Complete list of Risk articles

The gimmick of dollar cost averaging (DCA)
You just received a $100,000 in cash. Do you invest the money all at once, or do you spread it out into equal investments using dollar cost averaging? Most advisers will say to dollar cost average, but I do not think this is the right answer. Dollar cost averaging has nearly ...

The Flexible Spending Account: an “investment” with a great “ROI”
Flexible Spending Accounts (FSAs) are an incredible way to pay for health expenses. While FSAs can be complicated and require some effort, I now think their rewards are worth the hassle. I want to explain a bit about how FSAs work, and then I'll get into the math. Most people know ...

Do you want batteries with your cereal? An example of behavioral economics in retailing
The last time I was at a local Target store, I noticed something strange. At the end of the cereal aisle, there was a display rack for batteries. Not something complementary like snack bars, or nuts, or hot chocolate mix. The rack had batteries, hundreds of packs of disposable batteries ...

Why Skydiving is not safer than driving
I had a hard time accepting that skydiving could ever be considered a low-risk activity. Call me old fashioned, but it just doesn't seem prudent to be jumping out of an airplane with a parachute as your life support. But however I feel personally doesn't really matter. I'm happy to judge ...

Allais Paradox: how low probability events deceive us
This is a fun example in decision theory that demonstrates how are preferences can be inconsistent. As a point of trivia, Maurice Allais won the Nobel Prize for other research, but he is most remembered today for this paradox. (h/t: Falkenblog). The paradox is best illustrated with a brief experiment that I'll ...

Why would CD rates be lower than savings account?
On the surface, it would seem certificate of deposits (CDs) should always offer higher rates than savings accounts. With CDs, you have to lock your money in for months at a time, invest a certain minimum, and suffer penalties or lost interest if you want your money early. With many ...

Why you should ignore car insurance savings claims
When one company advertises it can save you money, it sounds like a deal. But when two companies claim they can BOTH save you money, you have to think something is fishy. Such is the case with auto insurance. Currently both the companies State Farm and Allstate have advertising claims that ...

Siegel’s paradox about exchange rates
Exchange rates always seemed simple to me, until I learned a bit more finance. There are some quirky things that can happen, as today's problem will illustrate.

Video: do not invest your emergency fund
This is really basic, conventional financial advice that too many people ignore. With saving accounts offering very low interest rates, it can be tempting to invest emergency funds into the market for gains. This is not a good idea due to stock market volatility, as explained in the following video from USAA.

Does Batman need life insurance? How nearly 3 in 4 of Americans don’t understand life insurance need
It may sound weird to analyze the insurance need of a superhero, but doing so can be an interesting educational exercise. In 2005, the LIFE foundation did a survey of 1,014 adults to get a sense of how Americans understand life insurance. Each person was asked to identify which character has the ...

Joke: how to sell a dead donkey
I came across an old joke about how it's possible to turn a profit from selling a dead animal. While the story is not true, there is a lesson to be learned.

Well worth the money: earplugs
I may look out of place for wearing these to bars or clubs, but I can rest comfortably knowing I am doing something good for myself.

Do you protect yourself against identity theft? A cool risk assessment survey
Identity theft is serious business. According to the Bureau of Justice, U.S. households suffered $13.3 billion in DIRECT financial losses from identity theft in 2010. A few households were lucky to have identity theft with no financial loss. Those that did suffer had an average loss of $2,200. That doesn't ...

Never re-enter your car while filling up gas
In the winter, do you ever get back into your car while filling up gas to avoid the cold? It's tempting, but it's a habit that you might want to reconsider. As miserable as it is outside, you are probably better off facing the cold than facing the risk of a ...

Consumer Ed: which Southwest credit card is better?
My friend flies Southwest Airlines a lot, and he recently decided it would be worth it to get one of its frequent flyer credit cards. My friend was careful to consider the options, as each Southwest Rapid Rewards credit card carries an annual fee. There were two different cards that he was ...

