9 ms·

Can the best financial tips fit on an index card?

49 points by BDGC 11y ago

salmonet 11y ago
The best tips for anything can fit onto an index card. Just a matter of how many.
- SAI_Peregrinus 11y ago
  And how you write them. Given the storage density of modern Flash memory you could store quite a lot in a 3X5 inch chip...
  - rzzzt 11y ago
    Using a 300 dpi printer gives you ~90 kB of storage: http://ollydbg.de/Paperbak/#3 http://ollydbg.de/Paperbak/#3
theseatoms 11y ago
The limit to greater financial literacy isn't in the lack of availability of short "tip lists" like this. It's in the willingness of people to research, learn, and change behaviors. It doesn't help that you'd be lucky to encounter any financial literacy education in public schools (in the US).
- Mikeb85 11y ago
  Part of it is that banks don't want you to have financial literacy. If you did, you likely wouldn't purchase most of their products.
  - theseatoms 11y ago
    I agree. They make the rules, they write the fine print, they hide the fees, etc... Are there any consumer advocacy groups that represent the interests of consumers of financial services? Seems like that should be a thing.
    - superuser2 11y ago
      Obama's Consumer Financial Protection Bureau [0] and related initiatives provide an advocate in disputes with banks, limits and disclosure requirements on fees, etc. The CARD Act of 2009 also standardized credit card rate and fee disclosures. On the non-regulatory side, there's not much meaningful pushback against the big banks, but you can choose to opt out of them by banking with a local credit union (university, employer, city, etc.) or potentially an internet bank like Ally or Simple.
    - Mikeb85 11y ago
      It's not just fine print and fees. That's the least of our worries. It's more about the misuse of debt (line of credit for a vacation), taking on too much debt (furniture and appliances on layaway, and other such things), and inappropriate investment vehicles.
    - logfromblammo 11y ago
      From my limited knowledge of such things, I think it would be possible to set up a credit union where the "common bond" among members is the ability to spot banking practices hostile to banking customers. If all the members know how to spot a scam, it is unlikely that anyone would vote that everyone should try to run one on themselves. Excerpt from the membership application exam: ... B) Take the lower rate with the higher monthly payment. C) Buy a used car that is about 2 years old instead. 22. Your bank offers to upgrade your debit card such that, for a fee, a transaction that would ordinarily be declined--or a check that would have bounced--is instead approved. How do you react? A) Wow, that sounds convenient. I'm in. B) If I wanted credit, I would have used a credit card. C) If I can't opt out, I'm closing my account. 23. You need $40 in cash. Your bank does not have any no-fee ATMs in the area. A) A fee is no big deal. Withdraw $40 and pay $3. B) Withdraw the maximum, to minimize the percentage lost. C) Buy a pack of gum with debit and get $40 cashback. D) As in C, but also return the gum for a refund. 24. Your bank offers...
      - beambot 11y ago
        The Credit Union would end up with so few members and so few persistent deposits (since all your smart members would immediately transfer assets into investment accounts, muni bonds, and ETFs), that the Credit Union would operate in the red... costing all the founding members dearly, both in time and money, when the Credit Union goes into bankruptcy. It turns out that the smartest folks, who saw through the charade, were thrown out with the bath water by not joining to begin with. ;-)
  - johnward 11y ago
    I know there is a personal responsibility part of this but banks end up prying on the financial illiterate. Somehow my wife has a student loan with 12% interest. I'm not even sure how that happens. I also don't understand how interest rates are so low but CC interest is so high. They are basically borrowing free money and then charging people 29% on it.
    - charlesdm 11y ago
      CC interest is high because: 1. Most people pay off the balance each month; the people who don't _really_ need the credit. 2. The default rate of those people is probably (very) high. Given a default means a bank loses their capital, they need to make it back somehow. Also, a student loan with 12% interest? If the loan still carries a significant balance, she should refinance at a much lower interest rate (pledge some collateral if you have to, like a car/house/existing share portfolio).
    - icebraining 11y ago
      I'm not saying it justifies the whole 29%, but CCs have a much higher rate of default, which leads to higher interest rates.
- pbreit 11y ago
  But that's the thing: research and learning are unnecessary. Just change your behavior. Which is easier than people think. Just do it. As far as this card goes, it's spot-on. I would put "pay off your credit cards" at the top of the list. You should not invest a nickel until you've paid off all your credit cards (and any other debt where you're paying more than 10% interest).
  - charlesdm 11y ago
    I doubt the people who have significant credit card debts (and are paying 10% interest p/a) are investing. They're probably spending.
    - pbreit 11y ago
