Personal Finance + Entrepreneurship

Why are boomers in trouble in retirement

1.) Defined benefit pensions (company gives you money regardless of inflation)
replaced by Defined Contribution Pension (put certain amount given my compoanies into investments, resposibility is on the individual)
2) Decided to save late
3) Expected to work more years (financial crisis or COVID)

Rules of Personal Finance

1) Return is proportional to risk (Large corp - Good return but risky, Gov Bond - Less risky, but smaller returns, Treasury bill - almost no risk but low return)
2) Diversify Investments (multiple high risk stocks to reduce chance of losing everything)
3)Don’t try to time the market (unpredictable)
4)Borrowing only for assets (taking loans to buy stocks)
5) Save 10% and always match(when firm matches your savings percentage)

Index fund

invests in a market and a means of diversification

Managed Fund

invests in a firm, hard to predict

Assymetrical Information

someone knows more info than the otherA

Adverse selection

before an agreement, taking advantage of information someone else doesn’t have

Moral Hazard

After an agreement, changed behavior after an agreement
Ex: being dangerous after getting health insurance

Principal Agent Problem

Principal - what’s good for shareholders
Agent - what’s good for myself (the individual/own good)
Solution: make employees shareholders so they what wants best for firm and own good.

Culture

affects entrepreneurship

Power Distance

high power distance - people believe strong people should be in charge Describes a culture where power is unequally distributed and this inequality is accepted as normal

low power distance - everyone is equaly and everybody is just as good as anybody

High Individualism

everyone should take care of themselves

Low Uncertainty Avoidance

describes cultures or individuals who are more comfortable with ambiguity, unstructured situations, and change. welcomes uncertainty

Low Long-term Orientation

indicates that a culture prioritizes the present and is more focused on immediate results rather than future planning

Complements of Entrepreneurship

education, finance, a favorable/regulatroy environment

Stationary State

an economy that merely reproduces itself at constant rates

Shocks

unexpected changes that disrupt the market

Kirznerian Entrepreneur

involved with arbitrage/speculative activities, profit from disequilibriums caused by Schumpeterian entrepreneurship and shocks

Schumpeterian Entrepreneur

involved with innovation related activities, profit through creating disequilibrium. Happens through advances in knowledge.

Creative Destruction

new products destroy old products

Common Law

is based on judicial precedent and case law

Napoleonic Code

It is based on comprehensive legal codes. Prioritize statutory interpretation and legal codes