Julie Tyios was already a savvy investor by her mid-20s, when the Great Recession hit. “I had played the markets before, and watched my parents live off their stock portfolios,” she says. But the small-business owner wasn’t prepared for seeing half of her portfolio wiped out in 2008, an experience that was, to say the least, “very upsetting.” Since then, Tyios has avoided the stock market altogether. The fear of losing so much again overshadows the possible joy she may glean from a gain. “As much as I would love to invest, the recession did a lot of damage to the market.” And, more than that, it did a lot of damage to the psychology of today’s investors.

. . .

, a professor of marketing at 91��ɫ’s , has been looking at the effects of fraud on investment behaviour, and he’s found that fraud by one firm induces an irrational suspicion among investors that causes them to lower their investments in other, unrelated firms. In other words, fear spreads fast and can spoil otherwise safe investments in people’s minds. This negative bias even applies to very well-known and otherwise trusted institutions, like Canadian banks. “While rationally you recognize you can trust the Royal Bank, motivationally you’re not willing to take a chance,” he says. “People become irrationally suspicious.”

Financial fears can also affect more than just stock choices. At 91��ɫ, , a psychology professor in the , has been conducting an international study that looks at the emotional and psychological effects of the economic downturn. So far, she’s found that people’s personalities (their fears and anxieties) impact things like their financial health and even their ability to find a job. “We are finding that debt, employability and financial well-being are all related,” she says. “If a [person] believes they are not going to get a job in the future, their financial well-being is lower.” Feelings of financial doom are also correlated to higher rates of anxiety and depression.

These findings reinforce the view of behavioural economists that “the way people approach the economy is not rational. Emotional factors influence how we react to the economic situation and to our own finances,” Greenglass says.

Republished courtesy of YFile– 91��ɫ’s daily e-bulletin

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Economists compared the market meltdown to a nuclear accident – totally unpredictable and hugely devastating. Like many, (MA '92, PhD '96) began to question the roulette-wheel approach – determining the odds – to investing. If nothing is predictable anymore, how do you decide what to invest in? he wondered.

The answers lie in the Schulich School of Business professor's latest book, , released early this year. In it, Milevsky gives advice and tools (calculators at ) for when reaching life’s “money milestones” – going to school, getting married, having children, buying a home, buying insurance, filing your income tax each year, investing and managing your portfolio, planning for retirement, deciding on a pension.

To make good decisions, you need to understand the hidden assets and hidden liabilities on your holistic personal balance sheet, writes Milevsky in his introduction. That means factoring in your human capital, or ability to earn income, which most overlook. Yet human capital is “the most valuable asset class for most people during most of their working years,” he writes.

“One of the things that prompted me to write the book was the way we teach personal finance,” says Milevsky. “We present it as a collection of independent topics – Week 2 might be on retirement, Week 4 on income taxes, Week 5 on pensions – with no unifying theme.” In the book, he challenges readers to think about smoothing their income and their consumption over their entire life cycle.

Left: Moshe Milevsky

The 198-page book is full of simple, statistically sound, even controversial, advice – don’t let debt deter you from investing in an education, wait until you’re 50 to buy a house, realize children cost a lot of money ($180,000) but could be your pension plan, consolidate your debt, avoid trivial insurance such as extended warranties, buy a pension plan if you don’t already have one.

Critics might object to placing a monetary value on having children or getting married or going to university, acknowledges Milevsky. He’s not disregarding or disrespecting the non-financial reasons, but “ignoring the monetary implications of our decisions can lead to financial regret,” he writes.

“My point is,” he says, “you should think about things.”

Milevsky, 43, is the father of four daughters. He waited until he had tenure at 91��ɫ before buying a house, reluctantly, under pressure from his family. Otherwise, “I practise what I preach.”

He never planned on a career as a professor specializing in financial risk management and personal wealth management over the human life cycle – until he experienced a kind of seismic shift in his family life. Milevsky was a master’s student in mathematics and statistics at 91��ɫ when his father was diagnosed with colon cancer and died six months later. As the eldest, he suddenly became responsible for the family finances, and soon changed course. Instead of pursuing a PhD in mathematical physics, he pursued one in administration. However, his math and stats training has continued to guide his research – sometimes in collaboration with 91��ɫ faculty – ever since.

Your Money Milestones is Milevsky’s seventh book for the individual investor. His sixth book, Are You a Stock or A Bond? Create Your Own Pension Plan for a Secure Financial Future, came out in September 2008 (see YFile, July 14, 2008). Milevsky revisits its central message – if you have a secure job with benefits and pension plan, you can take investment risks, otherwise stick to a safer, more conservative portfolio – in Your Money Milestones.

