In my previous post I described the stock and bond markets by analogy with a casino, but you might reasonably question the validity of that analogy. Are market returns really as unpredictable as coin flips? The real payoff probability distributions obviously aren’t binary; what do they actually look like?
Archive for the 'public' Category
After spending a number of afternoons and evenings with friends and family over the last few months reviewing their retirement planning and investments, I’ve gone and done something a little bit crazy: I suggested to the GSC at Caltech that maybe I could give a talk on retirement investing to the grad student/postdoc population. Incredibly, they thought this sounded like a good idea, and so now I’m scheduled to give a talk in a couple of weeks. I’m going to try and write it up here in prose form first, to get it organized. It’s gotten to be a bit long… so I’m going to break it up.
Main Points:
- Taking responsibility for funding your own retirement is arguably more important now than it has been for a couple of generations. 100 years ago we had much more in the way of traditional (family, community) support in old age, and the systems that we put in place after the Depression (corporate pensions demanded by organized labor, social security) show few signs of being fixed any time soon. Generally today you do not even have the option of signing up for a “defined benefit” plan. It’s a 401(k) or the highway.
- Investment returns are for all practical purposes random, unpredictable events, and because of this there’s really no such thing as an “expert investor” in the sense that most people selling their investment management services try and imply. Nobody can reliably beat the broad markets, but you can do a perfectly good job of managing your own retirement funds if you’re willing to spend about 4 hours per year on it, say the other half of the day you spend doing your taxes.
- To maximize your chances of success, you must habituate yourself to spending less than you earn, making investing as automatic as possible, starting early and aggressively, and continuing throughout your entire career, regardless of what life and the markets throw at you. Because returns are exponential and not linear, the difference between starting to save at age 23 and age 32, assuming roughly an 8% rate of return, can be on the order of a factor of two in the final value of your retirement funds. Being comfortable living well below your apparent means makes it possible not only to save money now, but also reduces the amount of money you need in order to have “enough” in retirement, where “enough” means about 25 times your expected annual withdrawals, as you can take about 4% of your money out each year indefinitely.
- Maximizing the returns on your investments largely comes down to managing investment costs: how much you pay the people doing the actual investing (i.e. the mutual fund companies), and how much you pay in taxes. The difference between paying 0.2% and 2% in fees and taxes each year might not seem huge, but over the course of 35 years of investing, it makes roughly a factor of two difference in the amount of money you end up with.
- The two most important tools you have in managing investment risk are diversification and asset allocation. Diversification reduces the overall impact of many kinds of unpredictable events (high oil prices, the demise of the newspaper industry, war between India and Pakistan, collapse of the Icelandic currency… etc.) reducing the overall volatility of your portfolio. Asset allocation (mainly the split between stocks and bonds) allows you to choose what kind of financial risk you are exposed to, and to shift it over time as you get closer to actually needing to live off your investments. With stocks, you get the potential for future growth, at the expense of having to put up with wild fluctuations in their value. With bonds, you get less price fluctuation and less potential for growth, but the ability to draw a reliable income stream. With cash you get little to no price fluctuation, but essentially zero potential for real (inflation adjusted) growth.
Continue reading ‘An Introduction to Retirement Investing for Scientists’
Message from the City below, linkage courtesy of yours truly. Unfortunately I’ll be out of town, so hopefully others will be able to attend and take notes and post them on the web, as I have done here, and here, and here (okay, actually that third link goes to a rant…). I’m posting the info here because strangely, it does not seem to be posted anywhere on the City’s website. Funny that.
Ryan Snyder Associates, consultant, will provide a progress report on the development of the City’s new Bicycle Master Plan. An open forum will be held to gain public comment on the proposed improvements to the current bikeway system.
When:
Thursday, October 1, 2009 – 6:30 to 8:30 p.m.
Where:
Jackie Robinson Center
1020 N. Fair Oaks Ave.
Pasadena, CA
Hosted by Department of Transportation and
the Bicycle Master Plan Advisory Committee
More Info:
Contact Rich Dilluvio at (626) 744-7254 or rdilluvio@cityofpasadena.net.
An updated plan will look at the full range of actions (PDF) Pasadena could take to improve conditions and encourage bicycle riding
I’ve made this parody before:
Give a man a fish, and he’ll eat for a day.
Teach a man to fish, and he’ll eat until the fish are extinct.
All indications are that our grandkids won’t be big fans of sashimi, as it will either be too expensive for them, or virtually non-existent, because we have driven the large fish species to (or near) extinction. We’ve been making fish smaller, and less plentiful for millennia. This is no huge surprise. We ate all the tasty North American megafauna when we got here too. We were hungry, and we didn’t know any better. The world and its resources seemed vast beyond our comprehension.
The situation today is tragic partly because we know exactly what we’re doing, and partly because we could be sustainably harvesting vastly more fish today than we are currently mining at an unsustainable rate, if only we could somehow contrive to let fish stocks rebound to their Pleistocene levels. At those very high (pre-human) stocking rates, the sustainable take would be enormous, but we would have to manage the harvest carefully with quotas (which we didn’t do the first time around, and which we are much better equipped to do now). Such quotas are sometimes discussed as if they were purely economic or political quantities, but in some important ways they are neither.
