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Hard-won lessons about money and investing

mattcutts.com

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Re: Hard-won lessons about money and investing

#21

Post by phamilton »

mcfunley wrote: post #6

> Think about working for equity vs. salary It's really common for people to drastically overestimate the value of startup equity, or to just not understand the basic mechanics of it at all. In my experience people look at the face value of their options and are pretty clueless about how taxes (or even their strike price!) affect what they might actually wind up with.

I've seen more than once that in a acqui-hire situation employees are left with very little value in their options and lots of value in their retention package. Not always the case, but it adds to my opinion that equity is really impossible to value.

Re: Hard-won lessons about money and investing

#22

Post by dave1619 »

I added a comment on Matt's blog post but it's waiting moderation so I'll post it here to hear other folks' input.

"Hi Matt, I usually enjoy your posts but I felt this one lacking in a major way.

Investing is something that has huge potential (ie., 100 fold). This is something that I’m sure you’re aware of as an early Google employee (you were invested in the company via stock options, etc). On the other hand, investing has huge downside as well (you can lose all your money).

Many people are advocating people to take a mindless approach to investing by investing in low-cost index funds. I personally think this is decent/good advice for most people who don’t have the time, energy, experience, skills to make investing a lifetime passion. In other words, for the typical person who just wants to focus on his 9-to-5 job and other hobbies and not deal with the world of investing, then sure low-cost index funds are the way to go.

However, there are some people who can benefit in huge ways by becoming experts in investing (whether this be in stocks, real estate, businesses, etc). A few disclaimers first… becoming an expert investor is extremely difficult and most people underestimate what it takes. It’s not about “picking” stocks or getting lucky. Rather, it’s about accumulating the skills, experience and expertise to evaluate investment opportunities in a wise and discerning manner, and to do it exceedingly well. I think it requires an immense amount of time and dedication. And I don’t think 98% of the people out there practically have the time, energy, motivation or focus to develop such skills. But for the 1-2%, I think it’s a possibility if they treat it as a serious lifetime endeavor."

Re: Hard-won lessons about money and investing

#23

Post by arkem »

ForHackernews wrote: post #14
arkem wrote: post #10

I've been considering moving from holding Vanguard ETFs (one of their Total Retirement funds) over to Betterment or Wealthfront to take advantage of their automated tax loss harvesting. Does anyone have any thoughts about whether automated tax loss harvesting is worth the 0.15-0.25% fees that the robo-advisers charge?

Probably not worth it unless you have a very large portfolio and you're too lazy to do the tax loss harvesting yourself. It's especially not worth it if you're correctly holding most of your retirement savings in tax-advantaged accounts (401k/403b/IRA/HSA). You are, right? Also, it's worth noting that Schwab is launching a free robo-advisor service early next year[0] so that may be the nail in the coffin for startups…

Thanks for the tip about Schwab, looks interesting, especially the 'free' part.

Thinking about it, basis points feel too expensive for something that's done entirely in software. I suspect competition from existing players will drive the price right down.

Re: Hard-won lessons about money and investing

#24

Post by lpolovets »

ForHackernews wrote: post #5

https://www.bogleheads.org/wiki/Getting_started Short version: Open a Vanguard account and invest >=15% of your salary in the appropriate target date fund for the year you want to retire. P.S. Where possible, become a millionaire in Google's IPO.

Have target date funds been successful? The last time I checked, their historical performance (admittedly for only 6-7 years) seemed underwhelming.

Re: Hard-won lessons about money and investing

#25

Post by j_lev »

phamilton wrote: post #16
seanmcdirmid wrote: post #4

Earlier quoted context omitted.

And don't have kids.

Having kids doesn't change the math. That's MMM's point in the post. It's all about savings rate. Kids mean it is harder to save 35%, but the math doesn't change.

I'd add that even if you aren't able to live on 35% for 10 years straight you shouldn't fall into the mindset that it's not worth aiming for at all.

Re: Hard-won lessons about money and investing

#26

Post by adamio »

j_lev wrote: post #3

> If you’re an employee working for salary, it’s going to be hard to reach that level of independence. ... You can try to radically lower your financial burn rate, but few Americans have taken that step. So many people are quick to dismiss living well within one's means as a way to financial independence. Here's the link to the facts again: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-sim... TL;DR: Live o…

What about rent or mortgage? In most major cities low rent could be easily 35% of after tax income already

Re: Hard-won lessons about money and investing

#27

Post by ballstothewalls »

Lesson number 1 is unequivocally wrong and contradictory with the start of the article. He says you shouldn't invest your money in single stocks, but then advocates for you to invest your money (by way of forgoing salary in favor of equity) into a start up company with (by definition) no track record of success or guaranteed future. Not to mention that when the start-up tanks (which it will do statistically) you will both lose your salary and your investments/equity will be worthless.

Re: Hard-won lessons about money and investing

#28

Post by [deleted] »

lpolovets wrote: post #24
ForHackernews wrote: post #5

https://www.bogleheads.org/wiki/Getting_started Short version: Open a Vanguard account and invest >=15% of your salary in the appropriate target date fund for the year you want to retire. P.S. Where possible, become a millionaire in Google's IPO.

Have target date funds been successful? The last time I checked, their historical performance (admittedly for only 6-7 years) seemed underwhelming.

[deleted]

Re: Hard-won lessons about money and investing

#29

Post by tempestn »

dave1619 wrote: post #22

I added a comment on Matt's blog post but it's waiting moderation so I'll post it here to hear other folks' input. "Hi Matt, I usually enjoy your posts but I felt this one lacking in a major way. Investing is something that has huge potential (ie., 100 fold). This is something that I’m sure you’re aware of as an early Google employee (you were invested in the company via stock options, etc). On the other hand, invest…

In markets like real estate and private business, I agree with everything you wrote. In a liquid, public market like publicly-traded stocks though, I'm not so sure. I don't disagree that if you devote your life to it, you could possibly find an edge - although it will likely continue to get more difficult as institutional players become ever better at exploiting (and thus removing) any inefficiencies. But even if we accept that it's possible, you would almost certainly have to accept significant volatility to do so. And even if you didn't, you would ultimately be devoting your life to winning a zero-sum game. (Similarly it is possible to become good enough at poker or (with more difficulty) blackjack to make a living from them. Even a good living, potentially. But you're going to have to weather some downswings along the way, and you won't have any consolation in the fact that you're creating something of value - as you would starting a business for instance.)

So I guess I don't disagree with anything you wrote, but I question whether it makes sense for a person to devote the majority of their energy to playing the stock market. (And I definitely agree with you that it would indeed take the majority of one's effort over the long term to have any reasonable chance of success beyond pure luck.)

Edit: I should add that I would consider some proven, passive strategies such as tilting to small and value to be exceptions. These do theoretically allow for slightly superior returns without life-consuming effort, at the likely expense of taking on some additional dimensions of risk. I personally keep a moderate small/value tilt.

Re: Hard-won lessons about money and investing

#30

Post by burnstek »

ballstothewalls wrote: post #27

Lesson number 1 is unequivocally wrong and contradictory with the start of the article. He says you shouldn't invest your money in single stocks, but then advocates for you to invest your money (by way of forgoing salary in favor of equity) into a start up company with (by definition) no track record of success or guaranteed future. Not to mention that when the start-up tanks (which it will do statistically) you will…

The assumption is that you work for the startup and have a critical enough position to earn equity, and therefore have more influence over its performance than that of a public company.
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