When you view the illiquidity of assets, like PE and VC, as
a commitment device then they make a lot more sense. -- Tadas Viskanta
RETIREMENT FINANCE AND PLANNING
Stress-test Your Financial Independence, tenfactorialrocks.com
On one hand is a thrill of finally reaching financial
independence or early retirement (FIRE).
A long cherished goal for many aspirants. The 4% rule is a widely used standard to
mark this accomplishment or if you wish to read up and become very conservative,
you could use 3.27%, but who’s quibbling? On the other hand is a real worry you
may outlive your portfolio. The media
fuels this fear constantly. It’s hard to remain unaffected.
Retirement Savings By Age Show Why Americans Are Screwed,
Financial Samurai.
The main reason why I think more Americans aren’t doing
financially better is due to a lack of education. Why aren’t personal finance
fundamentals indoctrinated in kids by the 12th grade, I don’t know…To be
between 56 – 61 and only have $163,577 in your retirement account means you are
going to be living a spartan life once work stops. If you spend just $33,000 a
year in retirement, your money will run out after five years. Hope must come
from Social Security benefits to help them make it through the golden years.
Why Early Retirement Isn’t as Awesome as It Sounds,
twocents.lifehacker
The researchers find a straight-line relationship between
the percentage of people in a country who are working at age 60 to 64 and their
performance on memory tests. The longer people in a country keep working, the
better, as a group, they do on the tests when they are in their early 60s.
On the Impact of Stochastic Volatility, Interest Rates and Mortality on the Hedge Efficiency of GLWB Guarantees, Marceau &
Veilleux.
[normally, I am not all that interested in insurance
companies but it's worth keeping an eye on how one's potential counterparty
views risk. Interest rate and longevity
risk shouldn't surprise, I guess. Given
that we have lived through a decade where the advantage has (except for the
bull market) not been strictly in the retiree's favor, I'm hoping that will
shift…soon) ]
MARKETS AND INVESTING
Don’t get your hopes up too high about continued
double-digit equity returns over the next decade! …My personal equity return
forecast is just under 4% in real terms and just under 6% nominal. That’s the
rate of return I use for my own projections. It’s also one of the reasons I’m
skeptical about the 4% Rule: How can you withdraw 4% every year if equities
return less than that and bonds hardly return more than inflation? But just
like every forecast, it’s subject to uncertainty. Under pretty reasonable
ranges of estimates, we cover the entire range from 3.5% to 8%.
In spite of several efforts by researchers to overcome the
estimation-risk problem (the use of estimate inputs based on sample information
as if they were representative of the true population) which produces the
so-called “wacky weights”, DeMiguel, Garlappi and Uppal (2009) present striking
evidence that favors a simple 1/N naıve portfolio strategy.
ALTERNATIVE RISK
Volatility As A Strategy, Swedroe
Negative (short) volatility premiums are widespread,
statistically significant and economically meaningful. There was a consistently
positive mean for the spread between implied and realized volatility in all
asset classes and components…Selling volatility is profitable in virtually all
markets nearly all the time, including the five-year period surrounding
September 2008, with a consistently positive mean for volatility returns (but
with fat left tails)… Taken together, these results indicate that buyers offer
insurance-like economic rents to sellers, who earn a steady monthly income in
exchange for bearing ‘crash’ risk—the possibility of severe but empirically
infrequent losses.”
Diversification Benefits Of Time Series Momentum,
alphaarchitect.com
Tobias Moskowitz, Yao Hua Ooi and Lasse Pedersen, showed
that times-series momentum exhibits low correlation with broad bond markets and
near-zero correlation with broad stock markets over the sample period from
January 1985 through February 2017. This means that the returns of a
trend-following strategy are nearly independent of the returns of traditional stock
and bond portfolios. But the time-series momentum factor also has
diversification benefits beyond these simple correlations. The historical
evidence demonstrates that time-series momentum also provides a good hedge
against bear equity markets… "Annualized gross returns were 14.9 percent
over the full period, with net returns (after fees) of 11.2 percent, higher
than the return for equities but with about half the volatility (an annual
standard deviation of 9.7 percent). Net returns were positive in every decade,
with the lowest net return being the 5.7 percent return for the period
beginning in 1910. There were also only five periods in which net returns were
in the single digits. There was virtually no correlation to either stocks or
bonds. Thus, the strategy provides strong diversification benefits while
producing a high Sharpe ratio of 0.77. Even if future returns are not as
strong, the diversification benefits would justify an allocation to the
strategy."
