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Fair point; this stuff certainly doesn't happen in a vacuum. I should have mentioned that investing comes with the caveat that one should also have a plan for

Fair point; this stuff certainly doesn't happen in a vacuum. I should have mentioned that investing comes with the caveat that one should also have a plan for major life events like a job loss. Having 6+ months of living expenses on hand in cash is a must. I firmly believe that 70%+ of the stress and anxiety of losing one's job is the pressing need for cash flow. I can't imagine the kind of stress that produces for someone who lives paycheck to paycheck. That brings me to a larger (slightly off-topic) point: people don't save enough money. 10% is the absolutely minimum one should be saving, despite that being the common advice which no one follows. Most people, even high-earners, spend nearly all of their money. There are tons of people out there making $75k+ per year who are a couple paychecks from being on the street. Those people are simply doing it wrong and will absolutely get bit in a down market. For those still reading, do this: Get an emergency fund that you can live on for 6+ months. Pay off your debts. Contribute to your IRA, 401k, or whatever else, putting all of that money into a boring index fund that tracks the market (I like VTSAX because Vanguard's fees are incredibly low). Make sure at least 20% of your money is invested. The only people who this might not work for are those earning at or near minimum wage with dependents. If you're not in that group, just do it. You do not need that 20% of your money right now. You may think you do, but you don't. You're spending money on stuff you don't need. My apologies for getting so far off topic. This is just something I feel very passionately about.

ececconi 10y ago
I don't see the difference between having cash on hand and having stocks. You can sell on the market five days a week. Add multiple credit cards with a very high credit line on them you effectively have about 30 days to sell stock from the emergency point. Why keep stocks over cash? Even if they don't appreciate, or even if it is a down year, they still pay dividends which can be reinvested.
- ryangittins 10y ago
  Consider this scenario (which is not out of the realm of possibility): You stick $10k in the market when shares are $10 each. This means you get 1000 shares. Then the market crashes and now those 1000 shares are worth $5k. Normally this would be fine; you know the market will rebound eventually. Then you lose your job and have no cash on hand. You're out of the job for a few months, and you slowly sell your shares until you find a new job. Say it takes $4k to keep you afloat for a few months. You now have $1k left in the market, 200 shares. That $4k of spending actually cost you $8k. Though the market rebounds eventually and your remaining 200 shares are worth the $2k they originally were, you're still $8k short and you always will be. That money is gone. It would've taken more than 20 years for inflation to turn $8k in cash into $4k. In short, cash is a cheap hedge against some bad luck eating up your investments. The inflation that slowly devalues your cash is a much more acceptable risk than the one I describe. Markets can be rough in the short term. It's easy to hedge against them. Do it.
  - ececconi 10y ago
    To that I say you can have an even cheaper way to hedge against risk by having put options on the stock you own. Also your example assumes that all the shares were bought at the same time and declined 50%. If you've been investing for years, the value of your gains/losses wouldn't simply be a "market crash" it would include the price at which you bought the stock at plus any dividends you reinvested. So a 50% downturn from a certain high point could be much less from how much capital you initially committed. Add to that you can take capital losses as a way to reduce tax liability in a given year. There's enough ways to hedge without having too high of a cash drag.
    - ryangittins 10y ago
      The cost of inflation (at, say, 3%) is $30 for every $1k you have in your emergency account. That's $150 per year if your emergency fund is $5k, or $300 if it's $10k. I'd be surprised if the combination of the effort it takes and the fees that are charged are less than that for your method. That being said, it's sounds like you have a firm grasp on your system and it works for you. That's much more than can be said for a vast majority of people.
      - ececconi 10y ago
        Cash is a great thing, it's something you don't have to worry about and usually is FDIC insured. Personally, I'm holding onto quite a bit right now because I think much of the market might be overvalued. I think I was just trying to see if I could think out a case where you could in theory not worry about not having too much of it on hand.
    - drumdance 10y ago
      Hedging with options is great... if you know how to hedge with options. Most people don't so the six months of cash on hand is more broadly applicable as a rule of thumb.
jlgaddis 10y ago
I feel exactly the same way as you. I'm 37 and financially "stable" (i.e. I would be "okay" for a while if I lost my job today), but I wish I had gotten started earlier. I constantly am trying to get my girlfriend, who is just 21, started in saving and investing. She's recently became interested in "credit" (building a credit history, etc.) and so I still have my fingers crossed I can get her starting to save. Part of the problem, I think, is instant gratification -- the younger generation, especially, wants everything NOW. I'm guilty of this as well, running out to order the newest tech gadgets. She sees me doing this and wants to do it as well, not really realizing that I can do that a little easier because I make multiple times what she does. There was a time not long ago when I would have been screwed if I had suddenly lost my job. Fortunately, if that happened today I could enjoy a few months off before even starting to look for new employment, let alone stressing about how to pay my bills. The difference in anxiety / stress levels is astounding.

