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I've come to realize that Hacker News for the most part is not a good forum for discussing the market. There seems to be a lot of disdain and calling it a "rigg

I've come to realize that Hacker News for the most part is not a good forum for discussing the market. There seems to be a lot of disdain and calling it a "rigged" system that makes the rich richer. Just look at the comments at the bottom of this thread. That sort of mentality is ill-informed of finance and the market. The market is not only for millionaires and billionaires. You can trade $6.95 on ETRADE now and can even trade for free with Robinhood. I actually hold about 80% of my holdings in ETRADE and 20% in Robinhood. I use Robinhood for buying smaller chunks of shares (lowering dollar cost average) or more risky smaller trades. Savings accounts are stupid! They offer fractions of percent interest. Look at exchange-traded funds that track an index such as the S&P 500 or Nasdaq Composite. My personal favorite ETFs are the tried-and-true SPY and QQQ. I wrote a blog post on Robinhood and leveraging capital using margin on my blog for those interested: https://justink.svbtle.com/leveraging-capital-using-robinhood-gold https://justink.svbtle.com/leveraging-capital-using-robinhoo...

paulddraper 10y ago
The accusation of it being rigged goes far beyond brokerage fees. It has to do with earned income tax vs capital gains tax, sales taxes, out-of-balance property taxes, educational opportunity, legal recourse, inheritance, etc. P.S. I agree with your conclusion, even if your argument is weak.
- nodesocket 10y ago
  Anybody can participate in the market and take advantage of capital gains and write-offs (losses). I'm not following your logic. EDIT: Love that I'm getting down voted for saying anybody can participate which is a fact.
  - danbruc 10y ago
    Maybe we should simply have an economy where everybody lives on capital gains, nobody has to work, and finally everybody will be happy.
    - deleted 10y ago
      [deleted]
  - justicezyx 10y ago
    Gambling always favor the party with more capital. The current market is cultivated more as a place for gambling than meaningful investment avenue for advancing economies. That's where the sentiment come from. No one is complaining the access to the market is lacking. Rather, all are forced to join a market that has obvious flaws that the rich and powerful are not interested in fixing. And if not join the market, you stand to lose for sure.
  - tw04 10y ago
    >Anybody can participate in the market Except for people living paycheck to paycheck because they're on welfare making minimum wage. In other words about 20% of the population, if they're smart with their money, can participate in the market.
    - nodesocket 10y ago
      Sorry, anybody can participate, even people living paycheck-to-paycheck. For example, instead of buying that $5 Starbucks, save up and buy a share of $SBUX which is currently at $54.53.
      - dpark 10y ago
        > even people living paycheck-to-paycheck. For example... save up and buy ... So your solution for living paycheck to paycheck is to simply not live paycheck to paycheck. It's surprising no one's thought of that before.
      - dyarosla 10y ago
        I don't think you understand the concept of paycheck to paycheck. Although it may be the case that some people living paycheck to paycheck spend outside their means on luxuries like brand name coffees, there are also those people for whom paycheck to paycheck is forced on them due to external factors. Now I didn't downvote you but I think those who did did so to hint that your perspective could use a reality check.
      - eeeeeeeeeeeee 10y ago
        Ah yes the "if only poor people would stop blowing their money on Starbucks" argument. You are either trolling or you are unbelievably sheltered.
      - rublev 10y ago
        When I was living paycheck to paycheck I could only dream of a fancy latte. But it meant not eating for the next 3-4 days, $5 goes a long way.
  - eeeeeeeeeeeee 10y ago
    Saying anybody can participate is as ridiculous as Republicans saying poor people will have "access" to health care without any concern of its affordability. You live in a bubble. You should go talk to some real people.
    - briandear 10y ago
      Poor people do have access -- it's called Medicaid. Medicaid exists in all 50 states.
  - ouid 10y ago
    you're getting downvoted for your comment being irrelevant to the discussion. If most of your income is salary, you will be paying a much higher effective tax rate than if most of your income is capital gains. The latter correlates with being wealthy.
    - prostoalex 10y ago
      > If most of your income is salary, you will be paying a much higher effective tax rate than if most of your income is capital gains. Correct only for individual incomes above $165,000. Current long-term capital gains rate with ACA surcharge is 23.8%, and according to https://www.taxact.com/tools/tax-bracket-calculator.asp https://www.taxact.com/tools/tax-bracket-calculator.asp the effective income tax rate for a single individual goes above that at $166,000. Having any family or other dependents introduces new deductions, and so does contributing to an IRA or 401(k), extending that runway. This also ignores the fact that planning to generate stable income via long-term capital gains is akin to planning on generating stable income by consistently winning the lottery.
      - ouid 10y ago
        1) the lottery has a negative expected value, investment does not. In the long run, this is a qualitative difference. 2) That is federal income tax, you've missed state, medicare and social security, and are also completely discounting the fact that the capital gains rate is bounded from above by the income tax rate. 3) most importantly, 165000/year isn't very much money. It is plenty to generate personal wealth. Most of the actual income in america is made well in excess of 165k/year, and much of that income is in the form of capital gains. If you need a better breakdown, I can't do it better than this https://fivethirtyeight.com/datalab/the-top-1-percent-earns-a-lot-from-cashing-in-on-investments/ https://fivethirtyeight.com/datalab/the-top-1-percent-earns-...
        prostoalex 10y ago
        The article you linked concludes that "the wealthiest 1 percent are an outlier: 36 percent of their income comes from capital gains". As the graph suggests, that number quickly decreases to 10% and 5% when the group encompasses the wealthiest 5% and 10%. So for those three groups the income not subject to capital gains tax constitutes 64%, 90% and 95%. This is before the capital gains are even broken down into long-term vs short-term (which are taxed at plain old income tax rates). I am still not seeing what led you to believe that the effective tax rate will be significantly lower. > That is federal income tax, you've missed state Mmm, okay. Well, I am not a CPA and not sure about other states, but California makes it easy by treating any capital gains (long-term or short-term) as income, so (at least for CA) the effective tax rate of someone relying on long-term capital gains will be pushed up, not down. I agree though that if some other states have favorable treatment of long-term capital gains, the numbers would look different. > medicare and social security Both are subjects to wage limits, and at $166,000 (which will be a higher value once the state tax is incorporated) we're well past those limits. > the lottery has a negative expected value, investment does not. In the long run But a capital gains requires a sale, which means the position has been exited, and there's no long-run. True, it might be a partial sale of an asset, and in some case the proceeds of a sale are invested into another position, but at this point you're pretty much betting the new assets will increase in value and be a candidate for a sale. Hence my lottery comment.
  - pfranz 10y ago
    I'm not saying you don't have a point in your original post, but you should absolutely not use the stock market as your savings account. There's a reason it's recommended that you have 6 months of living expenses liquid. Yes, you're very likely to gain much more by investing in index funds. But "the market can stay irrational longer than you can stay solvent." If there is a stock market crash, that's likely to coincide with personal issues, like losing your job. Even if you can weather the market, having to pull out money at the bottom of the market will destroy your gains.
    - nodesocket 10y ago
      Completely agree that the market should not be where you put all of your money without having liquid reserves. I'm not advocating that. Howerver as a long-term (> 10 yrs) strategy and assuming you also keep a pool of capital in a checking and savings account ETF's are the way to go if you just want to fire and forget.
    - dlubarov 10y ago
      > There's a reason it's recommended that you have 6 months of living expenses liquid. Do you mean cash equivalents? Public stocks are liquid. Personally I think the 6 months advice is too conservative. If everyone calculated the damage inflation tax did to their savings account each year, probably more people would be willing to take a bit of a risk and invest their savings (or a greater portion of it).
      - pfranz 10y ago
