A linear link between S&P 500 return and the change rate of the number of nine-year-olds in the USA has been found. The return is represented by a sum of monthly returns during previous twelve months. The change rate of the specific age population is represented by moving averages. The period between January 1990 and December 2003 is described by monthly population intercensal estimates as provided by the US Census Bureau. Four years before 1990 are described using the estimates of the number of 17 year-olds shifted 8 years back. The prediction of S&P 500 returns for the months after 2003, including those beyond 2007, are obtained using the number of 3 year-olds between 1990 and 2003 shifted by 6 years ahead and quarterly estimates of real GDP per capita. A prediction is available for the period beyond 2007. There are two sharp drops in the predicted returns - in 2007 and 2009, and one strong rally in 2008. Equivalently, S&P 500 index should drop in 2007 and 2009 to the level observed one year before.

Potential link between S&P 500 returns and 9-year-old population is tested for cointegration. The Engle-Granger and Johansen tests demonstrate the presence of a long-term equilibrium (cointegrating) relation between these variables. This makes valid standard statistical estimates. Correlation between the predicted and observed indices, including RMS difference, linear regression, and VAR demonstrate good prediction accuracy at two-year horizon, when the prediction uses 7-year-olds instead of 9-year-olds. The RMS difference between the observed and predicted returns for the period between 1992 and 2003 is only 0.09 with standard deviation of the observed series for the same period of 0.12 and the naïve (random walk) RMS deference of 0.18.

No matter the statistics, you can always find numbers that can prove just about anything.

THIS IS HOW STUPID PEOPLE CAN BE- the Securities and Exchange Commission sued AOB, alleging that it was in a fraud scheme that had raised more than $45 million from investors through an unregistered offering and sale of promissory notes that were supposed to pay off a guaranteed 5.5% interest rate each month. In fact, AOB was paying clients their interest using principal dollars that were contributed by other investors.

You really have to be stupid to believe that. Should investors get all their money back? No. Otherwise it is moral hazard.

Re: Section 913 of Administration’s Proposed Legislation to Strengthen Investor Protection

Certified Financial Planner Board of Standards (CFP Board), the Consumer Federation of America (CFA), the Financial Planning Association (FPA), Fund Democracy, the Investment Adviser Association (IAA), the National Association of Personal Financial Advisors (NAPFA), and the North American Securities Administrators Association (NASAA)1 are writing to express our strong support for the proposal in the Administration’s White Paper on financial regulatory reform to subject all those who provide investment advice to a fiduciary duty to act in their clients’ best interests.

Well. a fiduciary has to be legal. There is only one CFP who is fully licensed and legal in California. (There are similar laws in about 35 other states but you are still apt to find only one or so actually licensed. The College for Financial Planning does not teach the requirements for licensing. Apparently fiduciary is only a word)

I met the CFP Chairman a few weeks ago. She had no idea that California CFPs were told to obey the law. She did not even know of any of the laws. A real fiasco. I was brushed off. Not good to get me mad. So........

Here is a letter to Financial Planning Magazine in 2002 regarding illegal planners.

And here is yet another issue you present that defines comprehension (including journalistic integrity and competency)- full disclosure. I do not take umbrage with Clark's reference to the ludicrous marketing by all of wall street regarding fee based absurdities. But the statements by NAPFA that they are "headed for full disclosure......for which NAPFA is famous for" does a disservice to all readers and planners. Clark has known that NAPFA, et al, have directly engaged in deceptive and fraudulent practices for years as is evidenced not only by my letter to him on April 7, 1996 addressing deception and lies, but by the subsequent article in Investment Adviser wherein the NAPFA spokesperson was quoted as saying "we hope that California does not enforce their law since other states might do so as well" (apparently you are considered legal and ethical as long as you don't get caught). Where is that disclosure after so many years?? There has never been, and is not now, a legal NAPFA agent in California. Clark knows that- so does FP. Isn't it necessary that publications clearly identify marketing statements clearly designed to deceive.

