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03/04/2005: "Updated index for: Accountants v actuaries"

Can holding debt make more sense than holding assets?
When a portfolio has the goal of achieving long-term outcomes expressed in terms of purchasing power, the basic building blocks that are easily and cheaply accessible are equities and index-linked gilts. Other 'real' assets like property and commodities are desirable but not necessary. Non-inflation indexed bonds are useless in these terms. Only very wealthy people can afford to fund their goals with no market risk and no inflation risk, by preferring index linked gilts over equities. This applies to the new low-cost pension accounts as well as to final-salary schemes. Both are being pushed towards traditional bonds, which are neither risk free nor a good risk, by the false economics of 'fair value accounting'. We cannot avoid equity-type risks so we should try to understand them better.

Asset wars #1: Who's telling the truth about equity risk?
Equity risk does not reduce with time, as many professionals wrongly (naively?) claim, but how the equity bet meets investors' risk tolerance is definitely time-horizon dependent. The problem for the consumer is that professionals don't differentiate between path and outcome uncertainty when advising about the equity bet. This debate is long overdue.

Equity risk and time
The FT's weekly fund management supplement, FTfm, carried a version of this in its Talking Head column on 2nd may 2005, under the title 'Let battle commence over equity risk'. It was prompted by the criticism by leading 'fair value' accountant John Ralfe of Adair Turner's comments on equity risk in his preliminary report on pensions for the Government. Turner laid himself open to criticism by repeating a 'howler' but his argument has merit nonetheless.

What (little) pension trustees should know about investment
Pension trustees are being placed in an impossible position, under pressure to beef up their competency to take responsibility for high level investment decisions when logically the regulatory changes separating investment stratgey and contribution adequacy mean they should not be taking these decisions at all. The underlying principle is risk utility functions - something they may usefully learn about at summer school even if it brings home to them the fallacy of what they are being asked to do.