      There are tons of people who carry credit balances who also have money in stocks, bonds & mutual funds. They don't equate paying off 15% credit card balances with a 20-25% stock gain.
    - logfromblammo 11y ago
      They may be investing indirectly, like with their 401(k). People with significant credit card balances may be paying 15%, 18%, 25%, or more on them. Even with the tax advantage of the retirement account, it's better to suspend contributions and pay off debt. Assume you're in the 25% tax bracket. If you have a $100 debt accruing interest at 24.99% for 10 years, you end up owing $931. If you have $133 in a pre-tax account earning at 7% for 10 years, and withdraw it and pay 25% in tax on the $262, you have $196 left. You don't have to be a genius to figure out that still leaves you $735 in the hole, which is far worse than paying the tax on your $133 paycheck up front and using the $100 to pay off your debt instead of investing it. As it turns out, your interest on debt doesn't need to be nearly that high. If you owe at 10% and invest pre-25% tax at 7%, it still makes sense to stop investing entirely until paying off the debt.
- rconti 11y ago
  Discipline. As a full-time employee, I more than doubled my take-home pay between 2006 and 2015. In that period, my spending didn't go up. Actually, it went down, because I paid off my car. In the process, I paid off credit cards, student loans, and managed to increase my standard of living. I remember after a big pay bump (job change), noting that my take-home pay going into my primary checking account was unchanged from what it had been 6 years prior, because, almost without thinking about it, I went from single-digit 401k contribution to maxed out, and doubled the amount that went into my medium-term savings/investment accounts. It just seemed natural; I'll be making more, time to save more. It was essentially a coincidence that the take-home number remained the same. This is not to say it's so easy for everyone; everyone has different circumstances. My point is more that there are so many people NOT doing this for whom it WOULD be easy.
  - pmorici 11y ago
    Once you get in the habit of spending too much or god forbid run up a large credit card debt I can see how it might be hard to return to a lifestyle of frugality akin to the difficulty of quitting smoking or a morning coffee habit. I do agree that discipline is the name of the game though.
    - rconti 11y ago
      Absolutely. Habits are hard to quit. For me, it's the "time to spend" habit. I put off making a big purchase, but once I do (say, building a home theater system or something) it becomes easy to just keep spending on it because you've already mentally committed to the project. All fine and good so far. But then you notice something else you 'need' or that's wearing out, and you buy that without thinking about it. Then you buy another thing without thinking about it, because you're in the habit. Sometimes you need to do a spending detox after those splurges.
  - johnward 11y ago
    It's taking me about 10 years but the last time I got a significant increase I did not actually increase my spending/lifestyle, which is a first. It's strange. I used to always imagine if I had X amount of money I would never be able spend it. Then when I got there it was so easy to spend it. I'm hoping to be in your position after I get some of my debt paid off.
marme 11y ago
I disagree with the statement that you should not buy individual stocks because others know more than you. This is only true if you buy stocks for companies outside of your area of expertise. If you work in tech you know more than the average wall street trader about tech companies especially the one you work at. If you work in medicine you know which medical insures are shit and which are great, etc. Now this does not mean you should buy multiple stocks all in one sector but it does mean if you know a company well and you know they are doing great and will be doing great in the next year you should buy their stock. You should never have more than 20% of your portfolio in a single sector but it is perfectly safe to have 80% of your portfolio in vanguard funds and 20% you invest in one or two companies you truly believe in.
- orky56 11y ago
  A stock's current price already reflects all public available information including its future value. You're assuming that "the average wall street trader" knows less thus causing the stock's price to not be accurate. Would love to hear a counter argument to that.
  - sliverstorm 11y ago
    The assumption is that the average wall street trader has the information in hand but doesn't understand its significance.
  - elihu 11y ago
    A stock may be priced accurately by the market according to a typical risk profile, but an individual investor may have a higher-than-average tolerance for risk.
- pbreit 11y ago
  99% of people should not buy individual stocks. If you're in the 1%, good for you. Having subject matter expertise can be dangerously misleading because company stock trades on financial performance, not product/technology/etc. This is a perfect example of fighting the urge to listen to folks like you and instead, just go with the index card.
jameslk 11y ago