        You're right, public stocks are liquid and I meant cash equivalent. There's a lot of variance on how much is recommended in an emergency fund. Most seem to say 3-6 months. I know if I lost my job I could cut down my living expenses and stretch it out. But if I had to move for a job, had an extended gap, or had to take a lower paying job I might have to dip into those investments prematurely. Having to cash out at the bottom of the market burns years of investments where it would have been better if you just held onto cash even if your interest rate is a pittance. Just like putting money into 401k is more than negated if you have to cash out early. Everybody has different risk tolerances and the amount needed in an emergency fund varies depending on a bunch of things (if you have debt, variety of incomes vs a single paycheck, gap between expenses and earning). I've never seen anyone actually do a study or source why they chose 3-6months--so it's really hard to argue for or against. I'd be curious if anyone has done a study. It hurts to have money just sitting there, but I'm not trying to eek out every penny. I really don't think all those extra risks are worth it. Keep your living expenses low and it won't be that much money ;)
  - edblarney 10y ago
    "Love that I'm getting down voted for saying anybody can participate which is a fact." 'Anyone' can chose to play poker against people who are much smarter than them, who count cards, who use computers, who have 20 years experience and are buddies with the casino owners. Now maybe that game would not be theoretically rigged, but one would be pretty stupid to play it.
    - adrianN 10y ago
      Investing in the market doesn't mean that you fight smart people. You could just buy an index fund and not worry about picking stocks.
  - paulddraper 10y ago
    Yes, but only those with capital can have capital gains. If 0.2% of your income is available for investment, that will be different than if 20% of your income is available.
- arcaster 10y ago
  They're also taking on zero financial risk by not investing. Get over yourself.
  - throwaway9475 10y ago
    I suppose living paycheck to paycheck (or having no paycheck at all) is lower risk then?
  - briandear 10y ago
    That is untrue. Not participating in the market is impossible because of inflation. By 'not participating,' you are participating as inflation is still happening. You're essentially shorting inflation by not participating. So even not investing is investing -- that means you're holding cash which is itself an investment.
  - sctb 10y ago
    > Get over yourself. Please leave these out of comments on Hacker News. When we do so, the quality of the discussion is improved dramatically and we lose no information at all.
danbruc 10y ago
You do realize that there is a substantial fraction of the population that does not have any money to invest?
- faizshah 10y ago
  Substantial seems to be an understatement: http://www.cnbc.com/2015/04/09/half-of-americans-avoid-the-stock-market.html http://www.cnbc.com/2015/04/09/half-of-americans-avoid-the-s... "More than half of Americans, 52 percent, are currently not investing in the stock market—either by buying individual stocks or mutual funds, or through a retirement account such as a 401(k) or IRA, according to a new Bankrate.com survey. Among the non-investors surveyed, 53 percent said they don't have the money to invest and 21 percent said they don't trust stock brokers or financial advisors."
  - liquidise 10y ago
    That seems to suggest that 27% or roughly 1 in 4 Americans cite not having enough money to invest in the stock market. To be clear that is different from saving money or returning it to real estate investments or into a family business. I'd say that falls in line with expectations given unemployment rates and median wage vs cost of living statistics nationwide.
  - prostoalex 10y ago
    They could still be investing, just not in the stock market. Buying a larger house (with the goal of taking on renters), buying a rental property, or just a plain savings account, which is a proxy investment in Treasuries.
    - TheAdamAndChe 10y ago
      I wish I could buy a house just to live in. A rental property would be a dream. However, buying a house still requires an initial investment and good credit, which is tough to get when you make $10/hr. Then you have to be able to afford maintenance, disaster insurance, and an emergency fund if something happens to your job. You've got to get a house in an area with enough housing demand that you can rent it out, which is getting harder due to the fact that most new jobs are only being created in a handful of cities like SF, Houston, and NYC. This creates a lot of demand in those areas, which makes buying a house there out of reach for most normal people. And even if you manage to get a good house in a moderately okay area, the value of a house depreciates on a long enough timeframe. All this means that real estate investment is only truly available to those with preexisting capital.
rsync 10y ago
"Savings accounts are stupid! They offer fractions of percent interest. Look at exchange-traded funds that track an index such as the S&P 500 or Nasdaq Composite. My personal favorite ETFs ... (and on and on)" Question. Be honest. How old were you in 2008 ?
- imgabe 10y ago
  If you had had your savings in the market in 2008 and didn't sell it, it would still be worth more now. Moreover if you were investing regularly then you would have been buying the super cheap stocks available in 2009.
  - dukeluke 10y ago
    If you used your stocks as a savings account in 2008, then you would have seen most of your savings disappear right before you got fired.
- nodesocket 10y ago
  Mid 30's. Also you really don't know what you are talking about. If you bought nearly anything after Nov 21st 2008 and held, you'd be way in the green since then. Let me give you a even more conservative example. SPY which tracks the S&P and it is very conservative (in terms of stocks), is up 151% since Nov 21st 2008 way above pre-2008 levels. Not to mention all those beautiful dividend payments you received. https://www.google.com/finance?chdnp=0&chdd=1&chds=1&chdv=0&chvs=maximized&chdeh=0&chfdeh=0&chdet=1489294575254&chddm=990794&chls=IntervalBasedLine&q=NYSEARCA:SPY&ntsp=0&ei=6NTEWLnhEYKJ2Aboj7WICw https://www.google.com/finance?chdnp=0&chdd=1&chds=1&chdv=0&...
  - edblarney 10y ago
    "Also you really don't know what you are talking about. If you bought nearly anything after Nov 21st 2008 and held, you'd be way in the green since then." Apparently it's likely you who 'doesn't know what he is talking about' given that you displayed as much to us in your rebuttal. ---> Stating that 'the market is up' since a historical low is more than meaningless. You should know that if you're offering advice on stocks via a blog. I believe that a retail trader can 'make money' on ETrade about as much as the average joe (or even intelligent joe) can beat Deep Blue at chess - which is not. This is not some deep insight, it's fairly well known.
eigenvector 10y ago
Savings accounts are stupid if you are investing tens or hundreds of thousands of dollars in free cash, after establishing an emergency fund of several months' income. Savings accounts are not stupid if your life savings accumulated over many years is only $2,000 or $3,000 and you never know when you'll need to tap into them for an emergency.
edblarney 10y ago
"That sort of mentality is ill-informed of finance and the market" Uh, no it's not. "The market is not only for millionaires and billionaires. " Yes, it most definitely is. And most people who 'know finance' - know this. The market is 'rigged', or rather, you are at such a disadvantage that it's effectively rigged and doing retail trading is essentially a losing game. Unless you are pursuing a broad diversification strategy (i.e. buying gold, commodities, real-estate funds etc.) in order to preserve your wealth, you really are not going to win. Retail trading entities, like ETrade are kind of a scammy thing - not directly per se - but they're selling you as fish to sharks (i.e. hedge/big funds). If you want to make money playing stocks - you have to 'know more' than the person on the other side of the trade.* Large funds and hedge funds each have massive, massive advantages including economies of scale, market-making, 'near insider trading' (i.e. they 'interview' insiders and ultimately gain info that's not public), colocating, computing power, the ability to move markets with trades, lead trades, the hire some of the smartest people in the world etc. etc. etc.. Unless you have near-inside (or inside) information on a specific stock - you're basically playing poker against Deep Blue and expecting to win. Imagine you're playing poker and they are playing 10 hands, have memorized the deck, know 'all the best moves', are using a computer, and they 'take the dealer out for free drinks every night'. You think you can beat them? On the whole, I'd argue strongly that the best someone can hope for in trading in long run to ride the alpha of the market overall - and that's it. (Or again, to pursue some very broad strategy without having to pay a private wealth manager fees) Did you read the story about how DraftKings works? Basically about 5% of the players make all the returns - they play almost professionally, or with data, or take it very seriously and buy data, know the strategies etc.. But DKings needs those Sharks to make the market. And they feed them fish (i.e. you and I), casual players. Though stocks generally grow with the economy, and underlying trades there is actually an 'investment' - you're really not investing at all. You are speculating about the future surpluses against other people doing the same. Playing the stock market is more like gambling than investing - in Poker you know you're 'playing against others'. Because on E-trade one is theoretically 'investing' one does not think one is playing against others, but that really is the case. You can try to play 'value investing' but there are just too many people with much more power playing that game as well. Finally - I would strongly recommend that readers do not take the advice on your blog and borrow on margin for 6%. If you're borrowing at 6%, then you have to get returns > 6% in order to make this profitable. In other words: in order for that to make sense, you have to beat most of the best big fund managers in the world and be a 'truly world class investor'. What are the odds of that?
