The Math of Financial Planning | Rational Reminder 239

[@ericajackson2380]

I'm preparing to take a college-level personal finance class and I came across your page. Thank you for this information. 🎉

[@TheRobJob]

Cameron. Like Ben said. Never apologize for providing stories. Keeps it relatable, especially when I start getting overwhelmed with info like I do sometimes in these videos. Thanks for posting, boys.

[@mitchellyolevsky4376]

Hi Cameron and Ben. Regular viewer of your podcasts here. You have an excellent podcast with remarkable guests. Thank you for all of this thoughtful content. For what it's worth, your podcast is the only podcast I actively recommend/mention. Hopefully it continues to get increased viewership because there are many more people who would benefit from the discussions in these episodes.

[@ryankowarsky5086]

Amazing Podcast! I love that you both emphasized the importance of Compound Interest. Its not spoken about enough. It’s a fundamental concept that most people don’t grasp. It was a huge ‘Ah ha’ moment for me when I understood it. ❤

[@PH-dm8ew]

if the team is half as knowledgeable as you guys, it must be an amazing firm. Shame i don't live in Canada.

[@QualitativeInvestor]

Excellent episode! Cameron personal stories are gems! Thanks Cameron!

[@Trwals]

At 47:08 you mention a formula to factor inflation into returns but don't show it in the video. Can you post that formula in the comments?

[@anon_9221]

Inflation, nominal interest and real interest rates are related through the Fisher formula 1+i=(1+r)(1+pi_e) where i is the nominal interest rate, r is the real interest rate and pi_e is the expected inflation rate. So say, in 10 years you want to buy a basket of food that's worth €100 today, you expect 2% inflation per year and you are offered a savings account with 10 year guaranteed 5% nominal interest. Due to the 2% inflation, you will need to spend €122 ~= €100 * (1 + 0.02)^10 in 10 years, so you put ~€75.83 into that savings account, so that you later get €75.83*(1 + 0.05)^10 ~= €122 out. Equivalently, the above formulate tells you that the real interest rate is r = (1+i)/(1+pi_e) - 1 = ~2.94% and if you discount that future €100 liability with that rate you get the same present value. Ben says that we cannot just substract inflation from nominal interest and that's true but (1+a)/(1+b) ~= 1 + a - b is a good approximation (~2.94% is close to 5% - 2% = 3%) for a,b much smaller than 1. But even small approximation errors affect the result a lot if you discount for more than a couple of years, so the approximation only works well for short time periods (not retirement planning) and small rates.

[@Conicon]

Just because I found it interesting; that hamburger in 1973 costed $1.75 adjusted for inflation to 2022 using the BoC inflation calculator and the current cost of that hamburger today is $1.69. Interestingly the Big Mac in 1973 was $4.06 but now is $5.69. Also worth noting today's prices would have to add sales tax on top making the total cost of that family meal even higher.

[@Metropaul1]

Covered calls over financial math because I get that question a lot as well.

[@ElektrikaCo]

The inflation on the McDonald's menu is around 4.6 - 4.9% compounded annually, depending on the item. I personally expect the inflation to be around 3.0 - 3.5% for my financial planning assumptions. I don't believe that 2% is realistic at all in the long run. How about you guys?

[@kennywen3041]

I think it's supposed to be 1,77% p.a. instead @ 12:44 ?

[@kennywen3041]

I think Ben had to stress the difference between receiving $1.100 in the beginning of each of the 10 years and in the end of each of the 10 years. I believe my 1,77% rate is for the ordinary annuity (in the end of each of the 10 years) and Ben's 2,18% p.a. rate is for annuity due, or as in receiving at the beginning of each of the 10 years.

[@prestonlui6451]

Not sure if the waking up early advise is still universally true. With lightings being cheap, there are little differences in indoor works between day or night. Most people I know are more productive evening

[@tubaherogaming631]

I feel equally productive very late or very early. Both are times when I have fewer distractions (co-workers) compared to the "normal" work day. For those who have a short city commute it also can help reduce the stress of it a lot to either show up early, leave late, or both.

[@prestonlui6451]

@@tubaherogaming631 That is a fair point

[@WheresMyPolenta]

What position did you play in ball?

[@rationalreminder]

Centre. -Ben

[@WheresMyPolenta]

​@@rationalreminder Nice; 1v1 me and If I win, you buy and hold TSLA. If you win Ill buy a security or donate to your choice.

[@MultiSaffran]

How do I calculate the implied financing rate? 🤔

[@ElektrikaCo]

You can use RATE function in Excel. Or use a financial calculator but i find Excel much easier.

[@muffemod]

Me was here yo!

[@linvestitorescettico]

when a review on Taleb books?

[@MichaelSaull]

I feel like Cameron has definitely mentioned his worm farm before, maybe during talking cents cards? Shouldn't be the first time "worm" was mentioned on the podcast haha

[@rationalreminder]

Someone in the RR community did the math: _The word “worm” has been used multiple times before on the podcast :smiley:. In episodes 156, 166, and 175 Cameron mentions his worm business. Understanding crypto episodes 7 and 11 mention worms in the computer science sense. On episode 95 Scott uses the phrase “a whole another bag of worms.” Don’t ask me why I looked this up, I clearly have some kind of a problem._

[@MichaelSaull]

@@rationalreminder awesome. Well it's an easy search if there are transcripts of every episode.

[@muffemod]

🪱🪱🪱😆🤣

[@MarcoEmeryLinden]

"Don't read fiction" is terrible advice. I've learned far more from reading literature than I've learned from reading non-fiction.