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I have no idea how money works. I have a 401k, it's got more in it than the median 60 year old in the united states, and I'm 20 years from that. And I am terr

I have no idea how money works. I have a 401k, it's got more in it than the median 60 year old in the united states, and I'm 20 years from that. And I am terrified of how little I know about how it exists or survives. I read these articles and get a sense of overwhelming urgency that, without any explicit indication, I should do something with my nest egg to make it safer to survive a crash. And then I keep reading, "don't touch it" when I go to read about what I should do. So I sit here, not doing anything at all about it, crippled with dread. What's the best strategy for someone like me, who has absolutely no idea how their retirement account exists?

adrianN 7y ago
I believe the general advice for people who don't want to care about their money all the time is to invest it in a diversified portfolio and then slowly turn that portfolio into things with low volatility as the time where you want to start selling approaches.
ilaksh 7y ago
Sorry I don't feel bad for you since I have no retirement and very little savings. My understanding is that generally you do not want to touch your 401k. If you do then usually it's because you screwed up. You are (obviously I thought) supposed to be saving and investing in addition to the 401k. 401k is supposed to be low risk. The backup to that is something entirely different.
wefarrell 7y ago
Don’t touch it. There’s nothing wrong with playing with a portion (up to you 20%) of your nest egg but only if you enjoy it. If your reptilian brain is steering the ship and you’re reacting based off of fear or greed you find yourself on the wrong side of trades.
cameronbrown 7y ago
Not an expert, but my opinion: Your money is probably safer where it is. Economic turmoil comes and goes, and as long as you don't need the cash right now, you're somewhat able to absorb that risk over a long period of time.
lethologica 7y ago
Educate yourself. You don't need to know the intricacies of how markets operate, but a little financial understanding is, I believe, a must for everyone. Also, be aware that even when you do educate yourself and you do everything you think is in your power to 'safe guard' your nest egg, that there are are still a billion and one ways that it can all be wiped out tomorrow. Micro managing you're finances if you don't know what you're doing is a fantastic way to wipe it out. As the good old saying goes, “The market can stay irrational longer than you can stay solvent.”
- chosenbreed37 7y ago
  > Educate yourself. You don't need to know the intricacies of how markets operate, but a little financial understanding is, I believe, a must for everyone. I second this. Lot's of good advice here about letting the 401k ticking along. In the meantime start building some knowledge. It may take a bit of time but it will be worth it. But the basics should be accessible to everyone. There are many sources of information (of varying quality). Youtube, blogs, financial section of major newspapers, MOOCs, and last but not least books
- chii 7y ago
  so to sum it up, don't do anything, and hope? Because even if you attempt to educate yourself, it'd be like trying to learn to do your own surgery. Not impossible, but... What i want to really know is what people with a lot of money actually do - and when i say a lot, i meant a lot. networth in excess of 8-9 digits. What do they invest in? What diversification measures do they do? Which country? And finally, how they dodge taxes (as they inevitably seem to be able to - so if you can't defeat 'em, join 'em?)
  - lethologica 7y ago
    They usually pay other people to worry about it at that stage .
  - ccffph 7y ago
    they invest in businesses/franchises to keep a constant cash flow. that and fixed income due to low risk. taxes are avoided by keeping things offshore unless absolutely necessary to tunnel back to the us.
tengbretson 7y ago
Articles like this are just peddling cortisol. The best strategy is to avoid reading stories like this.
acollins1331 7y ago
While sitting on cash isn't necessarily a bad idea -- when the market crashes you then buy a bunch of index funds, having a 401k is a very safe investment. Think of it this way, the only way you're losing that money is if the market crashes, permanently, and if it crashes permanently, then that money isn't worth shit anyway.
- pureliquidhw 7y ago
  This sounds a lot like you're trying to time the market, which is great if it works, but it's a gamble. Dollar cost averaging is generally regarded as the safer option. Remember, the market can remain irrational longer than you can remain solvent. Also, how can you know when the market has bottomed out? Why not use that same strategy to invest now and figure out when the market has peaked and pull out then? Sitting on money loses value due to inflation.
- ericd 7y ago
  Japan is still a wonderful country, despite the Nikkei being depressed for decades at this point.
simonh 7y ago
Too many people that try to take control of such investments fall prey to basic errors. They see a crash happening so pull their money out to safer investments, but it's already mostly too late so they have locked in losses. Then they see the market rally, so they re-invest their money in the market, but they already missed the start of the rally so have missed much of the potential gains.
rhino369 7y ago
Just buy s&p500 index funds (or total market index funds). A crash won’t affect your long term retirement plans. You only have to worry about a crash <10 years before retirement.
mhb 7y ago
I recommend reading about the Permanent Portfolio: https://www.investopedia.com/terms/p/permanent-portfolio.asp https://www.investopedia.com/terms/p/permanent-portfolio.asp The permanent portfolio was constructed by Harry Browne to be what he believed would be a safe and profitable portfolio in any economic climate. Using a variation of efficient market indexing, Browne stated that a portfolio equally split between growth stocks, precious metals, government bonds and Treasury bills would be an ideal investment mixture for investors seeking safety and growth.
- panarky 7y ago
