David Blanchett: Regret Optimized Portfolios, and Optimal Retirement Income (EP.254)

<div class="page" title="Page 1"> <div class="section"> <div class="layoutArea"> <div class="column"> <p>There are many different objective functions you can use when building optimal portfolios. The majority of these approaches define risk from the perspective of variability or bad outcomes, but positive returns could be viewed as “risky” for those that don’t experience them, which is another way of saying that people experience regret (or FOMO, for our trendier listeners). Today, we are joined by David Blanchett, a return guest and the Managing Director and Head of Retirement Research for PGIM DC Solutions, the global investment management arm of Prudential Financial. He is also an Adjunct Professor of Wealth Management at The American College of Financial Services and a Research Fellow for the Alliance for Lifetime Income. David returns to the podcast for an articulate discussion about regret in portfolio construction, what drives it, and how financial advisors can cater to it. We then delve into how David is redefining optimal retirement income strategies, looking at retirement tools, retirement planning, compensation models in the industry, risk exposures, and portfolios. We also get a high-level overview of some of the fascinating work that David has done on home-country bias, plus so much more. For highly technical content presented in an accessible and practical way by one of the brightest minds in retirement planning, be sure to tune in today!</p> <p>Key Points From This Episode:</p> <p>• Differences between risk aversion and regret aversion. (0:03:57)<br /> • The distinctly human element that drives “investment FOMO.” (0:06:34)<br /> • Insight into how David models regret in his research. (0:09:06)<br /> • The asset pricing implications of approaching portfolio optimization this way. (0:12:11)<br /> • Tips for deciding on what the regret benchmark should be. (0:13:19)<br /> • How a portfolio optimization routine based on regret affects asset allocation. (0:14:08)<br /> • Ways that the effect of optimizi