Modern Portfolio Theory

By Wade Pfau, Ph.D., CFA, RICP®

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, RICP®

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, RICP®

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, RICP®

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, RICP®

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, RICP®

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, RICP®

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, RICP®

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…

The Yield Curve and Break-Even Inflation

By Wade Pfau, Ph.D., CFA, RICP®

Understanding the relationship between bond risk and time to maturity and duration of a bond provides the basis for understanding the bond yield curve. The yield curve shows the yields to maturity for a series of bonds—typically US Treasury bonds—with the same…

The TIPS You May Need – Treasure Inflation-Protected Securities (TIPS) – Part 2

By Wade Pfau, Ph.D., CFA, RICP®

This article is part of a series; click here to read part 1. In 2003, Zvi Bodie and Michael J. Clowes published the book Worry-Free Investing: A Safe Approach to Achieving Your Lifetime Financial Goals, in which they argued that typical retirement-oriented…

The TIPS You May Need – Treasure Inflation-Protected Securities (TIPS) – Part 1

By Wade Pfau, Ph.D., CFA, RICP®

In discussing retirement liabilities, it is also important to address the issue of inflation and how to think about bonds when they are meant to fund a liability that grows with the consumer price index. Fortunately, this is now practical as the…

The Coronavirus and Its Effects on the Market and Your Retirement

By Bob French, CFA

Just like many other areas of life, the novel Coronavirus is having a significant impact on the financial markets.