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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?

#61

Post by SketchySeaBeast »

walshemj wrote: post #55
Ididntdothis wrote: post #43

Earlier quoted context omitted.

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.”

My parents retired a year ago. If they'd kept all their money in the stock market until this month they'd be in a lot of trouble, and probably will be for the foreseeable future - how is that not a gamble? "You need to diversify" would be an argument against gambling in the stock market, and getting into something safer.

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

#62

Post by [deleted] »

adaisadais wrote: post #40
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!"

Warren Buffett talks about how cash is a bad thing to have over time as it can’t keep up inflation (1). He does advocating having enough on hand to “sleep at night”. But you really can’t build wealth by stocking money away in a savings account. Trump and his administration could have really done something awesome. He essentially got given the golden ticket for presidents: create a legacy. T. Roosevelt had parka, FDR…

[deleted]

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

#63

Post by dnautics »

wsetchell wrote: post #50
mindslight wrote: post #33

Earlier quoted context omitted.

> 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.

Gold mines were not the major cause of inflation during the pre-fiat era. It was almost always deducting the precious metal content of the accepted currency, often to fund things like war.

Deflation should be the natural order of things; for example the unit real cost of food had gone down massively since the first half of the 20th century, which is a huge part of why people don't starve to death during recessions anymore.

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

#64

Post by abstractbarista »

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…

I'd just put it in a safe, and work from home with guns by my side. Saves the extra 0.5%. Rest of my money is in equities anyways, so I really only need the "emergency savings" in cash.

(Obviously big businesses can't do this.)

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

#65

Post by mkaymalright »

SketchySeaBeast wrote: post #57
nemonemo wrote: post #53

Earlier quoted context omitted.

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?

Spot-Futures arbitrage, especially if your brokers allows you to collateralize your futures position with the profits from your spot position which would allow for higher leverage on the futures side.

Let's say the futures price is higher than the spot price and there is 3 months left until maturity. You sell the same (USD equivalent) amount in the future (expensive) and buy in the spot (cheap). You just made a profit and no matter where the price goes - you're hedged. The only thing is that you're stuck with 2 positions now. Just wait 3 months until maturity and the futures and spot price will converge to the same price. Now buy in the futures and sell in the spot and you've done it!

Of course, while being pretty much risk free the upside is also limited to how much (percentually) the future is above/below the spot.

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

#66

Post by abstractbarista »

Ididntdothis wrote: post #52
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.

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

It actually is. You just can't be over-leveraged. The bank will give you waaayy more money than should ever responsibly be taken. Combined with emergency savings, you are quite safe as a homeowner.

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

#67

Post by s1t5 »

adaisadais wrote: post #40
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!"

Warren Buffett talks about how cash is a bad thing to have over time as it can’t keep up inflation (1). He does advocating having enough on hand to “sleep at night”. But you really can’t build wealth by stocking money away in a savings account. Trump and his administration could have really done something awesome. He essentially got given the golden ticket for presidents: create a legacy. T. Roosevelt had parka, FDR…

In the meantime Buffett currently holds more cash than just about anyone else on the planet - over $120 billion in cash equivalents at the end of last year.

Yes, his point that cash loses its value over time is true. No, he didn't get to where he is just by holding cash. Yes, your situation and mine are vastly different from Buffett's.

But it just shows that things aren't as simple as "cash=bad".

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

#68

Post by marcus_holmes »

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…

Which is great in a rising market, but will ruin him when the market falls (which it looks like it's about to do).

Leverage works both ways, it will amplify both gains and losses.

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

#70

Post by marcus_holmes »

mindslight wrote: post #45
ping_pong wrote: post #36

Earlier quoted context omitted.

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 everyb…

I used to own a house. Now I rent. The ability to walk away from the obligations that house-owning involve is worth a lot of money to me. I probably lose financially, maybe, but meanwhile I get to have a much better standard of living.
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