7 ms·

I haven't dug into everything you are doing, but the biggest flaw I see seems to be that you assume Cash returns 0% nominal, i.e. that there is no return for ho

by zie 4y ago

I haven't dug into everything you are doing, but the biggest flaw I see seems to be that you assume Cash returns 0% nominal, i.e. that there is no return for holding cash. That is only true if you hide it under your mattress(and no deflation happens). Most people do not hide money under their mattress anymore, especially if they have large amounts of it. They put it in a bank account or in a MMF or some other interest producing place. Since 1972, Cash has a real return of 0.53% (inflation adjusted): https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=1&timePeriod=4&startYear=1972&firstMonth=1&endYear=2022&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&leverageType=0&leverageRatio=0.0&debtAmount=0&debtInterest=0.0&maintenanceMargin=25.0&leveragedBenchmark=false&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&asset1=TreasuryBills&allocation1_1=100 https://www.portfoliovisualizer.com/backtest-asset-class-all...

xapata 4y ago
Yep, always need to pick your risk-free asset for comparison.
consp 4y ago
Doesn't that practically mean the rich get richer and the poor stay poor? If it would be net 0 everything would stay the same?
- p0nce 4y ago
  Yes, see also Piketty
- saurik 4y ago
  Is that surprising? Alternatively, do you have a fix in mind? Having power means you can build more things that give you more power faster than someone with less power. You can't change this using inflation, as people will just hold something else instead of cash (and, in fact, inflation seems to most punish the people with the least power, as those people are spending a much much greater proportion of their income on critical consumption and are least able to hold assets that aren't cash... hell: we make laws that actively limit or even prevent poorer people from holding non-cash assets "for their own protection").
  - dsign 4y ago
    That blows my mind. I'm allowed to spend $10 in a bottle of alcohol or a packet or cigarettes, no questions asked, but I'm not allowed to spend those $10 in stocks of a tiny company unless I'm able to demonstrate that I sleep with the founders or make their lunch or run their accounting, or that I have so many millions on my name that investing $10 without doing any of the above really could not harm me.
    - Shaanie 4y ago
      It's not like accreditation exists to ensure poor people stay poor, framing it like that is disingenuous. Small-time investors are unlikely to be able to even semi-accurately estimate the value of a company, so they're much much more likely to be tricked into overpaying.
      - saurik 4y ago
        It isn't that it exists for that reason, it merely has that effect as a callous side effect of not really caring about the power imbalance it causes on said poorer people. "The road to hell is paved with good intentions" 100% applies to people trying to protect other people from none other than themselves.
  - watersb 4y ago
    Can't hold more than roughly $5000 of real assets and qualify for Medicaid (subsidized healthcare). Keeping that cash in the mattress is a very real option for many people with huge responsibilities (child care) and very little power. [citations needed] - I don't know what the savings limits are as of October 2022.
    - robertlagrant 4y ago
      According to elderlymedicaid.com[1] it's based on income, and varies by state. [1] https://elderlymedicaid.com/medicaid-asset-limits https://elderlymedicaid.com/medicaid-asset-limits
    - 4y ago
- valenterry 4y ago
  Yes, if it were not for the inherent risk that comes with it. If you put the cash in your mattress you only face the risk of losing it due to it being stolen or when it burns. You can get insurance against that it this would need to be deducted as well. So effectively you are losing money. Now for money on your bank that pays interest it's not necessarily better. The bank can be robbed or simply go bankcrupt. And since the money there was used by the bank for various things, there's no guarantee you'll get it back. This inherent risk needs to be priced into the ROI. So IF the government always saves banks with buyout, then yes. That's also why I believe it's not a great idea and people of such a bank should lose at least a part of their assets/savings to understand the fact that the money isn's just stored by the bank.
  - blagie 4y ago
