Search found 6021 matches

by bobcat2
Wed Mar 27, 2024 12:12 pm
Forum: Investing - Theory, News & General
Topic: Daniel Kahneman dies at 90
Replies: 11
Views: 2299

Daniel Kahneman dies at 90

Daniel Kahneman, an Israeli-American psychologist and best-selling author whose Nobel Prize-winning research upended economics — as well as fields ranging from sports to public health — by demonstrating the extent to which people abandon logic and leap to conclusions, died March 27. He was 90.
Link - https://www.washingtonpost.com/obituari ... tion=alert

BobK
by bobcat2
Mon Mar 25, 2024 9:38 am
Forum: Investing - Theory, News & General
Topic: International (Non-US) versus US Equities (The "Arguments")
Replies: 5351
Views: 905381

The Economist weighs in on US vs foreign equity investing

[Thread merged into here --admin LadyGeek As markets soar, should investors look beyond America? The country’s stocks are extremely expensive From the Economist - None of this, though, stops anyone from worrying that the valuations of the stocks leading today’s bull run have become too high to offer stellar future returns. A widely watched metric for this is the cyclically adjusted price-to-earnings (cape) ratio devised by Robert Shiller of Yale University, which divides prices by the past decade’s-worth of inflation-adjusted earnings. For America’s s&p 500 index, the cape has been higher than it is today only twice: at the peak of the dotcom bubble, and just before the crash of 2022. Even if a crash does not follow, a high cape ratio ...
by bobcat2
Sat Feb 10, 2024 3:55 pm
Forum: Investing - Theory, News & General
Topic: New article casting doubt on index investing
Replies: 51
Views: 6621

Re: New article casting doubt on index investing

Lauretta wrote: Fri Feb 09, 2024 3:48 am
(Charles) Gave points out that the US stock market is now about 70% of world market capitalization...
The US stock market is now a little over 60% of global market capitalization - not about 70%.

Link to 60% source - https://www.aaii.com/etf/ticker/VT#:~:t ... %20stocks.

BobK
by bobcat2
Thu Feb 08, 2024 10:48 am
Forum: Investing - Theory, News & General
Topic: Should you buy I bonds if Retired
Replies: 51
Views: 8426

Re: Should you buy I bonds if Retired

Mel Lindauer wrote: Wed Feb 07, 2024 9:23 pm For those espousing TIPS instead of I Bonds, I would argue that a combination of BOTH would be ideal. Remember, TIPS can lose money if redeemed prior to maturity whereas I Bonds can never lose principle, and thus offer greater flexibility since they can be redeemed anytime between one and thirty years. Thus, someone who owns both TIPS and I Bonds could use the I Bonds for their flexible/unforeseen needs which would allow them to hold their TIPS to maturity, thus eliminating any possible loss. So the combination of the two offers the best of both worlds (a higher TIPS real rate at present and the flexibility of the I Bonds.)
Yes. In general put I-bonds in your taxable account and TIPS in your tax advantaged accounts.

BobK
by bobcat2
Wed Feb 07, 2024 8:49 pm
Forum: Investing - Theory, News & General
Topic: Should you buy I bonds if Retired
Replies: 51
Views: 8426

Re: Should you buy I bonds if Retired

I-bonds purchased at age 70 and up are essentially real life annuities, which you can't purchase any more in the US. What's not to like? :happy And unlike TIPS, you don't have to strategize on how to match them to spending liabilities. The matching to spending liabilities is baked in with I-bonds.

Nor do you have to determine what to do with twice a year coupons that TIPS bonds produce. Instead the interest and inflation adjustments are automatically reinvested with I-bonds. Also, unlike TIPS where taxes on coupons and inflation adjustments are taxed in the year received, with I-bonds taxes on interest and inflation adjustments are deferred until the bonds are redeemed.

BobK
by bobcat2
Sat Feb 03, 2024 4:55 pm
Forum: Investing - Theory, News & General
Topic: Lifecycle Investing Challened - Scott Cederburg
Replies: 83
Views: 8023

Re: Lifecycle Investing Challened - Scott Cederburg

The conclusion of the paper suggests that the logical extension of this line of reasoning would be that always holding 110% equities would give even better results. :D

BobK
by bobcat2
Fri Feb 02, 2024 11:45 am
Forum: Personal Finance (Not Investing)
Topic: Rob Berger interviews Mike Piper
Replies: 46
Views: 6002