ytythn7i65bre 10y ago
I'm no expert, but I'd like to think that there is no free money. Unless you are hiring a professional with proper track record who will be actively investing (lots of fees involved), you are taking large risks; anything above what banks/government bonds are willing to give for inflation (+ small opportunity cost) - is mostly gambling. I think, many people think stock market does nothing for poor, because: 5% of 1,000 = 50 5% of 1,000,000,000 = 50,000,000 No amount of compounding will help the poor and any loss will be much much worse. I like the investing accrediting idea and wish it applied to stock market as well, but I guess some people might not like reducing of their choices (https://en.wikipedia.org/wiki/Accredited_investor https://en.wikipedia.org/wiki/Accredited_investor)
- prostoalex 10y ago
  > you are hiring a professional with proper track record The statement is somewhat of an oxymoron. A professional with a proven track record wouldn't be interviewing to manage your money - with the current cost of the capital they would raise a small hedge fund, stay out of public life and keep most of their track record to themselves, being occasionally portrayed as "reclusive" billionaires, e.g. Renaissance Technologies. I concur, though, using a financial advisor is good for diversification and as a second set of eyes on private or any convoluted deals, but anybody asking for your money in order to bring untold riches is manipulating people.
tiatia 10y ago
Stupid post extraordinaire. Respect "You can trade $6.95 on ETRADE". Yes. Right. By the way, the fuel cost the same per gallon for a Lamborghini than for a used Toyota. Why not buy a Lamborghini then?
roystonvassey 10y ago
>There seems to be a lot of disdain and calling it a "rigged" system that makes the rich richer Based on current evidence world over, it does appear the case. I know of no one either famous or even within my social circles who's become rich solely by investing in the markets alone. Unless one has deep domain expertise within a sector or has information to which they're privy, it is unlikely one will earn returns that significantly outweigh the market in the medium to long term. So, yes, it is not hard to imagine that equity wealth is concentrated among an elite few who also have an incentive to not let newer members in to improve their own returns.
- nugget 10y ago
  > it is unlikely one will earn returns that significantly outweigh the market in the medium to long term Do you need to beat the market to become rich? What about just earning the market return (SPY, VTI, or similar), over a 30 or 40 year time period? I know plenty of older folks who 'got rich slow' this way. Granted, historical returns might not be there for millennials in the next few decades, but it's still the best bet there is.
  - riemannrocker 10y ago
    No, but you need to have a decent income to invest, which most people don't have.
    - sacado2 10y ago
      Yet most people have cable TV (and/or a gym membership they never use).
  - kurthr 10y ago
    You need to be in the market to maintain buying power with stagnant wages and increasing costs. Most people do not have $400 for an emergency so they aren't participating in the market. And if you have to borrow to buy a house/car or buy health insurance, then you are paying those richer than you to exist, their rate of return will continue to be higher than yours, and wealth inequality will continue to rise.
brokenmasonjars 10y ago
Thanks for posting this. Sums of a lot of my feelings when reading the more ill-informed comments related to markets. Btw, Interactive brokers I personally prefer. Etrade and likewise others I find be too much oriented for beginners. Robinhood I tried once but hate that it's only for the phone. My terminal is much more capable of trading than my phone.. though I get why Robinhood was designed like that... to appeal to those who are more phone oriented.
pcarolan 10y ago
Most people don't know what the word capital means. The gap is massive for real reasons not just access to trading platforms. You wa
pcarolan 10y ago
Most people don't know what the word capital means. The gap is massive for real reasons not just access to trading platforms. The bottom 90% shouldn't have to give a shit. An electrician should be able to specialize in their field and trust that their retirement is taken care of by financial pdofessionals. Same as a financial professional should be able to trust an electrician to wire their house correctly for a fair price that will last 40+ years.
- oskarth 10y ago
  An electrician isn't, or shouldn't be, dependent on what so called "financial professionals" tell them. It isn't rocket science. Save a portion of your salary. Build up an emergency fund. Invest in passive index funds. Don't try to game the market. Don't get into debt. Don't assume someone will take care of you. This used to be common sense (save the index fund advice). In fact, an prudent electrician is probably better of than a lot of students nowadays with worthless degrees and a mountain of student debt.
acjohnson55 10y ago
The main problem isn't a rigged stock market, it's that relatively few people can meaningfully participate in it. From https://www.theatlantic.com/magazine/archive/2016/05/my-secret-shame/476415/ https://www.theatlantic.com/magazine/archive/2016/05/my-secr...: > The Fed asked respondents how they would pay for a $400 emergency. The answer: 47 percent of respondents said that either they would cover the expense by borrowing or selling something, or they would not be able to come up with the $400 at all. Four hundred dollars! Who knew?
- Godel_unicode 10y ago
  It would be instructive to re-ask this question as "what would you do to pay for a $400 dollar expense in 6 months". I suspect the answer would be different. There's very good evidence to show that people are bad at planning for nebulous future risks, especially compared with current needs/wants. Robinhood should add a direct-deposit option which automatically buys shares of indexes in a preset mix once sufficient capital has been deposited, I suspect that would materially help.
  - tankenmate 10y ago
    In Australia this actually happens in a rather structured way; Superannuation, or defined contribution benefits as it is usually called in Europe. Your employer (full or part time) is required by law to contribute 9.5% of your salary (over the top) into a regulated fund with your name on it (i.e. the funds are no longer accessible to the company). In your younger years this is normally put into a growth focused investment (stocks etc), when you get closer to retirement most employees elect to move to a more cash / hard asset class (bonds, property, and sometimes corp bonds). The real pity is that most super administration companies charge whopping fees and most employees stick with the administrator chosen by their company.
    - eru 10y ago
      Alas, the superannuation is mostly restricted to fairly expensive options, ie high fees. That's because providers have to clear some regulatory hurdles keeping competition down. You can't just tell the government "Yeah, I'm using vanguard index funds for my mandatory 9.5%." At the moment, Host Plus might be the best option (read 'cheapest option') for Australians. Not sure if that's still the case.
codecamper 10y ago
Trading on margin!? In the most topped out market ever. You do realize that you pay interest on your margin. And when the market drops (the most likely outcome these days), your losses are magnified. W. Buffet recommends that investors not buy on margin. Also... ETFs are newish and rather untested at their current saturation levels. You are blindly buying a stock based on it's capitalization. This defeats the purpose of the market, which is to crowd source the balancing of supply & demand. ETFs create a pyramid scheme out of the market. It will work for a while, but near the top (now) you better get your money out. I think you should read what top hedge fund managers are doing these days. You will be hard pressed to find one that is all in + margin to the overall index fund. Many have significant short positions and a lot of cash. Your blog post is just another link in the pyramid scheme nature of the whole thing. (I can do it.. so can you!)
- nodesocket 10y ago
