Being wealthy doesn't mean having all the money in the world, just not having to worry about it.

Lesson 18 – Relax, You’re Going to Die

Over the long term, the survival of the entire global economy almost certainly depends on the continued profitability of the companies which provide the world’s goods and services. Without that, the tax base on which governments rely virtually disappears, lenders to those businesses don’t get repaid, and even that hedge against global disaster, gold, won’t Read more »

Lesson 17 – What Insurance Is and Isn’t

Did you ever hear the story of the man who thought he had enough life insurance but died anyway? Apparently he didn’t quite understand the concept, and neither do most people. I’ve seen people insure packages worth $100 at the post office while not having any disability income protection. This is nuts! The purpose of Read more »

Lesson 12 – Why Bill Gates Isn’t a Million Times Happier than You Are

Wealth has a diminishing marginal utility. This, in my view, is the most important argument, the one I stress with my clients when helping them plan their future. Even if the first two reasons (here and here) didn’t apply, an investment strategy designed to serve real lives mustn’t overlook this one: $2 is not twice Read more »

Lesson 11 – Your Life Is Only One Experiment

To be fair, I must note that a few theorists have offered a plausible case against reversion based on chaos theory, arguing that “off-the-chart” results occur in real life that normal statistics claim are impossible. (For instance, based on the calculated daily volatility of stocks, there is simply no way the U.S. stock market could Read more »

Lesson 10 – The Market Is Not a Pure Coin Flip

In the previous lesson, I promised to provide three reasons to use the median (which improves with diversification) instead of the mean (which does not). I’ll start with my weakest argument, although it is one shared by many academics in the field of finance: Equity returns revert toward long-run averages. The book that first popularized Read more »