Edward J. Strafaci ~ Academic Blog

What is the 'Sharpe Ratio' The Sharpe Ratio is a measure for calculating risk-adjusted return, and this ratio has become the industry standard for such calculations. It was developed by Nobel laureate  William F. Sharpe . The Sharpe ratio is the  average return  earned in  excess  of the  risk-free rate  per unit of  volatility  or total risk. Subtracting the risk-free rate from the  mean return , the performance associated with risk-taking activities can be isolated. One intuition of this calculation is that a  portfolio  engaging in “zero risk” investment, such as the purchase of U.S.  Treasury bills  (for which the expected return is the risk-free rate), has a Sharpe ratio of exactly zero. Generally, the greater the value of the Sharpe ratio, the more attractive the risk-adjusted return. Next Up BREAKING DOWN 'Sharpe Ratio' The Sharpe ratio has become the most widely used method for calculati...

The next time a calculator tells you that you're on track for a timely retirement, take those results with a heaping spoonful of salt. A recent analysis of a dozen free retirement planning calculators from different financial services firms found wildly varying projections on how much income you'll need once you've stopped working. Corporate Insight, a New York-based research and consulting firm, drafted a hypothetical profile of Art Vandelay  (apologies to Seinfeld), a 40-year-old architect who is single, earns a $100,000 salary and has saved $100,000 in his 401(k) savings plan. Corporate Insight analyzes industry trends and customer behaviors for financial services companies. Based on the data and other inputs, the calculators gave a wide range of monthly retirement income projections, from $6,013 to $3,772. The magnitude of the savings shortfall also varied wildly. For example, the Retirement Wellness Planner from Principal Financial estimated that the sa...

Do you spend hours studying with less-than-fruitful results? Do you find it hard to memorize specific dates, names, and formulas? Fret not; keep reading to discover seven student-tested, grades-approved study hacks that work . 1. Unconventional Locations Don’t limit yourself to the comforts of your desk or the silence of the library. Be creative. Some people actually work better in places where a little bit of ambient noise exists, such as a local cafe or the park. Studying outside (especially with flashcards) has also been shown by numerous studies to increase attention span and mood regulation, minimizing feelings of boredom or frustration. Other great places include the bus and waiting in line. 2. Unconventional Times Right after school? Just before going to sleep? It may be better to sleep earlier (say, at 10) and wake up earlier, so that the material will be fresh in your memory for the day. In addition to that, it is also a great idea to review notes right after takin...

Why You’re a Lousy Investor and Don’t Even Know It By  SPENCER JAKAB Updated July 11, 2016 4:24 p.m. ET   Has a better piece of advice ever been ignored more often than “don’t try to time the market?” Oh, sure, index funds have made huge strides in recent years. Investors even have fancy new weapons dubbed “smart beta” in their arsenal to supposedly do a bit better than just tracking baskets of stocks or bonds. Yet we are as far as ever from low-fee, market tracking Nirvana. All these smart innovations somehow haven’t kept smart people from doing dumb things with their savings. It sounds strange, but the “average” investor lags the average return by four to seven percentage points per year—sort of like the children of Garrison Keillor’s Lake Wobegon in reverse. Even more than high costs, the surest path to Lake Moneybegone is zigging when you should zag. Investors are constantly under the false impression that they or some vaunted expert knows something that...