Top 10 Takeaways from The Long View Podcast
Experts offered insights on retirement planning, whether value stocks are due for a rebound, and what types of spending correlates with happiness in retirement.
When Jeff Ptak and I started The Long View podcast this past May, we had a few goals in mind.
We knew we wanted to do an in-depth interview format, because we've both enjoyed other podcasts along those lines. We aimed to focus on money matters, but not just a single aspect like investing; we wanted it to touch on financial and retirement-planning matters, as well as policy. And selfishly, we wanted to interview experts whose work we're interested in, because there's no sense embarking on a project if it's not going to be a learning experience.
Now that we have more than 30 episodes under our belts, I'm happy to say that the best part of the podcast has been the opportunity to spend an hour each week chatting with some of the top practitioners in various fields, be it investing, financial planning, or retirement research. We've both learned a lot, and we hope our listeners have learned from and enjoyed the experience, too.
As the year winds down, here are 10 key takeaways from the podcast so far.
1. Financial Education Doesn't Always Work
One of the most thought-provoking discussions from the podcast related to the topic of financial education. We recently interviewed Dr. John Lynch, a professor at the University of Colorado Boulder, about his research into whether financial education contributes to better outcomes. Lynch noted that financial knowledge (and most other learning) "decays" rapidly--if people don't use it they lose it--and that should lead to a rethinking of how financial education is presented. He asserted that "financial education should be narrowly targeted at changing a specific behavior 'just in time.' So, if you want to have influence, you should try to figure out when that behavior is going to happen and try to have your financial-education interventions right before that."
2. Our Retirement System Needs Help, and Some Segments of the Population Are Especially at Risk
One topic we revisited again and again was the state of retirement preparedness in the United States today; we asked many of our guests whether they believe a crisis was close at hand. Some pointed to encouraging data; for example, Morningstar director of policy research Aron Szapiro noted that for the lowest-income Americans, and presumably those who are most at risk of falling short, Social Security replaces a relatively high percentage of income. Other guests were much less sanguine, especially about certain segments of the population. Single women have long been considered one of the groups most at risk of falling short in retirement, but retirement researcher Alicia Munnell, the director of the Center for Retirement Research at Boston College, noted that married couples may also have cause for concern. "We find that two-earner couples don't compensate for the fact that only one of them may be working and contributing to a 401(k)," she noted. "There's no doubling up for the fact that your spouse might not be contributing. And then to the extent that there's been previous divorces, that also undermines the financial security and retirement preparedness of these couples."
3. A Lot of Different Factors Have Conspired Against Value Investing, but Value Stocks Look Cheap Today
In addition to segments focused on financial and retirement planning matters, we were also able to enjoy conversations with several topflight investment managers. One of them--Morgan Stanley's Dennis Lynch--employs a growth strategy, but we also talked to several value managers enduring a weak stretch for their style. Rob Arnott, chairman of the board at Research Affiliates and the manager of several value-leaning tactical asset-allocation funds, argued that value stocks are inexpensive, and the value slice of emerging markets is cheaper still: "[Value is] trading in its cheapest quintile historically. In emerging markets, it's trading in its cheapest decile, cheapest 10% of all of history. And the spread between growth and value is wide enough that just coming back to historic norms, just getting repriced to the normal growth/value valuation spread, would deliver over 2,500 basis points of incremental performance in the U.S. and over 4,000 basis points of incremental performance in emerging markets. So, to me, this looks like a classic long value cycle that has been painful."
4. New Retirees Should Brace Themselves for Meager Returns
The market went gangbusters in 2019, but one topic we covered on multiple occasions was whether the near term could turn out to be a particularly bad time to retire, and if so, what implications there are for how investors manage their plans. Morningstar's head of retirement research David Blanchett argued that a potentially weak market environment should be top of mind for new retirees, but younger investors should be less concerned: "We think that if you're retiring right now, you're in a pretty rough spot. We think lower returns are going to happen for you. But if you're 25 years old, we're not going to assume that bond yields are 2% for the next 70 years."
