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Weekend reading: You are not average

What caught my eye this week.

You really ought to read You Are Not A Monte Carlo Simulation [1], an excellent post over at the Flirting With Models blog.

The article tackles a subject a lot of us struggle with – the mathematics behind the distribution of returns that mean the same investment can have a positive expected growth rate and yet wipe out most people who put money into it.

Sounds complicated, right? Fear not, the article makes it all pretty simple. (Not least thanks to some super crisp graphs that made me nostalgic for my Investing for Beginners [2] series.)

As the author, Corey Hoffstein, notes:

Under the context of multi-period compounding results, “risk aversion” is not so foolish.

If we have our arm mauled off by a lion on the African veldt, we cannot simply “average” our experience with others in the tribe and end up with 97% of an arm.

We cannot “average” our experience across the infinite universes of other potential outcomes where we were not necessarily mauled. Rather, our state is permanently altered for life.

Don’t get mauled by a misunderstanding!

From Monevator

Looking for a new platform for ISA season? – See our broker table [3] and comparison tool [4]

From the archive-ator: Five reasons why you’ll love index investing – Monevator [5]

News

Note: Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber.1 [6]

UK interest rates stay on hold, but Bank of England hints at rise – Guardian [7]

Six reasons why the High Street is in crisis – BBC [8]

(Some) salary sacrificing pensioners face income cut due to tax relief errors – Telegraph [9]

Mortgages most affordable since the mid-1990s, says Halifax – Guardian [10]

Aviva scraps controversial plan to cancel its preference shares [RNS]Investegate [11]

A rebel bank, printing its own notes and buying back people’s debts – Guardian [12]

Smart Beta investors are even bigger performance chasers than active fund owners – Pension Partners [13]

Products and services

Hargreaves Lansdown wins £15m tax rebate in dispute over fund discounts – ThisIsMoney [14]

Eight steps to choosing a financial advisor [Search result]FT [15]

How to tackle your interest-only mortgage shortfall – Guardian [16]

Natwest trials payments of up to £500 to customers who refer a friend – ThisIsMoney [17]

Considering equity release but worried about inheritance? – Telegraph [18]

Comment and opinion

Some alternatives to evidence-based investing – The Reformed Broker [19]

Boosting returns with rebalancing – ETF.com [20]

15 years of semi-retirement: A real life case study – Get Rich Slowly [21]

Why the UK bull market could have a long way to go – UK Value Investor [22]

Should you invest in an ISA or top-up your pension? – ThisIsMoney [23]

Why we don’t want children – Young FI Guy [24]

Reform council tax to close the inter-generational wealth gap [Search result]FT [25]

Easy pickings in stock markets don’t last for long – The Irrelevant Investor [26]

Why are money managers paid so much? – Cullen Roche [27]

Vanguard’s dominance is not guaranteed – Evidence-based Investor [28]

People don’t value to financial advisors for their investment advice – The Financial Bodyguard [29]

Larry Swedroe: Why financial trends persist – ETF.com [30]

Giant allocators love illiquid assets, but what about the risks? – Institutional Investor [31]

Rethinking the case for European stocks – The Macro Tourist [32]

Brexit schadenfreude

Printing blue passports will be £120m cheaper when done in EU – Guardian [33]

Kindle book bargains

Make Your Bed: Small things that can change your life… and maybe the world by William McRaven – £1.99 on Kindle [34]

The Marshmallow Test: Understanding Self-control and How To Master It by Walter Mischel- £1.99 on Kindle [35]

Black Edge: Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street by Sheelah Kolhatkar – £1.99 on Kindle [36]

The Spider Network: The Wild Story of a Maths Genius and One of the Greatest Scams in Financial History by David Enrich – £1.99 on Kindle [37]

Off our beat

50 big companies that were started with little or no money – Hackernoon [38]

Facebook is fundamentally bad and Mark Zuckerberg should shut it down – Vox [39]

What is Fortnite? – Digg.com [40]

And finally…

“Stocks are the things to own over time. Productivity will increase and stocks will increase with it. There are only a few things you can do wrong. One is to buy or sell at the wrong time. Paying high fees is the other way to get killed. The best way to avoid both of these is to buy a low-cost index fund, and buy it over time.”
– Warren Buffett, The Snowball [41]

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  1. Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. [ [44]]