Some of you guys might want to keep tabs on your 401Ks.

[shootermcgavin7]

I apologize for the long delay. Again, at this point in time my posts will be infrequent due to my schedule.

While your statement may be true there are a couple of factors.

1. Some people are smart enough.

2. For those who aren't savvy enough there are reputable firms who will manage your funds wisely and for a decent amount of fees.

That the average person is too stupid to manage their own funds is a given, we have certain proof of that by who we elected in the last election.

Do you think because there is a certain average that all persons should be denied the right to try and that the government should be charged with the responsibility of managing his funds?????

First off I've lost most confidence in government to manage anything although there are those in government who evidently think they should manage everything.

I will concede that our government isn't wrong to set some gudelines to regulate investors so that people aren't duped into investing in ponzi schemes etc.

We do have many laws and regulations in place, what is needed is proper enforcement but not a complete government takeover.

Do we not agree on that?

Let me start by pointing out that anyone who is a partisan in either direction has a backward way of thinking. Most solid liberals will start from a conclusion that markets are the problem, and work their way backward from problems to figure out why. Most solid conservatives will start from the conclusion that the government is the problem, and work their ways backward to figure out how to shrink the government.

Obviously, this is not the way that logical progress in ideas is made.

With that background set up, the answer to your #2) is "no". The "Default Qualified Investment" funds set up (I mentioned this in an earlier post) basically invest like ****. For "people who don't know how to invest", this is where their 401k money ends up by default.

As usual, I will ignore the ignorant partisan shots in your prior post and attempt to draw the discussion toward economics.

 

[droski]

They converse in crises, which by definition are rare events.

so why do we care if these are once in a lifetime events?

 

[shootermcgavin7]

so why do we care if these are once in a lifetime events?

You understand that most of the econ theories on lifecycle and retirement are based on average returns, right?

Let me back up. Tell me which econ courses have you taken, and I will try to work through those to explain the micro and macro effects since you obviously don't understand how 3rd & 4th moments work in investment returns.

 

[droski]

You understand that most of the econ theories on lifecycle and retirement are based on average returns, right?

Let me back up. Tell me which econ courses have you taken, and I will try to work through those to explain the micro and macro effects since you obviously don't understand how 3rd & 4th moments work in investment returns.

wow. very condesending. i'd gladly post a picture of my CFA charter if you'd argue rationally rather than just insult.

 

[shootermcgavin7]

wow. very condesending. i'd gladly poast a picture of my CFA charter if you'd argue rationally rather than just insult.

You can post whatever you want. I am not the one who implied that tail risk is irrelevant.

so why do we care if these are once in a lifetime events?

 

[droski]

who said it's irrelevant? the question is if that outlier event should be the primary basis to socialize our 401k programs rather than the other 99.9% of our lives.

 

[shootermcgavin7]

who said it's irrelevant? the question is if that outlier event should be the primary basis to socialize our 401k programs rather than the other 99.9% of our lives.

Do outliers have an incredibly significant effect on the average in any particular distribution?

 

[droski]

Do outliers have an incredibly significant effect on the average in any particular distribution?

depends on the size of the distribution. what's your point?

 

[shootermcgavin7]

depends on the size of the distribution. what's your point?

You asked if outliers should be a basis of investment policy.

The answer we have both come up with is, if we care about average outcomes.......yes, they should.

 

[droski]

a basis yes. the primary basis no. that is my argument.

 

[shootermcgavin7]

a basis yes. the primary basis no. that is my argument.

Just so I'm clear:

1) Market outliers have a significant impact on average stock returns

2) Average stock returns determine quality of life in retirement

3) Outliers don't matter that much


Is that your logic? Please correct me if not.

 

[droski]

Just so I'm clear:

1) Market outliers have a significant impact on average stock returns

2) Average stock returns determine quality of life in retirement

3) Outliers don't matter that much


Is that your logic? Please correct me if not.

1) not all market outliers are negative. over a working lifetime (40+ years) as long as you stay invested market crashes do not have a significant effect on your ability to retire. or at least not a negative enough effect to eliminate stock investing as an option for retirement accounts

2) true. so what? the govt can do better?

 

[shootermcgavin7]

1) not all market outliers are negative.

The distribution of returns seems to suggest that they pretty much are. I never deal in absolutes (all/never), but most surprises are waaaaaaaaaaaaaaaaaaaaaay down the left tail.


