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Re: Diversification in practice: Investing from Australia

Thanks Daffyd, a very interesting post. I hold the equity component of my portfolio in the proportion 60/40 foreign/Australian, both to diversify away from Australia in general, and also to avoid the heavy concentration in the Australian market in particular. But now I confess to being alarmed by th...
by JamesG
Sun Sep 07, 2014 8:08 am
 
Forum: Investing - Theory, News & General
Topic: Diversification in practice: Investing from Australia
Replies: 22
Views: 2154

Re: International investing. A good call by our mentor.

Because central banks now do well in their inflation targeting, in the medium to long term, movements in nominal exchange rates between advanced economies reflect real exchange rate movements. So, is the import-intensity of consumption a relevant (although perhaps minor) additional factor in this di...
by JamesG
Thu Aug 07, 2014 4:03 am
 
Forum: Investing - Theory, News & General
Topic: International investing. A good call by our mentor.
Replies: 145
Views: 12964

Re: The Nokia problem (or simply, excessive equity home bias

I see - you are also over-weighting the domestic (U.K.) stocks a bit. Perhaps this is for tax reasons? I think I must do some homework to understand the tax implications of domestic vs foreign equity holdings. I suspect that with the Australian stocks, I receive a higher crediting rate on company in...
by JamesG
Thu Nov 28, 2013 11:56 pm
 
Forum: Investing - Theory, News & General
Topic: The Nokia problem (or simply, excessive equity home bias?)
Replies: 7
Views: 915

Re: The Nokia problem (or simply, excessive equity home bias

Hello,

Thank you very much for your feedback. I think I agree that the basic issue is one of insufficient international diversification.

Thanks again,
James
by JamesG
Thu Nov 28, 2013 4:52 am
 
Forum: Investing - Theory, News & General
Topic: The Nokia problem (or simply, excessive equity home bias?)
Replies: 7
Views: 915

The Nokia problem (or simply, excessive equity home bias?)

Hello, I’ve named this post after the historical episode (perhaps somewhat apocryphal) whereby Nokia at one time constituted a major (I think I once heard 80%?) fraction of the Finnish stock market. My question is, should a retail investor be following a market capitalisation indexing strategy for t...
by JamesG
Wed Nov 27, 2013 1:50 pm
 
Forum: Investing - Theory, News & General
Topic: The Nokia problem (or simply, excessive equity home bias?)
Replies: 7
Views: 915

Re: Beware of Financial Planning’s Misguided Rules-of-Thumb

Dear Bob, Thank you very much for this review of the key texts, and your insights into the best starting points for gaining entry to the material. This looks like exactly the reading list I have been looking for. I'll start first with the Bodie and Hogan articles, and the 1992 Bodie et al. paper. Th...
by JamesG
Tue Nov 19, 2013 4:09 am
 
Forum: Investing - Theory, News & General
Topic: Beware of Financial Planning’s Misguided Rules-of-Thumb
Replies: 51
Views: 5259

Re: Beware of Financial Planning’s Misguided Rules-of-Thumb

Hi Keith, Thank you very much for those suggestions. Should the U.S. be looking Australia's way? I'm not sure. I think our systems, from a God's-eye perspective, are probably quite similar: (i) a shift from the public sphere to the private sphere in responsibility for achieving individual retirement...
by JamesG
Tue Nov 19, 2013 12:24 am
 
Forum: Investing - Theory, News & General
Topic: Beware of Financial Planning’s Misguided Rules-of-Thumb
Replies: 51
Views: 5259

Re: Beware of Financial Planning’s Misguided Rules-of-Thumb

Hello, Can anyone suggest some references (at the undergraduate/postgraduate econ level) that collects the academic literature on these topics and presents a rigorous approach to personal financial planning? I am aware of the following book (which I am about to purchase): "Strategic Financial P...
by JamesG
Mon Nov 18, 2013 9:15 pm
 
Forum: Investing - Theory, News & General
Topic: Beware of Financial Planning’s Misguided Rules-of-Thumb
Replies: 51
Views: 5259

Re: What would a boglehead consider a "good" return?

Dear Badmajon, It is best to do your calculations in real after tax terms. You could calculate this to the second decimal place knowing: the current distribution of interest rates and yields across asset classes, your asset allocation across asset classes, and the distribution of your assets across ...
by JamesG
Fri Oct 11, 2013 5:24 am
 
Forum: Investing - Theory, News & General
Topic: What would a boglehead consider a "good" return?
Replies: 52
Views: 3540

Re: "Optimal Portfolios for the Long Run."

