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This 4×6 index card has all the financial advice you’ll ever need

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Re: This 4×6 index card has all the financial advice you’ll ever need

#81

Post by timr »

JoshTriplett wrote: post #38
coldtea wrote: post #28

Earlier quoted context omitted.

> Bump it to two-thirds and retire in 10 years. Expand it by 100 and you would be already retired before you would were even born! I guess the point of the advice is to be realistic. > The only more important factor is "never borrow money", and in particular "never carry a balance on a credit card". Well, lots of people have started companies or saved themselves from starvation by maxing a credit card.

The idea that >20% savings rates are not "realistic" is a serious mindset problem. Almost anyone on Hacker News with a paying job (i.e. not an early-stage no-funding startup) should easily be able to save much more than that. Sure, saving two-thirds of your income might be out of reach, and even the 20% advice is better than most sites that often say 5-10%, but consider carefully whether you can increase it and retir…

Even if you're a "rich" software engineer, the advice is overstated. You need to make a lot of money (or be really lucky in the stock market) to have a 66% savings rate lead to any sort of real retirement in 10 years.

Say I make $100k gross per year. That's a very nice salary for a new grad engineer -- the kind of person who might take this ten-year-retirement advice to heart. Roughly 1/3 of that income goes to taxes, so I'm actually taking home $66k per year. If I save 66% of that, I'm saving ~$44k per year. These numbers can shift a little depending on where you live, how you save, etc., but they're not going to change by a huge amount.

Multiply that $44k by 10 years, and you're not even at half a million dollars. That's not retirement money (unless perhaps your "retirement" is to continue to live off of $20k/year indefinitely and die young from eating too much ramen).

The other half of the equation is finding investments that return a reasonable yield without betting the farm on timeframes <= 10 years. In this market, that's nearly impossible. Your choices are stocks and bonds (which are fine, but are risky on anything less than a ten-year window), or investments that don't yield anything.

Re: This 4×6 index card has all the financial advice you’ll ever need

#83

Post by leokun »

jellicle wrote: post #80

There are a couple of good parts about this post. The first is the HN comments, which are an unintentional fountain of hilarity. But the second is the assumptions. 50% of the US population can't afford to put even a dollar into any sort of investment security. Of the 50% of the public that does own some sort of security, most of them are in the three-figures range. This index card, without realizing it at all, has ta…

The promote social insurance programs line comes in maybe.

Re: This 4×6 index card has all the financial advice you’ll ever need

#84

Post by lpolovets »

Scott Adams, the creator of Dilbert, has a similarly good set of advice:

- Make a will.

- Pay off your credit cards.

- Get term life insurance if you have a family to support.

- Fund your 401(k) to the maximum.

- Fund your IRA to the maximum.

- Buy a house if you want to live in a house and you can afford it.

- Put six months’ expenses in a money market fund.

- Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker and never touch it until retirement.

- If any of this confuses you, or you have something special going on (retirement, college planning, tax issues) ( hire a fee-based financial planner, not one who charges a percentage of your portfolio.

(source: https://retirementplans.vanguard.com/VGApp/pe/PubVgiNews?Art...)

Re: This 4×6 index card has all the financial advice you’ll ever need

#85

Post by dionidium »

JoshTriplett wrote: post #38
coldtea wrote: post #28

Earlier quoted context omitted.

> Bump it to two-thirds and retire in 10 years. Expand it by 100 and you would be already retired before you would were even born! I guess the point of the advice is to be realistic. > The only more important factor is "never borrow money", and in particular "never carry a balance on a credit card". Well, lots of people have started companies or saved themselves from starvation by maxing a credit card.

The idea that >20% savings rates are not "realistic" is a serious mindset problem. Almost anyone on Hacker News with a paying job (i.e. not an early-stage no-funding startup) should easily be able to save much more than that. Sure, saving two-thirds of your income might be out of reach, and even the 20% advice is better than most sites that often say 5-10%, but consider carefully whether you can increase it and retir…

The idea that your retirement years are a better time to live than your 20s and 30s is a serious mindset problem.

Re: This 4×6 index card has all the financial advice you’ll ever need

#86

Post by Afforess »

timr wrote: post #81
JoshTriplett wrote: post #38

Earlier quoted context omitted.

The idea that >20% savings rates are not "realistic" is a serious mindset problem. Almost anyone on Hacker News with a paying job (i.e. not an early-stage no-funding startup) should easily be able to save much more than that. Sure, saving two-thirds of your income might be out of reach, and even the 20% advice is better than most sites that often say 5-10%, but consider carefully whether you can increase it and retir…

Even if you're a "rich" software engineer, the advice is overstated. You need to make a lot of money (or be really lucky in the stock market) to have a 66% savings rate lead to any sort of real retirement in 10 years. Say I make $100k gross per year. That's a very nice salary for a new grad engineer -- the kind of person who might take this ten-year-retirement advice to heart. Roughly 1/3 of that income goes to taxes…

a 4% rate of return, on average from the S&P 500 index is reasonable.

