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

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

#181

Post by nullc » Fri, Mar 18, 2022, 4:17 PM UTC

brightball wrote: post #8

impostervt wrote: post #2

Buying value stocks may be better than buying an index, but identifying value stocks is hard and time consuming. Wouldn't the average investor be better off buying index funds, since the average investor does not have the time, inclination, or training to find value stocks?

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…

> average investor should probably be using a financial advisor

I've known more than one person with an advisor that shuffled them into opportunities that made money for the advisor or had complicated stories so that it sounded like the advisor was providing value-- and as a result massively underperformed the market.

The best advice for the average investor is extremely simple... and not worth paying a lot to receive since you can get it for free from bogleheads. As a result there are a lot of free or cheap advisors that make their money from customers in other ways ... and not necessarily to the customer's benefit.

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

#182

Post by mooreds » Fri, Mar 18, 2022, 4:19 PM UTC

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…

Indeed.

Index funds or any investment choice are not just about return, they are about return on investment. And the investment I'm considering here is my time and energy.

Grant the OP the fact that value investing is a good idea. If I don't want to invest time and energy on evaluating businesses (and the author makes the point that it is really hard to do, with his examples of malls and Smith and Wesson), then what are my options?

* Trust someone else to do this. But he makes the point that active investors almost always underperform the market.

* Buy everything (aka an index fund) and hope the winners outgrow the losers.

* Stay out of the market and invest in other sectors which might have good returns (my skills, real estate). These have their own risks and costs.

The alternative is to try to best the market as a part time investor, which to me feels like a loser's game.

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

#183

Post by BeetleB » Fri, Mar 18, 2022, 4:20 PM UTC

> The Little Book That Still Beats the Market

Go look at people's experiences investing using the advice in this book. It typically is negative. Also, the book really is just a giant ad to subscribe to the author's stock picker.

> Professor Aswath Damodaran

I've attended his talks. Very entertaining, but he conveniently sets up his valuations in a way that they can't/shouldn't be tested. He even pointed out that it's entirely 100% speculation based on story telling, and that he doesn't care if it's accurate.

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

#184

Post by lotsofpulp » Fri, Mar 18, 2022, 4:22 PM UTC

paulpauper wrote: post #111

throw0101a wrote: post #83

Earlier quoted context omitted.

Berkshire Hathaway has under-performed the S&P 500 for >10 years now. And one of the main reasons why they're doing so well at all is probably because they have a sizeable holding of AAPL.

i don't think it has. also, it has less volatility.

How do you define volatility? How can a market weighted index of the top 500 publicly listed US companies be more volatile than a single company? Which itself is 25%+ invested in a single other company and then the rest spread out over a handful of other companies.

Edit: also, BRK’s outsize AAPL investment is the only reason BRK is even close to keeping up with SP500 index.

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

#185

Post by FastMonkey » Fri, Mar 18, 2022, 4:23 PM UTC

dtwest wrote: post #141

Reading HN comments about the stock market is like listening to a bunch of MBAs talk about software engineering.

A lot of the posts and comments I see on here are made by people in the dangerous phase between becoming interesting in markets and actually having experience.

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

#186

Post by nullc » Fri, Mar 18, 2022, 4:23 PM UTC

ryandrake wrote: post #171

scarface74 wrote: post #81

Earlier quoted context omitted.

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…

Extremely few people can actually max out all of their tax-advantaged opportunities, including retirement plans. Some examples, assuming a married couple: 401(k): $61,000 (under 50 years old), $67,500 (50 and older) each This is the 2022 tax year limit for all contributions, including effective deferral ($20,500 or $27,000 for 50+) plus employer matches and any post-tax contributions. IRA: $6,000 each Either Roth or…

You can't hit those 401k numbers without employer cooperation (e.g. being self-employed)... I don't think it's reasonable to say that someone paying the $20,500 annual max isn't maxing it out.

> For example a Series-I bond ... current rate is 7.12%

Entirely from the variable part-- their fixed rate is 0% right now, and since the interest is taxed when you close the bond, this is an investment that is guaranteed to under-perform inflation (even if you don't believe their variable rate systematically understates real inflation).

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

#187

Post by gruez » Fri, Mar 18, 2022, 4:23 PM UTC

fullshark wrote: post #164

scarface74 wrote: post #84

Earlier quoted context omitted.

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.

And how do you think social security works? You either have a prefunded model, which has to still invest in something (ie. stocks), or a pay as you go model, which is essentially taking money from our children to fund our retirement.

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

#188

Post by Thrymr » Fri, Mar 18, 2022, 4:26 PM UTC

This idea that even professional money managers, let alone amateurs with their own retirement funds, can consistently beat a market index has been debunked for decades by Jack Bogle, Burton Malkiel and others. There is still no good evidence that anyone (no, not even Warren Buffet) can reliably beat the market, and even if there were, you as an average investor would have no chance of identifying them before the fact. Play the market if you want, but don't think you can beat it, and keep the bulk of your long-term savings in index funds.

[0] https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street

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

#189

Post by albertwang » Fri, Mar 18, 2022, 4:27 PM UTC

dtwest wrote: post #141

Reading HN comments about the stock market is like listening to a bunch of MBAs talk about software engineering.

I definitely get your point, but over-generalized comments like these are also dangerous.

Just as there are many MBAs who were or are veteran software developers, the HN community is large enough that there are many members who are professional investors.

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

#190

Post by twobitshifter » Fri, Mar 18, 2022, 4:29 PM UTC

vishnugupta wrote: post #135

lordnacho wrote: post #82

Earlier quoted context omitted.

If you have a Bloomberg terminal, you can look up the corresponding total return indices. German DAX is a rare example of a total return index IIRC. I don't think it changes his conclusions much, the indices can easily fluctuate by more than what you bank in dividends.

> If you have a Bloomberg terminal Sorry, but I must point out that if you have access to Bloomberg terminal then it almost certainly implies that your full time job is market research & investment. A Bloomberg terminal costs between $20K - $24K per year .

Many large university libraries will have a terminal if you know who to ask and where to look.