  Asset allocation strategies like this used to work because the components like stocks and bonds were negatively correlated. When stocks crash, bonds gain value and reduce the variation and risk of the portfolio as a whole. But that doesn't always happen. Sometimes the correlations flip, and everything becomes positively correlated, and everything crashes at the same time. Today, there's about $20 trillion in the global government bond market that actually has a negative yield, which means the borrower gets paid to borrow. And in the remainder of the government bond market where rates are still positive, rates are the lowest they've been for 1000 years. When interest rates are near zero or even negative, it's unclear whether historic correlations will continue, so the concept behind the "permanent portfolio" may not continue to work in this environment.
  - vonmoltke 7y ago
    > Today, there's about $20 trillion in the global government bond market that actually has a negative yield, which means the borrower gets paid to borrow. Not really. The yields are negative, but the coupon rates are positive. Most of those were initially sold with a positive rate, then went negative as buyers bid up the prices. The issuing governments don't get that appreciation, and are still obligated to pay the coupon rate. If the yield is positive at auction, the borrower is still paying to borrow the money. The only way the "borrower gets paid to borrow" is if the initial auction sees bonds sell at negative yields. That's quite possible when coupon yields are 0.100% or less (which has been common in Europe and Japan lately).
lbotos 7y ago
Money is time, bottled. Stocks/Bonds are money converted into "abstract human output". You are taking a bet that the group of humans that work at the companies that you've invested in will continue to become more advanced and efficient as to "generate value". The stock market is "sentiment". It is collective group think as to what those companies are up to. This is why you see people say "don't touch it". If you don't need the money now, the advances in "value creation" will possibly give you more money in the future. I think the number one disservice that "stocks/investing" do is pretend it's not "gambling". Sure, you can minimize risk, and choose instruments that are 99% sound (gov bonds) but it's still _a gamble._ You are scared because you don't understand your risk exposure. (also, black swan events could change the exposure, but they are exactly that -- black swans) You can: - Decide to stop playing the game, convert your stocks/bonds into money which gives you absolute units and pegs your risk to inflation/deflation/government default. - You can continue playing the game, and decide what your risk tolerances are, and adjust your strategy accordingly. This should give you a little bit more peace of mind. If you want reasonably accessible exposure to these concepts, Khan Academy videos are free, you don't have to sign up to watch, and can fill in some gaps: https://www.khanacademy.org/economics-finance-domain/core-finance https://www.khanacademy.org/economics-finance-domain/core-fi...
- whatshisface 7y ago
  >black swan events could change the exposure Strictly speaking your exposure never changes, only your perception of your exposure as your sure-bet real estate portfolio crashes to zero.
- derekp7 7y ago
  Regarding sentiment, and stock valuation, this is the way I look at it, which to me makes sense (although it doesn't account for irrationality in the market). Let's say you have $100.00, and the market figures that you need to make a return of 4% per year. If you find a stock that gives dividends of $4.00 per year, that stock will then be worth $100.00. This is assuming that there is a really strong trust in this company, that it won't go out of business, won't grow or shrink in market share. Now let's add onto this that based on what the company is doing, and an analysis of their competition, and their ability (track record) of execution, that there is a really good chance that next year they will be able to make enough money to return $8.00 dividends per year. Well, that means that next year the stock will be worth $200.00 per share. And if it is going to be worth $200.00 per share next year, well this year most people will probably be willing to pay about $192 per share (that gives a 4% return on investment just in the stock price). You can extend this line of reasoning to factor in forecasted growth for a number of years into the future. Which is how you get stocks that currently only return a small fraction of a percent of their stock price in dividends (i.e., a $100.00 stock may pay 4 cents dividends, instead of $4.00, since market sentiment thinks the company will grow a lot in the future). So based on this, I would like to pick stocks that don't have a lot of growth forecasted, but do pay good dividends. Especially stocks that are in a market where they are protected from competition, or otherwise have a strong likelihood of not going out of business but provide the same thing they've always done, without growth but with good dividends.
xiphias2 7y ago
If you want to diversify in a non correlated assets, you can put a part of your money from stocks into commodities, like gold/silver/Bitcoin (housing market is highly correlated with the stock market, so it's not a good diversification). All asset (and storage) types have their advantages / problems, you should read about it of course.
- chosenbreed37 7y ago
  > All asset (and storage) types have their advantages / problems, you should read about it of course. Am I right in thinking that gold/silver are widely thought to be inflation proof? So I wasn't so concerned about growth could I just park my money in gold?
  - roenxi 7y ago