This was sent to NAPFA, IAFP, ICFP, CFP Board of Standards, CPA Society and the College for Financial Planning in 1996 by Fred Butler, Senior Staff Counsel of the California Department of Insurance regarding illegal planners in the state. "I would appreciate it if you would send me a copy of your current ethical standards for your representatives, suggested and required curriculum and any additional material that relates to any requirements for compliance with Federal and State laws. In the interim, we would suggest that your organization issue a statement to financial planners doing business in California that under current California law, only individuals licensed under the California Insurance code may give insurance advice for a fee."

Subsequent to the formal meetings with the State Department of Insurance in 1997, the enclosed letter was sent to the parties- particularly the Board since Goss was in attendance. More specifically, Duane Thompson who was, at that time as I remember it, head of government affairs for the Board (or something similar) and can, I assume, provide the letter he sent to the ICFP for distribution at their meetings (which subsequently resulted in formal complaint to the Board by JJ McNab, an attending CFP/Life Analyst at the San Francisco ICFP meeting, because attendees were told by the Director at Large to simply continue keep on violating the law but keep quiet about it. The Ethics Chair was in attendance and was in agreement.) Due to the severity of that complaint, it should still be in your files.

I had direct communication with DOI Commissioner Garamendi in 2005 regarding any changes in the law, etc. There were no changes.

COMMENTS: Is it necessary for me to get the life & disability insurance analyst license if I charge a fee for a comprehensive financial plan where evaluation of insurance policies is part of that plan? I am a Certified Financial Planner practitioner.

I am responding to your email of July 28, 3006. I would conclude, based on the scenario you have provided, that you would need a Life and Disability analyst license. Please review the definition on our website.

http://www.insurance.ca.gov/0200-industry/0050-renew-license/0200-requirements/life-disability.cfm”

The only relevance here is the simple fact that the Board has abdicated its duty to insure that its members were at least legal. You cannot be a fiduciary if you are violating the law. I am providing the Board the ‘opportunity’ as a fiduciary instrument to clarify to the press and public that the Board breached its duty to insure its agents were following the law and will be immediately developing criteria for compliance.

On July 30, 1997, a discussion concerning the life and disability insurance analyst license was held between the California Department of Insurance (CDI) and members of the financial planning industry. As you participated in this dialog, I am writing to communicate CDI's policy on this matter.

The focal point for this issue is consumer protection, not the interests of the individual factions. With all parties based in customer service, it is sad that this detail has been lost in much of the discussion. As defined by insurance code Section 32.5, a life and disability insurance analyst is

"... a person who, for a fee or compensation of any kind, paid by or derived from any person or source other than the insurer, advises, purports to advise, or offers to advise any person insured under, named as beneficiary of, or have any interest in, a life or disability insurance contract, in any manner concerning that contract or his or her rights in respect thereto."

The fact that there are only 46 life and disability analyst in California is not a valid argument for repealing this code. In fact, the limited number of licensees and population in noncompliance begs for increased education and enforcement. While the easy solution for those in noncompliance may be to repeal this law, consumers who pay for fee advise on insurance matters deserve an analyst educated in insurance per CDI standards. The current licensing requirements ensure that relationship. Any legislative effort to repeal this law will likely be opposed, on the basis that such action is harmful to consumers, by consumer groups, insurers, agents and brokers, and the California Department of Insurance.

At the July 30, 1997 meeting, representatives from the financial planning industry raised two additional suggestions concerning CDI's examination requirement. The first seeks to allow issuance of a Life and Disability Analyst license to Certified Financial Planners and Certified Public Accountants following the successful completion of their own professional examinations. Again, this is an idea that requires legislation and will certainly face opposition. CDI's position remains at only those individuals who pass CDI's exam are to be issued a life and disability analyst license. CDI is the agency charged with enforcing this license and will remain, via its examination and related or regulatory functions, the authorizing agency for this license.

The final suggestion request a waiver of the requirement than an examinee must have five (5) years experience as a life licensee, or employment experience under said licensee, to sit for CDI's examination. Again, this is an idea that requires legislation. CDI will reserve judgment until the full breadth of this proposal has been introduced to the state legislature.

Despite some groups interest in changing current law, there is an existing law which is, and has always been, quite clear. While a financial planner may be illegally engaging in insurance analyst activities and may not be aware of their violation, it is my hope that this the explanation of policy will provide them with the impetus to come into compliance or cease the illegal activity immediately. Per insurance code Section 1844, " any person who acts, offers to acts, assumes to act, as a life and disability insurance analyst when not licensed by the commissioner per this article...... is guilty of a misdemeanor." Consistent with current practice, information obtained on individuals in noncompliance will be aggressively pursued.