Re: Rob Berger interviews Mike Piper

. It seems that a healthy person in their 60s should consider delaying social security to age 70 for the following reasons: Lower taxes on social security (max 85% taxable) compared to taxable or traditional IRA accounts (100% taxable). Here is another reason most people in their 60s should consider delaying social security to age 70. In most states with state income taxes there is no tax on social security benefits compared to taxable or traditional IRA accounts (100% state taxable) and most states have state income taxes. So for most of the elderly over 79 state income taxes go away or practically go away because so much of their income comes from social security. Percentage of aged beneficiary units age 65 and older receiving Social Sec...
by bobcat2
Thu Jan 25, 2024 6:30 pm
Forum: Personal Consumer Issues
Topic: Vanguard website issues
Replies: 42
Views: 4809

Re: Vanguard website issues

I just checked my balances at Vanguard 10 minutes ago and had no issues. Vanguard logon was about 7:20 pm.

BobK
by bobcat2
Tue Jan 23, 2024 2:57 pm
Forum: Personal Finance (Not Investing)
Topic: Most popular boglehead withdrawal strategy
Replies: 117
Views: 13135

Re: Most popular boglehead withdrawal strategy

An annual range
Minimum - RMD rate applied to all assets intended for retirement income.
Safe maximum - RMD rate applied to all assets intended for retirement income plus amount of last year's dividends and interest from those assets.

CAN RETIREES BASE WEALTH WITHDRAWALS ON THE IRS’ REQUIRED MINIMUM DISTRIBUTIONS?
Link to above article - https://crr.bc.edu/wp-content/uploads/2 ... 19-508.pdf

But the important aspect of all withdrawal strategies is the safer the portfolio, then the safer the withdrawals regardless of the strategy. There is no safe withdrawal strategy from a risky portfolio. :(

I believe this is amoritization method based on life expectancy of longest lived of a couple. So fairly conservative.

BobK
by bobcat2
Tue Jan 23, 2024 2:26 pm
Forum: Personal Investments
Topic: Advisor recommendation near Boston
Replies: 5
Views: 487

Re: Advisor recommendation near Bostin

Rick Miller of Sensible Financial Planning in Waltham.

Link to Rick at Sensible Financial - https://www.sensiblefinancial.com/people/rick-miller/

Link to main web page of Sensible Financial - https://www.sensiblefinancial.com/

There are financial planners in the US about as good as Rick. There aren't any that are appreciably better, unless you have special needs as an extremely wealthy household.

BobK
by bobcat2
Wed Jan 17, 2024 4:38 pm
Forum: Personal Investments
Topic: If You Willing To Tolerate More Risk For Higher Returns Which Tilt(s)?
Replies: 26
Views: 2458

Re: If You Willing To Tolerate More Risk For Higher Returns Which Tilt(s)?

Hi Ned,
I wouldn't say I am advocating for leverage. But if someone wanted wanted higher returns from their equities and the choices were putting more assets into the factor zoo or putting assets into LEAPS indexed calls, my advice would be buy the LEAPS.

BobK
by bobcat2
Wed Jan 17, 2024 4:20 pm
Forum: Personal Investments
Topic: If You Willing To Tolerate More Risk For Higher Returns Which Tilt(s)?
Replies: 26
Views: 2458

Re: If You Willing To Tolerate More Risk For Higher Returns Which Tilt(s)?

Leverage :thumbsup :thumbsup Leverage is the explicit tilt, so replace some of your equity holdings with LEAPS. BobK Wow. Mr. Ultra-Cautious investor now advocates leveraging stocks. In other news, Hell froze over. :wink: Perhaps we could get an explanation. Thanks. Hi nedsaid, I have been fairly consistent about this. Here is part of something I posted nearly 10 years ago. Having 5% of your portfolio in LEAPS call options is not very risky. Having 100% of your portfolio in equities is very risky. The risk in a 105% equity portfolio isn't the 5%, it's the 100%. See the following link for the above thread which was locked because I argued that 105% equity using options wasn't much riskier than 100% equity without using options and many othe...
by bobcat2
Wed Jan 17, 2024 2:33 pm
Forum: Personal Investments
Topic: If You Willing To Tolerate More Risk For Higher Returns Which Tilt(s)?
Replies: 26
Views: 2458

Re: If You Willing To Tolerate More Risk For Higher Returns Which Tilt(s)?

KingRiggs wrote: Wed Jan 17, 2024 2:24 pmLeverage
:thumbsup :thumbsup

Leverage is the explicit tilt, so replace some of your equity holdings with LEAPS.

