Quotes
Our subjective selection of the most interesting and worth considering quotes about personal finances.
If you find these quotes intriguing, we recommend reading the original sources or read our blog posts as they are highly inspired by the sources quoted below. The bolden text is our own emphasis.
Popular personal finance advice
Investing isn’t the only area where making sound financial decisions under uncertainty is important. Everyone needs a coherent saving and spending plan for all stages of life, especially if they expect to enjoy periods of retirement. […] Sadly, personal finance books just don’t provide enough good advice either, as documented in a recent easy-to-read survey of the 50 most popular ones by Yale Professor James Choi (Haghani and White 2023, 6–7).
We think there’s a fundamental flaw in the prevailing conventional advice given to individuals, in which the investor decides how much risk to take based solely on whether they have a “high” or “low” risk tolerance, without factoring in how much they’re being “paid” to take that risk (Haghani and White 2023, 64).
Making your investing, saving, and spending decisions to maximize your Expected Lifetime Utility of spending can improve your expected lifetime welfare by 25%-50% relative to following simpler heuristics such as the “4% rule” for spending, the “hundred minus age rule”, or the “maximize the probability of reaching a goal” for asset allocation. Maximizing expected wealth is perhaps the most dangerous of all possible objectives (Haghani and White 2023, 336).
All too often financial planners are forced to rely on ad hoc frameworks and heuristics rather than the powerful theories of economics, finance, and insurance. […] Some practitioners interpret behavioral finance and its numerous examples of irrational investor behavior and decision making as a reason to dismiss the value of, and lessons from, models that provide the optimal solution. Behavioral finance does not diminish the value of a comprehensive normative framework for providing financial advice. […] Practitioners need to embrace and elevate life-cycle finance as the guiding framework for financial advice. Curriculum creators need to change curriculums not only to include life-cycle finance but also to frame it appropriately as the most important element of personal finance (Idzorek and Kaplan 2024, 225).
Almost all financial planners market themselves as providing holistic, personalized solutions, yet the investment portfolios end up looking pretty similar to each other. We show that holistic, personalized portfolios should look vastly different, which suggests practitioners may not be living up to their claims (Idzorek and Kaplan 2025, 10).
Millions of people get financial advice from non-economists. […] Authors like these may be more influential then economists are. […] Popular financial advice can deviate from normative economic theory because of fallacies. But popular financial advice has two strengths relative to economic theory. First, the recommended action is often easily computable by ordinary individuals; there is no need to solve a complex dynamic programming problem. Second, the advice takes into account difficulties individuals have in executing a financial plan due to, say, limited motivation or emotional reactions to circumstances. Therefore, popular advice may be more practically useful to the ordinary individual. Developing normative economic models with these features, rather than ceding this territory to non-economists, may ba a fruitful direction for future research (Choi 2022, 186).
Making financial decisions
We recognize it often makes sense to act as satisficers when it comes to the low-impact decisions we face day to day, but when we make financial decisions of high consequence, it pays to carefully weigh our decisions and behave as rationally as possible. […] In our view, one of the benefits of having a solid, rational framework is that you don’t need to rely on intuition and gut feelings, which behavioral economists have convincingly shown to be biased and inconsistent (Haghani and White 2023, 104).
Making decisions guided by Expected Utility is not a new idea, but it also is not currently a popular one […]. By far the most common criticism is that Expected Utility doesn’t do a good job of describing how most people actually make decisions. We agree with that, but we don’t see it as a reason to look elsewhere. This book is meant to help improve the financial lives of our readers, helping them to make better decisions not just to help them understand or replicate all the various biases and inconsistencies of human decision-making. As such we primarily care that our framework does a good job of pointing to sensible, consistent, welfare-enhancing decisions (Haghani and White 2023, 320).
