Risk Capacity & Fallacy of 'Risk Tolerance'

 

Risk Capacity

Stipulations

 

• Risk tolerance scales are worthless. Risk is a game by Parker Brothers. Inclination predicted scorecards (if they had them) would have a lower rating for accuracy than Anthony Fauci (with excuses and denials optional).
• Sequence of rate of return risk has been addressed in other writing
• Most confuse volatility as risk (which is why qualified by the question of Enough as determined per each goal) at least 2 years of cash – money markets etc – as there seems to be an inverse relationship between high client risk bravado relative to investable assets when things are ‘good’ and greater fear and anxiety when things go down. Thus, the idea is to minimize whip sawing by the cushion by ‘this is different, this time.’

           Risk is not making one’s goals – in particular the clientele realizable goal and their determined payoffs. Risk capacity is the willingness to readjust one’s personal financial goals – in non euphemistic terms – get less – and trade off.

          More often than not, usually Monte Carlo analysis people and especially planners (incentivized by getting compensation by assets under management – the more assets under management the greater the compensation) want 95% - 100% probability. The result: more asset under management for the planner (for sure), a higher probability of an larger estate (assets for members of the lucky sperm and ovarian club), and usually less spending (out of fear of outliving their money) by the clients.

 There are no solutions only tradeoffs 

Professor Thomas Sowell

           Other than if the assets on a net worth/balance sheet were inherited, the net worth is a result of human capital (income less consumption and taxes) reinvested for investment capital. No where on personal balance sheets is the recognition of the human capital asset of adaptability and resourcefulness. (Note for those reading and saying right now – but I was younger then, but, but, but).

          We given little or no value to our resourcefulness to adapt and therefore (without the question of More vs Enough aside) 100% is sought at the expense of denying (even if one has more than Enough).

          So the question is risk capacity – is one on Monte Carlo will to take an 80% probability of success – a 20% adjustment if necessary? What is the tradeoff?

          Now when I was in practice – I required spending plans (a nice word for budgets) not just presently, but projected upon disability, slowing down, retirement and for the spouse if the client predeceased. Furthermore, the categories were broken down into:

• Fixed monthly
• Flexible monthly
• Irregular Expenditures
• Estimated taxes
  

Irregular expenses  (may be fixed – i.e. homeowners insurance, etc) but otherwise offer the most flexibility to reduce. Flexible monthly offer some potential for reduction (i.e. the cable etc bill). Of course, the degree or amount depend on the goal – if disabled, long term care, slow down, retirement, spouse income adequacy. Furthermore, the retirement objective should be broken down into three periods – go/go; slow go; no go. And yes, health expenditures go up in fixed and flexible but other costs depending on the period would go down.

By doing the budgets per objective – one can estimate the degree of flexibility –risk/adjustment capacity – to therefore determine 80%, 85%, 90% etc of what one is will to accept for adjustment to have a higher degree of spending.

Enough & Author Joseph Heller of Catch 22

 

Enough & Author Joseph Heller of Catch 22

 

At a party given by a billionaire hedge fund manager, Kurt Vonnegut informed fellow author Joseph Heller of Catch 22 fame, that the hedge fund manager made more money in a single day than Heller earned from all his royalties from Catch-22 .

 

Heller responded, “Yes (that’s true), but I have something he will never have …. ENOUGH.”

 

2.0 UPDATE Bimahs & Managing (Retirement) Goal During Rotation &

 This Tectonic Living & Market Shifts

See Measures for Update

Stipulating

          ENOUGH(sm) is aligning means with meaning to count© and thus derivatively Enough is managing goals primarily rather than assets which is secondary (but means)

          Per a game changing study 80% of the value of the S&P 500 stocks is now in patents, trademarks, trade secrets

 And subject to

• Required income needs – at the gotta, (essential) and oughta (discretionary) but not niceta levels
• Relative to a retirement goal – the amount as if 3 periods (typically with different amounts:
• the go go period, the slow go period, and the no go period.
• Measures
• Baseline (where at if do nothing) probability % of achieving the goal(s) per Monte Carlo;
• Monte Carlo trigger short fall % of success (The Monte Python i.e 80%) to readjust the goal(s)
• The desired Monte Carlo probability of success (The Full Monte) (which is subject to readjustment (i.e. amount of goal after tax, when start, duration, assumed after tax rate of return, and inflation) should the Monte Python trigger occur
•  

A Retirement Portfolio Idea Subject To The Above

          Musts before consideration of allocation

·         2-7 years of cash and near cash (remember Joseph and 7 fatter cows and 7 lean emaciated cows) –to minimize whipsawing the portfolio during large up and down swings in the market – resulting in panics – buying at the highs and selling at the lows not to mention the resulting anxiety.

