Some radical ideas. I like it. Since we enriched the rich during 2008 and widened the inequality, it will be good if we can find a way to s=pend the rescue money to narrow the disparity not further widen it.
that is the most incredibily naive thing I have ever read from a sophisticated investor.
He says 'āpensions usually donāt get wiped outāā¦ huh?
What does he think pensions are invested in? What does he think people have in their 401kās? investors have $5.7T invested in 401kās ā gonna wipe out the stock of 58 million workers too? Sure, there will be winners who can snap up the bk companies, but for pennies on a dollar. Regardless, the stock of those companies is still zero.
For example, the CA teachers pension fund is $300b of stocks and bonds. So, if we let those stock companies go into bankruptcy and wipe out the value of man of those stocks, where are the teachers gonna get their pensions?
@bluebayou
He is referring to a single bankrupt companyās pension fund. If X Airline goes bankrupt, the X Airline Pension Fund, is crazy if it has 100% invested in X Airline stock. X Airline stock should be a very small portion of the pension funds assets if the investment committee is doing its job. X Airline files Chapter 11. X Airline Pension Fund loses say 2% on its 2% investment in X Airline stock.
Heās actually correct. Employees of the bankrupt company should take a very small hit on their pension that can be made up later. If an employeeās 401(k) was 100% invested in X Airline, then yes, that employee put that portion of their retirement money in a lottery ticket and he/she lost.
@bluebayou
Shame on a pension fund if they donāt own negatively correlated assets that provide crisis alpha for times like these. Crisis alpha investments/risk-mitigating strategies are like insurance policies. They go up when all the correlated assets (stocks, real estate, private equity, etc) fall at once.
Stock investments are risk assets. There is generally a risk vs reward tradeoff. Of course, a pension fund can lose money on individual stocks and risky bonds. That is the whole point of risk assets. If a pension fund does their job correctly and lose 10-15%, the next time the market falls 50% and several of their tiny holdings in a diversified portfolio go bankrupt, so what? It is their entire career and what they are paid for to figure out which companies had good balance sheets in the first place, so they should only lose on a very small portion of holdings.
On the other hand, if a pension fund is 100% invested in 3,000 blindly chosen stocks and the pension fund falls 50% when the market falls 50% and doesnāt recover for 10 years, that is the pension fundās fault. No one was complaining when their portfolio was artificially goosed up by central banks and the buildup to the largest global debt bubble in the history of mankind the central banks overtly created. They shouldnāt complain after the bubble popped.
fyi: As of Dec 31, 2019 CalSTRS had an 8.9% weighting in risk-mitigating strategies, 50.6% in global public equities and 9.3% in private equity. Hereās the latest update. https://www.calstrs.com/current-investment-portfolio
In my limited experience, pension fund employees hire consultants like Cambridge Associates to tell them how to allocate assets. The employeesā objective frequently is not to be different from their peers. Hence they tend to invest in pretty much the same thing (there are funds like Yale and North Carolina that are different and probably CALPERS and no doubt others) but generally all the pension fund execs want to do is be at the median of their peer group. So, depending upon what the consultants advise, they may or may not be investing seriously or at all in risk-mitigating strategies. [If for the last 5 years, my colleagues werenāt investing fully in the stock market and not hurting returns by some kind of hedging strategy, I would look bad. So I get rid of my hedging position. If all of the others are also hedging, Iām OK with it]. They hire the consultants so they can say, āI prudently relied on the advice of consultants.ā
yes, I understand what he is saying and how it would work on a single company, but heās canāt be talking just about one company. If he was, the article would be boring and it would have no impact on hedge funds. (Why would hedge funds care if one stock went bk as its barely a rounding error; heck they plan for that scenario as long as the others do well.) Thus, he has to be suggesting about letting a bunch of companies go bk. 50 companies of the S&P? 100?
Not necessarily. Of those companies that still offer DB pension plans, on average they are 15% under-funded; moreover, the PBGC does not cover 100% of rich plans. Pensioners can take a hit.
Of course, a DB pension is becoming a unicorn in private industry, and 401ks is what the masses now have. So, how many folks have risk-mitigation strategies in their 401k investments? So what happens to the masses when the S&P drops like a rock and their bond funds follow suit?
IMO, there has to be an easier way to take it to the hedge funds if that is the goal.
@shawbridge You are correct. It is a dangerous herd mentality and a CYA, job security mentality. Which leads to the question, What is the value in that kind of consultant-following investment team?
Any fitting that criteria are just expensive middlemen between the consultants and the pensioners.
