The Mathematics of Finance

When I look back at my undergraduate days and do a mental inventory of the courses I took, a select few really stand out.

One of them, which was an elective, was a second year mathematics course called "The Mathematics of Finance".

Of all the math courses I suffered through (calculus, linear algebra, statistics), this one was by far the most useful one I've taken. Mortgages, declining balances, amortizations, simple and compound interest, stocks, bonds, coupons, strips, and so on.

Over the years, this course has been worth its textbook's weight in gold (probably literally) in helping me make smart decisions about money. It has saved me literally thousands of dollars on my mortgage (a tale unto itself).

Recently, I've begun working with a professional financial planner. I know about stocks and bonds, and to avoid mutual funds like the plague, but there is simply too much inherent complexity in the system for a retail investor like me to deal with intelligently - at least if I don't want to simplify my life with just investing in an index ETF.

My financial planner calls me about once every two weeks or so and he's been educating me about the markets on the whole. Jim educates me about the markets for two reasons - one so that I feel confident in his recommendations, and two so that if he's feeling bullish on a particular investment idea I have to be able to understand what the idea is. Because as he says, if I don't understand it and he can't explain it to me, then it might not be such a good idea after all.

Thanks to that math of finance course, I can make intelligent decisions with Jim's help. That is an amazingly useful tool.