Inside Track

Ends and Beginnings

Ends and Beginnings

By Eric Harding

As I write this note in April, our garden is showing signs of life after I endured a few weeks of nervous thermometer-watching. (We put the strawberry starts into the ground without checking the medium-term forecast, and the mercury dipped perilously close to freezing a few times overnight.) Our new dog Cookie is getting used to the chaos that exists in a house with four bipeds—two of whom are likely to be waving swords at any given moment—an elderly cat, and another dog, a truly weird pooch named Zelda.

But the biggest change that’s afoot in the Harding household has to be my younger son, Wallace, getting ready to enter kindergarten.

This is a seismic shift, and not just because it means we’ll be getting the “no daycare” raise in the fall. See, when we moved into our house, Wallace wasn’t yet born. His imminent arrival was the precipitating factor in our move from Alexandria, Va. (a city most readers will have heard of) to Springfield, Va. (a bedroom community you’d be forgiven for believing I made up for effect). His entrance into our family kicked off a new chapter for everyone. His brother, Elliott, became a big brother—a role he relishes (most days). My wife and I no longer outnumbered the offspring, a strategic blunder that only became apparent once Wally became mobile. And everyone had to learn how to navigate—both physically and emotionally—with another person in the mix.

Wallace began a period of transition when he was born, and now he’s about to start another one of his own when he ends daycare and starts school in the fall. And he—and I—can’t wait to see how his adventure unfolds.

This issue’s features examine some of those moments—the ends of epochs, the beginnings of new eras.

In our cover feature this issue, “Life After the Bull Market” (page 20), author Jeff Reeves explores what might happen when the bull market for U.S. equities—currently enjoying its ninth year—comes to an end. Indeed, he posits that it’s prudent to think about what may come next. Whether it’s the unintended consequences of a looming trade war with China and other nations, the structural realities of corporate earnings not keeping pace with exuberant stock prices, or just investor skittishness, Reeves believes the long upward trend for stocks is nearly finished. He discusses what a protracted period of retrenchment might mean for investors—and for insurance companies.

Our second feature, “The Long Run” (page 28), looks at how the pension world has begun to respond to the Multiemployer Pension Reform Act of 2014 (MPRA). Author Hal Tepfer dives into the details, laying out the history of multiemployer pension reforms, explaining how funds tentatively explored their options, and offering some thoughts about how recent experience may influence future actions by troubled multiemployer plans. This issue represents a systemic challenge to the Pension Benefit Guaranty Corporation, so even non-pension actuaries should find this feature enlightening.

Our final feature this issue, “Too Big to Curtail?” (page 34), investigates two of the most popular investment vehicles in use today—index funds and exchange-traded funds (ETFs)—and what might happen when that trendy strategy falls out of favor. In doing so, author Allen Elstein concludes that these prevalent picks carry hidden risks for unwary investors, and indeed for the market as a whole. These baskets of stocks are marketed as safe, low-cost options to gain exposure to wide swaths of the market, but Elstein avers that the way these funds behave given index inclusion and market mechanisms—not to mention some investor confusion around liquidity and unit creation/destruction—suggest we should take another look at these so-called safe investment choices.

Thank you, as always, for reading Contingencies. I hope you find some illuminating articles ahead—beginning on the very next page.

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