·                Hopefully the home is free and clear – allowing the fallback if necessary to a maximized reverse mortgage annuity for income

Thereafter (to see if this works)

·         20% in tech mutual funds, etfs, etc

·         20% in health mutual funds, etfs

·         20% in value mutual funds, etfs

·         40% in dividend increasing stocks/mutual funds

 The concept:

·         Tech – yes, the valuations are out of sight but tech and rapid obsolescence is the new normal

·         Health – yes, regardless fears of regulation, everybody wants to go to heaven – nobody wants to die – even regulators (health actually is part ‘tech’)

·         20% Value – there is and will be rotation from tech and health and back again

·         40% Dividend increasing stocks, mutual funds, etfs – these are the new bonds.

 Now relative to the old 4% rule (if this is also used as a metric of what can be withdrawn with increases for inflation) – the % of withdrawal is subject to the aforementioned. Decreases (subject to the Measures aforementioned) would occur when the amount withdrawn becomes as a percentage 5% on the remaining assets (i.e. let’s say the portfolio goes down from $1 million to $800,000.) Thus, to bring the percentage back to 4%, the withdrawal amount might require a drop to $32,000 in income. An increase can occur if a 20% gain from the baseline $1 million to $1,200,000. Thus, the 4% (or $40,000) is now but 3.33% so the amount could go to $48,000.

A Story About Going Up and Going Down

           The President of the Temple/Shul often sits on the Bimah (the elevated podium/platform) with the Rabbi.

          Once the Shul President’s term was up and a new Shul President took the former’s place not just as President but also sitting on the Bimah with the Rabbi

          This change didn’t sit well with the old Shul President who made things difficult for the New President even though he knew the rules.

          The moral of the story – it is easier to up to the Bimah than come down from it aka The Bimah Schema

          It is easier to increase spending than to decrease it – regardless of whether in retirement one is in the go-go (pre Covid) phase, slow go, or no go phase of retirement.         

          All the above, of course, is subject to the cascade of the personal financial filter design and cascade previously stated - may make the 4% example unworkable anyway.

An interesting conceptual model to ask your planner about whether one is on the Bimah or not regardless of stage fright or stage one is in.

Evolution: ENOUGH’s(sm) 5 Iterations

 

Evolution: ENOUGH’s(sm) 5 Iterations

 

·                                 Clientele realizable goal determination coordinated with orderly plans for their desired payoffs

 ·                                 A process of connecting personal resources (including money) to support life goals

 ·                     Healing personal financial anxiety, puttin’ money in its place to elevate, transcend, align and connect to one’s significance/assignment what was is meant to do – meant to be, enough to live on, enough to live for

 ENOUGH’s(sm): Jewish Personal Financial Planning

                      Aligning Means with Meaning INside Out ..To Count! 

 

·                                 Aligning means with meaning ---

·                                 healing personal financial anxiety, puttin’ money in its place to elevate, transcend, align and connect to one’s significance/assignment what was is meant to do – meant to be, enough to live on, enough to live for …aligning means with meaning to count

 ·                              Aligning means with meaning INside out

healing personal financial anxiety, puttin’ money in its place to elevate, transcend, align and connect to one’s significance/assignment what was is meant to do – meant to be, enough to live on, enough to live for …aligning means with meaning to count

 Note still, in contrast, ‘More’ is still a never-ending test of worthiness, usually leading to increased personal financial anxiety, and ironically, to less. (as more, better, now – has a habit, in time, of becoming less, worse, later).

ENOUGH(sm): Nachas & Nachos

 

ENOUGH(sm): Nachas & Nachos

Who is rich? One who is happy with his lot. 

Ben Zoma, Ethics of the Fathers

 

Who is rich? He that rejoices in his portion.

Ben Franklin (not related to Ben Zoma)

 Picture 1957 - Lamberton Elementary School in Philadelphia – 1957 – after school – each kid has their report card in hand.

I got 11 A’s and 1 B. Marline L and Alan G got 12 A’s. Both Marlene and Alan made it a point to flaunt their better report card in this 9 year old writer’s face -  metaphorically ‘na na na na na – we’re better – you’re not enough.’

          The proverbial ‘B’ in the bonnet or Philadelphia Phillies baseball cap.

          Whether 8 years of age 9 years of age 40 or 70+ that ‘more-onic’ behavior of ‘I’m more, you’re less’ still persists reinforced by acculturation. (1)

Stipulating:

Enough is Latin is ‘satis’

          Satisfaction is fulfillment, contentment (and also redress)

          Satiated is quenched

          Satisfaction is preferred to satisfactory (which is merely adequate and a ‘C’ on one’s report card which for brethren Jewish kids and parents if equivalent to an F.

