Weekly Reading List for 12/5/2022

Financial Regret at Older Ages and Longevity Awareness

Thank you to Kaeri for sending this paper over our way and to Dan for the write-up!

• Older people often express regret about financial decisions made earlier in life that are impacting them as they grow older, often being that people had wished they saved more earlier in life.
• A study found that the most influential factor regarding feelings towards missed savings was shocks experienced earlier in life like divorce for example.
• Results of the study conducted by the authors of the paper revealed that many people in the older population experience high levels of financial regret. The regrets included:
  • Not saving more
  • Not buying Long Term Care
  • Not delaying social security benefits
  • Not having purchased lifetime income payments
  • Not working longer
• Digging deeper into the biggest regret shown in the survey, not saving more, the two most common reasons for insufficient saving were not planning ahead and living day to day.
• While these reasons seem obvious and something we all believe we can avoid, these studies show that simple financial principles such as saving can have a great influence on people’s lives as they grow older. Even if we feel comfortable with our financial habits, reminding others to make sound financial decisions such as having sufficient savings is never a bad idea.
• The paper notes towards the end that providing people with objective longevity information when they make key financial decisions could help them avoid making mistakes, and therefore help avoid regret.

If the Price Ended in 99, You Probably Overpaid

As we work our way into the holiday season this felt like a timely article. We all love a good deal but paying attention to what the price ends in can be an important indication of whether you are getting one!

• Some researchers have found when a price ends in 9. The products price, on average, ends up being 18% higher than when the same item was at a different ending price
• This strategy is called “just below pricing’
  • The origin is debated over but ultimately it is a psychological trick to get the consumer to associate a 99-cent pricing with a good deal
• Having prices end in 99 makes it easier to increase prices as consumers notice it less
  • For example a retailer marking up a product from 7.99 to 8.99 may still make a consumer feel they are getting a good deal as they are able to purchase the product just below $9! When in reality they are paying an extra dollar for it.

How Much Growth Can You Expect?

As we have seen a wide range over returns over the last few years. It can be useful to maintain realistic expectations on returns over the long-term

• This article starts out with a simple but interesting thought experiment on how to think about investing
• How much growth can you realistically expect over 10,20, and 30 years?
  • Using data over the last 50+ years and consistent investing (i.e. dollar cost averaging) you can reasonably assume the following:
    • 1.5x your money after 10 years
    • 2x your money after 20 years
    • 2.5x your money after 30 years
    • 4x your money after 40 years
  • How can knowing this be useful?
    • You can use it as a general guide for how much money you should target to save
    • For example, if your target is to have $2M in your portfolio for retirement in 20 years. You will need to save $1M over that time frame. Or approximately $50k/year.
  • Additionally, over every rolling 30-year period for the last 50 years. You can reasonably expect the consistently invested portfolio into an 80/20 allocation to result in anywhere from 2x to 6x in ending real portfolio value!

  

This article provides a quick overview of some of the biggest financial firms 2023 outlooks. Some highlights:

• Of the 16 cited their S&P500 forecasts range from 3,675 to 4,500
• Not surprisingly most economists expect the US economy to go into a recession in 2023
• Overall the ‘pros’ seem a little more cautious on there forecasts versus previous optimistic years
• As the article cites there are a few important things to remember about forecast targets
  • They are incredibly difficult to predict with any accuracy as there are countless number of variables to consider and some we don’t even know about (ie. Covid!)
  • Strategists will revise these targets as new information comes available
  • The one year targets can be ‘fun’ to look at but the bigger value comes from reading and listening to these strategists throughout the year