I recently learned an interesting new way to abuse statistics using regressions.  (I’ll describe it first in a way that requires no math background, and give some math details at the end.)  It can be difficult to tell if those who abuse statistics are dangerous and well-intentioned or dangerous and know fully what they’re doing.  Either way, they’re dangerous. Suppose we conducted a study of retirees in their 60s to find out what percentage of their portfolios they spend each year.  Even though this percentage varies across retirees, we want to get an overall sense of whether they’re spending too little or too much. For the raw data of the study, I’m going to choose unrealistically simple numbers to make the calculations easier.  The purpose here is to illustrate abuse of statistics.  Here’s the raw data: 1000 retirees have $100,000 saved and spend $6000/year. 100 retirees have $1 million saved and spend $40,000/year. 10 retirees have $10 million saved and ...

The 2024 investment return for my overall portfolio measured in Canadian dollars was 18.0%, which is below my benchmark return of 19.0%.  The difference is primarily due to my choice a few years back to adopt an automated plan that shifts gradually away from stocks when stock prices are high as measured by the cyclically adjusted price-to-earnings ratio (CAPE) of world stocks .  My benchmark doesn’t take CAPE into account. In years when stock prices are high but they give good returns anyway, this automated plan costs me money.  That’s what happened in 2024.  But I’m content with this outcome.  By shifting away from stocks when they’re expensive, my portfolio risk is lower at a time when stocks are riskiest.  I don’t expect my strategy to pay off during normal times.  I’m reducing my losses if we have a scenario where stock prices are high, and then they crash.  This is a kind of insurance, and it has a price during normal times. The method I use ...

Here’s a scenario related to credit cards that plays out far too often.  To some degree it’s a problem from the past, but it still affects older people today.  It has the potential to affect younger people too if they’re not careful. Auntie : But why did the bank take away my credit card? Nephew : The bank thinks it’s your husband’s credit card, and when he died they cancelled it. Auntie : But it has my name on it. Nephew : Yes it does.  But that card was created as an added card on your husband’s credit card account, even though they printed your name on it. Auntie : How was I supposed to know this? Nephew : I’m not sure.  The account statements show your husband’s name, which tells us that the bank considers it to be his account.  But many people don’t know that this is how it works. Auntie : Why won’t the bank give me my own card now? Nephew : The bank’s computers don’t know who you are. Auntie : But everyone at the bank has known me for decades. Nephew : Ban...