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Is there anything wrong with using markets to store value? Must we also have government bonds to store value? If you're in a diversified US index fund, it's bas

Is there anything wrong with using markets to store value? Must we also have government bonds to store value? If you're in a diversified US index fund, it's basically a bet that the US will continue to do well. If it doesn't, you have bigger problems than the financial.

Barrin92 6y ago
the primary purpose of a market is supposed to be to accurately allocate productive resources and pick winners and losers. In a market constantly flush with cash where everyone just buys index funds that discriminatory function basically vanishes and you have a political commitment to always make the stonks go up even if it supports zombie firms. Which is already the case tbh. Same with housing. Nimbyism is such a big deal in the US because rather than seeing housing as a utility that should be cheap, it's become a store of value that must always go up.
- tachyonbeam 6y ago
  There's a growing movement to get away from index funds. This year, tech stocks have exploded. ARK Invest has vastly outperformed the S&P 500 and Nasdaq-100. Ultra-low interest rates tend to have people going for increasingly high-risk, speculative investments, such as tech companies. The bolder and more futuristic the vision, the better. Obviously, this could end badly as well, but, people are starting to pick individual stocks instead of index funds.
  - JMTQp8lwXL 6y ago
    The problem is knowing when to enter and exit the sector-specific funds. It might beat the S&P in a trailing 12 month window, but it's unlikely to do so over a 5 or 10 year window.
  - hyko 6y ago
    It will definitely end badly. I guess it’s driven by desperation for returns. Diversification is a risk reduction strategy as old as the Bible; stock picking is not about preserving wealth or growing wealth, it’s about bootstrapping it.
  - throw0101a 6y ago
    > ARK Invest has vastly outperformed the S&P 500 and Nasdaq-100. There are always funds that do better, until they don't: * https://awealthofcommonsense.com/2020/12/a-short-history-of-chasing-the-best-performing-funds/ https://awealthofcommonsense.com/2020/12/a-short-history-of-... Over a 15-year timeframe, most fund managers (especially in the US) underperform benchmarks: * https://www.ifa.com/articles/despite_brief_reprieve_2018_spiva_report_reveals_active_funds_fail_dent_indexing_lead_-_works/ https://www.ifa.com/articles/despite_brief_reprieve_2018_spi...
marcosdumay 6y ago
There is absolutely nothing wrong with using paper markets to store value. The problem appears when valuation are caused only by the "store of value" usage, because it has no anchor on the real world, and thus, can vary freely from 0 to infinity.
- fire7000 6y ago
  Why cant we all just agree to let it go to infinity and there you go, wealth distribution solved lol
hyko 6y ago
There’s nothing wrong with storing your possessions in your car; it’s just not what it was designed for and your possessions are at greater risk of theft. Similarly, if you need a risk-free value store (e.g. because you’re very close to retirement) the market is not going to provide that for you. Edited to add: clarification about the analogy.

Barrin92 6y ago

the primary purpose of a market is supposed to be to accurately allocate productive resources and pick winners and losers. In a market constantly flush with cash where everyone just buys index funds that discriminatory function basically vanishes and you have a political commitment to always make the stonks go up even if it supports zombie firms. Which is already the case tbh. Same with housing. Nimbyism is such a big deal in the US because rather than seeing housing as a utility that should be cheap, it's become a store of value that must always go up.

tachyonbeam 6y ago
There's a growing movement to get away from index funds. This year, tech stocks have exploded. ARK Invest has vastly outperformed the S&P 500 and Nasdaq-100. Ultra-low interest rates tend to have people going for increasingly high-risk, speculative investments, such as tech companies. The bolder and more futuristic the vision, the better. Obviously, this could end badly as well, but, people are starting to pick individual stocks instead of index funds.
- JMTQp8lwXL 6y ago
  The problem is knowing when to enter and exit the sector-specific funds. It might beat the S&P in a trailing 12 month window, but it's unlikely to do so over a 5 or 10 year window.
- hyko 6y ago
  It will definitely end badly. I guess it’s driven by desperation for returns. Diversification is a risk reduction strategy as old as the Bible; stock picking is not about preserving wealth or growing wealth, it’s about bootstrapping it.
- throw0101a 6y ago
  > ARK Invest has vastly outperformed the S&P 500 and Nasdaq-100. There are always funds that do better, until they don't: * https://awealthofcommonsense.com/2020/12/a-short-history-of-chasing-the-best-performing-funds/ https://awealthofcommonsense.com/2020/12/a-short-history-of-... Over a 15-year timeframe, most fund managers (especially in the US) underperform benchmarks: * https://www.ifa.com/articles/despite_brief_reprieve_2018_spiva_report_reveals_active_funds_fail_dent_indexing_lead_-_works/ https://www.ifa.com/articles/despite_brief_reprieve_2018_spi...

marcosdumay 6y ago

There is absolutely nothing wrong with using paper markets to store value. The problem appears when valuation are caused only by the "store of value" usage, because it has no anchor on the real world, and thus, can vary freely from 0 to infinity.

fire7000 6y ago
Why cant we all just agree to let it go to infinity and there you go, wealth distribution solved lol

hyko 6y ago

There’s nothing wrong with storing your possessions in your car; it’s just not what it was designed for and your possessions are at greater risk of theft. Similarly, if you need a risk-free value store (e.g. because you’re very close to retirement) the market is not going to provide that for you. Edited to add: clarification about the analogy.