> 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:
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 off $100k/year (combined) would require earning something like $500k/year.
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.
> 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.
"Google worked out a deal with “full service” broker to give us free accounts"
That is actually really interesting. How much did this broker have to pay to get this box full of highly lucrative leads - access to a large set of newly wealthy individuals, many of which don't have experience with managing large amounts of money. A bunch of people who may be experts of technology, but probably are not experts on finance.
It seems like inviting the fox into the hen house, and telling the hens what it deal it was
For most people, the easiest way to become financially independent is to save aggressively.
That aside, I have always invested in a small number of individual stocks, with minimal management or effort, and only moving positions between companies slowly over time. Basically, I make bets on long-term trends that I view as technologically inevitable. I don't invest in sexy companies (though some become sexy later), I invest in companies that are undervalued relative to the technology trends. That strategy is pretty trivial but it has allowed me to beat the S&P index pretty consistently over decades (famous last words) with the money I don't have a better use for e.g. savings. In fact, the margin by which I beat the S&P has been slowly improving, which I think reflects the increasing ability of tech to move the needle on the economy.
Since this is a tech site, this would seem like a repeatable strategy that anyone could and would use. But apparently people don't. Of course, I could just be really lucky.
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 investing in companies with a market cap less than $10 billion, the risk and overall effort you're putting in is really indefensible if you aren't beating the S&P Mid-Cap Index. Which over the last twenty years - just a sample time period - outperformed the S&P 500 pretty hugely: http://finance.yahoo.com/echarts?s=%5EMID+Interactive#%7B%22...
Or do a little better and compare your performance against a real tech sector index. Do better still and use the tools of modern portfolio theory to measure your portfolio's performance.
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.
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.
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!
While the conclusions in this book happen to be valid for the vast majority (i.e. somewhere between 95-99% of the population should stick to index investing), people often mis-apply the conclusions in this book to suggest that certain things are impossible, and that is clearly false and misleading.
There are people who invest and trade successfully, and they are not lucky outliers any more than a brain surgeon is a lucky outlier.
I once asked a guy who made his living off of trading stocks and futures how long would it take me to learn. His answer was sobering. If I made it my full time job for 3-5 years, I could learn to be marginally profitable, and with additional years of experience I could make enough to live off of. He guessed maybe 5-10 years of 40+ hours per week dedicated to trading, and even then, if I did not study the right things I could still fail. Contrast this with the average Joe trying his hand at investing, and of course they will fail. You can't dedicate 3-5 hours per week and expect to be a competent brain surgeon.
Using the same logic in this book, we could conclude that it's impossible for anyone to start a successful business. The message should be, it's really hard and takes a lot of work, and it takes a lot of knowledge about how to run a business, and it takes a high level of competency at some skill (coding, carpentry, whatever), and you have to be competent at communicating with others, and leading others, and not have personal baggage to draw your focus away from the business, and, well, you get the idea. It's hard, and it's not for everyone, but it's not impossible.
Unsystematic risk means risks tied to holding individual stocks. Notice the x-axis. Holding more stocks (diversifying) means removing individual stock risk.
Great list. Another book I've found helpful is "The Intelligent Asset Allocator" [0]. The concepts on modern portfolio theory it discusses seem to jive with Matt's article. Basically, when investing for the long term, focus more on balancing the asset classes in accordance with your risk profile than picking specific investments within an asset class. It was a very readable book for someone like me without investing experience but didn't feel like it oversimplified things.
Another great book is The Four Pillars of Investing by Bill Bernstein. If you're already sold on an index portfolio there isn't a ton of info there (although there are certainly some useful bits), but it's great for making the case.
I'm at the start of a long career and trying to save sacrificially. I know if i over-save i still have it if i need it, but so far every dollar i have put into savings has been on a one-way trip!
I wonder and worry about how to save up for later in life, and who knows what the political landscape will look like then. In my country inflation has been 2.16% on average during the years I've been alive.
Where can I store my money in a way that I know it will be there later whn I need it?
(I'm a little nervous about the bank, one time I had a court order against my bank account so it was drained, and I was beingpaid by cheque, but even when I took my paycheque to the bank to deposit it, until that debt was paid off i couldnt even take out enough for groceries. I want something that cant be taken away at a whim without recourse. I negotiated a deal with the collection agency for a repayment schedule, but they still drained my account 2-3 times after our agreement just because. Oops!)
