Google-Image search him, and you’re likely to see him
smirking, with a boarding school-worthy forelock of hair and bow tie that
combine to frame a perfect strike zone for your fist. --Sam Grobart on someone or other...
CHART OF THE DAY
RETIREMENT FINANCE AND PLANNING
How to Get More Pleasure Out of Retirement Spending,
WSJ. … retirement planning is far more
complicated than choosing which chocolate to eat. Yet, they do have something
important in common: in both instances, we’re trying to maximize the pleasure
of a scarce resource.
The Risks of Reverse Mortgages, Dirk Cotton. No retirement strategy is perfect for every household, though, and there are some risks with HECMs that you should understand. Here are a few.
10 Variable Spending Strategies Retirees Should Consider,
Pfau. By reviewing existing research on
variable spending, we can identify and describe key representative variable
spending strategies from the countless possibilities, and classify them into a
general taxonomy. I identify three general categories for variable spending
strategies: Decision rule methods, Actuarial methods, Dynamic programming
methods
Retirement Income Planning Is As Easy As XYZ, Pfau. As an alternative to failure rates, I suggest
calibrating the downside risk across strategies in order to match them for a
level of risk the retiree is comfortable taking. This calibration is done with
a customized “XYZ formula” that I first outlined in my article, “Making Sense
Out of Variable Strategies for Retirees” in the Journal of Financial Planning.
Sustaining retirement income in a lower-return world,
Vanguard Blog.
Eight Brutal Truths About Retirement, RandomRoger.com
The Life Cycle Model, Replacement Rates, and Retirement
Income Adequacy, SSRN, AEI. A
replacement rate calculation more consistent with the life cycle model would
compare retirement income to an average of real earnings calculated over a
significant number of years. Such an approach would find substantially higher
replacement rates for the typical retiree. It is important both for Social
Security policy and the analysis of overall retirement saving adequacy that
replacement rate calculations build on the insights of the life cycle model
that guides most economic analysis of retirement saving.
What are the Effects of Doubling Up on Retirement Income andAssets? SSRN, Pfeiffer et. al, ASU, George Mason. Living in a multigenerational household may
have a potentially destabilizing effect on seniors’ economic well-being.
71 percent of Americans aren’t saving enough for retirement,
WP.com. According to the Consumer
Financial Protection Bureau, more people are entering retirement with more debt
than ever, especially mortgage debt. The CFPB says the percentage of homeowners
65 and older with mortgage debt increased from 22 percent in 2001 to 30 percent
in 2011. Among homeowners 75 and older, the rate more than doubled, to 21.2
percent from 8.4 percent
Annuities Have Real Value, Boston
College Boston
College http://squaredawayblog.bc.edu/squared-away/annuities-have-real-value/
The Problems With A Constant Retirement Spending Strategy,
Pfau. [constant spending] suffers from a
number of disadvantages, too, primary among which is the retiree’s
vulnerability to wealth depletion. Spending remains consistent until wealth
hits $0. If the retiree has insufficient income sources outside the investment
portfolio, this could have devastating implications…While the constant
inflation-adjusted spending strategy provides a useful benchmark and baseline
for analyzing sustainable retirement spending strategies, it should probably
not be viewed as a realistic or reasonable retirement income strategy.
Efficient retirement strategies must adjust spending at least somewhat for
portfolio volatility.
MARKETS AND INVESTING
A Market-Timing Strategy That Just Might Work, WSJ. Two professors developed a hypothetical
trading strategy around earnings announcements that, with hindsight, has a
formidable track record
Tactical Asset Allocation: A Practitioner’s Defense OfReturn Predictability, AlphaArchitect.com
Among the latest offerings from academia is a recent paper, “A
Practitioner’s Defense of Return Predictability,” by Hull
and Qiao, in which the authors present a model that seems to significantly
enhance a simple buy-and-hold strategy. SSRN paper here.
Tactical Asset Allocation Alpha and The Greatest Trick the
Devil Ever Pulled, GestaltU. Here, in
Part IV, we use the framework described in part II, along with some assumptions
about the relationships between global asset classes, to illustrate the
relative importance of asset allocation relative to security selection for an
unconstrained strategy,
High Capital Gains, Low Expected Returns: A FrustratingCombination, NewFound Research. The
return outlook for core asset classes, especially U.S.
stocks and bonds, suggest that there may be an opportunity to improve client
outcomes by incorporating other exposures, even if that means paying a sizable
tax bill upfront. https://blog.thinknewfound.com/2016/09/high-capital-gains-low-expected-returns-frustrating-combination/
The Sharpe Ratio As An Efficiency Metric, The Personal
Finance Engineer. Efficiency and
absolute performance are very different things. One option may be more
efficient, but is it really sufficient to accomplish the task at hand? It
probably depends on what the objective is in the first place… Efficiency may be
one useful measure to consider, but it doesn’t necessarily equate to “better.”
