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Investing for a Lifetime: Managing Wealth for the "New Normal"

Book Description

Investing for a Lifetime is designed to make saving and investing understandable to the investor. Wharton Professor Richard C. Marston, 2014 recipient of the Investment Management Consultants Association's prestigious Matthew R. McArthur Award, guides an investor through the main investment decisions throughout a lifetime.

Investing for a Lifetime shows:

  • how younger investors can set savings goals

  • how both younger and older investors can choose investment portfolios to achieve these goals

  • how investors can sustain spending once reaching retirement.

  • Younger and older investors alike should understand savings goals that will provide enough income to sustain spending in retirement. They should devise rates of saving that allow them to reach their goals by the time of retirement. Though retirement is often the main goal of investing, it's not the only one. Marston discusses how funding a child's education or saving for a down payment for a home affects overall saving.

    Sensible investing is also necessary for savings goals to be realized. Investing need not be complicated, but Marston explains that a diversified portfolio should include a mix of different types of U.S. stocks, foreign stocks, real estate as well as bonds. He describes each of these asset classes and shows how they fit in an investor's portfolio. He shows how investors can monitor the performance of their portfolios by establishing benchmarks for each asset class to judge how well their investments are doing.

    He focuses particular attention on those investors nearing retirement. In today's low interest rate environment, he discusses whether it is possible to fund retirement from interest and dividends alone. He shows how savings combined with Social Security can fund retirement spending. And he asks how the "New Normal" of lower returns might force investors to save more than in past decades, and to spend less in retirement than in the past.

    Investing for a Lifetime is for investors who want to understand more about the savings and investment process, particularly those who worry about whether their retirement savings will last a lifetime.

