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How Index Investing Became What It Is Today
Index investing came from humble beginnings to become one of the most widely used strategies in use today.
What Is the Stock Market and How Does It Work?
Before you go investing your life savings in the stock market, you should have a basic understanding of what the market is and how it works.
How Can I Manage Sequence Risk in Retirement?
Sequence of returns risk is a major concern for even the most well-prepared retirees, but there are steps you can take to manage it.
One of the Most Successful Active Managers of all Time Shows Why Active Management Doesn’t Work
The appeal of market timing is obvious. Who wouldn’t want to get in and out of the market at the best time every time? We’ve talked a lot about market timing in the past – timing risk premiums, trying to time the markets on a daily basis, and the importance of staying disciplined even when it seems obvious the markets are going to go down.
Indexes 101, Part 2: Why So Many Indexes?
Everyone has heard of the S&P 500 and Dow Jones, but what’s the difference between the two? And which one should you trust?
Why Does Everyone Experience Such Different Retirement Income Outcomes?
Individual investors are vulnerable to the sequence of market returns experienced over their investing lifetimes. Individuals who behave in exactly the same way over their careers—saving the same percentage of the same salary for the same number of years—can experience disparate outcomes based solely upon the specific sequence of investment returns that accompanies their career and retirement.
What Does It Mean When People Say the Trump Rally Has Created an ‘Overvalued’ Market?
A number of people are suggesting that the Trump Rally, along with the longer-term bull market, has pushed prices beyond justification. Therefore, the markets must be on the verge of a downturn. Are they right?
Indexes 101, Part 1: What Is Index Investing?
Everyone has heard of investing in an index, but not many people understand what that really means, so we decided to break it down for you.
Building A Retirement Income TIPS Ladder
A TIPS ladder can be constructed similarly to a Treasury strips ladder, learn how it’s done here.
What Would A 30-Year Bond Ladder Cost A Retiree Today?
Building bond ladders for retirement income is an important but understudied topic.
How the Fed Impacts Your Investments
The financial media loves talking about changes in the target for the Federal Funds Rate. What the financial media want to talk about and what actually matters don’t overlap much. Let’s take a look at how changes in the Federal Funds Rate actually impact your investments.
Taxonomy Of Retirement Income Bond Ladders
Finally, a full thirty-year bond ladder could be created with the idea of generating “lifetime” income. A thirty-year bond ladder is as long as can be constructed with available bonds (it does not truly provide lifetime income).
The bond ladder would be spent down entirely by year thirty, creating a problem for someone still alive in year thirty-one. For this reason, not all assets should be used to construct such a ladder.
It is important to set something aside for unplanned contingencies and the prospect of living longer than thirty years. For unplanned expenses, while the bond ladder is liquid, selling portions of it to meet unexpected expenses directly means sacrificing some of the assets earmarked for later retirement spending.
Also, retirees selling individual bonds prior to their maturity dates face interest rate risk, as a rise in interest rates would force capital losses to be realized in these cases.
For someone considering a thirty-year retirement income bond ladder, it is important to also take a serious look at income annuities as a cheaper and more secure way to generate lifetime income.
The next category of bond ladders consists of different ways to build bond ladders extended over time to keep the length relatively constant as time passes. Rolling bond ladders are not meant to be fully wound down.
As bonds mature with the proceeds spent, new bonds are purchased with other financial assets to extend the ladder length. Rolling ladders provide the basis for time segmentation strategies.
Possibilities for designing rolling ladders include to automatically extend the ladder length by one additional year as each year passes (automatic), or to develop a strategy to only extend the ladder when certain conditions are met (market-based).
Possible decision criteria for extending a rolling ladder could be stock market valuations, current interest rates, recent market performance, or the individual’s personal situation with respect to being adequately funded as determined by a capital needs analysis (personalized).
We will discuss different strategies in more detail when we get to the topic of time segmentation. Next time, we will consider how to construct an actual retirement income bond ladder.
