What To Do When Markets Plummet – Investor Behavior Gap
Another concern is whether investors are disciplined enough to stay the course with the investment strategy in order to earn the underlying index market returns. Studies on retirement spending from investment portfolios typically assume that retirees are rational investors who rebalance right on schedule each year to their rather aggressive stock allocations. They never panic […]
Making Your Investments Work For You: Things To Consider
Inflation We must remove inflation so the numbers allow for a better understanding of purchasing power growth. Real returns will be less because they preserve the purchasing power of wealth over time. Providing the discussion in terms of real returns allows us to plan for the assumption that future spending will grow with inflation. Even […]
How Much Should We Depend On The Stock Market?
Simple analyses, which look to historical returns as estimates for what retirees should expect in the future, tend to provide an incomplete picture that may overstate the potential for stocks relative to other strategies. We will investigate some of the adjustments that should be made to historical returns to obtain a better idea about the […]
Unpacking Today’s Market Returns
Today, March 9th, 2020, was a bad day for the financial markets. There are four main elements to this story that I want to pick apart…
Inflation, Deflation, Confiscation & Devastation- The Four Horsemen Of Risk
Noted financial advisor and historian William Bernstein makes a compelling case for stocks in his e-book Deep Risk: How History Informs Portfolio Design. In the introduction, Bernstein begins by offering an operational definition of risk. Risk is the size of real capital loss times the duration of real capital loss. This gets at the idea […]
The Case for Stocks
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 able to spend more from their asset base in retirement. For example, in […]
Modern Portfolio Theory – Part Two
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 portfolios on the efficient frontier shown in Exhibit 1.2. These range from the […]
What is Modern Portfolio Theory? And Why Does it Matter?
Investing is fundamental to retirement planning. For many of us the long term growth from our investments is one of the primary sources of our income in retirement. So deciding how to invest is crucial. Since the financial markets are reasonably efficient, we can’t systematically beat the market. Deciding how we will structure our portfolio […]
Historical Market Returns – Part One
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 portfolio. Fundamentally, investors prefer certainty to uncertainty. A bond provides a known yield […]
Overview of Stocks and the Stock Market
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 the foundation for better performance and even larger dividends to owners in the […]
