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People are not wired to properly consider long-term risks. The risks in the ancestral environment were entirely short term - literally, the tiger in the bush. A

People are not wired to properly consider long-term risks. The risks in the ancestral environment were entirely short term - literally, the tiger in the bush. At worst it was a drought or poor season, with a series of short-term food security crises. When people invest, they are worried about things like a market correction wiping out half their purchasing power should they decide to sell and spend it next year. These events are protected by owning bonds and cash. But the real insidious killer is the long-term risk of sitting in the sidelines as bull markets go by and wipe out your ability to purchase long-delayed spending on the cheap. Or in other words, the risk that today's price is the lowest you'll ever be able to find the S&P 500. I'm worried about that last scenario enough that I'm considering changing my investment strategy from 100% global stocks to include buying some long-dated S&P 500 call options. If the market goes down my future cash flows buy my retirement spending on the cheap, so losing a relatively small amount of money on call options that expire worthless is fine. If the market goes on a tear and stays up, though, I'm in a pretty rough spot.

bradleyjg 9y ago
> People are not wired to properly consider long-term risks. The risks in the ancestral environment were entirely short term - literally, the tiger in the bush. At worst it was a drought or poor season, with a series of short-term food security crises. This kind of pop evo psyche just so story is not any different than stories about how natural phenomena are the result of gods playing capricious games with humanity. It comes from the same place and has the same validity.
- billforsternz 9y ago
  Your criticism seems irrational to me. Gods playing capricious games is not a plausible explanation for anything. Human behaviour reflecting ancestral selection pressures is at the very least plausible.
  - asimpletune 9y ago
    I think it's actually just as irrational to try and explain a series of complex behavior with one central premise. The truth is humans are complex. All that "pop evo psyche" stuff is just a story. It makes sense, it's vaguely plausible, but that doesn't actually make it true unless you only look for examples that confirm the story and ignore all the ones that don't.
    - billforsternz 9y ago
      You think it's just as irrational (as ascribing supernatural causes) to build a scientific theory? Who is denying humans are complex? Who is trying to explain everything with one central premise? The truth or otherwise of the "story" is a matter of debate. You seem to be wedded to the idea that the story is definitely untrue.
      - bradleyjg 9y ago
        I don't see any scientific theory here. How exactly would we go about testing the relationship between risks in the ancestral environment and not being "wired properly [to] consider long-term risk"?
        billforsternz 9y ago
        I'm not sure, but presumably all branches of science that deal with conditions in pre-history have testability challenges. Doesn't mean you can't build theories, reason about them, devise ingenious and indirect ways to test and experiment. Humour me. I assume you don't dispute that modern civilization has been conincident with only a tiny fraction of human evolutionary history. Why isn't it reasonable to assume we are well adapted to pre-civilization environments and that sometimes this is not helpful in modern life?
        bradleyjg 9y ago
        > Humour me. It's exactly my whole point that it is unreasonable for me to do so. ThrustVectoring was trying to appropriate the good will and prestige that science has built up without doing the hard work that's necessary for his argument to actually deserve that good will and prestige. It's a kind of free riding.
icebraining 9y ago
I don't get it, if you're 100% on stocks, won't your portfolio rise with the market? Or are you worried specifically about your (lack of) exposure to the US market?
- ThrustVectoring 9y ago
  My investment account balance is low compared to my lifetime future earnings - even at 100% stocks, I'm arguably under-exposed to equity bull markets.
  - icebraining 9y ago
    I don't follow the logic. What does your future lifetime earnings have to do with the returns of the market?
    - sjy 9y ago
      Sounds like the fascinating but terrifying 'mortgage your retirement' theory: https://www.bogleheads.org/forum/viewtopic.php?t=5934 https://www.bogleheads.org/forum/viewtopic.php?t=5934
      - icebraining 9y ago
        Thanks for that! I have no idea what's the lesson to take away, but it sure was an interesting read.
    - ThrustVectoring 9y ago
      If a bundle of stocks worth $1MM at retirement is worth $100k today, then in order to save up $1MM at retirement I need to earn $100k more than I spend. If the stock market goes up 20%, then I now need to earn $120k more than I spend, putting retirement further away. Call options protect against this, giving relatively cheap insurance against huge market upswings.

bradleyjg 9y ago

> People are not wired to properly consider long-term risks. The risks in the ancestral environment were entirely short term - literally, the tiger in the bush. At worst it was a drought or poor season, with a series of short-term food security crises. This kind of pop evo psyche just so story is not any different than stories about how natural phenomena are the result of gods playing capricious games with humanity. It comes from the same place and has the same validity.

billforsternz 9y ago
Your criticism seems irrational to me. Gods playing capricious games is not a plausible explanation for anything. Human behaviour reflecting ancestral selection pressures is at the very least plausible.
- asimpletune 9y ago
  I think it's actually just as irrational to try and explain a series of complex behavior with one central premise. The truth is humans are complex. All that "pop evo psyche" stuff is just a story. It makes sense, it's vaguely plausible, but that doesn't actually make it true unless you only look for examples that confirm the story and ignore all the ones that don't.
  - billforsternz 9y ago
    You think it's just as irrational (as ascribing supernatural causes) to build a scientific theory? Who is denying humans are complex? Who is trying to explain everything with one central premise? The truth or otherwise of the "story" is a matter of debate. You seem to be wedded to the idea that the story is definitely untrue.
    - bradleyjg 9y ago
      I don't see any scientific theory here. How exactly would we go about testing the relationship between risks in the ancestral environment and not being "wired properly [to] consider long-term risk"?
      - billforsternz 9y ago
        I'm not sure, but presumably all branches of science that deal with conditions in pre-history have testability challenges. Doesn't mean you can't build theories, reason about them, devise ingenious and indirect ways to test and experiment. Humour me. I assume you don't dispute that modern civilization has been conincident with only a tiny fraction of human evolutionary history. Why isn't it reasonable to assume we are well adapted to pre-civilization environments and that sometimes this is not helpful in modern life?
        bradleyjg 9y ago
        > Humour me. It's exactly my whole point that it is unreasonable for me to do so. ThrustVectoring was trying to appropriate the good will and prestige that science has built up without doing the hard work that's necessary for his argument to actually deserve that good will and prestige. It's a kind of free riding.

icebraining 9y ago

I don't get it, if you're 100% on stocks, won't your portfolio rise with the market? Or are you worried specifically about your (lack of) exposure to the US market?

ThrustVectoring 9y ago
My investment account balance is low compared to my lifetime future earnings - even at 100% stocks, I'm arguably under-exposed to equity bull markets.
- icebraining 9y ago
  I don't follow the logic. What does your future lifetime earnings have to do with the returns of the market?
  - sjy 9y ago
    Sounds like the fascinating but terrifying 'mortgage your retirement' theory: https://www.bogleheads.org/forum/viewtopic.php?t=5934 https://www.bogleheads.org/forum/viewtopic.php?t=5934
    - icebraining 9y ago
      Thanks for that! I have no idea what's the lesson to take away, but it sure was an interesting read.
  - ThrustVectoring 9y ago
    If a bundle of stocks worth $1MM at retirement is worth $100k today, then in order to save up $1MM at retirement I need to earn $100k more than I spend. If the stock market goes up 20%, then I now need to earn $120k more than I spend, putting retirement further away. Call options protect against this, giving relatively cheap insurance against huge market upswings.