Lessons For The Next Crisis

By Alex Murguia, PhD

“I find your lack of faith disturbing.” I gotta say, we agree with Darth Vadar on this one. When times of crisis arise, people naturally have a range of emotions, including fear, panic, and mistrust. This can lead to behaviors that directly…

The Coronavirus and Your Investments

By Bob French, CFA

The Coronavirus is scary. When it’s possible to make reasonable comparisons with the Spanish Flu, that should make you sit up and take notice. Aside from the reasonable precautions that you should be taking, what should you be doing to protect your…

The Case for Stocks

By Wade Pfau, Ph.D., CFA

The case for using an aggressive investment portfolio with a high stock allocation to fund retirement expenses rests on the idea that it will probably work. Stocks are expected to outperform bonds, and if and when that happens, a retiree will be…

Modern Portfolio Theory – Part Two

By Wade Pfau, Ph.D., CFA

This article is part of a series; click here to read Part One. Efficient frontier diagrams do not actually show the asset allocations of portfolios on the efficient frontier, but this information is also available. Exhibit 1.3 provides an example of ten…

Modern Portfolio Theory

By Wade Pfau, Ph.D., CFA

Before shifting into further discussion about whether these historical numbers provide the most appropriate assumptions for future market performance, it is worth understanding how to choose an asset allocation and put together an investment portfolio while assuming that these historical numbers are…

Historical Market Returns – Part Two

By Wade Pfau, Ph.D., CFA

This article is part of a series; click here to read Part One. Moving to bonds, Morningstar data shows that since 1926, the average return from intermediate-term government bonds was 5.2 percent with a standard deviation of 5.6 percent. With the lower…

Historical Market Returns – Part One

By Wade Pfau, Ph.D., CFA

The primary subject of my book is comparing the risk premium with risk pooling as a source of funding for retirement goals. An important step is to first make clear what the risk premium is and how it relates to an investment…

Overview of Stocks and the Stock Market

By Wade Pfau, Ph.D., CFA

Stocks provide an ownership stake in a company. They provide access to company earnings based on its future performance. Companies can pay dividends to their stockholders to return profits to the owners, or they could reinvest profits into the firm to lay…

Laddering With Individual Bonds – Part Three

By Wade Pfau, Ph.D., CFA

This article is part of a series; click here to view Part 1. Exhibit 1.1 provides reasonable approximations for sustainable spending in retirement as it relates to a bond interest rate (or a fixed return for an investment portfolio) and a retirement…

Laddering With Individual Bonds – Part Two

By Wade Pfau, Ph.D., CFA

This article is part of a series; click here to read Part One. I would argue that it is much easier for a retiree to ignore unrealized capital losses on an individual bond than for a professional trader or retiree needing to…

Bond Pricing 101

By Wade Pfau, Ph.D., CFA

As a bond provides a contractual right to a series of future payments received at specified points of time, the price for a bond is simply the present discounted value of the future cash flows. The face value of a bond will…

Laddering with Individual Bonds

By Wade Pfau, Ph.D., CFA

Duration matching is not straightforward for bond funds when shares of the bond fund must be sold to meet ongoing retirement expenses. If rates have risen, shares of the bond fund may need to be sold at a loss, with more shares…