mickeyd
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Can't get enough of William Sharpe. I ran across that article recently when I was researching something completely different, but could not pass up the opportunity to peek into his world one more time. It's written for financial planners, but is good reading for most of us that try to understand just a little more about retirement and what Sharpe has to do with it.
Sharpe On Post Retirement
He listed a number of different uncertainties that advisors have to factor in: the risk of living longer (and outliving money), the risk of poor investment returns, the risk of poor health (and health insurance), the risk of inflation (despite the constant drumbeat of news about deflation), the risk of government programs such as Social Security and Medicare coming up short or being cut back. Sharpe adds counterparty risk, as well—the chance that those companies helping you shore up your high upside investment product, perhaps a company like Lehman Brothers, might not be there to help out if they go belly up.
“Economists were comfortable for many years with the assumption that markets have no memory,” he says. “In other words, that the probability of a higher or lower return next year is the same as the probability was last year—no matter what happened last year. Others, Jeremy Siegel [author of Stocks for the Long Run] would be sort of an extreme case, say, ‘No, no no. If the market does really badly’—he won’t say it this way, but I will—‘If the market does badly it feels quite badly for those investors and it will work to do better next time.’ If on the other hand, the market is giving you a lot of money it will say, ‘Hey, they don’t need it all the time. Maybe next time won’t be as good.’”
Sharpe On Post Retirement