          Now the Yiddish Nachas is ‘special joy’ fulfillment, proud enjoyment) (from Hebrew נחת‎ nachat, "relaxation" ((now that the child is no longer living in the basement after college or still a barista at Starbucks). The emphasis of ‘nachas’ when it comes to Jewish kid’s A’s (even better A+s) escalated into almost ecstasy upon the child becoming a ‘doctor’ is proud enjoyment & satisfaction thru reflection on the parent. Typically, nachas is outside in rather than the satisfaction (enough) of INside out ‘enough!’

          However, nachas living thru another (even of one’s lineage) outside in is a sugar high – more excellent nachos than nachas- never enough let alone the satis of satisfaction as ‘enough’ which is an INside out process – aligning means with meaning – again INside out.         

(1)   Ironically, in finance as well as other aspects of life ‘more, better, now’ has a habit of – in time – becoming ‘less, worse, later’ and certainly no guarantee of contentment let alone equanimity.   

Bubbe (Tillie) Schwartz, More, Less & Enough

 

Bubbe (Tillie) Schwartz, More, Less & Enough

Everything in moderation; nothing in excess, boychik

Bubbe (Tillie) Schwartz

 

          When is less – less?

          When is more – more?

          When is Enough – less?

           Less is less – according to those in ‘liberal/progressive’ Judaism – who, despite ‘do not add – do not subtract’ – remove/deduct . This liberal Judaism subtracts -removes – deletes on the basis of ‘it’s values not rituals’ that is intended. For example (the argument of rituals without meaning aside.) Note, in contrast, political conservatives prefer less laws etc.

          When is more – less (besides in personal financial planning as more, better now has a way of becoming ‘less, worse, later)? Example the amount of time between milk (life) and meat(death) to be consumed – 2 hours– no 4 hours, no 6 hours 23 minutes, 14 seconds and 6 nanoseconds etc etc – continually adding despite ‘do not add do not subtract.’ Note the irony, political liberals add – increase - amplify more and more regulations, while, ‘ironically,’ political progressives just take/subtract (more, more, more) rather than make in the name of social justice (theft) – more for them – less for others.

          Para-orthodoxically, in the spiritual realm more is more (especially if manifested – spiritualizing the material) while enough, spiritually, is to get by before bye bye. The synthesis of materializing the spiritual – spiritualizing the material is aligning means with meaning to count – in the material..

           As for moderation – the middle of the road -  is where there is road kill.

ENOUGH(sm) Said

Bimahs & Managing (Retirement) Goal During Rotation & This TectonicLiving & Market Shifts

 

Bimahs & Managing (Retirement) Goal During Rotation & 

This TectonicLiving & Market Shifts

Stipulating 

          ENOUGH(sm) is aligning means with meaning to count© and thus derivatively Enough is managing goals primarily rather than assets which is secondary (but means)

          Per a game changing study 80% of the value of the S&P 500 stocks is now in patents, trademarks, trade secrets

 And subject to

• Required income needs – at the gotta, and oughta but not niceta levels
• Probability of achieving the goal(s) per Monte Carlo or like analysis of upper and lower accepted probability of making one’s goals – are subject to adjustment particularly spending relative to desired probability

 A Retirement Portfolio Idea Subject To The Above

          Musts before consideration of allocation

·         2-7 years of cash and near cash (remember Joseph and 7 fatter cows and 7 lean emaciated cows) –to minimize whipsawing the portfolio during large up and down swings in the market – resulting in panics – buying at the highs and selling at the lows not to mention the resulting anxiety.

Hopefully the home is free and clear – allowing the fallback if necessary to a maximized reverse mortgage annuity for income

 Thereafter:

·         20% in tech mutual funds, etfs, etc

·         20% in health mutual funds, etfs

·         20% in value mutual funds, etfs

·         40% in dividend increasing stocks/mutual funds

 The concept:

·         Tech – yes, the valuations are out of sight but tech and rapid obsolescence is the new normal

·         Health – yes, regardless fears of regulation, everybody wants to go to heaven – nobody wants to die – even regulators (health actually is part ‘tech’)

·         20% Value – there is and will be rotation from tech and health and back again

·         40% Dividend increasing stocks, mutual funds, etfs – these are the new bonds.

 Now relative to the old 4% rule and increases for inflation – the % of withdrawal is subject to the aforementioned. Decreases would occur when the amount withdrawn becomes as a percentage 5% on the remaining assets (i.e. let’s say the portfolio goes down from $1 million to $800,000.) Thus, to bring the percentage back to 4%, the withdrawal amount might require a drop to $32,000 in income. An increase can occur if a 20% gain from the baseline $1 million to $1,200,000. Thus, the 4% (or $40,000) is now but 3.33% so the amount could go to $48,000.