Families who struggle to care for a parent across the miles have a unique disadvantage. They cannot be there to know what is really happening. It is often difficult and frustrating to reach doctors or social service agencies and to be able to coordinate the needed care. The older parent may forget what the doctor has told them, or choose not to “burden” their child with problematic information. Indeed, many adult children are not aware that there is a problem until a visit is made, and they see the changes in the parent’s physical, mental or emotional functioning.

Other people in the community may be taking advantage of the older person, either financially or emotionally

There are a number of challenges that the adult child faces when dealing with long-distance care of an older parent. These include the following:

When phone conversations are held, everything sounds fine. “No need to worry dear. I’m doing fine on my own,” when you know in your gut that everything is not fine.

Trusting someone else with the day-to-day care when you think you should be the one to provide the care.

Guilt - over the fact that you are not able to be physically present all the time

Resentment - over the fact that you don’t live closer and that others are doing more

Anxiety - at having to rush back and forth to visit and manage care from a geographical distance, and not knowing what tomorrow will bring

Often, adult children are also faced with a demanding relative who wants to know why you just can’t drop “everything” and spend time caring for them.

What can adult children do to be better aware of and be able to manage care for their older relative when there is a physical distance between them? The following strategies might be utilized:

If there is a neighbor or close friend who lives near to the older relative, entrust them to check up and visit on a regular basis. Make sure that you are contacted if there are any serious changes that occur.

Make contacts with formal services that are appropriate with the older person’s care. These services might include visiting nurses, senior centers, adult day care or a meals program. Keep in regular contact with these agencies and make sure that the older relative is receiving the care that is needed.

Keep in regular contact with the older relative’s physician. Call and speak to the physician directly. If you feel comfortable, have the physician send you regular, updated notes on the visits and tests that are administered.

Hire a private care manager. There are professionals throughout the country who are trained and experienced in the assessment, coordination, monitoring and direct service delivery of services to the elderly and their families. Many people hire private care managers to serve as their “eyes and ears” in relation to the status of their older relative’s condition. Private care managers can also assist families with implementing and monitoring a long-term care plan. Family members are relieved to know that someone is watching over their loved one, and is keeping them informed if a problem arises.

A private care manager helps to reassure the family regarding the care that the older person is receiving. Another role is to assist in helping family members deal with emotional concerns, such as not being able to be physically present to provide care or dealing with guilt over the past relationship and emotional distance that might still be felt toward the older parent.

When you are not able to be around to oversee the day-to-day care of your older relative due to geographical distance, it is comforting to know that there are strategies that can be used to plan and to monitor your relative’s situation. Customizing a caregiving network will make your life much easier, which will lead to decreased stress and both you and your older relative will reap the benefit of the care that is provided.

Women and men may differ in their propensity to choose a risky outcome because of innate preferences or because pressure to conform to gender-stereotypes encourages girls and boys to modify their innate preferences. Single-sex environments are likely to modify students' risk-taking preferences in economically important ways. To test this, we designed a controlled experiment in which subjects were given an opportunity to choose a risky outcome - a real-stakes gamble with a higher expected monetary value than the alternative outcome with a certain payoff - and in which the sensitivity of observed risk choices to environmental factors could be explored. The results of our real-stakes gamble show that gender differences in preferences for risk-taking are indeed sensitive to whether the girl attends a single-sex or coed school. Girls from single-sex schools are as likely to choose the real-stakes gamble as much as boys from either coed or single sex schools, and more likely than coed girls. Moreover, gender differences in preferences for risk-taking are sensitive to the gender mix of the experimental group, with girls being more likely to choose risky outcomes when assigned to all-girl groups. This suggests that observed gender differences in behaviour under uncertainty found in previous studies might reflect social learning rather than inherent gender traits.

