From the Editor

This issue contains Issue 2 of Volume 26 of Financial Services Review (FSR). I would
like to thank the board and members of the Academy of Financial Services for their
continued support. I continue to work in broadening the scope of articles, while still focusing
on individual financial management and personal financial planning. I encourage authors to
reach out when discussing implications of their findings in a more comprehensive way. As
such, all articles in the Journal more appropriately relate to financial planning issues.

The lead article “Retirement Income Strategies Designed in an Expected Utility Frame-
work” is authored by Mark J. Warshawsky at ReLIAS LLC. In this paper, the author
evaluates various classes of retirement income strategies and tests their robustness in an
expected utility framework. He finds that fixed percentage systematic withdrawals from an
investment portfolio combined with laddered purchases of immediate life annuities stand out
as a superior strategy for retired defined contribution plan participants and IRA holders,
yielding better outcomes than alternatives, including longevity insurance.

The second article “The financial literacy of Generation Y and the influence that person-
ality traits have on financial knowledge: Evidence from Canada” is authored by Robert N.
Killins at Seneca College of Applied Arts and Technology. In this paper, the author examines
the financial literacy of Generation Y and explores how personality traits influence individ-
ual’s financial knowledge. He uses a financial literacy survey and multiple areas of financial
literacy are measured (investments, budgeting, economics, risk management, and retirement
planning) along with the well-known Big Five personality traits. The author finds that the
Generation Y cohort is more knowledgeable in budgeting and risk management segments of
financial literacy, but they lack knowledge in retirement planning. Additionally, he finds that
extraversion and conscientiousness are both important personality traits when regressed on
individuals overall financial literacy levels.

The third article, “Active Asset Allocation for Retirement Funds using the Fed Model” is
coauthored by John M. Clinebell at University of Northern Colorado, Douglas R. Kahl at
University of Akron, and Jerry L. Stevens at University of Richmond. Active asset alloca-
tion, also known as market timing, is controversial but potentially effective for individual
investors and financial advisors. This study addresses many of the concerns related to market
timing studies. The authors control for transaction costs and tax effects by focusing on funds
available for retirement accounts within a Vanguard fund family which allows for costless
monthly transfers. They use a “risk on” or “risk off” approach rather than experiment with
arbitrary cutoff rules for switching funds. They test the time series properties of the Fed

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model to build a prediction model and then apply it over a recent five-year hold-out of period.
Their findings show that the switching portfolio offers attractive performance compared to
either of the Vanguard funds, especially with respect to enhancing upside to downside risk
ratios.

The fourth article, “Bond Laddering and Bond Indexing: An Empirical Comparison” is
coauthored by C. Sherman Cheung and Peter Miu at McMaster University. Bond laddering
and bond indexing have been widely accepted approaches to bond investing among retail
investors, although bond laddering has virtually been ignored in the academic literature. Both
approaches are passive strategies with do not attempt to beat the market. Open questions are:
which approach should an investor favor, is there any room for both to be used at the same
time, and what is the appropriate term to maturity for the ladder. The authors investigate the
relative attractiveness of the two approaches and identify conditions that favor one over the
other. Further, the authors examine conditions under which both instruments should be held
within an optimal portfolio and identify situations in which a longer-term ladder is more
appropriate than a shorter-term ladder.

The final article, “The Impact of the Capitalization of Operating Leases: A Guide for
Individual Investors” is coauthored by Jack Trifts at Bryant University and Gary E. Porter at
Northeastern University. In this paper, the authors provide an explanation of the new FASB
standard requiring firms to move their off-balance sheet operating leases onto the balance
sheet beginning in 2019 and discuss how the new rule might affect the stock and bond values.
Despite large increases in on-balance sheet liabilities for some industries, the authors caution
investors not to anticipate changes in their stock or bond valuations resulting from this
change. Because asset values change in response to new information, and information
regarding changes in total assets and debt ratios is currently available in the notes to financial
statements and from data providers, such as Bloomberg, this information is already incor-
porated in forecast asset values developed by professionals.

Thanks to those who make the journal possible, especially the referees and contributing
authors. Over the past year, the following reviewers provided excellent reviews of the articles
you enjoyed within the pages of Financial Services Review. I would like to send a special
thank you to the many reviewers that have significantly contributed to the quality of our
journal by providing timely and thorough reviews of the submissions to our journal.

Please consider submission to the Financial Services Review and rely on the style
information provided to ease readability and streamline the review process. The Journal
welcomes articles over the range of areas that comprise personal financial planning. While
FSR articles are certainly diverse in terms of topic, data, and method, they are focused in
terms of motivation. FSR exists to produce research that addresses issues that matter to
individuals. I remain committed to the goal of making Financial Services Review the best
academic journal in individual financial management and personal financial planning.

Best regards,
Stuart Michelson

Editor Financial Services Review

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