The Only Saving Rate Article You Will Ever Need

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How much do savers need to save in order to meet their retirement income goals? While a great deal of effort has been expended in search of answers to this question, it turns out that a very simple and practical answer is almost in plain sight. It is under a small rock, the rock being the ordinary and familiar time-value-of-money …

Floods and Deserts: Why the Dream of a Secure Pension for Everyone is Still Unattained

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Why have defined benefit (DB) pension plans, arguably the most elegantly engineered financial service ever created, stumbled so badly? Less than fifty years after achieving wide acceptance and providing predictable and secure benefits to their participants, many DB plans have been terminated, while others struggle to attain adequate funding levels. Many of the terminated DB plans have been replaced with …

Is It Science or Is It Baloney?

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Which currently popular investment fads are flashes in the pan, and which are actually worthy innovations? Which are somewhere in between? Because the theoretical or academic pedigree of an investment strategy helps mightily to sell it, marketers often represent whatever they’re selling as “real science,” with roots in the work of Nobel Prize-winning financial economists. Some of these claims are …

How Should History Judge Alan Greenspan?

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If you care about finance and markets, you may think that the Fed chairman or chairwoman, not the U.S. president, is the most powerful person in the world. Thus, Alan Greenspan, who held that position longer than anyone else except William McChesney Martin a generation earlier, was arguably the most influential public official in the lifetimes of most readers of …

CAPMing the CAPE: Shiller-Siegel Shootout at the Q Group Corral, Part 2

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The CAPE ratio, Cyclically Adjusted Price Earnings ratio, is a version of the price/earnings (PE) ratio popularized by Robert Shiller. It is widely used to assess the richness or cheapness of the equity market relative to its own history, and to make forecasts of the long-run return on equities, a vital input into asset allocation processes and retirement saving and …

McKinsey Assesses Future Stock and Bond Returns – AJO

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Are stocks’ glory days behind us? What about bonds? As the late Merle Haggard asked in song, “Are the good times really over for good?” A widely circulated McKinsey Global Institute (MGI) report, Diminishing Returns: Why Investors May Need to Lower Their Expectations, suggests that they are. The report makes the case that both stock and bond returns over 1985-2014 …

McKinsey Assesses Future Stock and Bond Returns

Laurence Articles

Are stocks’ glory days behind us? What about bonds? As the late Merle Haggard asked in song, “Are the good times really over for good?” A widely circulated McKinsey Global Institute (MGI) report, Diminishing Returns: Why Investors May Need to Lower Their Expectations, suggests that they are. The report makes the case that both stock and bond returns over 1985-2014 …

Five Mysteries Surrounding Low and Negative Interest Rates

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Zero and negative nominal interest rates are something new under the sun. In 3800 years of history, we’ve only observed near-zero rates a few times, and almost never negative ones. Of course, real rates have been negative for extended periods, but this is different. There is much that we do know about the relationship between interest rates, inflation, savings, real …

Debunking Nine Myths of Investing

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On April 29, 2010, I spoke on “nine myths of investing” at the Terrapinn Brasil Investment Summit in São Paulo, Brazil. Popular myths do not die quickly but they gradually change — as do markets, which have doubled in the meantime — so here is an update.

A Conversation with Mohamed A. El-Erian

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Mohamed A. El-Erian is one of the best known and most highly respected investment managers in the world. He is senior economic adviser to Allianz, and was formerly CEO and co-CIO (with Bill Gross) of PIMCO. From 2006 to 2007 he was president of Harvard Management Company. Dr. El-Erian was educated at Cambridge University and received his doctorate from Oxford …

The Bromance that Turned Economics Upside Down

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Who would guess that the modern sciences of behavioral economics and the psychology of decision-making owe their origin to a love affair (no, not sexual) between two men born early in the last century and so different that one could barely imagine them speaking to each other? Yet that is the story chronicled by the extraordinary nonfiction writer Michael Lewis …

What Would Minsky Do Now?

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    In the two decades since his death, Hyman Minsky’s stature has grown enormously. He foresaw the great financial crisis of 2007-2009, and economists routinely refer to “Minsky moments” as the tipping point when seemingly stable financial markets collapse with catastrophic consequences. It’s instructive to speculate on how Minsky would view our post-crisis economic recovery, and a new book …

Robert Gordon, the Special Century, and the Prospects for Economic Growth

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    Is the slowdown in economic progress in this new century an aberration or should we have expected it all along? Is it the result of unwise policies or unfavorable demographics, or is it the comedown that naturally occurs after a century-long global economic miracle? How one views the prospects for economic growth will have profound implications for the …

The Pension Crisis: Six Lessons Learned and a Way Forward

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    What have we learned from the seemingly endless recent run of pension crises, which have lasted some seven years and have encompassed both DB and DC plans? Having lost assets and then regained them, both kinds of pension plans should be on a path to being healthy, yet they are not. For many plans, liabilities still exceed assets, …

The Hidden Cost of Zero Interest Rate Policies

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Should the Fed raise interest rates? Some believe that ultra-low interest rates are good for investors because they drive up the prices of stocks and real estate, fattening household balance sheets. Others counter that zero rates are an insidious tax, transferring wealth from borrowers to lenders, distorting incentives and misallocating capital for individuals and government and making the American investor …