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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

#161

Post by Ecio78 »

justincormack wrote: post #93
tormeh wrote: post #91

Earlier quoted context omitted.

There are other, safer, kinds of funds beside stock funds. It sounds like what you want is a fund holding government bonds. Those are pretty safe, and will probably give you better return than the bank.

US government bonds (ten year, so plenty of short term price risk) pay 2.16%. If you are in Europe, German government bonds pay around 0.8%.

if you consider inflation (1.70% in the US,0.60% in Germany) those interests are almost zero.

If you have 1M$ and want to live on that, and you're good enough to live with 25k$/yr, you need to consistently "extract" 2.5% on that capital, that means you need to consistently get 4.2% every year. And this exposes another issue: even if you have a safe investment that can give you 4.2%/yr on average, that's not steady, so if some years are bad (or really bad) you need to eat into the capital. If these happens for too many years in a row, the capital could be reduced enough that you need to get higher earnings to counterbalance that.

I'm not a finance expert so feel free to show me the fallacies of my reasoning!

Re: Hard-won lessons about money and investing

#162

Post by CompelTechnic »

Ecio78 wrote: post #158
CompelTechnic wrote: post #121

Earlier quoted context omitted.

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?

Yep, pretty much MMM strategy. I've also incidentally got a bit of bitcoin investment that might be a 'shortcut' if it goes to the moon. Otherwise the slow and steady wins the race.

Re: Hard-won lessons about money and investing

#163

Post by cma »

ryandrake wrote: post #102
Matt_Cutts wrote: post #52

Earlier quoted context omitted.

That's right. In the same way that Buffett can select a company that he believes in and then drive it forward with a strategic investment, you're trying to do the same thing with the startup that you select and drive forward. And "startup" doesn't have to be 3-4 people. I remember trying to recruit an engineer when Google was maybe 150 people. I tried to convince the engineer that Google was doing well and it wasn't…

I question the amount of influence one can actually have on the the trajectory of a start-up, even if you are an early employee. Before I wised up and joined BigUltraMegaCorp, I worked for a number of small companies, and shared offices with brilliant, hard-workers, and we all moved mountains to try to make things work, but at the end of the day, no dice. I'm pretty much convinced at this point that start-up success…

Pets.com had a successful IPO, seems it could have easily beat out the Seibel career.

Re: Hard-won lessons about money and investing

#164

Post by dave1619 »

Matt_Cutts wrote: post #57
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…

Hey Dave, I approved your comment over on my blog--sorry about the delay. I also wrote a response which I'll paste below: Dave L, I concede that someone who is willing to put in the time and effort, they may become good at selecting stocks. Then again, they may not: I have friends who have spent a lot of time and effort studying individual stocks without much to show for it. And don’t even get me started on the finan…

Hey Matt, I've heard the Warren Buffett argument many times but it's usually misrepresented. Warren Buffett has said multiple times that if one has the skill to evaluate companies than they should pick individual companies and not choose an index fund because they will do far, far better with picking individual stocks. The problem is the vast majority of people are not skilled in evaluating companies and that's why Warren Buffett suggests them to choose a low-cost index fund.

I think though the main point of my previous comment was that many people (including posts that suggest everyone invest in only low-cost index funds and bonds) tend to underestimate the vast potential of huge returns in investing if one truly is an expert in investing.

Also, I suggest reading Common Stocks, Uncommon Profits by Philip Fisher and also Beating the Street by Peter Lynch. Both books are from legendary investors and will shed light that is different than the index fund approach/philosophy.

Re: Hard-won lessons about money and investing

#165

Post by tacos »

Retric wrote: post #160
7Figures2Commas wrote: post #156

Earlier quoted context omitted.

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…

Getting the same return on a bond investment as a stock investment is not the goal. Diversification into fixed income reduces risk (specifically volatility) which is important when you need the money at a predicted date. See this link, provided elsewhere in this thread:

http://bucks.blogs.nytimes.com/2011/09/06/why-and-how-divers...

Sorry to ding, but "I don't think bonds are a good investment for most people" is exactly the type of MattCuttsian financial generalization I'm trying to discourage in my little corner of this thread.

Re: Hard-won lessons about money and investing

#166

Post by m-i-l »

yen223 wrote: post #81
Ecio78 wrote: post #41

Earlier quoted context omitted.

Mr. Money Mustache will probably tell you to move to a different place[1], saving time and money by reducing the commuting time[2] etc.. NB I neither agree nor disagree with his ideas (still have to decide.. :)) [1] http://www.mrmoneymustache.com/2011/09/28/get-rich-with-movi... [2] http://www.mrmoneymustache.com/2011/10/06/the-true-cost-of-c...

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.

I tend to agree. The other point to consider is that if you are (for example) putting 30% of your salary in to a mortgage in a high cost high income area, you will have a much more valuable asset by the time you have paid off your mortgage than you would if you put 30% of your salary into a mortgage in a low cost low income area. In fact you may well have enough equity to fund a nice retirement in a cheaper part of the country.

Re: Hard-won lessons about money and investing

#167

Post by steven2012 »

highiquser wrote: post #100
steven2012 wrote: post #7

I'm of the opinion that the stock markets are now inherently unstable, and they will continue to crash every 7-10 years. I'm expecting a market crash somewhere between 2015 and 2017. Most of my money is in cash, but I do hold a few select stocks like AAPL, GOOG and TSLA. I also believe that the stock market is a game , not an investment vehicle. The nature of the market has transformed every since the day trader, qua…

OP remarked, why do the mutual fund managers have yachts but none of the clients do? It's as frivolous as asking why the executives of Nike have millions but the majority of people who buy Nikes don't.

This is a very terrible analogy. Nike is in the business of making shoes. A better analogy would be, why do Nike's customers' shoes fall apart after 1 year, but the shoes of the Nike executives last for several years?

Asset managers are supposed to be in the business of increasing their customers' wealth. However, most customer don't get as wealthy as the asset managers themselves.

Re: Hard-won lessons about money and investing

#168

Post by ForHackernews »

pinaceae wrote: post #159
ForHackernews wrote: post #145

Earlier quoted context omitted.

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?

Companies that claim to be desperate for developer talent?

Re: Hard-won lessons about money and investing

#169

Post by decode »

Ecio78 wrote: post #157
randomdata wrote: post #125

Earlier quoted context omitted.

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 p…

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

Since it seems that English isn't your first language, I thought I'd point out that "telecommuting" means you work from home, and "commuting" means that you travel a long distance to get to work. So, there are no costs or time lost when telecommuting, because you don't have to go anywhere.

The commenter you're replying to is saying he works from home in a low cost area, but works for a company in a high cost area (possibly hundreds or thousands of kilometers away).

Re: Hard-won lessons about money and investing

#170

Post by jseliger »

dredmorbius wrote: post #152

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 catastr…

Great comment! I want to emphasize this:

A Random Walk Down Wall Street by Burton G. Malkiel lays out the basics of portfolio diversification.

A Random Walk Down Wall Street is one of the best books I've ever read, and I'd only add that I think The Millionaire Next Door is also excellent. When most of us think about millionaires we think about Hollywood stars, tech company founders, and finance moguls. But most millionaires are actually normal people who spend below their means and invest what they can, usually in index funds and sometimes in a house. If they marry they don't divorce (divorce is very, very expensive and modern marriage is a high-risk endeavor).

Chances are good that most of the millionaires you know don't live like millionaires—which is why they can be millionaires!

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