241–250 of 365 posts
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Another tangible example is renting a tractor to a farmer that couldn’t otherwise afford one. Their income from crop production goes up (even after tractor rental expenses) and society also gets more food.
But wouldn't it be even better if the farmer bought the tractor on a loan? Now the farmer keeps the entirety of his production and the guy that would have rented the tractor also has to work, further improving society.
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> the version of passive income where you don't do anything productive at all, ever, and just put up some initial capital in exchange for even more money back, is always a scam No, that's just investing. This is how savings accounts work, this is how CDs work, this is how treasury bonds work, this is how passive investing (e.g. via ETFs on index funds) works, and there are many, many more examples. If you're keeping…
> No, that's just investing. Yes. Investing is passive income. If you have $20M and your lifestyle requires no more than $800K/yr of income taxed a waaaaay lower rates than the working stiffs pay on the same, then a 4% return more than suffices to live off of income that is waaaaay more passive than most passive income frauds even come close to promising. The difference between "investing" and "passive income" is mos…
> If you have $20M and your lifestyle requires no more than $800K/yr of income taxed a waaaaay lower rates than the working stiffs pay on the same, then a 4% return more than suffices to live off of income that is waaaaay more passive than most passive income frauds even come close to promising.
Assuming you are in eg the US than a 4% nominal return is actually taxed quite severely in real terms, ie after you adjust for inflation.
That's because capital gains taxes and taxes on interest don't account for inflation.
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> Bonds have (relatively) low returns but almost 0 risk Each of the asset classes you listed has risks. Bonds are subject to term (i.e. inflation) and credit (i.e. default) risk. Bonds may be less volatile than equities and commodities, but they can definitely go down (e.g. 2022). The only free lunch in investing is diversification.
Sure, there’s no free lunch, but there is the beat-you-up-and-take-your-lunch-money of not investing. Bonds may have gone down, but they still paid out. Unless people sold at a loss for liquidity or could’ve timed the market and bought low, they were better off than people stashing money in a mattress or most bank accounts.
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If everyone does it, the world grinds to a halt and everyone dies.
What really happens: if everyone tries to acquire a particular income producing asset, the asset gets so expensive that the return is not worth the risk plus the time value of the money it could generate. Stocks in the 1920's, Tokyo real estate in the 1990s, US housing the mid 2000's...
Otherwise I agree that in principle and in general all else being equal increasing prices lead to lower returns.
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> For more risk averse, almost every buyer of USA governmental bonds gets "even more money back" in exchange for the initial capital. In nominal terms, sure. In real terms, ask the banks that bought 30 year treasuries in Spring 2020 how that's going for them.
The problem for some of those banks wasn't the 30 year treasuries, it was that they bought those treasuries with other peoples money, and other people did not commit to 30 years, so now when the other people come to get their money, the bank doesn't have it. The 30 year treasuries are still doing just fine, in accordance to the terms of the treasury when it was bought.
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>just put up some initial capital in exchange for even more money back, is always a scam. some people might come out ahead sometimes, but more people will lose than win. How so? My all-world index funds are doing pretty well. For more risk averse, almost every buyer of USA governmental bonds gets "even more money back" in exchange for the initial capital. I don't think that's a scam either.
There is a risk, however small, that your bonds won't be paid back leading to a large loss.
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>just put up some initial capital in exchange for even more money back, is always a scam. some people might come out ahead sometimes, but more people will lose than win. How so? My all-world index funds are doing pretty well. For more risk averse, almost every buyer of USA governmental bonds gets "even more money back" in exchange for the initial capital. I don't think that's a scam either.
It's not a scam for you but rather a scam for society at large. Making money purely by owning some revenue generating asset, while not providing any service yourself is doesn't work if every single person does it. Many people who work at companies on the S&P500 aren't paid enough to having savings to invest. The money the company saves on employee salaries are shown as profits which result in the "passive income" tha…
The aristocrats of old never felt the need to share the wealth like that, did they?
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> what if the market sucks when you retire? if it's been good (on average) for 30y but then sucks when you're about to retire, you still probably accumulated a lot of money from these 30y of interest
I wonder what the longest duration has been, in the history of let's just say S&P500 or similar, between [a low so bad that people would say "sucks that I'm retiring now"] and [the point in time prior to that, where it had the same exact value but as an all-time high]. A decade maybe? So basically one would conclude that they could've begun taking withdrawals a decade ago with the same size of retirement account (wel…
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People believe in index funds because of multi-decades of globalization and (in general) cheaper money, which has been less and less true since 10 years ago. Even if you bought some during the 90s, you still need a tremendous belief in yourself and the market to hold them for 30 years. It's not that easy. I know many people put the fund into a retirement fund, but 1) is every body consistently doing that for 30 years…
> what if the market sucks when you retire? You don’t have to liquidate all of your investments on your retirement date. If the market sucks so much for 5+ years and your government can’t get it pumped back up, you probably have a bigger problem than your retirement savings, such as food and energy and security shortages. It would be bold to bet against a government not constantly decreasing the purchasing power of i…
That would only prop up assets prices in nominal terms, but doesn't have much to do with your retirement planning. (Unless your only alternative to index funds is sticking local money under your mattress; and you can't even think of sticking gold coins or foreign currencies under your mattress, or buy real estate etc.)
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> what if the market sucks when you retire? You don’t have to liquidate all of your investments on your retirement date. If the market sucks so much for 5+ years and your government can’t get it pumped back up, you probably have a bigger problem than your retirement savings, such as food and energy and security shortages. It would be bold to bet against a government not constantly decreasing the purchasing power of i…
> If the market sucks so much for 5+ years and your government can’t get it pumped back up, you probably have a bigger problem than your retirement savings, such as food and energy and security shortages. The S&P500 was flat or negative from 2000 to 2012. And this isn't unusual. > It would be bold to bet against a government not constantly decreasing the purchasing power of its currency to prop up asset prices, espec…
Be careful not to mix up the S&P500 index numbers with the total return you get from holding the portfolio and re-invest dividends. (However, even with the total return you can find some longer stretches that are flat or negative.)