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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?

#81

Post by stevesimmons »

SketchySeaBeast wrote: post #61
walshemj wrote: post #55

Earlier quoted context omitted.

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.

Even if your parents put everything in the stock market, they would presumably draw down that capital gradually over the coming 20+ years.

i.e. They are diversified over time.

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

#82

Post by thorwasdfasdf »

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…

but we're not having deflation. With fewer and fewer people working, there's less and less supply with even larger demand, now that they're printing money like never before. As a result, we're going to get really really serious inflation of over 2%, 3%, maybe even more than 3%.

It doesn't sound like much because we've become innured to it. But, it's really bad. Just think, you earned 100K in 1 year and 1 year later it's only worth 97K. That's a tax of 3K just for holding on to your money, on top of all the taxes that already exist (Govt spending is 40% of GDP ~ and that's just nationwide.)

After just 20 years of 3% inflation, your money is worth half of what it was when you earned it. What's the point of government if they can't even provide a stable currency? Is the expectation that everyone must now buy equities and real estate? Are we to go back to bartering?

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

#83

Post by burntoutfire »

tathougies wrote: post #72
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!"

This is absolutely bonkers. Leverage is not the lottery. IS buying a house a lottery? Then why is other property different?

Buying it during a housing market bubble is - you can't effectively tell if the bubble will pop or keep growing.

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

#84

Post by marcus_holmes »

pjc50 wrote: post #47

> 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: - th…

This is a really good time to start a business. Established competition will be struggling because their spending is based on "normal" business but their revenues got hit. When the lockdown stops there's going to be a spending surge (because everyone has been forced to save for months).

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

#85

Post by mindslight »

munificent wrote: post #73
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 think your natural argument rests on the idea that money is somehow a time-independent measure of "effort" but I don't know if that really makes sense.

I agree that is part of my argument. People certainly treat money as if it should be a time-independent measure of effort. Is there another objective metric that you can imagine money representing?

I do not think it makes sense to insist that money can only ever be subjective based on the possibility that transients can occur - eg a factory burning down does cause natural price inflation, but this is an exception rather than the rule.

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

#86

Post by pba »

marcus_holmes wrote: post #68
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…

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.

The market falling as a whole does not mean that every single individual investment one could have a position in during that time loses value.

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

#88

Post by mancerayder »

mrfredward wrote: post #24

So the time value of money is more or less zero now and loan rates depend much more on default risk than any opportunity cost in loaning the money. To an economist, the implications of that might be big, but to a regular person, it's really a small shift in possibilities. A savings account at 0% doesn't build wealth, but it didn't really do that 3 months ago at 1.5%. Personal loans at 9% aren't much better than loans…

I just sold a home days before the pandemic hit, and consider myself very lucky.

But now I have cash and I'm nervous inflation might start becoming a real problem.

I'm also worried that dense American cities are going to have a huge drop in property values, desirability, and an increase in crime. I am seeing this right now, and a lot of sentiment from people with money is to never come back.

It's a tough call. Is this a good time to buy property if there's a crash in six months?

Will there really be asset inflation of properties if there's a commercial default explosion about to happen (hurting banks), if a lot of people are unemployed, and if cities become a little less popular? Crime is spiking in NYC right now and it's not really a priority to report it.

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

#89

Post by mancerayder »

marcus_holmes wrote: post #70
mindslight wrote: post #45

Earlier quoted context omitted.

> 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.

Ditto. And in this crisis, they're suspending evictions and presumably suspending mortgage payments too. I feel very lucky to have gotten out of that chain. Now I'm renting and fairly comfortable compared to the much larger structure I used to own which included land (now I'm in a one bedroom condo). I just wish I could drill a pull-up bar and TV articulating arm into the wall.

However, I'm able to rent and live in a much nicer area than where I could afford to buy.

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

#90

Post by pbk1 »

SketchySeaBeast wrote: post #61
walshemj wrote: post #55

Earlier quoted context omitted.

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.

In addition to the withdrawal rate as others have mentioned, the prudent approach to retiring now would be gradually changing their allocation to a less risky mix over the course of several years. Had for example they rotated some equity into a modest amount of Treasuries, that portion of their portfolio would actually be doing well right now (see for example $TLT).
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