Investing for a Lifetime E-Book

Richard C. Marston

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Wiley Finance Editions
• Sprache: Englisch

Seitenzahl: 451

Veröffentlichungsjahr: 2014

Beschreibung

Investing for a Lifetime is designed to make saving and investing understandable to the investor. Wharton Professor Richard C. Marston, 2014 recipient of the Investment Management Consultants Association’s  prestigious Matthew R. McArthur Award,  guides an investor through the main investment decisions throughout a lifetime. 

Investing for a Lifetime shows:

• how younger investors can set savings goals
• how both younger and older investors can choose investment portfolios to achieve these goals
• how investors can sustain spending once reaching retirement. 

Younger and older investors alike should understand savings goals that will provide enough income to sustain spending in retirement.   They should devise rates of saving that allow them to reach their goals by the time of retirement.  Though retirement is often the main goal of investing, it’s not the only one.  Marston discusses how funding a child’s education or saving for a down payment for a home affects overall saving.

Sensible investing is also necessary for savings goals to be realized.  Investing need not be complicated, but Marston explains that a diversified portfolio should include a mix of different types of U.S. stocks, foreign stocks, real estate as well as bonds. He describes each of these asset classes and shows how they fit in an investor’s portfolio.  He shows how investors can monitor the performance of their portfolios by establishing benchmarks for each asset class to judge how well their investments are doing.  

He focuses particular attention on those investors nearing retirement. In today’s low interest rate environment, he discusses whether it is possible to fund retirement from interest and dividends alone. He shows how savings combined with Social Security can fund retirement spending. And he asks how the “New Normal” of lower returns might force investors to save more than in past decades, and to spend less in retirement than in the past. 

Investing for a Lifetime is for investors who want to understand more about the savings and investment process, particularly those who worry about whether their retirement savings will last a lifetime.

Leseprobe

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Investing for a Lifetime

Managing Wealth for the “New Normal”

RICHARD C. MARSTON

Cover Design: Wiley Cover Image: © iStock.com / whiteisthecolor

Copyright © 2014 by Richard Marston. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

ISBN 978-1-118-90094-9 (Hardcover) ISBN 978-1-118-91869-2 (ePDF) ISBN 978-1-118-91868-5 (ePub)

To Jerrilyn Greene Marston

CONTENTS

Preface

Acknowledgments

Part One: Saving and Investing

Chapter 1: Introduction: Investing for a Lifetime

The New Retirement Reality—We Are on Our Own

Longevity

The Squirrel Model of Saving and Spending

Outline of the Book

Notes

References

Chapter 2: The Building Blocks of a Portfolio: Bonds and Stocks

Bonds and Stocks since 1951

The Importance of Adjusting for Inflation

Bonds and Stocks Adjusted for Inflation

Asset Allocation Decisions for Young Investors: The Case of TIAA-CREF

What Are These Long-Run Averages Missing?

Notes

References

Chapter 3: Long Swings in Returns: Are We in a “New Normal?”

Long Swings in Returns

Were You Lucky Enough to Invest during the 1980s and 1990s?

The New Normal for the Bond Investor

The New Normal for the Stock Investor

What Can Investors Do?

Notes

References

Chapter 4: A Savings Goal for Retirement

What Is Retirement Savings Trying to Achieve?

Is There a Rule of Thumb about How Much You Have to Save?

What Rate of Spending Is Safe in Retirement?

What if There Were No Social Security? Some Simple Arithmetic

Savings Goal with Social Security

Retirement Savings Goal at Higher or Lower Levels of Income

How Do We Reach the Savings Goal?

Notes

References

Chapter 5: What Rate of Savings?

How Much Does the Rate of Savings Matter?

How Much Is Enough?

Three Key Factors in Saving

How Important Is It to Start Saving Early?

What If Savings Are Withdrawn for College?

What If the Portfolio Returns Fall Short?

How Do Taxes Affect Savings?

Notes

Chapter 6: Savings and Taxes

How Taxes Reduce Investment Returns

Tax Efficiency

How Important Is Tax Deferral?

Asset Location

Concluding Comments

Notes

References

Part Two: Investment Choices

Chapter 7: Investing in U.S. Stocks

Mutual Funds and ETFs

Ways to Slice Up the U.S. Stock Market

What Do We Mean by Small-Cap Stocks?

Relative Performance of Large-Cap and Small-Cap Stocks

The Value Premium

Relative Returns on Value and Growth Stocks

Implications for Portfolios

Notes

References

Chapter 8: Foreign Stock Markets: Industrial Countries of Europe and the Pacific

Returns on Foreign Stocks

Markets Have Become More Correlated

Why Does It Pay to Diversify into Foreign Stocks?