  > These days, with computer trading, that 40% drop may happen faster than 100 ms There are circuit breakers that trigger at 7%, 13% and 20% right? Now, I don't know if they are tested against HFT these days, but I would suspect they could rollback trades if needed. Also, there is Rule 48[1] to help. [1] - https://en.wikipedia.org/wiki/Rule_48 https://en.wikipedia.org/wiki/Rule_48
  - codecamper 10y ago
    who's computer is faster? The traders or the circuit breaker trigger?
    - nodesocket 10y ago
      Correct me if I am wrong, but since all trades go through the exchanges (circuit breakers), them right? Plus they can rollback trades if needed.
      - codecamper 10y ago
        Hey. I just realized I was maybe too harsh on all this. You are right, investing is better than a savings account. However, be careful these days. Read what other top investors are doing. barrons.com & marketwatch sometimes say what other top investors are doing. Many are keeping some cash. Good to have when the market drops. Many have short positions. The best returns come when you buy after a correction & sell high. ETFs do well when the market is marching upwards. Maybe one more year of that but it can't go on forever. 1.1 to a high power starts to consume everything in the universe.
codecamper 10y ago
ETFs are stupid. You are blindly buying a stock based on it's capitalization. This defeats the purpose of the market, which is to crowd source the balancing of supply & demand. ETFs create a pyramid scheme out of the market. It will work for a while, but near the top you better get your money out. At some point others will. These days, with computer trading, that 40% drop may happen faster than 100 ms.
codecamper 10y ago
Oh man. I just read your blog post. You have a list of returns on the SPY, etc. First off.. notice what happened in 2008? Reset! It was -40% EOY, but have a look at what within 2008! You've got skin for that? Do you know what a margin call is? Know how W. Buffet made so much bank off of 2008? He had some cash. Also.. Those amazing returns from 2009 to now. Quantitive Easing. Mean anything?
rebootthesystem 10y ago
It's hopeless. I don't know where this victim mentality comes from. I won't even put a political label on it because I truly don't understand how people can think this way. It's like complaining that top 10% of good looking people get 80% of all the good acting jobs. Or that the top 10% of people with athletic prowess win 80% of sporting events. Or that the top 10% of good chess players win 80% of tournaments. Or that the top 10% of engineering graduates grab 80% of the good jobs. Or that the top 10% of people with great grades get 80% of the good jobs. And, while doing this, blaming those people for one's lack of success in the respective fields. Well, yeah, the top 10% of the people who are genetically better swimmers will win 80% of the swimming competitions. Me? I suck. Because I am not anywhere close to that genetically optimized group. I can get much harder and improve but I am simply not good enough. And that's OK. I don't know where this idea that we are all equal in every respect comes from. There are people far more capable and far less capable than every single one of us in just about every single human activity and the top 10% within any category will do better than the 90%. That's just the way things work. Wealth is that same. Some people have money because they are lucky and otherwise dumb as a brick. That's not the case for most people who have money. They've taken risks, worked hard or worked smarter than others (or all three of these factors). And, no, they are not trying to oppress the rest. The gifted swimmer who laps me at that open water meet doesn't even know I exist. Blaming him or her for my shitty standing isn't aligned with reality at all. Yet, I don't think these realities are going to convince people attached to this rich-hating ideology to reconsider their position. I don't understand where it comes from. I am speaking only of the US here. I don't know about the circumstances elsewhere. Here in the US, opportunities for advancement have never been better. Not by a long-shot.
- dukeluke 10y ago
  Actually, social mobility in the United States is declining (https://en.m.wikipedia.org/wiki/Socio-economic_mobility_in_the_United_States https://en.m.wikipedia.org/wiki/Socio-economic_mobility_in_t...) at a time when the difference between the top 1 percent and the bottom 1 percent is obscene. There are people in this country with tens of billions of dollars while others are going bankrupt due to medical bills or working paycheck to paycheck, unable to save for retirement. But it's not even that the top 1 percent doing well that is the problem. It's that the top 1 percent is doing extraordinarily well in a time when the rest of the country(with the exception of a handful of cities in the US) is seeing a decline in quality of life. A rising economy should benefit everyone, but it seems to only be benefiting the capital owners right now, which is making a lot of people very angry.
empath75 10y ago
Most people have no savings at all and are just swimming in debt or are living paycheck to paycheck. If you have any money to put into the stock market at all, you're better off than the vast majority of the people.
soVeryTired 10y ago
"Savings accounts are stupid, you should leverage into the stock market" isn't a particularly sensible way of thinking about managing your money. Dumping all your money into the market ignores that fact that there's a dependancy between how likely you are to need the money and how well the market is doing. Did equities just crash 30%? That means the economy is probably in the toilet, and you might be about to lose your job. I bet that cash portfolio is looking pretty good right about now. Every dollar should have a purpose and be invested accordingly. If you're investing for a 10-year+ horizon, then you should absolutely put the money in the stock market because you can afford to ride out any drawdowns. But if for example you're saving for a deposit on a house, or if you can't afford to lose the money, then cash is probably the right choice.
- dade_ 10y ago
  No, it really isn't. There are much lower risk options than stocks or bonds that are liquid. All of the savings accounts I have seen for quite some time pay below inflation, so you are actually losing money using them. Most people do as you say though.
  - tabeth 10y ago
    What are these options that are liquid and pay above inflation?
  - soVeryTired 10y ago
    I thought about mentioning government bonds or term deposits, but I wanted to keep the post simple. My point is that the stock market isn't always the answer. I don't know what interest rates on savings accounts look like in the US, but in the UK they're competitive with government bonds. Banks often use them as a loss-leader to sell more profitable products like credit cards and mortgages. I'm curious to know what offers a better yield than a savings account with less risk than a stock or a bond. Even the US two year note has a negative real yield right now, so it's hard to see how to get an above-inflation return without taking significant risk. The five-year inflation-linked bond has a negligible yield, and means locking away your cash for a significant time [1]. [1] https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield https://www.treasury.gov/resource-center/data-chart-center/i...
eru 10y ago
Dollar cost averaging doesn't really work. (There were a few studies about this. It's relatively easy to backtest these strategies with historical market prices.) Ie splitting up a lump sum buy into multiple buys. (But buying shares as your money trickles in eg from wages instead of waiting can be a good idea, if the transactions costs are low enough.)
nothrabannosir 10y ago
Just look at the comments at the bottom of this thread. No, by very definition, you shouldn't. That's the entire point of them being at the bottom.
camjohnson26 10y ago
Are there any forums in the vein of hacker news that are just for discussing financial topics? I love hn for the tech stories but agree that it's not as good for markets and investing.
- avn2109 10y ago
  Bogleheads forum.
IanDrake 10y ago
I agree with your initial sentiments, but your fianancial advice has me wondering how old you are. If you're not old enough to live through what happened in 2001/2008 then you have some serious blind spots. And I don't mean just alive in 2001/2008, I mean riding high on your investment choices thinking you're a genius only to have everything come crashing down. When things come crashing down again (and they will) you won't pull your money out because you'll think it's just a dip on the way back up. If you're young enough, that's all you know, small dips that rise to new heights. If you're older, you've seen dips that go back up, then dip lower, then go back up, and lower, etc... and each step of the way you think, don't sell now it's going to go back up. That later turns into, don't sell now or I'll lose money. And finally, you've ridden it all the way to the bottom with no cash. Let's hope in this down turn that you still have a job. Sorry, if that sounds a bit dark, but I've seen this before and you should be careful with how you invest your money. Cash or equivalents should be a component of your portfolio. I keep a few years of expenses in cash equivalents. Once you achieve that you become immune to market swings and job turnover.
ivcha 10y ago
This is such a straw man... I would like to downvote this comment, at least a couple of times.

