Tutor profile: Kimberly N.
Subject: Personal Finance
What is the most efficient and helpful way of tracking your expenses?
When I was little, my mom would save all of our receipts in envelopes, one for each month. At the end of the year, I would help her divide the receipts up into categories and add up all the receipts to see how much we spent that year. How wasteful! Not only does this take a lot of time, it also gives terrible feedback! Wouldn't it be so much better if there was a way to calculate your expenses in a few minutes so that you can see what you spent that month right away, and then adjust your behavior for the next month? Using your online bank account and a few simple excel tools, you can do exactly that! Take a lesson to find out how!
What is the Phillips curve?
In the mid-1900s, economists realized that if they graphed inflation and unemployment, there was a clear inverse relationship. As inflation increased, unemployment decreased, although unemployment would decreased as a slower and slower rate (i.e. decreasing marginal returns). If we could increase inflation, the economists of the day thought, we could also decrease unemployment! The relationship appeared to be so definite, that in the 1970s when a period of stagflation hit, everyone was shocked to discover that the clean relationship between inflation and unemployment completely broke down. The graph began to look like a crazy connect the dots. Now, although the relationship is of interest to economists, we know that there is no proof of a causal link and there is likely at least one if not several third factors influencing both inflation and unemployment concurrently.
What is portfolio theory?
As an investor, you want to know how to invest your money. What stocks should you buy?What percentage of your total assets should you invest in each stock and why? Portfolio theory is a powerful model that can teach us the value of: diversification, how to manage the risk vs return profile, and ultimately helps us to decide how to invest our money. First, we assume that investors are risk-averse - meaning that they fear the loss of a dollar more than they desire the gain of a dollar. Second, we construct a graph that compares the risk of a stock with the return of the stock. If you plot each stock on this graph, you will notice that the dots will at first appear random. On closer inspection however, a pattern will being to emerge, revealing what's called the Efficient Frontier. The Efficient Frontier is the optimal tradeoff between risk and return for a risk-averse investor. In other words, investing off of the Efficient Frontier means that you are taking on more risk for less return - something no investor would want to do!
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