More About this Episode:
To gain insight into economic decision making, Halo co-founder Jason Barsema welcomes renowned economist, Dr. Neal Soss to the Stay Invested Podcast.
We learn about what a new Presidential administration means for the current economic and financial environment. Dr. Soss also shares a key concept when investing over longer time horizons, sequence of returns risk. We also hear how investment diversification may not work all the time, but it's the only thing that ever works.
Dr. Soss retired from Credit Suisse in 2019, capping a 35-year association with the Bank. For the five years leading up to his retirement, Dr. Soss was Credit Suisse Group AG's Vice Chairman, Investment Strategy and Research.
Before that, for many years he was the Bank's Global Chief Economist, supervising teams in the Americas, Europe, and Asia to provide guidance to the Bank's customers and client's capital committing activities regarding economic developments and financial market conditions.
Prior to joining Credit Suisse in 1984, Dr. Neal M. Soss was with the Federal Reserve Bank of New York. As a Vice President, his responsibilities included bank supervision and foreign relations. During a two-year leave from the NY Fed, he went to Washington to serve as Special Assistant to the Federal Reserve Board Chairman, Paul A. Volcker.
Dr. Soss' research has been widely published in professional journals, and he has been a frequent commentator on economic and financial matters in newspapers, radio and television.
6:30 - Diversification is important over long time horizons
I think if I've learned anything from all those financial crises that I've lived through and looked at sort of up front, close and personal over all those decades. One lesson that absolutely keeps coming home to me is diversification may not always work, but it's the only thing that ever works.
9:58 - An investment risk many may not consider
With a balanced portfolio, a certain amount of bonds, certain amount of stocks and so forth, you improve your odds of having assets that on the day of retirement could be drawn down over a couple of decade horizon and support a retirement. Well, the problem with that is, is precisely the idea that those returns from the past are being viewed cumulatively in some sense on average”
13:16 - Helping mitigate the sequence of returns risk
Let's say structured notes in the context - is that more efficient or less efficient than buying options? ...So who's better able to manage the exposure to volatility. That's implicit in options, you as an individual in the options market or, through a structure, like the structured notes and who’s more efficient at creating that at the best price and for you and your circumstances.
17:30 - The growth in defined outcome investing
I think it's with us in significant measure because one of the revolutions of finance in the last generation has been the replacement of the defined benefit pension by defined contribution like 401(k)s and IRAs, which takes a lot of that sequence of return risk. And instead of putting it onto a corporate capital position, it puts it on you, the worker and individually, it says good luck to you.”
29:12 - The difference between the health of the economy and stock market performance
Gyms and restaurants and bars and so forth, which are not necessarily parts of big chains, but individual entrepreneurs who have an insolvency problem. That's a problem for how the economy functions, but is it a problem for the stock market? Well, not really. Not really because the stock market tends to be populated with larger companies, not those little guys who are sort of invisible to the stock market.”
36:19 - And a couple good economist jokes!
About the Stay Invested Podcast:
Stay Invested is Halo Investing’s original podcast where you’ll hear from world changing leaders that focus on driving impact with the help of technology.