In order for PRC to provide meaningful information about your retirement planning, you need to input data; inflation rates, rate of return, asset allocation, asset withdraw strategies, when to start social security, guesses on what the future holds, etc. How do you decide what values to input? You could just use historical averages for everything and call it good. That is a valid strategy, even if "financial professionals" say that's crazy, because if it were a valid strategy, you wouldn't need financial professionals, would you. So, if you don't want to just rely on history, where do you get your information. That's the reason for this thread. I would like to exchange sources (links) of information that you have found valuable (or just want to start a debate) from financial "professionals", bloggers, researchers from academia, and those that have one foot in academia and one foot in capitalism.
I have shared my thoughts on many topics, but I want to avoid "conformation bias" a term from the field of cognitive psychology that describes how people naturally favor and seek out information that confirms their previously existing beliefs. As well as "cognitive dissonance" which arises when people are confronted with new evidence that calls into question their pre-existing positions and that when it does, unconscious mechanisms enable them to justify and uphold those positions. So this thread will work best when many ideas are shared.
To get things started, using my conformation bias 😏 I found a blog posting by Howard Marks of Oaktree Capital Management titled The Illusion of Knowledge which discussed the fallacy of making macro financial predictions: https://www.oaktreecapital.com/docs/default-source/memos/illusion-of-knowledge.pdf?sfvrsn=86034e66_5
It is long and wordy but worth working thorough:
...do you know how often each has been right? Have you found a way to rigorously
determine which ones to rely on and which to ignore? Is there a way to quantify their contributions to
your investment returns? I ask because I’ve never seen or heard of any research along these lines. The
world seems incredibly short on information regarding the value added by macro forecasts, especially
given the large number of people involved in this pursuit.
Despite the lack of evidence regarding its value, macro forecasting goes on. Many of the forecasters are
part of teams managing equity funds, or they provide advice and forecasts to those teams. What we know
for sure is that actively managed equity funds have been losing market share to index funds and other
passive vehicles for decades due to the poor performance of active management, and as a result, actively
managed funds now account for less than half of the capital in U.S. equity mutual funds. Could the
unhelpful nature of macro forecasts be part of the reason?
What do you think??
In my last post I mentioned biases, I found an article about all kinds of biases related to financial planning: https://www.cnbc.com/2022/12/21/bob-pisani-these-biases-make-it-harder-to-reach-your-financial-goals.html?__source=iosappshare%7Ccom.google.Gmail.ShareExtension
Kind of depressing but I think it points to keeping your investment strategy simple and on automatic pilot as much as possible.
