hansenasset

Finance measures risk as volatility. But to an investor with a long time horizon, i.e. retiring in 30 years, volatility can create buying opportunities. It’s only for those with short time horizons, i.e. paying for child’s tuition soon, that volatility poses a threat. So it’s not the volatility that creates risk, it’s the short time … Read more

Arithmetic mean is just a fancy way to say ‘average.’ So if you’ve ever calculated your car’s MPG, or a batting average, or your GPA, then you’ve used an arithmetic mean before. And for most things they work perfectly fine. But they’re completely useless for averaging stock returns. That’s because arithmetic mean is not meant … Read more

An accounting profit is how we normally think of profits. You buy a can of Pepsi for $1.00 and sell it for $2.00. That’s your accounting profit. But what if you could have sold the can of Pepsi for $3.00 instead? Well, then you’ve actually lost a dollar of economic profit. Economic profit is what … Read more

I can think of no other discipline with diminishing returns quite like stocks. Investing in a low-cost index fund that matches the S&P 500, (I recommend Vanguard’s), will beat the average actively managed portfolio. And not just the actively managed portfolios of retail investors like you and me. No, I’m talking about Wall Street mutual … Read more

When will you need the money? If you’re 40 and planning on retiring at age 65, then you have a long time horizon and should be in stocks. If you’re 25 and will need the money for a down payment on a house in 3 years, then you shouldn’t be in stocks. The stock market … Read more

We already talked about credit card debt. Credit card debt is obvious. You can’t hope to come out ahead if you’re paying a 20% interest expense. Other debt can be more tricky. Let’s say you’re locked into a 30 year mortgage at 4%. Should you invest in the stock market or pay off your mortgage … Read more

Depending on where you work, your job may match 50% of your contributions up to 6% of your salary. That’s free money. A 50% return can take 7 years to materialize in the stock market. (That’s assuming a 6% annual return.) You should be fully contributing the matchable amount before investing else where. And you … Read more

DO NOT INVEST IF YOU HAVE CREDIT CARD DEBT! It makes absolutely no sense to invest in the stock market if you have credit card debt. Credit card debt is typically in the 19-24% interest range (creditCardInterest). The stock market has historically returned 9.9% (stockReturn). So you’re paying 19-24% in interest to acquire 9.9% in … Read more

You must have an emergency fund incase you lose your job. The generally accepted amount is 3 to 6 months worth of expenses. Here is a quick checklist: Rent / Mortgage Electric Bill Gas Bill Water Bill Trash & Sewage Bill Car Payments Car Insurance Gas Oil Changes Tires Other Maintenance Health Insurance Dental Insurance … Read more

This personal blog is a collection of my thoughts, opinions and general philosophies. It does not pertain to your particular financial situation. The use of the word “you” is to obtain an easy to understand, conversational tone. There is no guarantee that the information provided is accurate or complete. I am in no way compensated … Read more