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Actived: 6 days ago
Index Funds and Optimal Portfolios
(5 days ago) Index investing is where portfolio theory starts to rely on the efficient market hypothesis. When you buy an index you're allocating your money the same way the whole market is - which is a good thing if you believe the market has a plan.
Active vs Passive Investing
(2 days ago) The Case for Passive Investing. You can characterize the nature of the stock market like this: The market goes up in the long run (10+ years). The market is totally chaotic and unpredictable in the short run. This suggests that there is only one investing strategy that makes any sense: Buy and hold for the long run, preferably in a way that's
(7 days ago) Financial Calculators. This section contains a few simple financial calculators: If you're interested in what's going on behind the scenes, see How Finance Works for interactive graphs that illustrate present and future values, annuities, mortgages, bond yields, and more.
Why Invest in Index Funds
(6 days ago) This article covers some of the "why" of indexing, specifically, some financial reasons why index investing makes sense over some alternative choices. But before we even go that far There are two kinds of people, those who find finance fascinating and those who really don't.
Does Dollar Cost Averaging Really Work
(Just Now) Dollar cost averaging means investing a fixed amount at fixed intervals of time. That's a sensible approach, for example, if it means committing yourself to investing a fixed amount of your salary every month toward your retirement. However, some people also …
Cash Flow Statement
(8 days ago) The three sections of the cash flow statement - Operations, Financing, and Investing - correspond to the three solid green arrows back in the diagram. The first two sections show the two ways the company can get cash. Operations means "making" money by selling goods and services; Financing means "raising" money by issuing stocks and bonds.
Books on Investing, Finance, and the Stock Market
(2 days ago) Books on Investing, Finance, and the Stock Market. Benjamin Graham. The Intelligent Investor. This book really works on your psychology, helping you to invest in a businesslike way and tune out the distracting mood swings of "Mr. Market." This serene attitude has elevated Graham to Zen master status among serious investors; Warren Buffett, his
Small Value Investing
(2 days ago) Small Value Investing. One of the striking trends in the stock market during the past many decades has been the outstanding performance of Small Value stocks. This performance has been studied and exploited by professors Gene Fama of the University of Chicago and Ken French of Dartmouth.
Small Value Index Investing
(4 days ago) Siegel's Stocks for the Long Run argues that the small cap advantage is a myth. His more recent Future for Investors argues that value does well because investors pay too much for growth. The Four Pillars of Investing explains Small Value returns from a risk/reward viewpoint.. Several well-known books have advocated screening for low valuation ratios when picking individual stocks; see What
Investment Return Calculator: Measure your Portfolio's
(7 days ago) Investment Return Formula. The estimate used in Example 2 is that. $1025 grew by $150. Equivalently (but more confusingly!) $1025 grew to $1175. or. ( B start + N / 2 ) grew to ( B end - N / 2 ) where B start and B end are the starting and ending balances, and N is the net additions minus withdrawals. Plugging these values into the return rate
(5 days ago) Passive Investing Payroll Tax Premium Bond Productivity Profit Margin Profitability Prospectus Qualified Retirement Plan Quick Ratio R-Squared Recession Regression Return on Assets Return on Equity Revenue Roth IRA Russell 3000 S&P 500 SEP Salary Reduction Plan Sales Costs Sales Revenue
Index Funds and Indexes, Explained
(9 days ago) The "why" of index investing is widely available. (In a nutshell, actively managed mutual funds do only about as well as index funds but charge higher fees; and individual stock investors can do even worse, mainly because they keep stumbling over bum advice - which is also widely available.) So this article covers the basics on the "what" of
(6 days ago) This calculator lets you see how much of a difference cutting back can make over time. It's initialized for skipping three $4.00 lattes per week, investing the savings, and doing that for 20 years. The moral: cheapness in moderation pays off big. Transportation is another obvious area for potential savings.
Capital Gains Tax Rate Calculator
(2 days ago) 35%. 37%. 37%. 20%. Short term gains on stock investments are taxed at your regular tax rate; long term gains are taxed at 15% for most tax brackets, and zero for the lowest two. Here is a simple capital gains calculator, to help you see what effects the current rates will have in your own life. (Before you use it for the first time, you may
Expenses of Index Funds versus Actively Managed …
(5 days ago) Once you accept point 1, you can measure the effects of points 2 and 3 with a simple calculator: Inputs. Investing $ for years; Market's expected Annual Rate of Return is %. Index Fund. Active Fund. 1. Market-Beating Skill: 0 %.
Monte Carlo Simulation: Investment Volatility and Your
(2 days ago) Volatility and your Time Horizon. The volatility of an investment is measured by the standard deviation of its rate of return. (If your statistics is a little rusty, you can think of the standard deviation as measuring how far away from the average the return rate for any one year is likely to be.
Portfolio Diversification and the Efficient Frontier
(8 days ago) The graph on the previous page shows how volatility increases your risk of loss of principal, and how this risk worsens as your time horizon shrinks. So all other things being equal, you would like to minimize volatility in your portfolio. Of course the problem is that there is another effect that works in the opposite direction: if you limit yourself to low-risk securities, you'll be limiting
Modern Portfolio Theory vs Messy Market Reality
(9 days ago) Modern Portfolio Theory. In the 1950s economists started trying to build a science of market investing. Their efforts, known as Modern Portfolio Theory, have been based from the beginning on a bell curve model of market volatility, which as we've been seeing is a passable approximation to reality for long-term results, but a terrible description of the short-term.