CURRENT CRISIS" More often than not, the aftermath of severe financial crises share three characteristics. First, asset market collapses are deep and prolonged. Real housing price declines average 35 percent stretched out over six years, while equity price collapses average 55 percent over a downturn of about three and a half years. Second, the aftermath of banking crises is associated with profound declines in output and employment. The unemployment rate rises an average of 7 percentage points over the down phase of the cycle, which lasts on average over four years. Output falls (from peak to trough) an average of over 9 percent, although the duration of the downturn, averaging roughly two years, is considerably shorter than for unemployment. Third, the real value of government debt tends to explode, rising an average of 86 percent in the major post–World War II episodes. Interestingly, the main cause of debt explosions is not the widely cited costs of bailing out and recapitalizing the banking system. Admittedly, bailout costs are difficult to measure, and there is considerable divergence among estimates from competing studies. But even upper-bound estimates pale next to actual measured rises in public debt. In fact, the big drivers of debt increases are the inevitable collapse in tax revenues that governments suffer in the wake of deep and prolonged output contractions, as well as often ambitious countercyclical fiscal policies aimed at mitigating the downturn.

Buy-and-hold works fine in an efficient market. But if you haven’t learned in the last 10 or 15 years that the market is capable of being utterly crazy, then you’ve learned nothing.

Jeremy Grantham

IT'S COMING- AND ABOUT TIME. The new swine flu outbreak will be a wonderful advent to going green. If not this time than before I die we should see death all over the place with a flu that will decimate at least a lot of the third world and more. There will be millions less people overall and it might give the world a chance to recover. The problem might be that the first tier countries may escape some of the onslaught and not lose too many people. That would be a shame since we have to find a way to help Medicare and Social Security so dropping a lot of the elderly would be great.

It's too bad the strain couldn't be designed for really stupid people and politicians

STOCKS FOR THE LONG RUN? (Evanson) (Updated November 2008)

"Stocks for the Long Run." This belief is pretty much investment gospel and is repeated incessantly in the financial media. Simply invest in stocks, and let the market bail you out over the long run. And, in the world of passive and index investing, buy and hold is quintessential. Dr. Jeremy Siegel, Professor of finance at Wharton, and author of the very popular book, "Stocks for the Long Run" (1998), presents a thorough analysis of stock market data showing that stocks returned about 7% above inflation for the past two hundred years, and that for twenty year time frames, stocks outperformed bonds over 90% of the time.

But, very long-term statistics often conceal problems which may arise for investors with portfolios heavily allocated to stocks. This paper will briefly examine historical data and argue for caution in uncritically accepting the hypothesis that stocks are always the best investment for the long-run.

(1) The long run can turn out to be extraordinarily long, far longer than an investor's investment horizon.

If an investor entered the market last century when the Dow was one-standard deviation above its long-term trend line, an exuberant bull market top, how long did they have to wait? Leuthold (InvestmentNews, 5/21/2001) notes that an investor at the peak in 1929 took until August, 1998, almost 69 years, to reach a nominal return of 10% on their money, including dividends. This is an after inflation yearly return of about 7%. Thus, it took 69 years for an investor to reach the long-term average return for stocks, and had an investor in 1929 relied upon long-term stock returns data to calculate their future net worth or retirement income, they would have been sorely disappointed.

In addition, from its peak in 1929, our long-term investor had to endure an 86% decline in the value of his portfolio to its low in July, 1932. The Dow Industrials holds some of America's largest and financially soundest companies, and cannot be considered an aggressive or speculative part of the stock market. Yet, investors choosing this relatively conservative sector of the stock market would have had to have extraordinary nerves, and an abundance of decades to see a long-term average return on their investment. This is far more than can be realistically expected.

(2) Real returns differ substantially depending upon time of market entry, and for the typical investor with a twenty or twenty-five year time-frame, this can make very large differences in money available during retirement. Frequently presented "mountain" charts smooth out and conceal what would have happened to unfortunate investors who happened to enter the market at or near long-term secular bull market peaks.

An investor in the S & P 500 from 1929 through 1949 received an inflation adjusted return of 4.54%. Yet, an investor beginning in 1932, and holding until 1951, received an inflation adjusted annual return of 10.84%, over 6% greater per year. Our 1929 investor received a compound total return of 84.36% for twenty years; our 1932 investor received a compound total return of 818.13% for twenty years, and ended up with almost ten times as much as our unfortunate 1929 investor. Extend the holding period out to twenty-five years, and our 1929 investor does better, receiving a compound total return of 319.33%, but our lucky investor still receives far more, 2202%.

