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WSJ’s Kelly Greene in “How bulletproof is your nest egg” describes approaches to managing your portfolio in (and nearing) retirement. For Evensky and Katz it consists of essentially having a two-year spending worth of cash reserves and the balance of the portfolio invested in a 70:30 stock:bond portfolio; the cash reserves are periodically refilled from the portfolio. This mechanism minimizes the risk of having to sell your stocks at a loss because you need money to live on. Another approach mentioned suggested by Milevsky is based on finding ways to protect against: (1) performance risk, (2) inflation risk and (3) longevity risk by using: variable annuities with guaranteed living benefits, longevity insurance, inflation adjusted annuities, the new “managed payout” funds (in all cases watch the costs as at times they can punitive and the result of the guarantee will be a guaranteed lower standard of living). Also, Jim Otar is quoted about the care required in the rate of withdrawals from a portfolio and he ends up saying that a guaranteed way you can tell that you are in trouble is if you are drawing each year more than you could get by buying an immediate annuity ( www.immediateannuities.com ).
Both, Len Costa’s “Get a grip on the evils of greed and fear” in the Financial Times and Jonathan Chevreau’s “Online investors hurt their own returns, Morningstar told” in the Financial Post, discuss how investors’ behaviour affects negatively investment results. Costa discusses how fear and greed lead people to buy at market tops and sell at bottoms, resulting in mutual funds investors walking away with 4.48% returns while the funds returned 11.81%. The study (Dalbar) concluded “that returns are far more dependent on investor behaviour than performance of the funds themselves”. The recommendation is to create an Investment Policy Statement (IPS) and keep in mind that investing is for the long haul. The second article discussed how long-term investment returns are often damaged when an investor switches to an online broker and suddenly has easy/cheaper trading access coupled with overconfidence leading to too much trading. The resulting underperformance averaged 3.2% annually and excluding non-speculative trading as much as 5-6% annually. Here the advice was similar: invest for the long run, buy-and-hold, and watch costs including taxes.
In Financial Post’s “The future investment income in all of us” Jon Chevreau reports on Moshe Milevsky’s new book “Are you a stock or a bond?” (which is soon to be available and I plan to read it as he is always interesting and informative.) The book is subtitled –create your own pension plan for a secure financial future. Professor Milevsky is discusses the emerging life-cycle approach to financial planning which incorporates mechanisms on how to include human capital together with financial capital in the planning process. (No doubt it will be a good read, but while you are waiting for the book, you can read about Life-Cycle Investing in an earlier blog at this website.)
And finally, in “ETF filed to track housing prices” an announcement is referred to the filing with the SEC the establishment of two ETFs tracking U.S. housing market based on Case-Schiller housing index: (1) a housing-up (UMM) and (2) another housing-down (DMM). “These paired securities will have a 10-year term and will feature a 2x (200%) leverage factor.”