Maxing out retirement accounts is the common piece of wisdom thrown around. However, instead I try to put as much money into a liquid fund for entrepreneurial reasons. For the YC crowd, I'm surprised this isn't a more suggested route.
- trevyn 11y ago
  I think a lot about this. But note that if your employer matches contributions, you can come out ahead even if you withdraw those funds immediately and pay the penalties. In reality, I have to trick myself into saving so that I don't spend on non-entrepreneurial things. :)
- jes 11y ago
  I do not contribute to my retirement accounts anymore. It may be an error on my part, but giving an entity that is more than $100T in debt (unfunded liabilities included) seems foolish. I expect retirement accounts to be nationalized, in one way or another, in the next five to ten years. I hope that I am wrong.
  - ASinclair 11y ago
    That's some serious paranoia. In a situation like that what asset would be safe besides guns, ammo, and canned goods?
    - mediocrejoker 11y ago
      Physical gold?
    - jes 11y ago
      I don't take offense to your comment regarding paranoia. The question, I think, is this: If you have worked all your life, and played by the rules that existed at the time, how do you protect what you have earned from theft by others? One aspect of the answer, I think, is that you put it out of their reach. There are many other things a person can do. As an aside, whenever someone implies that a set of options is very limited, I try try broaden my focus a bit, in order to see a bigger picture, and thus, additional alternatives. I hope that doesn't sound condescending, as it's not meant to be.
lutusp 11y ago
Quote: "That said, both Pollack and Olen say a good, reasonably priced financial adviser can sometimes be helpful — especially when life gets too complicated to fit on an index card." But the long-running WSJ dartboard contest proved repeatedly that financial advisers cost more than their advice's value. Maybe that fact should be on the metaphorical index card. Here's my index card: 1. Don't borrow money. 2. Don't be in debt to anyone for anything. 3. Learn about compound interest, then either burn your credit cards or learn how to use them. 4. Invest only in no-fee or small-fee market index funds -- in the long term they outperform the majority of fee-based mutual funds. 5. Never engage the services of a financial adviser. More here: http://arachnoid.com/equities_myths/index.html http://arachnoid.com/equities_myths/index.html
- edanm 11y ago
  One second - there are a few different meanings for "financial advisers". I believe that what you're talking about are financial traders, to whom you give money to invest for you. In that case, I agree that (but see caveat below). But there are many other forms of financial advisers. A good adviser can help you to diversify your investments, help you to mitigate and control tax liability, help you match your risk profile to investments, etc. These are valuable things that the average person cannot do on their own, and they are worth paying for. Note: A caveat to the 'don't use advisers' approach. I generally believe in a relatively efficient market, although I think you can get higher returns in some situations (e.g. some hedge funds do appear to get higher returns). However, even if I didn't, sometimes it is worth paying for an financial trader to work on your behalf, for the same reasons as above, namely, you'd like to invest a bulk of money, but aren't sure how best to invest it and want to diversify. As much as the advice fits on an index card, it's still a complicated and technical field. I'd rather someone pay some small amount of money to financial advisers and actually invest money than be too scared to do any saving.
  - lutusp 11y ago
    > One second - there are a few different meanings for "financial advisers". Not really. They all tell you how to invest your money, by definition. > A good adviser can help you to diversify your investments, help you to mitigate and control tax liability, help you match your risk profile to investments, etc. These are valuable things that the average person cannot do on their own, and they are worth paying for. Yes, and the same information can be gotten from the Web for free. There are any number of advisory articles that describe personal strategies for efficient investment and financial management. The only exception I would make to this rule is tax accounting, which really is too complicated for the average person to manage on his own, and an activity fraught with risk (tax judges often refuse to accept ignorance as an excuse for tax mismanagement). But a tax accountant's costs are easy to manage, compared to the erosive overall effect of a financial adviser. > However, even if I didn't, sometimes it is worth paying for an financial trader to work on your behalf, for the same reasons as above, namely, you'd like to invest a bulk of money, but aren't sure how best to invest it and want to diversify. What? You just agreed with the uncontroversial advice to avoid financial advisers. I should add that many mainstream publications including the Wall Street Journal and others, and Warren Buffett, have given this same advice for decades, even (in Buffett's case) to his own relatives. As to "diversify," what's the point of diversifying if the point is to invest in index funds? An index fund is by definition a diversification -- that's its purpose, its