BobK
by bobcat2
Tue Jan 09, 2024 2:14 pm
Forum: Investing - Theory, News & General
Topic: Explain the benefit of bond fund duration matching to me
Replies: 59
Views: 6886

Re: Explain the benefit of bond fund duration matching to me

Some advantages of the bond-fund LMP approach. I borrow heavily from posts by BobK in this thread: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=240325 1) Using duration-matching with bond funds requires managing only two assets: a TIPs fund with a shorter duration and one with a longer duration. A TIPs bond ladder is more difficult to set up and manage. 2) Reinvestment of interest payments is automatic with bond funds; not with a TIPs ladder. 3) If the investor has equity and bond holdings being used for retirement income, beyond the two TIPS funds, then if stocks have an outstanding year the excess returns can be easily invested into the TIPS funds to raise the annual safe income for all the remaining steps of "laddered&...
by bobcat2
Sun Jan 07, 2024 10:38 am
Forum: Investing - Theory, News & General
Topic: A few thoughts on the 25x (4%) shorthand
Replies: 42
Views: 8279

Re: A few thoughts on the 25x (4%) shorthand

dcabler wrote: Sun Jan 07, 2024 6:45 amInstead of a multiple of expenses which, as the title of this thread suggests is tied to a 4% withdrawal rate, adjusted for inflation I'd suggest googling the "funded ratio". It looks at all sources of future spending from your portfolios to SS and/or pension.
:thumbsup :thumbsup

BobK
by bobcat2
Thu Dec 21, 2023 10:03 pm
Forum: Personal Finance (Not Investing)
Topic: Anyone Bored in Retirement ??
Replies: 131
Views: 30345

Re: Anyone Bored in Retirement ??

VictoriaF wrote: Thu Dec 21, 2023 7:41 am I don't understand the concept of being bored. Most of the time I have more things to do than time to do them. My default activity is reading (physical) books and I have far more books that I want to read than the time to read them.

Victoria
Hi Victoria,

Long time no see. Wishing you a Happy Christmas and a Merry New Year. :D

Bob
by bobcat2
Wed Dec 20, 2023 5:24 pm
Forum: Personal Finance (Not Investing)
Topic: how much do you think you need to retire?
Replies: 296
Views: 62626

Re: how much do you think you need to retire?

At retirement a person would need a funded ratio of at least 1.00.

BobK
by bobcat2
Sun Dec 17, 2023 10:51 am
Forum: Personal Investments
Topic: How to reduce risk?
Replies: 33
Views: 5884

Re: How to reduce risk?

I have read many times to reduce risk to the point that you can sleep at night. So how would I do that? I am currently about 50/50 stocks/bond funds with an emergency fund in a money market ETF. Would I sell some of my current holdings and put it into the money market fund? I am retired, working part time, haven't started SS yet. There are four ways to transfer financial risk. The simplest way is to sell the risky asset. The other three risk transfer methods are hedging, insuring, and diversification. As is often the case at Bogleheads, most of the answers you have received focus only on diversification. Diversification of an investment portfolio cannot diversify away market risk, which leaves you with considerable risk exposure in the for...
by bobcat2
Sun Dec 03, 2023 4:57 pm
Forum: Personal Consumer Issues
Topic: MS Defender vs Bitdefender
Replies: 32
Views: 4833

Re: MS Defender vs Bitdefender

If you want Bitdefender don't renew, simply buy it again - much cheaper. I use Bitdefender and like it but I would never renew, always rebuy. Currently you can rebuy from Bitdefender for $50, and there may be better deals if you look around.

Link - https://www.bitdefender.com/media/html/ ... iAkd7WQPxA

And after looking around.
LInk - https://www.amazon.com/Bitdefender-Tota ... 00-20&th=1

BobK
by bobcat2
Sun Nov 26, 2023 4:27 pm
Forum: Non-US Chapters
Topic: Valuethinker has 48,000 posts
Replies: 80
Views: 22666

Re: Valuethinker has 48,000 posts

nedsaid wrote: Sun Nov 26, 2023 1:59 pm It came to my attention today that Valuethinker has 48,000 posts at Bogleheads which is quite a remarkable achievement.
Bloody well done by that bloke. :beer :wink:

BobK
by bobcat2
Fri Nov 24, 2023 1:55 pm
Forum: Investing - Theory, News & General
Topic: New Bogleheads podcast. Episode 64: Victor Haghani and James White, ”The Missing Billionaires”
Replies: 51
Views: 15392

Re: New Bogleheads podcast. Episode 64: Victor Haghani and James White, ”The Missing Billionaires”

Ben Mathew wrote: Fri Nov 24, 2023 1:43 pm Re: fixed vs dynamic asset allocation, the assumption that would support a fixed asset allocation is that our best guess of the equity risk premium (relative to risk) is constant.
Yes. When the real yield on TIPS changes the expected return on stocks changes in lockstep with that change in real yields. Which obviously isn't true.

