So to invest or not to invest?
Looking at the data and trying to come up with probabilistic assessments about which
companies are more likely to perform better than others, and
that could guide our investment decisions.
Other examples.
To marry or not to marry?
Arguably one of the perhaps the largest or
greatest decisions we have to make in our lives.
Now, of course, when two people enter into that marriage contract,
they cannot know for sure whether they will go on and live happily ever after.
I like to think most marriages tend to be successful.
Indeed, I'm fairly a recent spouse, and I'm optimistic
that I made the right choice and it will go on and be a long and happy marriage.
But as we know some marriages will end in divorce.
Sometimes amicably, sometimes less amicably.
However, with the benefit of hindsight, yes, you could argue those two individuals
should never have got married in the first place.
But I would suppose at the time that they did get married they thought,
based on the available information, it was the best course of action to pursue.
So we can never guarantee success, but
hopefully we tend to get things right far more often then we get them wrong.
Now, I mentioned that, really, there are very few certainties in life other than
perhaps death and taxes as two main examples.
So I may be just a little bit morbid for a moment,
but I think it's one worth considering, and that's the one of life expectancy.
I know that one day I will die.
What I do not know is when that event is going to occur.
Now, we talk about life expectancy.
That doesn't tell you exactly how long you have left to live,
it's simply an expectation.
Now, my personal goal, I'm trying to live to 100, that's my target.
Only time will tell whether I actually, I'm able to achieve that goal.
Now, I can look around and see that, today, we have more people becoming
centenarians, turning to that age of 100, than ever before in history.
We have perhaps a larger population than previously.
But we also have access to much better health care than we did decades and
centuries ago.
So more and more people are able to make it to 100.
Now, I consider myself to be in reasonably good health, and
I'd like to think there's a reasonable probability that I will reach 100.
But of course, I cannot know this for sure.
So when I make decisions about my life, it's clearly based
around my personal life expectancy, how long I expect to continue to live.
If I thought I only have, let's say, six months left to live, then clearly
that's going to affect what I decide to do in the remaining six months of my life.
There are clearly lots of things I'd like to do I haven't done yet.
For example, many countries I've never visited.
And if I think I only have six months left to achieve this,
then I'm going to do that traveling within those next six months.
Well, I'm going to be a little bit optimistic and
hope I will make it to be 100, which means I've got decades
left to undertake all the things I would like to in my life.
Indeed, retirement planning, saving for a pension.
Now, this is something I think everyone should be doing,
although there are some figures in the UK which said that there was a significant
proportion over 40 who actually haven't made any personal pension plans yet.
And indeed, the clock is very much ticking for those individuals.
But I think it does pay to be very long-termist.
So in my pension provision, I have to consider certain parameters.
Namely, when I would like to retire.
So how many years should I be saving for this pension?
How much money I should be investing in a pension on a monthly basis.
Now, of course, this is going to be affected by what kind of lifestyle
I'd like to achieve in retirement.
If I'd like to travel around the world, let's say, first class on airlines,
and stay in five-star hotels, then clearly I'm going to need quite a lot of
money to achieve quite a luxurious lifestyle.
And hence, that would affect my decisions today about how much to save
each month into a pension fund.
Another parameter to consider would be the return
that the pension fund is likely to generate.
If I effectively hand over my pension savings each month to a fund manager,
then he or she will be investing it, perhaps in stocks,
bonds, perhaps a wide ranging portfolio, and
one could perhaps expect a particular return to be achieved on those funds.
And of course, depending on how successful I think that pension fund is going to be,
that's also going to affect when I would be financially in a position
to be able to afford to retire, as well as how much money I should be investing or
saving for my pension on a monthly basis.
So things such as that, and to marry or not to marry, how much to save for
a pension,
these are decisions typically many of us will have to make during our lives.
Unfortunately, we have this inherent uncertainty we have to deal with.
So the best we can do is form our expectations of the future.
For example, in that Monty Hall problem,
you had an expectation of winning the sports car.
If you switched to door C, the expectation was that probability of two-thirds
that you would win the car, and hence you played to those probabilities.
Now, you were unlikely in that one instance.
And, indeed, bad luck can affect all of us.
But so, too, can good luck.
But if we do play to the probabilities, I can't guarantee you success, but
we can be confident that we will win far more often than we lose.
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