@article {Waring1, author = {M. Barton Waring and Laurence B. Siegel}, title = {Practical Applications of What Investment Risk Means to You, Illustrated: Strategic Asset Allocation, the Budget Constraint, and the Volatility of Spending During Retirement}, volume = {6}, number = {4}, pages = {1--6}, year = {2019}, doi = {10.3905/pa.6.4.314}, publisher = {Institutional Investor Journals Umbrella}, abstract = {In What Investment Risk Means to You, Illustrated: Strategic Asset Allocation, the Budget Constraint, and the Volatility of Spending During Retirement, from the Fall 2018 issue of The Journal of Retirement, Barton Waring, retired chief investment officer of Barclays Global Investors, and Laurence Siegel, director of research of the CFA Institute Research Foundation, present and explain two key points. First, individual investors often do not correctly understand the real meaning of risk. The problem is that the concept is often articulated in vague or confusing terms. An individual investor can easily miss the point that although a risky investment strategy may offer a higher {\textquotedblleft}expected return, {\textquotedblright} it may also entail significant risk of seriously adverse outcomes or even financial ruin. Individual investors may not readily grasp the important difference between the statistical concept of expected return as just the middle of what might be a very broad range of possible outcomes, and the everyday notion of expectation as something that is likely to happen.Second, static retirement spending plans are a major source of risk for retirees. A safer spending plan{\textemdash}one that ameliorates risk{\textemdash}responds to periods of weak investment performance with lower spending levels. Such a plan can nearly eliminate the risk of exhausting a retiree{\textquoteright}s assets. The authors demonstrate a mechanism for periodically adjusting spending in response to actual investment performance.TOPICS: Wealth management, risk management, simulations, retirement}, issn = {2329-0196}, URL = {https://pa.pm-research.com/content/6/4/1.1}, eprint = {https://pa.pm-research.com/content/6/4/1.1.full.pdf}, journal = {Practical Applications} }