Robert Atra

The authors compare the performance of retirement portfolios using the average glide path of five popular target date funds to general rules of thumb for asset allocation. Surprisingly, the industry average target date fund has similar return and risk as the “120 minus your age rule”. In addition, a simple “140 minus your age rule” produces greater expected savings at retirement and a lower failure rate for average US investors retiring in their early 60s. A naïve approach such as the “120 minus your age” rule or the “140 minus your age” can benefit average US employees by reducing transaction costs, improving retirement balances and increasing the probability of a comfortable retirement through an easy-to-understand investing rule. TOPICS: Wealth management, retirement, performance measurement, portfolio construction Key Findings • Rule of thumb asset allocation strategies such as 120 minus your age rule and 140 minus your age rule are superior to the industry average glide path in terms of retirement balances and failure rates. • Target date fund glide paths tend to perform better than rules of thumb only for investors retiring in their late 60s and receiving social security payments or those willing to take a reduction in their retirement income. • Rule of thumb strategies are easy to understand and save transaction costs over an average industry glide path.

The article investigates the benefit of highest-in, first-out (HIFO) accounting when selling shares of various asset classes. The tax benefit of HIFO accounting is statistically and economically significant. NASDAQ, emerging market, and real estate indexes earn greater HIFO tax benefits than other types of assets, with the bond index having the least benefit. While the results themselves give practitioners some information about the benefit of share accounting, they are useful in other aspects of financial planning, such as after-tax asset allocation and asset tax location.

New IRS rules on accounting for cost basis often impose on investors a decision regarding cost basis when selling shares. We investigate in a very practical way the likely benefits from choosing the highest-in, first-out (HIFO) method for tracking shares. Our results show that for realistic scenarios where investors plan for retirement, HIFO accounting can add about 2% to the investor's total wealth at the retirement date. Above average tax rates and greater volatility increase the value of using HIFO accounting

It is documented in the literature that U.S. and many international stock returns series are sensitive to U.S. monetary policy. Using monthly data, this empirical study examines the short-term sensitivity of six international stock indices (the Standard & Poor 500 [S&P] Stock Index, the Morgan Stanley Capital International [MSCI] European Stock Index, the MSCI Pacific Stock Index, and three MSCI country stock indices: Germany, Japan, and the United Kingdom) to two major groups of U.S. monetary policy indicators. These two groups, which have been suggested by recent research to influence stock returns, are based on the U.S. discount rate and the federal funds rate. The first group focuses on two binary variables designed to indicate the stance in monetary policy. The second group of monetary indicators involves the federal funds rate and includes the average federal funds rate, the change in the federal funds rate, and the spread of the federal funds rate to 10-year Treasury note yield. Dividing the sample period (1970–2001) into three monetary operating regimes, we find that not all policy indicators influence international stock returns during all U.S. monetary operating periods or regimes. Our results imply that the operating procedure and/or target vehicle used by the Federal Reserve Board (Fed) influences the efficacy of the policy indicator. We suggest caution in using any monetary policy variable to explain and possibly forecast U.S. and international stock returns in all monetary conditions.