ececconi 10y ago

I don't see the difference between having cash on hand and having stocks. You can sell on the market five days a week. Add multiple credit cards with a very high credit line on them you effectively have about 30 days to sell stock from the emergency point. Why keep stocks over cash? Even if they don't appreciate, or even if it is a down year, they still pay dividends which can be reinvested.

ryangittins 10y ago
Consider this scenario (which is not out of the realm of possibility): You stick $10k in the market when shares are $10 each. This means you get 1000 shares. Then the market crashes and now those 1000 shares are worth $5k. Normally this would be fine; you know the market will rebound eventually. Then you lose your job and have no cash on hand. You're out of the job for a few months, and you slowly sell your shares until you find a new job. Say it takes $4k to keep you afloat for a few months. You now have $1k left in the market, 200 shares. That $4k of spending actually cost you $8k. Though the market rebounds eventually and your remaining 200 shares are worth the $2k they originally were, you're still $8k short and you always will be. That money is gone. It would've taken more than 20 years for inflation to turn $8k in cash into $4k. In short, cash is a cheap hedge against some bad luck eating up your investments. The inflation that slowly devalues your cash is a much more acceptable risk than the one I describe. Markets can be rough in the short term. It's easy to hedge against them. Do it.
- ececconi 10y ago
  To that I say you can have an even cheaper way to hedge against risk by having put options on the stock you own. Also your example assumes that all the shares were bought at the same time and declined 50%. If you've been investing for years, the value of your gains/losses wouldn't simply be a "market crash" it would include the price at which you bought the stock at plus any dividends you reinvested. So a 50% downturn from a certain high point could be much less from how much capital you initially committed. Add to that you can take capital losses as a way to reduce tax liability in a given year. There's enough ways to hedge without having too high of a cash drag.
  - ryangittins 10y ago
    The cost of inflation (at, say, 3%) is $30 for every $1k you have in your emergency account. That's $150 per year if your emergency fund is $5k, or $300 if it's $10k. I'd be surprised if the combination of the effort it takes and the fees that are charged are less than that for your method. That being said, it's sounds like you have a firm grasp on your system and it works for you. That's much more than can be said for a vast majority of people.
    - ececconi 10y ago
      Cash is a great thing, it's something you don't have to worry about and usually is FDIC insured. Personally, I'm holding onto quite a bit right now because I think much of the market might be overvalued. I think I was just trying to see if I could think out a case where you could in theory not worry about not having too much of it on hand.
  - drumdance 10y ago
    Hedging with options is great... if you know how to hedge with options. Most people don't so the six months of cash on hand is more broadly applicable as a rule of thumb.

jlgaddis 10y ago

I feel exactly the same way as you. I'm 37 and financially "stable" (i.e. I would be "okay" for a while if I lost my job today), but I wish I had gotten started earlier. I constantly am trying to get my girlfriend, who is just 21, started in saving and investing. She's recently became interested in "credit" (building a credit history, etc.) and so I still have my fingers crossed I can get her starting to save. Part of the problem, I think, is instant gratification -- the younger generation, especially, wants everything NOW. I'm guilty of this as well, running out to order the newest tech gadgets. She sees me doing this and wants to do it as well, not really realizing that I can do that a little easier because I make multiple times what she does. There was a time not long ago when I would have been screwed if I had suddenly lost my job. Fortunately, if that happened today I could enjoy a few months off before even starting to look for new employment, let alone stressing about how to pay my bills. The difference in anxiety / stress levels is astounding.