BobK
by bobcat2
Fri Nov 24, 2023 12:52 pm
Forum: Investing - Theory, News & General
Topic: New Bogleheads podcast. Episode 64: Victor Haghani and James White, ”The Missing Billionaires”
Replies: 51
Views: 15392

Re: New Bogleheads podcast. Episode 64: Victor Haghani and James White, ”The Missing Billionaires”

The asset allocation formula in the book is based on the difference between the real TIPS yield and the S&P 500 earnings yield (P/E inverted). I looked at the data. This methodology has worked in the long run, but is VERY blunt. There have been decades when it didn’t add value, and a few shorter periods where it was simply wrong. I don’t argue with guests, but I do push back on occasion. That’s what I did in this interview. Both Victor and James openly stay that a fixed allocation works perfectly fine if religiously applied. Rick Ferri So you wouldn't advise a client who likes TIPS to increase their allocation to TIPS between a time when TIPS are yielding a real -1.08% to a time when TIPS are yielding a real 2.50%? A change in known re...
by bobcat2
Fri Nov 24, 2023 11:37 am
Forum: Investing - Theory, News & General
Topic: New Bogleheads podcast. Episode 64: Victor Haghani and James White, ”The Missing Billionaires”
Replies: 51
Views: 15392

Re: New Bogleheads podcast. Episode 64: Victor Haghani and James White, ”The Missing Billionaires”

Good interview. One thing I noticed when talking about dynamic AA is that the discussion focused on changes in one's forecasts of future stock returns. But forecasting future stock returns is very uncertain and so because of that Rick believes most Bogleheads are correct in keeping a fixed allocation to stocks. But the other portion of the ERP is to subtract from the stock return the yield on the LT safe asset, which in the US is LT TIPS. This at any point in time is known and does not require a forecast. This implies that even if you have little faith in estimating future stock returns you should change your allocation between stocks and bonds when the known real yield on bonds changes materially. For example, at the beginning of 2021 the ...
by bobcat2
Tue Nov 21, 2023 1:10 pm
Forum: Investing - Theory, News & General
Topic: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"
Replies: 154
Views: 33607

Re: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"

I noticed a few small errors similar to that. One in particular I recall is that when they discuss I-bonds briefly they mention that individuals are limited in 2022 to a maximum of a $15,000 purchase. The limit for many years has been $10,000. While the limit is $10k electronic bonds, that would appear to be an accurate total, presuming someone overpays taxes by $5k. It's possible to get up to $5k in paper bonds with a tax return, which can be converted to electronic bonds. Between a tax return and the $10k yearly limit, it's possible to purchase $15k in a year. Well if one also presumes an individual sets up a living trust then the limit would be $25,000. If we presume that you also have set up your own business and contribute thru that t...
by bobcat2
Tue Nov 21, 2023 12:23 pm
Forum: Investing - Theory, News & General
Topic: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"
Replies: 154
Views: 33607

Re: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"

While I agree that there are no really good ways to forecast future stock returns (see my posts above), studies have found e/p and 1/CAPE to be better than alternatives. For example, https://fairwaywealth.com/wp-content/uploads/Vanguard-Research-11-30-2014.pdf If I have done the calculations correctly using 1/CAPE in the summer of 2022 produces an allocation to equities of just over 36% for an investor with average risk aversion and an equity SD of 20%. But using the same SD and risk aversion this month says the allocation to equities should be just under 14%. To me that much change in equity allocation over the last 16 months seems unreasonable and bordering on silly. But if you think that is reasonable, go with 1/CAPE. :oops: Where did I...
by bobcat2
Tue Nov 21, 2023 12:10 pm
Forum: Investing - Theory, News & General
Topic: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"
Replies: 154
Views: 33607

Re: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"

I too was surprised they misquoted the lifecycle investing cap at 300% leverage ... . I noticed a few small errors similar to that. One in particular I recall is that when they discuss I-bonds briefly they mention that individuals are limited in 2022 to a maximum of a $15,000 purchase. The limit for many years has been $10,000. On the plus side I liked the fact that this is the first investment or finance book I have read that discusses negative real interest rates and their effect. Also in the references they include two papers by Merton and Muralidhar on retirement security bonds (RSBs) aka SELFIES. This is the first investment or finance book I have read that has any reference to RSBs. OTOH I can't find any discussion of the bonds in th...
by bobcat2
Tue Nov 21, 2023 11:27 am
Forum: Investing - Theory, News & General
Topic: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"
Replies: 154
Views: 33607