reason for existing. > I'd rather someone pay some small amount of money to financial advisers and actually invest money than be too scared to do any saving. To a person with an IQ above 80, the truly scary prospect is to allow a financial adviser into your life and your portfolio. > I generally believe in a relatively efficient market, although I think you can get higher returns in some situations (e.g. some hedge funds do appear to get higher returns). Yes, I agree -- about half of funds do better than the market indexes, and half do worse (and their ranking is random and unpredictable over time). Want to know why? Because that's how the index is calculated -- based on the overall market. But once you include the adviser's fees, you lose any advantage, and compound interest does the rest -- you end up way behind the buy & hold investor, as explained in this article: http://arachnoid.com/equities_myths http://arachnoid.com/equities_myths
tunesmith 11y ago
Even if you follow all that advice, it isn't necessarily sufficient. Probably not even close. If you figure you need roughly $1.5 million to retire without drawing down principle, then that means you're by definition in the top 5% of the United States by wealth. And in order to get $1.5 million from $0 by age 65, well there are a lot of ways to get there assuming unrealistic stock market returns. But over twenty years, the S&P 500's returns vary wildly [1]. If you start at age 25 and aim for retirement at 65 then that's 40 years. If median return after inflation is 4%, you still have to save over $1000 / month, and that's banking you'd hit median returns. If you figure 3%, then that's around $1500 / month. If it dips into negative returns like it did for a few 20-year periods in the S&P-500 history, then good luck, you'd need to save over $4000 / month. (Rough numbers based off of monthly interest) [1] http://www.nytimes.com/interactive/2011/01/02/business/20110102-metrics-graphic.html http://www.nytimes.com/interactive/2011/01/02/business/20110...
- Retric 11y ago
  Over 40 years you get quote a bit of dollar cost averaging going on which helps returns significantly. Including dividends 4.5% after inflation. Though fees may easily reduce that to under 4% for many people. https://en.m.wikipedia.org/wiki/Dollar_cost_averaging https://en.m.wikipedia.org/wiki/Dollar_cost_averaging The real issue is you need solid returns the first few years of retirement or your going to draw down a lot of capital.
  - tunesmith 11y ago
    I honestly believe dollar cost averaging is somewhat of a crock, because it assumes that you have a slush pile of money set aside that you invest on a set schedule. I just thought of a way to test my thought: For instance, I ran a study on my own finances. I have a complete record of dates and amounts of every sum I've put into retirement. I'm able to "pretend" I bought the S&P-500 (VFINX) on those dates (rather than the investing choices I actually made), and am able to calculate an APY from that date until today. (I do this by looking up dividend-adjusted historical prices.) Given that, my all-time APY would have been 6.69%. Meanwhile, using an S&P 500 Return Calculator [1], the Annualized Inflation Adjusted Reinvested Dividend performance is 6.67%. So, almost exactly the same - maybe dollar cost averaging isn't a crock, but in my case, not the advantage it is usually purported to be. And this is a 20-year period that has been reasonably strong. I believe the reason this happens is that people (me included) will tend to have more money to invest when times are good (and prices are high), and less to invest when times are bad (and prices are low) - so this basically eliminates any dollar-cost-averaging advantage. I'm just one data point so I might be an unlucky outlier, but the theory makes sense to me. [1] http://dqydj.net/sp-500-return-calculator/ http://dqydj.net/sp-500-return-calculator/
Havoc 11y ago
It can help but it doesn't even begin to cover it. I didn't realise how big the gap was until my sister (liberal arts major) asked me (finance) for guidance on her personal finances. Now she is bright & got a high end education - probably more so than me in both regards but dear god entirely ignorant about personal finances (budgeting, investments, retirement etc). Its a pretty basic failing in the schooling system globally as far as I'm concerned. This is a make or break skillset for +- all people out there yet people walk into life having zero clue what their doing. Predictably a decent chunk get caught in debt traps etc.
adeptus 11y ago
Yes, all it needs to say is this: Step 1. Take 5-10% of your liquid networth Step 2. Buy Ethereum now Step 3. Try to understand it (optional step) Step 4. Wait 3 years Step 5. Sell & retire You can thank me in 2019.
- melloclello 11y ago
  Expand?
jonmb 11y ago
I would add: develop a philosophy of life that enables you to enjoy the simple things so you don't get caught on the hedonic treadmill, and try to save even more than 20% of your income. Sites like Mr. Money Mustache explain how it's done.
e15ctr0n 11y ago
The New York Times has 8 more index cards. You can even create your own and submit it. http://www.nytimes.com/2016/01/09/your-money/how-should-you-manage-your-money-and-keep-it-short.html http://www.nytimes.com/2016/01/09/your-money/how-should-you-...

