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With a staggering number of people approaching retirement, the pressure to know you are truly prepared is immense. Over the next two decades, an estimated $84 trillion will be transferred between generations, with much of that wealth going to millennials and Gen X. Meanwhile, a record number of Americans—more than 11,000 per day from 2024 to 2027—are turning 65. This historic “Peak 65” surge means that a lot of people need to be confident in their financial future.
For me, this idea of financial confidence started not in a finance classroom, but with a deck of cards. As a young boy, I would visit my grandparents and we’d play Rook around their card table, which my family still has today. The game’s instructions held a secret—a way to play Solitaire. I taught myself, and I became fascinated by why some games were won and others were lost. I knew it wasn’t random; there had to be a pattern, a probability that I just couldn’t solve on my own.
Today, that same curiosity drives our work at Intelligent Investing. We believe you don’t have to play this “financial game” alone. We’re here to help you move from a game of chance to a game of confidence by using principles that have guided scientists for centuries, from nuclear physics to modern data science.
From a Coin Flip to a Retirement Plan
To understand how we provide a high degree of confidence in your financial future, you can think of a simple coin flip. If you flip a coin 10 times, you might get six heads and four tails. It’s an unpredictable, random result. However, if you keep flipping the coin hundreds or even thousands of times, the results will consistently converge toward the expected 50/50 outcome. This is a core principle in probability known as the Law of Large Numbers.
The key concept behind modern financial prediction is the Monte Carlo method, a powerful statistical technique that uses this very principle. Its origin story is just as captivating as the math. In 1946, while recovering from a severe illness, mathematician Stanislaw Ulam found himself playing countless games of Solitaire. He realized that analytically solving the probability of winning a randomly shuffled game was “hopeless” due to the immense number of possible arrangements. His simple idea was to just play hundreds of games and count the wins to get a good estimate.
Ulam and his colleague John von Neumann then applied this random sampling concept to their top-secret work on the Manhattan Project. They needed to model how neutrons behaved inside a nuclear core, a problem with an immense number of possible outcomes that made direct computation impossible. This groundbreaking method of using random sampling to approximate complex problems with high stakes was named the Monte Carlo method, a fitting name given the element of chance in games like Solitaire and the nature of their work. The name was a clever code word, a nod to the famous gambling city of Monaco where games of chance are central.
The Nobel Prize-Winning Theory of Risk
While the Monte Carlo method handles the probabilities of the markets, we also know that investor behavior is the dominant determinant of long-term returns. This is where a second Nobel Prize-winning theory comes into play: Prospect Theory, developed by Nobel laureates Daniel Kahneman and Amos Tversky. This theory tells us that investors are more sensitive to losses than they are to gains.
A simple illustration of this is the “mug experiment” often used in behavioral economics. Imagine you’re in a room, and you’re given a mug. A few minutes later, you’re asked if you’d like to sell the mug back. Most people refuse, even for a price higher than what they would have been willing to pay to buy it in the first place. This is because the emotional pain of “loss aversion”—losing the mug you now own—is much greater than the potential joy of gaining the money from selling it. We’re wired to feel losses more acutely than we feel gains.
This fundamental bias is why an investor may hold onto a losing investment for too long, as they don’t want to “lock in a loss” and admit a poor choice was made. We all have these behavioral blind spots. We convince ourselves that everyone else thinks the same way we do. This is why we need to remove our emotions from investing and have a plan we can stick with.
At Intelligent Investing, we use technology based on this theory to quantify your personal comfort with risk. We use Nitrogen, a cutting-edge software that determines your unique Risk Number—a score from 1 to 99 that objectively quantifies your risk tolerance. By using real dollar amounts to gauge your acceptable level of potential loss, we move beyond subjective terms like “conservative” or “aggressive” and align your portfolio with your true risk tolerance. This helps you avoid misbehaving and allows us to act as your prudent behavioral coach.
Part of this accountability is solidified through our Investment Policy Statement, or IPS. Both the client and the advisor sign off on this document, which formally agrees to a specific risk level for the portfolio. This ensures that expectations are set and emotions are kept on the sidelines, providing a clear audit trail and keeping everyone accountable.
Bringing It All Together: A Plan for a Changing World
Your financial life is an incredibly complex, dependent system. Your future success depends not only on market factors but on a chain of interconnected factors: inflation, market volatility, and personal spending habits.
At Intelligent Investing, we believe in partnering with our clients on their financial journey. For clients with a financial plan, we use both the Monte Carlo method to run over 1,000 scenarios and Nitrogen’s Risk Number, which serves as a valuable tool to help track your progress. Think of it as a helpful “report card” that provides clear, transparent expectations for potential gains and losses in dollar amounts. This powerful combination helps to reduce emotional and subjective guesswork, giving you a clear “probability of success” for your retirement and a sense of confidence in your plan.
Our proprietary fintech solution, Intelligrations®, intelligently integrates your financial life to help you gain this crucial clarity. By leveraging technology, we help you gain confidence in your financial future and remove the emotions from investing.
Are you ready to stop guessing and start knowing? Download our complimentary e-book entitled, “Is Your Portfolio on Track” , and if you enjoyed this blog, consider joining our monthly complimentary Intelligent Insights newsletter by clicking here. For those of you who are ready to stop guessing what your financial future may hold, reach out for a complimentary call or coffee. We’d be honored to serve you and your family.
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