It's also the case that as you approach retirement you have much less safe human capital in terms of future contributions by yourself and your employer to your retirement through SS, DB pension plan, DC pension plan, cash balance plan, IRA, non-tax advantaged personal savings, etc. This ramps up th...
by JamesG
Sun Oct 06, 2013 2:47 pm
 
Forum: Investing - Theory, News & General
Topic: "Optimal Portfolios for the Long Run."
Replies: 65
Views: 8341

Re: Asset allocation vs Net worth. The boglehead money illus

Dear LH, Certainly it pays to avoid "money illusion" when making long-run retirement plans. Being new to this forum, I am not sure what is the general preference among Bogleheads, but I try to do all my calculations in post-tax real terms. I suspect this is not quite what you had in mind -...
by JamesG
Sat Oct 05, 2013 7:22 am
 
Forum: Investing - Theory, News & General
Topic: Asset allocation vs Net worth. The boglehead money illusion?
Replies: 28
Views: 4070

Re: Why do stocks go up beyond the rate of inflation?

Dear Clive, That’s a great graph – very helpful for this discussion – thank you. Taking these indices at face value, there are several interesting episodes: (i) 1890-1920: Real income index declined (a lot!). Real stock prices fell by approximately the same % amount. Hence, rates of return on shares...
by JamesG
Mon Sep 30, 2013 7:08 am
 
Forum: Investing - Theory, News & General
Topic: Why do stocks go up beyond the rate of inflation?
Replies: 75
Views: 6235

Re: Why do stocks go up beyond the rate of inflation?

I would reword it as a) plus b), but without the bit extra. Basically, how can it be that dividends will grow at the rate of inflation and pay you consistently, while the market price rises with inflation as well... And thus when reinvesting dividends you will grow faster than inflation. Similar to...
by JamesG
Sun Sep 29, 2013 7:17 am
 
Forum: Investing - Theory, News & General
Topic: Why do stocks go up beyond the rate of inflation?
Replies: 75
Views: 6235

Re: Retirement consumption target-appropriate ratio to curre

Thank you to everyone for your thoughts on this topic. With some caveats, there seems to be some agreement that a steady 1:1 rule is a reasonable working rule for planning purposes. Thanks again. Cheers, James.
by JamesG
Sat Sep 28, 2013 7:47 am
 
Forum: Investing - Theory, News & General
Topic: Retirement consumption target-appropriate ratio to current C
Replies: 20
Views: 1540

Re: Retirement consumption target-appropriate ratio to curre

Thank you for your thoughts. I agree that consumption (not earnings) is the right metric. I do all my calculations in real terms. I think i'm reasonably good at calculating full consumption (right down to imputed rent on owner-occupied dwelling, and accruals for long run car replacement costs and sc...
by JamesG
Fri Sep 20, 2013 6:48 am
 
Forum: Investing - Theory, News & General
Topic: Retirement consumption target-appropriate ratio to current C
Replies: 20
Views: 1540

Retirement consumption target-appropriate ratio to current C

Hello, I would be very keen to hear the views of Bogleheads on the appropriate income to be targeting in retirement planning. We are presently aiming to accumulate assets sufficient to finance a level of consumption equal to current consumption. We like the "current consumption" target bec...
by JamesG
Tue Sep 17, 2013 6:42 am
 
Forum: Investing - Theory, News & General
Topic: Retirement consumption target-appropriate ratio to current C
Replies: 20
Views: 1540

Re: Asset allocation and early retirement planning

I suspect that you need to work backwards from your exogenous setting for the ratio of safe/risky income streams at your date of retirement. That is, (a) one part of your retirmenent income will be derived from the safe "flooring" component of your portfolio, comprised of inflation-protect...
by JamesG
Sat Sep 14, 2013 4:43 am
 
Forum: Investing - Theory, News & General
Topic: Asset allocation and early retirement planning
Replies: 33
Views: 2619

Re: Why do stocks go up beyond the rate of inflation?

James I think it has to be nominal GDP growth, not inflation. Dear ValueThinker, I think that assuming share price growth equal to nominal GDP growth will get the long term investor into trouble. Remember, I am assuming a hypothetical world where all post-depreciation profits are paid out as divide...
by JamesG
Fri Sep 13, 2013 3:09 am
 
Forum: Investing - Theory, News & General
Topic: Why do stocks go up beyond the rate of inflation?
Replies: 75
Views: 6235

Re: Why do stocks go up beyond the rate of inflation?

Valuethinker - thank you for your observations on the relative yields of U.S. and Australian stocks. I agree with many of your points. But I think I have just muddied the waters by making the comparison of cross-country yields. Let me start again. Imagine a simple world without taxation law or other...
by JamesG
Sun Sep 08, 2013 4:22 am
 
Forum: Investing - Theory, News & General
Topic: Why do stocks go up beyond the rate of inflation?
Replies: 75
Views: 6235

Re: Why do stocks go up beyond the rate of inflation?