All of us face the question of how to consume and invest over our lifetimes. […] An optimal solution to these questions is extremely complex, but all of us must plunge ahead. We have to consider how much we expect to earn, not only in the immediate future but also over the course of our lifetime with changing jobs, promotions, eventual retirement, and the probability of survival during each period along the way. […] These questions may seem impossible to answer. Yet we all make these decisions throughout our lives. For the most part we do this in ad hoc ways. We plunge ahead because we have to. Each day or each year, we have to decide what to spend, what to save, and how to invest. We usually do not consider the whole whole picture but rather compartmentalize each decision. This practice leads to suboptimal decisions […]. On way to cope with this complexity is to stay in the present: even though we are making decisions in the context of our whole life, at each point in time, we are making only today’s decisions, albeit with an estimate of what the future may look like. When our circumstances change in a significant and potentially unexpected manner, we can adapt and make new decisions that can take us off the path that we had envisioned earlier and start us on a new path instead (Idzorek and Kaplan 2024, ix).
[…] putting relatively complex investment decisions in the hands of individuals with little or no financial expertise is problematic. […] Consumer education is often proposed as a remedy but to my mind it’s real stretch to ask people to acquire sufficient financial expertise to manage all the investment steps needed to get their pension goals. That’s a challenge even for professionals. You’d no more require employees to make those kinds of decisions that an automaker would dump a pile of car parts and a technical manual in the buyer’s driveway with a note that says, “Here’s what you need to put the car together. If it doesn’t work that’s your problem” (Merton 2014, 8).
It is fair enough to expect people to provide for their retirement. But expecting them to acquire the expertise necessary to invest that provision wisely is not. We wouldn’t want them to. We don’t want a busy surgeon to spend time learning about dynamic immunization trading instead of figuring out how to save lives, any more than we would want skilled finance professionals to spend time learning how to do their own surgery. But unless we rethink the way we engage savers and invest their money, this is precisely where we’re headed. I realize that what I’m advocating may seem perverse at a time when trust in financial institutions, and indeed in financial innovation, has fallen to pretty low levels. Yet it seems just as perverse to deny savers the benefits of financial technology (Merton 2014, 10).
Backtesting and historical data
Without getting too Bayesian, let’s assume that a 65-year-old retiree can look forward to 500 months of retirement. And yet at best, we have 2’000 months of reliable data on asset class returns. As the great Paul Samuelson is rumored to have said, “We have but one sample of history” (Milevsky 2016, 10).
Risk and uncertainty
Over long time horizons, the probabilities favor investing in stocks/equities. This does not mean the risk disappears or goes away. It simply means that you have better odds. On the flip side, if your equity investments do indeed fall short of money-market returns, the magnitude of the loss will be greater over longer time horizons (Milevsky 2012, 83).
“What has a worse impact on income sustainability? Is it underestimating my life expectancy or getting unlucky in the first few years of retirement?”. My answer would be that they are roughly on the same order of magnitude. Be fearful of them both (Milevsky 2012, 127).
There is simply no escaping the need to somehow choose a risk stance, and ideally one that can be consistently applied. If your goal is to make decisions that improve your expected welfare across the many issues you will face in your financial life, then you’ve got to take a stance on how much you value different levels of wealth and thus how much risk you should take (Haghani and White 2023, 77).
If you cannot abide changing your total spending, including gifts, as your wealth changes through time, then it is inconsistent for you to take investment risk in your portfolio (Haghani and White 2023, 137).
Monitoring
I believe that underlying idea, you should think of yourself as a company and manage your financial affairs using similar techniques, leads to a number of practical insights and takeaways (Milevsky 2012, 16)
[…] it’s the real, after-tax income stream that your capital can generate and that you can spend over time that matters, not the lump-sum present value of your wealth (Haghani and White 2023, 336).
Consumption smoothing and saving rates
[…] when young, it can theoretically make sense to borrow against future earnings, in effect adopting a negative savings rate. In practice though, we think that it will usually make sense for young people to adopt a positive savings rate (excluding the financing of a home purchase), to develop a valuable lifetime habit, to avoid the usually exorbitantly high cost of consumer borrowing and as a safeguard against the risk of financial misfortunes and misadventures (Haghani and White 2023, 194).
Our approach to saving is all wrong: We need to think about monthly income, not net worth (Merton 2014, 3).
Life-cycle finance and retirement planning
[…] Individuals who expect to receive little or no income from a defined benefit pension plan must be even more careful to manage the conversion of their human capital into financial capital so that they secure a smooth income stream over their entire life cycle (Milevsky 2012, 34).