6 credit card tips when traveling internationally
I have been traveling a decent amount this year, and my credit cards have definitely been a huge convenience. I do not have to carry as much cash, and I am comforted that I can get access to money when needed. But since travel means I am using my credit card in ...

How much time does speeding save?
Bob has a simple commute: he drives 60 miles, traffic-free, on a highway. Normally Bob drives with the flow of traffic at 70 miles per hour. One day he is anxious and instead speeds at 80 mph. How much time does he save? How much time would he save at 90 mph?

How stupid people make fools of us all
People are so familiar with survival of the fittest, we often forget there are situations that favor the weakest. Four years ago I wrote about survival of the weakest and discussed a game in which it can be better to be weak: your very weakness lets you hide as tougher players ...

3 ways sleeping can help you get rich and save money
[Editorial note: I have posted the solution to the Monday puzzle in my comment here] At Stanford and in my office job, most people viewed sleep as wasted time. They would have preferred the time to be spent studying, exercising, or simply doing anything else. In fact, some people did just ...

Brendon, Brendon, you gotta read this. 8 financial lessons from Coach McGuirk
He's not the most famous character, but he is one of my favorites. Coach McGuirk is an oddball character from an old animated show called Home Movies that originally aired on Cartoon Network from 1999 to 2004. To get a sense of the character, you need only know that Coach McGuirk ...

One answer to the Netflix price hike: diversify your media portfolio
Netflix's strategy has yet to gain acceptance There's been a lot of uproar about Netflix's recent price hike of up to 60 percent. Customers who were paying $10 a month for streaming and DVD rentals will now have to shell out $16 for the same service. The uproar has been so strong ...

Safe drinking water in India – what would you do?
I am very vigilant about water in India. A single mistake of ingesting street food or contaminated ice can result in several days of upset digestion and unpleasantness. My first choice is boiled water. This is the safest and best choice, according to the CDC, because boiling water for one minute ...

A simple math puzzle about dice probability
I love reading about probability puzzles: even the easiest puzzles can take a moment to figure out exactly what is going on. The book Luck, Logic, and White Lies starts out with a fun little puzzle about dice throwing: With a pair of dice, one can throw the sum 10 either as ...

The St. Petersburg Paradox: a flimsy critique of expectation theory by people who don’t know math or economics
As someone who uses math and economics for a living, I come across many opposing arguments. There are always people who wish to prove to me economics is fundamentally flawed. My first encounter of this type came after my freshman year of study at Stanford. I was sharing some economics ideas ...

Can you tell the difference between real and ‘fake’ stock prices? New study says that most people can
There's a neat online video game that tests whether you can identify real stock data from randomized, generated data. The game is called ARORA, an abbreviation for "a random or real array" of prices. (found via Technology Review) The purpose of the game Many economists argue that markets are efficient, meaning prices reflect ...

Getting adult dental sealants to prevent cavities and save money
I'm in my 20s and keep good dental hygiene. But a couple of years ago, for the first time in my life, my dentist found cavities. He said it was probably because food was getting stuck in my molars. He said my teeth had rough grooves and sticky food like raisins ...

A great innovation to sports: bad play = free ticket
I hate paying for a game only to see my team lose. It's a reason I rarely shell out $30 for games since I know there's like a 50/50 chance of my team mailing it in (especially true in baseball when key players are resting). I have long wanted to pay ...

Diversification as a long term investment strategy
Diversification is usually discussed as a method to lower risk. And rightly so: investing in many stocks reduces the influence of any particular holding. But there is another, lesser talked about benefit to diversification: big returns for long-term investors. I learned about this benefit during a high school investment seminar, and it ...