I live in Australia. Here the interest rate on cash deposits is around 2.75%, or 3.6% for a 180 day term deposit minimum $10,000. Inflation the past few years has been between 2.2 - 2.9%. No point holding money in a bank account or term deposit as an 'investment' - I only hold cash because it's handy to have.
All the books I read on the topic of investment were intended for Australians, so my advice is to read two or three books each on investing in the stock market and real estate, and understanding your countries tax rules as they apply to investors. It has been said that if you read three good books on any subject you should be able to converse with the professions and understand what they're saying.
There probably isn't a place you can put money where a court order won't be able to touch it. Payment agreement before that happens is a good idea, but of course that isn't always possible.
Having time and mind for saving is an excellent place to be. There are no guarantees with these things. As you say the only sure thing is that inflation will destroy significant portion of your savings in only few decades. If you think things in timespans of several years you really should look into investing. This way you don't sit on your money but buy something that generates value and thus will be valuable also in future.
Spread your investment over long time and wide range of different assets and you are as safe as you are going to get.
Usually people suggest passive index funds with low fees to do this in practice. Don't take their word for it but study yourself.
What little advice I can offer. From what I've gathered, there is no sure-fire way to protect your capital from constant things such as inflation and wild things such as economic "incidents", for lack of a better term.
I've lately been thinking that some more reliable means would be to own a "wealth-generating" business. Or a few of them in varied industries, to mitigate risk.
Another method that I've also thought about is antique art and possibly high-quality furniture as well. But that would apply in case of a major war-situation, assuming you could even get those physical items to safety.
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 both lose your salary and your investments/equity will be worthless.
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.
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.
Hedonic adaptation is the devil. You'd hope/intuit that spending more resources would make you happier, but that's just not the way it works. That said, you can use knowledge of this quirk of human psychology to make you richer and more secure compared to your higher-consuming self, not sacrificing any long term contentment or satisfaction to do it. Here's a more in-depth review of the topic[1].
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).
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.
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, quants and HFT have entered the markets. As long as you understand this, then putting money in the markets is fine. If you don't want to be a part of the game, then regular people should buy bonds (not bond funds, but actual bonds that pay interest).
My opinion is that Wall Street has shifted focus since the 80s to trying to convince people to dump their money, all their money, into mutual funds. Then these massive fund managers take their 1-3% in various fees and just move money back and forth. I don't trust Vanguard any more than I trust any of these other large mutual fund companies, and I happen to know a lot of people that work at various asset management companies in the Bay Area. They print money without ever beating the SP500, instead they try to change the equation by claiming they beat the SP500 on a risk-weighted basis, etc. The entire thing is a sham, and as the OP remarked, why do the mutual fund managers have yachts but none of the clients do? It's because they make their money from the hundreds of billions of dollars they skim off the top of their customer funds.
It's really common for people to drastically overestimate the value of startup equity, or to just not understand the basic mechanics of it at all. In my experience people look at the face value of their options and are pretty clueless about how taxes (or even their strike price!) affect what they might actually wind up with.
There is an economics article I’ve brought up several times on HN. It has a lot of non obvious deep implications: “The Nature of the Firm' (1937), By Ronal Coase” It tries to answer the question of why companies exist rather than bilaterally trade of goods and services between individuals in a market. IE, if centralised economies are so bad, why are free market economies dominated by enormous companies that are internally run like a Stalinist country. Instead of Apple making all the software and hardware and the babushka doll of precursor software and hardware, couldn’t we have Apple replaced by a market?
The economics of the time (especially among proponents of centralized systems) focused a lot on “inefficiencies.” Why produce hundreds of iPad screen designs when only one is needed. Economies of scale. Coase’s answer to the question was transaction costs. The “cost” of weighing all the options and negotiating a deal to have you write a thousand lines of code to go into my bigger bundle of code.
In modern companies like Apple this is extreme. But, if you think about it in a manufacturing economy, it makes more sense.