Re: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"

This is something I brought up with Ben Mathew in the TPAW thread, because the TPAW tool's recommended AA bounces around in exactly this fashion. I both find his answer theoretically satisfactory — if the expected return changes, and it demonstrably does, what should you do other than change your allocation? — and practically not at all satisfying. It just doesn't feel compatible with the basic philosophy of "stay the course" — nor the quite reasonable returns delivered by a more or less fixed AA (perhaps with an age-based glide path) based on back-testing from the last century or so. I don't think asset allocations should be fixed, but OTOH these allocations to equity using 1/CAPE are bouncing around way too much IMO. But when t...
by bobcat2
Tue Nov 21, 2023 11:16 am
Forum: Investing - Theory, News & General
Topic: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"
Replies: 154
Views: 33607

Re: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"

While I agree that there are no really good ways to forecast future stock returns (see my posts above), studies have found e/p and 1/CAPE to be better than alternatives. For example, https://fairwaywealth.com/wp-content/uploads/Vanguard-Research-11-30-2014.pdf If I have done the calculations correctly using 1/CAPE in the summer of 2022 produces an allocation to equities of just over 36% for an investor with average risk aversion and an equity SD of 20%. But using the same SD and risk aversion this month says the allocation to equities should be just under 14%. To me that much change in equity allocation over the last 16 months seems unreasonable and bordering on silly. But if you think that is reasonable, go with 1/CAPE. :oops: BobK
by bobcat2
Tue Nov 21, 2023 10:01 am
Forum: Investing - Theory, News & General
Topic: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"
Replies: 154
Views: 33607

Re: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"

My criticism was directed specifically at their recommendation to use 1/CAPE for the expected equity return in the Merton share. IMO there are no really good ways to forecast future stock returns, but 1/CAPE is a particularly bad way. If I have done the calculations correctly using 1/CAPE in the summer of 2022 produces an allocation to equities of just over 36% for an investor with average risk aversion and an equity SD of 20%. But using the same SD and risk aversion this month says the allocation to equities should be just under 14%. That much change in AA in the last 16 months seems unreasonable to me and this month's number is extremely low for a person with average risk aversion. IMO use a consistent conservative estimate of expected av...
by bobcat2
Mon Nov 20, 2023 11:57 pm
Forum: Investing - Theory, News & General
Topic: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"
Replies: 154
Views: 33607

Re: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"

I was simply stating what would happen if you stuck the data into the Merton share and went with the result. I wasn't implying that the model results were reasonable. Nor is it clear whether they believe 100% is the equity cap or 300% is the equity cap. The main point was using the Merton share can sometimes give extremely low equity exposure or extremely high equity exposure. Such a wide range of equity exposure using the Merton share the way the book calculates the share isn't all that helpful. Saying someone with average risk aversion should hold between 10% stock and in some cases as much as 300% stock isn't very useful guidance. I know the range is much lower than that (squeezing from both ends) without reading the book or knowing the ...
by bobcat2
Mon Nov 20, 2023 9:59 pm
Forum: Investing - Theory, News & General
Topic: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"
Replies: 154
Views: 33607

Re: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"

Ben Mathew wrote: Mon Nov 20, 2023 8:53 pmAlso, if we capped his equity exposure at 100%, i.e. using no leverage at all, he could get about one third of the total improvement available.
Yeh, I read that. So are you supposed to settle for 1/3 of the total improvement or not? They don't say.

BobK
by bobcat2
Mon Nov 20, 2023 8:17 pm
Forum: Investing - Theory, News & General
Topic: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"
Replies: 154
Views: 33607

Re: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"

Ben Mathew wrote: Mon Nov 20, 2023 7:26 pm Haghani and White discourage leveraging, so presumably they are capping at 100% or less.
Presumably they are, but the way they have set up their model that model doesn't do that. If they have done that, it should have been stated explicitly - not implicitly presumed. Because that's an extremely important point.

It shouldn't be, oh we forgot to mention you should cap equity exposure at 100%, regardless of whether the Merton share is much higher than that.

BobK
by bobcat2
Mon Nov 20, 2023 8:08 pm
Forum: Investing - Theory, News & General
Topic: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"
Replies: 154
Views: 33607

Re: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"

Horton wrote: Mon Nov 20, 2023 7:36 pm The future is obviously uncertain but so also are the input parameters. However, that doesn’t mean that the model has no use. You can examine a range of parameters and the subsequent forecasts to determine the effectiveness of your strategy and, importantly, the conditions under which your plan may fail.
I agree. This is a useful way to think about things, but one shouldn't simply plug in (1/CAPE)/gamma*var) and set that as your allocation to equities without thinking about what you are doing.