paulddraper 10y ago

The accusation of it being rigged goes far beyond brokerage fees. It has to do with earned income tax vs capital gains tax, sales taxes, out-of-balance property taxes, educational opportunity, legal recourse, inheritance, etc. P.S. I agree with your conclusion, even if your argument is weak.

nodesocket 10y ago
Anybody can participate in the market and take advantage of capital gains and write-offs (losses). I'm not following your logic. EDIT: Love that I'm getting down voted for saying anybody can participate which is a fact.
- danbruc 10y ago
  Maybe we should simply have an economy where everybody lives on capital gains, nobody has to work, and finally everybody will be happy.
  - deleted 10y ago
    [deleted]
- justicezyx 10y ago
  Gambling always favor the party with more capital. The current market is cultivated more as a place for gambling than meaningful investment avenue for advancing economies. That's where the sentiment come from. No one is complaining the access to the market is lacking. Rather, all are forced to join a market that has obvious flaws that the rich and powerful are not interested in fixing. And if not join the market, you stand to lose for sure.
- tw04 10y ago
  >Anybody can participate in the market Except for people living paycheck to paycheck because they're on welfare making minimum wage. In other words about 20% of the population, if they're smart with their money, can participate in the market.
  - nodesocket 10y ago
    Sorry, anybody can participate, even people living paycheck-to-paycheck. For example, instead of buying that $5 Starbucks, save up and buy a share of $SBUX which is currently at $54.53.
    - dpark 10y ago
      > even people living paycheck-to-paycheck. For example... save up and buy ... So your solution for living paycheck to paycheck is to simply not live paycheck to paycheck. It's surprising no one's thought of that before.
    - dyarosla 10y ago
      I don't think you understand the concept of paycheck to paycheck. Although it may be the case that some people living paycheck to paycheck spend outside their means on luxuries like brand name coffees, there are also those people for whom paycheck to paycheck is forced on them due to external factors. Now I didn't downvote you but I think those who did did so to hint that your perspective could use a reality check.
    - eeeeeeeeeeeee 10y ago
      Ah yes the "if only poor people would stop blowing their money on Starbucks" argument. You are either trolling or you are unbelievably sheltered.
    - rublev 10y ago
      When I was living paycheck to paycheck I could only dream of a fancy latte. But it meant not eating for the next 3-4 days, $5 goes a long way.
- eeeeeeeeeeeee 10y ago
  Saying anybody can participate is as ridiculous as Republicans saying poor people will have "access" to health care without any concern of its affordability. You live in a bubble. You should go talk to some real people.
  - briandear 10y ago
    Poor people do have access -- it's called Medicaid. Medicaid exists in all 50 states.
- ouid 10y ago
  you're getting downvoted for your comment being irrelevant to the discussion. If most of your income is salary, you will be paying a much higher effective tax rate than if most of your income is capital gains. The latter correlates with being wealthy.
  - prostoalex 10y ago
    > If most of your income is salary, you will be paying a much higher effective tax rate than if most of your income is capital gains. Correct only for individual incomes above $165,000. Current long-term capital gains rate with ACA surcharge is 23.8%, and according to https://www.taxact.com/tools/tax-bracket-calculator.asp https://www.taxact.com/tools/tax-bracket-calculator.asp the effective income tax rate for a single individual goes above that at $166,000. Having any family or other dependents introduces new deductions, and so does contributing to an IRA or 401(k), extending that runway. This also ignores the fact that planning to generate stable income via long-term capital gains is akin to planning on generating stable income by consistently winning the lottery.
    - ouid 10y ago
      1) the lottery has a negative expected value, investment does not. In the long run, this is a qualitative difference. 2) That is federal income tax, you've missed state, medicare and social security, and are also completely discounting the fact that the capital gains rate is bounded from above by the income tax rate. 3) most importantly, 165000/year isn't very much money. It is plenty to generate personal wealth. Most of the actual income in america is made well in excess of 165k/year, and much of that income is in the form of capital gains. If you need a better breakdown, I can't do it better than this https://fivethirtyeight.com/datalab/the-top-1-percent-earns-a-lot-from-cashing-in-on-investments/ https://fivethirtyeight.com/datalab/the-top-1-percent-earns-...
      - prostoalex 10y ago
        The article you linked concludes that "the wealthiest 1 percent are an outlier: 36 percent of their income comes from capital gains". As the graph suggests, that number quickly decreases to 10% and 5% when the group encompasses the wealthiest 5% and 10%. So for those three groups the income not subject to capital gains tax constitutes 64%, 90% and 95%. This is before the capital gains are even broken down into long-term vs short-term (which are taxed at plain old income tax rates). I am still not seeing what led you to believe that the effective tax rate will be significantly lower. > That is federal income tax, you've missed state Mmm, okay. Well, I am not a CPA and not sure about other states, but California makes it easy by treating any capital gains (long-term or short-term) as income, so (at least for CA) the effective tax rate of someone relying on long-term capital gains will be pushed up, not down. I agree though that if some other states have favorable treatment of long-term capital gains, the numbers would look different. > medicare and social security Both are subjects to wage limits, and at $166,000 (which will be a higher value once the state tax is incorporated) we're well past those limits. > the lottery has a negative expected value, investment does not. In the long run But a capital gains requires a sale, which means the position has been exited, and there's no long-run. True, it might be a partial sale of an asset, and in some case the proceeds of a sale are invested into another position, but at this point you're pretty much betting the new assets will increase in value and be a candidate for a sale. Hence my lottery comment.
- pfranz 10y ago
  I'm not saying you don't have a point in your original post, but you should absolutely not use the stock market as your savings account. There's a reason it's recommended that you have 6 months of living expenses liquid. Yes, you're very likely to gain much more by investing in index funds. But "the market can stay irrational longer than you can stay solvent." If there is a stock market crash, that's likely to coincide with personal issues, like losing your job. Even if you can weather the market, having to pull out money at the bottom of the market will destroy your gains.
  - nodesocket 10y ago
    Completely agree that the market should not be where you put all of your money without having liquid reserves. I'm not advocating that. Howerver as a long-term (> 10 yrs) strategy and assuming you also keep a pool of capital in a checking and savings account ETF's are the way to go if you just want to fire and forget.
  - dlubarov 10y ago
    > There's a reason it's recommended that you have 6 months of living expenses liquid. Do you mean cash equivalents? Public stocks are liquid. Personally I think the 6 months advice is too conservative. If everyone calculated the damage inflation tax did to their savings account each year, probably more people would be willing to take a bit of a risk and invest their savings (or a greater portion of it).
    - pfranz 10y ago
      You're right, public stocks are liquid and I meant cash equivalent. There's a lot of variance on how much is recommended in an emergency fund. Most seem to say 3-6 months. I know if I lost my job I could cut down my living expenses and stretch it out. But if I had to move for a job, had an extended gap, or had to take a lower paying job I might have to dip into those investments prematurely. Having to cash out at the bottom of the market burns years of investments where it would have been better if you just held onto cash even if your interest rate is a pittance. Just like putting money into 401k is more than negated if you have to cash out early. Everybody has different risk tolerances and the amount needed in an emergency fund varies depending on a bunch of things (if you have debt, variety of incomes vs a single paycheck, gap between expenses and earning). I've never seen anyone actually do a study or source why they chose 3-6months--so it's really hard to argue for or against. I'd be curious if anyone has done a study. It hurts to have money just sitting there, but I'm not trying to eek out every penny. I really don't think all those extra risks are worth it. Keep your living expenses low and it won't be that much money ;)
- edblarney 10y ago
  "Love that I'm getting down voted for saying anybody can participate which is a fact." 'Anyone' can chose to play poker against people who are much smarter than them, who count cards, who use computers, who have 20 years experience and are buddies with the casino owners. Now maybe that game would not be theoretically rigged, but one would be pretty stupid to play it.
  - adrianN 10y ago
    Investing in the market doesn't mean that you fight smart people. You could just buy an index fund and not worry about picking stocks.
- paulddraper 10y ago
  Yes, but only those with capital can have capital gains. If 0.2% of your income is available for investment, that will be different than if 20% of your income is available.
arcaster 10y ago
They're also taking on zero financial risk by not investing. Get over yourself.
- throwaway9475 10y ago
  I suppose living paycheck to paycheck (or having no paycheck at all) is lower risk then?
- briandear 10y ago
  That is untrue. Not participating in the market is impossible because of inflation. By 'not participating,' you are participating as inflation is still happening. You're essentially shorting inflation by not participating. So even not investing is investing -- that means you're holding cash which is itself an investment.
- sctb 10y ago
  > Get over yourself. Please leave these out of comments on Hacker News. When we do so, the quality of the discussion is improved dramatically and we lose no information at all.