49 points by BDGC 11y ago

salmonet 11y ago

The best tips for anything can fit onto an index card. Just a matter of how many.

SAI_Peregrinus 11y ago
And how you write them. Given the storage density of modern Flash memory you could store quite a lot in a 3X5 inch chip...
- rzzzt 11y ago
  Using a 300 dpi printer gives you ~90 kB of storage: http://ollydbg.de/Paperbak/#3 http://ollydbg.de/Paperbak/#3

theseatoms 11y ago

The limit to greater financial literacy isn't in the lack of availability of short "tip lists" like this. It's in the willingness of people to research, learn, and change behaviors. It doesn't help that you'd be lucky to encounter any financial literacy education in public schools (in the US).

Mikeb85 11y ago
Part of it is that banks don't want you to have financial literacy. If you did, you likely wouldn't purchase most of their products.
- theseatoms 11y ago
  I agree. They make the rules, they write the fine print, they hide the fees, etc... Are there any consumer advocacy groups that represent the interests of consumers of financial services? Seems like that should be a thing.
  - superuser2 11y ago
    Obama's Consumer Financial Protection Bureau [0] and related initiatives provide an advocate in disputes with banks, limits and disclosure requirements on fees, etc. The CARD Act of 2009 also standardized credit card rate and fee disclosures. On the non-regulatory side, there's not much meaningful pushback against the big banks, but you can choose to opt out of them by banking with a local credit union (university, employer, city, etc.) or potentially an internet bank like Ally or Simple.
  - Mikeb85 11y ago
    It's not just fine print and fees. That's the least of our worries. It's more about the misuse of debt (line of credit for a vacation), taking on too much debt (furniture and appliances on layaway, and other such things), and inappropriate investment vehicles.
  - logfromblammo 11y ago
    From my limited knowledge of such things, I think it would be possible to set up a credit union where the "common bond" among members is the ability to spot banking practices hostile to banking customers. If all the members know how to spot a scam, it is unlikely that anyone would vote that everyone should try to run one on themselves. Excerpt from the membership application exam: ... B) Take the lower rate with the higher monthly payment. C) Buy a used car that is about 2 years old instead. 22. Your bank offers to upgrade your debit card such that, for a fee, a transaction that would ordinarily be declined--or a check that would have bounced--is instead approved. How do you react? A) Wow, that sounds convenient. I'm in. B) If I wanted credit, I would have used a credit card. C) If I can't opt out, I'm closing my account. 23. You need $40 in cash. Your bank does not have any no-fee ATMs in the area. A) A fee is no big deal. Withdraw $40 and pay $3. B) Withdraw the maximum, to minimize the percentage lost. C) Buy a pack of gum with debit and get $40 cashback. D) As in C, but also return the gum for a refund. 24. Your bank offers...
    - beambot 11y ago
      The Credit Union would end up with so few members and so few persistent deposits (since all your smart members would immediately transfer assets into investment accounts, muni bonds, and ETFs), that the Credit Union would operate in the red... costing all the founding members dearly, both in time and money, when the Credit Union goes into bankruptcy. It turns out that the smartest folks, who saw through the charade, were thrown out with the bath water by not joining to begin with. ;-)
- johnward 11y ago
  I know there is a personal responsibility part of this but banks end up prying on the financial illiterate. Somehow my wife has a student loan with 12% interest. I'm not even sure how that happens. I also don't understand how interest rates are so low but CC interest is so high. They are basically borrowing free money and then charging people 29% on it.
  - charlesdm 11y ago
    CC interest is high because: 1. Most people pay off the balance each month; the people who don't _really_ need the credit. 2. The default rate of those people is probably (very) high. Given a default means a bank loses their capital, they need to make it back somehow. Also, a student loan with 12% interest? If the loan still carries a significant balance, she should refinance at a much lower interest rate (pledge some collateral if you have to, like a car/house/existing share portfolio).
  - icebraining 11y ago
    I'm not saying it justifies the whole 29%, but CCs have a much higher rate of default, which leads to higher interest rates.
pbreit 11y ago
But that's the thing: research and learning are unnecessary. Just change your behavior. Which is easier than people think. Just do it. As far as this card goes, it's spot-on. I would put "pay off your credit cards" at the top of the list. You should not invest a nickel until you've paid off all your credit cards (and any other debt where you're paying more than 10% interest).
- charlesdm 11y ago
  I doubt the people who have significant credit card debts (and are paying 10% interest p/a) are investing. They're probably spending.
  - pbreit 11y ago
    There are tons of people who carry credit balances who also have money in stocks, bonds & mutual funds. They don't equate paying off 15% credit card balances with a 20-25% stock gain.
  - logfromblammo 11y ago
    They may be investing indirectly, like with their 401(k). People with significant credit card balances may be paying 15%, 18%, 25%, or more on them. Even with the tax advantage of the retirement account, it's better to suspend contributions and pay off debt. Assume you're in the 25% tax bracket. If you have a $100 debt accruing interest at 24.99% for 10 years, you end up owing $931. If you have $133 in a pre-tax account earning at 7% for 10 years, and withdraw it and pay 25% in tax on the $262, you have $196 left. You don't have to be a genius to figure out that still leaves you $735 in the hole, which is far worse than paying the tax on your $133 paycheck up front and using the $100 to pay off your debt instead of investing it. As it turns out, your interest on debt doesn't need to be nearly that high. If you owe at 10% and invest pre-25% tax at 7%, it still makes sense to stop investing entirely until paying off the debt.
rconti 11y ago
Discipline. As a full-time employee, I more than doubled my take-home pay between 2006 and 2015. In that period, my spending didn't go up. Actually, it went down, because I paid off my car. In the process, I paid off credit cards, student loans, and managed to increase my standard of living. I remember after a big pay bump (job change), noting that my take-home pay going into my primary checking account was unchanged from what it had been 6 years prior, because, almost without thinking about it, I went from single-digit 401k contribution to maxed out, and doubled the amount that went into my medium-term savings/investment accounts. It just seemed natural; I'll be making more, time to save more. It was essentially a coincidence that the take-home number remained the same. This is not to say it's so easy for everyone; everyone has different circumstances. My point is more that there are so many people NOT doing this for whom it WOULD be easy.
- pmorici 11y ago
  Once you get in the habit of spending too much or god forbid run up a large credit card debt I can see how it might be hard to return to a lifestyle of frugality akin to the difficulty of quitting smoking or a morning coffee habit. I do agree that discipline is the name of the game though.
  - rconti 11y ago
    Absolutely. Habits are hard to quit. For me, it's the "time to spend" habit. I put off making a big purchase, but once I do (say, building a home theater system or something) it becomes easy to just keep spending on it because you've already mentally committed to the project. All fine and good so far. But then you notice something else you 'need' or that's wearing out, and you buy that without thinking about it. Then you buy another thing without thinking about it, because you're in the habit. Sometimes you need to do a spending detox after those splurges.
- johnward 11y ago
  It's taking me about 10 years but the last time I got a significant increase I did not actually increase my spending/lifestyle, which is a first. It's strange. I used to always imagine if I had X amount of money I would never be able spend it. Then when I got there it was so easy to spend it. I'm hoping to be in your position after I get some of my debt paid off.

