QUOTE OF THE DAY
The reason that most of us are unhappy most of the time is
that we set our goals not for the person we’re going to be when we reach them,
but we set our goals for the person we are when we set them. Jim Coudal
CHART OF THE DAY
RETIREMENT FINANCE AND PLANNING
Retired Actuary Calls for Actuarial Profession to AdvocateTrue Social Security Sustainability, KenSteiner.
Quantitative Easing: The Challenge for Households Long-TermSavings and Financial Security. Thimann,
Paris School
Weighing Sequence of Returns Risk for Retirees, Pfau at
Forbes. With less time and flexibility
to make adjustments to their financial plans, retirees who experience portfolio
losses after leaving the workforce can experience a devastating impact on
remaining lifetime standards…Conservative clients will not want to use the
“expected return” for their portfolios when developing lifetime financial
plans. This is a really important point to remember and internalize when
working in environments that require a return assumption but not an accompanying
volatility.
How Not to Die Hungry: Turn Your 401(k) Into a Pension,
Bloomberg. The golden age of retirement
is coming to an end. Now it gets complicated.
The Fear Of Running Out Of Money In Retirement Is Overblown,
Financial Samurai. Whether you decide to retire in your 60s or in your 30s, I’m
here to say the fear of running out of money in retirement is overblown.
Journalists, most of whom have never retired, have fear mongered the general
population long enough! Through firsthand experience, let me explain why your
retirement life will probably be just fine.
How Not to Get Blindsided by Costs in Retirement.
Time.com/Money . About 40% of retirees,
in fact, say their retirement expenses are higher than they had expected,
according to the Employee Benefit Research Institute. But with a little
planning, you can minimize the financial shock of unpredictable expenses,
either by setting aside money to address them or by taking other steps to keep
them under control.
[last two links more or less contradict each other]
What If Retirees Don't Want To Run Out Of Money In 30 Years?
Pfau at Forbes. I aim to investigate how
withdrawal rate decisions may change when retirees specifically incorporate a
desire to leave a bequest, which I will summarize here as either maintaining the
nominal value of retirement date wealth at the end of the thirtieth year, or
maintaining the real value of retirement date wealth at the end of the
thirtieth year.
The Mortgage is Dead; Long Live the (Reverse) Mortgage, Dirk
Cotton. you need to fully understand
what could happen to borrowers in the worst-case financial outcomes. A retired
borrower with other financial pressures could have the reverse mortgage called
at the worst possible time.
Long-term-care insurance market sees rapid decline.
Investment News.
MARKETS AND INVESTING
The Worst ETFs You Can Own. Ben Carlson.
It's Not Just Fees that Hurt Performance of ActiveManagement, ThinkAdvisor. S&P Dow
Jones Indices reports that that most retail mutual funds underperform their
benchmarks even before fees are calculated
Characteristics of a Sound Goals-Based Investing Method,
Northern Trust. This literature includes
the mean-variance theory of Markowitz (1952) and the capital asset pricing
model (CAPM) of Sharpe (1964). But neither of these models incorporates goals
and time…Contemporary intertemporal CAPM theory considers liabilities and time
(Waring and Whitney 2009; Cochrane 2014). It provides a solid theoretical
foundation for goals-based asset allocation, and it can be adapted to
accommodate multiple goals. Another goals-based approach related to Markowitz’s
mean-variance theory incorporates multiple goals with unique risk preferences, using shortfall
probability as the definition of risk (Das et al. 2010)… Fortunately, Sharpe et
al. (1999) and Das et al. (2010) show that the total portfolio is mean-variance
efficient when each mental account subportfolio also resides on the efficient
frontier. See also Optimal Lifetime Asset Allocation, Journal of
Wealth Management 2016.
Portfolio Implications of Triple Net Returns, Mladina,
Journal of Wealth Management [forthcoming] We develop a methodology to estimate
forward-looking long-term active and passive investment returns for major
publicly traded asset classes from the perspective of a taxable investor who
consumes triple-net returns – after all expenses, taxes, and inflation. We
compare active and passive strategies by gauging triple-net-alpha, which is the
amount of gross alpha necessary for an active manager to claw back all additional
expenses and taxes to achieve a breakeven triple-net-return relative to a
passive, investable alternative. We then investigate through unconstrained
mean-variance-optimization, adjusted for triplenet-returns, which asset classes
are worth inclusion in portfolios across the risk spectrum. Our findings
suggest that taxable investors should own primarily low cost, passively managed
equities and municipal bonds. We find similar results for tax exempt investors when
considering double-net-returns – after all expenses and inflation.
Arbitrage Capital Increases Market Efficiency, ETF.com When arbitrage capital is plentiful,
anomalies should be quickly eliminated. However, if capital is scarce or there
are sufficient frictions (such as trading costs, regulatory constraints and
borrowing costs), while anomalies may shrink, they can still persist.
A Common and Costly Mistake Investors and Their AdvisorsMake, Swedroe. One of the additions I
would make involves a mistake that, while expected among some individual
investors, is surprisingly common among many professional advisors.
Specifically, it’s the error of using historical stock and bond returns as the
best estimator of their future returns.
Risk Premia Forecasts: Major Asset Classes | 2 August 2016 , Capital Spectator.
