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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

#101

Post by sliverstorm »

nostromo wrote: post #18

Am I alone in wondering if the advice about broad index funds is no longer good? We're still below the s&p inflation adjusted high from ~2000 -- almost 14 years later. When will the gains finally arrive? I worry that there is some systemic problem in our economy that has leaders playing whack-a-crisis every five or ten years that erases years of gains. I've read John Bogle and I want to believe . But a few years ago…

You should always compare your rates of return on different types of investments. The advice about index funds is (to my knowledge) primarily rooted in the fact that index funds typically outperform mutual funds, with lower management fees to boot. Not a claim that index funds are the strongest investment.

Also worth noting- can rental properties ever be included in blanket investing advice? Investing directly in property requires either a group of investors or considerable capitol- both, really. Stocks and such are popular in sweeping advice because anybody with two nickels to rub together can acquire stocks.

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

#102

Post by dnautics »

acdha wrote: post #40
baddox wrote: post #21

Earlier quoted context omitted.

I think it's too broad, because the economic efficacy of social programs probably varies wildly, especially when we're talking about government social programs.

> economic efficacy of social programs probably varies wildly, especially when we're talking about government social programs. As opposed to literally everyone having to figure this out on their own? Say what you will about government programs, they're going to be more consistent than what you get pushing the problem out to millions of individual actors.

>they're going to be more consistent than what you get pushing the problem out to millions of individual actors.

There are data that suggest otherwise: Walmart, not FEMA was the best at doling out aid during Katrina; on the other side of the political spectrum, the same could be arguably be said for OWS during Sandy. On the other hand, if you're going to argue that the government is consistently bad at doling out aid, you may be right, but I don't know how good the government is at providing welfare or social services. I presume it's not exceptionally good, or else private food banks, homeless shelters, and charities wouldn't have to exist.

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

#103

Post by derekp7 »

mrb wrote: post #58
zedpm wrote: post #37

Seems like good advice, though a great many Americans are at a disadvantage because their employer doesn't offer a 401k. Even with no employer match, a 401k allows an individual to save much more money in a tax-advantaged account ($17,500 for a 401k vs. $5500 for an IRA). If you're a W-2 employee but your employer doesn't offer a 401k then you're pretty much stuck paying higher tax rates on any savings beyond $5500/y…

With no employer match, a 401k has ZERO tax advantages. Because it merely delays when your income is taxed: after withdrawing it from the 401k. Mathematically you end up with the same capital whether your pay income taxes today and invest post-tax money, or whether you invest in a pre-tax 401k and pay taxes later.

Let's try with some numbers. First, let's invest $1000 post-tax, for a number of years, where we end up doubling (getting 200%) return on investment after a number of years.. Assume tax is 25%. So you are investing $750. Your return on investment is $1500, but that get's taxed at 25%, so you actually are getting $1125. Add that to your original $750 investment, and you have a total of $1875.

Now let's do this pre-tax money (401k). $1000 invested, with 200% return, gives you $2000 profit, or $3000 with the initial investment. Now take 25% tax out of that 3000, you end up with $2250 at the end. So you get a total of $375 advantage with the 401k route.

Oh, and during retirement, you will most likely live on a reduced gross income (you aren't paying FICA, your house is paid for already, and you also [might] get social security income). Which means, with our graduated tax system, your overall tax rate is less then, for an even better tax savings (you only pay taxes on the amount of 401k that you withdraw each year).

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

#104

Post by chris_mahan »

ajross wrote: post #72
chris_mahan wrote: post #29

I trade in individual securities, but I put in the time to learn about the companies, the industry, and so on. Also, having taking econ, accounting, finance, and statistics in college helps.

Professional traders have been known to put in the time to learn about this stuff too. Don't fool yourself. You might make some good bets. You might make some bad ones. You're not going to systematically outperform a market as an individual investor by anything but luck (or plausibly by chasing a "hunch" based on good intuition and evidence that the professionals missed -- but don't fool yourself, that's luck too).

I have consistently outperformed the market since 2007, when I started investing (I refer to the market as the DOW).

Just because the average salary in the United States is $57,000 (random-ish number) does not mean that's what I have to settle for because it's the average. If I put in the time, work smart, work hard, and keep learning, then the expectation is that I can beat the average income. Likewise, I can beat the average market by putting in more time, more effort, more learning, than the average investor.

I tried forex for 2 years, and did poorly, so I stopped, and learned my lesson.

I bet on Ford at 1.60. I bet on Tesla at 16, and 24. (not heavily mind you, just 2.5% of my portfolio). I research the companies, the management. I not only go to the annual report, but I also read books by the founders, read about their manufacturing (are they using lean like Toyota or lean like GE?). I went after Ford based on Mullally's performance at Boeing. I went after Boeing based on the 787's promises. (It's doing very well.) I read Deming.

I lost $900 in American Airlines, and $300 in Washington Mutual. I did lose $6K on a $10K mutual fund that went south in 2007-2008. It looked like it would recover, but then wasn't following the market up. I've made a lot less money with mutual funds that with stocks.