The bottom line is that when you no longer have human capital, protecting your financial capital to sustain your successful retirement is crucial (Milevsky 2012, 184).
Life-cycle finance is the specialty in finance that focuses on the financial issues faced by individuals over the course of their lifetimes. […] This makes it arguably the most important specialty in financial economics because individuals have only one lifetime in which to get it right (Idzorek and Kaplan 2024, 2)
To put it bluntly, life-cycle models are the most powerful models for financial planning that we have, but they exist only in obscurity (Idzorek and Kaplan 2024, 10).
The customer need worry about three things only: her retirement income goals, how much she is prepared to contribute from her current income, and how long she plans to work. The only feedback she needs from her plan provider is her probability of achieving her income goals. Shoe should not receive quarterly updates about the returns on her investment (historical, current, or projected) or about the current allocation of her assets. These are important factors in achieving success, but they are not meaningful input for the choices about income that the customer has to make. […] What can she do to improve her outlook? there are only three things: Save more, work longer, or take more risk. These are, therefore, the only decisions a saver needs to think about in the context of retirement (Merton 2014, 9).
Anecdotally, we observe that many practitioners put far more time and effort into investment choice relative to financial planning, when the opposite should be true. […] no fewer than 11 Nobel laureates in Economic Sciences did important work related to lifecycle finance. Given this pedigree of lifecycle finance and the leading economists who contributed to lifecycle finance, it is a bit of a paradox that many financial planners and investment textbooks are either unaware of or silent on lifecycle finance.[…] So, while there is wide spread agreement among economists that lifecycle finance is how a rational investor should plan and invest, a smaller subset of economists have focused on how to apply the theory of lifecycle finance to the more practical problem of providing optimal life-time advice to individuals(Kaplan and and 2024, 12–13).
The most powerful framework for carrying out financial planning stems from lifecycle finance, the economic approach to financial planning. […] In practice, to make the connection between lifecycle models and the various mean-variance models available to wealth advisors and financial planners, the integrated process needs to be highly automated in user-friendly software, which—to our knowledge—does not yet exist. We call upon the industry to create such systems for practitioners (Kaplan and and 2024, 15).
Net worth and portfolio optimization
[…] general rule that you should allocate your numerical age value to bonds—or 100 minus your age value to stocks—is somewhat meaningless at best, and wrong at worst. […] Your age value doesn’t contain enough information to determine a suitable asset allocation (Milevsky 2012, 100).
Why do we think sizing is so important? Consider this: if you pick bad investments but do a good job sizing them, you should expect to lose money, but your losses won’t be ruinous. You’ll be able to regroup and invest another day. On the other hand, if you pick great investments but commit way too much to them, you can easily go broke from normal ups and downs while waiting for things to pan out […] By overbetting, it can be highly likely that we’ll lose money, even when betting on events where the odds are in our favor. […] Taking twice the optimal amount of risk completely wipes out the risk-adjusted benefit of a good investment and taking more risk than that makes you exponentially worse off than doing nothing at all (Haghani and White 2023, 4, 32, 335).
If you believe that the expected return and risk of the equity market change over time in a away that can be estimated, then your optimal allocation to equities should also change (Haghani and White 2023, 42)
It seems more natural to think about the attractiveness of stocks relative to inflation-protected bonds, rather than just by considering their expected returns in isolation. For example, if the earnings yield of the stock market were 4% and the real yield on TIPS were also 4%, why would we want to own any equities? (Haghani and White 2023, 52).
[…] we should immediately move our allocation to the optimal point, minimizing the amount of time spent at a suboptimal allocation. […] any approach other than moving straight to your optimal allocation is financially suboptimal. However, some plans are less suboptimal than others (Haghani and White 2023, 85–86).
Net worth optimization is an important extension of asset-only optimization. It is holistic portfolio optimization based on the investor’s total economic balance sheet, and explicitly includes the investor’s human capital and nondiscretionary consumption liability within the optimization. Net worth optimization is holistic and personalized (Idzorek and Kaplan 2025, 9).