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Ask HN: How to prosper under negative interest rates?

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Re: Ask HN: How to prosper under negative interest rates?

#41

Post by 6keZbCECT2uB »

qeternity wrote: post #8

You have to look at real rates, not nominal rates. The only markets that have negative nominal rates are battling deflation (which the US is not) or have serious liquidity concerns at the moment. The Fed is unlikely to go negative as they face a very different beast. Here's a quick example. Let's say you're in a deflationary environment: in 1 year, your money actually buys you more than it did last year, let's say fo…

When was the last time that the United States had a deflationary period during good market conditions?

This might be a pretty new condition for some people.

Re: Ask HN: How to prosper under negative interest rates?

#43

Post by Ididntdothis »

chvid wrote: post #25

You don't build wealth by saving. You do it by investing using leverage. The system subsidises debt and risk-taking (within limits) by inflation and the structure of the tax system. You need to let go of the idea that it is immoral. Buy a house and when you can buy a bigger house. Put your money in the growth part of the stock market (technology ... big names like Apple and Amazon is good). Use your income to take on…

This is gambling. If house prices or stock markets go down you suddenly sit on a big pile of debt. The debt is low interest rate but it’s still debt.

Re: Ask HN: How to prosper under negative interest rates?

#45

Post by mindslight »

ping_pong wrote: post #36
al_chemist wrote: post #31

Earlier quoted context omitted.

> You don't build wealth by saving. You do it by investing using leverage. For some reason, this sounds like "you don't build wealth by saving. You do it by lottery and scratchcards!"

That's because you don't understand finance. Leverage is the easiest way to make a larger percentage on your money, as long as it's used prudently. Borrowing money to buy real estate and then collect income is a very common way to leverage your money. Over time that builds real wealth. My friend has bought 5 properties and is renting them all out. When he retires, the properties will have been paid for, and the renta…

> Borrowing money to buy real estate and then collect income is a very common way to leverage your money. Over time that builds real wealth. My friend has bought 5 properties and is renting them all out

This only "builds real wealth" for one person. For the larger system consisting of all 6 people, it's a net loss (the interest payments are still leaving, upwards). We've built a financial system where it is in everybody's self interest to make everybody else worse off.

The positive sum progress from the economy was enough to outrun this setup when there was abundant energy and foreign countries to colonize, hence the focus on "growth". But that era is over, and we're now stuck with a black hole of debt that still needs to be serviced...

Re: Ask HN: How to prosper under negative interest rates?

#46

Post by soperj »

ping_pong wrote: post #36
al_chemist wrote: post #31

Earlier quoted context omitted.

> You don't build wealth by saving. You do it by investing using leverage. For some reason, this sounds like "you don't build wealth by saving. You do it by lottery and scratchcards!"

That's because you don't understand finance. Leverage is the easiest way to make a larger percentage on your money, as long as it's used prudently. Borrowing money to buy real estate and then collect income is a very common way to leverage your money. Over time that builds real wealth. My friend has bought 5 properties and is renting them all out. When he retires, the properties will have been paid for, and the renta…

That's fine unless he was in Detroit.

Re: Ask HN: How to prosper under negative interest rates?

#47

Post by pjc50 »

> I was brought up to work diligently, not take on debt, and save - a simple approach to building wealth

This basically doesn't build wealth, it builds a pile of money which you can draw down in the future. Not nothing and good to have at the base of a pension, but once you've gone beyond the basics it doesn't do much. It's mere deferred consumption, it's not making anything.

Now you have to face three problems:

- there are people out there with many orders of magnitude more money than you. They don't know what to do with it either. This is why rates are so low.

- the risk/reward tradeoff is real. Real estate and equities are popular but both can fall off a cliff suddenly. To successfully invest in either you need to be able to wait out the bad years without cashflow problems.

- we're in a period of massive uncertainty. It's a pretty bad time to start a business .. unless you have a clever plan for the pandemic.

If you can buy distressed property or businesses at the "end" of the pandemic, and the pandemic ends and the economy returns to the old normal, you could do very well. If.

Re: Ask HN: How to prosper under negative interest rates?

#48

Post by elsewhen »

ilikerashers wrote: post #37
al_chemist wrote: post #31

Earlier quoted context omitted.

> You don't build wealth by saving. You do it by investing using leverage. For some reason, this sounds like "you don't build wealth by saving. You do it by lottery and scratchcards!"

You're equating buying a house to buying a lottery ticket. These are opposite ends of the risk scale. These are not alike in any way.

I agree that lotteries are close to one side of the risk scale but real estate is closer to the middle than to the other extreme. The other extreme is U.S. treasuries. The last recession was a great illustration of the risk inherent in real estate.

Re: Ask HN: How to prosper under negative interest rates?

#49

Post by [deleted] »

al_chemist wrote: post #31
chvid wrote: post #25

You don't build wealth by saving. You do it by investing using leverage. The system subsidises debt and risk-taking (within limits) by inflation and the structure of the tax system. You need to let go of the idea that it is immoral. Buy a house and when you can buy a bigger house. Put your money in the growth part of the stock market (technology ... big names like Apple and Amazon is good). Use your income to take on…

> You don't build wealth by saving. You do it by investing using leverage. For some reason, this sounds like "you don't build wealth by saving. You do it by lottery and scratchcards!"

[deleted]

Re: Ask HN: How to prosper under negative interest rates?

#50

Post by wsetchell »

mindslight wrote: post #33
qeternity wrote: post #8

You have to look at real rates, not nominal rates. The only markets that have negative nominal rates are battling deflation (which the US is not) or have serious liquidity concerns at the moment. The Fed is unlikely to go negative as they face a very different beast. Here's a quick example. Let's say you're in a deflationary environment: in 1 year, your money actually buys you more than it did last year, let's say fo…

> in 1 year, your money actually buys you more than it did last year, let's say for instance, 2% more. Under this weird environment It's worth pointing out that this is not "weird", but rather the natural state of things! The effect is so strong in computing that we still see it, but technological progress means everything in general gets easier to produce. This policy that "prices must always go up" is itself the ab…

I don't think deflation is the natural state of things. Even before fiat currency the money supply grew (e.g. gold mines) and we had inflation.

Productivity growth is normal-ish, but the amount you prices have been all over the place throughout history.

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