## Andrew Allentuck## Friday, December 1, 2000 Money Logic: Financial Planning For the Smart Investor
Prof. Milevsky solves common problems of personal finance. For example, to determine how well managed portfolios are run, he provides a discussion of the odds of statistical significance and sets a standard for the amounts and frequency of outperformance by a professional manager doing better than market averages. The investor who understands why beating the market now and then is no proof of the ability of a fund's manager will be able to select managers with stronger track records. Mutual fund sales people often urge their customers to put fixed sums into their funds each month. That's a way to keep money rolling in and commissions flowing to the sales force, but is it good for the investor? To measure the efficiency of this system of investing regardless of whether the market is up or down, called dollar cost averaging, Prof. Milevsky compares the value of the discipline of saving with the odds of achieving higher returns. His answer is that lump sum investing provides a higher expected return than dollar cost averaging, admittedly at the cost of higher volatility or risk. On segregated funds maintained by insurance companies with guarantees of return of principal sums, Prof. Milevsky finds that charges for the insurance are far higher than are warranted by the risks of loss over any ten year period - the minimum time funds have to be left in an account for the guarantee to apply. But, for the older investor or the person who may have problems with creditors, seg funds have a higher value and may be worthwhile, he says. On international diversification, he says that as markets move together because of the integration of capital markets and multinational takeovers, the value of diversification declines. Data that has emerged since publication of |