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 …
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 …
True long-term correlations don’t change so much, but realized correlations over shorter periods can be all over the map. This is what risk is, so plan for it! “There Was Nothing I Could Do – All the Correlations Had Suddenly Gone to One!,” with M. Barton Waring, The Journal of Portfolio Management, Winter 2016.
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 allows us …
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 …
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, …
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 …
Should the Fed raise interest rates? Are ultra-low interest rates good for investors because they drive up the prices of stocks and real estate, fattening household balance sheets? Or are zero rates an insidious tax, rearranging the terms of trade between borrowers and lenders, as well as between individuals and government, and making investors poorer over time? “Phooey on Financial …
Most of today’s sophisticated investors genuinely believe in the merits of a permanent allocation to emerging markets. It’s easy to see why: Projected rates of high economic growth, along with secular demographic and consumption trends, combine to offer the potential for high returns to the patient, long-term investor. Moreover, challenging conditions associated with many developed markets have investors scouring the …
“Economics is…a branch of…animal behavior.” – Walter L. Battaglia Behavioral finance is one of the great discoveries of our time, and the University of Chicago professor and investment manager Richard Thaler is one of its principal discoverers. Misbehaving is Thaler’s personal account of his discoveries, which influence the way assets are managed, policy is conducted and economic theory is understood …
“If something cannot go on forever, it will stop.” – attributed to Herbert Stein Is the world facing a public-debt crisis, or is too much debt just another headache we will muddle through? How can investors distinguish between countries that are likely to default or otherwise injure debtholders, such as through high inflation, and those that will resolve their debt …
After decades of focused research, why can’t finance experts decide on a safe withdrawal rate for retirement? It is time to refocus this debate by asking a slightly different question: Is there a spending rule that retirees can use over a fixed time horizon? There is and I call it “the only spending rule you will ever need.” “The Final …
Even in 1797, the 22-year-old author Jane Austen, patron saint of annuitants, understood why issuers of lifelong income promises might be unhappy about their side of the deal and why beneficiaries of such income guarantees are presumably happier. Austen understood time risk and longevity risk—the principal risks that individuals saving for retirement should be concerned about—better than most of today’s …
After examining an array of approaches to determining a spending rule for retirees, the authors propose the annually recalculated virtual annuity. Each year, one should spend (at most) the amount that a freshly purchased annuity—with a purchase price equal to the then-current portfolio value and priced at current interest rates and number of years of required cash flows remaining—would pay …
written by Stephen Sexauer and Laurence Siegel Don’t have a pension? Don’t worry. Most people don’t. They will get to retire, and so will you. “What you and almost everybody else do have is the ability to make a pension promise to yourself that is the economic equivalent of the promise that an employer could make. With your employer’s help, …
As editor Life-Cycle Investing, Volume 3: Financial Education and Consumer Protection, with Zvi Bodie and Lisa Stanton. Research Foundation of CFA Institute, Charlottesville, Va., 2012.
As editor Rethinking the Equity Risk Premium, with P. Brett Hammond and Martin L. Leibowitz, Research Foundation of CFA Institute, Charlottesville, Va., 2011.
As author Benchmarks and Investment Management. Research Foundation of CFA Institute, Charlottesville, Va., 2003. Reprinted in its entirety in Lawton, Philip, and Todd Jankowski, eds., Investment Performance Measurement: Evaluating and Presenting Results, CFA Institute Investment Perspectives, John Wiley & Sons, Hoboken, NJ, 2008. Summarized in The CFA Digest, August 2003. Excerpts appear as Chapter 5 and as a sidebar in …