Back in the 1950s, economists Franco Modigliani and Merton Miller developed a theory that, even today, is taught in virtually every finance class. To understand this theory, suppose you’re running a company and want to build a new factory. To raise money for this project, you generally have two [...]
The good and the perfect
Last week, The Wall Street Journal carried a seemingly innocuous article by Derek Horstmeyer, a finance professor at George Mason University. Horstmeyer described an analysis he and his team had recently conducted. The question they sought to answer: Could investors achieve better results in their [...]
Gerd Gigerenzer
I’ve never been a fan of financial planning rules of thumb. To see why, consider a common shortcut for choosing an asset allocation: The allocation to bonds in a portfolio, according to this rule of thumb, should equal an investor’s age. For example, if an investor is 65 years old, then his [...]
The three landmines of personal finance
Scott Adams, the creator of Dilbert has this to say about making forecasts: “There are many methods for predicting the future. For example, you can read horoscopes, tea leaves, tarot cards, or crystal balls. Collectively, these methods are known as ‘nutty methods.’ Or you can put well-researched [...]
Another truism of financial planning
At least once a day, I find myself saying, “Another truism of financial planning is...” To be honest, I don’t know if they meet the strict definition of truisms, but below are the twelve concepts I’ve found most helpful in navigating the world of personal finance. There are always two answers [...]
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