“Nothing focuses your mind like a drawdown,” Kharitonov in WSJ
RETIREMENT FINANCE AND PLANNING
The Return You Need, Dirk Cotton
as the liability's due date approaches, its far safer to
begin shifting to lower duration, lower yielding, liability-matching assets… You
can drown in a river that averages a foot deep and you can go broke in a market
that averages 9% returns over the long-term.
Continuing to work is generally going to be the most
effective way of increasing your retirement spending budget.
Behavioral Impediments to Valuing Annuities: Evidence on the Effects of Complexity and Choice Bracketing; Brown, Kapteyn, Luttmer, Mitchell,
Samek.
This paper examines two behavioral factors that diminish
people’s ability to value a lifetime income stream or annuity, drawing on a
survey of about 4,000 adults in a U.S.
nationally representative sample. Our first main finding is that experimentally
increasing the complexity of the annuity choice reduces respondents’ ability to
value the annuity. We measure lack of ability to value an annuity by the
difference between the sell and buy values people assign to the annuity. Our
second main result is that people’s ability to value an annuity increases when
we experimentally induce them to think jointly about the annuitization decision
and about the decision of how quickly or slowly to spend down assets in
retirement. Accordingly, we conclude that narrow choice bracketing is an
impediment to annuitization, yet the impediment can be lessened with a
relatively straightforward intervention.
I don’t have any sage advice for planning a wedding. (I’m
afraid I wasn’t even much help planning my own.) But I do know that when it
comes to planning for an early retirement, the earlier you start, the better
off you’ll be.
We are seeing a strong correlation between online
decision-making style and projected retirement income, with people who engage
in more reflection also saving more money. Furthermore, once we know how a
person makes their decisions, we can tailor our nudges accordingly. For
example, a person who spent less than 10 seconds on the retirement enrollment
website, and is projected to have a large shortfall, might benefit from greater
digital nudging. Fortunately, smart software can identify those who don’t think
much about their financial future and suggest effective nudges. [big brother?]
Everything I Know About Personal Finance I Learned In Court,
Robert Port
Many of these cases have common themes that teach important
lessons about personal finance—lessons that aren’t covered in the usual
commentary about saving for retirement, paying off credit card debt, and so on.
In particular, six crucial lessons stand out.
Sometimes I read that the 4% Rule is way too conservative
because one can show that for some past retirement cohorts the portfolio would
have grown to some exorbitant amount after 30 years. Of course, as I have
pointed out before, looking at the best possible outcomes or even the median
outcomes after 30 years is not very helpful because the whole idea of
calibrating the SWR is to hedge against a tail risk. To use the airport analogy
again … when I budget my driving time to the airport I like to be 99% sure I
catch my flight. Not 50% sure (median). And certainly not 1% sure (fastest
possible driving time). Then why people look at the best possible outcomes in
Safe Withdrawal exercises is completely beyond me.
MARKETS AND INVESTING
In this presentation, we offer 8 ideas: a diversified set of
marginal improvements that taken together can compound and have a large impact
on investor results.
ALTERNATIVE RISK
In this paper, we use seven years of live data to evaluate
the implementability of momentum investing. We show that live momentum
portfolios are capable of capturing the momentum premium, even after accounting
for expenses, estimated trading costs, taxes, and other frictions associated
with real-life portfolios.
Elasticity of Money is a Feature, not a Bug, Cullen Roche
…the inability to expand the Bitcoin money supply as the
economy evolves is an equally problematic aspect that makes its network
adoption relatively limited in scope. This can probably be resolved with some
form of smart contract and alternative coin, but the fixed supply is an
inherent flaw in Bitcoin’s design that contributes to its flaws as a medium of
exchange.
Downside Variance Risk Premium, Feunou et al. Bank of Canada
Empirically, we demonstrate that the downside variance risk
premium – the difference between option-implied, risk-neutral expectations of
market downside variance and historical, realized downside variances –
demonstrates significant prediction power (that is at least as powerful as the
variance risk premium, and often stronger) for excess returns. We also show
that the difference between upside and downside variance risk premia – our
proposed measure of the skewness risk premium – is both a priced factor in
equity markets and a powerful predictor of excess returns. The skewness risk
premium performs well for intermediate prediction steps beyond the reach of
short-run predictors such as downside variance risk or variance risk premia and
long-term predictors such as price-dividend or price-earning ratios alike. The
skewness risk premium constructed from one month’s worth of data predicts
excess returns from eight months to a year ahead. The same measure constructed
from one quarter’s worth of data predicts monthly excess returns from four
months to one year ahead. We show that our findings demonstrate remarkable
robustness to the inclusion of common pricing variables. Downside variance risk
and skewness risk premia have similar or better forecast ability in comparison
with common predictors. Finally, while these premia are connected to
macroeconomic and financial indicators, they contain useful additional
information. They also markedly react to decisions or announcements that modify
the uncertainty anticipated by market participants.
SOCIETY AND CAPITAL
The hard road of free markets, John Cochrane.
The sad paradox of free markets is that free markets do not
need people to understand them to work. But democracy does require voters to
understand how things work.
Whom to believe? A powerful white man in politics or a black
hotel housekeeper from Africa ? With none of today’s
groundswell of support for women accusers, what might have become a watershed
cultural moment became muddled in doubt.
Part of the reason many people have been left out of the
recent economic progress is these barriers to mobility, which have been called
examples of “opportunity hoarding.” And they don’t just exclude people from
occupations and high-growth areas. Since government-schools systems are
geographically based, land-use restrictions that raise the price of homes near
“high-scoring public schools” can deprive children of educational opportunities
and harm many generations to come.
Visualizing the 4,000 Year History of Global Power,
visualcapitalist
Today’s infographic, created all the way back in 1931 by a
man named John B. Sparks, maps the ebb and flow of global power going all the
way back to 2,000 B.C. on one coherent timeline.
The Double-Edged Sword Why Some Strategies Can Lead to Both Success and Failure, ofdollarsanddata.com
...luck can only disguise skill for so long.
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