In addition, might run the Monte Carlo analysis with the decreases and or increases from the baseline amount (in the above example $1,000,000) to increase or decrease spending based to the probability one would accept i.e. 85% causes a reduced level of income spending if that is the lower threshold for success/adjustment or increase the income of the probability is 99% to get to 95% as an acceptable probability).

Alternatively, test different spending amount scenarios – to see the the probability of success – and what % range is acceptable

 A Story About Going Up and Going Down

           The President of the Temple/Shul often sits on the Bimah (the elevated podium/platform) with the Rabbi.

          Once the Shul President’s term was up and a new Shul President took the former’s place not just as President but also sitting on the Bimah with the Rabbi

          This change didn’t sit well with the old Shul President who made things difficult for the New President even though he knew the rules.

          The moral of the story – it is easier to up to the Bimah than come down from it aka The Bimah Schema

          It is easier to increase spending than to decrease it – regardless of whether in retirement one is in the go-go (pre Covid) phase, slow go, or no go phase of retirement.

  All the above, of course, is subject to the cascade of the personal financial filter design and cascade previously stated - may make the 4% example unworkable anyway.

An interesting conceptual model to ask your planner about whether one is on the Bimah or not regardless of stage fright or stage one is in.

Bashert, Meant & Meaning To COUNT!

 

Bashert, Meant & Meaning To COUNT!

 Aligning means with meaning – for what is meant to do & meant to be to count!

 Meant – destined preordained intended predestined, obliged, supposed to 

 Meaning – significance, value, worth, importance

          ENOUGH(sm) Personal Financial Planning has evolved in definition over the past 46 years from:

 ·         (1975) clientele realizable goal determination coordinated with orderly plans for the achievement of the desired goals and payoffs

·         (2000 or so) healing personal financial anxiety

·         (2015) “ENOUGH(sm)” – Jewish Personal Financial Planning – healing personal financial anxiety, puttin’ money in its place, to transcend, connect & align to one’s assignment/signification – what one was meant to do; meant to be – enough live for; enough to live one

·         2018 (Shaddai) ENOUGH Personal Financial Planning– aligning means with meaning…. healing personal financial anxiety, puttin’ money in its place, to transcend, connect & align to one’s assignment/signification – what one was meant to do; meant to be – enough live for; enough to live one:

·         2021 (Shaddai) ENOUGH Personal Financial Life Planning – aligning means with meaning “to count”…for what one was meant to do meant to be enough to live on enough to live for.

 Bashert = meant to be the literal translation from Yiddish is “destiny.” (these days modified to mean one’s soul mate)

Stipulating:

• Judaic belief is that each has a spark of the divine (regardless how deeply buried)
• We are here to continue to complete the incompletions of our soul – with God given capacities which are up to us to develop into capabilities and manifest into what we are meant to do and meant to be…. Bashert

 Aligning means with meaning is but a tool in the process of  materializing and manifesting one’s  bashert – the meant to be – one’s  meant to do – during the soul’s short visit here and thus answering man’s will to meaning (Frankl)  – for (per Heschel) the meaning of all meaning of all meanings (Hashem)

 Matchmaking Yentas Optional

 

The Golden Mean-ing

 

 The Golden Mean-ing &

 

Stipulating:

          Shaddai means ‘God, God Almighty, God All Sufficient, Enough

          ENOUGH(sm): Jewish Personal Financial Planning is now after 47 years: ‘aligning means with meaning’

           In a former life as a fee only ENOUGH (in contrast to a More/More-on) personal financial planner I was always puzzled by the following paradox (paraorthox if one is Orthodox): on personal balance sheets (otherwise labeled ‘net worth’ statements reflect merely tangible and intangible assets less liabilities (this of all words ‘net worth.’) And yet, except for that which was inherited, there is no reflection of the asset of one’s adaptability, resourcefulness – and yes, resilience which led to the creation of the ‘net worth’ unlike corporate balance sheets where at least goodwill is reflected as an asset. Yet, how could one’s God given capacities personally developed into capabilities with the derivatives of assets (tangible and intangible) been accumulated without these capabilities augmented and reinforced by adaptability, resourcefulness and resilience?

          Further’more’, given a sense of meaning – especially INside out – meaning there is a greater probability of resilience for the adaptability and resourcefulness to acquire means, the aligning of means with meaning and meeting life’s challenges.

           Thus, the alignment of means with meaning may – can become The Golden Mean – smeltered from one’s Hashem given capacities developed into capabilities, refined by adaptability, resourcefulness, resilience and enhanced by perseverance.