(1) Does the long run historical data really support this proposition? I am skeptical. (2) Unless the cost of new units of capital is also rising faster than consumer price inflation, the proposition would seem to be supporting the notion of a long run secular increase in Tobin's q. Again, perhaps ...
by JamesG
Sat Sep 07, 2013 2:48 am
 
Forum: Investing - Theory, News & General
Topic: Why do stocks go up beyond the rate of inflation?
Replies: 75
Views: 6235

Re: It’s the income, stupid!

BobK, Thank you very much for the clarification. This discussion reminds me of a story told by a colleague a few months ago. Visiting the superannuation office on the Friday of their retirement, upon learning of their accumulated retirement balances, his parents left esctatic, having never felt rich...
by JamesG
Sat Sep 07, 2013 1:18 am
 
Forum: Investing - Theory, News & General
Topic: It’s the income, stupid!
Replies: 139
Views: 17005

Re: Why do stocks go up beyond the rate of inflation?

One thing I forgot is that, to my knowledge, U.S. tax law discourages payment of dividends (relative to, say, Australia, which has a system of crediting individual tax payers for the corporate taxes already paid on their dividend receipts). I suspect this is a major reason why average dividend yield...
by JamesG
Sat Sep 07, 2013 1:01 am
 
Forum: Investing - Theory, News & General
Topic: Why do stocks go up beyond the rate of inflation?
Replies: 75
Views: 6235

Re: Why do stocks go up beyond the rate of inflation?

(1) Does the long run historical data really support this proposition? I am skeptical. (2) Unless the cost of new units of capital is also rising faster than consumer price inflation, the proposition would seem to be supporting the notion of a long run secular increase in Tobin's q. Again, perhaps t...
by JamesG
Fri Sep 06, 2013 6:46 am
 
Forum: Investing - Theory, News & General
Topic: Why do stocks go up beyond the rate of inflation?
Replies: 75
Views: 6235

Re: It’s the income, stupid!

BobK, Thank you for this stimulating discussion. In your earlier post in this discussion, you said "For most Americans SS will provide roughly 50% of their aspirational retirement income goal. Their personal investments need to supply the other half. The safe floor might be something like SS an...
by JamesG
Tue Sep 03, 2013 8:06 am
 
Forum: Investing - Theory, News & General
Topic: It’s the income, stupid!
Replies: 139
Views: 17005

Re: Asset allocation within "Flooring" portfolio

Thank you again for your explanations. I have found them very helpful. You lay out the problem with textbook clarity, and I am very grateful. I think I now better understand the relationship between the flooring and aspirational portfolio components. I think I now also better understand the main rol...
by JamesG
Fri May 10, 2013 5:23 am
 
Forum: Investing - Help with Personal Investments
Topic: Asset allocation within "Flooring" portfolio
Replies: 13
Views: 1396

Re: Asset allocation within "Flooring" portfolio

Thank you for your insights. You state the problem very clearly: two goals require two instruments. The price of an Australian joint life annuity proved as high as I feared: $0.5m. for a real annual $20.4k. I guess this is not surprising, with real interest rates at approximately 0%. It turns out th...
by JamesG
Mon May 06, 2013 6:54 am
 
Forum: Investing - Help with Personal Investments
Topic: Asset allocation within "Flooring" portfolio
Replies: 13
Views: 1396

Re: Asset allocation within "Flooring" portfolio

Dear BobK, Thank you for the clarification. I like your suggestion of targetting, for flooring purposes, steady accumulation of the price of an annuity at retirement. I understand that the argument does not presume eventual purchase of an annuity. I might ring my superannuation fund on Monday and as...
by JamesG
Sat May 04, 2013 11:21 pm
 
Forum: Investing - Help with Personal Investments
Topic: Asset allocation within "Flooring" portfolio
Replies: 13
Views: 1396

Re: Asset allocation within "Flooring" portfolio

Dear BobK, Thank you very much for your reply. I will think carefully about your first paragraph. My wife and I are 44, and planning to work another twenty+ years. Our plan is, each year to age 65, to put aside the present value of the year t+20 consumption "flooring". With post-tax real r...
by JamesG
Sat May 04, 2013 10:30 pm
 
Forum: Investing - Help with Personal Investments
Topic: Asset allocation within "Flooring" portfolio
Replies: 13
Views: 1396

Asset allocation within "Flooring" portfolio

Hello, Firstly, thank you for this great site. I have been reading it for many months, but this is my first post. I recently read Zwecher's "Retirement Portfolios". I was led to this book in my effort to better understand Bill Bernstein's recent references to "liability matching portf...
by JamesG
Sat May 04, 2013 7:52 pm
 
Forum: Investing - Help with Personal Investments
Topic: Asset allocation within "Flooring" portfolio
Replies: 13
Views: 1396

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