    Depends what you want to call inflation. Gold's price movements don't track anticipated inflation in any meaningful sense [0]. That being said, over very long time horizons it is difficult to see why the real price of gold would change. They probably aren't going to mine it any cheaper and it isn't crazy to handwave an argument that demand can't drop all that far from where it is now. On that basis it easily outperforms cash. If interest rates stay near 0 or drop negative gold might outperform bonds too. It is hard to say; the central banks do strange things to the bond markets. Also, note that all these graphs only go back to the 1970s. Bit of a mystery why [1]. Gold's value tends to transcend such short-term concerns as the current global financial regime and that is a draw for some. Personally I think the current US dollar system is getting a bit long in the tooth. The biggest draw in this regard is that gold is a real expensive thing that is exceptionally easy to store (ignoring theft risks) and it is just hard to see how it could become less valuable than it is right now (short of government bans on gold trading). [0] https://upfina.com/gold-vs-inflation/ https://upfina.com/gold-vs-inflation/ particularly "Longer Term Correlation Between Real Gold & TIPS Doesn’t Hold Up" [1] That was when the last monetary system failed https://en.wikipedia.org/wiki/Bretton_Woods_system https://en.wikipedia.org/wiki/Bretton_Woods_system
  - xiphias2 7y ago
    Gold is mostly inflation proof, but it has a volatility. The price of a cow in gold/silver hasn't changed that much in the last 5000 years (you can check the prices in ancient Egypt yourself). USD lost more than 99% of its value in a few hundred years. There are still market cycles for gold, and also if you're going physical, there's 2-3% exchange cost as well. Silver may or may not have a VAT problem in your country.
skolos 7y ago
Good answers to your question. If you want see more meet supporting them, take a look at https://www.investingrus.com/blog/safest-bet https://www.investingrus.com/blog/safest-bet
r00fus 7y ago
I think the recommendation is perhaps to rebalance your 401k portfolio to be less aggressive and less reliant on stocks. Mine in part index fund/part bonds and I move around the % based on the market sentiment.
AmericanChopper 7y ago
You’re fine. If a crash happens tomorrow, in 20 years time it will have completely recovered. Read about investment horizons. Over that timescale, you’re not at the mercy of market cycles. Once you get a bit closer to retirement, that’s when you want to start minimising risks. 5-10 years out, you would start looking at fixed income assets and stuff like that. You don’t want to delay your retirement because your 401k had a single bad year. Until then, go nuts with high growth funds. It doesn’t matter if you have a -10% year if your investment is growing strongly on average over 20 years, you just don’t want that year to be the one where you’re looking to start cashing out.
mathattack 7y ago
Low fee broad market indices. Put as much in as you can every year. Don’t take a dime out until you retire.
mooreds 7y ago
Educate yourself. I like A Random Walk Down Wall Street, Are You A Stock Or A Bond, and Your Money Or Your Life. Asset allocation is one of the few levers to control risk that you have. The more you have in safe assets (bonds and cash) the less likely to lose money in a downturn. Nothing's free, however, and that stability will cost you long term growth. Only you can figure out what level of risk you can love with (are you ok losing 10% during a downturn? 25%? 50%?). An advisor can help but you need to look in your heart of hearts and determine the number. If you don't want to educate yourself or need a helping hand, get a fee based financial planner. Last I looked (years ago) was a couple thousand bucks to have a financial assessment. Ouch. But cheap compared to the 1% of assets the other kind of financial planners take annually. More on that here: https://www.napfa.org/financial-planning/what-is-fee-only-advising https://www.napfa.org/financial-planning/what-is-fee-only-ad...
- JauntTrooper 7y ago
  +1 for A Random Walk Down a Wall Street. It was assigned to me at Princeton in my intro to finance class and was formative to my financial education. It’s also very readable. I am now a CFA charterholder working in finance, and I still love that book.
jumbopapa 7y ago
Learn about it. I would recommend A Random Walk Down Wall Street [1] and The Boglehead's Guide to Investing [2]. They will give you a good primer, but in essence the best thing you can do it nothing at all. As you get older you'll want to make sure bonds take up a larger percentage of your portfolio, but really you're fine. The old sayings is "time in the market, not timing the market". [1] - https://www.amazon.com/Random-Walk-down-Wall-Street/dp/0393352242/ https://www.amazon.com/Random-Walk-down-Wall-Street/dp/03933... [2] - https://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Larimore/dp/1118921283/ https://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Lar...
rubyskills 7y ago
Best thing you can do is keep it in index funds for now. You're relying on dollar cost averaging to take care of the long term trends in the market. Downturns actually make you money as you're continuing to buy the better deals. If you pull out before you let your money buy these deals, you'll never receive the benefit when the market recovers, where you make the real money. Also, I read somewhere that the best trading days happen in a very short period of time. If you're not in the market during those days, you miss some significant gains.
turk73 7y ago
You assume there is a workable strategy. But there's not, and that's the real problem. I don't want to retire "10 years from now" I want to retire as soon as humanly possible. Nothing supports that, however. There are no safe havens for wealth anymore because inflation destroys cash savings and thus pushes you into making risky bets on stocks and shitty bonds. If you're not part of the in crowd, your savings will get cut in half every decade or so because they can't have you with actual wealth to challenge them, now can they? There is no strategy that gets you where you want to be: Without fear or pain. So now that you understand that, what is your next move? Might I suggest a revolt?
sweeneyrod 7y ago
If you're 20 years from needing it you don't need to worry about protecting it from a crash since you have time to wait for the market to recover. If you could perfectly predict the seemingly-imminent crash then you'd be better off selling all your shares just before and buying government bonds instead, then reversing that when the stock market hits the bottom. But since you can't predict it, there's not much point doing anything (you can rebalance a bit from stocks to bonds if it makes you feel better but the impact will be minimal). The growth you'll miss out on from selling too early and buying too late will almost certainly outweigh the benefit.