danbruc 10y ago

You do realize that there is a substantial fraction of the population that does not have any money to invest?

faizshah 10y ago
Substantial seems to be an understatement: http://www.cnbc.com/2015/04/09/half-of-americans-avoid-the-stock-market.html http://www.cnbc.com/2015/04/09/half-of-americans-avoid-the-s... "More than half of Americans, 52 percent, are currently not investing in the stock market—either by buying individual stocks or mutual funds, or through a retirement account such as a 401(k) or IRA, according to a new Bankrate.com survey. Among the non-investors surveyed, 53 percent said they don't have the money to invest and 21 percent said they don't trust stock brokers or financial advisors."
- liquidise 10y ago
  That seems to suggest that 27% or roughly 1 in 4 Americans cite not having enough money to invest in the stock market. To be clear that is different from saving money or returning it to real estate investments or into a family business. I'd say that falls in line with expectations given unemployment rates and median wage vs cost of living statistics nationwide.
- prostoalex 10y ago
  They could still be investing, just not in the stock market. Buying a larger house (with the goal of taking on renters), buying a rental property, or just a plain savings account, which is a proxy investment in Treasuries.
  - TheAdamAndChe 10y ago
    I wish I could buy a house just to live in. A rental property would be a dream. However, buying a house still requires an initial investment and good credit, which is tough to get when you make $10/hr. Then you have to be able to afford maintenance, disaster insurance, and an emergency fund if something happens to your job. You've got to get a house in an area with enough housing demand that you can rent it out, which is getting harder due to the fact that most new jobs are only being created in a handful of cities like SF, Houston, and NYC. This creates a lot of demand in those areas, which makes buying a house there out of reach for most normal people. And even if you manage to get a good house in a moderately okay area, the value of a house depreciates on a long enough timeframe. All this means that real estate investment is only truly available to those with preexisting capital.

rsync 10y ago

"Savings accounts are stupid! They offer fractions of percent interest. Look at exchange-traded funds that track an index such as the S&P 500 or Nasdaq Composite. My personal favorite ETFs ... (and on and on)" Question. Be honest. How old were you in 2008 ?

imgabe 10y ago
If you had had your savings in the market in 2008 and didn't sell it, it would still be worth more now. Moreover if you were investing regularly then you would have been buying the super cheap stocks available in 2009.
- dukeluke 10y ago
  If you used your stocks as a savings account in 2008, then you would have seen most of your savings disappear right before you got fired.
nodesocket 10y ago
Mid 30's. Also you really don't know what you are talking about. If you bought nearly anything after Nov 21st 2008 and held, you'd be way in the green since then. Let me give you a even more conservative example. SPY which tracks the S&P and it is very conservative (in terms of stocks), is up 151% since Nov 21st 2008 way above pre-2008 levels. Not to mention all those beautiful dividend payments you received. https://www.google.com/finance?chdnp=0&chdd=1&chds=1&chdv=0&chvs=maximized&chdeh=0&chfdeh=0&chdet=1489294575254&chddm=990794&chls=IntervalBasedLine&q=NYSEARCA:SPY&ntsp=0&ei=6NTEWLnhEYKJ2Aboj7WICw https://www.google.com/finance?chdnp=0&chdd=1&chds=1&chdv=0&...
- edblarney 10y ago
  "Also you really don't know what you are talking about. If you bought nearly anything after Nov 21st 2008 and held, you'd be way in the green since then." Apparently it's likely you who 'doesn't know what he is talking about' given that you displayed as much to us in your rebuttal. ---> Stating that 'the market is up' since a historical low is more than meaningless. You should know that if you're offering advice on stocks via a blog. I believe that a retail trader can 'make money' on ETrade about as much as the average joe (or even intelligent joe) can beat Deep Blue at chess - which is not. This is not some deep insight, it's fairly well known.

eigenvector 10y ago

Savings accounts are stupid if you are investing tens or hundreds of thousands of dollars in free cash, after establishing an emergency fund of several months' income. Savings accounts are not stupid if your life savings accumulated over many years is only $2,000 or $3,000 and you never know when you'll need to tap into them for an emergency.

edblarney 10y ago

"That sort of mentality is ill-informed of finance and the market" Uh, no it's not. "The market is not only for millionaires and billionaires. " Yes, it most definitely is. And most people who 'know finance' - know this. The market is 'rigged', or rather, you are at such a disadvantage that it's effectively rigged and doing retail trading is essentially a losing game. Unless you are pursuing a broad diversification strategy (i.e. buying gold, commodities, real-estate funds etc.) in order to preserve your wealth, you really are not going to win. Retail trading entities, like ETrade are kind of a scammy thing - not directly per se - but they're selling you as fish to sharks (i.e. hedge/big funds). If you want to make money playing stocks - you have to 'know more' than the person on the other side of the trade.* Large funds and hedge funds each have massive, massive advantages including economies of scale, market-making, 'near insider trading' (i.e. they 'interview' insiders and ultimately gain info that's not public), colocating, computing power, the ability to move markets with trades, lead trades, the hire some of the smartest people in the world etc. etc. etc.. Unless you have near-inside (or inside) information on a specific stock - you're basically playing poker against Deep Blue and expecting to win. Imagine you're playing poker and they are playing 10 hands, have memorized the deck, know 'all the best moves', are using a computer, and they 'take the dealer out for free drinks every night'. You think you can beat them? On the whole, I'd argue strongly that the best someone can hope for in trading in long run to ride the alpha of the market overall - and that's it. (Or again, to pursue some very broad strategy without having to pay a private wealth manager fees) Did you read the story about how DraftKings works? Basically about 5% of the players make all the returns - they play almost professionally, or with data, or take it very seriously and buy data, know the strategies etc.. But DKings needs those Sharks to make the market. And they feed them fish (i.e. you and I), casual players. Though stocks generally grow with the economy, and underlying trades there is actually an 'investment' - you're really not investing at all. You are speculating about the future surpluses against other people doing the same. Playing the stock market is more like gambling than investing - in Poker you know you're 'playing against others'. Because on E-trade one is theoretically 'investing' one does not think one is playing against others, but that really is the case. You can try to play 'value investing' but there are just too many people with much more power playing that game as well. Finally - I would strongly recommend that readers do not take the advice on your blog and borrow on margin for 6%. If you're borrowing at 6%, then you have to get returns > 6% in order to make this profitable. In other words: in order for that to make sense, you have to beat most of the best big fund managers in the world and be a 'truly world class investor'. What are the odds of that?

