Toronto finance professor Moshe Milevsky has written a new book, so this seemed like a good excuse to revisit his favorite question: are you a stock or a bond?
Milevsky believes financial advisors should ask their clients this question before making any asset-allocation decisions. If someone has a risky job, he argues – if they are a stock – then their portfolio should emphasize bonds.
“If a financial advisor says you have a lot of stocks [in your investment portfolio] and should buy bonds, the response should be, ‘My job is a bond,’ “ he said.
Milevsky is adding another layer to the risk formula usually promoted by financial planners, who typically advise clients to lower their risk as they age. Milevsky wants people to avoid the double jeopardy dramatized by Enron Corp. employees, who had high-risk jobs in energy speculation and put their money into high-risk stocks – even worse, they were Enron stocks.
In a recent interview, he rated a few professions on the stock-bond continuum to demonstrate how his theory works. …Learn More
To help retirees choose the best way to spend down the 401(k) savings they have built up over a lifetime, Nobel Prize laureate William Sharpe urged them to focus on a single outcome: the size of their monthly check.
This video was created by Professor William Sharpe of Stanford University.
Financial advisors should say to their clients, “Don’t worry about the strategy or model. Look at the outcomes that matter: what you can spend year by year in retirement,” he said.
Speaking at a conference this week at Boston University’s School of Management, which brought financial practitioners together with top minds in academic finance and Washington think tanks, Sharpe said advisors should present clients with various payout schedules and then explain the probability of success for each one they’re considering. Learn More