BobK
by bobcat2
Mon Nov 20, 2023 5:17 pm
Forum: Investing - Theory, News & General
Topic: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"
Replies: 154
Views: 33607

Re: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"

Ben Mathew wrote: Mon Nov 20, 2023 4:51 pm [
So only risk aversion matters? The equity premium doesn't feature in any way?
I didn't write that only risk aversion matters. Here's what I did write.
" I don't think it's that unusual for people 60 & up to have less than 25% in equities, but that's mainly because they have high risk aversion."

BobK
by bobcat2
Mon Nov 20, 2023 4:38 pm
Forum: Investing - Theory, News & General
Topic: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"
Replies: 154
Views: 33607

Re: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"

exodusing wrote: Mon Nov 20, 2023 4:30 pmThe problem is we don't know the equity premium in advance; we just have estimates. I don't believe we have estimation methodologies that are nearly good enough to make allocation decisions. I'm fond of the Ken French quote "Chance dominates realized returns", as well as the entire https://www.dimensional.com/us-en/insig ... -investing.
Yes. Any estimated value of the equity risk premium is not to be expected. :wink:

BobK
by bobcat2
Mon Nov 20, 2023 4:34 pm
Forum: Investing - Theory, News & General
Topic: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"
Replies: 154
Views: 33607

Re: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"

I believe one has to be cautious about taking the Merton share too literally. I just looked up the current CAPE. It's 30.77 so one over CAPE is 0.0325. The current yield on 10 year TIPS is 0.0216. That makes mu in the numerator of the Merton share (the equity risk premium) a tiny 1.09%. If we assume the sd of equities is 20% and the investor has risk aversion of 2 then the Merton share currently is k= 1.09/2*(.04) =1.09/.08 = 0.136 or 13.6% of the portfolio should be invested in stocks currently if one has average risk aversion. That doesn't seem close to reasonable to me. BobK If, on the other hand, the ERP is 5% , risk aversion is 2, and standard deviation of equities is 16% , then about 100% of the portfolio should be in equities! 5% / ...
by bobcat2
Mon Nov 20, 2023 4:23 pm
Forum: Investing - Theory, News & General
Topic: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"
Replies: 154
Views: 33607

Re: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"

Ben Mathew wrote: Mon Nov 20, 2023 2:39 pm
bobcat2 wrote: Mon Nov 20, 2023 2:35 pm I would think at a minimum such a person would be at least 25% equities.
Why do you think this? Does it relate in any way to an expectation of an equity premium?
I would think that for a 65 year old to hold less than 25% equities they would have risk aversion above average, say at least nearly 3. I don't think it's that unusual for people 60 & up to have less than 25% in equities, but that's mainly because they have high risk aversion. For a person at age 65 to hold less than 25% equities and have average risk aversion strikes me as unusual.

BobK
by bobcat2
Mon Nov 20, 2023 2:35 pm
Forum: Investing - Theory, News & General
Topic: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"
Replies: 154
Views: 33607

Re: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"

You're saying that you think the estimated equity premium of 1.09% is wrong. That's not a problem with the Merton share. It's a problem with the equity premium you're using to calculate it. Use an equity premium that sounds reasonable to you. What do you think is a reasonable estimate of the current equity premium? It's not my problem because I wouldn't use it. But it's a problem with the book which advocates using 1/CAPE. I was using the book method and found that method unreasonable. I was wrong not to realize they are using wealth not portfolio size. This still seems unreasonable. That a 65 year old with average risk aversion and nearly all their wealth in portfolio wealth should today hold 14% in equities seems unreasonable to me. I wo...
by bobcat2
Mon Nov 20, 2023 2:20 pm
Forum: Investing - Theory, News & General
Topic: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"
Replies: 154
Views: 33607

Re: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"

I believe one has to be cautious about taking the Merton share too literally. I just looked up the current CAPE. It's 30.77 so one over CAPE is 0.0325. The current yield on 10 year TIPS is 0.0216. That makes mu in the numerator of the Merton share (the equity risk premium) a tiny 1.09%. If we assume the sd of equities is 20% and the investor has risk aversion of 2 then the Merton share currently is k= 1.09/2*(.04) =1.09/.08 = 0.136 or 13.6% of the portfolio should be invested in stocks currently if one has average risk aversion. That doesn't seem close to reasonable to me. I also think 1/CAPE is not the right measure since it only accounts for dividends but no other forms of earnings distribution. Well in the book they use 1/CAPE. If they ...
by bobcat2
Mon Nov 20, 2023 2:06 pm
Forum: Investing - Theory, News & General
Topic: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"
Replies: 154
Views: 33607

Re: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"

I wouldn't tell a 23-40 year old with average risk aversion to invest only 14% of their retirement portfolio in stocks on account of a particular forecast of equity returns. I would instead suspect that that particular forecast of equity returns is faulty.