High Yield Bond ETFs: Liquidity Time Bombs? NewFound. When markets lock up or assets do not trade,
price, which is used in calculating NAV becomes an illusion. ETFs allow
investors to trade based on the value of the underlying securities as the ETF
price deviates from the stale NAV.
Mastery or Ignorance Part III, the pfengineer.com In fact, when examining historical industry
returns in a process we like to call “financial archaeology,” the recurring
theme seems to be that investors have a tendency to overpay for innovation,
while discounting stability.
7 Ways to Achieve Financial Independence ,
RB40. So how do you get from where you
are to financial independence? First, you have to take care of the basics.
ALTERNATIVE RISK
Wise Beta, bps and pieces.
The world is awash with smart investments. Wise investors, not so much.
Allocation Efficiency, AlphaBaskets.com This leads into a conversation about risk
adjusted returns as well as what I think of as being portfolio efficiency.
Momentum & Value vs. Growth & Value, DorseyWright.
Looking at the table below, we can see that the momentum/value
combination portfolio outperformed has over the growth/value combination. The returns are nearly double, while
volatility remains the same at 22%.
Market participants looking to combine a portion of their value
portfolio with another allocation would certainly seem to benefit by using a
momentum product vs. a growth product.
Is the Value Premium Disappearing? Ben Carlson.
Momentum and Mean-Reversion in Commodity Spot and FuturesMarkets, Chaves and Viswanathan. We
study momentum and mean-reversion strategies in commodity futures prices and
their relationship to momentum and mean reversion in commodity spot prices. We
find that momentum performs well in futures markets, but not in spot markets,
and that mean-reversion performs well in spot markets, but not in futures
markets. A decomposition of the basis (the slope of the term-structure of
futures prices) into expected risk premiums and expected changes in spot prices
helps us shed some light on the different results across the futures and spot
markets. Most interestingly, we find that momentum in futures prices cannot be
explained by a sustained trend in spot prices.
Predicting Booms And Busts In Low Volatility Strategies,AlphaArchitect.
No, You Shouldn’t Invest Like Yale. Roger Nusbaum. It is not practical for the typical advisory
client or individual investor to emulate Yale’s portfolio for a couple of big
reasons; endowments have infinite time horizons and access to some of these
market segments is either unavailable or the choices that are available aren’t
so great.
SOCIETY AND CAPITAL
The coming revolution against the nation-state,
MarketWatch. Why should billions live in
poverty simply due to the bad luck of their birthplace?
Appreciating the Big Role of Small Businesses, WSJ. A class at Harvard teaches M.B.A. students
the joys—and opportunities—of running a small firm.
As Our Cities Grow Hotter, How Will We Adapt?
NewYorker.
The Inevitable Evolution of Bad Science, TheAtlantic. A simulation shows how the incentives of
modern academia naturally select for weaker and less reliable results.
How to not spend it, Economist.com It is tough for a small democracy to run the
world’s biggest sovereign-wealth fund
Seizing Longevity’s Competitive Advantages,
Nextavenue.com. We are at the beginning
of a longevity revolution. The aging megatrend — caused by increased life
expectancies and plummeting birthrates — will disrupt traditional working
norms, challenge virtually all businesses and transform society’s structure.
Financial Literacy - The Dangerous Educational Gap, etf.com.
The majority of individuals exhibited a
very low degree of financial literacy. For example, almost half of respondents
weren’t able to describe inflation, 55% incorrectly defined risk
diversification, 57% did not correctly define the risk/return relationship, 72%
were not able to compare investment options across expected returns and 67%
showed insufficient understanding of simple interest rates.
Economics Has a Major Blind Spot, Bloomberg. Not all economists need to take politics into
account, but the ones who give policy advice definitely do. All policy is
political as well as technocratic, so econ and political science aren’t really
the separate fields you might think from looking at academic departments. The
era of dispassionate, wise technocratic advisers is over. Like it or not,
economists and their models are now in the thick of the political arena. If
only more were aware of it.
How to hide it: inside the secret world of wealth managers,
theGuardian. Within the world of wealth
management, being obliged to honour debts, pay the costs of government, and
otherwise obey the laws of the land are often seen as offences to liberty. One
training textbook describes the claims of creditors as “risks”, rather than
obligations that borrowers take on voluntarily. Other threats include the legal
system itself, regulation and, of course, taxation.
Harvard Does a Trade You Should Never Make, Ritholtz. Harvard saved about $50 million in pay for
money managers. On the other hand, it looks like it may have sacrificed
billions of dollars in investment returns by hiring less-capable asset
managers.
You're Not as Rich as You Think, Bloomberg. That's perhaps the final irony. Whether real
savings are higher or lower than currently believed, the result may be the
same: a global economy mired in a prolonged period of stagnation.
Public Pensions Are Being Overly Optimistic, Bloomberg. We’re going to talk about the appropriate
discount rate for public-sector defined-benefit pension plans. Do I really dare
to go there? Oh, yes, my friends, I dare.
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