Retirement Calculator Go Boom

The above spreadsheet is the bottom slice of results from a how much do I need to save for retirement calculator I found at Yahoo Finance. I plugged in my numbers, assumed retiring at 75, 5% returns, 3% inflation and that we would get social security and the result for living to 105 was that not only do I not have to save anymore money but that I will have $5.8 million left in the bank. Ahem. To answer your first question, we are not wealthy. Comfortable maybe, but not wealthy. Where this sort of thing is concerned, if you get a result that doesn’t make you at least a little uncomfortable you should probably be skeptical unless as a person making $50,000-$150,000 you inherited $6 million from an uncle you never knew you had or something similar. Interestingly when I assumed 6% returns the result said I would have $10 million left over. While there is no convincing me either number could ever be reality there is probably something to there being a huge difference to the compounding effect of 100 basis points annualized. One big flaw in these types of calculators is that they assume linear returns. The market might average 5% or 10% or any other number annualized for the time period you care about but there will be very few years where it actually hits that average. And of course the above type of calculator can’t account for plan-alteringly-expensive one off financial...

Retirement Calculator Go Boom

The above spreadsheet is the bottom slice of results from a how much do I need to save for retirement calculator I found at Yahoo Finance. I plugged in my numbers, assumed retiring at 75, 5% returns, 3% inflation and that we would get social security and the result for living to 105 was that not only do I not have to save anymore money but that I will have $5.8 million left in the bank. Ahem. To answer your first question, we are not wealthy. Comfortable maybe, but not wealthy. Where this sort of thing is concerned, if you get a result that doesn’t make you at least a little uncomfortable you should probably be skeptical unless as a person making $50,000-$150,000 you inherited $6 million from an uncle you never knew you had or something similar. Interestingly when I assumed 6% returns the result said I would have $10 million left over. While there is no convincing me either number could ever be reality there is probably something to there being a huge difference to the compounding effect of 100 basis points annualized. One big flaw in these types of calculators is that they assume linear returns. The market might average 5% or 10% or any other number annualized for the time period you care about but there will be very few years where it actually hits that average. And of course the above type of calculator can’t account for plan-alteringly-expensive one off financial...

The Evolution of Portfolio Theory

A couple of thought pieces that contribute toward evolution of process. First Nassim Taleb was on CNBC yesterday and his two segments covered a lot of topics including his idea that I have referred to as putting 80% into various currencies (t-bills from various countries) and then going berserk (my word not his) with risk with the other 20%. While that will not be practical for too many folks it is an interesting glimpse into how he thinks about the role that risk should play. With his interview yesterday he appears to have tweaked this slightly. Instead of various currencies he said something that protects against inflation. From the context I took him to mean TIPS not commodities but of course you may draw a different conclusion from his comments. If he did mean TIPS then his idea looks a lot like what Zvi Bodie has been writing about for a long time. The other item was an article run at IndexUniverse by Katrina Sherrerd who is the COO of Research Affiliates. The first point of the article was about the need to keep learning or as she might put it the need to overcome ignorance. The context was investment advisors but it obviously pertains to do-it-yourselfers too. This was particularly interesting; The investment management industry tends to emphasize product—and its invariably linked goal of beating the benchmark—over education and counseling. And I am sure the people who bought the Apple linked debt who now stand to get put the stock a couple of hundred points above the current market would agree with too much emphasis on product. The...

The Evolution of Portfolio Theory

A couple of thought pieces that contribute toward evolution of process. First Nassim Taleb was on CNBC yesterday and his two segments covered a lot of topics including his idea that I have referred to as putting 80% into various currencies (t-bills from various countries) and then going berserk (my word not his) with risk with the other 20%. While that will not be practical for too many folks it is an interesting glimpse into how he thinks about the role that risk should play. With his interview yesterday he appears to have tweaked this slightly. Instead of various currencies he said something that protects against inflation. From the context I took him to mean TIPS not commodities but of course you may draw a different conclusion from his comments. If he did mean TIPS then his idea looks a lot like what Zvi Bodie has been writing about for a long time. The other item was an article run at IndexUniverse by Katrina Sherrerd who is the COO of Research Affiliates. The first point of the article was about the need to keep learning or as she might put it the need to overcome ignorance. The context was investment advisors but it obviously pertains to do-it-yourselfers too. This was particularly interesting; The investment management industry tends to emphasize product—and its invariably linked goal of beating the benchmark—over education and counseling. And I am sure the people who bought the Apple linked debt who now stand to get put the stock a couple of hundred points above the current market would agree with too much emphasis on product. The...

but if I had been on….

The following are the notes I submitted for today’s now canceled CNBC appearance. They usually ask for a writeup of some sort and since I am on their D-list, or lower I try to be thorough. General Market The equity market has obviously had an outstanding January so far. In thinking about the next couple of months, there is clearly momentum to the upside, the first quarter had been a good time to own stocks for the last few years and this year is starting out the same way, the Fed still has the pedal to the floor, interest rates are still very low and other than Apple the earnings season has not been a catastrophe. This sets the stage for the momentum to continue for a little while longer like the rest of the quarter. I would feel better about the momentum lasting that long if we had one bad week to work off some very short term overbought conditions. Also contributing to confidence for the next couple of months is that the S&P 500 is only 7% above its 200 day moving average which is not that much. The rest of the year may not be as good. Tech sector There has obviously been a meaningful rotation out of Apple (AAPL) and this could be very good for the rest of the tech sector. To the extent that portfolio managers are or were long AAPL, are selling that stock and will want to keep those proceeds in the tech sector then other large cap tech stocks could see serious buying. YTD AAPL is down 17% while the...