BobK
by bobcat2
Mon Nov 20, 2023 1:44 pm
Forum: Investing - Theory, News & General
Topic: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"
Replies: 154
Views: 33607

Re: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"

I believe one has to be cautious about taking the Merton share too literally.

I just looked up the current CAPE. It's 30.77 so one over CAPE is 0.0325. The current yield on 10 year TIPS is 0.0216. That makes mu in the numerator of the Merton share (the equity risk premium) a tiny 1.09%. If we assume the sd of equities is 20% and the investor has risk aversion of 2 then the Merton share currently is

k= 1.09/2*(.04) =1.09/.08 = 0.136 or 13.6% of the portfolio should be invested in stocks currently if one has average risk aversion. That doesn't seem close to reasonable to me.

BobK
by bobcat2
Thu Nov 16, 2023 9:29 am
Forum: US Chapters
Topic: What's changed in the last 10 years Bogleheads?
Replies: 279
Views: 57640

Re: What's changed in the last 10 years Bogleheads?

Here are some financial and investment topics that have been introduced at Bogleheads in the last several years. - Using the funded ratio in assessing retirement plan progress. Link - https://www.bogleheads.org/blog/2017/01/15/monitoring-your-retirement-goal-the-funded-ratio/ - The effect of LT real interest rates on Social Security claiming strategies Link - https://www.bogleheads.org/forum/viewtopic.php?p=1463467&hilit=slavov#p1463467 - Duration matching using a combination of TIPS funds Link - https://www.bogleheads.org/forum/viewtopic.php?p=2597011&hilit=TIPS+funds#p2597011 - Liability driven investing approach to retirement planning Liability-driven investing, or LDI, is an approach that focuses the investment policy and asset ...
by bobcat2
Tue Nov 14, 2023 9:42 am
Forum: Investing - Theory, News & General
Topic: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"
Replies: 154
Views: 33607

Re: New Book on the Life Cycle Model - "The Missing Billionaires: A Guide to Better Financial Decisions"

The Buttonwood columnist at The Economist discusses "The Missing Billionaires". How to avoid a common investment mistake Think less about what to buy, and more about how much “The Missing Billionaires” is not a discussion of the minutiae of ltcm’s bond-arbitrage trades. Instead, it examines what its authors argue is a much more important—and neglected—question than picking the right investments to buy or sell: not “what” but “how much”. People tend to answer this question badly. ... In practical terms, the book’s crowning achievement is its explanation of the “Merton share”. This is a simple rule of thumb for determining asset allocation, which says that allocations should rise in proportion to expected returns, fall in proportion...
by bobcat2
Sun Nov 12, 2023 9:36 am
Forum: Personal Consumer Issues
Topic: What is Medicare Advantage "gotch ya!" ???
Replies: 271
Views: 29728

Re: What is Medicare Advantage "gotch ya!" ???

Hi beyou, Over the past twenty-five years the MA program has pursued two stated goals. The first is to expand Medicare beneficiaries' choices to include private plans with coordinated care and more comprehensive benefits than those provided through traditional Medicare (TM) (MedPAC 2001, chap. 7). The second is to take advantage of efficiencies in managed care and save Medicare money (Prospective Payment Assessment Commission 1997, chap. 3). :D :D :D :oops: Findings: Beneficiaries' access to private plans has been inconsistent over the program's history, with higher plan payments resulting in greater choice and enrollment and vice versa. But Medicare Advantage generally has cost more than the traditional Medicare program, an overpayment tha...
by bobcat2
Sun Nov 12, 2023 8:53 am
Forum: Personal Consumer Issues
Topic: What is Medicare Advantage "gotch ya!" ???
Replies: 271
Views: 29728

Re: What is Medicare Advantage "gotch ya!" ???