marme 11y ago

I disagree with the statement that you should not buy individual stocks because others know more than you. This is only true if you buy stocks for companies outside of your area of expertise. If you work in tech you know more than the average wall street trader about tech companies especially the one you work at. If you work in medicine you know which medical insures are shit and which are great, etc. Now this does not mean you should buy multiple stocks all in one sector but it does mean if you know a company well and you know they are doing great and will be doing great in the next year you should buy their stock. You should never have more than 20% of your portfolio in a single sector but it is perfectly safe to have 80% of your portfolio in vanguard funds and 20% you invest in one or two companies you truly believe in.

orky56 11y ago
A stock's current price already reflects all public available information including its future value. You're assuming that "the average wall street trader" knows less thus causing the stock's price to not be accurate. Would love to hear a counter argument to that.
- sliverstorm 11y ago
  The assumption is that the average wall street trader has the information in hand but doesn't understand its significance.
- elihu 11y ago
  A stock may be priced accurately by the market according to a typical risk profile, but an individual investor may have a higher-than-average tolerance for risk.
pbreit 11y ago
99% of people should not buy individual stocks. If you're in the 1%, good for you. Having subject matter expertise can be dangerously misleading because company stock trades on financial performance, not product/technology/etc. This is a perfect example of fighting the urge to listen to folks like you and instead, just go with the index card.

jameslk 11y ago

Maxing out retirement accounts is the common piece of wisdom thrown around. However, instead I try to put as much money into a liquid fund for entrepreneurial reasons. For the YC crowd, I'm surprised this isn't a more suggested route.

