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Thinking Fast and Slow
TL;DR: Learn about cognitive biases. About 6 years ago when I did my first internship in quantitative finance, one of the first books recommended to me was Thinking Fast and Slow by Kahneman. It introduces many cognitive biases in most people, put many times in the context of economics. For example, the concept of anchoring. This is the idea that hearing numbers before making an opinion can bias your perception of a “fair value”. The amazing thing is that the numbers you hear could be completely unrelated to the numbers you are estimating. There have been experiments where you can ask a room of people the last two digits of…
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SIPC Insurance
TL;DR: Covers $500k (including up to $250k in cash) in the event your brokerage firm liquidates. Last week we looked into FDIC-insurance, and this week we’re going to explore something similar: SIPC insurance. This is to protect your assets/investments in brokerage firms. The key takeaway here is that it insures your investments in brokerage firms that FDIC did not. History: Established in 1970 after the congress passed SIPA, it’s meant to protect investors from failing brokerages. Although it was created under federal law, it’s not an agency or establishment of the United States Government. How does it work? First check that your brokerage is a member of SIPC. A quick…
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FDIC
TL;DR: FDIC covers 250k of cash at member banks. I hope you read more than the TLDR – I’ll try to keep it short but there are important details! I was recently asked by a friend to make a post going more in-depth on FDIC-insurance. It’s definitely not something everybody knows or is thinking about everyday. But it’s important! In the unlikely event of your bank failing, this is how you protect your assets! I recently was looking at this graph, I was surprised at how often smaller banks failed and FDIC was needed. Yikes at the peak around 2008 – we can hope it never happens again but be…
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Building your wealth: a model
TL;DR: Income -> Tax -> Investments -> Expenditures -> Cash back/Savings When people rely just on some get-rich-quick investment to build their wealth, or when people think that all it takes to become wealthy is cutting down expenses, they are deluding themselves. Wealth is about how financially sustainable your situation is, and has to be calculated holistically. There are 5 major pieces we’ll look at. When you analyze your own financial situation, spend some time to think: where could I improve? Where would my time be most well spent? How do I want my individual wealth chain to look in 5, 10 years, or at retirement? Income: Not investment income,…