Anyway, as I said, the more I think about it the deeper some of the concepts and implications seem to be. For example: (a) There are inefficiencies out there on the scale of East/West Germany. (b) Transactions costs are at the root of many/most major inefficiencies.
The part of this blog that got me thinking about this was “working for equity vs. salary.”
I think that for most people, the choice company they work for wass 80% chance and 20% uninformed bias. Applying for a job and interviewing is a big overhead (transaction cost) and your ability understand the company’s chances of success and the magnitude of this success isn’t very good. The fact that many people don’t know what percentage of the company their stock represents is the glaring proof. Prospective employees don’t have anywhere near the information that investors do. How much money is in the bank? What are revenues? Burn rate? Valuation at previous rounds?
The poverty of information and the fact that transaction costs make it impossible for one to consider more than the tiniest semi-random sample of opportunities is exactly the kind of dynamic I think Coase’s work implies.
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, investing has huge downside as well (you can lose all your money).
Many people are advocating people to take a mindless approach to investing by investing in low-cost index funds. I personally think this is decent/good advice for most people who don’t have the time, energy, experience, skills to make investing a lifetime passion. In other words, for the typical person who just wants to focus on his 9-to-5 job and other hobbies and not deal with the world of investing, then sure low-cost index funds are the way to go.
However, there are some people who can benefit in huge ways by becoming experts in investing (whether this be in stocks, real estate, businesses, etc). A few disclaimers first… becoming an expert investor is extremely difficult and most people underestimate what it takes. It’s not about “picking” stocks or getting lucky. Rather, it’s about accumulating the skills, experience and expertise to evaluate investment opportunities in a wise and discerning manner, and to do it exceedingly well. I think it requires an immense amount of time and dedication. And I don’t think 98% of the people out there practically have the time, energy, motivation or focus to develop such skills. But for the 1-2%, I think it’s a possibility if they treat it as a serious lifetime endeavor."
Regarding most of these lessons, in 2004, Google brought in experts on personal investing to educate employees heading into its initial public offering:
I am one of those people who have lived this advice and after 10 years of following some of the recommendations here, I can confirm that it works.
Here are my 5 simple rules that I followed, no lottery/IPO, just a steady single income.
- Max out 401K and get company match
- Max out Roth IRA for me and my wife
- Invest in Vanguard S&P 500 Index Funds, some international funds and some bonds
- Invested in a property in India
- Lived below 35% of the salary
- Always bought a used car and kept the car for as long as it runs
Results
- After 10 years, I am financially independent
- I am working for Google just because I enjoy working and not because I need a paycheck
- My wife works as a teacher and she enjoys her job as well. She is working because she likes to and not because we need a paycheck
What was hard ?
- To see friends buying expensive cars just after getting their first job and not doing the same
- Friends buying > 1M$ houses while I kept renting since I like the flexibility and staying in a community
- Friends going on exotic trips
If you diversify enough, you can ensure a 0% return and a 0% loss. The argument for "diversification" is a recipe for safety, but not real wealth creation. Real wealth creation isn't "sticking your money in an index fund." It's a very middle class approach but as with anything, there's no such thing as a free lunch. If it takes 30 years of index funds to be able to retire, then you're doing it wrong. Investing in actual cash-flow producing assets is how you create wealth. Capital appreciation is only one part, the other part is creating cash flow. That means owning businesses, real estate and other passive income generators (IP, for example.)
Diversification is considered to be one of the only "free lunches" in finance. It can both increase your return and decrease your risk, with almost no downside.
For example, going from 100% bonds to 80% bonds and 20% stocks will significantly increase a portfolio's expected return with reduced risk. Another example is owning the Total Stock market (small and mid-caps included) rather than just the S&P 500.
Literally everywhere for the past years I see the advice to invest in index funds - the only question I have is what happens when a critical mass of people do just that? Wouldn't that influence the market in some way?
I'm surprised he doesn't mention real estate or investing in friend/family businesses as an option.
This isn't as safe as index funds, but it is an option where you can increase your success rate by being competent. It probably has a risk profile similar to working for equity at a startup, an option only available to people who work in or around startups.
I've been considering moving from holding Vanguard ETFs (one of their Total Retirement funds) over to Betterment or Wealthfront to take advantage of their automated tax loss harvesting.
