Boston Meeting: Personal Investing Policy

Presenter: Jarrod Wilcox

PERSONAL INVESTING POLICY

Good policies led to good long-term results. In investing, attention to stochastic growth models can provide a foundation for good investment policy. Maximizing expected log after-tax return of discretionary wealth each period is a robust way to set appropriate risk aversion tradeoffs so as to maximize median long-term wealth without intermediate-term shortfalls. It can also tell us how and when to use Markowitz mean-variance optimization. But this framework assumes we know its inputs with certainty. This lack is thrown into sharp relief when as individuals we confront uncertainty as to our investment skills, our resources and even our expected lifetime. In this presentation, we augment stochastic growth models with a true Bayesian framework, using both a practical example and Monte Carlo simulations, to illustrate good personal investing policy, applicable even to investment professionals.

Slides are available at http://www.qwafafew.org/boston-file-wilcox-20080415