maxerickson 7y ago
Median investment holdings are ~0, not a real useful benchmark.
sertaco 7y ago
This comment received sooo many replies with link references, I cannot help but think that at least half of these are from advertisers. A recent trend on HN...
panarky 7y ago
> I have no idea how money works. You're not alone in this. I've found that most people who think they know how money works often just repeat conspiracy theories that don't hold up to critical examination. While I'm pretty good at spotting bogus theories, I'd be hard-pressed to offer a coherent explanation myself.
ravenstine 7y ago
I'll tell you something that nobody wants to admit to: Nobody really knows how money works. The average 401k holder has one because they don't have a good idea of how money works or what they should do with it. If they really understood their 401k, they'd know that they're probably getting ripped off in fees over their lifetime. If economists and financial analysts completely understood money, they wouldn't be in such disagreement all the time over basic things. A financial advisor might tell you to leave your money in a 401k, and the next one might tell you the same, but it's not that hard to find one who will tell you to get your money out of your 401k ASAP for a variety of reasons. At the end of the day, you have to trust your own judgment. People don't get rich doing the easy thing. By the way, here's some things you should think about with 401ks: - Someone with an average salary pays $138,336 in 401k management fees over their lifetime. Not only are you the only party taking a risk, but you're getting charged for taking that risk. Advisors and broker dealers aren't risking anything except your money. - You don't own the money in your 401k. Read the fine print and you will find "FBO" (For Benefit Of). The tax code makes it technically owned by the government, but provided for your benefit. In a crisis, the government can confiscate any amount of your 401k to pay off debt and pensions. - 401k teaches people to cluelessly invest. Do you know if your money is being invested in big tobacco or big oil? - The government has the advantage with your money. Because you can't cash out without penalties, when you die, whatever's left over for your children is not only subject to income tax but to estate tax as well. They want your 401k money to be gifted to someone else because that means they don't get to cash in on your pile of money.
- whatok 7y ago
  The average 401k holder knows that it's a tax advantaged savings vehicle and that there aren't many of those available to individual investors. The tax advantage completely outweighs all of the negatives that you listed in almost all cases. Advocating that people not take advantage of a 401k because something about the government potentially seizing it is basically saying you shouldn't save money at all.
- disease 7y ago
  The estate tax exemption is $5.49 million and affects less than 1% of all estates.
wbl 7y ago
Have no idea the retirement account exists. 20 years from now a recession won't matter because the economy will have recovered.
- seanmcdirmid 7y ago
  There have been prolonged stagnations in the market. It took a couple of decades to recover from the Great Depression, and the if you invested in the 60s you might not be doing so hot by the 80s. The market isn’t a sure thing even in the long term, it’s just fairly reliable.
  - wbl 7y ago
    That's true but I'm assuming he continues to work and put in money.
    - seanmcdirmid 7y ago
      Those events had long periods of stagnate market performance. So they might not lose as much as a full crash, but they might not beat inflation either. Anyways, nothing like that has happened in our lifetime, but it did happen in our parents’ and grand parents’.
ruvis 7y ago
> What's the best strategy for someone like me, who has absolutely no idea how their retirement account exists? Stop reading the news.
bregma 7y ago
Start prepping. Invest in some remote rural property, lay in plenty of supplies, educate yourself in the proper use and maintenance of various weapons. It begins.
ericd 7y ago
First, make sure you’re not 100% equity. You clearly don’t have the stomach for what that would do in a downturn. 60-40 equity-bond is an old standby for a conservative portfolio (I don’t recommend that allocation, though). Then, head over to portfoliocharts.com and play with some of the portfolios and asset allocations to get a sense of how they change historical results. For a conservative portfolio, I like the All Seasons/All Weather, and the Golden Butterfly is an interesting modification of the Permanent Portfolio another poster mentioned. But don’t just blindly follow them, use them as a jumping off point to learn more about the asset classes. Bogleheads.org is a nice forum for learning more about index investing. Good luck, and happy to expand on anything.
sleepysysadmin 7y ago
I would say learn. The beauty of places like Questrade(I use them) is that they've made barrier to entry amazingly easy. Your 401k no doubt is holding mutual funds that are tremendously expensive and practically just robs you. https://www.sec.gov/fast-answers/answersmffeeshtm.html https://www.sec.gov/fast-answers/answersmffeeshtm.html If the mutual fund charges 3%. Then the underlying securities have to increase 3% before you have broken even. Which if you're mixing bonds and such, you're probably not getting yearly returns much higher than that. So your money is literally doing nothing for you. Then during a market downturn, you just plain lose. You're down the market amount AND the 3%. Flipside, ETFs like Vanguard have fees of 0.05% on some of the big ones. So when the stocks increase in value, you pretty much get all of the benefit. You're not making some banker and financial advisor rich off your money. You're retiring sooner.
AnimalMuppet 7y ago
From the Bible: "Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth" (Ecclesiastes 11:2). That is: diversify. You don't want your entire 401k in one stock. An S&P 500 index fund is better, but you might want to put a bit of money in an international stock fund, and a bit in a bond fund. (You probably still want to be mostly in stocks at your age, but note well: I am not an investment advisor.)

