Scott Cederburg: A Critical Assessment of Lifecycle Investment Advice | Rational Reminder 350

Meet with PWL Capital: https://pages.pwlcapital.com/en-ca/contact-us?utm_source=content&utm_medium=youtube&utm_campaign=rationalreminder_yt Our conversations with Professor Scott Cederburg from Eller College of Management have led to the most heated debates among our listeners! Today, Prof. Cederburg returns to discuss the changes he’s made to his paper that was the foundation of previous conversations - ‘Beyond the Status Quo: A Critical Assessment of Lifecycle Investment Advice’. We begin with the data setup and headline findings of the paper before Prof. Cederburg defines “domestic” and “international” as they appear in his paper, why the block bootstrap approach is vital to his work, how and why the results of his paper differ from the status quo, and the evaluation metrics he uses to compare different investment strategies. Then, we explore his optimal base portfolio, the strategy he uses to derive it, how it performs in simulated worst-case scenarios, and how it changes when ditching the bootstrap approach or changing strategies from constant spending to proportional spending. To end, we learn of the importance of including the US in international stock portfolios, how it changes when the US is viewed as special above others, the correlation between labor income and domestic stock returns, and how the reviews of academics and practitioners have changed since the first iteration of the paper until this latest edition. Timestamps: 0:00:00 Intro 0:06:03 Describing the data setup and headline findings from Scott's paper 0:14:32 How Scott's results differ from the status quo 0:19:16 The optimal base case portfolio strategy 0:28:05 How the optimal allocation changes when the household is allowed to vary their portfolio weights through time 0:33:19 How the time varying optimal portfolio changes when returns are assumed to be independent and identically distributed 0:39:16 How optimal portfolio allocations change when a couple is allowed to condition their investment strategy on the domestic stock price-dividend ratio 0:42:29 How significant the gains for the optimal portfolio conditioned on valuations are 0:47:09 The importance of including small countries, or countries with small stock markets, to the main results in the paper 0:53:22 The importance of including the US market in other countries' international stock portfolios, to the relative attractiveness of international stocks 1:01:34 The importance of the relatively low historical correlations between domestic and international stock markets, to the performance of the optimal portfolio 1:11:34 How the product fee for a fund using leverage should be accounted for in the total cost of leverage 1:23:16 How sensitive the results throughout the paper are to risk aversion 1:29:21 What's next for Scott's paper Links From Today’s Episode: Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582. Rational Reminder Website — https://rationalreminder.ca/ Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/ Rational Reminder on X — https://x.com/RationalRemind Rational Reminder on TikTok — www.tiktok.com/@rationalreminder Rational Reminder on YouTube — https://www.youtube.com/channel/ Rational Reminder Email — [email protected] Benjamin Felix — https://pwlcapital.com/our-team/ Benjamin on X — https://x.com/benjaminwfelix Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/ Cameron Passmore — https://pwlcapital.com/our-team/ Cameron on X — https://x.com/CameronPassmore Cameron on LinkedIn — https://www.linkedin.com/in/cameronpassmore/ Mark McGrath on LinkedIn — https://www.linkedin.com/in/markmcgrathcfp/ Mark McGrath on X — https://x.com/MarkMcGrathCFP Professor Scott Cederburg — https://eller.arizona.edu/people/scott-cederburg Professor Scott Cederburg on LinkedIn — https://www.linkedin.com/in/scott-cederburg-0917b0121/ Professor Scott Cederburg on Google Scholar — https://scholar.google.com/citations?user=CZKf3WEAAAAJ Eller College of Management — https://eller.arizona.edu/ Episode 224: Prof. Scott Cederburg: Long-Horizon Losses in Stocks, Bonds, and Bills — https://rationalreminder.ca/podcast/224 Episode 284: Prof. Scott Cederburg: Challenging the Status Quo on Lifecycle Asset Allocation — https://rationalreminder.ca/podcast/284 Vanguard — https://investor.vanguard.com/ ‘The Portfolio Size Effect and Using a Bond Tent to Navigate the Retirement Danger Zone’ — https://www.kitces.com/blog/managing-portfolio-size-effect-with-bond-tent-in-retirement-red-zone/ Papers From Today’s Episode: ‘Beyond the Status Quo: A Critical Assessment of Lifecycle Investment Advice’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4590406 ‘Is The United States a Lucky Survivor: A Hierarchical Bayesian Approach’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3689958 ‘Risk-Free Interest Rates’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3242836