Role of Currencies in Returns Earned by U.S. Investors

Is There a Shortcut to Investing in Foreign Stocks?

Concluding Comments

Notes

References

Chapter 9: Emerging Markets

What Is an Emerging Market?

Emerging Stock Market Indexes

Emerging Stock Market Returns

Risks of Investing in Emerging Stock Markets

So Why Invest in Emerging Markets At All?

Concluding Comments

Notes

References

Chapter 10: Investing in Bonds: The Basics

Bond Yields and Bond Returns

But What If I Buy and Hold?

Bond Investing When Interest Rates Are at Record Lows

Laddering the Bond Portfolio

Notes

Chapter 11: Investing in Bonds: The Wider Bond Market

Corporate Bonds

Other Investment Grade Bonds

High-Yield Bonds

Treasury Inflation-Protected Securities (TIPS)

Municipal Bonds

Concluding Comments

Notes

References

Chapter 12: Investing in Real Estate: REITs

Real Estate Investment Trusts (REITS)

How Well Do REITs Fit in a Portfolio?

REITS and the Financial Crisis

REITs as a Source of Income for Investors

Concluding Comments

Notes

References

Chapter 13: The Home as an Investment

Capital Gains on Housing by State and Metropolitan Area

The Housing Bust

Rates of Return on Housing

Concluding Comments

Notes

References

Part Three: Wealth Management

Chapter 14: Choosing a Portfolio: Fitting the Pieces Together

Why Mix Bonds and Stocks?

Long-Term “Strategic” Asset Allocation

Life-Cycle Investing

A Model Portfolio

Investing for College

Rebalancing Defined

Concluding Comments

Notes

Chapter 15: Best Practices for Investing

Drags on Returns

Measuring Manager Performance

To Index or Not

Overall Portfolio Performance

Concluding Comments

Notes

References

Chapter 16: Investment Income for Retirement

Solution 1: Bond Investments—Maturity and Credit Risk

Solution 2: Municipal Bonds

Solution 3: Stocks with Higher Dividend Yields

Solution 4: Real Estate Investment Trusts (REITs)

Limits of Income Strategies

Will Income Be High Enough in Retirement?

Notes

References

Chapter 17: Spending in Retirement

A Spending Rule for Retirement

Two Issues with Implementing Spending Rules

Adding Annuities to Enhance Spending

The Beginnings of a Retirement Plan

Notes

References

Chapter 18: Retirement: Putting Together a Plan

The Role of Social Security

Putting Together a Retirement Plan: Spending out of Social Security and Savings

How Does the Plan Change If I Retire Earlier or Later?

A Retirement Plan Incorporating Annuities

What If the Retiree Has a Defined Benefit Pension?

What Could Go Wrong with This Plan: The New Normal

Notes

References

Chapter 19: The “New Normal” and Retirement

Retirement If There Is a New Normal

Did This Retirement Plan Survive the Financial Crisis?

The Most Difficult Features of the Plan to Follow in Practice

A Final Word or Two

Notes

About the Author

About the Companion Website

Index

End User License Agreement

List of Tables

Chapter 2

Table 2.1

Table 2.2

Chapter 3

Table 3.1

Table 3.2

Table 3.3

Chapter 4

Table 4.1

Table 4.2

Chapter 5

Table 5.1

Table 5.2

Table 5.3

Table 5.4

Table 5.5

Chapter 6

Table 6.1

Table 6.2

Table 6.3

Table 6.4

Table 6.5

Table 6.6

Chapter 7

Table 7.1

Table 7.2

Table 7.3

Table 7.4

Table 7.5

Chapter 8

Table 8.1

Table 8.2

Chapter 9

Table 9.1

Table 9.2

Table 9.3

Chapter 10

Table 10.1

Chapter 11

Table 11.1

Table 11.2

Table 11.3

Table 11.4

Table 11.5

Table 11.6

Chapter 12

Table 12.1

Table 12.2

Table 12.3

Chapter 13

Table 13.1

Table 13.2

Table 13.3

Table 13.4

Table 13.5

Table 13.6

Chapter 14

Table 14.1

Chapter 15

Table 15.1

Table 15.2

Table 15.3

Table 15.4

Chapter 16

Table 16.1

Table 16.2

Table 16.3

Table 16.4

Table 16.5

Chapter 17

Table 17.1

Table 17.2

Chapter 18

Table 18.1

Table 18.2

Table 18.3

Table 18.4

Table 18.5

Chapter 19

Table 19.1

List of Illustrations

Chapter 1

Figure 1.1 Retirement Plans in Private Sector by Type

Figure 1.2 Life Expectancies of Today’s 65-Year-Olds

Figure 1.3 Squirrel Model of Saving

Chapter 2

Figure 2.1 Compound Returns on Bonds and Stocks, 1951–2012

Figure 2.2 Real and Nominal Returns, 1951–2012

Figure 2.3 $100,000 Invested for 20 Years in Stocks or Bonds (2012 Dollars)