    Table of Contents

    1. Preface
    2. Acknowledgments
    3. Part One: Saving and Investing
      1. Chapter 1: Introduction: Investing for a Lifetime
        1. The New Retirement Reality—We Are on Our Own
        2. Longevity
        3. The Squirrel Model of Saving and Spending
        4. Outline of the Book
        5. Notes
        6. References
      2. Chapter 2: The Building Blocks of a Portfolio: Bonds and Stocks
        1. Bonds and Stocks since 1951
        2. The Importance of Adjusting for Inflation
        3. Bonds and Stocks Adjusted for Inflation
        4. Asset Allocation Decisions for Young Investors: The Case of TIAA-CREF
        5. What Are These Long-Run Averages Missing?
        6. Notes
        7. References
      3. Chapter 3: Long Swings in Returns: Are We in a “New Normal?”
        1. Long Swings in Returns
        2. Were You Lucky Enough to Invest during the 1980s and 1990s?
        3. The New Normal for the Bond Investor
        4. The New Normal for the Stock Investor
        5. What Can Investors Do?
        6. Notes
        7. References
      4. Chapter 4: A Savings Goal for Retirement
        1. What Is Retirement Savings Trying to Achieve?
        2. Is There a Rule of Thumb about How Much You Have to Save?
        3. What Rate of Spending Is Safe in Retirement?
        4. What if There Were No Social Security? Some Simple Arithmetic
        5. Savings Goal with Social Security
        6. Retirement Savings Goal at Higher or Lower Levels of Income
        7. How Do We Reach the Savings Goal?
        8. Notes
        9. References
      5. Chapter 5: What Rate of Savings?
        1. How Much Does the Rate of Savings Matter?
        2. How Much Is Enough?
        3. Three Key Factors in Saving
        4. How Important Is It to Start Saving Early?
        5. What If Savings Are Withdrawn for College?
        6. What If the Portfolio Returns Fall Short?
        7. How Do Taxes Affect Savings?
        8. Notes
      6. Chapter 6: Savings and Taxes
        1. How Taxes Reduce Investment Returns
        2. Tax Efficiency
        3. How Important Is Tax Deferral?
        4. Asset Location
        5. Concluding Comments
        6. Notes
        7. References
    4. Part Two: Investment Choices
      1. Chapter 7: Investing in U.S. Stocks
        1. Mutual Funds and ETFs
        2. Ways to Slice Up the U.S. Stock Market
        3. What Do We Mean by Small-Cap Stocks?
        4. Relative Performance of Large-Cap and Small-Cap Stocks
        5. The Value Premium
        6. Relative Returns on Value and Growth Stocks
        7. Implications for Portfolios
        8. Notes
        9. References
      2. Chapter 8: Foreign Stock Markets: Industrial Countries of Europe and the Pacific
        1. Returns on Foreign Stocks
        2. Markets Have Become More Correlated
        3. Why Does It Pay to Diversify into Foreign Stocks?
        4. Role of Currencies in Returns Earned by U.S. Investors
        5. Is There a Shortcut to Investing in Foreign Stocks?
        6. Concluding Comments
        7. Notes
        8. References
      3. Chapter 9: Emerging Markets
        1. What Is an Emerging Market?
        2. Emerging Stock Market Indexes
        3. Emerging Stock Market Returns
        4. Risks of Investing in Emerging Stock Markets
        5. So Why Invest in Emerging Markets At All?
        6. Concluding Comments
        7. Notes
        8. References
      4. Chapter 10: Investing in Bonds: The Basics
        1. Bond Yields and Bond Returns
        2. But What If I Buy and Hold?
        3. Bond Investing When Interest Rates Are at Record Lows
        4. Laddering the Bond Portfolio
        5. Notes
      5. Chapter 11: Investing in Bonds: The Wider Bond Market
        1. Corporate Bonds
        2. Other Investment Grade Bonds
        3. High-Yield Bonds
        4. Treasury Inflation-Protected Securities (TIPS)
        5. Municipal Bonds
        6. Concluding Comments
        7. Notes
        8. References
      6. Chapter 12: Investing in Real Estate: REITs
        1. Real Estate Investment Trusts (REITS)
        2. How Well Do REITs Fit in a Portfolio?
        3. REITS and the Financial Crisis
        4. REITs as a Source of Income for Investors
        5. Concluding Comments
        6. Notes
        7. References
      7. Chapter 13: The Home as an Investment
        1. Capital Gains on Housing by State and Metropolitan Area
        2. The Housing Bust
        3. Rates of Return on Housing
        4. Concluding Comments
        5. Notes
        6. References
    5. Part Three: Wealth Management
      1. Chapter 14: Choosing a Portfolio: Fitting the Pieces Together
        1. Why Mix Bonds and Stocks?
        2. Long-Term “Strategic” Asset Allocation
        3. Life-Cycle Investing
        4. A Model Portfolio
        5. Investing for College
        6. Rebalancing Defined
        7. Concluding Comments
        8. Notes
      2. Chapter 15: Best Practices for Investing
        1. Drags on Returns
        2. Measuring Manager Performance
        3. To Index or Not
        4. Overall Portfolio Performance
        5. Concluding Comments
        6. Notes
        7. References
      3. Chapter 16: Investment Income for Retirement
        1. Solution 1: Bond Investments—Maturity and Credit Risk
        2. Solution 2: Municipal Bonds
        3. Solution 3: Stocks with Higher Dividend Yields
        4. Solution 4: Real Estate Investment Trusts (REITs)
        5. Limits of Income Strategies
        6. Will Income Be High Enough in Retirement?
        7. Notes
        8. References
      4. Chapter 17: Spending in Retirement
        1. A Spending Rule for Retirement
        2. Two Issues with Implementing Spending Rules
        3. Adding Annuities to Enhance Spending
        4. The Beginnings of a Retirement Plan
        5. Notes
        6. References
      5. Chapter 18: Retirement: Putting Together a Plan
        1. The Role of Social Security
        2. Putting Together a Retirement Plan: Spending out of Social Security and Savings
        3. How Does the Plan Change If I Retire Earlier or Later?
        4. A Retirement Plan Incorporating Annuities
        5. What If the Retiree Has a Defined Benefit Pension?
        6. What Could Go Wrong with This Plan: The New Normal
        7. Notes
        8. References
      6. Chapter 19: The “New Normal” and Retirement
        1. Retirement If There Is a New Normal
        2. Did This Retirement Plan Survive the Financial Crisis?
        3. The Most Difficult Features of the Plan to Follow in Practice
        4. A Final Word or Two
        5. Notes
    6. About the Author
    7. About the Companion Website
    8. Index
    9. End User License Agreement