GME and WallStreetBets

It’s been a pretty wild ride with GameStop. But while there has been a lot happening, does it actually mean much? We’ve examined the details of what happened elsewhere, so I’m going to focus on some of the bigger questions that this whole affair raises, and specifically how this all impacts long-term investors. So let’s…

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It’s a bit of an understatement to say that GameStop has been in the news lately. There are a lot of people opining about what is going on, but we want to cut through that and look at what actually happened (we look at what it all means in another article). So what actually happened, and…

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A simple approach for building a financial plan is to decide on a rate of return for the investment portfolio and to plug that value into a spreadsheet to represent assumed asset growth. Historical data may be used to calculate historical average returns for different asset classes, which are then combined to create the overall…

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Adjustments for Current Bond Yields An important consideration is that current interest rates are lower than the historical averages. The historical average return is not relevant for someone seeking to estimate future market returns from today’s starting point. The general problem with attempting to gain insights from the historical outcomes is that future market returns…

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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…

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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…

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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…

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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…

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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…

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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…

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