adrianN 7y ago

I believe the general advice for people who don't want to care about their money all the time is to invest it in a diversified portfolio and then slowly turn that portfolio into things with low volatility as the time where you want to start selling approaches.

ilaksh 7y ago

Sorry I don't feel bad for you since I have no retirement and very little savings. My understanding is that generally you do not want to touch your 401k. If you do then usually it's because you screwed up. You are (obviously I thought) supposed to be saving and investing in addition to the 401k. 401k is supposed to be low risk. The backup to that is something entirely different.

wefarrell 7y ago

Don’t touch it. There’s nothing wrong with playing with a portion (up to you 20%) of your nest egg but only if you enjoy it. If your reptilian brain is steering the ship and you’re reacting based off of fear or greed you find yourself on the wrong side of trades.

cameronbrown 7y ago

Not an expert, but my opinion: Your money is probably safer where it is. Economic turmoil comes and goes, and as long as you don't need the cash right now, you're somewhat able to absorb that risk over a long period of time.

lethologica 7y ago

Educate yourself. You don't need to know the intricacies of how markets operate, but a little financial understanding is, I believe, a must for everyone. Also, be aware that even when you do educate yourself and you do everything you think is in your power to 'safe guard' your nest egg, that there are are still a billion and one ways that it can all be wiped out tomorrow. Micro managing you're finances if you don't know what you're doing is a fantastic way to wipe it out. As the good old saying goes, “The market can stay irrational longer than you can stay solvent.”

chosenbreed37 7y ago
> Educate yourself. You don't need to know the intricacies of how markets operate, but a little financial understanding is, I believe, a must for everyone. I second this. Lot's of good advice here about letting the 401k ticking along. In the meantime start building some knowledge. It may take a bit of time but it will be worth it. But the basics should be accessible to everyone. There are many sources of information (of varying quality). Youtube, blogs, financial section of major newspapers, MOOCs, and last but not least books
chii 7y ago
so to sum it up, don't do anything, and hope? Because even if you attempt to educate yourself, it'd be like trying to learn to do your own surgery. Not impossible, but... What i want to really know is what people with a lot of money actually do - and when i say a lot, i meant a lot. networth in excess of 8-9 digits. What do they invest in? What diversification measures do they do? Which country? And finally, how they dodge taxes (as they inevitably seem to be able to - so if you can't defeat 'em, join 'em?)
- lethologica 7y ago
  They usually pay other people to worry about it at that stage .
- ccffph 7y ago
  they invest in businesses/franchises to keep a constant cash flow. that and fixed income due to low risk. taxes are avoided by keeping things offshore unless absolutely necessary to tunnel back to the us.

tengbretson 7y ago

Articles like this are just peddling cortisol. The best strategy is to avoid reading stories like this.

acollins1331 7y ago

While sitting on cash isn't necessarily a bad idea -- when the market crashes you then buy a bunch of index funds, having a 401k is a very safe investment. Think of it this way, the only way you're losing that money is if the market crashes, permanently, and if it crashes permanently, then that money isn't worth shit anyway.

pureliquidhw 7y ago
This sounds a lot like you're trying to time the market, which is great if it works, but it's a gamble. Dollar cost averaging is generally regarded as the safer option. Remember, the market can remain irrational longer than you can remain solvent. Also, how can you know when the market has bottomed out? Why not use that same strategy to invest now and figure out when the market has peaked and pull out then? Sitting on money loses value due to inflation.
ericd 7y ago
Japan is still a wonderful country, despite the Nikkei being depressed for decades at this point.

simonh 7y ago

Too many people that try to take control of such investments fall prey to basic errors. They see a crash happening so pull their money out to safer investments, but it's already mostly too late so they have locked in losses. Then they see the market rally, so they re-invest their money in the market, but they already missed the start of the rally so have missed much of the potential gains.

rhino369 7y ago

Just buy s&p500 index funds (or total market index funds). A crash won’t affect your long term retirement plans. You only have to worry about a crash <10 years before retirement.

mhb 7y ago

I recommend reading about the Permanent Portfolio: https://www.investopedia.com/terms/p/permanent-portfolio.asp https://www.investopedia.com/terms/p/permanent-portfolio.asp The permanent portfolio was constructed by Harry Browne to be what he believed would be a safe and profitable portfolio in any economic climate. Using a variation of efficient market indexing, Browne stated that a portfolio equally split between growth stocks, precious metals, government bonds and Treasury bills would be an ideal investment mixture for investors seeking safety and growth.

