Comments on: The “Luck Factor” in Investing

By: peakeyed » The “Luck Factor” in Investing

peakeyed » The “Luck Factor” in Investing — Sun, 25 Nov 2007 12:09:08 +0000

[...] Check it out! While looking through the blogosphere we stumbled on an interesting post today.Here’s a quick excerptI just wanted to bring it up to show you just how volatility can either work for you or against you depending on where you are in the investing cycle. Those who just started investing in the year 2000 are in pretty good shape since that … [...]

By: Dale

Dale — Mon, 03 Sep 2007 02:32:56 +0000

I highly recommend 2 books on the subject, both by Nassim Nicholas Taleb: Fooled By Randomness and The Black Swan. The central point of both books is that history, and hence the market, is driven by random events. Furthermore, randomness is not easily modelled. The second book gives some suggestions for how to reduce the pain of negative random events and increase your exposure to positive ones.

By: Simple Budgeting Guidelines, Dealing With Credit: The Gigantic Roundup » Money and Personal Finance Blog In Silicon Valley

Sun, 02 Sep 2007 21:29:46 +0000

[...] All Financial Matters: An interesting set of graphs shows how luck can make a difference to your investment portfolio. If there’s going to be a market crash, we hope it happens when we’re younger, so we can make up for any losses with time. [...]

By: The Sunday Review #36

The Sunday Review #36 — Sun, 02 Sep 2007 14:01:04 +0000

[...] The “Luck Factor” in Investing by JLP @ All Financial Matters. [...]

By: Roundup for week of 26 August 2007: Country roads edition at Mighty Bargain Hunter

Sun, 02 Sep 2007 05:36:54 +0000

[...] All Financial Matters charts the luck factor in investing. [...]

By: » Weekly Roundup: Renaissance Festival » Blueprint for Financial Prosperity

Sat, 01 Sep 2007 12:34:25 +0000

[...] JLP looks at the luck factor in investing and includes lots of pretty graphs. End result: “Nothing. There’s really nothing you can do about it so there’s no sense in worrying about it.” [...]

By: Customers Revenge

Customers Revenge — Fri, 31 Aug 2007 16:55:33 +0000

Try plotting the ROI on a dollar invested in any particular month and held until Dec 2006. Overall you’ll see that it’s better to invest than to wait most of the time except for the odd short periods, and the long period between ‘98 and ‘03. A dollar invested in mid 2000 would be worth $1.50 today if you kept it under your bed for 3 yrs before investing.

There are only a few special months at the peak of the tech bubble where you would be worse off after 5 yrs if you did invest versus not investing, and even those are eliminated for 6 yrs.

By: The Simple Dollar » The Simple Dollar Morning Roundup: Big Prep Edition

The Simple Dollar » The Simple Dollar Morning Roundup: Big Prep Edition — Fri, 31 Aug 2007 01:46:40 +0000

[...] The “Luck Factor” In Investing No matter whether you believe in market timing or not, this post will convince you that you’re right. (@ all financial matters) [...]

By: lorax

lorax — Thu, 30 Aug 2007 22:57:56 +0000

if a significant drop does occur towards the end of your career, don’t fret since the chances are good that you could be in retirment 20 – 30 years

Eh, careful there. Since you are withdrawing, a significant drop early in retirement makes a BIG difference in the length of time your nest egg will last. Run some spreadsheets.

By: broknowrchlatr

broknowrchlatr — Thu, 30 Aug 2007 15:10:08 +0000

I love the charts.

Here is another thought on luck. The day you invest can make a big difference. I just made my 2 Roth contributions for 2007. This totals $8k invested in 1 day. As luck would have it, the forien funds I invested in wend down 3.8% on Monday and up 3.8% on Tuesday. I was lucky enough to have getten the money in at the low price Monday night. Now, I am 27 years old. If I leave the money there till I’m 57, it will have 30 years of growth.

Now a little math. Say the fund returns 10% per year (since they are more volitile funds), beginning today. $8k invested today, would become rought $140k. But, having invested it 1 day earlier, the total will come out around $145k. Essentially, I have (by pure luck) gained $5k at retirement.

Another point -
I’ve thought about this on several occasions. There have been wide ranging 30 year returns over the past 100 years. Some 30 year periods have returns 3 times that of others. So, there could very reasonably be a person in 1 generation that saves 10% of a modest salary and they have a kid that saves 30% and they end up with comparably the same ammount of money at retirement. I try not to let this get me down, but the truth is – we may have less than 50% control over our financial situation at retirement.

We have finantial tools that illustrate this at work. There is a tool our 401k plan uses that will project your retirment income. It gives confidence ranges as to what your nest egg will be at retirement. For me it has the following
10% chance of at least $10mm
50% chance of at least $4.5mm
90% chance of at least $2mm

So, without varying my savings, I could end up needing to work till I’m in my mid 60s or be able to retire at 50, purely effected my market returns.