ytythn7i65bre 10y ago

I'm no expert, but I'd like to think that there is no free money. Unless you are hiring a professional with proper track record who will be actively investing (lots of fees involved), you are taking large risks; anything above what banks/government bonds are willing to give for inflation (+ small opportunity cost) - is mostly gambling. I think, many people think stock market does nothing for poor, because: 5% of 1,000 = 50 5% of 1,000,000,000 = 50,000,000 No amount of compounding will help the poor and any loss will be much much worse. I like the investing accrediting idea and wish it applied to stock market as well, but I guess some people might not like reducing of their choices (https://en.wikipedia.org/wiki/Accredited_investor https://en.wikipedia.org/wiki/Accredited_investor)

prostoalex 10y ago
> you are hiring a professional with proper track record The statement is somewhat of an oxymoron. A professional with a proven track record wouldn't be interviewing to manage your money - with the current cost of the capital they would raise a small hedge fund, stay out of public life and keep most of their track record to themselves, being occasionally portrayed as "reclusive" billionaires, e.g. Renaissance Technologies. I concur, though, using a financial advisor is good for diversification and as a second set of eyes on private or any convoluted deals, but anybody asking for your money in order to bring untold riches is manipulating people.

tiatia 10y ago

Stupid post extraordinaire. Respect "You can trade $6.95 on ETRADE". Yes. Right. By the way, the fuel cost the same per gallon for a Lamborghini than for a used Toyota. Why not buy a Lamborghini then?

roystonvassey 10y ago

>There seems to be a lot of disdain and calling it a "rigged" system that makes the rich richer Based on current evidence world over, it does appear the case. I know of no one either famous or even within my social circles who's become rich solely by investing in the markets alone. Unless one has deep domain expertise within a sector or has information to which they're privy, it is unlikely one will earn returns that significantly outweigh the market in the medium to long term. So, yes, it is not hard to imagine that equity wealth is concentrated among an elite few who also have an incentive to not let newer members in to improve their own returns.

nugget 10y ago
> it is unlikely one will earn returns that significantly outweigh the market in the medium to long term Do you need to beat the market to become rich? What about just earning the market return (SPY, VTI, or similar), over a 30 or 40 year time period? I know plenty of older folks who 'got rich slow' this way. Granted, historical returns might not be there for millennials in the next few decades, but it's still the best bet there is.
- riemannrocker 10y ago
  No, but you need to have a decent income to invest, which most people don't have.
  - sacado2 10y ago
    Yet most people have cable TV (and/or a gym membership they never use).
- kurthr 10y ago
  You need to be in the market to maintain buying power with stagnant wages and increasing costs. Most people do not have $400 for an emergency so they aren't participating in the market. And if you have to borrow to buy a house/car or buy health insurance, then you are paying those richer than you to exist, their rate of return will continue to be higher than yours, and wealth inequality will continue to rise.

brokenmasonjars 10y ago

Thanks for posting this. Sums of a lot of my feelings when reading the more ill-informed comments related to markets. Btw, Interactive brokers I personally prefer. Etrade and likewise others I find be too much oriented for beginners. Robinhood I tried once but hate that it's only for the phone. My terminal is much more capable of trading than my phone.. though I get why Robinhood was designed like that... to appeal to those who are more phone oriented.

pcarolan 10y ago

Most people don't know what the word capital means. The gap is massive for real reasons not just access to trading platforms. You wa

pcarolan 10y ago

Most people don't know what the word capital means. The gap is massive for real reasons not just access to trading platforms. The bottom 90% shouldn't have to give a shit. An electrician should be able to specialize in their field and trust that their retirement is taken care of by financial pdofessionals. Same as a financial professional should be able to trust an electrician to wire their house correctly for a fair price that will last 40+ years.

oskarth 10y ago
An electrician isn't, or shouldn't be, dependent on what so called "financial professionals" tell them. It isn't rocket science. Save a portion of your salary. Build up an emergency fund. Invest in passive index funds. Don't try to game the market. Don't get into debt. Don't assume someone will take care of you. This used to be common sense (save the index fund advice). In fact, an prudent electrician is probably better of than a lot of students nowadays with worthless degrees and a mountain of student debt.

acjohnson55 10y ago

The main problem isn't a rigged stock market, it's that relatively few people can meaningfully participate in it. From https://www.theatlantic.com/magazine/archive/2016/05/my-secret-shame/476415/ https://www.theatlantic.com/magazine/archive/2016/05/my-secr...: > The Fed asked respondents how they would pay for a $400 emergency. The answer: 47 percent of respondents said that either they would cover the expense by borrowing or selling something, or they would not be able to come up with the $400 at all. Four hundred dollars! Who knew?

Godel_unicode 10y ago
It would be instructive to re-ask this question as "what would you do to pay for a $400 dollar expense in 6 months". I suspect the answer would be different. There's very good evidence to show that people are bad at planning for nebulous future risks, especially compared with current needs/wants. Robinhood should add a direct-deposit option which automatically buys shares of indexes in a preset mix once sufficient capital has been deposited, I suspect that would materially help.
- tankenmate 10y ago
  In Australia this actually happens in a rather structured way; Superannuation, or defined contribution benefits as it is usually called in Europe. Your employer (full or part time) is required by law to contribute 9.5% of your salary (over the top) into a regulated fund with your name on it (i.e. the funds are no longer accessible to the company). In your younger years this is normally put into a growth focused investment (stocks etc), when you get closer to retirement most employees elect to move to a more cash / hard asset class (bonds, property, and sometimes corp bonds). The real pity is that most super administration companies charge whopping fees and most employees stick with the administrator chosen by their company.
  - eru 10y ago
    Alas, the superannuation is mostly restricted to fairly expensive options, ie high fees. That's because providers have to clear some regulatory hurdles keeping competition down. You can't just tell the government "Yeah, I'm using vanguard index funds for my mandatory 9.5%." At the moment, Host Plus might be the best option (read 'cheapest option') for Australians. Not sure if that's still the case.

codecamper 10y ago

Trading on margin!? In the most topped out market ever. You do realize that you pay interest on your margin. And when the market drops (the most likely outcome these days), your losses are magnified. W. Buffet recommends that investors not buy on margin. Also... ETFs are newish and rather untested at their current saturation levels. You are blindly buying a stock based on it's capitalization. This defeats the purpose of the market, which is to crowd source the balancing of supply & demand. ETFs create a pyramid scheme out of the market. It will work for a while, but near the top (now) you better get your money out. I think you should read what top hedge fund managers are doing these days. You will be hard pressed to find one that is all in + margin to the overall index fund. Many have significant short positions and a lot of cash. Your blog post is just another link in the pyramid scheme nature of the whole thing. (I can do it.. so can you!)