trevyn 11y ago
I think a lot about this. But note that if your employer matches contributions, you can come out ahead even if you withdraw those funds immediately and pay the penalties. In reality, I have to trick myself into saving so that I don't spend on non-entrepreneurial things. :)
jes 11y ago
I do not contribute to my retirement accounts anymore. It may be an error on my part, but giving an entity that is more than $100T in debt (unfunded liabilities included) seems foolish. I expect retirement accounts to be nationalized, in one way or another, in the next five to ten years. I hope that I am wrong.
- ASinclair 11y ago
  That's some serious paranoia. In a situation like that what asset would be safe besides guns, ammo, and canned goods?
  - mediocrejoker 11y ago
    Physical gold?
  - jes 11y ago
    I don't take offense to your comment regarding paranoia. The question, I think, is this: If you have worked all your life, and played by the rules that existed at the time, how do you protect what you have earned from theft by others? One aspect of the answer, I think, is that you put it out of their reach. There are many other things a person can do. As an aside, whenever someone implies that a set of options is very limited, I try try broaden my focus a bit, in order to see a bigger picture, and thus, additional alternatives. I hope that doesn't sound condescending, as it's not meant to be.

lutusp 11y ago

Quote: "That said, both Pollack and Olen say a good, reasonably priced financial adviser can sometimes be helpful — especially when life gets too complicated to fit on an index card." But the long-running WSJ dartboard contest proved repeatedly that financial advisers cost more than their advice's value. Maybe that fact should be on the metaphorical index card. Here's my index card: 1. Don't borrow money. 2. Don't be in debt to anyone for anything. 3. Learn about compound interest, then either burn your credit cards or learn how to use them. 4. Invest only in no-fee or small-fee market index funds -- in the long term they outperform the majority of fee-based mutual funds. 5. Never engage the services of a financial adviser. More here: http://arachnoid.com/equities_myths/index.html http://arachnoid.com/equities_myths/index.html

edanm 11y ago
One second - there are a few different meanings for "financial advisers". I believe that what you're talking about are financial traders, to whom you give money to invest for you. In that case, I agree that (but see caveat below). But there are many other forms of financial advisers. A good adviser can help you to diversify your investments, help you to mitigate and control tax liability, help you match your risk profile to investments, etc. These are valuable things that the average person cannot do on their own, and they are worth paying for. Note: A caveat to the 'don't use advisers' approach. I generally believe in a relatively efficient market, although I think you can get higher returns in some situations (e.g. some hedge funds do appear to get higher returns). However, even if I didn't, sometimes it is worth paying for an financial trader to work on your behalf, for the same reasons as above, namely, you'd like to invest a bulk of money, but aren't sure how best to invest it and want to diversify. As much as the advice fits on an index card, it's still a complicated and technical field. I'd rather someone pay some small amount of money to financial advisers and actually invest money than be too scared to do any saving.
- lutusp 11y ago
  > One second - there are a few different meanings for "financial advisers". Not really. They all tell you how to invest your money, by definition. > A good adviser can help you to diversify your investments, help you to mitigate and control tax liability, help you match your risk profile to investments, etc. These are valuable things that the average person cannot do on their own, and they are worth paying for. Yes, and the same information can be gotten from the Web for free. There are any number of advisory articles that describe personal strategies for efficient investment and financial management. The only exception I would make to this rule is tax accounting, which really is too complicated for the average person to manage on his own, and an activity fraught with risk (tax judges often refuse to accept ignorance as an excuse for tax mismanagement). But a tax accountant's costs are easy to manage, compared to the erosive overall effect of a financial adviser. > However, even if I didn't, sometimes it is worth paying for an financial trader to work on your behalf, for the same reasons as above, namely, you'd like to invest a bulk of money, but aren't sure how best to invest it and want to diversify. What? You just agreed with the uncontroversial advice to avoid financial advisers. I should add that many mainstream publications including the Wall Street Journal and others, and Warren Buffett, have given this same advice for decades, even (in Buffett's case) to his own relatives. As to "diversify," what's the point of diversifying if the point is to invest in index funds? An index fund is by definition a diversification -- that's its purpose, its reason for existing. > I'd rather someone pay some small amount of money to financial advisers and actually invest money than be too scared to do any saving. To a person with an IQ above 80, the truly scary prospect is to allow a financial adviser into your life and your portfolio. > I generally believe in a relatively efficient market, although I think you can get higher returns in some situations (e.g. some hedge funds do appear to get higher returns). Yes, I agree -- about half of funds do better than the market indexes, and half do worse (and their ranking is random and unpredictable over time). Want to know why? Because that's how the index is calculated -- based on the overall market. But once you include the adviser's fees, you lose any advantage, and compound interest does the rest -- you end up way behind the buy & hold investor, as explained in this article: http://arachnoid.com/equities_myths http://arachnoid.com/equities_myths

