Part IV: A Practical Guide for Random Walkers and Other Investors

Exercise 1: Have a regular savings program. Start investing early because compound interest and time are you greatest resource. When it comes to setting saving accounts' interest rates with regard to the interest rate that banks enjoy from the fed , banks are downwards-flexible and upwards-sticky. Depositors lose the tune of $100b when interest rates are rising. One is better off with special accounts such as Marcus by Goldman Sachs (1....

What determines the returns from stocks and bonds? A stock buyer expects a growing stream of dividends. If the company re-invests its profits, the stock buyer expects more rapidly growing dividends in the future, or a lucrative stock buyback. Long-run Equity Return = Initial Dividend Yield + Growth Rate In the short run (e.g. a year) the changes in price/dividend or price/earnings multiples determine returns. In optimistic times, e.g. March 2000, P/E > 30 and P/D > 80....

5 Asset Allocation Principles History shows that higher risk bears high reward From 1926 to 2017: Average Annual Return Year-to-Year Volatility of Returns Small-company stocks 12.1% 31.7% Large-company stocks 10.2% 19.8% Long-term government bonds 5.5% 9.9% US Treasury Bills 3.4% 3.1% The risk of investing in stocks and bonds depends on the hold duration From 1950 to 2017, the S&P averaged 10% per year....