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Comment author: PhilGoetz 14 June 2015 03:07:02PM 0 points [-]

What's the distribution of family wealth among Harvard incoming freshmen?

Comment author: Douglas_Knight 17 March 2014 06:20:05PM 0 points [-]

Jonah suggests that Harvard is no more expensive than American public universities. One of Larry Summer's projects was to increase financial aid and to make it more transparent. If he had remained president, I think it would now be significantly cheaper than its competition.

Comment author: PhilGoetz 14 June 2015 03:04:37PM *  0 points [-]

No he didn't. He compared Harvard to Berkeley. Berkeley is another elite institution. The cost of attending a university depends on its status, not whether it's public or private.

Comment author: shminux 22 May 2015 03:03:53PM 4 points [-]

The market isn't going to stay down for 10 years.

...Yet it has, multiple times in the last 100 years, if you invest a lump sum. Regular contributions are a different story.

Comment author: PhilGoetz 25 May 2015 09:40:48PM *  3 points [-]

The US stock market? No, it hasn't. I checked a graph of it before writing that. "Time the market is down" is not the time between peaks on the graph. It's the time between periods when stocks are a better investment than bonds. For the Great Depression, that was 3 years.

Comment author: RichardKennaway 22 May 2015 06:42:46AM 0 points [-]

That's not to say the safe allocation at this moment is 100% stocks. I just moved money out of stocks.

Why? How do you go about judging the safe allocation?

Comment author: PhilGoetz 25 May 2015 09:39:24PM 0 points [-]

I'm not good at it. The people who are good at it seem to be arguing about it more this year. Surely there'll be some bump when the Fed raises interest rates. I know that's supposed to be priced into the market, but it doesn't appear to be, based on the lack of any permanent market change after each of the Fed's prior surprising statements. Possibly the market is playing a game of chicken.

In response to comment by gjm on "Risk" means surprise
Comment author: gjm 22 May 2015 05:30:06PM 3 points [-]

Nope, actually stocks don't still win when what you want is to maximize widthdrawals subject to keeping Pr(run out of money) very small. The 98% level for bonds only is between $15k and $16k; for 50:50 it's a little better, somewhere between $16000 and $17000; for stocks only it's about $12k

(Another thing the simulator notably doesn't let you do: adjust your portfolio allocation over time.)

In response to comment by gjm on "Risk" means surprise
Comment author: PhilGoetz 25 May 2015 09:35:33PM 0 points [-]

That's correct.

Comment author: Douglas_Knight 24 May 2015 09:59:56PM 0 points [-]

So, it randomly samples from the empirical distribution?

You seem to be reading "non-Markovian" as "Markovian."

Comment author: PhilGoetz 25 May 2015 09:29:22PM *  0 points [-]

No, he's reading it correctly. It randomly samples from the distribution, not from the time-sequence. And that isn't a good idea. But this Monte Carlo simulator is still better than the others I've looked at. I'm surprised, given the amount of money at stake, that I haven't seen a personal finance simulator that doesn't completely suck.

And what about asset class correlations?

See Vaniver's answer below.

Comment author: PhilGoetz 22 May 2015 01:29:34PM *  0 points [-]

Something I just noticed: If you click on the graph, it switches to a graph of the probability of survival over time. But that graph doesn't match up at all with the reported numbers. It shows about 16% survival for 100% stocks, and ~0% survival for 50% stocks, 50% bonds.

Comment author: fortyeridania 22 May 2015 07:31:54AM *  1 point [-]
  • I think they can only mean either "variance" or "badness of worst case"

In the context of financial markets, risk = variance from the mean (often measured using the standard deviation). My finance professor emphasized that although in everyday speech "risk" refers only to bad things, in finance we talk of both downside and upside risk.

Comment author: PhilGoetz 22 May 2015 01:10:59PM *  3 points [-]

So "risk" really does mean surprise to them. Do you think this impairs their ability to reason about risk? E.g., would they try to minimize their risk because that's a good thing, for the ordinary definition of risk, but then actually minimize their variance? Do they talk to clients using the word "risk", and being aware on one level that they mean something different, yet not explain the difference?

Comment author: Autolykos 22 May 2015 12:20:14PM 0 points [-]

Exactly. Stocks are almost always better long-term investments than anything else (if mixed properly; single points of failure are stupid). The point of mixing in "slow" options like bonds or real estate is that it gives you something to take money out of when the stocks are low (and replenish it when the stocks are high). That may look suboptimal, but still beats the alternatives of borrowing money to live from or selling off stocks you expect to rise mid-term. The simulation probably does a poor job of reflecting that.

Comment author: PhilGoetz 22 May 2015 12:53:35PM *  0 points [-]

That's no reason to tell someone with hundreds of thousands of dollars to put half of it in bonds. The market isn't going to stay down for 10 years.

"Risk" means surprise

6 PhilGoetz 22 May 2015 04:47AM

I lost about $20,000 in 2013 because I didn't notice that a company managing some of my retirement funds had helpfully reallocated them from 100% stocks into bonds and real estate, to "avoid risk". My parents are retired, and everyone advising them tells them to put most of their money in "safe" investments like bonds.

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