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moneysense.ca, 24/04/08
This and That
- Your taxes are due on or before April 30, 2008. If you haven’t done so already, now would be a good time to start working on your taxes. Tim Cestnick has tax tips for last-minute filers.
- While the stock markets have recovered somewhat from the deep losses around the middle of March, Larry MacDonald writes that it is too soon to sound the all-clear.
- Mark Hulbert reports on a surprising research finding that questions the conventional wisdom that investors reduce their equity allocation as they approach retirement.
- Rob Carrick says that variable-rate mortgages are still a better bet even if the commercial banks are reluctant to move in lock-step with the Bank of Canada.
Blog Roundup:
- If you invest in mutual funds, Jon Chevreau has some pointers to help you pick one.
- The Dividend Guy finds that Financials and Consumer Staples are biggest sectors represented in dividend ETFs.
- Canadian Mortgage Trends reported that Prof. Moshe Milevsky has updated his study comparing fixed-rate and variable mortgages.
- Million Dollar Journey asks if you’ve given money as a gift and if so, how much?
- Thicken My Wallet wonders what investing ideas George Costanza would give out.
- Preet of Where Does All My Money Go writes about how easy it is to become a financial advisor. That explains why a friend of mine purchased corporate bonds after being assured by his advisor that they don’t lose money.
- Thanks to Happy Rock for including my Top Three Investing Mistakes post in the Carnival of Personal Finance.
moneysense.ca, 24/04/08
Thanks for the link CC.
TDG
“That’s gold, Jerry! Gold!” (ok, not a George quote).
Thanks for the link.
Thanks for the link CC – have a great weekend!
Thanks CC!
Cheers,
Rob
Thanks for the mention, enjoy the weekend!
I read Mark Hulbert’s article and the research paper behind it. All the study proved is that stocks have had higher average returns than bonds. It didn’t prove anything about whether asset allocations should change over time. Based on this study, the only reasonable conclusion is that you should put 100% of your money in stocks to maximize the odds that you will hit target amounts between $500,000 and a million by saving $11,000 per year.
Micheal: I couldn’t find a link to the original paper. Do you have a link? But, it raises questions about the conventional recommendation to reduce equity exposure as one ages (something I recall Ziv Bodie didn’t agree with either).
Here’s the link:
http://www.lclark.edu/faculty/schleef/objects/FSReview_schleef_eisinger.pdf
I don’t believe it does cast any doubt on the advice to reduce equity exposure as you age. Reducing your equity exposure is not done to maximize your odds of hitting a target portfolio amount. The only thing this study shows is that equities outperform bonds on average. Their results show that the 100% equities portfolio has the best chance of reaching the targets they set. The conclusions the authors draw about the value of reducing equity exposure with age are not justified by their study.
Ziv Bodie also thinks that equity exposure should remain constant, but for different reasons. In his case, he clings to the principle of constant relative risk aversion, which I have shown to be silly in a couple of my posts.
Thanks for the link. I’ll have to read the paper to understand it better but I find it surprising that the investor who started off with a higher allocation to equities (and reduced it over time) did worse than the investor who started off with a smaller allocation to equities and increased it over time.
CC: I took a stab at writing up the main problem with this study: link
I chose not to reference your Friday post because I didn’t want to make it seem like I was being critical of you.
Hi Michael:
I won’t be offended; I didn’t do the study
Your explanation makes sense because the article referred in this post didn’t give many details of the study but just noted that increasing bond allocations over time didn’t do as well as decreasing bond allocations, which I thought was curious. Glad we cleared that up.