tunesmith 11y ago

Even if you follow all that advice, it isn't necessarily sufficient. Probably not even close. If you figure you need roughly $1.5 million to retire without drawing down principle, then that means you're by definition in the top 5% of the United States by wealth. And in order to get $1.5 million from $0 by age 65, well there are a lot of ways to get there assuming unrealistic stock market returns. But over twenty years, the S&P 500's returns vary wildly [1]. If you start at age 25 and aim for retirement at 65 then that's 40 years. If median return after inflation is 4%, you still have to save over $1000 / month, and that's banking you'd hit median returns. If you figure 3%, then that's around $1500 / month. If it dips into negative returns like it did for a few 20-year periods in the S&P-500 history, then good luck, you'd need to save over $4000 / month. (Rough numbers based off of monthly interest) [1] http://www.nytimes.com/interactive/2011/01/02/business/20110102-metrics-graphic.html http://www.nytimes.com/interactive/2011/01/02/business/20110...

Retric 11y ago
Over 40 years you get quote a bit of dollar cost averaging going on which helps returns significantly. Including dividends 4.5% after inflation. Though fees may easily reduce that to under 4% for many people. https://en.m.wikipedia.org/wiki/Dollar_cost_averaging https://en.m.wikipedia.org/wiki/Dollar_cost_averaging The real issue is you need solid returns the first few years of retirement or your going to draw down a lot of capital.
- tunesmith 11y ago
  I honestly believe dollar cost averaging is somewhat of a crock, because it assumes that you have a slush pile of money set aside that you invest on a set schedule. I just thought of a way to test my thought: For instance, I ran a study on my own finances. I have a complete record of dates and amounts of every sum I've put into retirement. I'm able to "pretend" I bought the S&P-500 (VFINX) on those dates (rather than the investing choices I actually made), and am able to calculate an APY from that date until today. (I do this by looking up dividend-adjusted historical prices.) Given that, my all-time APY would have been 6.69%. Meanwhile, using an S&P 500 Return Calculator [1], the Annualized Inflation Adjusted Reinvested Dividend performance is 6.67%. So, almost exactly the same - maybe dollar cost averaging isn't a crock, but in my case, not the advantage it is usually purported to be. And this is a 20-year period that has been reasonably strong. I believe the reason this happens is that people (me included) will tend to have more money to invest when times are good (and prices are high), and less to invest when times are bad (and prices are low) - so this basically eliminates any dollar-cost-averaging advantage. I'm just one data point so I might be an unlucky outlier, but the theory makes sense to me. [1] http://dqydj.net/sp-500-return-calculator/ http://dqydj.net/sp-500-return-calculator/

Havoc 11y ago

It can help but it doesn't even begin to cover it. I didn't realise how big the gap was until my sister (liberal arts major) asked me (finance) for guidance on her personal finances. Now she is bright & got a high end education - probably more so than me in both regards but dear god entirely ignorant about personal finances (budgeting, investments, retirement etc). Its a pretty basic failing in the schooling system globally as far as I'm concerned. This is a make or break skillset for +- all people out there yet people walk into life having zero clue what their doing. Predictably a decent chunk get caught in debt traps etc.

adeptus 11y ago

Yes, all it needs to say is this: Step 1. Take 5-10% of your liquid networth Step 2. Buy Ethereum now Step 3. Try to understand it (optional step) Step 4. Wait 3 years Step 5. Sell & retire You can thank me in 2019.

melloclello 11y ago
Expand?

jonmb 11y ago

I would add: develop a philosophy of life that enables you to enjoy the simple things so you don't get caught on the hedonic treadmill, and try to save even more than 20% of your income. Sites like Mr. Money Mustache explain how it's done.

e15ctr0n 11y ago

The New York Times has 8 more index cards. You can even create your own and submit it. http://www.nytimes.com/2016/01/09/your-money/how-should-you-manage-your-money-and-keep-it-short.html http://www.nytimes.com/2016/01/09/your-money/how-should-you-...