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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

#151

Post by dredmorbius »

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…

It's a mix.

When you're playing the stock market, going for single stock picks is a really bad idea. Diversification -- even modest diversification of a few companies, but preferably in different markets, hugely reduces your volatility risk. Tech is highly volatile -- investing in Microsoft, Google, Apple, Cisco, and Oracle would be nominally diversified (and there were a couple of huge winners there over the past 10-15 years), but you also incorporate a large sector risk.

When you're working for a start-up, the key is that you're moving beyond simple punch-the-clock (or per-month) income. You're not just earning a wage or salary, but there's some upside potential in the company itself. Of course, that is a tremendous risk, and the odds are good that any given company won't pay off. There are also multiple ways in which that bet is rigged, including options vesting and the fact that your employer can effectively claw back your earnings by firing you (for any or no reason, at any time) before your options vest. You've also got to have the cash to actually buy out your options.

There are other ways of building equity, one of which is to invest in your own business, venture, real estate, etc., outside of your employer. Buying investment rental property, for example.

The key though is that you want to move beyond just "I'm a wage / salary owner" status.

Re: Hard-won lessons about money and investing

#152

Post by dredmorbius »

Matt's article (and the linked one of Scott Adams' advice) is a good and basic foundation.

Adding to the reading list, I'd very strongly recommend the following:

A Random Walk Down Wall Street by Burton G. Malkiel lays out the basics of portfolio diversification. http://www.powells.com/biblio/1-9780393340747-0

The Great Crash: 1929 by John K. Galbraith tells the story and aftermath of the biggest stock market catastrophe of the past century. It is a slim, highly readable, and incredibly informative book. Parts of it read as if it could have been written yesterday. Much of it provides a background and context on the Crash that corrected a great many misunderstandings and holes in my own knowledge. Galbraith has a dry humor and is a strong (and often disliked by insiders) critic of much of the establishment. Fans of this book are recommended to view his video series The Age of Uncertainty.

http://www.powells.com/biblio/1-9780395859995-9

http://www.powells.com/biblio/1-9780395259474-2

http://fixyt.com/watch?v=KGSID_Uyw7w

And adding to Matt's advice: have savings. The flexibility offered by "fuck you money" as Humphrey Bogart and others have noted is tremendously valuable.

Re: Hard-won lessons about money and investing

#155

Post by MrUnknown »

ebbv wrote: post #119
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…

> TL;DR: Live on 35% of your after tax income and you're retired in 10 years. Get it down to 25% and you retire in 7. You might as well say: TL:DR; Move out into the forest and live off the land and you retire today! Come on, man. 35% of AFTER TAX income? I make good money and I'd have to live like a homeeless man for 10 years in order to do that. While working as hard as I do. That's absurd.

"live like a homeless man" is going to the extreme. But it's either retire in 10 years, or 30.

You need sacrifices to get a reward.

Re: Hard-won lessons about money and investing

#156

Post by 7Figures2Commas »

tacos wrote: post #124

The tone is far too authoritative given the narrow experience of the author. Reading an Googler's quickie blogpost investment guide isn't the path to financial independence. It's barely the bot-filled advice of /r/personalfinance with a better PageRank. Microsoft pushed giving and 30 years later there are still people blindly pumping money into United Way. (Maybe not the best charity!) Google seems to have pushed the…

I agree. One of the most cringe-worthy parts of this post is the author's multiple references to bond funds. Owning bond funds is not the same thing as owning bonds and every bond investor should know the difference.

Bond prices have an inverse relationship with interest rates. Bond prices fall when interest rates rise. When you own individual bonds, you cannot lose your principal if you hold to maturity unless the issuer defaults. Most bond funds do not hold bonds to maturity, so investors in bond funds have significant exposure to interest rate risk. This is especially true today given the interest rate environment.

There are other ways to address interest rate risk with bond funds, especially if you have a longer horizon. You can buy short-term bond funds, and there are even defined maturity funds. But you don't find any mention of those in the post. It's just bonds = bond funds.

