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The Wall Street Journal looked at whether the 401k is "broken" as well as changes proposed by Joe Biden. The idea behind it being broken is that higher income earners get favorable treatment because their deduction is larger so Biden is proposing replacing the deduction with a $2600 tax credit. If you make $40,000 you get a $2600 tax credit, you make $400,000 you get a $2600 tax credit.

Without speculating on whether this ever comes to pass, let alone guessing about the outcome of the election, if it does come to be, that will not be a reason to save any less for your retirement. This Biden scenario would seem to make Roth IRAs more attractive than they already are, maybe the only game in town (other than HSAs) if you're lucky enough to have a high income. As best as I can tell, his objective is fairness not discouraging saving. And while you may disagree with his idea of fairness, it is still your retirement, it is your responsibility to determine your outcome because no one will care more about your retirement or any other of your outcomes more than you.

Barron's had a writeup about carbon/ESG investing. Included in there was a mention of the KFA Global Carbon ETF (KRBN). It is a futures based ETF and it is a tiny fund. In the interest of always being curious, I want to know whether KRBN could be an uncorrelated asset to equities. Long time readers will know I am a huge believer in small exposures to low or uncorrelated assets. Maybe a fund tracking carbon futures fits the bill?

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The fund has only been around for a month and half so it is too early to tell for sure. Intuitively, I could see the fund as being pro-cyclical. When the economy is doing well and business is strong then companies might be willing to pay for the added expense of carbon credits. I will try to keep tabs on this and follow up in a few months.

Jason Zweig took a look at low volatility ETFs and the extent to which a couple of the more popular ones might have let investors down through the crash (going down the same amount as the broad market) and the recovery (not keeping up with the broad market on the snap back). When the Invesco S&P 500 Low Volatility ETF (SPLV) first came out I was favorably disposed to the concept but noted at the time the risk of being 30% in utilities. Currently it's largest weight is healthcare at 25%. The ETF space then evolved to the point where I thought (and still think) that volatility can be better managed with different strategies/fund that I have written about many times before, some of which are in the chart above.

One point I would clear up from the Zweig piece is whether or not he was talking about using a low volatility fund for the entire broad market exposure. That sounds like a bad idea to me. I would not want to isolate any single factor for entire broad market exposure. A little bit to low vol as way to smooth out the ride for the entire portfolio generally makes sense to me though. To the extent the funds did let investors down, it might have been a one-off thing but if failing this time is reason enough for you to lose faith in the concept then yeah, go ahead and rotate out. Regardless of whether you used any low vol funds and what your disposition is to low vol, it is crucial to remember that no factor can always be the best. From reading my posts, you might know I am huge believer in client and personal holding BTAL in small doses and I while I believe it delivers the effect I am looking for most of the time it does not do so 100% of the time because, again, no factor or strategy will do that.

Neel Kashkari gave a speech today and I think I might have read the whole thing on Minneapolis Fed's Twitter feed. There was one quote I found fascinating, "I keep asking myself, what kind of absurd financial system do we have that requires the central bank to bail it out every decade? How can it possibly be this fragile?” There are of course many ways to take this but to me it is a message about personal responsibility and accountability. Is the world or just our country more fragile? Maybe. It seems plausible at least. To my way of thinking it makes more sense to be ready for more fragility not less. It's a convex lifestyle bet. You're no worse off if you prepare for bad things and then the bad things never happen. To the extent the Great Financial Crisis and the Pandemic was/is bad for a lot of people (to be clear, these have been awful events) that doesn't mean those events must be bad for you individually.

Universal resilience to adverse events comes from living below your means, cultivating multiple streams of income and making sure you take care of your health and your fitness. This approach makes you better prepared to deal with the unknown as opposed to (and you see this a lot in political rhetoric) preventing the previous crisis that already happened.