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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

#171

Post by HelloMcFly »

gbog wrote: post #126
lars wrote: post #123

Earlier quoted context omitted.

Living on a low percentage of income seems like a great strategy if you're optimizing for dying with the maximum amount of money in the bank. I think many people in this thread need to consider if that really is the game they want to be playing. I'd think people would be better off maximizing their total happiness. There's research showing that having good memories from the past positively affects momentary happiness…

But money don't buy good memories. I have much better memories of camping with friends for near zero euros, than expensive hotels.

Money doesn't buy good memories, but it sure helps finance many opportunities to make them. It's neither necessary nor sufficient, but that doesn't make it highly enabling.

Re: Hard-won lessons about money and investing

#173

Post by n72 »

The tragic thing is that these lessons don't have to be "hard-won". I find it astonishing that a majority of even intelligent people don't do more basic research before making major decisions with something as important as their money. A few hours of research should turn up things like bogleheads.org, Bernstein, Malkiel, etc. Heck, a simple google of "site:ycombinator.com investing advice" should get you on the right track to all the advice you need in a few clicks.

Re: Hard-won lessons about money and investing

#174

Post by dirtyaura »

What is especially hard in investing is timing. If you followed Matt's advice and put all your investments to index fund (say Vanguard Total Stock Market ETF, https://www.google.com/finance?q=NYSEARCA) in the late 2007, you would have lost almost 50% of your savings in a year. And this example is not far fetched. My startup got acquired in 2007 and I invested some of that money to the stock market in late 2007. Not all, fortunately.

Re: Hard-won lessons about money and investing

#175

Post by t3rseCode »

highiquser wrote: post #90
Matt_Cutts wrote: post #57

Earlier quoted context omitted.

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…

I'm of the tiny, minority unpopular opinion that believes you can beat the market by picking stocks,. I have done so consistently for the past decade. Pick large cap companies with huge growth, high barriers to entry, insulated from economic trends, no debt, and high profit margins. My favorites: MA, V, BABA, GOOG, FB, JNJ, GILD, HD That's not many, but these are some of the best long term investment ideas I can find…

Good to hear that even if it's tiny, there is a small contingent who agrees. I took a portion of my savings in order to invest and have outperformed the index funds and basic allocations in my 401k and retirement accounts. I don't have a long enough track record (3 years thus far) to assume it can continue but my overall returns have consistently beaten SPY/DJI.

My sense is that investing is a skill and that you have to practice in order to get better. I've enjoyed the books of Thomas Bulkowski (http://thepatternsite.com/mybooks.html) and had fun doing it. Because it's not my primary retirement or savings it is less pressure and I try to minimize the gambling aspect instead relying on something more mechanistic.

With that said the current bull market keeps me humble; right now it's easy but if things take a turn I will try to be honest with myself and, if necessary, reallocate everything in index funds.

Re: Hard-won lessons about money and investing

#176

Post by lnanek2 »

usaar333 wrote: post #74
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…

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…

"in SF" - that is not affordable. If you are trying to save money you live somewhere on the BART or Caltrain and take the train into the city every day. My rent in East Palo Alto the year I was there was $400/month all utilities and internet included, for example. Is commuting into big cities like SF and NYC every day by bus and train miserable? Yes. But thousands and thousands of people do it because it is affordable and they have families or retirement they care more about.

Re: Hard-won lessons about money and investing

#177

Post by n72 »

dirtyaura wrote: post #174

What is especially hard in investing is timing. If you followed Matt's advice and put all your investments to index fund (say Vanguard Total Stock Market ETF, https://www.google.com/finance?q=NYSEARCA ) in the late 2007, you would have lost almost 50% of your savings in a year. And this example is not far fetched. My startup got acquired in 2007 and I invested some of that money to the stock market in late 2007. Not…

This is a terrible way of looking at things, since your time horizon is far too short. If you had put your money in the market at the height and kept it in until now, you would have made money. On Oct 5, 2007, VTSAX was trading at 37.72. It is currently trading at 51.87. Moreover, what was the alternative? Cash would have lost value due to inflation. Fixed income would have gotten you less and also been vulnerable to inflation.

Re: Hard-won lessons about money and investing

#178

Post by gfodor »

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…

This is oft-cited difference between bonds and bond funds is a red herring when it comes to determining the proper investment of the two. The reason a single bond keeps you from losing your principal is because it has a declining duration, whereas bond funds generally have a fixed duration (more or less) since maturing bonds in the portfolio are usually reinvested into bonds of the same time to maturity.

You can simulate the behavior of a single bond by rolling your investments into shorter and shorter duration bond funds over time. The reason you would do this is if you have a known date for when you are going to need the principal. (This is the same justification you would use for buying an individual bond.) By controlling the duration via reinvestment into bond funds, you are diversifying away a majority of of the default risk (the major risk of owning bonds) while still being able to ensure your bonds are worth at least as much as your principal on a fixed date determined at the beginning of the investment.

As an aside, concern about the market price of a bond is usually a good example of focusing on the wrong thing. If a bond's price has declined because of increased default risk, this is obviously bad. But if a bond's price has declined because of increased interest rates, this means you will be able to re-invest the coupon at a larger yield, so depending on your investment goals (such as having a robust inflation adjusted income stream for retirement) this may not be strictly a bad thing.

http://www.bogleheads.org/wiki/Individual_bonds_vs_a_bond_fu...

Re: Hard-won lessons about money and investing

#179

Post by nsfmc »

lnanek2 wrote: post #176
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…

"in SF" - that is not affordable. If you are trying to save money you live somewhere on the BART or Caltrain and take the train into the city every day. My rent in East Palo Alto the year I was there was $400/month all utilities and internet included, for example. Is commuting into big cities like SF and NYC every day by bus and train miserable? Yes. But thousands and thousands of people do it because it is affordabl…

to some degree you're right, commutes are a good way to trade time for rent money. many people don't have that time luxury, sadly, especially if dealing with a 9-5 job, caltrain irregularities and school/daycare schedules. many people don't have an extra 3+ hours to spare each day and necessarily trade that for a rent increase or proximity to a daycare or school. as a current resident of epa, i can say that the rents are becoming comparable with regular palo alto, especially if you're not living alone, which is really when these budget issues become much more complex.
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