Modus Ponens - How to Invest Like a Logician

modus ponens: p implies q; p; therefore, qModus ponens is arguably the simplest, most well-known inference rule in formal logic. Modus ponens states that, if some proposition p implies another proposition q, and if proposition p is true, then proposition q must be true also.

Here is modus ponens stated more formally:

Premise 1: pq
Premise 2: p
Conclusion: q

Or, if you prefer, here is modus ponens in ordinary language:

Premise 1: If p is true, then q is true.
Premise 2: p is true.
Conclusion: q is true.

Of course, the ins and outs of investing are more complicated than a simple two-premise argument makes them out to be. However, the fact remains that, if you take some simple, preliminary financial steps, then you will be better off financially in the future.

For example, are you contributing aggressively to your company's 401(k) plan? Have you opened a Roth IRA? Do you have an emergency cash fund? These are extremely simple steps you can take to become financially well-off in the future.

Investing is not difficult, or even time-consuming. Just pick a target-date retirement mutual fund, or a broad-market index fund (such as the iShares S&P 500 Index ETF, AMEX:IVV), and start investing a portion of your income regularly. Diversification is the key, and many funds are already adequately diversified for you.

Premise 1: If you do these these things (p), you will become financially secure later in life (q). The real challenge to making our modus ponens comparison hold is premise 2 (p). It is up to you to take these simple steps toward your own financial future; no one will take these steps for you. But if you do take these steps, and if you persist in following through with investing for the long term, you will truly be investing like a logician, with the principle of modus ponens on your side.

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