My husband looks fairly frequently and gives me the bad news. Today he opened my my IRA and SEP envelopes to iron them and was surprised by how much money I had saved. I was amused as I know Iāve told him in the past. I think we have enough to retire when we want to. DH shuttered his lab and is just doing stuff like working on grants, reading papers, attending zoom meetings and thesis defenses. Heās enjoying being semi-retired.
@bluebayou
Crisis-alpha/Risk-mitigating strategies should be much more mainstream for 401k investors. They might come to the fore during or after this bear market. Better late than never, but sad.
The MW article may be trying to persuade you to consider all hedge funds. However, I watched the actual CNBC interview. He means the direct bailout of zombie companies. The interviewer brought up the direct bailout of airlines. Yes, he thinks all zombie companies should be left alone and if any hedge fund is leveraged up and has a small or giant equity or subordinated debt stake, let the chips fall. Management and boards that didnāt do their job, lose their job, their options, and their stock. Let the bankruptcy process work.
Simply put, he is arguing every $1B is better spent directly on those losing jobs across the country, than that same $1B is to TRY to prop up zombies.
Underfunded pensions is a long sordid tale going back to the original promises that could never be delivered and are a real travesty.
Ok, thanks, that wasnāt at all clear in the market watch summary. (Or if it was clear to others, Iāve been cooped up too long in the house.)
yeah, I agree, let the Zombies go search for human brains (VCs and other speculators) w/o federal help.
Here is the interview. Better to hear it directly from the man himself.
https://www.youtube.com/watch?v=qAt7Rg1u2l8
In fact worse late than never. Individual investors in particular tend to be backwards looking so they usually buy high and sell low. The worst thing you can do is to invest in risk-averse assets in the wake of a crash, thatās precisely the time when you actually want to be investing in cheap stocks.
Iāve read COVID is actually influencing some people to retire earlier than otherwise planned. Maybe itās because they are afraid to go back to work, or got laid off and just decided to retired stead of looking for work.
Because of the stock market drop, Iām assuming others will wait longer than they were planning to (I may be in this camp).
What are others seeing?
I think you are correctā¦ there will be a lot of Boeing retirees here soonā¦
Anyone having new thoughts about retirement or whatās needed to retire based on COVID?
Iāve heard some people are really thinking about changes in values and the importance of time with family, etc. as opposed to more income.
I know some people are choosing to retire because of a hardship related to COVID (not enough business at restaurant, for example).
My husband loves working from home and has thought about retiring and getting some kind of contract work he can do at home.
I took some time off work beginning last September. I planned to get another job this spring, but the current crisis happened. I donāt know that a āgoodā job will happen for me now, but I honestly donāt care. I have found that I need less money than I thought, so making more money is no longer an issue. I am fortunate to have enough saved that I can live comfortably. I still think I would like to work, but probably part time, remote or maybe school-year ā¦ and I wonāt do anything I donāt enjoy. I am more aware now of the fact that everything can change in the blink of an eye, and I want to enjoy my life.
My H has been planning to retire at end of this year. Our investments have obviously taken a hit, but we can live pretty well without depending on them too much at this point. However, Iām not sure what he will do with his time. He works from home already (federal govt) due to health issue. He works and watches sports. I think he will be bored. I donāt know if current situation will affect his decision. He is already past full retirement age for SS but I would love for him not to file until 70 - thatās the only issue that may be impacted if we decide better to take that now and not hit up investment accounts that might come back in a few years. Weāll seeā¦
Downturn in my motherās health has encouraged me to ignore the market downturn and retire soon as planned (we are financially ready).
I was considering a semi-retirement in the fall, taking early SS and adjuncting rather than full-time teaching. We would have to switch our health benefits to H if I do this, and his would cost twice as much. But also, heās recently had a chronic illness diagnosis (immunodeficiency condition), which makes him more vulnerable to C19 and makes good healthcare again very necessary. He will continue working, but I want flexbility in case he canāt.
So, with all that, plus some hit to retirement savings, I am reluctantly continuing full time work. Big sigh.
Those who are stopping early, how are you approaching medical coverage? Buying it independently looks so expensiveāthatās why at least one of us needs to continue working till we are both 65.
I have been trying to get DW to retire. For years. We have plenty. Being honest, I have to admit that I find it reassuring that she is still bringing in a paycheck, and a higher one at that (she got promoted during the WFH). I donāt think that she will ever go back to work physically, except perhaps for a very socially distant one day per week; I told her to blame it on not wanting to kill her decrepit old man.
Unexpected news: DSās GF had wanted a new job for quite a while. She interviewed, got offer, accepted offer, resigned her old job, had going away āparty,ā and started new job ā all remotely.