Maybe investors in alternatives should benchmark these funds
against their own expectations…They can compare them to the rest of their
portfolio to realize the opportunity cost of holding them." [almost
completely correct]
Hedging on Hedge Funds (postscript on correlations, beta,and “alpha”), Clifford Asness. "First, in response to many otherwise good
questions that I think confuse correlation with beta, they are not the same…Beta
measures how much, on average, a fund responds to stock market moves,
correlation measures how “tight” that response is."
ALTERNATIVE RISK
What happens if Lending Club goes out of business?FT.com. "In short, if you’re a
buyer of Lending Club loans [promissory notes] it means that you might not get
all of your money back."
Defense Wins Championships, How To Build A WinningAlternatives Strategy, longboardfunds.com "…defensive strategies are
better positioned to avoid sustained downtrends — and a diversified portfolio
with fewer strategies trapped in sustained downtrends can recover more quickly."
52 Pick-Up and Factor Investing, FactorInvestor.com. "…recency
bias is causing investors to shun small cap stocks in favor of the factor du
jour--currently low volatility."
Trends in angel investing, TechCrunch.com. "Keep your relationships with angel
investors strong. They are more than just initial funding, and can be the
facilitators of future rounds and growth."
ColumbiaThreadneedle Moves Into Expanding Smart Beta Field, ThinkAdvisor.
Not So Simple: Valuations And Low Volatility Strategies,
blog.AlphaArchitect.com "1. low volatility strategies, even when deployed
during periods when low volatility stocks are expensive, can still serve a role
in a portfolio. 2. If an investor can already deploy value and momentum
strategies, low volatility strategies don’t do much for a portfolio except in
cases when the valuations on low volatility portfolios are extremely cheap
relative to high volatility portfolios."
The Case for Tactical Fixed Income, a Whitepaper. NewFound
Research. [My commentary here]
Behavioral Finance Strikes Again: Contrast Effects InFinancial Markets, AlphaArchitect. "The result is clear: contrast effects
probably matter. The evidence that this effect is exploitable is also
compelling."
SOCIETY AND CAPITAL
Review: The Art of Risk, Scientific American, “It's time we
accept that risk is part and parcel of every single decision we make, every
single day—big or small, life-altering or seemingly inconsequential.”
The American middle class: Who is in it, and who is not, inU.S. Metropolitan Areas, Pew. "The share of adults in the middle-income
tier was highest in Wausau , WI
Retirement and Changes in Housework: A Panel Study of DualEarner Couples, University of Bamberg .
"After both spouses had retired, couples reverted to their pre-retirement
division of housework. Although the findings on changes after retirement
support theories of relative resources, gender construction theories still take
precedence in explaining the division of household labor over the life
course."
The US Weighted by GDP and Residential Property Values[animated graphic], Conversable Economist.
Shortchanged in Retirement: Continuing Challenges to Women'sFinancial Future. Brown et al. National Institute on Retirement Security. "…new analysis finds that women are far
more likely than men to face financial hardship in retirement. Women are 80
percent more likely than men to be impoverished at age 65 and older."
Putting Money on Predictive Betting, Institutional
Investor.
Equity-Financed Banking, John Cochrane. "If we try to
create a financial system in which nobody ever loses money, we will just create
a system in which nobody ever takes any risk, and does not fund any remotely
risky investment opportunity…Banks and shadow banks must get the money they use
to hold risky and potentially illiquid loans and securities overwhelmingly from
run-proof, floating-value assets – common equity mostly, some long term debt…"
Why Americans Ignore the Role of Luck in Everything,
NYmag.com. "Most successful people
worked very hard to get there, and indeed are quite talented. But merit and
hard work aren’t enough…"
Corporate Inequality Is the Defining Fact of Business Today.
Harvard Business Review. " The best-performing companies seem to be
pulling away from the rest, according to a growing body of research, and that
fact explains a large part of the growth in inequality between individuals."
Why Is the Labor Force Participation Rate Increasing? FRED.
"Based on the above decompositions, we concluded that the recent increase
in the labor force participation that we observed has been mainly driven by
males and the lowest education workers."
State Liabilities: Large and Very Concentrated, Institutional Investor.
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