Volatility is a measure of how the price of an asset – be it a stock, an option or a fund - changes. Volatility tracks how much the price moves and also how fast it changes. Beta is a commonly used statistical measure that represents volatility, and the higher beta is, the greater the risk. There’s usually a reference index such as the S&P 500 and if a stock perfectly tracks the index, it is said to have a beta of 1.0. If it changes more than the index, be it on the up or downside, it is a high beta stock. For example, a stock with a beta of 1.5 means that historically, it has moved 150% for every 100% move in the benchmark index. Mutual funds nowadays provide free volatility measures so you can get a good feel for how stable the fund is year in and year out.

The Dangers of Buying an Annuity When Interest Rates are Low

Interest rates are the raw material used in manufacturing annuities.  Rates are currently very low--the 10 year treasury note is hovering around 3.4 percent and 30 year...

Boring and Conservative are the New Darlings of Wealth Management

A recent Wall Street Journal article discusses the renewed focus on conservative and rather boring investment options among the wealth management community. In the wake of extreme capital market volatility during the past couple of years, wealth managers have returned to basics in their discussions with current and prospective clients. Among the more mundane options that are frequently discussed are: Annuities, and in particular fixed annuities. Bank deposits. Dividend paying stocks. Face to...
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Remember Warren Buffett's First Rule of Investing When Planning for Retirement

Warren Buffett's first rule of investing is "don't lose money." His second rule is "don't forget rule number one." In a rather odd whitepaper on retirement planning titled "Risk: How Much is Enough," the financial services firm UBS lays-out a road map of sorts for "moving forward" with retirement planning "in a changed world." What seems clear is that the primary catalyst for the whitepaper is the fact that many financial advisors ignore or forget Buffett's first rule of investing when it comes...

How to Determine a Sustainable Level of Retirement Spending

What is the probability that a given level of spending is realistic or “sustainable” throughout one’s retirement?

Stated differently, what is the likelihood that a given level of retirement spending is fraught with...

Why Volatility is a Retirement Killer

Volatility is a fact of life when investing in the stock market.

As indicated in the chart below, the Chicago Board Options Exchange volatility index has had six meaningful spikes (index levels exceeding 30) since 1990, with by far and away the most extreme spike occurring over the past couple of years.