5. Lifetime Income Is Underrated
We also had a number of constructive conversations about how retirees can make sure that their assets last. Given that pensions are on the decline, nearly every single retirement researcher we interviewed believe annuities can be additive to a plan. Dr. Jeffrey Brown, a retirement researcher and dean of the University of Illinois Gies College of Business, believes that today's low bond and cash yields make the case for annuities especially compelling: "With interest rates low ... people are having more difficulty accumulating enough wealth, converting it into a sustainable income stream. [S]ome of the alternatives to annuitization, like 4% spending roles and the like, don't really work very well in this low-interest-rate environment."
6. Investor Timing Isn't as Bad as Some Make It Out to Be
One maxim that you often hear repeated is that investors are their own worst enemies, systematically mistiming their purchases and sales and chasing the hot dot. Several of our interviewees took issue with that assertion, noting that a closer read on the data doesn't bear it out. Jonathan Clements, an influential financial writer who also edits the Humble Dollar blog, argued that the "dumb investor" myth has its roots in the financial-services industry: "Clearly, it's in Wall Street's interest to make everyday investors think that they are stupid, because if investors believe that they are stupid, and the folks who work on Wall Street are smart, these individuals are more likely to go off and hire a financial advisor. And yet, from the evidence I've seen, it seems that everyday investors' results, on average, are not at all bad, while most professionals' are notably mediocre. And hence, this notion that small investors are stupid is really, I think, insulting."
7. Expect to See Advisor Business Models Evolve Further Still
Another topic we covered with several of our experts was the rapidly evolving world of financial advice. What's the best model for consumers, and what shape will advice-giving take in the future? Our interviewees' opinions ran the gamut: Sheryl Garrett, Allan Roth, and Rick Ferri are all firm believers in the hourly model, whereas Josh Brown and Harold Evensky argued that charging clients a percentage of their assets annually is the simplest way to charge for portfolio management and financial planning. Michael Kitces asserted that no matter what, more and more advice is apt to be produced and delivered digitally: "(Saying) 'Oh, no one's ever going to want to work with an advisor virtually; it's all in person' ... is like clothing stores insisting that Amazon was no threat to them 20 years ago."
8. Simpler Portfolios Beat More Complicated Ones
Another recurring question was which assets investors need to create effective portfolios. Financial planner and author Allan Roth argued that simple building blocks are best: "I embrace dumb beta, just owning the entire market, and there's something really cool about a total stock or total international stock index fund, because if I own that with a 0.04% expense ratio, then I'm guaranteed to beat the average dollar invested in U.S. stocks, because I own the entire market and I owned it at lower costs than most other people do, whereas was when you go with smart beta, when you go with factor investing, you may do better, you may do worse. But I found it's very appealing with clients when I can tell them I can guarantee them mathematically."
9. Index Funds Aren't Necessarily Passive When It Comes to Matters of Governance
Plain-vanilla index funds have garnered the lion's share of assets in recent years, raising questions of whether passive funds can be active owners of the companies they own. Pointing to Morningstar research of how active index funds are in governance matters, Morningstar's director of ETF research Ben Johnson argued that they can be: "What we found is that they're anything but zombie investors. That all of these firms--not all of them, but the majority of the largest firms--have made meaningful investment in staffing up teams that are dedicated to researching key issues that are being presented on the proxies of their investee companies, to regularly engaging with managements and boards of directors at all of these companies. And they have every incentive to do so because they don't have any other option. They can't bail because these companies are part of their portfolios, being indexed portfolios come hell or come high water."
10. Mindful Spending Is Key
While many of our episodes were focused on investing, we also enjoyed several discussions about spending--specifically, how can consumers make sure their spending furthers their goals and contributes to happiness? Retirement researcher Michael Finke shared some thoughts on that topic: "The happiest retirees are the ones who are careful about maintaining opportunities for social interaction. We know that the number-one activity of retirees other than sleep is watching television. So, this is a big problem among retirees, is how do you create a structure to make sure that you're spending money on the kinds of things that actually do make you happier in retirement?"