Why Invest Forever? (Part 3)

Key Points

  • Since 1973 the S&P 500® Index has posted considerable gains—over this period the index has averaged over 10% per year in gains after reinvesting dividends, before taxes and fees.
  • However, investigating other 45-year periods (going as far back as 1871) leads to a more useful picture of the index’s performance across differing economic environments.
  • According to history, it’s better to invest in the index over longer periods in order to increase the likelihood of providing favorable returns and decrease the likelihood of losing money.

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Risk Management 101 (Part 3)

Key Points

  • A histogram can be used to visually interrogate the distribution of a security’s returns.
  • These returns typically resemble a bell-shaped curve when viewed as a histogram.
  • A random variable that follows this type of bell-shaped distribution is said to follow a normal distribution.
  • There are certain characteristics of a normal distribution that can be helpful when investigating the returns of stocks, given an understanding of the assumptions involved in such analysis.
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Market Timing 101 (Part 1)

Key Points

  • The opportunity cost associated with the poor timing of initial investment allocations can be significant.
  • After missing out on a period of good performance some investors may be further compelled to employ additional timing measures that can further exacerbate underperformance.
  • Market timing, the tactical timing of when to be invested and when not to, although sensible at a high level, is far easier said than done.

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Passive is the New Aggressive (Part 6)

Key Points

  • Over long periods, a passive investing approach in index funds is more likely to lead to an outcome that falls in line with a given benchmark.
  • With an active investing approach, where mutual fund fees are higher, outcomes are far less certain.
  • As such, the long-term opportunity cost of an active approach can be significant, and perhaps even disastrous.

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The World’s Most Expensive Hobby (Part 1)

Key Points

  • Hobbies can provide lasting benefit by allowing individuals to refocus their efforts away from their careers towards alternative forms of enjoyment.
  • Nevertheless, active investing as a hobby might not be the best use of one’s free time.
  • Not only are the chances of adding value from this endeavour very slim, but also, the costs associated with investing unwisely can profoundly impact one’s long-term goals and aspirations.
  • As an example, most investors often overlook opportunity cost when making investment decisions even though this particular expense can be significant.

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