Let's compare returns for the last big market top and bottom. An investor in 1968, a market top, had to wait until 1983, fourteen years to just breakeven after inflation. If they waited until 1987, twenty years, their annual return was 4.19% after inflation, and their compound total return was 489.24%. If they waited until 1992, twenty-five years, their annual return was 5.83%, compounded to1132%. Today's big bull market began in the early 1980's, so only twenty years or so data is available at this point if we consider the 2000-2002 sell-off as a correction. But, an investor in the market from 1981 through 2000 received a whopping after inflation return of 12.91% annually, and a compound total return of 1741%; it was the best twenty years in U.S. market history. Yet, an investor in Japan at its peak in 1989 still has not recovered to breakeven 17 years later in 2007. Japanese residential real estate and equities are still down around 60%. Time of market entry matters yet there's not evidence markets can be timed.

In 1997, Peter L. Bernstein, author of several popular and well-respected books on investing, cautioned investors about employing the long run as a benchmark because the long run is not a homogeneous state of the world, a smooth and straight line into the future. A very large portion of the vaunted equity returns over the riskfree return, the equity risk premium, is accounted for by just 32 years out of 200 years since 1800, 1950-1981. Bonds outperformed stocks 43% of the time, and stocks were superior over the very long run, but with a high degree of uncertainty during periods of time shorter than 150 years. He concludes that, "...the long run can tell us perilously little about what kinds of environments lie ahead...we have to accept uncertainty."

Easterling, E. in "Unexpected Returns: Understanding Secular Stock Market Cycles" examines secular bull and bear markets and how they interrelate with p/e ratios, dividends, GDP growth and inflation. Historically, secular bull markets have run as long as 24 years (1942-1965) and as short as 4 (1933-1936). On average, they lasted 13.5 years. Secular bear markets have averaged 11.3 years and have ranged from 4 years (1929-1932) to 20 years (1901-1920). Easterling found that for 85 twenty year periods starting in 1919, twenty years being a reasonable investment time horizon for most people, starting p/e's were strongly correlated with forward returns. When p/e's were19 or higher, forward 20 year nominal returns ranged from 1.5-4.5%. When p/e's averaged 10, forward returns averaged 11.9-15.0%. Interestingly, bear markets exhibited much higher volatility than bull markets. His data clearly indicate that high 20 year returns occur when p/e's are low, dividends are high (over 5% vs. under 2% a/o 2007), inflation is moving towards stability, and interest rates are moving solidly lower, not conditions in place as of 2007.

It's very clear from the above analyses that luck or chance in the form of time of market entry plays a major role in the returns most investors can expect to receive from stocks. Enter at or near a market bottom and you may receive 6 to 8% or more per year than the investor who enters at a market top, and your compound returns may be up to ten times greater than that of an investor who enters at a market top. These are huge differences. Enter at a market top, and you may have to live through a 65% or greater decline, and receive only a breakeven return for more than a decade, sometimes two. And, to make matters worse, there is no evidence that anyone can accurately time big market tops or bottoms or know for certain where we are in long secular cycles.

Co-association between securities is not measurable using correlation," because past history can never prepare you for that one day when everything goes south. "Anything that relies on correlation is charlatanism."

Nassim Taleb

How can investors avoid being shocked, or at least reduce the risk of overreacting to a surprise?

A: Understanding that we do not know the future is such a simple statement, but it's so important. Investors do better where risk management is a conscious part of the process. Maximizing return is a strategy that makes sense only in very specific circumstances. In general, survival is the only road to riches. Let me say that again: Survival is the only road to riches. You should try to maximize return only if losses would not threaten your survival and if you have a compelling future need for the extra gains you might earn.

A: Two things. First, in 1703 the mathematician Gottfried von Leibniz told the scientist Jacob Bernoulli that nature does work in patterns, but "only for the most part." The other part—the unpredictable part—tends to be where things matter the most. That's where the action often is.