Why are labels so attractive? One word shortcuts for frugal thinkers. Am I a freegan? What would that mean exactly? Who curates the definitions of our cultural -isms?
Reading through the Wikipedia article on Freeganism (which is as close to a cultural consensus on anything as I think we get these days), it seems like I’m close. Except that I’m not fundamentally opposed to eating meat (it’s the environmental degradation, antibiotics resistance, health detriments, and massive resource consumption involved in meat production that get to me… but a little free meat from the dumpster? Tasty!). I also have a soft spot for shiny new laptops and other information technologies, and I believe in the greed based toolkit of money, markets, and open competition as a way to foster innovation. But I also love composting, and creative re-use, and free non-materialist forms of entertainment and recreation like reading, and writing, and cooking from scratch, and I believe that unmitigated greed, and thus so-called laissez-faire (or perhaps in many cases more accurately crony) capitalism, left unchecked, are in the end destructive forces. Greed and self-interest are kind of like dynamite: the right amount in the right place is a wonderful tool. Too much, or even small amounts in bad places, and you’ve got a mess. So how do I respond to an e-mail like this:
That’s what the advisory commission rumor mill is saying anyway. I hope we can ensure that the gossip is wrong.
In February the Pasadena Department of Transportation said that we would have four (count ‘em: 4) public meetings or workshops throughout the spring to get input on the Pasadena Bicycle Master Plan, and that a draft would be finished by around June. I posted a summary of the meeting.
We have so far had one workshop, in May, which many people felt was not adequately publicized beforehand (the City did not, for instance, send an e-mail to the list of interested parties it had collected at the first meeting, which it did use to get more than 1000 responses to the online Pasadena cyclists survey). At the workshop we were told that a second draft of the new plan’s goals, objectives, and actions would be posted on the web within one week, incorporating our feedback from the workshop. I posted the first draft of these items with commentary.
Continue reading ‘Will there be no more public Pasadena Bicycle Master Plan meetings?’
We went dumpster diving by bicycle again and came home with $200 worth of Trader Joe’s fare.
I’ve itemized the food we got, with actual or estimated costs below.
At the Sustainability Symposium last night (which was nominally about water footprints (PDF) and this paper on the international trade in virtual water) we ended up “off topic” and talking about science communication, public outreach, and how policy gets made. Inevitably it seems like these conversations end up coming back to the issues from Chris Mooney and Matt Nisbet’s Speaking Science workshop that SASS sponsored last summer.
There is huge discomfort for scientists in the fact that the way in which information is conveyed impacts how it is interpreted. The idea is at odds with the scientific ideal of objective facts and communication, but nevertheless it is true. A one liter glass plus 500 ml of water equals what? The glass is half empty. The glass is half full. The glass is twice as big as necessary to hold that much water. The same objective facts, different connotations. Different implications. Different frames. And sometimes, the frame ends up being a more important determinant of the listener’s reaction than the information the speaker intended to convey.
Continue reading ‘Framing Embeds Values in Scientific Facts’
Hello Prof. Bodansky,
I’m a PhD student in geophysics, and I just finished reading your book, Nuclear Energy. I appreciate the trouble you went to in the book to remain effectively neutral as to whether we ought to be pursuing the development of nuclear power. While I can’t say that the book made me into a nuclear advocate, I am less opposed to it in principle now, and believe that it does represent a potential long term energy solution, albeit one with non-trivial caveats. Then again, that seems to be the case with all of our options at this point.
I just finished David Bodansky’s 600+ page tome Nuclear Energy. It’s almost a textbook, but not quite. I don’t know who the intended audience is really. Other than me. Similar genre, broadly, as The High Cost of Free Parking. A comprehensive overview of a technical topic, for those with a long attention span and no fear of numbers. I decided to read the book because of the recent turn toward nuclear power that some environmentalists have taken. There are many publics that react strongly, and negatively, to the idea, but I don’t trust public sentiment to be rational any more than I can manipulate it. Bodansky did an admirable job of remaining neutral throughout the book, on a topic that almost universally devolves into something resembling a religious debate. As a result of this reading, I’m much more positive (or rather, less negative) about nuclear energy than I was before. I think that my position, which I hope can count as an informed one, now closely resembles that of Ralph Cavanagh, as articulated in this debate with Peter Schwartz hosted by the Long Now Foundation.
The main questions I had coming into the book were:
- Can nuclear energy be done responsibly?
- What would it take for it to scale up meaningfully?
- How would it compare in costs and risks to renewable energy sources, if it were done at responsibly scale?
The answers I came away with were that yes, it probably can be done responsibly, and at the scale necessary for it to be meaninful as a long term source of primary power globally. However, if it were to scale up responsibly in the long term, it seems that the associated costs would likely end up being greater than for renewable energy sources. So I guess I’m supportive of having the so-called “nuclear option” on the table, in competition with any other carbon free power source, with the significant caveat that the cost of the nuclear power being considered correspond to a responsible, long term, large scale deployment. The scenario I foresee needing to be avoided is ending up with an unfair comparison, between short-term and/or irresponsible and/or non-scalable nuclear power, and renewables — especially renewables as priced before the solar power industry has obtained whatever economies of scale there are to be had in their niche. One might be able to make a persuasive argument that we need to use nuclear power as a bridge between fossil fuels and renewables at scale, but I haven’t heard that argument made yet.
