The Markets November 1, 2012

TDFs Show 3Q Rebound

For the third quarter, the Callan Target Date Index bounced back from a poor second quarter with a return of 4.57%.
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For the year ending September 30, 2012, returns stand at 17.28%. Across the more than 40 target-date fund (TDF) series represented in the Index, returns ranged as high as 19.24% for the trailing 12-month period to as low as 14.77%.   

The longer the date of the fund, the higher the median return in the third quarter: The median 2050 fund returned 5.98% for the quarter, while the median Retirement Income vintage managed a 3.35% return. Variation in returns was greatest for the target-date vintage just approaching retirement —2015 Funds. Callan said this points to the differences in ways target-date managers handle the glide path asset-allocation rolldown during the crucial period just leading into retirement.

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Diversions November 1, 2012

Popularity Linked to Financial Success

Keep your friends close—especially the popular ones.
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According to a paper titled “Popularity,” from the National Bureau of Economic Research, popularity during high school leads to higher wages in adulthood.

This increase in social skills is associated with a 2% wage advantage 35 years later, which is roughly 40% of the return associate with one more year of education. The study took into account factors such as family background, school quality, cognitive ability, human capital, and adult personality traits and social capital.

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So why would being popular in high school increase the chances of having more money later in life? One possible explanation is that connections established in high school are maintained throughout life and can present job opportunities. A more plausible interpretation is that the popularity of a student among his schoolmates is a measure of his skill in building positive personal and social relationships and adjusting to the demands of a social situation.

Social interactions within a group of classmates provide the bridge to the adult world as they train individual personalities to be socially adequate for the successful performance of their adult roles. The study interprets the measure of popularity as a measure of the stock of social skills of a particular individual, rather than a measure of an innate personality trait. It is the productive skill itself that is rewarded in the labor market, rather than friendships per se.

The study is based on information on high school friendship relations collected from respondents to the Wisconsin Longitudinal Study (WLS), who were asked to report the names of up to three best friends from their senior class in high school. The study can be downloaded at http://www.nber.org/papers/w18475.   

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