Historical data shows that you haven’t died, yet it would be
foolish to consider yourself immortal. Ron Piccinini
RETIREMENT FINANCE AND PLANNING
Building a Safe Floor of Retirement Income — in Advance. Mike
Piper
The solution, rather than buying a bunch of bonds that
mature when you turn 70, would be to work on building bond holdings that, when
you turn 70, will still have a duration roughly equal to that of the annuity
you expect to purchase. This way, the market value of your bonds will rise/fall
along with the cost of such an annuity, helping to offset the interest rate
risk that you face with the annuity purchase. https://obliviousinvestor.com/building-a-safe-floor-in-advance/
The New Glide Path, Corey Hoffstein
In practice, investors and institutions alike have spending
patterns that makes the sequence of market returns a relevant risk factor… For
retirees making constant withdrawals, sustained declines in portfolio value
represent a significant risk. Trend-following has demonstrated historical
success in helping reduce the risk these types of losses… Using backward
induction and a number of simplifying assumptions, we generate a glide path
based upon investor age and level of wealth. We find that trend-following
receives a significant allocation – largely in lieu of equity exposure – for
investors early in retirement and whose initial consumption rate closely
reflects the 4% level…. we find that trend following commands a significant
allocation, particularly in the years and wealth levels where sequence risk is
highest, and often is allocated to in lieu of equities themselves. https://blog.thinknewfound.com/2018/07/the-new-glide-path/
Insights from Life-Cycle Financial Planning, Joe Tomlinson
Research on life-cycle economics and consumption smoothing has a rich history in economics stretching back almost 100 years, and more than a dozen Nobel laureates have contributed to the field of study. Unfortunately, this economics approach has not crossed over to the mainstream financial advice community. But, for the types of issues advisors encounter, it provides both a general unifying theme as well as sensible approaches for particular issues, and therefore deserves more attention. https://www.advisorperspectives.com/articles/2018/07/02/insights-from-life-cycle-financial-planning
Are Your Clients Not Spending Enough in Retirement? M
Statman
Self-control can be excessive. Indeed, excessive
self-control is as prevalent as insufficient self-control. Excessive
self-control is evident in the tendency to spend less today than our ideal
level of spending, driving tightwads to extremes beyond frugality. The prospect
of spending money inflicts emotional pain on tightwads even when it might
otherwise be in their interest to spend. .. Balance, while we have the
resources to seek balance, is important to a fulfilling retirement. [keep in
mind this is written by someone not retired.
Also, using Taleb’s framework, we can maybe say that as one gets less
stingy and closer to this writer’s “balance” the retiree will move from anti
fragile towards fragile…at a non linear rate of change. Beware of working PhD’s bearing advice] https://www.onefpa.org/journal/Pages/NOV17-Are-Your-Clients-Not-Spending-Enough-in-Retirement.aspx
In the Cards, Andrew Grossman at Humble Dollar
some questions just don’t matter. The financial world is unendingly complex, and it can be easy to get distracted by arcane questions that appear to be important. Whenever a question comes to mind, always ask yourself whether it would make any difference to your financial future. That may allow you to tune out questions that otherwise would consume unnecessary mental energy. http://www.humbledollar.com/2018/07/in-the-cards/
The Ideal Financial Scenario In Retirement: Conservative
Returns, Steady Income, Fin. Samurai
Financial loss creates stress. And given stress kills, your
goal as a retiree should be to remove as much stress from your life to live as
long and happy as possible. https://www.financialsamurai.com/ideal-retirement-scenario-conservative-returns-and-a-steady-income/
Ten things the “Makers” of the 4% Rule don’t want you to
know, ERN
I started out as a skeptic about the so-called “4% Rule” and
I thought it might the time to poke a little bit of fun at the “makers of the
4% Rule.” Just to be clear, this post and the title are a bit tongue-in-cheek.
Obviously, the “makers” of the 4% Rule, the academics, financial planners and
bloggers that have popularized the rule aren’t part of any conspiracy to keep
us in the dark. Sometimes I have the feeling they are still in the dark
themselves! So here are my top ten things the Makers of the 4% Rule don’t want
you to know… https://earlyretirementnow.com/2018/06/27/ten-things-the-makers-of-the-4-rule-dont-want-you-to-know/
Understanding FIRE: a philosophy for financial independence
and retiring early, work.QZ
FIRE is an indirect rebellion against consumerism. https://work.qz.com/1274905/understanding-fire-financial-independence-and-retiring-early/
The biggest challenges of early retirement, businessinsider
“While I have not experienced much of any of the downsides
associated with early retirement, I have followed the subject closely for years
and realize there are some. With that said, I'd like to share ten early retirement
downsides to consider as part of an early retirement decision. I'll also
include ways I've overcome some of these, plus suggestions for avoiding them.”
[highly relatable except for 4 and 9] https://amp-businessinsider-com.cdn.ampproject.org/c/s/amp.businessinsider.com/challenges-downsides-early-retirement-advice-2018-6
The Advisor & The Quant: Is the 4% Rule Dead? Thinkadvisor
When we pair new research with the practical challenges of
actually implementing a 4% rule, the result should be clear. The 4% rule is
dead. In retirement, the stakes are simply too high to rely on a rule of thumb.