Second, Pascal's Wager [see the box above]. You begin with something that's obvious. But because it's hard to accept, you have to keep reminding yourself: We don't know what's going to happen with anything, ever. And so it's inevitable that a certain percentage of our decisions will be wrong. There's just no way we can always make the right decision. That doesn't mean you're an idiot. But it does mean you must focus on how serious the consequences could be if you turn out to be wrong: Suppose this doesn't do what I expect it to do. What's gonna be the impact on me? If it goes wrong, how wrong could it go and how much will it matter?

Pascal's Wager doesn't mean that you have to be convinced beyond doubt that you are right. But you have to think about the consequences of what you're doing and establish that you can survive them if you're wrong. Consequences are more important than probabilities.

Anything can happen. There really is such a thing as a "paradigm shift," when people's view of the future can change very dramatically and very suddenly. That means that there's never a time when you can be sure that today's market is going to be a replay of a familiar past.

Markets are shaped by what I call "memory banks." Experience shapes memory; memory shapes our view of the future. In 1958, younger people were coming in who had a different memory bank. That's also what happened [in 1999] when tech stocks were enormously exciting; most of the new participants in the market had no memory of what a bear market is like, and so their sense of risk was muted.

How strong is the memory of the inflationary nightmares of the 1970s? Anybody under 50 did not really experience it, in the sense that they were [then] too young to be decision-makers. I believe sustaining that memory is more important to the future than all the vivid memories of the bubble and its aftermath.

Q: Ten years ago you pooh-poohed dividends. Now you insist they are vitally important. You once described a portfolio of 60% stocks and 40% bonds as "the center of gravity of asset allocation for long-term investors." Then in 2003 you urged big investors to abandon fixed asset allocations in favor of strategies like market timing. Why all the flip-flopping?

A: I make no excuses or apologies for changing my mind. The world around me changes, for one thing, but also I am continuously learning. I have never finished my education and probably never will.

Q: Is market timing [short-term trading back and forth among asset classes] really a good idea?

A: For institutional investors, the policy portfolio [a rigid allocation like 60% stocks, 40% bonds] had become a way of passing the buck and avoiding decisions. The problem was that institutions had settled on a [mostly stock] asset allocation because in the long run, they concluded, that's the only place to be. And I think the long run ain't what it used to be. Stocks don't have to do well in the future because they did well in the past. In fact, the opposite may be more likely.

As you know, I have my doubts about the certainty so many investors feel about the long-run attractions of investing in stocks. We do not know what is going to happen over the long run, never have, never will, and when [in 1999] the institutional funds were relaxed about [holding] equities, it was a moment when equities were far away from anything resembling real value. Ben Graham said to invest with a margin of error, so you don't get killed when you are wrong. They invested with a margin so small or nonexistent that meant they had to be right or they would get killed -- and they were.

Q: Over the course of your career, what are the most important things you'd say you had to unlearn?

A: That I knew what the future held, I guess. That you can figure this thing out. I mean, I've become increasingly humble about it over time and comfortable with that. You have to understand that being wrong is part of the process. And I try to shut up, you know, at cocktail parties. You have to keep learning that you don't know, because you find models that work, ways to make money, and then they blow sky-high. There's always somebody around who looks very smart. I've learned that the ones who are the most smart aren't going to make it. I don't know anybody who left investing to become an engineer, but I know a lot of engineers who left engineering to become investors. It's just so infinitely challenging.

NOTHING IN ALL THE WORLD IS MORE DANGEROUS THAN SINCERE IGNORANCE AND CONSCIENTIOUS STUPIDITY

Martin Luther King Jr.

Over the last 52 years, the yield curve has inverted ten times. A recession has followed within a few months of nine of those inversions -- the only times the U.S. economy has slipped into recession in that period.

The one time when a recession did not immediately follow an inversion was when yields on one-year notes eclipsed the rate on the 10-year from December 1965 to February 1967. The yield curve inverted again later in December 1967 and remained flat-to-inverted until March 1970. According to the National Bureau of Economic Research [NBER], the economy sank into recession in December 1969.

Looking at the last 52 years' worth of data, we see that there were a couple of banner periods. On average, though, investors did MUCH better getting out of stocks and putting their money into an interest-bearing savings account.

