Rising Equity Glide Paths: Suitable for All?

Comment posted to “Mathematical Support for Rising Equity Glide Paths,” by Luke Delorme, in the September 2015 AAII Journal.

This article is well-written and does an excellent job of explaining the variables and constraints. Why is the rationale for rising equity allocations over time, and related articles, now becoming more accepted and prevalent? I suspect it’s because guaranteed income sources (i.e., pensions) are disappearing, which increases the dependency on riskier income sources. Is this the primary reason or are there others?
— J. Yockers from Oregon

Luke Delorme responds:
There has certainly been a shift in how people are expected to finance retirement. What used to be the function of employers (pension plans) has now been put on workers themselves. The field of retirement income is still in its relative infancy compared with other financial fields. Bill Bengen’s groundbreaking 4% rule research is only 20 years old. I can’t say for sure, but I think the reason that rising equity glide paths have recently received attention is that we’ve only just started thinking about how to finance retirement as individuals.

It’s important to keep in mind that every person and every household has different risk preferences, goals, ambitions and plans. This makes it nearly impossible to develop rules of thumb in personal finance. The 4% rule was a great idea, but since it came out there have been so many alternative approaches that have gained credibility. The rising equity glide path, as I noted in the article, is good for someone looking to minimize the risk of exhausting assets when they are using a constant dollar spending strategy. For retirees with a dynamic spending strategy (withdrawing variable income based on market returns), the rising equity glide path may be less useful.

New strategies and analyses should continue popping up as we develop a better understanding of how different households decide to spend during retirement.

Planning Elders’ Finances

Comment posted to “When It’s Time to Transfer Financial Decision-Making,” by Robert R. Johnson and David A. Littell, in the September 2015 AAII Journal.

Having worked with an elder attorney to develop our trusts and powers of attorney and support documents, I can see by reading this comprehensive article that we still have a few details to finish. Thanks, AAII.
—Randall Franklin from Pennsylvania

Keeping Things Simple Amid Complexity

Comment posted to “Creating and Following a Real Financial Plan,” by Carl Richards, in the August 2015 AAII Journal.

As an executive and personal coach, as well as a psychologist and investor, I very much appreciated your interview with Carl Richards. His simple process is reminiscent of Albert Einstein’s first of “three rules of work,” namely: “Out of clutter, find simplicity.”

As Richards indicates, getting clear about our most important values, setting goals consistent with them, differentiating wants from needs, making choices based on our central values, and repeating the process over and over in an always-changing world, while not always easy to do, can not only help us develop and follow a financial plan but also assist us with a broad array of issues in life, including helping us free ourselves from unhealthy choices regarding health and wellness as well as helping us attain long-term happiness and life satisfaction.
—Frank R .Timmons from Denver

Exclusion of Leveraged ETFs From Guide

Comment posted to “The Top ETFs Over Five Years: Health Care Remains on Top,” by Jaclyn McClellan, in the September 2015 AAII Journal.

In the past, the highly leveraged ETFs like ProShares Ultra S&P 500 2X (SSO) and Powershares DB 3X (UUPT) often won. Were they actually beaten by biotech ETFs, or don’t they have five-year records?
— Gordon Robinson from North Carolina

Editor Charles Rotblut, CFA, responds:
We purposely excluded ETFs intended to provide double or triple the return of their underlying index or that follow inverse strategies (they rise in price when the underlying index falls) from this analysis. These types of funds are designed to be held for short periods (usually a single day), not several years.