You seem to have misunderstood my post. the 1)-3) was setting up a logical inconsistency which you seem to believe.

If you accept 1) and 2), 3) cannot logically follow.

 

[droski]

yes and most far left downside surprises are followed by quick upside reversals.

 

[shootermcgavin7]

yes and most far left downside surprises are followed by quick upside reversals.

Of an equivalent magnitude? Again....let's not be disingenuous.

 

[droski]

the question you don't answer is why you think that this outliers mean that 401k investing as we currently know it should be socialized.

 

[shootermcgavin7]

You got off topic on 3/24, as I pointed out in the very next post. At that time, I had already cited research that shows most people are too stupid to invest on their own.

Refusing to set up a public retirement plan creates an externality where you end up supporting old homeless people anyway, with a lot more inefficiencies.

 

[droski]

Of an equivalent magnitude? Again....let's not be disingenuous.

no not of equivalent magnitude, but my point remains. it's not as though there is a long history of market crashes eliminating peoples retirement funds. this 10 year period is the first 10 year period since the great depression where the stock market hasn't had positive returns.

 

[shootermcgavin7]

no not of equivalent magnitude, but my point remains.

Not, it doesn't. Again, we are talking about averages.

it's not as though there is a long history of market crashes eliminating peoples retirement funds. this 10 year period is the first 10 year period since the great depression where the stock market hasn't had positive returns.

And that is FANTASTIC news if your work-retirement cycle only lasts 10 years. Fantastic.

On the other hand, if you work for 40 years and retire for 25, you have a very real chance of being caught in a severe stock market depression.

 

[droski]

You got off topic on 3/24, as I pointed out in the very next post. At that time, I had already cited research that shows most people are too stupid to invest on their own.

Refusing to set up a public retirement plan creates an externality where you end up supporting old homeless people anyway, with a lot more inefficiencies.

and what's your study to show that gov't pension plans are any smarter? do you know what thousands of endowments and pension plans did during the crash? they sold their real estate, at the bottom, the financials, at the bottom, and went to cash. why? because their plan holders were freaking out.

 

[droski]

And that is FANTASTIC news if your work-retirement cycle only lasts 10 years. Fantastic.

On the other hand, if you work for 40 years and retire for 25, you have a very real chance of being caught in a severe stock market depression.

and of course everyone will be so stupid as to sell completely out during that depression? or are we simply regulating for the stupid people.

 

[droski]

what do you think congress will do if we have a market crash and the national pension plan is now tens of trillions underfunded? be smart and wait for it to recover?

 

[shootermcgavin7]

and what's your study to show that gov't pension plans are any smarter?

My guess is that they are not smarter, on average.

In fact, on average, my guess is that they do slightly worse.

My guess is also that they are less volatile. Low volatility is worth something when we talk about retirement. Low volatility means more certainty about your retirement income, and carries a premium among workers.






While this is completely unrelated, I'll happily discuss:

do you know what thousands of endowments and pension plans did during the crash? they sold their real estate, at the bottom, the financials, at the bottom, and went to cash. why? because their plan holders were freaking out.

Most pension funds, etc, are different from mutual funds...they are limited to a certain asset base. They actually did a lot better than the average mutual fund or hedge fund over the time period I believe you are referring to. Many of them sold their real estate assets automatically because they have to keep a certain mix of investments in the fund.

 

[shootermcgavin7]

what do you think congress will do if we have a market crash and the national pension plan is now tens of trillions underfunded? be smart and wait for it to recover?

I will never count on Congress to do anything smart.

However, SSI is invested in government bonds. They tend to do very well in a crash.

 

[droski]

My guess is that they are not smarter, on average.

In fact, on average, my guess is that they do slightly worse.

My guess is also that they are less volatile. Low volatility is worth something when we talk about retirement. Low volatility means more certainty about your retirement income, and carries a premium among workers.

While this is completely unrelated, I'll happily discuss:

Most pension funds, etc, are different from mutual funds...they are limited to a certain asset base. They actually did a lot better than the average mutual fund or hedge fund over the time period I believe you are referring to. Many of them sold their real estate assets automatically because they have to keep a certain mix of investments in the fund.

and you get to decide how much risk i get to take? any near retirement person with half a brain had at least a 70-30 bond to stock allocation and would have done just fine the past 5 years. the pension funds that did do better did it soley because of their bond allocation.

actually they would have bought real estate at that time if they were trying to keep their allocation %'s correct.