Chapter 3

Figure 3.1 Real Return on S&P 500, January 1951 to July 1982

Figure 3.2 Real Return on S&P Dow Jones Indices, July 1982 to December 2012

Figure 3.3 Inflation and Bond Yields, 1954–2012

Figure 3.4 Price/Earnings Ratios for S&P 500, 1951–2012

Chapter 7

Figure 7.1 Breakdown of Russell 3000

Figure 7.2 Excess Returns on Small-Cap Stocks: Rolling One-Year Average Returns, 1951–2012

Figure 7.3 Excess Returns on Large-Cap Growth Stocks: Rolling One-Year Average Returns, 1980–2012

Chapter 8

Figure 8.1 World Stock Market Capitalization

Figure 8.2 U.S. and Foreign Stocks by Decade, 1971–2012

Figure 8.3 Exchange Rate for the Euro since 1999

Chapter 9

Figure 9.1 World Gross National Income in US$, 2012

Figure 9.2 Gross National Income of Largest Emerging Market Countries, $Billions in 2012

Figure 9.3 GNI Per Capita, Actual, and Adjusted for Cost of Living, 2012

Figure 9.4 Stock Market Capitalization of the Emerging Markets

Figure 9.5  Returns in the BRIC Countries and Emerging Markets as a Whole

Chapter 10

Figure 10.1 Nominal and Inflation-Adjusted Treasury Yields by Decade

Figure 10.2 Term Structure of Yields on Treasury Bonds

Figure 10.3 Buy-and-Hold Strategy for Bonds When Yields Rise

Figure 10.4 Bond Portfolio Laddered with 10 Bonds

Figure 10.5 Yields on a Laddered Portfolio Compared with One-Year and 10-Year Yields

Chapter 11

Figure 11.1 U.S. Bond Market in 2012

Figure 11.2 Corporate Bond Yields Compared with Treasury Yields, 1991–2012

Figure 11.3 High-Yield Default Rates (1984–2012)

Figure 11.4 Spread of High-Yield Bonds over Treasuries

Source:

Federal Reserve Bank of St Louis database.

Chapter 12

Figure 12.1 Property Sectors in Equity REIT Index

Figure 12.2 NAREIT and S&P 500 Returns, 1992–2012

Figure 12.3 REIT and Institutional Real Estate Returns during Crisis

Figure 12.4 Dividend Yields of NAREIT and S&P 500

Chapter 13

Figure 13.1 Real House Appreciation in California, 1978–2012

Chapter 14

Figure 14.1 Vanguard’s Target Portfolio Allocations Determined by Years to Retirement

Figure 14.2 Portfolio for a Younger Investor

Figure 14.3 Returns by Decade on Four Assets

Figure 14.4 College Education Portfolios

Figure 14.5 Drift of Portfolio Shares in Boom

Figure 14.6 Drift of Portfolio Shares in Bust

Chapter 15

Figure 15.1 Passive and Active Fund Management: The Core and Satellite Model

Chapter 16

Figure 16.1 Treasury Interest Rates by Maturity

Chapter 17

Figure 17.1 Evolution of Real Wealth over Time: How 4 Percent Spending Fares if an Investor Retires in 1965

Figure 17.2 Evolution of Real Wealth for Investors Retiring in Recent Years with 4 Percent Spending and 50/50 Portfolio

Chapter 18

Figure 18.1 Evolution of Income for a Married Couple in Retirement (in nominal dollars)

Chapter 19

Figure 19.1 Portfolio for a Retired Investor

Figure 19.2 $1 Million Portfolio during the Financial Crisis: Effects of 4 Percent Spending Rule

Figure 19.3 Steady Investing versus Panic during the Financial Crisis

Guide

Cover

Table of Contents

Preface

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Preface

I believe that investing is relatively easy: Investors simply need to choose a portfolio of stocks and bonds appropriate to their age. When they are young, they can be more aggressive in terms of stock allocation than when they grow older. Regardless of age, they need to diversify their portfolios with different types of stocks and bonds. The hardest task facing investors is to stick with their strategy when times are very good or very bad. When times are good, it is tempting to chase after “opportunities” in NASDAQ stocks, or Las Vegas real estate, or gold. When times are bad, investors are tempted to abandon stocks and hunker down until “markets look better.” Still, in normal times, investing is the easiest task facing investors.