Dubious digits: Is this data really that accurate?

When numbers of any sort are presented, whether in mathematics, science, business, government or finance, the default assumption is that the data presented are reasonably reliable to the last digit presented. Thus, if a light bulb is listed as using 3.14 watts, then its actual usage is presumably between 3.13 and 3.15 watts, and certainly not 2.8 or 4.2 watts. Or if the average interest rate paid on a set of securities is listed as 2.718 percent, then a reasonable reader presumes that the actual figure is between 2.717 and 2.719 percent.

The total number of significant digits can vary

Continue reading Dubious digits: Is this data really that accurate?

Index investing: “Confidence in the mathematics”

One central difficulty of investing, both in the U.S. and internationally, is that most individual investors are not sufficiently well-informed on financial matters (or else are not sufficiently disciplined in their approach), and thus often make less-than-optimal choices in managing their long-term savings. The 2014 DALBAR report, for instance, concluded that over the past 20 years, individual U.S. stock fund investors achieved only a 5.02% average annual return, which is considerably less than the 9.22% they could have achieved simply by investing in a S&P500 index fund. Results for other asset classes are similar.

In fact, analyst Richard Bernstein has

Continue reading Index investing: “Confidence in the mathematics”