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 Two
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 volatility, the compounded return is only slightly less at 5.1 percent. For long-term […]
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 […]
Two Philosophies for Retirement Income Planning Part One: Probability-Based
Within the world of retirement income planning, the siloed nature of financial services between investments and insurance leads to two opposing philosophies about how to build a retirement plan. There is an old saying that if the only tool you have is a hammer, then everything starts to look like a nail. This tendency is […]
The Yield Curve is Inverted. Don’t Panic.
It’s pretty easy to make finance stuff sounds scary. What happens in the financial markets has a direct effect on our retirement – but those same financial markets are basically a black box for most people (and a very dark gray box for a lot more). So it’s very easy for the financial media to […]
Can TIPS Help You?
Inflation is one of the most pernicious risks facing retirees. While there are a lot of ways to manage inflation risk, TIPS, or Treasury Inflation Protected Securities, are one of the few investment options that directly hedge against inflation risk. They aren’t perfect, and there are certainly some things to consider when you use them […]
