Open letter to the authors,
This review is from: Lifecycle Investing: A New, Safe, and Audacious Way to Improve the Performance of Your Retirement Portfolio (Hardcover)
I have been reading your book with great interest and it does bring a fresh perspective on things. Unfortunately, it doesn't apply to me even though I'm only 30 since I am in the uncommon situation of having earned a large portion of my lifetime earnings in the past few years and my future earnings are more uncertain (I'm an entrepreneur).
One potential mistake I would like to point out is your characterization of index futures. In the book, you state that the implied cost of borrowing is higher than it is for options (which you advocate). From my research on the matter, I have not found this to be the case. The formula for calculating the fair value is
Cash [1+r (x/360)] - Dividends.
With interest rates being as low as they are, they are actually trading in backwardation, where future prices are lower than spot prices (eg S&P index). This implies that the dividend yield on the S&P is higher than the prevailing interest rate. Even if interest rates rise, they are not going to be any higher than the carry-cost on LEAP options.
Please correct me if I'm wrong.