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! Timestamps: 0:00 Intro 4:29 The difference between risk aversion and regret aversion 7:19 What drives regret in investing 15:01 How David decides what his regret benchmark is 20:26 What asset characteristics drive optimal allocations to regret assets 36:34 The downsides of modeling the retirement liability as a single constant inflation-adjusted amount 47:57 How David set up his dynamic spending rule in his recent work on this topic 54:38 How David describes the utility metric that he used to evaluate alternatives in his analysis 1:02:06 How a financial plan optimized for utility would look through the probability of success lens 1:06:35 How a financial advisor channel affects the products that financial advisors recommend to their clients 1:11:58 How important the country that equities derive their revenue from is, as opposed to their country of domicile, in explaining returns 1:15:37 How this finding changes the view of home country bias, as measured by domicile Participate in our Community Discussion about this Episode: https://community.rationalreminder.ca/t/episode-254-david-blanchett-regret-optimized-portfolios-and-optimal-retirement-income-discussion-thread/23577 Links From Today’s Episode: Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582. Rational Reminder Website — https://rationalreminder.ca/ Shop Merch — https://shop.rationalreminder.ca/ Join the Community — https://community.rationalreminder.ca/ Follow us on Twitter — https://twitter.com/RationalRemind Follow us on Instagram — @rationalreminder Benjamin on Twitter — https://twitter.com/benjaminwfelix Cameron on Twitter — https://twitter.com/CameronPassmore David Blanchett — https://www.davidmblanchett.com/ David Blanchett on Twitter — https://twitter.com/davidmblanchett David Blanchett on LinkedIn — https://www.linkedin.com/in/david-blanchett-b0b0aa2/ 'Regret and Optimal Portfolio Allocations' — https://www.pm-research.com/content/iijpormgmt/49/4/143.full.pdf 'Redefining the Optimal Retirement Income Strategy' — https://www.tandfonline.com/doi/full/10.1080/0015198X.2022.2129947 'Does Advisor Channel Influence Passive Fund Choice?' — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4068853 'Foreign Revenue: A New World of Risk Exposures' — https://www.pm-research.com/content/iijpormgmt/47/6/175 'Keep Keeping Your Distance: An Updated Look at 401(k) Participant Behaviors During the COVID-19 Crisis' — https://www.morningstar.com/articles/1032011/keep-keeping-your-distance-an-updated-look-at-401k-participant-behaviors-during-the-covid-19-crisis 'Save more with less: The impact of employer defaults and match rates on retirement saving' — https://onlinelibrary.wiley.com/doi/abs/10.1002/cfp2.1152 'The Problems with Monte Carlo are in Your Mind' — https://www.advisorperspectives.com/articles/2023/04/24/the-problems-with-monte-carlo-are-in-your-mind 'Foreign Revenue: A New World of Risk Exposures' — https://www.pm-research.com/content/iijpormgmt/47/6/175