Use a Monte Carlo Simulation to Improve Your Portfolio – and the Way You Play Chess

Use a Monte Carlo Simulation to Improve Your Portfolio – and the Way You Play Chess

One great tool for assessing the probability of risk and future success is the Monte Carlo simulation. This is true in both chess and personal finance. What is a Monte Carlo simulation, and how can it help you plan ahead? No one knows the future A Monte Carlo simulation is a computerized mathematical algorithm that builds models of possible outcomes and probabilities that may occur. It was first invented during World War II by scientists working on the atom bomb and was named after Monte Carlo, the capital of Monaco, which is famous for its casinos. Monte Carlo simulation featured in high level chess programs (like this popular chess software) assesses the risks and probabilities of using various openings and moves. While you can’t predict the future, using the Monte Carlo simulation to play out each possible move in thousands of different iterations can give you an idea of which path has the greatest odds of success. Use Monte Carlo simulations to assess your asset allocation Monte Carlo simulation is also applied to financial planning. While past performance is not a guarantee of future returns, Monte Carlo simulations can determine – based on a very large number of tests – the probability of achieving certain outcomes using real past historical data. With a database of historical asset returns, Monte Carlo simulation programs can look at specific asset allocations (i.e., 30% U.S. stocks, 25% foreign stocks, 40% corporate bonds, 5% cash) and simulate how that asset allocation would perform over a randomized assortment of market conditions. Plug your actual allocation into the system, or test any model you want, and... Click for more
3 Financial Moves to Make Now for a Great Retirement – Rich As A King Episode 146

3 Financial Moves to Make Now for a Great Retirement – Rich As A King Episode 146

What are three financial moves that you can make now to ensure that you will have a comfortable retirement? Consider basing your financial moves on chess strategies. You can adapt chess maneuvers to put your finances in order and prepare for retirement. Download this financial podcast to learn a how to apply chess moves to your finances. Longer lifespans mean longer retirements. Therefore, in order not to run out of money, it’s critical to prepare properly. For more about preparing for retirement in the “age of longevity,” listen to my interview with Professor Andrew Scott, author of The 100-Year Life: Living and Working in an Age of Longevity. If you aren’t already signed up to receive our newest blogs by email, sign up... Click for more
How to Avoid This Surprise Chess Tactic, Which Could Mess up Your Finances

How to Avoid This Surprise Chess Tactic, Which Could Mess up Your Finances

One of the most deadly surprise chess tactics to watch out for in a game is the skewer. (Click here to watch a short video about the tactic.) A skewer targets two of your opponent’s pieces that are lined up. Usually, the more valuable of the two pieces flees, allowing the capture of the other one. Very often, this takes place in the form of a surprise attack. If you are extremely vigilant, however, you may be able to prevent this from happening. The same kind of surprise tactic can derail your finances, throwing them into disarray. Stop and think As an investor, you lack the same vantage point that allows chess players to observe every piece on the board. However, in many situations, if you just stop, think, and assess all the possibilities, you may be able to prevent yourself from falling victim to a surprise attack. Here’s an example: What would happen if you didn’t have an emergency fund? You have some savings, but they are in long-term investments that you can’t access in a hurry. One day, unexpectedly, your car breaks down and needs a very expensive repair. What do you do? Without an emergency fund, this huge expense is hard for you to bear. You can’t take the money out of your long-term savings as you need it as soon as possible, and you don’t have enough cash in your current account to cover it either. If you had built an emergency fund gradually, putting a little money aside over the preceding few months and years, you would have been able to cover this repair... Click for more
Why You Don’t Need a Perfect Plan to be a Successful Investor – Rich As A King Episode 145

Why You Don’t Need a Perfect Plan to be a Successful Investor – Rich As A King Episode 145