Does anyone have any thoughts about whether automated tax loss harvesting is worth the 0.15-0.25% fees that the robo-advisers charge?
[+] [-] j_lev|11 years ago|reply
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 on 35% of your after tax income and you're retired in 10 years. Get it down to 25% and you retire in 7.
[+] [-] usaar333|11 years ago|reply
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 off $100k/year (combined) would require earning something like $500k/year.
[+] [-] crdoconnor|11 years ago|reply
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.
[+] [-] YZF|11 years ago|reply
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.
[+] [-] seanmcdirmid|11 years ago|reply
[+] [-] adamio|11 years ago|reply
[+] [-] g_mifo|11 years ago|reply
[+] [-] senthil_rajasek|11 years ago|reply
At least, in the US this assumption is not valid any longer. There is no risk-free investment that can earn you 5% after inflation annually.
[+] [-] ebbv|11 years ago|reply
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.
[+] [-] grimlck|11 years ago|reply
That is actually really interesting. How much did this broker have to pay to get this box full of highly lucrative leads - access to a large set of newly wealthy individuals, many of which don't have experience with managing large amounts of money. A bunch of people who may be experts of technology, but probably are not experts on finance.
It seems like inviting the fox into the hen house, and telling the hens what it deal it was
[+] [-] j_lev|11 years ago|reply
http://www.modernluxury.com/san-francisco/story/the-best-inv...
[+] [-] unknown|11 years ago|reply
[deleted]
[+] [-] jandrewrogers|11 years ago|reply
That aside, I have always invested in a small number of individual stocks, with minimal management or effort, and only moving positions between companies slowly over time. Basically, I make bets on long-term trends that I view as technologically inevitable. I don't invest in sexy companies (though some become sexy later), I invest in companies that are undervalued relative to the technology trends. That strategy is pretty trivial but it has allowed me to beat the S&P index pretty consistently over decades (famous last words) with the money I don't have a better use for e.g. savings. In fact, the margin by which I beat the S&P has been slowly improving, which I think reflects the increasing ability of tech to move the needle on the economy.
Since this is a tech site, this would seem like a repeatable strategy that anyone could and would use. But apparently people don't. Of course, I could just be really lucky.
[+] [-] justin66|11 years ago|reply
For instance, if you're investing in companies with a market cap less than $10 billion, the risk and overall effort you're putting in is really indefensible if you aren't beating the S&P Mid-Cap Index. Which over the last twenty years - just a sample time period - outperformed the S&P 500 pretty hugely: http://finance.yahoo.com/echarts?s=%5EMID+Interactive#%7B%22...
Or do a little better and compare your performance against a real tech sector index. Do better still and use the tools of modern portfolio theory to measure your portfolio's performance.
> Of course, I could just be really lucky.
It's probably worth reading The Drunkard's Walk.
[+] [-] unknown|11 years ago|reply
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[+] [-] dredmorbius|11 years ago|reply
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.
[+] [-] jseliger|11 years ago|reply
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!
[+] [-] halfcat|11 years ago|reply
While the conclusions in this book happen to be valid for the vast majority (i.e. somewhere between 95-99% of the population should stick to index investing), people often mis-apply the conclusions in this book to suggest that certain things are impossible, and that is clearly false and misleading.
There are people who invest and trade successfully, and they are not lucky outliers any more than a brain surgeon is a lucky outlier.
I once asked a guy who made his living off of trading stocks and futures how long would it take me to learn. His answer was sobering. If I made it my full time job for 3-5 years, I could learn to be marginally profitable, and with additional years of experience I could make enough to live off of. He guessed maybe 5-10 years of 40+ hours per week dedicated to trading, and even then, if I did not study the right things I could still fail. Contrast this with the average Joe trying his hand at investing, and of course they will fail. You can't dedicate 3-5 hours per week and expect to be a competent brain surgeon.
Using the same logic in this book, we could conclude that it's impossible for anyone to start a successful business. The message should be, it's really hard and takes a lot of work, and it takes a lot of knowledge about how to run a business, and it takes a high level of competency at some skill (coding, carpentry, whatever), and you have to be competent at communicating with others, and leading others, and not have personal baggage to draw your focus away from the business, and, well, you get the idea. It's hard, and it's not for everyone, but it's not impossible.