**Return for one year buy and hold strategy from initial onset of yield curve inversion

But this is where the statistics and returns are not real life. Simply because the yield turns does NOT mean there is not still going to be positive returns- at least for a period of time until one can figure out if the FED can create a miracle (see 2000). But as the time continues, the risk becomes far more evident. It is generally prudent to maintain a status quo of no introduction of more equities during this period. Then, if one reads (not a given for consumers at all and generally not for advisors either since neither has been taught the ramifications then or now) you MUST consider the impact on clients. (This does not work for consumers since they are not only not bright enough, but they simply do not read.), I have found there is nothing I can do for them. By the same token, I gave up teaching for the UC system 10 years ago with the CFP program since most of these ‘students’ were looking to pass the exam, not deal with people’s lives.

In any case, advisors have to recognize what happened in 1973/74 to retirees. Caught at the wrong time, their remaining lives are lost. Nothing different in 2000. If one wants to sit there and say 'buy and hold" during what had to be financial and emotional devastation, go ahead. Sure one can make adjustments after the fact (rebalancing) but if you have already lost 40%.........

I do understand what John Bogle is saying about ages, ands the reduction of the amount of equities as one gets older, but it is not real life if for no other reason than rethey never had enough money for retirement anyway. And they are emotional. Advisors do not have that latitude.

Look at late 2000 after a period of time of the inversion (note that the figure only reflects the loss during the recession only, not the total loss of 44%) ln. Anyone should have been thinking that a loss of 1973/74 was quite possible (45% overall) . Does time increase loss? Absolutely. So why would a rational advisor put clients in harm’s way. (At this point, all must understand the fallacy of time diversification. Time does not reduce risk, it INCREASES it. Most people have to expect a loss of about 50%. Pure statistics. Advisors must have a plan for that. No one should go into a risk scenario unless they know how to back out if the risk becomes larger and larger).

The risk was absolutely clear. The choice I presented was is it better to take a 15% capital gain on appreciation or take a potential 40%+ loss given the risk exposure? Very simple. So what is wrong with that? Was it market timing and going for the highest returns? Nope? Can you guarantee getting in at the bottom? Nope. Can you effectively get back in at a period of reduced risk? Yes- but it is the constant analysis of economics.

Was I just lucky in viewing risk? I didn’t think so., DCA down worked very well. Losses were less than 10%- even less since the cash was put into bonds and CDs. Did people sleep well? Yes.

So take a look at 2006. Did the whole thing seem familiar? If it didn’t it was because someone was stupid. Was it simply ‘buy and hold’ again with simplistic revisions to allocations after the fact? Fine- except we have losses approaching 50%. Was the risk clearly noted? Yes. Were the drops in returns immediately noted? NO. Are recessions a guarantee of losses (careful here because it depends on when the statistics start and stop)? Is a 50% or whatever increase in risk a realistic and objective decision to adjust? Yes. And that must be presented to clients.

None of this will help consumers. It is intended only for real life advisers. And the easiest way to determine if one is astute, give me these numbers. You have a standard deviation for a portfolio of 7.61. Tell me what a projected risk of loss is for a 10 and 15 year period.

If one cannot do this calculation, what is the sense of looking at all the technical and theoretical treatises? This is the fiduciary responsibility to clients. And it is also the reason why retirees have lost at least 2 trillion

NOPE (Simon) "Ordinarily, however, once a portfolio's target asset allocation is set, it shouldn't be changed--even during periods of significant volatility in financial markets. This belief is supported by the notion that the broad risk and return relationships among asset classes remain intact long term. Indeed, all investing would be chaos if these relationships didn't hold up over the long run. That's why portfolios should be composed of prudent, broadly diversified, low-cost institutional-level asset-class mutual funds and index mutual funds that have demonstrated dissimilar price movements historically.

"Theoretical and empirical research, as well as long-term data from financial markets, confirms that risk is minimized significantly and performance can be enhanced when a portfolio holds, for long periods of time, different asset classes with dissimilar price movements. This approach, which fulfills the fundamental underlying objective of modern portfolio theory, is also in accord with the standards of modern prudent fiduciary investing

EFM- Most investing is some measure of history but it is intertwined by absolute chaos. The problem Simon has- and I have addressed this years ago with him- is that he assume risk is volatility- and that's it. No. Risk is how much you can lose over time and that goes UP. No guess work here- it goes UP. Further, correlations are rarely consistent over time. He is just wrong.