Granted, I've been riding a pretty nice wave since the drops of fall 2007 and mid 2008, but I don't blindly pick a stock and buy in. I'm very careful where I put the money, and will do 2-4 weeks of research on a single company.

I also research their competition, and business trends in general. This means I don't watch TV, don't watch sports, and will do one movie per month with my son. Instead, I read. A lot.

I do max my 401k because of company matching, but I'm not holding my breath on returns. There's an event horizon where it's better not to match and buy securities directly, because of the 1% or so fees. (You start out with twice as much, but you get less annual yield.) You don't pay taxes till you sell, and you can sell at a time of your choosing.

I don't day-trade, I don't even month-trade. I generally invest for 7-15 years.

Finally, I invest only my own money, and that is a very strong motivator for spending the time to do it right. (Small caps do slightly better than large caps--more risk, more return. Diversify.)

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

#105

Post by timr »

nilkn wrote: post #98
timr wrote: post #88

Earlier quoted context omitted.

"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 unluc…

I agree that his definition of "king" is pushing it, but it's equally silly to ignore the possibility of retiring in any of the cities in the US that are cheaper than San Francisco, i.e., in any of the cities in the US that are not San Francisco and NYC. Honestly, in a middle-of-the-road city like Houston and with full ownership of a car and home, $25k net per year would actually give you a pretty comfortable life--r…

I don't disregard the possibility of retiring in cities other than San Francisco -- I just dispute the notion that a $25k/year "retirement" is anything but silly dreaming by 20-somethings who don't understand what choices life is going to bring their way. Want to have a family? Want to send your kid to college? Want to be ready for the day when you're old and paying for medical problems? You're not living "like a king" on $25k anymore.

"[Firecalc] gave very positive results for withdrawing $25k/year on a $1M portfolio for a total of 60 years."

Well, again, you're not likely to accumulate a $1M portfolio in a decade on a $100k salary without a nice helping of luck. And not for nothing: that 60-year period encompasses the largest bull market(s) in US stock history. Past performance definitely does not extrapolate in this case.

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

#106

Post by tosseraccount »

timr wrote: post #88
Afforess wrote: post #86

Earlier quoted context omitted.

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 unluc…

A 4% rate of return from an index fund is long-term average behavior.

Average return for S&P 500 from 1928 to 2012 is 11.3% [ source : http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/... ]

Inflation rate averages about 3.2% [ source : http://inflationdata.com/Inflation/Inflation_Rate/Long_Term_... ]

11.26 - 3.2 = 8.1 % real return.

Long term investment in a diversified set of equities is a very good investment and is very likely to secure your future finances.

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

#107

Post by ThomPete »

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…

You dont have a family with kids I take it.

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

#108

Post by chris_mahan »

chris_mahan wrote: post #29

I trade in individual securities, but I put in the time to learn about the companies, the industry, and so on. Also, having taking econ, accounting, finance, and statistics in college helps.

I should add that these college courses weren't just some courses I took, but were part of a BA.

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

#109

Post by carsongross »

mrb wrote: post #58
zedpm wrote: post #37

Seems like good advice, though a great many Americans are at a disadvantage because their employer doesn't offer a 401k. Even with no employer match, a 401k allows an individual to save much more money in a tax-advantaged account ($17,500 for a 401k vs. $5500 for an IRA). If you're a W-2 employee but your employer doesn't offer a 401k then you're pretty much stuck paying higher tax rates on any savings beyond $5500/y…

With no employer match, a 401k has ZERO tax advantages. Because it merely delays when your income is taxed: after withdrawing it from the 401k. Mathematically you end up with the same capital whether your pay income taxes today and invest post-tax money, or whether you invest in a pre-tax 401k and pay taxes later.

That's not true: the capital gains you accumulate are pre-tax, so your entire investment is taxed once, upon withdrawal, as income. With up-front taxation you still end up paying additional capital gains taxes at the end of the day on your total capital gain.

There are conceivable situations where you end up paying more in taxes, if your retirement income tax rate is higher than your current income tax rate plus your capital gains rate multiplied by the ratio of capital gains to the total capital.

I've spreadsheeted it out and using a 30 year timeline and what I most would consider an extremely conservative rate of return, you end up with about 15% total advantage. This can go up to 20 to 25% if you assume more aggressive returns.

Despite that, I hate the fact that your money is locked up and there is a severe penalty if you pull it out (except in a few situations, and even then the amount you can pull is limited.)

Is it worth 15% of your money for it to be truly your money? It is to me, but that's a subjective call.

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

#110

Post by timr »

tosseraccount wrote: post #106
timr wrote: post #88

Earlier quoted context omitted.

"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 unluc…

A 4% rate of return from an index fund is long-term average behavior. Average return for S&P 500 from 1928 to 2012 is 11.3% [ source : http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/... ] Inflation rate averages about 3.2% [ source : http://inflationdata.com/Inflation/Inflation_Rate/Long_Term_... ] 11.26 - 3.2 = 8.1 % real return. Long term investment in a diversified set of equities is a very good inves…

You missed the point: "Average return" != "real return in any arbitrarily chosen 10-year period"

It's scary how many of you don't seem to know this. Did you all read the same book on investing and skip everything after the preface, or something?

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