[+] [-] oldspiceman|11 years ago|reply
Unsystematic risk means risks tied to holding individual stocks. Notice the x-axis. Holding more stocks (diversifying) means removing individual stock risk.
[+] [-] crazy1van|11 years ago|reply
[0] http://www.amazon.com/The-Intelligent-Asset-Allocator-Portfo...
[+] [-] tempestn|11 years ago|reply
[+] [-] dredmorbius|11 years ago|reply
http://www.powells.com/s3?author=lewis%2C+michael
[+] [-] err4nt|11 years ago|reply
I wonder and worry about how to save up for later in life, and who knows what the political landscape will look like then. In my country inflation has been 2.16% on average during the years I've been alive.
Where can I store my money in a way that I know it will be there later whn I need it?
(I'm a little nervous about the bank, one time I had a court order against my bank account so it was drained, and I was beingpaid by cheque, but even when I took my paycheque to the bank to deposit it, until that debt was paid off i couldnt even take out enough for groceries. I want something that cant be taken away at a whim without recourse. I negotiated a deal with the collection agency for a repayment schedule, but they still drained my account 2-3 times after our agreement just because. Oops!)
[+] [-] TheSpiceIsLife|11 years ago|reply
All the books I read on the topic of investment were intended for Australians, so my advice is to read two or three books each on investing in the stock market and real estate, and understanding your countries tax rules as they apply to investors. It has been said that if you read three good books on any subject you should be able to converse with the professions and understand what they're saying.
There probably isn't a place you can put money where a court order won't be able to touch it. Payment agreement before that happens is a good idea, but of course that isn't always possible.
[+] [-] ollifi|11 years ago|reply
Spread your investment over long time and wide range of different assets and you are as safe as you are going to get.
Usually people suggest passive index funds with low fees to do this in practice. Don't take their word for it but study yourself.
[+] [-] zo1|11 years ago|reply
I've lately been thinking that some more reliable means would be to own a "wealth-generating" business. Or a few of them in varied industries, to mitigate risk.
Another method that I've also thought about is antique art and possibly high-quality furniture as well. But that would apply in case of a major war-situation, assuming you could even get those physical items to safety.
[+] [-] ballstothewalls|11 years ago|reply
[+] [-] burnstek|11 years ago|reply
[+] [-] prostoalex|11 years ago|reply
[+] [-] dredmorbius|11 years ago|reply
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.
[+] [-] ploxiln|11 years ago|reply
[+] [-] unknown|11 years ago|reply
[deleted]
[+] [-] orblivion|11 years ago|reply
[+] [-] Patient0|11 years ago|reply
[+] [-] jamesaguilar|11 years ago|reply
[1] http://www.mrmoneymustache.com/2011/10/22/what-is-hedonic-ad...
[+] [-] influx|11 years ago|reply
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.
[+] [-] Animats|11 years ago|reply
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.
[+] [-] steven2012|11 years ago|reply
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, quants and HFT have entered the markets. As long as you understand this, then putting money in the markets is fine. If you don't want to be a part of the game, then regular people should buy bonds (not bond funds, but actual bonds that pay interest).
My opinion is that Wall Street has shifted focus since the 80s to trying to convince people to dump their money, all their money, into mutual funds. Then these massive fund managers take their 1-3% in various fees and just move money back and forth. I don't trust Vanguard any more than I trust any of these other large mutual fund companies, and I happen to know a lot of people that work at various asset management companies in the Bay Area. They print money without ever beating the SP500, instead they try to change the equation by claiming they beat the SP500 on a risk-weighted basis, etc. The entire thing is a sham, and as the OP remarked, why do the mutual fund managers have yachts but none of the clients do? It's because they make their money from the hundreds of billions of dollars they skim off the top of their customer funds.
[+] [-] ForHackernews|11 years ago|reply
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.
[+] [-] mcfunley|11 years ago|reply
It's really common for people to drastically overestimate the value of startup equity, or to just not understand the basic mechanics of it at all. In my experience people look at the face value of their options and are pretty clueless about how taxes (or even their strike price!) affect what they might actually wind up with.
