Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

I'm Too Risk-Averse for Index Investing

paranoidvalueinvestor.substack.com

Post reply on HN
Print view View original

231–240 of 286 posts

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

#231

Post by matheusmoreira »

buzzdenver wrote: post #208
matheusmoreira wrote: post #172

Earlier quoted context omitted.

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.

Where do they get better information?

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

#232

Post by ryandrake »

scarface74 wrote: post #221
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…

IRAs have income limits. Series I bonds by definition only keep you level with inflation. Which doesn’t help if house prices, rent and healthcare continue to outpace inflation. L

As you probably know, if you are above the normal IRA income limit, you can sidestep the limit for at least a Roth IRA via the Backdoor Roth [1] by converting post-tax IRA contributions to a tax-advantaged Roth. There are a few rules you need to keep in mind, but it's a good option.

You can also use an in-service distribution to move after-tax 401(k) contributions into your Roth IRA, the so-called Mega Backdoor Roth [2].

You need pretty high income and (for #2) a cooperating employer to make these work, but they're options for people who want to save even more tax-deferred. The proposed Build-Back-Better Act this year effectively removes [3] both 1 and 2, (so much for Biden's promise to not raise taxes for people making less than $400K) so this might be the last year to be able to do this.

1: https://www.nerdwallet.com/article/investing/backdoor-roth-i...

2: https://www.nerdwallet.com/article/investing/mega-backdoor-r...

3: https://www.asppa.org/news/crs-highlights-budget-bill’s-impa...

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

#233

Post by buzzdenver »

matheusmoreira wrote: post #231
buzzdenver wrote: post #208

Earlier quoted context omitted.

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.

Where do they get better information?

A CEO will answer Blackrock's phone call, not yours. Hedge funds can afford to hire analysts and buy information because they have many orders of magnitude more under management than you or me.

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

#234

Post by atombender »

anonu wrote: post #229
atombender wrote: post #193

Earlier quoted context omitted.

No. The S&P 500, like most other market-cap-weighted indexes, uses float-adjusted market cap, meaning that they exclude shares owned by other public companies when computing the weightings. So the fact that BRK.A owns shares in other companies in the index is accounted for; you don't get double counting, and so your exposure is not inflated.

You're right on float adjustment. But shares of coke held by Berkshire are still considered part of float.

The S&P considers the shares of Coke held by Berkshire to be excluded from the float. S&P's float adjustment methodology is described here [1]:

"Float adjustment excludes shares that are closely held by control groups, other publicly traded companies, government agencies, or other long-term strategic shareholders."

[1] https://www.spglobal.com/spdji/en/documents/index-policies/m...

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

#235

Post by [deleted] »

bumby wrote: post #222
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…

> individual stocks also have the same systemic risk What do yo mean by the "same" systemic risk? Yes, all stocks have some systemic risk, but at varying levels as measured by beta. I wouldn't say that's the same. That's like saying all sports have the same injury risk. Sure, there's some inherent risk in every sport but at varying levels. There's an older investment technique called "betting-against-beta" that selec…

[deleted]

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

#236

Post by challenger-derp »

glofish wrote: post #134

Go to Fidelity.com and search for VTV (Vanguard Value Index Funds) Plot the stock price then select compare to SP500. You can select 1 year, 2 year, 5 year, 10 year, Max range What will you find? For all of those ranges SP500 outperformed VTV. The longer the the period, the larger the margin. As an example over 10 years SP500 went up 220% VTV went up 160% Now your choice is to trust paranoidvalueinvestor.substack.com…

An assumption being made here is VTV is the kind of value investing you would (personally) define as value investing. I don't know VTV's methodology, but I've encountered ETFs by reputable companies that are quite shabbily managed for their claimed goal.

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

#237

Post by BeetleB »

eatsyourtacos wrote: post #205
BeetleB wrote: post #176

Earlier quoted context omitted.

> 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…

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

"There are always people" is a very different statement from "most people who invest will continue to".

Any time you lower taxes, you significantly increase investment opportunities because suddenly many unprofitable investments suddenly become profitable. In the investment circles I'm in, most people invest in things that perform lower than the S&P 500 because these are both safer, and more profitable due to the tax benefits. Remove the tax incentives, and easily 90% of the folks I know would pull out.

> 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.

It's not the "default" way. You can choose not to put in any money in 401Ks and go to more traditional approaches - things like real estate and other businesses where you have much more control over the outcomes. You can even use IRA money to do this, as well as some 401K plans.

And then you'll find out you're more likely better off with the "traditional" investing.

BTW, raising SS tax to 10% to double the returns - it's still not enough. The estimate is that SS will fund only a quarter of the expenses for most retirees. Doubling the returns means it will fund only half of their expenses.

> This entire system was created to benefit people who already have lots of capital.

This should not come as a surprise. There's a reason it's called "capitalism". For pretty much forever, the system in the US benefited those with capital, and the path to riches is to find a way to acquire some capital to let it grow. Being well off just by virtue of an salary is a fairly recent trend, and always has taken the back seat with respect to capital based investments, and always will in the US. It took a while for me to realize this (in retrospect) obvious aspect of the US economy. I can whine about it and try to change the collective psyche of a whole country, or I can find another place to live, or I can make compromises and put more focus in acquiring capital.

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

#238

Post by pixodaros »

A wise person outside the USA once wrote that they never met someone who failed to meet their savings goals because they only earned the market rate on their stocks, but they met many who failed because they did not earn enough, did not save enough, kept their savings in cash, or paid high fees for their investments.

Its hard for an individual investor with a few months' to a few years' average income in investments to diversify effectively and not eat up their money in transaction fees and their time researching dozens of companies (including many foreign companies).

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

#240

Post by discardedrefuse »

everfree wrote: post #196
discardedrefuse wrote: post #139

Earlier quoted context omitted.

> If you don’t like stocks keep it in bonds or cash. This is disingenuous advice considering all financial vehicles for savers have been gutted. You can't even hedge inflation without the stock market (or real estate, if you can afford the buy-in). Take a look at some historical CD rates. https://www.bankrate.com/banking/cds/historical-cd-interest-...

> This is disingenuous advice considering all financial vehicles for savers have been gutted. When you say "all financial vehicles for savers", you're really just referring to liquid savings products tied to the federal funds rate, right? Of course when the government stops handing out money to savings account holders, savings account holders will no longer be making money. Corporate bonds are an alternative way to e…

Yes, I am kinda referring to liquid savings products. But it doesn't have to be just that. I think people need simple products that aren't tied to all the shenanigans that go down on wall street. Which is really nothing right now; not even real estate. Someone mentioned TIPS below, but its kinda complicated and not very liquid (5 year maturity, secondary market).

I've been watching the rate hikes. The cynic in me says borrowing rates will rise, but consumer savings rates will not rise in step, nor will housing prices fall accordingly. But I guess we'll see.

Post reply on HN