In the middle of the 20th century, the US
economy had the enormous advantage that its workforce was by far the most
skilled in the world. That advantage has largely dissipated. Tim Taylor
GRAPHIC OF THE WEEK
RETIREMENT FINANCE AND PLANNING
Replacing the Failure Rate: A Downside Risk Perspective,
Javier Estrada
The variable proposed here, downside risk‐adjusted
success (D‐RAS), addresses this shortcoming by taking a downside risk
perspective, measuring risk with the semideviation, and therefore with
volatility below a chosen benchmark. This modification leads to the selection
of more plausible strategies than those selected by both the failure rate and
RAS.
The 3 Great Misconceptions About Retirement Saving, Darrow
Kirkpatrick
What did we give up to retire early without having several
million on hand? Two things, primarily: owning a large home, and international
travel. Yes, home ownership is very important to many people, part of their
vision of the “good life.” Just understand that owning a plush home is an
emotional need, and often an expensive one at that. Likewise, international
travel is a prominent image in retirement scenarios: white-clad seniors
frolicking on exotic beaches. For me, at least, this too is an emotional or
symbolic need. I’ll get a lifetime of enjoyment playing in our western
mountains, mostly within a day’s drive of our home in Santa
Fe . And, if you’re willing to search carefully, and
visit when the crowds are gone, you can even find an exotic beach in the U.S.
In his post, Mr. Kitces deftly summarizes the three
Collins/Gadenne geometric metaphors and his understanding of the benefits and
limitations of employing each type of retirement planning strategy. In response to his question “What is the
optimal shape of retirement planning?” Mr. Kitces concludes that the best
approach for retirement planning may involve incorporating elements from all
three shapes.
This paper uses panel data on hypothetical gambles over
lifetime income in the Health and Retirement Study to quantify changes in risk
tolerance over time and differences across individuals. The maximum-likelihood
estimation of a correlated random effects model utilizes information from
12,000 respondents in the 1992-2002 HRS. The results are consistent with
constant relative risk aversion and career selection based on preferences.
Life expectancies fell slightly due to an increase in
mortality from eight of the 10 leading causes of death in the US ,
as reported by the Center for Disease Control and Prevention (CDC), according to the updated scale, known as
MP-2017. MP-2017 also suggests that the
slight decline in life expectancies may
lower pension plan obligations by 0.7—1% when calculated using a 4%
discount rate. Compared to MP-2016, the life expectancies for 65-year-old men
and women declined from 85.8 and 87.8 to 85.6 and 87.6, respectively, in
MP-2017.
When Is Securities-Based Lending Right for Clients? Zohar
Swaine
SBLs are typically used for short-duration or temporary loan
scenarios where short-term liquidity may be necessary, for example, bridge loans
for making a down payment on a house, or paying estimated taxes to cover
temporary cash-flow situations. Though they share some similarities with margin
lending, SBL proceeds are restricted from being used to pay off existing
margin-loan balances or for purchasing additional securities, and are
designated as nonpurpose.
These Five Cognitive Biases Hurt Investors the Most,
VisualCapitalist
There is no shortage of cognitive biases out there that can
trip up our brains. By the last count, there are 188 types of these fallible
mental shortcuts in existence, and they constantly impede our ability to make
the best decisions about our careers, our relationships, and for building
wealth over time.
For sound effects while reading this, you could get your
children or grandchildren to murmur behind you “We know it can’t. We know it
can’t.” while you consider whether the market can deliver total returns of
7%/year over the next 10 years.
ALTERNATIVE RISK
Why Don’t MLPs Do Buybacks? SL advisors
They like their distributions but they don’t like
reinvesting them through secondary offerings or IPOs. This relative
tight-fistedness has exposed the comparative largesse of MLPs in distributing
most of their cashflow at a time when the Shale Revolution has created
opportunities to put it back into their businesses. This is why many large MLPs
have concluded that the structure doesn’t work if you need to raise a lot of
money. Kinder Morgan was the first to
pursue “simplification”, which by now is understood to result in reduced
payouts, freeing up more cash for investing in new projects and therefore less
need to issue equity at high yields.
Algo trading: meet cognitive bias, PriceActionLab
SOCIETY AND CAPITAL
Facebook, Tribalism, and the Search for Meaning, Lauren
Foster
"In search of meaning. This quest emerges every now and
then, usually spurred by something I’ve heard or read. But not always.
Sometimes it just materializes."
Cicero: On Grazing, Money-Lending, and Murder, Tim Taylor
"To this class of comparisons belongs that famous
saying of old Cato's: when he was asked what was the most profitable feature of
an estate, he replied: “Raising cattle successfully.” What next to that?
“Raising cattle with fair success.” And next? “Raising cattle with but slight
success.” And fourth? “Raising crops.” And when his questioner said, “How about
money-lending?” Cato replied: “How about murder?” [Cicero ]
Piketty's Inequality Theory Gets Dinged, Bloomberg
The scant quantity and unreliability of the 19th century
data, and the heroic assumptions Piketty makes in order to fit that data, drive
Sutch to exasperation: "[Piketty's] heavily manipulated data, the lack of
clarity about the procedures used to harmonize and average the data, the
insufficient documentation, and the spreadsheet errors are more than annoying.
Very little of value can be salvaged from Piketty’s treatment of data from the
nineteenth century."
Harwood vs. Keynes, AIER
Inflation…is a tricky kind of legalized theft…[it] “robs
millions of citizens who in their desire to be self-reliant have set aside
funds for the education of their children or their own retirement, and it hits
many of the poor and elderly especially hard.”
The decade of the last recorded case of polio by country,
Ourworldindata
How to Remember What You Read, Farnamstreet
The more that active readers read, the better they get. They
develop a latticework of mental models to hang ideas on, further increasing
retention. They learn to differentiate good arguments and structures from bad
ones. They make better decisions because they know what fits with the basic
structure of how the world works. They avoid problems. The more they read, the
more valuable they become. The more they read, the more they know what to look
for.
Even a deal in Congress won’t prevent insurance hikes.
The U.S.
states are confronted with a choice between generations: students and retirees.
The retirees are winning. Is it any wonder younger Americans are increasingly
losing trust in the nation’s institutions? Waning trust is dangerous. Waning
trust compounded by resentment is potentially toxic.
Maybe Index Funds Will Destroy Capitalism, Matt Levine
"finance…the enforcement arm of the capitalist class as
a whole"
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