Milevsky has written two books for finance specialists and five for individual investors on insurance, investments and retirement income planning, including the 1999 Canadian bestseller, Money Logic: Financial Strategies for the Smart Investor.

A speaker and consultant on retirement wealth management, he has been interviewed by BusinessWeek, The Wall Street Journal, The New 91��ɫ Times, Barron's, Fortune and Money magazines and major Canadian media.

At 91��ɫ, Milevsky is executive director of the , a non-profit corporation affiliated with 91��ɫ’s Schulich School of Business and devoted to research in strategic financial planning for individuals. He also heads the  (Quantative Wealth Management Analytics) Group, a propriety software company.

He is the founding co-editor of the . In 2003, he won a National Magazine Award for a series of articles he wrote for the National Post.

By Martha Tancock, YFile contributing writer. Republished courtesy o f YFile – 91��ɫ’s daily e-bulletin.

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Calling Moshe ’s views on personal finances unconventional is an understatement, wrote USA Today March 11 in a of Your Money Milestones, the latest book by the professor of finance in the of Business at 91��ɫ.

Before you dismiss Milevsky’s views as nutty, think about this: How well did following the conventional wisdom work for you in 2008 and early 2009?

Milevsky confesses that mainstream financial planning rules caused half of his family’s net worth to disappear between November 2007 and mid-March 2009. He bought and held onto an ultra-low-cost, globally diversified portfolio that included stocks of solid companies. “I lost hundreds of thousands of dollars by doing everything exactly right,” he says.

The experience caused Milevsky to rethink everything about money.

In the past, he thought about markets as a kind of roulette wheel. With enough data about historical behaviour and outcomes, the argument went, you could predict the odds of success and make money with reasonable confidence.

Today, he takes the nuclear approach. You can’t predict a nuclear accident using history or statistics, and you can’t predict the next market meltdown. What you should do, Milevsky says, is concede that the future is unpredictable and then manage your most important financial decisions with clear-headed math.

You’ve probably never read a personal like this one, unless it was Moshe Milevsky’s earlier book, Are You a Stock or a Bond? Milevsky challenges a lot of conventional wisdom about money, and even when he concurs with mainstream advice, he tends to do so for reasons that are different than you might expect, wrote MSN Money March 11.

Some background: Milevsky is a finance professor in Toronto’s Schulich School of Business at 91��ɫ and a bit of a rock star in financial-planning circles for his work on annuities, risk management and retirement planning.

This book is like a brisk walk for your brain. You may not agree with all of his conclusions, but you’ll consider some new concepts, and you certainly won’t be bored by yet another rehash of the same old advice.

Republished courtesy of YFile – 91��ɫ’s daily e-bulletin.

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, associate professor of finance in the , recently published : A Guide to Making the 9 Most Important Financial Decisions of Your Life, as noted in this article by Michael Posner which appeared in .

Moshe Milevsky never intended to write another book about financial planning. But then the 42-year-old 91��ɫ finance professor in the Schulich School of Business watched in horror as his family’s net worth shrank by nearly 50 per cent in the great market crash of 2008.

It wasn’t because he was highly leveraged or had taken unnecessary risks. A cautious investor, he had stacked his portfolio with stock in some of the biggest, supposedly safest, most successful American firms – GM, AIG and Lehman Brothers, among them.

To help recoup some of his losses, the industrious Milevsky…returned to writing. Within a matter of months, he had produced Your Money Milestones: A Guide to Making the 9 Most Important Financial Decisions of Your Life (FT Press,2010). It’s his seventh book and a timely one, especially for those contemplating their annual contributions to retirement savings plans.

Written during an academic sabbatical which saw Milevsky lecturing at the University of Pennsylvania's Wharton School and in Sydney, the book incorporates some of the lessons he learned from the market meltdown. Central among these is the that the old paradigm – the stock market as a casino game in which savvy investors carefully calculate the odds of any particular wager succeeding – must be discarded.

In its place is the nuclear paradigm, so-called because no historical data would be of any value in predicting the next nuclear reactor accident. It therefore abandons all possibility of determining odds. In the new investing environment, a nuclear accident can occur at any time, without warning, making bets on stocks, even blue chips, inherently unpredictable.

So what are the milestones?

1. Education
2. Real estate
3. Debt
4. Income taxes
5. Investments
6. Saving
7. Insurance
8. Children and marriage
9. Retirement

For the , visit the Globe & Mail.

Posted by Elizabeth Monier-Williams, with files courtesy of YFile – 91��ɫ’s daily e-bulletin.

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