nodesocket 10y ago
> These days, with computer trading, that 40% drop may happen faster than 100 ms There are circuit breakers that trigger at 7%, 13% and 20% right? Now, I don't know if they are tested against HFT these days, but I would suspect they could rollback trades if needed. Also, there is Rule 48[1] to help. [1] - https://en.wikipedia.org/wiki/Rule_48 https://en.wikipedia.org/wiki/Rule_48
- codecamper 10y ago
  who's computer is faster? The traders or the circuit breaker trigger?
  - nodesocket 10y ago
    Correct me if I am wrong, but since all trades go through the exchanges (circuit breakers), them right? Plus they can rollback trades if needed.
    - codecamper 10y ago
      Hey. I just realized I was maybe too harsh on all this. You are right, investing is better than a savings account. However, be careful these days. Read what other top investors are doing. barrons.com & marketwatch sometimes say what other top investors are doing. Many are keeping some cash. Good to have when the market drops. Many have short positions. The best returns come when you buy after a correction & sell high. ETFs do well when the market is marching upwards. Maybe one more year of that but it can't go on forever. 1.1 to a high power starts to consume everything in the universe.

codecamper 10y ago

ETFs are stupid. You are blindly buying a stock based on it's capitalization. This defeats the purpose of the market, which is to crowd source the balancing of supply & demand. ETFs create a pyramid scheme out of the market. It will work for a while, but near the top you better get your money out. At some point others will. These days, with computer trading, that 40% drop may happen faster than 100 ms.

codecamper 10y ago

Oh man. I just read your blog post. You have a list of returns on the SPY, etc. First off.. notice what happened in 2008? Reset! It was -40% EOY, but have a look at what within 2008! You've got skin for that? Do you know what a margin call is? Know how W. Buffet made so much bank off of 2008? He had some cash. Also.. Those amazing returns from 2009 to now. Quantitive Easing. Mean anything?

rebootthesystem 10y ago

It's hopeless. I don't know where this victim mentality comes from. I won't even put a political label on it because I truly don't understand how people can think this way. It's like complaining that top 10% of good looking people get 80% of all the good acting jobs. Or that the top 10% of people with athletic prowess win 80% of sporting events. Or that the top 10% of good chess players win 80% of tournaments. Or that the top 10% of engineering graduates grab 80% of the good jobs. Or that the top 10% of people with great grades get 80% of the good jobs. And, while doing this, blaming those people for one's lack of success in the respective fields. Well, yeah, the top 10% of the people who are genetically better swimmers will win 80% of the swimming competitions. Me? I suck. Because I am not anywhere close to that genetically optimized group. I can get much harder and improve but I am simply not good enough. And that's OK. I don't know where this idea that we are all equal in every respect comes from. There are people far more capable and far less capable than every single one of us in just about every single human activity and the top 10% within any category will do better than the 90%. That's just the way things work. Wealth is that same. Some people have money because they are lucky and otherwise dumb as a brick. That's not the case for most people who have money. They've taken risks, worked hard or worked smarter than others (or all three of these factors). And, no, they are not trying to oppress the rest. The gifted swimmer who laps me at that open water meet doesn't even know I exist. Blaming him or her for my shitty standing isn't aligned with reality at all. Yet, I don't think these realities are going to convince people attached to this rich-hating ideology to reconsider their position. I don't understand where it comes from. I am speaking only of the US here. I don't know about the circumstances elsewhere. Here in the US, opportunities for advancement have never been better. Not by a long-shot.

dukeluke 10y ago
Actually, social mobility in the United States is declining (https://en.m.wikipedia.org/wiki/Socio-economic_mobility_in_the_United_States https://en.m.wikipedia.org/wiki/Socio-economic_mobility_in_t...) at a time when the difference between the top 1 percent and the bottom 1 percent is obscene. There are people in this country with tens of billions of dollars while others are going bankrupt due to medical bills or working paycheck to paycheck, unable to save for retirement. But it's not even that the top 1 percent doing well that is the problem. It's that the top 1 percent is doing extraordinarily well in a time when the rest of the country(with the exception of a handful of cities in the US) is seeing a decline in quality of life. A rising economy should benefit everyone, but it seems to only be benefiting the capital owners right now, which is making a lot of people very angry.

empath75 10y ago

Most people have no savings at all and are just swimming in debt or are living paycheck to paycheck. If you have any money to put into the stock market at all, you're better off than the vast majority of the people.

soVeryTired 10y ago

"Savings accounts are stupid, you should leverage into the stock market" isn't a particularly sensible way of thinking about managing your money. Dumping all your money into the market ignores that fact that there's a dependancy between how likely you are to need the money and how well the market is doing. Did equities just crash 30%? That means the economy is probably in the toilet, and you might be about to lose your job. I bet that cash portfolio is looking pretty good right about now. Every dollar should have a purpose and be invested accordingly. If you're investing for a 10-year+ horizon, then you should absolutely put the money in the stock market because you can afford to ride out any drawdowns. But if for example you're saving for a deposit on a house, or if you can't afford to lose the money, then cash is probably the right choice.

dade_ 10y ago
No, it really isn't. There are much lower risk options than stocks or bonds that are liquid. All of the savings accounts I have seen for quite some time pay below inflation, so you are actually losing money using them. Most people do as you say though.
- tabeth 10y ago
  What are these options that are liquid and pay above inflation?
- soVeryTired 10y ago
  I thought about mentioning government bonds or term deposits, but I wanted to keep the post simple. My point is that the stock market isn't always the answer. I don't know what interest rates on savings accounts look like in the US, but in the UK they're competitive with government bonds. Banks often use them as a loss-leader to sell more profitable products like credit cards and mortgages. I'm curious to know what offers a better yield than a savings account with less risk than a stock or a bond. Even the US two year note has a negative real yield right now, so it's hard to see how to get an above-inflation return without taking significant risk. The five-year inflation-linked bond has a negligible yield, and means locking away your cash for a significant time [1]. [1] https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield https://www.treasury.gov/resource-center/data-chart-center/i...

eru 10y ago

Dollar cost averaging doesn't really work. (There were a few studies about this. It's relatively easy to backtest these strategies with historical market prices.) Ie splitting up a lump sum buy into multiple buys. (But buying shares as your money trickles in eg from wages instead of waiting can be a good idea, if the transactions costs are low enough.)

nothrabannosir 10y ago

Just look at the comments at the bottom of this thread. No, by very definition, you shouldn't. That's the entire point of them being at the bottom.

camjohnson26 10y ago

Are there any forums in the vein of hacker news that are just for discussing financial topics? I love hn for the tech stories but agree that it's not as good for markets and investing.

avn2109 10y ago
Bogleheads forum.

IanDrake 10y ago

I agree with your initial sentiments, but your fianancial advice has me wondering how old you are. If you're not old enough to live through what happened in 2001/2008 then you have some serious blind spots. And I don't mean just alive in 2001/2008, I mean riding high on your investment choices thinking you're a genius only to have everything come crashing down. When things come crashing down again (and they will) you won't pull your money out because you'll think it's just a dip on the way back up. If you're young enough, that's all you know, small dips that rise to new heights. If you're older, you've seen dips that go back up, then dip lower, then go back up, and lower, etc... and each step of the way you think, don't sell now it's going to go back up. That later turns into, don't sell now or I'll lose money. And finally, you've ridden it all the way to the bottom with no cash. Let's hope in this down turn that you still have a job. Sorry, if that sounds a bit dark, but I've seen this before and you should be careful with how you invest your money. Cash or equivalents should be a component of your portfolio. I keep a few years of expenses in cash equivalents. Once you achieve that you become immune to market swings and job turnover.

ivcha 10y ago

This is such a straw man... I would like to downvote this comment, at least a couple of times.