I'm Too Risk-Averse for Index Investing • Hacker News Board

Re: I'm Too Risk-Averse for Index Investing

#161

Post by brightball » Fri, Mar 18, 2022, 3:53 PM UTC

scarface74 wrote: post #81

brightball wrote: post #8

Earlier quoted context omitted.

All completely true. The average investor should probably be using a financial advisor. One of the biggest reasons that most of these funds work is the volume of people in the US with 401k plans that have fund-only options. Every pay period the stocks in these funds get automatically purchased without many decisions involved so you're going to continue seeing them steadily and safely increase. Ultimately, investing b…

No one should be using a financial advisory unless they are a fiduciary who gets paid based on the amount of assets under management. Most people don’t need a financial advisor when they are in the accumulation phase. After paying off high interest debt, save 3-6 months in retirement, put as much as you can in an index fund or a target date fund in a 401K and call it a day. Most people can’t afford to max out their r…

The 401k funds are effectively an automated advisor.

It’s tough to draw the line in a conversation like this because I completely agree with everything you said.

An advisor only comes in at the point that a person is investing their money directly and consistently. Your average person doesn’t have the market knowledge or the time to learn it so an advisor is likely the best bet for the average person in that scenario.

Anyone willing to do some research and learn will likely find their own comfort zone without an advisor.

Re: I'm Too Risk-Averse for Index Investing

#162

Post by someelephant » Fri, Mar 18, 2022, 3:54 PM UTC

Would be better off getting some therapy and buying index funds. I'm guessing in the long run this person would make a lot more money even after paying for therapy.

Unless the plan is to turn this into a paid subscription newsletter. In that case, there are tens of thousands of similarly high anxiety people looking for a similar way out that are willing to pay for this.

Paid investment advice is a form of therapy when you think about it.

Re: I'm Too Risk-Averse for Index Investing

#163

Post by cesarb » Fri, Mar 18, 2022, 3:54 PM UTC

gargarplex wrote: post #20

cissou wrote: post #16

Earlier quoted context omitted.

100%. European markets are known to pay out more dividends whereas the US market is known to prioritize stock price growth. Return-wise that makes no theoretical difference.

Makes a huge difference when considering the tax implications.

Indeed it does. Here in Brazil, for instance, dividends are not taxed, while selling a stock (to take advantage of growing stock prices) has a capital gains tax of 15%.

Re: I'm Too Risk-Averse for Index Investing

#164

Post by fullshark » Fri, Mar 18, 2022, 3:55 PM UTC

scarface74 wrote: post #84

assbuttbuttass wrote: post #15

There's something really insidious about tying 401ks and other retirement accounts to the stock market. People including myself end up with a large portion of our assets essentially gambled on the future success of US corporations. It gives some false legitimacy to this idea that our media is constantly pushing, that if the stock market is going well then regular Americans are doing well.

Do you have an alternative? Would you trust the government to manage it?

Social security is the alternative and it's going to be inadequate for most of the people posting here I'm sure.

Re: I'm Too Risk-Averse for Index Investing

#165

Post by jliptzin » Fri, Mar 18, 2022, 3:56 PM UTC

I think the point of putting retirement money in an index fund is that you are basically in the same boat as everyone else. If the economy stagnates for 30 years and your money hasn't grown during that time, the same is true for everyone else so your buying power has stayed the same. If there was some kind of market catastrophe and you lose 90% of your money, again everyone is in the same boat as you so at that point you are probably looking at some form of government intervention to keep you whole. On the other hand if you put your money in some alternative assets that didn't do so great and only returned 20% while the S&P returned 1000% over that time then you are really in a bad situation that no one is going to help you out of.

