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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?

#51

Post by rayuela »

6keZbCECT2uB wrote: post #41
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.

What do you mean by "good market conditions?" Also, we're definitely not in deflationary conditions - this implies a decrease in prices of goods. The shock to supply chains is actually going to make things more expensive. What we're really looking at is the possibility of stagflation - inflation + fall in demand.

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

#52

Post by Ididntdothis »

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.

Ten years ago a lot of people learned that housing is not as safe as they thought.

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

#53

Post by nemonemo »

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!"

That is not true. There are nearly risk-free methods of making investment returns, and when the upside is small but risk is minimal, leverage is the way to amplify the upside. Playing lottery means high risk of losing money and that is not an investment, though the line may seem blurry. (Some turn lottery into a reasonable investment, so it is truly blurry.)

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

#54

Post by rayuela »

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…

Thank you for commenting. Too many arm chair economist talking out their bums in these threads. I'm always reluctant to even look at these discussions now a days due to the poor quality of the comments, but your comment gives me hope.

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

#55

Post by walshemj »

Ididntdothis wrote: post #43
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.

Not really binary bets or\day trading are gambling, if you can afford it and have spare cash it would make sense over the long term to invest - though not in individual shares for most.

As Benjamin Graham said “Buy when most people, including experts, are pessimistic, and sell when they are actively optimistic.”

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

#56

Post by AndrewKemendo »

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!"

I agree with this, it's basically just a more sophisticated version of gambling.

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

#57

Post by SketchySeaBeast »

nemonemo wrote: post #53
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 is not true. There are nearly risk-free methods of making investment returns, and when the upside is small but risk is minimal, leverage is the way to amplify the upside. Playing lottery means high risk of losing money and that is not an investment, though the line may seem blurry. (Some turn lottery into a reasonable investment, so it is truly blurry.)

> There are nearly risk-free methods of making investment returns

Do you have suggestions for these?

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

#58

Post by enilakla »

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…

Sounds like a recipe for disaster for many

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

#59

Post by wsetchell »

For the most part, the standard strategy still works fine; spend less than you earn, keep an emergency fund, invest in low-fee stock/bond funds like the ones recommended here https://www.bogleheads.org/wiki/Three-fund_portfolio.

As real interest rates go lower, the cost of capital goes down. That would make some capital intensive businesses possible/profitable that wouldn't be otherwise.

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

#60

Post by SketchySeaBeast »

elsewhen wrote: post #48
ilikerashers wrote: post #37

Earlier quoted context omitted.

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.

And the US treasuries won't even keep up with inflation. If you invested yesterday you'd need to lock in for at least 20 years before you got even 1% return.
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