Saturday, June 2, 2018

Waring and Siegel write a new article, on the true nature of investment risk, showing how it flows through to spending risk

In their latest joint effort, Waring and Siegel write on the nature of investment risk, titled "What Investment Risk Means to You: Strategic Asset Allocation, the Budget Constraint, and the Volatility of Spending During Retirement," in The Journal of Retirement, Volume 6, Number 2, Fall 2018. The authors' experience suggests that few investment professionals articulate risk well to their investors. This research uniquely and graphically reveals the nature of strategic asset allocation (SAA) investment risk not only for single-period investors, but also for multi-period investors such as those whose savings are held for retirement consumption purposes. Informed by Monte Carlo simulations, they evaluate and picture the nature of that multi-period consumption risk with both efficient spending rules and inefficient spending rules. Risk in a multi-period context means that expected spending may increase with greater SAA risk, but realized spending, a function of realized investment returns, may instead be worse.


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