How Mediocre Returns Can Be Worse Than Black Swans

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Black Swans Are Overrated

Black swan events aren't automatically catastrophic. They will hurt highly-leveraged investors, of course, but for ordinary clients who generally don't invest with leverage, a black swan won't inflict much damage—especially if you have a plan.

Black Swans: A Short-Term Distraction

A look at price volatility reveals that the number of positive black swans offsets the number of negative ones on an annual basis. In fact, clients' real risk is that they may get higher returns than either you or they expect.

Uncalculated Factors in Retirement-Planning Simulations

Monte Carlo simulations may be useful, but they offer only imperfect estimates of investment risk. Other factors—political, economic, and military, for example—aren't necessarily going to be as dormant as the simulations expect them to be.

A 3-Factor Formula for Projecting Retirement Income

One important measure missing from most retirement projections is the time value of fluctuations (TVF). The TVF quantifies the losses in a retirement portfolio stemming from factors beyond our control. Ignoring it can cause irreparable damage to retirement plans and pension funds.