Do Savers Deserve a Risk Free Return? Cullen Roche
MPT: Many Problematic Techniques, CIO. the variables
themselves are dynamic—yet MPT models use static inputs. Ignoring this concern,
even if we perfectly forecast all variables, the time needed for these
variables to converge to their true value is 40 years. We are thus trading on
noise.
Investors Like Lotteries, Swedroe. There’s substantial evidence from the field
of behavioral finance that individual investors have a strong preference for
investments that exhibit the same characteristics as lottery tickets. Two of
these characteristics are high kurtosis (or fat tails) and positive skewness,
meaning values to the right of (or more than) the mean are fewer but farther
from it than values to the left of (or less than) the mean. And just as is the
case with lottery tickets, this preference leads investors to overinvest in the
most highly skewed (right-skewed) securities. Increased demand leads to higher
prices, with the consequence being that such securities will have lower
subsequent average returns.
Is The Divergence Between 2yr & 10yr Yields Fading?
CapitalSpectator.
When Active Investors Should Add Or Reduce Risk,
FMDCapital Active investors should
reduce risk as a function of strengthening markets and add risk as a function
of weakening markets.
50 Years Of Sharpe Ratio Analysis: Useful But Easily Abused,
The Capital Spectator. Complexity
doesn’t have a monopoly on misguided applications when it comes to risk
analysis.
Investors (Over?) Trim Their Hedges, jlfmi.tumblr.com Volume in inverse ETF’s has dropped to its 2nd
lowest level in more than 5 years; have traders become too complacent?
ALTERNATIVE RISK
Getting To The Cause Of Quality, Swedroe, ETF.com A Risk-Based Or Behavioral-Based Explanation?
What You Thought Was Skill Was Just Risk Premia, Pete
Mladina @ MebFaber.com Yale’s
outperformance over the decades really boils down to just one thing: exposure
to venture capital.
Future Return Inferences Contained Within ImpliedVolatility: A Brief Mathematical Look, Franklin Parker Atilgan, et al., do provide some—though
marginal—evidence that IV is an information carrier about returns in a
forthcoming period. We recognize that it may be possible the information is
lost, but lost to where?
Momentum on Individual Stocks vs Asset Classes,
SharpeReturns. there are 3 main
drawbacks: low scalability, high volatility, high transaction costs
The Case for Hedge Funds / Creating an Ideal Liquid Alt,
Econompicdata. I will share how an
investor can effectively utilize a hedge fund (or liquid alternative) within a
broader portfolio, which will touch upon why hedge funds should rarely be
judged by their level of absolute performance.
Can Dividend (Swaps) Replace Bonds? Newfound Research. Dividend strips could be an incredibly
interesting alternative to core fixed income.
They would be less volatile than equities, more robust to the market’s
animal spirits, and potentially serve as an inflation hedge.
The price of wine, Dimsona, Rousseauc, Spaenjersd. Abstract -- Using historical price records
for Bordeaux Premiers Crus, we examine the impact of aging on wine prices and
the long-term investment performance of fine wine. In line with the predictions
of an
illustrative model, young maturing wines from high-quality
vintages provide the highest financial returns. Past maturity, famous châteaus
deliver growing non-pecuniary benefits to their owners. Using an arithmetic
repeat-sales regression over 1900–2012, we estimate a real financial return to
wine investment (net of storage costs) of 4.1%, which exceeds bonds, art, and
stamps. Returns to wine and equities are positively correlated. Finally, we
find evidence of in-sample return predictability.
Return Of The Micro VC, Mattermark.com Since the start of
2016, over 50 new Micro VC firms have been raised. And it looks like the trend
is generally up and to the right. All is well, right?
Winners and Losers in Alternatives, CIO. The highest alpha-producing alternatives were
core real estate, value-add real estate, opportunistic real estate, and
leveraged buyout private equity. Significant alpha was also observed in
event-driven, macro, and relative value hedge fund strategies.
The Paradox of Quant, Josh Brown.
The hot new thing among the gut-trading, gunslingers of yore is to bring
in quants and PhDs and data scientists and algos to address the lack of alpha
that’s been competed out of the hedge fund game.
SOCIETY AND CAPITAL
Equity: Finally, a Movie About Women Who Love Money,
TheAtlantic. A female-driven Wall Street
movie is a rarity, and Equity boasts an all-female creative team as well—from
its director, Meera Menon, to its production company, Broad
Street Pictures…
Understanding Human Capital, Morningstar. …many traditional asset allocation
methodologies don’t consider a person’s human capital, a
predominately fixed income-like asset that reflects the person’s ability to
earn and save throughout their lives.
The Consequences of Gentrification: A Focus on Residents’Financial Health in Philadelphia PDF by Lei Ding and Jackelyn Hwang,
Pension Industry Needs A Reality Check. SoberLook. o be fair, one year`s result does not make a
trend, but the results were so far below target as to warrant an examination of
the new world confronting pension fund managers.
Rising Health Costs a Factor in Inequality, CRR at Boston
College
Poverty gap at $1.90 a day (2011 PPP), Our World In
Data.
Getting Real With Inflation, thepfengineer.com.
A Simpler Cup of Coffee, Longreads.com. Do I sound like her servant? Then you have it
wrong. Food is love, and I love her…[and]… to covertly rob a caffeine-addicted
asshole of their morning jolt was truly one of the sweetest pleasures of
baristahood
Laissez-Faire in Tokyo Land
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