It all comes back to your comment, "put the time in and you'll be rewarded over the long term." Even seemingly simple financial advice ("buy a bond fund!") is insufficient because it requires more time and effort to execute correctly than most people are willing to put in.

Re: Hard-won lessons about money and investing

#157

Post by Ecio78 »

randomdata wrote: post #125
yen223 wrote: post #81

Earlier quoted context omitted.

By my calculations, it's generally much better to live in a high-cost area while earning a high wage, than to live in a low-cost area while earning a low wage. This is because a lot of products out there have a fixed cost which isn't based on geography (think iPhones). A higher wage makes it easier to purchase those items.

My calculations differ, though they are probably based on different locations than you used, which changes the numbers. Median incomes are 75% higher in the high cost area, but housing costs are 200-400% higher, which, being a major expense for just about everyone, quickly erodes any gains you might make on the income side. Services, like internet connections, were also more expensive in the high cost area. Goods lik…

That said, my preferred method is to live in a low cost area and work in a high cost area (telecommute).

yes but it also depends how you consider in your calculation the costs of telecommuting (costs of travelling, time lost etc..)

I'm thinking about this right in these days, as I'm living and working in a quite rich but expensive country (Luxembourg) where real estate prices (rent&purchase) have grown a lot in the past years, and are still growing (two digits increase of prices yty), while you have surrounding border areas (Belgium, France, Germany) that are way cheaper (half or even less per square meter) but are located 30-40km away with really congested roads or slow public lines (at least 45min per trip, easy to become 1-2hours in case of accidents or traffic jams)

Re: Hard-won lessons about money and investing

#158

Post by Ecio78 »

CompelTechnic wrote: post #121
usaar333 wrote: post #74

Earlier quoted context omitted.

Well, except for how difficult that is. Living on only 35% of after tax income requires you either A) live extremely cheaply or B) make tons of cash. Roughly speaking, in California, this requires living off of 20% of pre-tax income. As an example, to live off $35k/year in SF as a single person (which would be considered modest in tech circles), you'd need to earn $175k/year. With a family, this gets more unrealistic…

To be fair, you picked one of the world's highest cost of living locations to live in, let alone retire in. I'm on track to retire in my thirties, or earlier, here in North Carolina. Not hard at all on a mechanical engineer salary.

Can you explain a bit your strategy? Something like MMM?

Re: Hard-won lessons about money and investing

#159

Post by pinaceae »

ForHackernews wrote: post #145
alecco wrote: post #120

Earlier quoted context omitted.

Perhaps that means SF might not be a great place to work in spite of 6 figure salaries.

Work remotely. Get paid a SF salary; live in back-of-beyond, Arkansas. Retire at 30.

haha.

not adjusting your employee's wages based on their work location, which company is that delusional?

Re: Hard-won lessons about money and investing

#160

Post by Retric »

7Figures2Commas wrote: post #156
tacos wrote: post #124

The tone is far too authoritative given the narrow experience of the author. Reading an Googler's quickie blogpost investment guide isn't the path to financial independence. It's barely the bot-filled advice of /r/personalfinance with a better PageRank. Microsoft pushed giving and 30 years later there are still people blindly pumping money into United Way. (Maybe not the best charity!) Google seems to have pushed the…

I agree. One of the most cringe-worthy parts of this post is the author's multiple references to bond funds. Owning bond funds is not the same thing as owning bonds and every bond investor should know the difference. Bond prices have an inverse relationship with interest rates. Bond prices fall when interest rates rise. When you own individual bonds, you cannot lose your principal if you hold to maturity unless the i…

I don't think bonds are really a good investment for most people. They basically have the same edge case volatility as stocks(1) without the upside. If you have a diversified portfolio the worst stock market crashes where only an issue if you used leverage.

(1)As in if the issuers fail you get nothing.

PS: Granted if bonds where still paying 10+% that would be another story, but after taxes there only slightly ahead of inflation.

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