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I'm Too Risk-Averse for Index Investing

paranoidvalueinvestor.substack.com

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

#201

Post by syntheticcdo »

lemax wrote: post #109

Doesn't dollar cost averaging avoid the whole issue of timing the market? Index investing feels fairly safe to me with DCA if you can stick with it.

If you have $120k today and the choice is invest $120k immediately or $10k a month for the next 12 months, based on historical trends, it is better to invest the 120k today -- studies have shown lump sum beats DCA about 2/3 of the time.

Naturally, if you have $0 today, but are going to have 10k of additional free cash each month for the next 12 months, then 10k each month as soon as possible beats waiting a year for the full 120k.

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

#202

Post by jacobr1 »

Traster wrote: post #94

So there's two things I don't really understand this article. Firstly, what is the difference between you "value investing" your own money, and sticking your money in a hedge fund which does "value investing" for you? Other than the fact that you're doing this in your spare time whilst the hedge fund manager is doing it full time. Surely what this article is basically saying is "89% of hedge funds underperform the in…

In the first case, I agree. One can cherry pick past data and find some basket of stocks that outperforms the market. But in practice the funds that do this tend to underperform, so it seems like something that is unlikely to be successful in practice.

The second point is more interesting. The author is arguing the current simple heuristic for "value indexes" is over-inclusive. He cite two specific classes of stock for this: cyclical stocks (like gun manufacturers) and those in long-term decline (like malls). If the author is right, there probably is a way to revise these indexing heuristics (still not specific stock picking). I think the smart-beta wave a few year back tried some things like this.

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

#203

Post by bleuchase »

dhosek wrote: post #148
bleuchase wrote: post #52

Earlier quoted context omitted.

> There's something really insidious about tying 401ks and other retirement accounts to the stock market. Insidious? That’s a bit rich. You can allocate money in your 401k however you want. It’s self-directed. If you don’t like stocks keep it in bonds or cash.

Most 401(k)s have around 20 options at most (of which half or more will be target date funds). My current employer's 401(k) steals $4.33/month from my account for management fees which is on top of the management fees for the individual funds' management fees.

And what about the other half? Probably options with fewer or no stocks. You can also do in-service rollover to an IRA somewhere else with more options and no custodial fees.

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

#204

Post by unmole »

eatsyourtacos wrote: post #199
unmole wrote: post #68

Earlier quoted context omitted.

> We should be taxing people more, and guaranteeing much higher social security What you're saying is young working age people should pay for those who didn't save for retirement? And what happens when a recession hits anyways and the tax base takes a hit?

>What you're saying is young working age people should pay for those who didn't save for retirement? Nice way to twist my words. If the system worked like I'm describing from the beginning, you wouldn't even be able to say that. Because you wouldn't need to save a substantial amount of money in a better system- everyone would have been paying it all along. And a new young working age person would be paying more, but…

> Nice way to twist my words.

I am pointing out the consequences of what you're suggesting.

> If the system worked like I'm describing from the beginning

I thought we were discussing the real world as it exists, not Narnia.

> You pull in a little more money from taxes

Even more taxes! Does it ever end?

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

#205

Post by eatsyourtacos »

BeetleB wrote: post #176
eatsyourtacos wrote: post #127

Earlier quoted context omitted.

How about re-increasing the corporate tax rate? How about taxing self employed people social security/medicare without a cap instead of stopping at ~140k? How about massively increasing long-term capital gains, or even just getting rid of it. Income is income- tax it the same. Even just increase the standard tax on people. If the average person paid 10% instead of 7.5% into SS/medicare but their SS doubled in the lon…

> How about re-increasing the corporate tax rate? No argument there. > How about taxing self employed people social security/medicare without a cap instead of stopping at ~140k? Why limit this to self employed people? The cap is there for all workers. And self employed people pay double the tax - if you are not self employed, your employer is paying half of it. Self employed people already have a larger burden. > How…

>Why limit this to self employed people? The cap is there for all workers. And self employed people pay double the tax - if you are not self employed, your employer is paying half of it. Self employed people already have a larger burden.

I know, I am self employed. I didn't think there was the same cap for all workers? If there is, then I agree it should be removed (or at least substantially increased).

>Because then people won't invest in ... much

Yes they will. There are always people who still want to make more money.

>If you think investing is such a bad thing with low returns, then let them have their long term capital gains tax.

I never said it's low returns- I said it's a bad thing that this is supposed to be the default way to make money. There's a huge difference there in philosophy.

And look.. the LT capital gains is not my first go to exactly.. but, I do think it's far too low and again it's something that just disproportionately advantages the rich.