[+] [-] netcan|11 years ago|reply
The economics of the time (especially among proponents of centralized systems) focused a lot on “inefficiencies.” Why produce hundreds of iPad screen designs when only one is needed. Economies of scale. Coase’s answer to the question was transaction costs. The “cost” of weighing all the options and negotiating a deal to have you write a thousand lines of code to go into my bigger bundle of code.
In modern companies like Apple this is extreme. But, if you think about it in a manufacturing economy, it makes more sense.
Anyway, as I said, the more I think about it the deeper some of the concepts and implications seem to be. For example: (a) There are inefficiencies out there on the scale of East/West Germany. (b) Transactions costs are at the root of many/most major inefficiencies.
The part of this blog that got me thinking about this was “working for equity vs. salary.”
I think that for most people, the choice company they work for wass 80% chance and 20% uninformed bias. Applying for a job and interviewing is a big overhead (transaction cost) and your ability understand the company’s chances of success and the magnitude of this success isn’t very good. The fact that many people don’t know what percentage of the company their stock represents is the glaring proof. Prospective employees don’t have anywhere near the information that investors do. How much money is in the bank? What are revenues? Burn rate? Valuation at previous rounds?
The poverty of information and the fact that transaction costs make it impossible for one to consider more than the tiniest semi-random sample of opportunities is exactly the kind of dynamic I think Coase’s work implies.
[+] [-] dave1619|11 years ago|reply
"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, investing has huge downside as well (you can lose all your money).
Many people are advocating people to take a mindless approach to investing by investing in low-cost index funds. I personally think this is decent/good advice for most people who don’t have the time, energy, experience, skills to make investing a lifetime passion. In other words, for the typical person who just wants to focus on his 9-to-5 job and other hobbies and not deal with the world of investing, then sure low-cost index funds are the way to go.
However, there are some people who can benefit in huge ways by becoming experts in investing (whether this be in stocks, real estate, businesses, etc). A few disclaimers first… becoming an expert investor is extremely difficult and most people underestimate what it takes. It’s not about “picking” stocks or getting lucky. Rather, it’s about accumulating the skills, experience and expertise to evaluate investment opportunities in a wise and discerning manner, and to do it exceedingly well. I think it requires an immense amount of time and dedication. And I don’t think 98% of the people out there practically have the time, energy, motivation or focus to develop such skills. But for the 1-2%, I think it’s a possibility if they treat it as a serious lifetime endeavor."
[+] [-] applecore|11 years ago|reply
http://www.modernluxury.com/san-francisco/story/the-best-inv...
TL;DR: Put your money into some broad-based, low-cost index funds.
[+] [-] ingend88|11 years ago|reply
Here are my 5 simple rules that I followed, no lottery/IPO, just a steady single income. - Max out 401K and get company match - Max out Roth IRA for me and my wife - Invest in Vanguard S&P 500 Index Funds, some international funds and some bonds - Invested in a property in India - Lived below 35% of the salary - Always bought a used car and kept the car for as long as it runs
Results - After 10 years, I am financially independent - I am working for Google just because I enjoy working and not because I need a paycheck - My wife works as a teacher and she enjoys her job as well. She is working because she likes to and not because we need a paycheck
What was hard ? - To see friends buying expensive cars just after getting their first job and not doing the same - Friends buying > 1M$ houses while I kept renting since I like the flexibility and staying in a community - Friends going on exotic trips
I think at the end, its worth it.
[+] [-] briandear|11 years ago|reply
[+] [-] oscilloscope|11 years ago|reply
For example, going from 100% bonds to 80% bonds and 20% stocks will significantly increase a portfolio's expected return with reduced risk. Another example is owning the Total Stock market (small and mid-caps included) rather than just the S&P 500.
http://bucks.blogs.nytimes.com/2011/09/06/why-and-how-divers...
[+] [-] FiReaNG3L|11 years ago|reply
[+] [-] netcan|11 years ago|reply
This isn't as safe as index funds, but it is an option where you can increase your success rate by being competent. It probably has a risk profile similar to working for equity at a startup, an option only available to people who work in or around startups.
[+] [-] arkem|11 years ago|reply
Does anyone have any thoughts about whether automated tax loss harvesting is worth the 0.15-0.25% fees that the robo-advisers charge?