Protecting your nest egg
This is so beautiful, and yet in a way so scary. A bird's nest in the winter is entirely exposed to the elements, much like your stock portfolio "nest egg" during a recession. Birds seek shelter. Shouldn't you? (Today is just a picture piece...detailed articles to come) (picture credit: Crystalline Radical)

Pascal’s Wager explains why men are clueless romantically? Error management theory
It's a running joke in sitcoms that men over estimate women's romantic interest in them. This was parodied in Seinfeld when George discusses the various "signals" women use to communicate that men like Jerry don't pick up on. Is there a reason men are systematically clueless romantically? Long-time reader Ben sent ...

Why I would gladly pay millions for disability insurance…
...if I were a star professional athlete, that is. Okay, so the title is a bit of a stretch and dream. But I wanted to make a point that too often we complain about the cost of insurance without considering the benefits. Yes, paying millions for insurance would be expensive, but ...

The Misbehavior of Markets
Personal note: this is the first post since my hiatus a few weeks ago...Postings will still be slow in the next week. Also, if you're emailed me I'm still working on replying back--but hope to be back to full speed soon. Thanks for understanding during this transition. Why do markets misbehave? ...

Think about more than timing: 6 questions you should ask yourself before making any investment
While there are many issues to consider when investing, most people make a decision based on a single question: "Is it a good time to buy?" I can sympathize because I used to think that way. My first investment was a speculation on an airline stock since I had a hot ...

The Automatic Millionaire: book review and criticism
Can you become a millionaire...without making a lot of money or having willpower? You can, promises money writer David Bach in The Automatic Millionaire. Bach is one of the most popular money advisers and his explanations can be very catchy (he's the one who coined the term "the latte factor"). Does ...

A big reason why you should track your expenses–money flows are complex
Most of the people I discuss money with track their expenses or agree it is a good idea. But not everyone is convinced. Here is a comment I received earlier this week: Presh, I sort of see your point about tracking expenses, but isn't it overkill? I seem to do just ...

Die Broke: A Radical Four-Part Financial Plan
Conventional money wisdom focuses on saving. If you earn more, limit expenses, and plan properly, you'll be able to save enough for retirement and still have something to pass along to the kids. This is the philosophy on which most advisers operate. But there is just one problem-the conventional wisdom ...

Keeping perspective during the economic downturn
photo credit: notsogood Investment losses never feel good. Perhaps the worst part is that the losses remind us we are not always in control. The stock market is impacted by unpredictable macro-economic events. We can't control government bailouts, job layoffs, and irrational panic, but these are the things hurting all ...

Do stocks bounce back after a recession?
They do, but that may not be as interesting as it sounds. Many advisers have recently circulated a chart illustrating how the stock market recovers. Though each company has added its own touch, the original data come from Ned Davis Research, Inc. Here is one version from Charles Schwab: source The data seem impressive. ...

3 important lessons from the financial crisis
It's hard to know what to think these days. I find myself overwhelmed sorting through all the data and predictions. It's time for reflection, so here are three of my lessons during this downturn: 1. Saving for emergencies: time to revive age old wisdom Ancient societies understood the need to save for ...

Age old wisdom for dealing with the financial crisis
photo credit: Brian-Progressive Spin Lately I've been fielding a lot of questions about the financial crisis. What should I invest in? When will the market recover? What is causing it? I pause before I answer. The truth is no one can answer these things with much certainty. My own opinion is to ...

Money tip number 189: stop trying so hard
Let me backtrack a moment for perspective. Most of us fail at money decisions because we don't try, or we don't try hard enough. That's probably why 99 percent of conventional money advice is about getting us to take action, and understandably so. I'd guess there are 188 tips more pressing ...

Job Interviews: You don’t have to be Perfect
During interview season, many of us frugal people magically become spendaholics. Nevertheless, we maintain we are still rational because the end goal of a higher-paying job can justify virtually any purchase. In college, my friend spent $10 for high-quality resume paper. I myself managed to shell out $25 for a ...

40 Things To Do Before You Are Rich
Being rich is not all it's cracked up to be. Yes, we all know money is great. But that doesn't mean you can do whatever you want. We forget there actually are some things rich people can't do. Take Indian tycoon Azim Premji of Wipro. He's amassed $17.1 billion so you ...