Honestly that's my whole point on the investing front. This entire system was created to benefit people who already have lots of capital. My view is hoarding capital to make more capital should not be the goal of life.. but greed knows no bounds.

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

#206

Post by atombender »

dhosek wrote: post #137
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.

Whenever I hear the words “Bloomberg terminal” I get a mental image of a VT-series CRT and keyboard connected to a distant mainframe sitting off to the side of a room full of traders with men in suits waiting their turn to type in their queries. I’ve assumed that it’s actually just software these days but it turns out that it also requires a specialized keyboard (which includes biometric authorization based on my qui…

A Bloomberg terminal runs a full-fledged GUI app [1]. It's true that it's very keyboard-focused (with terse text commands and shortcuts for everything), and most of us probably wouldn't describe it as flashy or even modern, but it's not a text mode terminal in the sense you're describing.

The core functionality — trading, charts, financial data, news — that the Bloomberg terminal provides traders is also available from places like Schwab (StreetSmart), TD America (ThinkOrSwim), and so on, but the Bloomberg terminal is just a lot more stuff.

Interestingly, one of the things that apparently add the most value (and which competitors struggle to disrupt) is the social networking built in that allows traders to chat and gossip with each.

[1] https://youtu.be/2ee-x6IXWK8

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

#207

Post by [deleted] »

brightball wrote: post #161
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…

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…

[deleted]

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

#208

Post by buzzdenver »

matheusmoreira wrote: post #172
oliv__ wrote: post #166

Earlier quoted context omitted.

"Investing is heavily biased for favoring large players" How?

I assume it's because large investors move huge amounts of money. When they trade, they cause ripples all over the market. When we trade, the price barely changes.

That is an advantage for the little guy though. If I sell 10 shares when the price is $100, then I'll get $100/share. A huge investor selling 1,000,000 of the same shares might move the price to $98 and average $99/share. Obviously these are made up numbers, and you don't sell a million shares by using just one market order, but the principle is the same. Large investors do have advantages, like better information.

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

#209

Post by ryandrake »

nullc wrote: post #186
ryandrake wrote: post #171

Earlier quoted context omitted.

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 un…

Yea, I'm not saying I-bonds are great investments, but they are good if 1. your investment goals emphasize tax deferral/avoidance and 2. you need to diversify an equity heavy portfolio. I agree with OP in that you don't really need an advisor if you're just contributing to your retirement plan, and I'd add "...or to other tax-deferred accounts that don't offer much choice in securities". The types of investments I listed don't require any thinking or research. Just buy-and-forget.

I would personally argue you shouldn't be touching regular taxable investments like buying individual stocks or ETFs until you've literally maxxed out every tax-deferred options, but that's a more controversial opinion over which reasonable people can disagree.

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

#210

Post by eatsyourtacos »

jstx1 wrote: post #200
eatsyourtacos wrote: post #195

Earlier quoted context omitted.

>If you have money, you need to allocate it in some way Why do you "need" to allocate it? This is my whole point. Everyone acts like "oh my god, I must have my money making more money!" What the hell do you think 80% of the country who has no substantial assets do? They can't do anything. The whole concept of getting rich off your own money is honestly sickening to me. >how are you allocating yours in a way that isn'…

My point is that not allocating it is not an option. If you have it, it's in something, and that something is an allocation decision that you've made (even if it's cash). You can decide to not participate in the stock market (and that's fine) but then your money will be in cash, in the equity in your house or in anything else you buy with that money. Picking those assets over the stock market is still an investment d…

>Picking those assets over the stock market is still an investment decision, and that decision comes with its set of risks and potential returns.

I see your point, but I honestly think it's a nuance you say it's an "investment decision" to say keep it in cash instead of the stock market. Am I almost making a decision to keep money in cash instead of beanie babies? Yeah I guess, but that doesn't really change my argument.

Even from your viewpoint, you personally probably feel that you "need" to invest yourmoney to keep making money so they have more money in the future. Most people think that you have to. And hey, they aren't really wrong. The system basically forces you to "invest" in the market because that's the only way you will have any money for retirement.

But that is where I think the system is completely broken. It SHOULD be a choice, but it's not. And it's my entire point, the system was shifted from company retirement/ss to putting ALL the risk on the individual (to hopefully make money in the market) AND they artificially make the market keep going up which benefits wealthy people even more.

And I'll reverse the problem here- I don't think you are "choosing" to invest in the stock market. You are investing in the stock market because by design it's basically the only choice. That is the issue.

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