Friday, May 8, 2009

Short Takes: Underperforming the Index and Breaking a Mortgage

1. Canadian Capitalist reports that the average equity investor has underperformed the S&P 500 index by 6.48% per year over the last 20 years. After buying the index, most of us would be better off doing nothing.

2. Million Dollar Journey looks at what factors to consider when deciding whether to break a mortgage to get a better interest rate.

3. Larry Swedroe looks at the positives and negatives of using Monte Carlo simulations of your portfolio. One of the negatives is that these simulations usually use a normal distribution of returns, which understates the chances of extreme returns. I’ve never understood why this has to be the case. Why not just use a more accurate distribution in the simulation?

4. Where Does All My Money Go gives us an insider’s understanding of what a financial advisor’s “turn on assets” means.

5. The Big Cajun Man debates what to do with found money. I’d say to pay off debt, or if you have no debt, invest it. If you feel strongly about blowing some of it, maybe you could blow the interest savings or investment returns instead.

5 comments:

  1. Thanks for the mention have a great weekend.

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  2. Merci Michael. Have a great weekend!

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  3. That's a good point about Monte Carlo simulations. A lot of people are talking about how past behaviour is a bad predictor of the future now, but maybe that's largely because the past data is being put into the wrong model. There must be some statistical description of the market that's at least a bit more reliable than what's being widely used now, or gives better indications of the uncertainty.

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  4. Thanks for the link Michael - have a great weekend!

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