Do you need a perfect plan to be a successful investor? You might be surprised to hear the answer is NO! It’s possible to be a successful investor, even without the perfect plan. As a matter of fact, there is no such thing as a “perfect plan” since investors need to be flexible enough to react to market changes. Action is the key to becoming a successful investor. Compare it to a successful chess player who doesn’t spend the whole game dreaming about the best moves. He acts while the clock is ticking. Act now, and listen to this podcast about how to be a successful investor. If you aren’t already signed up to receive our newest blogs by email, sign up... Click for more
Want a Castle? Capture it on the Chessboard or Buy a REIT

Want a Castle? Capture it on the Chessboard or Buy a REIT

Some people think that if they invest in property, they can boost their cash flow income easily, with little work involved. However, buying properties and renting them out is not as simple as it seems. Playing chess is also not as easy as it looks. You need to know how each piece moves and consider each move you make very carefully. In the same way, before purchasing a property for investment purposes, make sure you are familiar with the various risks and challenges that landlords experience. Then, decide if you still want to go ahead with the purchase, or if you prefer to look for alternative options to buying real estate without becoming a landlord. Learn the business of property management Before renting out a property, it’s important to familiarize yourself with the responsibilities you have towards your property and your tenants: Make sure you understand all the tax implications of owning a second property. Anticipate technical repairs to the apartment. You may need to learn how to do them yourself, or be ready to call a handyman whenever the need arises. It is your responsibility to make sure the property has proper building codes and answers all safety requirements. If someone is harmed on your property as a result of negligence, such as in a fire caused by faulty electric wiring, as landlord this may be your responsibility. What are the risks involved in renting out real estate? Going into debt – Relying on monthly rental income to cover your debt expenses is risky because there may be times when you can’t find anyone to rent your property.... Click for more
How to Find the Best Time to Invest – Rich As A King Episode 144

How to Find the Best Time to Invest – Rich As A King Episode 144

When is the best time to invest? When the markets go up or down? This financial podcast explains why timing the market may not be the best investing strategy. The best chess players don’t let their emotions affect their performance on the board. Learn how to transfer that knowledge to the finance world, and get tips on how to be objective when making financial decisions. If you aren’t already signed up to receive our newest blogs by email, sign up... Click for more
Why Following Market Trends Can Make You Lose Money

Why Following Market Trends Can Make You Lose Money

Some people treat market trends like any other kind of fashion. Just as many people dress in a certain style because it’s popular, some investors choose a particular type of investment or react in a particular way to the markets because “everybody’s doing it.” But is that wise? Don’t follow the crowd Imagine taking this approach when playing a game of chess. Instead of thinking whether your strategy is of any real benefit to your particular situation and if it’s actually helping you win, you blindly follow a specific approach simply because you read about it on a couple of chess blogs. Without questioning it, how do you know if it’s a good strategy for you? In fact, when Susan Polgar and I wrote Rich As A King, she said a common problem she sees with amateur players is that they often memorize openings of world champions, but then get stuck because they don’t really know what to do once the board develops into the mid-game. While a particular strategy may be popular because it really is effective, that doesn’t automatically mean that it’s right for you every time. You need to look at what’s happening on the chessboard, what your opponent is doing, and then determine which strategy can help you win in your specific situation. Blindly following a strategy just because it sometimes works or because it worked for someone else, without stopping to think about its actual effectiveness in your particular situation, can be a huge mistake. As Ralph Charell wrote, “Avoid the crowd. Do your own thinking independently. Be the chess player, not the chess... Click for more
Here’s How to Improve Your Strategic Investing – Rich As A King Episode 143

Here’s How to Improve Your Strategic Investing – Rich As A King Episode 143

One way of strategic investing is to buy ETFs (Exchange Traded Funds). Sometimes investors are worried about risk, and as a result, limit their choices of ETF to local companies that they already know. Learn about the wide range of ETFs that you can choose from, and why playing a defensive chess game of chess (or being too conservative with your investments) is not always enough in order to succeed. Click here to learn about the different varieties of ETFs. If you aren’t already signed up to receive our newest blogs by email, sign up... Click for more