What is Monte Carlo Analysis?(and why it is important to you)

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If there’s one question on every investor’s mind, it goes something like this: “How am I doing so far?” This universal query is especially relevant when you’re making plans to retire or pursuing other substantial financial goals.

Since we cannot accurately predict the future, Monte Carlo simulation allows for risk analysis and decision making using a mathematical computer model applying quantitative analysis theory. Monte Carlo Analysis allows you to see alternate possible outcomes and measure the impact ...

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Behavioral Biases (Part II)

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Let’s continue our alphabetic tour of common behavioral biases that distract otherwise rational investors from making best choices about their wealth. There are so many investment-impacting behavioral biases, we could probably identify at least one for nearly every letter in the alphabet. As Warren Buffett has famously said, “Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful ...

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Introduction to Behavioral Biases (Part 1)

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Our own behavioral biases are often the greatest threat to our financial well-being. As investors, we leap before we look. We stay when we should go. We cringe at the very risks that are expected to generate our greatest rewards. All the while, we rush into nearly every move, only to fret and regret them long after the deed is done. In this multi-part series “Behavioral Biases A to Z,” we’ll offer an alphabetic introduction to investors’ ...

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Are You Prepared for the Next Market Correction?

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If you enjoy a good read, we recommend Warren Buffett’s annual Berkshire Hathaway shareholder letters, dating back to 1965. While financial reports are rarely the stuff from which dreams are made, Buffett’s way with words never ceases to impress. His most recent 2016 letter was no exception, including this powerful insight about market downturns:

“During such scary periods, you should never forget two things: First, widespread fear is your friend as an investor, because it serves ...

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Survivorship Bias

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As the famous quote by Prime Minister Benjamin Disraeli states:  “There are three kinds of lies – lies, damned lies, and statistics”. In this installment of Financial TIPs we will focus on the third type of “lie”, statistics. One trick of the trade we must watch for when accepting or rejecting a performance analysis is survivorship bias; using statistics to mislead.

What Is Survivorship Bias?

Only the strong survive. This is a familiar adage because it’s often true ...

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Our Relationship with Investment Risk

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Is investing riskier than usual these days? In our experience, probably not. It just feels that way because of the constant bombardment of information. If there is such a thing as “normal” in this world of ours, risk is certainly built into the definition.

In Morningstar’s Quarterly Economic Commentary, Francisco Torralba, Ph.D., CFA described the [f]inancial markets as having lived in a heightened state of alert for the last two years. Markets had a boomerang first quarter. Quick ...

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Investing for Retirement Income: Part III: Total-Return Investing

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As we’ve discussed in the first two parts of this three-part series, we do not recommend turning solely to dividend-yielding stocks or high-yield (“junk”) bonds to support your retirement income, even in low-yield environments. So what do we recommend? Today we’ll answer that question by describing total-return investing.

PART III: TOTAL-RETURN INVESTING FOR SOLID CONSTRUCTION

If you think it through, there are three ...

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Investing for Retirement Income: Part II: High-Yield Bonds

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In Part I of our three-part series on investing for retirement income in a low-rate environment, we explained why we don’t advise bulking up on dividend-yielding stocks as a reliable way to generate retirement cash flow. Like the Three Little Pigs’ straw house, dividend-yielding stocks can disappoint you by exhibiting inherent risks just when you most need dependability instead.

Another popular ...

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Investing for Retirement Income: Part I: Dividend-Yielding Stocks

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If ever there were an appropriate analogy for how to invest for retirement, it would be the classic fable of The Three Little Pigs. As you may recall, those three little pigs tried three different structures to protect against the Big Bad Wolf. Similarly, there are at least three kinds of “building materials” that investors typically employ as they try ...

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Financial TIPs on Shredding

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On a monthly basis we are often inundated with mail regarding our personal finances. Whether its credit card statements, bank statements, investment holdings or tax records before we know it our file cabinet is filled with paperwork. A question I am often asked is: How long should we retain all these statements? When it comes to personal document retention guidelines, there are some general rules that you may want to consider when deciding to retain or discard ...

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