Seems to make much more sense than the index-chasing, asset-driven investment approach that everyone’s buried their heads in for the past couple of decades. The concept is not new, and was first introduced to satisfy asset-liability match in large pension plan metrics. Vanguard talks about it (pdf) here in a 2008 paper. When it comes to your personal pension savings, why not invest according to anticipated liability that is specific to your age, risk tolerance, and expected liability profile?
Picks & Ideas
Conventional wisdom should be challenged and tested occasionally. Most of the time they stand the tests, but sometimes they crumple under the weight of new variables. None is too apparent than this financial crisis, where many old adages no longer apply, or can only be applied with footnotes. At a time when most persona finance and investment magazines spew out more of the same, don't you wish there are more ideas out there? Some can be found below.
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Excerpt: Yesterday I talked about how the market is far, far from efficient. Today, I want to point you in the direction of a Wharton interview with Robert Stambaugh and Jeremy Siegel, who discuss the idea of stock volatility in the long run. In the long run, instead of falling volatility, we are in fact faced with more trend uncertainty that compounds the short-term volatility problem. Uncertainty about the trend itself becomes more important than the actual volatility itself. More specifically: That uncertainty about the trend itself becomes more important the further into the future you project investment outcomes. […] to an…
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Excerpt: Water is perhaps the most scarce resource on earth. Yes, there is water everywhere. But most of the water is not drinkable, not accessible, nor is the resource evenly distributed. It’s not unlike the oil situation, where a small percentage of the earth holds the majority of crude. But unlike oil, water is not replaceable. So how bad is it? A study by the University of New Hampshire shows that some 41% of the world population live in river basins under “water stress” – meaning the region is subjected to frequent shortages. The most readily consumer able source of water, the freshwater…
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Excerpt: When it comes to investing, the general public has been steadily moving away from the old adages that called for set allocation between the (perceived) safe bonds/cash and the (supposedly) more risky stocks. Nowadays, we have all become heavy investors in the stock market, whether it’s outright ownership or group purchasing through our work-sponsored pension plans. Last week, I talked about the importance of market timing, particularly when it comes to market entrance or exit points. When we choose to enter or exit have the largest impact on overall portfolio return, much more than the year-on-year growth, diversification, asset allocation…
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Excerpt: This might seem like a pretty out of the character subject for me to discuss, since I write about sensible, non-hype, and long-term investing principles. Those would be exceedingly prudent and timely given the market onslaught. If you are at all familiar with general investing terms, then you would most likely associate technical analysis with the image of someone hunched over multiple LCD screens, fixated by indecipherable charts and graphs in a range of neon colours, and occasionally yell “Buy!” or “Sell!” with a touch of craziness into the phone. Needless to say, your average value investor would not…
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Excerpt: Given the present market bloodbath, there are many ongoing discussions on what the sensible investment strategy should be going forward, and whether one should still be investing in face of economic uncertainties at all. Most solutions favour an old-school approach. Many personal finance writers have gone back to basic principles of investing such as dollar-cost averaging, diversification, looking at the long term, be calm when the market is fearful, etc. Many are viewing investment through a mostly unchanged framework as what we have become accustomed to. But my question is, in a time when the corporate world, government bodies, and media…
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Excerpt: Thank you to The Penny Daily for including this article as its “Editor’s Pick” in Carnival of Everything Money #5. We set out to see what the experts are saying about 2009. What we didn’t realize was how the art of providing financial outlook has become a game of “one down-manship.” How else would you explain the boom in competition for the title of Dr Doom? So it would seem that the Rapture is upon us, are you ready? Yeah, we feel the same way. Here’s our survey of what some of the bigwigs in the investment industry have said about 2009 in…
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Excerpt: Thanks to the Skilled Investor for including us in its Carnival of Financial Planning for Mar 7. Really? Yes. And I’m not talking about the less stress, better health, more me and my family-time kind of perks. Let’s rewind. For months, we have been pounded in the head over and over again on the evils brought on by the recession. Let’s recount the havoc wreaked. Retirees have seen their savings significantly reduced or wiped out, some even going back to work to alleviate the cash problem. Baby boomers see their expected retirement date stretched indefinitely into the horizon, investments portfolio reduced, housing worth shattered. Gen X…
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Excerpt: Thank you to Penny Daily for including us in its Carnival of Investing Strategies #5. What makes a successful long-term investor? Is it an exceptional understanding of the market? Is it a Blackberry full of Wall Street contacts that tip you on every insiders’ move? Is it a PhD in quantum-physics or mathematics? No. Because if that was the case, then most investment funds with their well-paid, well-educated, and well-connected managers would not be walking around with their portfolios 50% lighter. So what is it about the market that suckers in so many people? How is it that…
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Excerpt: It is little exaggeration to say that many people are losing their shirts (if not worse) through the ongoing financial turmoils. A few got caught up in some truly heinous swindles, but for the most of us, the losses came through our previous-thought conservative investments. What happened? What happened to the smart experts that put out money into hyper drive for a fee, but came back with losses? Are all these letters behind their names truly worth their weight in paper? In all fairness, in a year where even Warren Buffet’s having a tough time, we can ask for…
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