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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

#241

Post by scarface74 »

ryandrake wrote: post #232
scarface74 wrote: post #221

Earlier quoted context omitted.

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…

> 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

Most companies don’t let you do that directly. Mine allows “after tax contributions” up to 10% of base. Not to be confused with a Roth 401K.

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

#242

Post by everfree »

discardedrefuse wrote: post #240
everfree wrote: post #196

Earlier quoted context omitted.

> 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 say…

US savings accounts is a very competitive industry that's traditionally been very responsive to underlying rates changes. All it takes is for a single bank to decide to raise their consumer rates in response to the rates they're turning around and getting from the fed (more accurately the inter-bank lending rates, but the fed has tight control over that market).

I agree that it would be great to add more simple savings products, but you have to ask the question of where the yield will come from. If yields don't come from the fed (dictating inter-bank lending rates), and they don't come from the private sector (wall st), then where else can yields come from? What novel yield stream could a new savings product be built on?

At the end of the day, people wake up and go to their jobs to produce things, and every penny you earn in value in a savings account (past inflation) has to ultimately come from them, but not until it filters through the wall st machine.

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

#243

Post by dtwest »

albertwang wrote: post #189
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.

You are correct, some know what they are talking about. But there are also many people who think that being a smart person in one field makes them a smart person in every field. It is disrespectful, it implies that they think their field is easier than yours and it must not be that hard to figure out. It is also very easy to spot.

I did not mean to imply that everyone is one-dimensional, I personally have professional experience in the finance and software industries and have respect for the people in them. But when some finance expert suddenly becomes an opinionated epidemiologist I call bullshit (a random example that has happened far too often the past few years).

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

#244

Post by nonsapreiche »

neogodless wrote: post #104
nonsapreiche wrote: post #71

why not simple sell a market when goes up and buy it othewise?

Do you mean a timing mindset, where you hold cash until a market index drops a preset amount, and then immediately dump all cash into it, and if it rises a preset amount, you immediately sell all of it? What would those presets be? Could you model this and see how that performs traditionally?

I think more like discrete functions of capital allocation in timeframes driven by a common trend

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

#245

Post by nonsapreiche »

rootusrootus wrote: post #120
nonsapreiche wrote: post #71

why not simple sell a market when goes up and buy it othewise?

That requires hindsight. The market is frequently irrational, you'd have to know what direction it goes next. Think it's going to stop growing because it just spiked upwards? Think again, it may keep going. Think it's going to keep going because that's the trend up to now? Probably not, it'll drop like a rock for no particular reason. I took a fun little class once on algorithmically playing the stock market. The tak…

yes it's noise but sometimes is pink other is brown

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

#246

Post by jackbravo »

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…

He probably means that a systemic risk is a risk for the whole system, like the Russian and Ukranian stock markets now that they are at war.

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

#247

Post by nerdponx »

fknorangesite wrote: post #140
oarsinsync wrote: post #125

Earlier quoted context omitted.

> Yes, I know that plenty of our words today evolved out of mistakes, solecisms, misspellings, etc. But that doesn't mean we shouldn't at least try to be kind-of correct. This is literally the worst misuse of the language. (This is a joke about the way the word literally has evolved, badly)

> the word literally has evolved, badly How do you feel about the words "really" and "very"? I never really understood this fad of harping on the metaphorical usage of "literally" - it's hardly a new development: > The use of literally in a fashion that is hyperbolic or metaphoric is not new—evidence of this use dates back to 1769. https://www.merriam-webster.com/words-at-play/misuse-of-lite...

What's different about "literally" is that people mostly do know what it means, and it's more of a rhetorical device or figure of speech than a simple mistake.

As the article you quoted says, it's "hyperbolic" and "metaphorical", not solecistic.

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

#248

Post by marcosdumay »

ac29 wrote: post #211
marcosdumay wrote: post #192

Earlier quoted context omitted.

Between fixed cost fees, things that are sealed behind an accreditation process, investments that need real person to person negotiation, opportunities that aren't widely published, and even data that isn't shared with anybody that shows up, I'm really surprised that anybody can be even be mildly surprised by that phrase. There is absolutely no investment transaction where it's not obvious that larger players have it…

> There is absolutely no investment transaction where it's not obvious that larger players have it better. Even when entering in a shared fund, more money means lower fees. Fees are so low on index funds that I'm not sure this is really true any more. VTI, the largest broad US stock market ETF, has fees of 3 bp (0.03%). Fidelity even offers some zero fee funds like FZROX (presumably actual expenses are subsidized by…

Yes, ironically one of the forms of investment that maybe isn't biased (or isn't as much biased) is the same one you should favor because of the bias.

There are probably a few others exceptions. For sure they are hard to find, but it's very likely that they exist.

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

#249

Post by dhosek »

bleuchase wrote: post #203
dhosek wrote: post #148

Earlier quoted context omitted.

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.

I don't know that I've ever had the option of an in-service rollover. I googled it and saw:

> According to the Profit Sharing Council of America (PSCA), up to 77% of 401K plans include a provision for in-service 401K rollovers. Many of these only allow plan rollovers when a worker reaches a triggering event such as reaching retirement age, disability, plan termination or reaching the age of 59 ½ years.

So even many of those who are in the 77% who have in-service rollovers available don't qualify for them.

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

#250

Post by Thrymr »

queuebert wrote: post #198
Thrymr wrote: post #177

Earlier quoted context omitted.

Less punitively than earned wages, in the US, for most people.

No, it's the same. Dividends add into your adjusted gross income.

> No, it's the same. Dividends add into your adjusted gross income.

Qualified dividends (most dividends for most people from public US companies) are indeed taxed at a lower rate than income. That rate is 0% for up to $41k (single) or $83k (married filing jointly), and for almost everyone it will be lower than the marginal rate on income [0].

It goes into AGI on the tax form, but comes off again with the recalculation. If you have significant dividend income, you are missing out by not doing that calculation!

[IANAL and this is not tax advice]

[0] https://www.nerdwallet.com/article/taxes/dividend-tax-rate

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