Posts Tagged "tendency"

Mentally Spending Your Next Raise Before You Actually Get It

Posted by Preet on Apr 4, 2010 | 2 comments

One thing I’ve noticed with some people is that they get progressively more stressed about money the older they are. That should come as no surprise. But it’s also no surprise that people tend to earn more and more money as they get older too. So shouldn’t things get less stressful? One (of the many reasons) for this phenomenon is the tendency for people to mentally spend future increases in income ahead of time, which is similar to how people will tend to spend exactly what they earn now (if not more). If you earn $50,000 (after tax) and you spend $50,000 after tax and you know that you are getting a $5,000 raise in the next three months how likely are...

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Picking investments based on past performance

Posted by Preet on Jul 29, 2007 | 0 comments

Invariably people will see a ranking of highest performance funds for the last year or so and ask “Are these good funds?” Others will just go and blindly buy them. In fact, there is a huge proportion of investors out there who base most of their decision on the past performance of an investment alone.  They do not research any further than the performance report for the last year.  This is no different than gambling in my eyes! To paraphrase a quote I once heard, if all that was involved in achieving the highest rate of return was looking at past performance – librarians would be the richest people on earth! Last time I checked, they were not (at...

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Risk: Systematic Risk vs Non-Systematic Risk

Posted by Preet on Jul 26, 2007 | 0 comments

This is an advanced level topic – you may want to skip this post if you are just finding your feet with respect to finances! It assumes a basic understanding of portfolio diversification… With respect to any given stock market there are two types of risk (which is another word for variance according to Modern Portfolio Theory): 1) Systematic Risk and 2) Non-Systematic Risk. Systematic risk is the general ebb and flow of the market – kind of like the tendency for all stocks to get dragged down or move up in tandem at the same time to a certain degree.  For example, the 1987 market decline was a Systematic event in that it really didn’t matter...

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