Re: I'm Too Risk-Averse for Index Investing

#166

Post by oliv__ » Fri, Mar 18, 2022, 4:00 PM UTC

marcosdumay wrote: post #152

lottin wrote: post #117

This is not very good advice. An index investor is exposed to systemic risk, that is, risks that affect the market as a whole, but the problem is you can't escape systemic risk by investing in individual stocks, because individual stocks also have the same systemic risk... in addition to other risks which are collectively known as idiosyncratic risk. In short, stock-picking is always inherently more risky than index…

Even if he does beat the market, and you manage to pick the same stocks as he, at the same time, it doesn't mean you will also beat the market. Investing is heavily biased for favoring large players. A normal person has to take that bias into account too.

"Investing is heavily biased for favoring large players"

How?

Re: I'm Too Risk-Averse for Index Investing

#167

Post by danielmarkbruce » Fri, Mar 18, 2022, 4:02 PM UTC

derf_ wrote: post #126

anonu wrote: post #97

Earlier quoted context omitted.

Interesting. Investing in Berkshire is like investing in a diversified index fund.

Maybe from 10,000 feet. Buffett only invests in certain kinds of companies (those within his "circle of competence"), so you only get so much diversity. Also, because Berkshire is a conglomerate, businesses which generate large amounts of cash (e.g., insurance float, or businesses that would pay dividends if they were a stand-alone companies) can be used to fund capital-intensive businesses (railroads, energy compani…

What will Buffett not invest in today? He used to have a tight circle of competence, but if you look at his portfolio today, you'll see financials, energy companies (of various types), technology, healthcare, industrials, consumer (staples and discretionary), media, telco. And then his guys invest even wider.

Re: I'm Too Risk-Averse for Index Investing

#168

Post by zzleeper » Fri, Mar 18, 2022, 4:02 PM UTC

derf_ wrote: post #126

anonu wrote: post #97

Earlier quoted context omitted.

Interesting. Investing in Berkshire is like investing in a diversified index fund.

Maybe from 10,000 feet. Buffett only invests in certain kinds of companies (those within his "circle of competence"), so you only get so much diversity. Also, because Berkshire is a conglomerate, businesses which generate large amounts of cash (e.g., insurance float, or businesses that would pay dividends if they were a stand-alone companies) can be used to fund capital-intensive businesses (railroads, energy compani…

You made me think. The weights of e.g. the SP500 are not ideal then.

Berkshire is in the SP500, but so are Apple, Coca Cola, Amex, BoA, etc. which are Berkshire largest investments. So if Coca Cola has an idiosyncratic hit, then you get hit twice by it: first in your KO holdings, then in your BRK.A holdings.

At the extreme, if there is a company that then invests in Berkshire and so on, you could end up overweighting a lot certain firms. Also, isn't there double counting in terms of the stock market cap?

Re: I'm Too Risk-Averse for Index Investing

#169

Post by onpensionsterm » Fri, Mar 18, 2022, 4:03 PM UTC

The link makes the point that this information should change the way you invest. I'd argue that it makes more sense to change what you invest - how much you save.

If your saving rate is defined by how much you need to save for 4-10% growth to allow you to retire comfortably, you're not saving enough. Save pessimistically & then, if you're wrong, your punishment is that you can just spend more later in life.

Of course, most people aren't well-paid SV software engineers and will find themselves unable to save this much. They might be forced to contend with the possibility that saving 10% of your gross income for 40 years is not a sustainable way to guarantee 20-30 years of continual annual leave. Public pensions became popular because the masses feared what would happen when they were too old to work. Effectively, that's a welfare net for being disabled due to old age and should be treated differently from the modern retirement ideal of a healthy, mobile adult playing golf all week.

Re: I'm Too Risk-Averse for Index Investing

#170

Post by bootwoot » Fri, Mar 18, 2022, 4:04 PM UTC

The "proof" given that hedge funds can't beat the market is very cherry-picked. The "hedge" in hedge fund is about hedging systemic risk, typically attempting to remain market-neutral. A perfect hedge-fund should have consistent returns every year. Which means it will under-perform in wild bull markets like that of the chosen year.

I don't know what the stats are across longer time-spans and/or in bear markets -- but picking a boom year as the "proof" is not useful.