panarky 7y ago
Asset allocation strategies like this used to work because the components like stocks and bonds were negatively correlated. When stocks crash, bonds gain value and reduce the variation and risk of the portfolio as a whole. But that doesn't always happen. Sometimes the correlations flip, and everything becomes positively correlated, and everything crashes at the same time. Today, there's about $20 trillion in the global government bond market that actually has a negative yield, which means the borrower gets paid to borrow. And in the remainder of the government bond market where rates are still positive, rates are the lowest they've been for 1000 years. When interest rates are near zero or even negative, it's unclear whether historic correlations will continue, so the concept behind the "permanent portfolio" may not continue to work in this environment.
- vonmoltke 7y ago
  > Today, there's about $20 trillion in the global government bond market that actually has a negative yield, which means the borrower gets paid to borrow. Not really. The yields are negative, but the coupon rates are positive. Most of those were initially sold with a positive rate, then went negative as buyers bid up the prices. The issuing governments don't get that appreciation, and are still obligated to pay the coupon rate. If the yield is positive at auction, the borrower is still paying to borrow the money. The only way the "borrower gets paid to borrow" is if the initial auction sees bonds sell at negative yields. That's quite possible when coupon yields are 0.100% or less (which has been common in Europe and Japan lately).

lbotos 7y ago

Money is time, bottled. Stocks/Bonds are money converted into "abstract human output". You are taking a bet that the group of humans that work at the companies that you've invested in will continue to become more advanced and efficient as to "generate value". The stock market is "sentiment". It is collective group think as to what those companies are up to. This is why you see people say "don't touch it". If you don't need the money now, the advances in "value creation" will possibly give you more money in the future. I think the number one disservice that "stocks/investing" do is pretend it's not "gambling". Sure, you can minimize risk, and choose instruments that are 99% sound (gov bonds) but it's still _a gamble._ You are scared because you don't understand your risk exposure. (also, black swan events could change the exposure, but they are exactly that -- black swans) You can: - Decide to stop playing the game, convert your stocks/bonds into money which gives you absolute units and pegs your risk to inflation/deflation/government default. - You can continue playing the game, and decide what your risk tolerances are, and adjust your strategy accordingly. This should give you a little bit more peace of mind. If you want reasonably accessible exposure to these concepts, Khan Academy videos are free, you don't have to sign up to watch, and can fill in some gaps: https://www.khanacademy.org/economics-finance-domain/core-finance https://www.khanacademy.org/economics-finance-domain/core-fi...

whatshisface 7y ago
>black swan events could change the exposure Strictly speaking your exposure never changes, only your perception of your exposure as your sure-bet real estate portfolio crashes to zero.
derekp7 7y ago
Regarding sentiment, and stock valuation, this is the way I look at it, which to me makes sense (although it doesn't account for irrationality in the market). Let's say you have $100.00, and the market figures that you need to make a return of 4% per year. If you find a stock that gives dividends of $4.00 per year, that stock will then be worth $100.00. This is assuming that there is a really strong trust in this company, that it won't go out of business, won't grow or shrink in market share. Now let's add onto this that based on what the company is doing, and an analysis of their competition, and their ability (track record) of execution, that there is a really good chance that next year they will be able to make enough money to return $8.00 dividends per year. Well, that means that next year the stock will be worth $200.00 per share. And if it is going to be worth $200.00 per share next year, well this year most people will probably be willing to pay about $192 per share (that gives a 4% return on investment just in the stock price). You can extend this line of reasoning to factor in forecasted growth for a number of years into the future. Which is how you get stocks that currently only return a small fraction of a percent of their stock price in dividends (i.e., a $100.00 stock may pay 4 cents dividends, instead of $4.00, since market sentiment thinks the company will grow a lot in the future). So based on this, I would like to pick stocks that don't have a lot of growth forecasted, but do pay good dividends. Especially stocks that are in a market where they are protected from competition, or otherwise have a strong likelihood of not going out of business but provide the same thing they've always done, without growth but with good dividends.

xiphias2 7y ago

If you want to diversify in a non correlated assets, you can put a part of your money from stocks into commodities, like gold/silver/Bitcoin (housing market is highly correlated with the stock market, so it's not a good diversification). All asset (and storage) types have their advantages / problems, you should read about it of course.

chosenbreed37 7y ago
> All asset (and storage) types have their advantages / problems, you should read about it of course. Am I right in thinking that gold/silver are widely thought to be inflation proof? So I wasn't so concerned about growth could I just park my money in gold?
- roenxi 7y ago
  Depends what you want to call inflation. Gold's price movements don't track anticipated inflation in any meaningful sense [0]. That being said, over very long time horizons it is difficult to see why the real price of gold would change. They probably aren't going to mine it any cheaper and it isn't crazy to handwave an argument that demand can't drop all that far from where it is now. On that basis it easily outperforms cash. If interest rates stay near 0 or drop negative gold might outperform bonds too. It is hard to say; the central banks do strange things to the bond markets. Also, note that all these graphs only go back to the 1970s. Bit of a mystery why [1]. Gold's value tends to transcend such short-term concerns as the current global financial regime and that is a draw for some. Personally I think the current US dollar system is getting a bit long in the tooth. The biggest draw in this regard is that gold is a real expensive thing that is exceptionally easy to store (ignoring theft risks) and it is just hard to see how it could become less valuable than it is right now (short of government bans on gold trading). [0] https://upfina.com/gold-vs-inflation/ https://upfina.com/gold-vs-inflation/ particularly "Longer Term Correlation Between Real Gold & TIPS Doesn’t Hold Up" [1] That was when the last monetary system failed https://en.wikipedia.org/wiki/Bretton_Woods_system https://en.wikipedia.org/wiki/Bretton_Woods_system
- xiphias2 7y ago
  Gold is mostly inflation proof, but it has a volatility. The price of a cow in gold/silver hasn't changed that much in the last 5000 years (you can check the prices in ancient Egypt yourself). USD lost more than 99% of its value in a few hundred years. There are still market cycles for gold, and also if you're going physical, there's 2-3% exchange cost as well. Silver may or may not have a VAT problem in your country.

