tag:blogger.com,1999:blog-5465015914589377788.post5117410792359446872..comments2024-03-20T09:32:16.592-04:00Comments on Michael James on Money: Are You a Stock or a Bond?Michael Jameshttp://www.blogger.com/profile/10362529610470788243noreply@blogger.comBlogger13125tag:blogger.com,1999:blog-5465015914589377788.post-71108138308693792332016-03-28T10:20:57.296-04:002016-03-28T10:20:57.296-04:00@RBull: I'm always happy when a book makes me ...@RBull: I'm always happy when a book makes me think about something in a usefully different way, even if I disagree with some parts. Thinking about a young person's human capital is definitely useful.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-49857921562832352732016-03-28T10:16:14.921-04:002016-03-28T10:16:14.921-04:00Interesting take on the book Michael. Seems high o...Interesting take on the book Michael. Seems high on academia but low on some common sense statements. I've read Pensionize your nest egg and 7 Most Important Equations by Moshe. I liked the first but as an average math guy the second one made my eyes glaze over. <br />I agree with you on some advantages of tontines and could be interested if these were properly administered and available at good cost/return. <br />SST, even if tontines were available its unlikely you would find the situation you describe with an effective tontine. One person trying to be significantly advantaged going in would defeat the nature of a tontine, and as Michael said some rules would have to apply. RBullnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-15027772497814910272016-03-24T22:14:22.631-04:002016-03-24T22:14:22.631-04:00@SST: The main advantages of a tontine over an an...@SST: The main advantages of a tontine over an annuity is that you could invest in equities and you wouldn't have to pay an insurance company to take on the risk of rising average longevity.<br /><br />There is no reason why you would have to put all of your money into a tontine, or any of it for that matter.<br /><br />I think you're overstating the challenges of administering a tontine. If there were enough takers, you could just split them by birth year. Otherwise there would have to be some actuarial rules to handle different ages. Like annuities, you'd have to figure out who was still alive.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-34878837516343289782016-03-24T22:02:43.501-04:002016-03-24T22:02:43.501-04:00As I said, in theory...it might be efficient, but ...As I said, in theory...it might be efficient, but operationally? <br /><br />Why would you permanently forgo your capital? The baseline returns on a tontine would have to be much higher than an annuity (or even bonds) for example, to make that "swap" worthwhile. <br /><br />And any tontine would most likely have to be administered privately to ensure a narrow section of participants (a public market tontine would be impossible to control). Even then, the returns of the fund would tip greatly in favour of those with even an ounce of actuarial knowledge. I'd simply search out a tontine populated by obese, heavy-smoking octogenarians and throw all I had into it. SSTnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-27401877547670075492016-03-24T14:15:38.429-04:002016-03-24T14:15:38.429-04:00@SST: I think you're missing out in this case ...@SST: I think you're missing out in this case because Milevsky has some interesting ideas on tontines. A tontine is the most efficient way I know of eliminating longevity risk.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-65262640708880377272016-03-24T14:10:38.942-04:002016-03-24T14:10:38.942-04:00"Finance professor..."
And then I stopp..."Finance professor..."<br /><br />And then I stopped reading. <br /><br />I've come to prefer and seek out writings by actual market practitioners who encounter operational realities, instead of those who merely theorize about how a system could or should work. SSTnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-86043536088360170602016-03-23T17:57:56.841-04:002016-03-23T17:57:56.841-04:00Michael, the difference between B and C is trivial...Michael, the difference between B and C is trivial and it's important to understand the pros and cons of each one. I choose B, you prefer C and it's ok.<br /><br />What about my in laws (who think my "plan" is a silly one btw), lets call their D: 450k$ debt, 575k$ house, 50k$ portfolio, saving rate 5%. Household income about the same than our's. THIS would keep me up at nigth!Le Barbunoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-39113076498579395522016-03-23T14:14:29.260-04:002016-03-23T14:14:29.260-04:00@Le Barbu: It looks like I misunderstood your last...@Le Barbu: It looks like I misunderstood your last comment because I thought your total debt (mortgage + any added leverage) was more today than it was back in 2008. In any case, I like C best, but B is good as well.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-86906714459779517132016-03-23T12:37:29.789-04:002016-03-23T12:37:29.789-04:00Sorry Michael, I dont pretend to be a genius (in f...Sorry Michael, I dont pretend to be a genius (in fact, I just break even now)<br /><br />Can you tell me what is the best situation between A, B and C:<br /><br />A:household with a 200k$ debt, a 250k$ house and a 200k$ portfolio <br /><br />B:household with a 200k$ debt, a 350k$ house and a 750k$ portfolio<br /><br />C:household with 100k$ debt, a 350K$ house and a 650k$ portfolio<br /><br />We were A back in 2008 and just chose to take the B path instead of the C one. To me, A is the worst of all 3 but B and C are pretty close.Le Barbunoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-33895232627244936632016-03-23T12:12:40.450-04:002016-03-23T12:12:40.450-04:00@Le Barbu: If I understand you correctly, you did...@Le Barbu: If I understand you correctly, you didn't begin taking on debt specific to investing until after the 2008-2009 crash. If this is right then you would have to consider yourself untested. The stock runup since 2009 has been so extreme that anyone who used leverage would feel like a genius. The recent small drop in stock prices has been only a very mild test.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-55872788506108716182016-03-23T11:56:37.018-04:002016-03-23T11:56:37.018-04:00Well, back in 2008-2009, our house was our biggest...Well, back in 2008-2009, our house was our biggest asset (55% of total), our portfolios were carrying a 2% MER burden. Our leverage (mortgage) was over 40% of our total assets, in fact, almost as big as our NW<br /><br />Now, house is 30% of our assets, debt is 20% of assets (or 25% of our NW)average MER less than 0.20%<br /><br />We could decide to choose the debt-free option but our big picture keep improving over years. What matter the most is our saving rate have been +/-40% for more than a decade now<br /><br />We focus on saving rate (mimimize expenses), cash flow improvement, keep our taxes low, avoid fees and expenses when investing, keeping 3+ months EF in checking account etc Le Barbunoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-30990457555124970862016-03-23T10:13:08.577-04:002016-03-23T10:13:08.577-04:00@Le Barbu: Leverage is great when it works out we...@Le Barbu: Leverage is great when it works out well. If you maintained your 20% leverage and allocation to stocks through the 2008-2009 crash, then perhaps you have the right temperament for modest leverage. Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-53752004596533494092016-03-23T09:53:21.630-04:002016-03-23T09:53:21.630-04:00Every situation is different but I found for us, t...Every situation is different but I found for us, the sweat spot for leverage is arround 20%<br /><br />My debt is: low rate, long term, tax deductible, repayment is a tinny fraction of our income and it was used to invest into tax-efficient-productives-assets. In one word, this improve our cash flow<br /><br />I admit we may reconsider this when we retire if this no longer make senseLe Barbunoreply@blogger.com