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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

#31

Post by influx »

I use Wealthfront, which allows you to park your money into an account, and depending on your level of risk, will automatically balance it across the US Stock Market, dividend stocks, emerging and foreign markets, bonds, and natural resources.

For account values over $100K, they will do tax loss harvesting for you automatically, and prevent wash sales. For over $500K account values, they will actually buy stocks for the entire S&P 500, and allow you to take tax losses on individual stocks (which you can't claim on ETFs).

I found their presentation to be quite helpful:

http://www.slideshare.net/adamnash/personal-finance-for-engi...

If you want an invite, PM me.

Re: Hard-won lessons about money and investing

#32

Post by tempestn »

burnstek wrote: post #30
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.

Exactly. There's a big difference between investing time and money in a venture where you have some control over the outcome and unnecessarily concentrating your passive investments in a single company (or even in anything less than the broad market, given the ubiquity of low-cost index funds). And even then, assuming your startup succeeds, you wouldn't want to wait too long before diversifying some of the profits (which the article supports).

Re: Hard-won lessons about money and investing

#33

Post by JoachimSchipper »

steven2012 wrote: post #19
jamesaguilar wrote: post #11

Earlier quoted context omitted.

> I'm of the opinion that the stock markets are now inherently unstable, and they will continue to crash every 7-10 years. When you say "now," are you referring to the period from when financial markets were discovered until the present? Or some more specific period? As far as I knew, boom and bust are not exactly new developments.

I'm not talking bear markets, I truly believe there will be 50%+ drops every 7-10 years, which is something that you wouldn't expect pre-2000, except 1987. I think the stock market is a battle ground for amoral participants who are willing to break the stock markets in order to make as much money as they can, and the NYSE and NASDAQ don't seem to care.

So buy shorts.

Re: Hard-won lessons about money and investing

#34

Post by JoshTriplett »

adamio wrote: post #26
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

Depends on how much home you go for; most people buy or rent far more home than they need or can afford. Sure, if you're in the middle of Mountain View or NYC, even the tiniest apartment can be exorbitantly expensive, both in absolute terms and as a fraction of salary (which does not scale to the same degree). Those locales are fundamentally expensive to live in unless you get very creative. On the other hand, in most other locales, if you're willing to live on the high end of "student" rather than on the high end of "professional", while getting paid like a professional, living on a small fraction of your income is quite feasible.

And in any case, there's no sense giving up on the idea completely even if you can't hit the most aggressive savings rate; even if you only save 50% of your income, you can retire after 17 years, which puts you on track to retire in your early 40s instead of your late 60s. Even better, as you progress through your career, your salary will likely increase, but your spending doesn't have to match. 50% of your salary right out of college may only be 25% of your salary later on.

Re: Hard-won lessons about money and investing

#35

Post by JoachimSchipper »

adamio wrote: post #26
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

Houses are pretty cheap, compared to how much money you need to retire.

Re: Hard-won lessons about money and investing

#36

Post by tempestn »

kirillzubovsky wrote: post #13

FYI, if "tax loss harvesting" is something you'd like to consider, there're companies out there which (for a fee), would do it for you. Their entire business model is to lose money for you, in a smart way. That said, if you need to use this method, you're probably wealthy enough to know how/where to use it.

Honestly IMO tax loss harvesting becomes very straightforward if you have a nice, simple portfolio of index funds. Your entire portfolio will be maybe 3-5 funds, so there really isn't much to keep track of. A few minutes reading the superficial loss rules for your jurisdiction should do it. (Generally, as long as you sell a fund at a loss and replace it with something similar, but tracking a different index, you're fine.)

Re: Hard-won lessons about money and investing

#37

Post by tempestn »

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.

Bogleheads is a great resource, but I expect most HN readers can handle managing their asset allocation manually (using a simple "three-fund portfolio" or similar), which allows you to save a bit on expenses compared to a target date fund, as well as take more advantage of tax management techniques like municipal bonds and tax loss harvesting.

Re: Hard-won lessons about money and investing

#38

Post by JoshTriplett »

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…

Perhaps you're right; perhaps 1-2% of people (if that) could potentially beat the market in their investments. And the majority of people think they're in that 1-2%.

Meanwhile, index funds have the lovely advantage that you can't do worse than the market.

If you have extra energy to spend investigating investments, use it to diversify into a handful of minimal-overhead index funds rather than just one. And if you fancy yourself an investor as a hobby, take a small fraction of your savings and play with it, and congratulate yourself if you manage to do better than "buy high and sell low".

But in general, most people would greatly improve the status of their investments by just throwing the whole thing into a halfway decent index fund. That's the most sensible general advice when talking to a large audience of people; get them there first, which takes far less effort, and then let people who really think they can do better attempt to do so.

Re: Hard-won lessons about money and investing

#39

Post by Animats »

If you do get a lot of money somehow, read The Challenges of Wealth, by Amy Domini. Most people who get a reasonably large chunk of cash all at once blow it, in an average of seven years. A sizable fraction of old pro athletes are broke. So are a sizable fraction of lottery winners.

As a rule of thumb, any investment where they call you is no good. If it was any good, it wouldn't need paid sales reps.

Re: Hard-won lessons about money and investing

#40

Post by JoshTriplett »

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.

If you care about a 6-7 year window, especially the most recent 6-7 year window, target date funds aren't for you. They'll underperform when the market is doing well. They'll also suffer less when the market tanks. Overall, they're a safer investment if you really do have a fixed target date and want to retire close to that date, and thus you have much less tolerance for risk. In particular, they tune for less risk the closer you get to the target date, to limit unexpected surprises.

If you're near the beginning of your career, you don't have a fixed retirement date in mind, and you're investing a substantial enough fraction of your income that you will likely retire earlier than average, then you might want to pick a standard index fund with a fixed proportion of stocks and bonds based on your tolerance for risk, and leave it that way.

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