skolos 7y ago

Good answers to your question. If you want see more meet supporting them, take a look at https://www.investingrus.com/blog/safest-bet https://www.investingrus.com/blog/safest-bet

r00fus 7y ago

I think the recommendation is perhaps to rebalance your 401k portfolio to be less aggressive and less reliant on stocks. Mine in part index fund/part bonds and I move around the % based on the market sentiment.

AmericanChopper 7y ago

You’re fine. If a crash happens tomorrow, in 20 years time it will have completely recovered. Read about investment horizons. Over that timescale, you’re not at the mercy of market cycles. Once you get a bit closer to retirement, that’s when you want to start minimising risks. 5-10 years out, you would start looking at fixed income assets and stuff like that. You don’t want to delay your retirement because your 401k had a single bad year. Until then, go nuts with high growth funds. It doesn’t matter if you have a -10% year if your investment is growing strongly on average over 20 years, you just don’t want that year to be the one where you’re looking to start cashing out.

mathattack 7y ago

Low fee broad market indices. Put as much in as you can every year. Don’t take a dime out until you retire.

mooreds 7y ago

Educate yourself. I like A Random Walk Down Wall Street, Are You A Stock Or A Bond, and Your Money Or Your Life. Asset allocation is one of the few levers to control risk that you have. The more you have in safe assets (bonds and cash) the less likely to lose money in a downturn. Nothing's free, however, and that stability will cost you long term growth. Only you can figure out what level of risk you can love with (are you ok losing 10% during a downturn? 25%? 50%?). An advisor can help but you need to look in your heart of hearts and determine the number. If you don't want to educate yourself or need a helping hand, get a fee based financial planner. Last I looked (years ago) was a couple thousand bucks to have a financial assessment. Ouch. But cheap compared to the 1% of assets the other kind of financial planners take annually. More on that here: https://www.napfa.org/financial-planning/what-is-fee-only-advising https://www.napfa.org/financial-planning/what-is-fee-only-ad...

JauntTrooper 7y ago
+1 for A Random Walk Down a Wall Street. It was assigned to me at Princeton in my intro to finance class and was formative to my financial education. It’s also very readable. I am now a CFA charterholder working in finance, and I still love that book.

jumbopapa 7y ago

Learn about it. I would recommend A Random Walk Down Wall Street [1] and The Boglehead's Guide to Investing [2]. They will give you a good primer, but in essence the best thing you can do it nothing at all. As you get older you'll want to make sure bonds take up a larger percentage of your portfolio, but really you're fine. The old sayings is "time in the market, not timing the market". [1] - https://www.amazon.com/Random-Walk-down-Wall-Street/dp/0393352242/ https://www.amazon.com/Random-Walk-down-Wall-Street/dp/03933... [2] - https://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Larimore/dp/1118921283/ https://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Lar...

rubyskills 7y ago

Best thing you can do is keep it in index funds for now. You're relying on dollar cost averaging to take care of the long term trends in the market. Downturns actually make you money as you're continuing to buy the better deals. If you pull out before you let your money buy these deals, you'll never receive the benefit when the market recovers, where you make the real money. Also, I read somewhere that the best trading days happen in a very short period of time. If you're not in the market during those days, you miss some significant gains.

turk73 7y ago

You assume there is a workable strategy. But there's not, and that's the real problem. I don't want to retire "10 years from now" I want to retire as soon as humanly possible. Nothing supports that, however. There are no safe havens for wealth anymore because inflation destroys cash savings and thus pushes you into making risky bets on stocks and shitty bonds. If you're not part of the in crowd, your savings will get cut in half every decade or so because they can't have you with actual wealth to challenge them, now can they? There is no strategy that gets you where you want to be: Without fear or pain. So now that you understand that, what is your next move? Might I suggest a revolt?

sweeneyrod 7y ago

If you're 20 years from needing it you don't need to worry about protecting it from a crash since you have time to wait for the market to recover. If you could perfectly predict the seemingly-imminent crash then you'd be better off selling all your shares just before and buying government bonds instead, then reversing that when the stock market hits the bottom. But since you can't predict it, there's not much point doing anything (you can rebalance a bit from stocks to bonds if it makes you feel better but the impact will be minimal). The growth you'll miss out on from selling too early and buying too late will almost certainly outweigh the benefit.