For computerized strategies that are supposed to be making
people obsolete, quants are looking decidedly human in 2017. Program-driven
hedge funds are stumbling, a promising startup has closed, and once-reliable
styles are showing weakening returns. A handful of investment factors, the
wiring of smart-beta funds, have gone dormant.
Trend-Following Won’t Survive. Priceactionlab
“Hedge funds’ problems are increasing as passive investing
popularity is growing. There are no longer many retail counterparties to profit
from. All this talk about quantitative models is hogwash in my opinion. These
models cannot provide alpha to the tune of billions of dollars; they are useful
only to retail quant traders with small accounts.”
SOCIETY AND CAPITAL
Fintech’s Artificial Intelligence Revolution: The Missing Link, CFA institute.
AI brings a unique set of risk challenges. If they are not
well managed, we may create new and greater risks…it is unclear how some forms of
advanced machine intelligence even work. We simply don’t understand how some
machines solve problems with deep learning algorithms. Should something go
wrong, we might not be able to define the problem a solution.
Why Is There a Retirement Crisis? Ben Carlson
My take is that this is more of an expectations crisis than
a retirement crisis. Many people are simply going to have to work longer, live
on less, ratchet down their expectations for retirement or some combination of
the three.
ROBOTS ARE COMING for our jobs—but not all of our jobs.
They’re coming, in ever increasing numbers, for a certain kind of work. For
farm and factory labor. For construction. For haulage. In other words,
blue-collar jobs traditionally done by men. [catchy title but I was not
impressed by the content] https://www.wired.com/story/men-will-lost-the-most-jobs-to-robots/
Why wouldn’t we just feel as rich or as poor as we actually
are? How to Predict If a Borrower Will Pay You Back Answering This Question Can
Help You Better Understand Your Money Habits For one thing, money can be an
emotional topic, and our feelings about it are often synced to how we’re
feeling more broadly. Anxious and pessimistic people may assess their financial
situation too negatively, for example, while some people may be overly
optimistic about their wealth due to fantasies of affluence.
Delusions of Immortality, humbledollar
the more I’ve thought about it, the less promising the
prospects seem—and the less surprised I am by the disappearance of great family
fortunes. That doesn’t mean we shouldn’t try to help future generations. But
our impact is likely to be limited and short-lived, for two reasons.
Do Older Americans Have More Income Than We Think? US
census bureau
When we instead use an extensive array of administrative
income records linked to the same CPS ASEC sample, we find that median
household income was $44,400 (30 percent higher) and the poverty rate was just
6.9 percent. We demonstrate that large differences between survey and
administrative record estimates are present within most demographic subgroups
and are not easily explained by survey design features or processes such as
imputation. Further, we show that the discrepancy is mainly attributable to
underreporting of retirement income from defined benefit pensions and
retirement account withdrawals.
Declining population growth and rising dependency ratios in
the developed world have been one key factor behind the decline in nominal and
real interest rates since the 1980s. Personal savings for retirement are
growing, while investment spending is not rising commensurately, and long-term
economic growth is dampened by slowing or even shrinking work forces. A new ECB
paper suggests that for the euro area these trends will likely continue to
compress interest rates for another 10 years, a challenge for monetary policy
and financial stability.
In a radio interview with WEKU, Kentucky
Go. Matt Bevin suggested last week that instead of covering both tax reform and
the state’s public pension system, the fall legislative session may only tackle
pensions—leaving tax reform for another day.
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