How do you deal with overdraft fees?
"Bob" emails me his frustrations with managing his checking account: I just got hit with an overdraft fee and I'm really annoyed. I regularly check my account online but this time a check cleared unexpectedly. It was a check I wrote a couple months ago and forgotten about. How do you deal ...

The Real Cost of Late Night Work
A thought-provoking poster from timeday.org: [for a full-size pdf, click here or on the picture] For more on how we push ourselves to work too long: Pondering the American work ethic How sports illustrate the American work ethic

10 Tips for Traveling Safely with Valuables
photo credit: GrooverFW A successful vacation depends as much on safety as it does on activities. The best travel plans can be sabotaged by pickpockets and dishonest hotel staff. Travel risk is inevitable because valuables like money and passports are needed when traveling overseas. So how can you protect yourself? This article ...

Why Moderation Fails
Everyone is in love with moderation. We're told to eat a "balanced meal." Fox News proudly claims it is "fair and balanced." Moderation dates back at least to the ancient Greeks who said "nothing in excess." Today, the same idea holds but with a slightly different wording: "everything in moderation." While ...

No Regrets? It’s Possible If You Think About Risks, Not Results
source: andy_c via flickr Earlier this week my car was low on gas, and I pulled into the first station I could find. I filled up the tank, thinking prices would be on the rise. The next day I received an unpleasant surprise. Gas prices dropped about ten cents per gallon. I ...

Should You Get a Credit Card Payment Protection Plan?
source: mujitra via flickr Credit card payment protection plans offer relief when you are out of work or sick. Your entire balance may be waived, for instance, in one of these emergencies. The cost is usually a percentage of your monthly balance, on the order of 1 to 2 percent. ...

Take Fewer, Not More Risks with Your Money
image source: szlea via flickr Financial people often tell you to take more risks, especially when you're young. Why is that, and is the advice any good? The usual reasons I hear to take risks early are (1) you can't do it later (2) it's easier to recover from failure. But by ...

Why You Might Want to Burn Bridges
Image source: peasap via flickr Forget the advice "never burn bridges." There are many times that burning a bridge is not just beneficial, but absolutely necessary to accomplish a goal. "Never burn bridges" generally means don't leave a job or relationship on bad terms recklessly. While I agree with this particular ...

Should I Get a Dental Sealant to Prevent Cavities (and Save Money)?
Image source: yomi955 via flickr I'm an adult now, but for the first time in my life, my dentist found cavities. I didn't understand it, as I religiously follow all of the American Dental Association's guidelines for oral hygiene (brush twice, floss, eat balanced meals, visit dentist regularly). Why did I get ...

What’s More Important than Your Career? The Answer is Right Under Your Nose
Image source: Jason D' Great via flickr People do a lot of things for their career, perhaps because they are told it's their most important asset. At Stanford, I once met someone who was simultaneously studying for finals, preparing for a business trip to Japan, and drafting a book. But some things ...

Make Saving Enjoyable, or How You Can Have Your Cake and Eat It Too
Image via evan at flickr When I talk to college graduates, they tell me they save to pay off loans, to buy a house, and to invest for retirement. These responses are good, but perhaps they confuse the goals of saving with the reasons for saving. For example, saving for a birthday ...

Understanding the Stag Hunt Game: How Deer Hunting Explains Why People are Socially Late
It's customary for people to arrive "socially late" to parties. In my social circles, this means arriving an hour after the stated invitation time. But customary does not mean correct. The practice of being socially late creates inefficiency only a government bureaucrat would be proud of. Arriving late means that people ...

Why We’re Not Designed to Follow Budgets–There’s More to Life
image source: Rubyran via flickr In many ways, following a budget is like adhering to a portion controlled diet. In both cases, you create elaborate plans to limit unhealthy consumption. If you mess up, as you are likely to do, you can compensate the next day or week by working ...

