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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

#201

Post by hnnewguy »

jandrewrogers wrote: post #147
justin66 wrote: post #79

Earlier quoted context omitted.

Based on what you've written, it doesn't appear that you've measured the performance of whatever method you're using against an appropriately risk-adjusted benchmark. For example, beating the S&P 500 over a certain time period is okay but if you're doing it with a bunch of small- or mid-cap tech stocks, it's quite possible you're not being compensated adequately for the risk you're taking. For instance, if you're inv…

I only invest in large caps, ones everyone knows, based on two criteria: 1) They are are fairly or somewhat undervalued given the conventional market view and metrics. 2) They are likely to be significant beneficiaries of large-scale technological trends that the market is oblivious to and has not priced into the stock. Then I wait a few years for the trend to become more obvious and for the market to adjust the stoc…

So, you're investing only in large cap stocks, while spending as little time as possible doing analysis, and over decades have consistently surpassed the S&P returns, with low risk and low volatility?

Forgive me if I don't believe this in the least.

Re: Hard-won lessons about money and investing

#202

Post by YZF »

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…

From that link, under assumptions: "You can earn 5% investment returns after inflation during your saving years"

If I could earn 5% after inflation without risk I could retire today (well, I'd be retired many years ago, if that's what I want to do). The problem is that's simply not possible. If you have a family you can't take the risk of putting all your money in stocks as there can be periods of well over a decade where the real return is negative and you'll run out of money. You need a lot more buffer.

Re: Hard-won lessons about money and investing

#203

Post by vpeters25 »

> You are probably a bad stock picker

You might find a stock that looks good, you check financials, fillings, read forum posts and "expert" financial blogs such as Seeking Alpha. They all concur: stock looks good, BUY! BUY! BUY!

So you buy the stock thinking you are making an informed decision only for it to crash the next day after their latest SEC filing hits the wires.

There you learn they all knew the filing was coming, so they pimped the stock hard so suckers like us bite. Corp officials, analysts, "expert" financial bloggers, even the SEC. They are all on it.

Re: Hard-won lessons about money and investing

#204

Post by halfcat »

lars wrote: post #123
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…

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…

>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.

MMM/ERE [1][2] are not about maximizing money at all. They are about obtaining only a sufficient level of capital, so that they are no longer obligated to work for income to continue living happily. The numerical value of "sufficient" gets lower as your expenses decrease.

>I'd think people would be better off maximizing their total happiness.

Based on your comments, to you, happiness comes from experiences which require money, which is perfectly fine. Therefore, MMM and ERE are not for you, which again is perfectly fine.

For others who find happiness in experiences requiring little to no funds, MMM/ERE is an exceptional strategy. I would love to spend my days coding, studying chess, reading books, cooking, mentoring youth, and spending time with the small group of people I am close with (I'm rather introverted).

[1] http://www.mrmoneymustache.com/

[2] http://earlyretirementextreme.com/

Re: Hard-won lessons about money and investing

#205

Post by tacos »

Retric wrote: post #188
tacos wrote: post #165

Earlier quoted context omitted.

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 exa…

Bonds are paying way less than stocks. If you think there a good idea feel free to defend them but consider this: First off most methods of diversifying bonds (bond funds) add interest rate risks so there not predictable returns. Which means you can buy specific bonds. A 1 year T-Bill pays under 1% before taxes which is hardly worth the hassle for most people. To get better returns in the short term your stuck with i…

Worldwide bond market is $82 trillion. Larger than the entire stock market. Meanwhile "Retric" on HN says bonds are pointless. Hmm.

Re: Hard-won lessons about money and investing

#206

Post by hnnewguy »

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…

>I invested some of that money to the stock market in late 2007. Not all, fortunately.

Why? The inflation adjusted CAGR of the S&P from Jan 1, 2007 to Jan 1, 2014 was almost 4%.

Re: Hard-won lessons about money and investing

#207

Post by YZF »

crdoconnor wrote: post #66
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…

>Assumptions: >– You can earn 5% investment returns after inflation during your saving years This would maybe make sense in the 1990s or early 2000s but it's 2014! ZIRP forever is the new normal, and judging by what happened in Japan post 1991, it's going to continue for at least two or three decades.

It would never really make sense. Any investment where you can make 5% after inflation has risk involved. If you're lucky you'll do great. If you're unlucky not so much. "Do you feel lucky punk?" ;-)

1999 - 2009 negative real return. Imagine you're the happy dude who retired in 1999 with a family after working for 10 years and diligently saving. Now in 2009 you need to send your kids to school... We also were on the brink of real depression, if that scenario played out you'd be completely wiped.

So basically you need a large buffer than you think you do to account for volatility and rare "tail" events.

Re: Hard-won lessons about money and investing

#208

Post by halfcat »

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…

>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...

How about C) Move to a different state? If the goal is to do this in California, then yes, it's probably not possible.

Re: Hard-won lessons about money and investing

#209

Post by hnnewguy »

justincpollard wrote: post #17
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…

One of the nice things about Vanguard is that the fee structure is much less than 1-3% for many of their funds. I invest with them in some of their index funds and pay no more than 0.4% in fees; usually much less than that.

>I invest with them in some of their index funds and pay no more than 0.4% in fees

The fees for VTI, which is Vanguard's Total Stock Market Fund is 0.05%.

On top of that, in Canada, most brokers will allow you to buy ETFs in a RRSP or TFSA account for no fees. Very cost efficient.

Re: Hard-won lessons about money and investing

#210

Post by walshemj »

hnnewguy wrote: post #195
walshemj wrote: post #104

Earlier quoted context omitted.

you do have to be aware of the effect when QE is unwound which will depress the price of gilts

QE doesn't need to be unwound; bonds can roll off into cash.

you do know that bond prices and the bank rate are linked bank rate goes up bond prices go down - sucks if you lose 20% of your capital that way and that has happened recently
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