Jack’s Links

  • James Osborne at Bason Asset with a post about the (lack of?) scaling of AUM fees: While I agree that we’ll see some people seize the opportunity to be different (either by scaling down costs aggressively after some AUM mark or by being “flat fee”), I think there is an alternative thesis that is along the lines of: people with much more money (5-10 million+) are willing to pay more for higher-end service, more contact, more support, etc.

if they go [and] interview 5 advisors they will see 5 fee schedules that are practically indistinguishable.

With a jointly owned annuity, the death of the FIRST owner triggers RMDs!

Based on the latest NASRA survey data, just 5% or so of these pensions assume returns will come in below 7% annually.

  • More Kitces, this time on Empty Nesters saving for retirement to make up for lost ground during the child-rearing years: I absolutely love posts like this that line up more with real life — there’s nothing wrong with telling people to target 15% savings rates, but nobody is going to be able to hit that target every single year with all of the ways that life changes.

Reducing Household Expenses During Child-Rearing Phase To Save More For Retirement

We’d be better off passing a law sun-setting all regs, and the entire Federal tax code, in 2025. Then give Congress the next 9 years to set about re-passing all the regs and taxes that actually make sense.

 

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Jack’s Links

  • Measurements of ‘hot hand’ effects or lack thereof are always interesting, this time, golf.

Our results seem to agree with most of the related work on hot hand effects in basketball, golf, and other sports; namely that it does not exist over the course of a season. We do, however, see that golfers may get hot in a tournament and go on what is commonly referred to in the golf parlance as a “birdie barrage”.

when asked by the pollsters what they had eaten in the last 24 hours, 60% of the self-described “vegetarians” admitted that that had consumed red meat, poultry or fish the previous day

bearded men were considered better-looking (not to mention more masculine, mature, dominant, self-confident, courageous, liberal, nonconforming, industrious, and older)

Do you see it as your duty to expose scientific bullshit?

On reflection, no—because if I have such a duty, then presumably my colleagues do too, but I wouldn’t want to impose such a duty on my colleagues!

  • A throwback link to a 2012 post from Tom Brakke – no doubt he tapped into the zeitgeist with his blog about cash and the changing tides of how we view it in the context of portfolios.

To limit a manager’s use of cash is to fail to understand the nature of the decision-making process. In any case, if a manager generates good returns with a load of cash that seems heavier than it should be, who cares? The presence of that cash may be one of the key reasons for the outperformance.

 

Jack’s Links

  • I’m not sure through which rabbit-hole I stumbled upon the first link, an anecdote about someone whose code only crashed on Wednesdays, but I really liked it.

…if you dig deep enough; that “unrelated” errors rarely are; and that it’s almost certainly your own damn fault.

  • Why the 1% earn so much – from Brookings: one aspect that the article addresses is really picking up steam, people are starting to look at the distortionary effects of barriers to entry in different fields (medicine, law, etc.) and seeing how that creates a world where we have to greatly incentivize people (e.g., with large incomes or prestige) to overcome those barriers. It also limits the number of people who can engage in that job — instead of having 50 doctors, 50 nurse practitioners and 100 nurses, we end up with 75 doctors and 100 nurses.

  • Great article from Kitces on rebalancing via either time intervals or ‘variance bands’: it seems obvious that variance bands would outperform the relatively capricious timings of regular rebalances, though there are some surprises, including the outperformance of annual rebalancing versus shorter intervals (see below).

What are the sorts of things we might trade off against intelligence? Perhaps fitness, height, attractiveness, health, longevity, social well-adjustedness?

But in fact none of these trade off against intelligence, many are strongly positively associated with it, and in some the link has been proven genetic!

Book section:

I finished Dune Messiah, the second book and follow-up to Dune. As it seems is pretty much the norm, the book was okay, but not nearly the amazing piece of work that the original was. I’ll probably finish up with the third book and put the series down for a while.Capture

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The Cash Flow Equation

It seems obvious to the point of absurdity when you spell it out, but there are two things you can do with your income; spend it or save it.

For most people, the division of spending and savings (what is known as your ‘savings rate’) is the biggest factor that is going to determine when you can retire and comfortably maintain your standard of living.

Noted financial independence homie, Mr. Money Mustache (MMM), created this nifty little table (click for the full article and underlying assumptions, but I generally find them reasonable and conservative).

So given this, it’s pretty obvious that most people want to shoot for the 20-30% savings range in most years. That gives you a chance to be able to retire in your 50s at something like your average lifestyle during that period.

Now there are some huge oversimplifications here — most people’s incomes increase over time, most people’s cost of living increases over time (at least until kids are on their own), and most people’s savings rates won’t be steady year to year. Then there are the even trickier (but less important) questions of how to calculate your savings rate (Roth vs. Traditional? What about taxable accounts?). These are often dismissed and people say to just add up the savings vs. the income, but that’s pretty bad, too, because obviously a ‘Roth dollar’ is worth way more than a yet-to-be-taxed ‘traditional dollar’.

Okay, okay, so the chart isn’t perfect, but if your cash comp at work is $100k and $30k ends up in one or another account by the end of the year, you’re doing pretty well.

The argument is also frequently made (including in the MMM article linked earlier) that reducing spending is more powerful than increasing income. While technically true in the strictest sense (because you save a dollar and also don’t spend it each year), it ignores pretty much all of the laws of marginal utility, and certainly doesn’t apply if part of one’s goals are to have an increasingly more comfortable lifestyle as they can afford it.

Anyway, the point here is that there are general rules of thumb for going in the right direction, but since most people don’t (and can’t) yet know their final desired destination, there’s no right and wrong, just a math equation.