I asked my primary care doctor, if MA plans restrict his ability to get is patients what they need, vs traditional Medicare. He basically said, "in this area, people can afford traditional and that is what they all use". He also said basically that many can't afford traditional medicare, so MA was created to appeal to those who can't afford better. Although that's been much of the effect of MA, that's not why it was created. It was created because many in Congress felt that competition from private companies in providing health insurance for the elderly would drive down overall Medicare costs. How has that turned out? Medicare Advantage, a private-sector alternative to traditional Medicare, was designed by Congress two decades ag...
by bobcat2
Sat Nov 11, 2023 5:19 pm
Forum: Personal Consumer Issues
Topic: What is Medicare Advantage "gotch ya!" ???
Replies: 271
Views: 29728

Re: What is Medicare Advantage "gotch ya!" ???

New Study – Medicare Advantage Overpayments as High as $140 Billion a Year OCTOBER 5, 2023 On October 4, 2023, Physicians for a National Health Program (PNHP) released a report titled “Our Payments Their Profits”, showing that insurance companies offering Medicare Advantage (MA) plans are overpaid by up to $140 billion a year by Medicare. According to an article posted by Common Dreams, titled “Medicare Advantage Overbills Taxpayers by $140 Billion a Year—Enough to Wipe Out Medicare Premiums” by Jake Johnson (Oct. 4, 2023), the report notes that the amount of wasteful overpayments to MA plans “could be used to completely eliminate Medicare Part B premiums or fully fund Medicare’s prescription drug program” among other uses. Link - https://...
by bobcat2
Sat Nov 11, 2023 4:57 pm
Forum: Personal Consumer Issues
Topic: What is Medicare Advantage "gotch ya!" ???
Replies: 271
Views: 29728

Re: What is Medicare Advantage "gotch ya!" ???

From the Squared Away Blog at the Center for Retirement Research at Boston College. Here’s something you should know about Medicare Advantage plans: the vast majority of these insurance policies require prior approval before a person can receive some medical treatments and services. Historically, that was not the case, and prior authorizations are still very unusual for people who are enrolled in original Medicare and a Medigap supplement. But in the case of Medicare Advantage plans, physicians submitted more than 35 million requests for prior authorization to insurers in 2021, and more than 2 million of them – or about 6 percent – were fully or partially denied, according to the Kaiser Family Foundation’s new report on more than 500 Advant...
by bobcat2
Wed Nov 08, 2023 9:34 am
Forum: Investing - Theory, News & General
Topic: Goal based investing compared to conventional investing
Replies: 70
Views: 7096

Re: Goal based investing compared to conventional investing

The DFA target income funds developed by Robert Merton and Allison Shrager are an example of the LDI retirement income approach. Merton wanted a more encompassing approach than simply using mutual funds. Instead of only the funds, he wanted to use a broader strategy modeled after the SmartNest program he and Zvi Bodie had developed for European DC plans before selling that program to DFA. DFA had implementation problems with third parties in launching the SmartNest project and replaced the program with target income funds, also developed by Merton, but an approach which he considers an inferior second-best solution. But even this second-best solution uses the goal based LDI approach. While the LDI approach is very similar in appearance to t...
by bobcat2
Mon Nov 06, 2023 8:25 am
Forum: Investing - Theory, News & General
Topic: Goal based investing compared to conventional investing
Replies: 70
Views: 7096

Re: Goal based investing compared to conventional investing

Hi SGM, The reason TIPS have lost value is that real interest rates have risen. (When bond yields rise bond prices fall.) But with these current higher real interest rates VTIP is a very good investment now and at least for the near term future. I just checked at Vanguard, the 30 day SEC yield for VTIP is 2.93%. That's the real yield i.e., the yield above inflation. Let's say inflation is running about 3.5%, that's a nominal yield well above 6% - hard to beat! And if you believe current inflation is above 4%, that would be a nominal yield above 7% :!: See the below before selling. 30 day VTIP SEC real yield at Vanguard https://investor.vanguard.com/investment-products/etfs/profile/vtip Morningstar 5* rating on VTIP - rating done at end of O...
by bobcat2
Sun Nov 05, 2023 7:48 am
Forum: Investing - Theory, News & General
Topic: Goal based investing compared to conventional investing
Replies: 70
Views: 7096

Re: Goal based investing compared to conventional investing

Hi Bob. ... I have to admit that I was disappointed but I don't have an insider's view into the annuity industry. It might be that something other than interest rates are affecting payouts. If you care to comment, perhaps you could visit that thread and tell me what I might have done wrong. Thank you. I am not sure I understand your question, but for annuity payouts I often refer to this back of the envelope calculation by poster gw made back in 2010. Interest rates may not matter as much as you think, because most of the payout comes from return of principal. Here's a pretty good estimate of the payout from an immediate annuity: (annuity yield) = 1 / (life expectancy) + (interest rate) / 2 To see that it's a good estimate, compare that fo...