maxerickson 7y ago

Median investment holdings are ~0, not a real useful benchmark.

sertaco 7y ago

This comment received sooo many replies with link references, I cannot help but think that at least half of these are from advertisers. A recent trend on HN...

panarky 7y ago

> I have no idea how money works. You're not alone in this. I've found that most people who think they know how money works often just repeat conspiracy theories that don't hold up to critical examination. While I'm pretty good at spotting bogus theories, I'd be hard-pressed to offer a coherent explanation myself.

ravenstine 7y ago

I'll tell you something that nobody wants to admit to: Nobody really knows how money works. The average 401k holder has one because they don't have a good idea of how money works or what they should do with it. If they really understood their 401k, they'd know that they're probably getting ripped off in fees over their lifetime. If economists and financial analysts completely understood money, they wouldn't be in such disagreement all the time over basic things. A financial advisor might tell you to leave your money in a 401k, and the next one might tell you the same, but it's not that hard to find one who will tell you to get your money out of your 401k ASAP for a variety of reasons. At the end of the day, you have to trust your own judgment. People don't get rich doing the easy thing. By the way, here's some things you should think about with 401ks: - Someone with an average salary pays $138,336 in 401k management fees over their lifetime. Not only are you the only party taking a risk, but you're getting charged for taking that risk. Advisors and broker dealers aren't risking anything except your money. - You don't own the money in your 401k. Read the fine print and you will find "FBO" (For Benefit Of). The tax code makes it technically owned by the government, but provided for your benefit. In a crisis, the government can confiscate any amount of your 401k to pay off debt and pensions. - 401k teaches people to cluelessly invest. Do you know if your money is being invested in big tobacco or big oil? - The government has the advantage with your money. Because you can't cash out without penalties, when you die, whatever's left over for your children is not only subject to income tax but to estate tax as well. They want your 401k money to be gifted to someone else because that means they don't get to cash in on your pile of money.

whatok 7y ago
The average 401k holder knows that it's a tax advantaged savings vehicle and that there aren't many of those available to individual investors. The tax advantage completely outweighs all of the negatives that you listed in almost all cases. Advocating that people not take advantage of a 401k because something about the government potentially seizing it is basically saying you shouldn't save money at all.
disease 7y ago
The estate tax exemption is $5.49 million and affects less than 1% of all estates.

wbl 7y ago

Have no idea the retirement account exists. 20 years from now a recession won't matter because the economy will have recovered.

seanmcdirmid 7y ago
There have been prolonged stagnations in the market. It took a couple of decades to recover from the Great Depression, and the if you invested in the 60s you might not be doing so hot by the 80s. The market isn’t a sure thing even in the long term, it’s just fairly reliable.
- wbl 7y ago
  That's true but I'm assuming he continues to work and put in money.
  - seanmcdirmid 7y ago
    Those events had long periods of stagnate market performance. So they might not lose as much as a full crash, but they might not beat inflation either. Anyways, nothing like that has happened in our lifetime, but it did happen in our parents’ and grand parents’.

ruvis 7y ago

> What's the best strategy for someone like me, who has absolutely no idea how their retirement account exists? Stop reading the news.

bregma 7y ago

Start prepping. Invest in some remote rural property, lay in plenty of supplies, educate yourself in the proper use and maintenance of various weapons. It begins.

ericd 7y ago

First, make sure you’re not 100% equity. You clearly don’t have the stomach for what that would do in a downturn. 60-40 equity-bond is an old standby for a conservative portfolio (I don’t recommend that allocation, though). Then, head over to portfoliocharts.com and play with some of the portfolios and asset allocations to get a sense of how they change historical results. For a conservative portfolio, I like the All Seasons/All Weather, and the Golden Butterfly is an interesting modification of the Permanent Portfolio another poster mentioned. But don’t just blindly follow them, use them as a jumping off point to learn more about the asset classes. Bogleheads.org is a nice forum for learning more about index investing. Good luck, and happy to expand on anything.

sleepysysadmin 7y ago

I would say learn. The beauty of places like Questrade(I use them) is that they've made barrier to entry amazingly easy. Your 401k no doubt is holding mutual funds that are tremendously expensive and practically just robs you. https://www.sec.gov/fast-answers/answersmffeeshtm.html https://www.sec.gov/fast-answers/answersmffeeshtm.html If the mutual fund charges 3%. Then the underlying securities have to increase 3% before you have broken even. Which if you're mixing bonds and such, you're probably not getting yearly returns much higher than that. So your money is literally doing nothing for you. Then during a market downturn, you just plain lose. You're down the market amount AND the 3%. Flipside, ETFs like Vanguard have fees of 0.05% on some of the big ones. So when the stocks increase in value, you pretty much get all of the benefit. You're not making some banker and financial advisor rich off your money. You're retiring sooner.

AnimalMuppet 7y ago

From the Bible: "Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth" (Ecclesiastes 11:2). That is: diversify. You don't want your entire 401k in one stock. An S&P 500 index fund is better, but you might want to put a bit of money in an international stock fund, and a bit in a bond fund. (You probably still want to be mostly in stocks at your age, but note well: I am not an investment advisor.)