With 1 million, you could live off of $25000/yr, which is more than enough to live like a king if you do not have other debt payments.

You could rent a $1000/month apartment, pay for a $400/month car, eat $300/month in groceries, and still have thousands and thousands left over.

Re: This 4×6 index card has all the financial advice you’ll ever need

#87

Post by sliverstorm »

coldtea wrote: post #32
muzz wrote: post #13

Earlier quoted context omitted.

The savings part sounds like advice from Mr. Money Mustache, there was discussion about his advice here before. "Never borrow money" would include never having a mortgage, which would be a huge lost opportunity for many. Not to mention borrowing money to invest in oneself, start a business, etc.

> would include never having a mortgage, which would be a huge lost opportunity for many A lost opportunity? If you can afford a house easily buy one, if you cannot afford it a mortage is anything but a huge opportunity. http://www.jamesaltucher.com/2011/03/why-i-am-never-going-to... http://www.jamesaltucher.com/2011/05/why-i-would-rather-shoo...

This advice seems to completely gloss over one key fact:

You have to live somewhere.

Seriously- if you didn't, buying a house would be a terrible investment! But you do, so the cost of owning a house needs to be compared to the cost of renting, instead of being discussed as a normal investment.

Re: This 4×6 index card has all the financial advice you’ll ever need

#88

Post by timr »

Afforess wrote: post #86
timr wrote: post #81

Earlier quoted context omitted.

Even if you're a "rich" software engineer, the advice is overstated. You need to make a lot of money (or be really lucky in the stock market) to have a 66% savings rate lead to any sort of real retirement in 10 years. Say I make $100k gross per year. That's a very nice salary for a new grad engineer -- the kind of person who might take this ten-year-retirement advice to heart. Roughly 1/3 of that income goes to taxes…

a 4% rate of return, on average from the S&P 500 index is reasonable. With 1 million, you could live off of $25000/yr, which is more than enough to live like a king if you do not have other debt payments. You could rent a $1000/month apartment, pay for a $400/month car, eat $300/month in groceries, and still have thousands and thousands left over.

"a 4% rate of return, on average from the S&P 500 index is reasonable."

Not if you're depending on using that money in the next ten years. Or if you believe in inflation.

A 4% rate of return from an index fund is long-term average behavior, not instantaneous yield. Historically, depending on when you entered the market, a ten-year outlook could have led to anything from a huge gain to a huge loss. If you're the unlucky investor who started saving 66% of your income in the stock market in 1999, you'd still be putting off your retirement today.

Also, your definition of "king" is pretty context-dependent. I can assure you that 25k will not allow you to live like royalty in San Francisco. Or, say, if you have children. It's a difficult concept to grasp when you're in your 20s, but most people do tend to reproducing by the time they're in their 30s. Oops. There goes that 25k retirement...

Re: This 4×6 index card has all the financial advice you’ll ever need

#89

Post by DustinCalim »

JoshTriplett wrote: post #9

Almost all of this is excellent advice, except for one point: "save 20% of your money". That's a bare minimum, which will let you retire after about 37 years of working. Bump it to 35% and you'll retire after 25 years. Bump it to 50% and retire in 17. Bump it to two-thirds and retire in 10 years. That's one of the most important factors in your personal finances: not how much you make off your investments, not whethe…

Ironic "Never borrow money" shows up here considering the start-up orientation of this site... Small business owners are a cornerstone of capitalism and our economy so we should incentivize people to take risks when they can.

Re: This 4×6 index card has all the financial advice you’ll ever need

#90

Post by staccatomeasure »

jellicle wrote: post #74
staccatomeasure wrote: post #61

Earlier quoted context omitted.

I think with good domain knowledge and basic knowledge of economics and finance your average Joe can do better than the market. There's a lot of low hanging fruit in the stock market that a small investor in particular can grab because their size allows a certain level of under-the-radar activity.

> I think with good domain knowledge and basic knowledge of economics and finance your average Joe can do better than the market. There's a word for people like you: suckers.

For starters: when we talk about "the market" here originally we're talking about mutual funds + etfs.

Now back to the point. When I say average Joe I was probably understating things - I'm talking about your rational, generally college educated, sentient being. When I say basic knowledge of economics, I mean knowledge or intuition of how unemployment, interest rates set by the fed, and global events can effect the economy (mostly for getting out when things are tanking and jumping in when they are on the up and up). When I say general knowledge of finance I mean more specifically trading savy - types of trading (trend, value...etc), ways to trade (short, long, margin, leverage), ..etc. And when I say domain knowledge I mean generally the domain the person works in and can pick a winner from a loser.

Now with that knowledge, the fact that a small investor can make small moves and not effect the security itself, and subtracting management fees, you mean to tell me just because a finance company puts their stamp on a mutual fund that means they'll do better than me?

My returns and the returns of folks I know that fit that characterization disagree with you.

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