Strong financial planners use strong tools to come up with reasonable “crash
tests” based on the holdings of the portfolio. They consider lumpy cash flows,
Social Security and other guaranteed income sources and account for taxes and
fees to arrive at a reasonable withdrawal strategy. https://www.thinkadvisor.com/2018/07/03/the-advisor-the-quant-is-the-4-rule-dead/
1972 Retirement, a type 2 error, EREVN
As humans we tend to care more about downside than upside,
so missing out on the big upside of high withdrawals at age 90 isn’t a big
negative. https://medium.com/@justusjp/1972-retirement-a-type-2-error-94c8760787fd
MARKETS AND INVESTING
It Ain't What You Don't Know That Gets You Into Trouble,
Asness
The size effect paper is the easier one to discuss in a
short blog. There isn’t one. That is, there isn’t a pure size effect (there is
a paper). In fact, there never was a size effect. https://www.aqr.com/Insights/Perspectives/It-Aint-What-You-Dont-Know-That-Gets-You-Into-Trouble
Dividend Policy & Stock Returns, Swedroe
The implication of Mozes’ work is that, at least at the
country level, investors interpret changes in dividend policy in the way
economic theory would predict: Increases in dividend payout rates signify a
reduction in a country’s investment opportunity set and so are interpreted by
investors as bad news. The reverse holds as well. http://www.etf.com/sections/index-investor-corner/swedroe-dividend-policy-stock-returns
The Knowing-Doing Gap in Behavioral Finance, cfainstitute
Even those who value behavioral finance insights tend only
to use them to demonstrate their awareness of cognitive biases, not to apply
behavioral finance solutions to improve decision making. https://blogs.cfainstitute.org/investor/2018/07/03/the-knowing-doing-gap-in-behavioral-finance/
Updated “Lecture Notes,” ergodicity economics https://ergodicityeconomics.com/lecture-notes/
Ch.1: discussion of random variable, stochastic processes,
ergodicity.
Ch.2: general mapping dynamics utility function (beyond
Kelly, includes historical example of square-root Cramer utility).
Ch.3: log-normals vs. power laws, sums of log-normals,
random-energy model.
Ch.4: New chapter. Re-allocating Geometric Brownian Motion
(RGBM). Analytic solution of RGBM. Analysis of US wealth data.
Ch.5: Applications of stochastic market efficiency: solution
of the equity premium puzzle, central-bank interest rate setting, fraud
detection, a theory of noise. New data analysis, including tests of predictions
for SP500 total return, DAX, bitcoin, Bernie Madoff’s Ponzi scheme.
ALTERNATIVE RISK
Term premia and macro factors, sr-sv
long-term inflation expectations plausibly shape the
long-term trend in yield levels. Also cyclical fluctuations in inflation and
unemployment explain slope and curvature to some extent. A recent IMF paper
proposes a methodology for integrating macroeconomic variables in a
conventional affine term structure model.
http://www.sr-sv.com/term-premia-and-macro-factors/
SOCIETY AND CAPITAL
There are plenty of ways to get rich — start a business,
save & invest wisely, inherit money, get lucky, etc. But staying rich
involves just a few simple things — self-awareness, modesty, and the ability to
delay gratification with a portion of your capital. Ben Carlson http://awealthofcommonsense.com/2018/07/sustaining-wealth-is-harder-than-getting-rich/
The Myth of Dynastic Wealth: The Rich Get Poorer, Arnott,
Woo, Bernstein 2015
Ten of these forces are identified by Arnott, Bernstein, and
Wu. They include low security returns, investment expenses, income and capital
gains taxes, performance chasing and poor investment decisions, charitable
giving, hedonic readjustment of the standard of living, division among heirs,
estate taxes, estate and tax battles, and last but not least, spending. They
estimate the cost of these forces to be 10% a year of return (1% for each) over
an investment portfolio’s lifetime. This assumption translates into a real
return for an investment portfolio of −5% a year, given Piketty’s assumption of
a 5% real return. That means real net worth would be slashed in half every 14
years—and the authors believe this to be a best case scenario. https://www.researchaffiliates.com/en_us/publications/journal-papers/359_the_myth_of_dynastic_wealth_the_rich_get_poorer.html
The Sum of the Sandbags Doesn’t Equal the Sandbag of the
Sum, www.probabilitymanagement.org
Sandbagging is the practice of padding one’s budget to avoid
running out of money in the face of an uncertain forecast… To achieve the
desired 90% confidence, the CFO might need only $105M, which we refer to as the
Sandbag of the Sum. So, in this case, $5M is just lying around gathering dust
instead of being available as investment capital. If you don’t think that’s a
big deal, go out and try raising $5M sometime. And this problem only compounds
as you roll up layers upon layers of fat through a multi-tiered organization.
Black-White Income and Wealth Gaps, Tim Taylor
African-American households are experiencing real and severe
economic disadvantages in the US economy. https://conversableeconomist.blogspot.com/2018/07/black-white-income-and-wealth-gaps.html
Soros to Bankroll Personal Injury Lawsuits, CIO
The billionaire’s Soros Fund Management ($27 billion) is
bankrolling a company called Mighty Group, which gives cash advances to
plaintiffs in hopes of settlements, and takes a cut of the money https://www.ai-cio.com/news/soros-bankroll-personal-injury-lawsuits/
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