The Basics of Managing Inflation Risk
What is inflation? Inflation refers to an increase in the average price level in the economy. One way economists measure inflation is by tracking the price of an "average basket" of goods in the economy. The most common inflation index is the Consumer Price Index. It's important to remember that ...

The Dice Brain Teaser: A Technical Interview Question that Can Help You Solve Problems Better
Today's puzzle is special. I like it even more than previous brain teasers I've discussed, like the monk problem and the hat puzzle. Like the others, this is a technical question sometimes asked during job interviews (hat tip: Reasonable Deviations). But unlike the others, this problem serves as an introduction to some ...

Thinking about the 401(k) Account: Should I Have One? How Much Should I Contribute? What are the Risks? Trying to Interpret the Experts
Planning for retirement raises a number of difficult questions. I'll admit that I often get confused coming up with answers. And I'm an economics graduate who started investing in high school and enjoys reading financial articles. I have sympathy for anyone that feels overwhelmed or confused by the ...

Three Ways to Protect Your Email Privacy Using Low-Tech Encryption (Caesar Cipher, Vigenere Cipher, Three-Pass Protocol)
Emails worry me I wrote half as many emails the day after meeting the company legal staff. I learned that emails are often discoverable in court, and it was rumored company email was being scanned. This whole episode annoyed me, because as a consultant, I enjoyed the convenience of email. But I ...

Two Nice Articles on Risk
Managing fear while weighing risks Is your gym locker room crawling with drug-resistant bacteria? Is the guy with the bulging backpack a suicide bomber? And what about that innocent-looking arugula: Will pesticide residue cause cancer, or do the leaves themselves harbor E. coli? But wait! Not eating enough vegetables is also ...

Why Rich isn’t Rich; Proposing an Alternate Definition
The rich are rich because they focus on the long-term acquisition of assets... assets such as stocks, bonds, businesses and income producing real estate. Many times the rich will forsake meals, a steady pay check, a vacation, or the comfort of a nice home, to build or acquire real assets. --Robert ...

Want to Win? Try Relaxing
My previous boss told me I was among the best consultants he'd ever worked with. This came as a bit of a surprise to me. I wasn't the smartest person he worked with, nor was I the hardest working, nor was I the most efficient. But I had one competitive advantage in ...

How Sports Illustrate the American Work Ethic
"We are the champions No time for losers 'Cause we are the champions - of the world" --Queen, song lyrics What do Michael Jordan, Tiger Woods, and Randy Johnson have in common? There is the obvious answer: they are all champions. They all won championships and dominated their respective sports. But that's only half of ...

I Don’t Budget–Here’s Why
If you like budgets, you don't need to read more. If you have never tried a budget, then give one a try because experience is the best teacher. This article is meant for people who have tried budgets, realize they have faults, and are confused why financial people keep yelling at ...

Should You Exercise to Live Longer?
I'm not a medical professional, but this is what I understand. Walking for thirty minutes a day is helpful. It promotes health and trims our waists. I'm amazed we can have happier and longer lives from something as simple as a thirty minute daily stroll. If moderate exercise is good, then ...

Risk is Not the Science of Calculated Odds; It is an Art of Skepticism
We can measure and compute risks more accurately than any period in history. But is this a good thing for risk management? I'm not sure, and I see two separate problems. One issue is that more information can confuse rather than inform. Just ask yourself if the risk assessments of nutrition ...

Did I Wash My Hands? How to Manage Risk
I put the garbage out yesterday and came back to my room quickly. I had been concentrating on an article, so I wanted to start drafting right away. Just before my fingers touched my keyboard, I started to doubt myself. Did I wash my hands after taking out the trash? My ...

Food Fridays: Eating Well While on the Clock
I was going to post a recipe today, but I felt it would be lost on my readers who are too busy to cook. I was thinking about my friend who is an investment banker in New York. He works about 60-80 hours a week. Most days, he is at the ...