(6 days ago) Now suppose you play for two flips. This time there are four possible outcomes. The average is still zero (of course), but something interesting happens to volatility: the standard deviation of the outcomes grows by a factor of the square root of two (1.41) and the standard deviation of the outcome-per-flips shrinks by the same factor (1 / 1.41 = 0.71).
Vanguard Index Funds and ETFs
(1 days ago) Here are Vanguard's index funds and ETFs for some core equity asset classes that are useful for most investors: The Admiral Shares funds charge lower fees, but require a higher minimum investment, than the Investor Shares funds. You can buy Vanguard ETFs commission-free within a Vanguard brokerage account, which is an extremely low-cost option.
Sharpe Ratio and Asset Allocation
(9 days ago) Next: how index investing makes it easier to find the maximum Sharpe Ratio. MPT Introduction Volatility and Time Efficient Frontier Sharpe Ratio Build a Portfolio Index Investing CAPM, Beta Alpha, R-Squared Three Factor Model Insurance Analogy Conclusions Books & Links: Index Funds Article
(5 days ago) This article was mainly inspired by one excellent book, Fooled by Randomness. In Misbehavior of Markets, Benoit Mandelbrot shows how the market is far from normal in the short run (although what do fractals have to do with it?). The Cartoon Guide to Statistics is the easiest imaginable introduction to basic statistics concepts.. The Four Pillars of Investing describes the finance business and
Ben Graham Valuation Formula
(5 days ago) Graham-Style Formula. Benjamin Graham was known for his thorough financial analysis of companies, but he also experimented with many simple rules of thumb. Here is a valuation formula adapted from The Intelligent Investor : P/E = 8.5 + 2G. where P/E is the fair P/E ratio, and G is the earnings growth rate. The idea is that you get a formula
Do Fibonacci Numbers Occur in the Stock Market
(8 days ago) Where they show up in investing is in technical analysis, where "the fibs" are supposed to predict the behavior of the stock market. The theory is that the collective "investor mind" must also be hardwired so that interesting things happen at Fibonacci-sized intervals.
Warren Buffett Intrinsic Value Formula (
(1 days ago) Warren Buffett hasn't exactly published his formula for what he calls the intrinsic value of a company, but he has dropped a number of hints. He apparently multiplies estimated future earnings by a confidence margin between zero and a hundred percent (a bird in the bush being worth 0.5 birds in the hand, and all that; bush birds are the earnings you hope for, and hand birds are the earnings
(7 days ago) Modern portfolio theory can be unintuitive, but an analogy to the insurance industry can make things clearer. So imagine you are in the business of selling fire insurance policies. Your long term profits are a function of the premiums you collect minus the claims you pay out. Your short term risk is the expectation that a given year might have
Stock Valuation Formula (DCF) (with Graph and …
(9 days ago) Stock Valuation based on Earnings Stock valuation based on earnings starts out with one giant logical leap: you assume that each dollar of earnings per share of a company is really worth one actual dollar of income to you as a stockholder. This is theoretically because you expect the company to use that dollar in a beneficial way: for example, they could use it to pay you a dividend; or they
Roth IRA Calculator
(2 days ago) (See the Roth IRA Rules page for eligibility, limits, and penalties.). The main thing to notice is that your total withdrawals are likely to be far higher than your total contributions: tax-free growth is a beautiful thing. (Also see the risky retirement calculator to see how …
(8 days ago) Magazine-style Sites. The Economist - International business and economics.. Forbes - Personal finance and investing, and commentary on business, economics and politics.. HBS Working Knowledge - High-powered articles from Harvard Business School.. Kiplinger - Personal finance articles.. You can find lots of basic educational material and helpful links at two nonprofit sites, The American
Beta, Alpha, R-Squared: Portfolio Analysis with Linear
(Just Now) The general equation of this type of line is. r - R f = beta x ( K m - R f ) + alpha. where r is the fund's return rate, R f is the risk-free return rate, and K m is the return of the index. Note that, except for alpha, this is the equation for CAPM - that is, the beta you get from Sharpe's derivation of equilibrium prices is essentially the
CAGR (Compound Annual Growth Rate) Explained
(3 days ago) CAGR. CAGR (for Compound Annual Growth Rate) is the hypothetical constant interest rate that would be required for compound interest to turn a given present value into a given future value in a given amount of time. (In this graph, CAGR would be the interest rate required to grow the green bar into the blue bar.) The CAGR formula is.
Fama and French Three Factor Model
(1 days ago) Investing for the Future Analysing the past is a job for academics; most people are more interested in investing intelligently for the future. Here the approach is to use software tools and/or professional advice to find the exposure to the three factors that's appropriate for you, and then to invest in special index funds that are designed to
Investment Volatility: Standard Deviation
(8 days ago) Standard Deviation. When you say that an investment like a stock market index fund has an expected return of 9%, you're saying that in any year there is a chance that your return will be better than 9% and a chance that it will be worse.