The Savvy Wallet

The Dunning-Kruger Effect Explained: Definition, Meaning, and Examples Have you ever met someone who was overly confident about their financial skills, but in reality they were clueless? Or have you ever felt insecure about your own financial knowledge, even though you were doing well? If so, you might have encountered the Dunning-Kruger effect, a cognitive bias that affects how people perceive their own abilities. What is the Dunning-Kruger Effect? The Dunning-Kruger effect is a cognitive bias that causes people with low competence in a specific domain to overestimate their abilities, and people with high competence to underestimate their abilities 1 2 This is because people with low competence lack the metacognitive skills to recognize their own mistakes and gaps in knowledge, while people with high competence tend to assume that others are equally skilled and knowledgeable 3 The term was coined by social psychologists David Dunning and Justin Kruger in 1999, based on their experime...

The Life Extension/Longevity Industry’s Economics Explained: Geroscience, Biomedicine, Anti-Aging The life extension/longevity industry is one of the most promising and exciting sectors of the global economy, with the potential to transform the health and well-being of billions of people. But what exactly is the life extension/longevity industry, and how does it work from an economic perspective? In this blog post, we will explore the main components, drivers, and challenges of this emerging industry, and how it relates to other fields such as geroscience, biomedicine, and anti-aging. What is the life extension/longevity industry? The life extension/longevity industry is a broad term that encompasses scientific research, technological innovation, and financial investment aimed at extending the healthy lifespan of humans and preventing or reversing the diseases of aging. The life extension/longevity industry is not a single, homogeneous entity, but rather a complex and dynamic network o...

The Resource Curse (Paradox of Plenty) Explained: Definition/Meaning, Examples (Dutch Disease), etc. Have you ever wondered why some countries with abundant natural resources, such as oil, gas, or minerals, seem to struggle with economic development, while others with fewer resources prosper? This phenomenon is known as the resource curse , or the paradox of plenty , and it has been puzzling economists and policymakers for decades. What is the resource curse? The term resource curse refers to a paradoxical situation in which a country underperforms economically, despite being home to valuable natural resources 1 . A resource curse is generally caused by too much of the country’s capital and labor force concentrated in just a few resource-dependent industries. By failing to make adequate investments in other sectors, such as manufacturing, services, or education, countries can become vulnerable to declines in commodity prices, leading to long-run economic underperformance. The resource ...

Index Funds (John Bogle & Others) Explained in One Minute: Definition, Types, Examples & Performance Index funds are a popular and simple way to invest in the stock market. They are portfolios of stocks or bonds that mimic the performance of a specific market index, such as the S&P 500 or the Nasdaq Composite. By investing in an index fund, you can get exposure to a large and diversified group of securities without having to pick and choose individual stocks or bonds yourself. Index funds were pioneered by John Bogle, the founder of Vanguard, in 1976. He created the first index fund, the Vanguard 500 Index Fund, which tracked the S&P 500 index. Bogle’s idea was to offer investors a low-cost and passive alternative to actively managed funds, which often charge high fees and fail to beat the market over the long term. Types of Index Funds There are many types of index funds available for investors, depending on their preferences and goals. Some of the most common types ar...

How to Achieve Alpha in Your Trading Strategy If you are an investor or a trader, you probably have heard of the term alpha. But what does it mean and why is it important for your trading strategy? In this blog post, we will explain what alpha is, how it is calculated, and how you can achieve it in your trading strategy. What Is Alpha? Alpha (α) is a term used in investing to describe an investment strategy’s ability to beat the market, or its “edge.” Alpha is thus also often referred to as “excess return” or the “abnormal rate of return” in relation to a benchmark, when adjusted for risk 1 . Alpha is often used in conjunction with beta (β), which measures the broad market’s overall volatility or risk, known as systematic market risk. Alpha is used in finance as a measure of performance, indicating when a strategy, trader, or portfolio manager has managed to beat the market return or other benchmark over some period. Alpha, often considered the active return on an investment, gauges th...

  Underwriting Explained in One Minute: Definition/Meaning, Examples, and More If you have ever applied for a loan, bought an insurance policy, or invested in a security, you have probably encountered the term underwriting. But what does it mean, and why is it important? Underwriting is the process of taking on financial risk for a fee. Underwriters are the people or institutions that perform this process. They assess the degree of risk involved in a financial transaction, and decide whether to accept it, reject it, or modify it. They also determine the price or rate for assuming the risk. Underwriting helps to ensure that financial transactions are fair, profitable, and sustainable for both parties. It also helps to create and maintain a market for financial products and services. Here are some examples of how underwriting works in different contexts: Loan underwriting: When you apply for a loan, such as a mortgage, an underwriter will review your credit history, income, assets, l...

The Fear of Missing Out (FOMO) When Investing/Trading Explained Have you ever felt anxious or regretful when you see a stock or a cryptocurrency skyrocket in price and you missed the opportunity to buy it? Have you ever followed the crowd and invested in a hyped-up asset without doing your own research or considering the risks? If you answered yes to any of these questions, you might have experienced FOMO, or the fear of missing out, when investing or trading. FOMO is a psychological phenomenon that affects many aspects of our lives, such as social media, travel, and entertainment. It is the feeling of anxiety or envy that we might be missing out on something exciting, rewarding, or beneficial that others are enjoying. FOMO can also influence our financial decisions, especially in the fast-paced and volatile world of investing and trading. How FOMO Affects Investors and Traders FOMO can affect investors and traders in different ways, but the common theme is that it can lead to irration...