    This is dumb. That's not an insult -- I'm not calling you dumb, but just your argument. 1) Banks are FDIC-insured, so unless the federal government goes under, my money can't be lost. If the US disappears, so does the dollar. 2) If people lose part of their money due to a policy like the one you propose, they won't "learn." You're asking ordinary people to be aware of things which are accessible to a fraction of a percent of the population. They'll assume banks are safe, and lose trust in "the system" if they're not. 3) Even so, I have no way of knowing what's going on at my bank. For all I know, the executives might be crooks embezzling money for the Italian mafia. We have organizations like the FBI, SEC, etc. since individuals can't investigate these things. I'd like to focus on my family and my job. That's why we've specialized. The current approach for banking is better than free market. Personally, I think banking would best be nationalized, a la China. It's not an industry where efficient free markets do very well. That's true for health care and parts of real estate too. (And yes, there are other industries I would privatize much more, like education. This shouldn't be an ideological socialist versus free market argument, so much as looking at the extent to which free market assumptions apply to a given industry)
    - valenterry 4y ago
      > This is dumb. That's not an insult -- I'm not calling you dumb, but just your argument. No worries, I'm here to discuss and learn things, so happy about your reply! > 1) Banks are FDIC-insured, so unless the federal government goes under, my money can't be lost. If the US disappears, so does the dollar. Yes, but there is still the chance of a "haircut" or similar. At this scale, rules can be bend. But my response was a bit more independent of the country, so maybe it doesn't apply well to the US, point taken. > 2) If people lose part of their money due to a policy like the one you propose, they won't "learn." You're asking ordinary people to be aware of things which are accessible to a fraction of a percent of the population. They'll assume banks are safe, and lose trust in "the system" if they're not. Maybe for the first time. But if you think about it, maybe the system is how it is _because_ people trust in it (too) much. There are a couple of options. For instance, the state can give a guarantee for only a limited amount of money (think $20k or something like that) per person and/or institute. Second, it might very well be that banks will come up with two different kinds of accounts: 1) an account where the money is not safe and can be used by the bank for investments - but you get interest. 2) an account where the money is safe, but you don't get interest but have to pay a fee for the bank's services. The money then stays your property and the bank just keeps it for you, so even if it goes bankcrupt, no one can take the money since it's still yours. I don't think that would be a bad idea. > 3) Even so, I have no way of knowing what's going on at my bank. For all I know, the executives might be crooks embezzling money for the Italian mafia. We have organizations like the FBI, SEC, etc. since individuals can't investigate these things. I'd like to focus on my family and my job. That's why we've specialized. I believe that for your health, your relationships (friends, familiy, ...) and your finances, you cannot delegate that, you must keep control yourselve. You can get people to help you, but in the end both control and responsibility are yours. That's what I think works best.
- robertlagrant 4y ago
  > Doesn't that practically mean the rich get richer and the poor stay poor? If it would be net 0 everything would stay the same? The rich aren't rich through this route, although things they do mean that bank interest rates are a guaranteed return for people who are less risk-tolerant. They're rich through one or more of: risk-taking, talent, hard work, luck, connections, etc, all of which feed into the one thing that makes them money: usefulness to other people.
- zie 4y ago
  Not because of this one thing, every bank offers some return on holding cash. Most are ridiculously low. Personally I like to think of it as, the US govt guarantees a return on overnight cash based on the Federal funds rate. Banks and other people that hold cash will give you that rate minus some fee(s) for the hassle of keeping up with your cash for you. Most banks have a very hefty fee, but not all banks. As of this writing: The Federal Reserve will pay 2.56% for cash deposited with them. Bank Of America pays 0.01%, for a fee of 2.55%/yr. Ally bank pays 2.25% for their savings account for a cost of .31%/yr If you are willing to hold cash in an ETF, ICSH will hold cash for a 0.08%/yr fee. For the record, I'm not against Bank Of America, I have an account with them, but I don't hold much, if any, cash with them for any length of time, because I know they charge a lot for that service.

by zie 4y ago

xapata 4y ago

Yep, always need to pick your risk-free asset for comparison.

consp 4y ago

Doesn't that practically mean the rich get richer and the poor stay poor? If it would be net 0 everything would stay the same?

p0nce 4y ago
Yes, see also Piketty
saurik 4y ago
Is that surprising? Alternatively, do you have a fix in mind? Having power means you can build more things that give you more power faster than someone with less power. You can't change this using inflation, as people will just hold something else instead of cash (and, in fact, inflation seems to most punish the people with the least power, as those people are spending a much much greater proportion of their income on critical consumption and are least able to hold assets that aren't cash... hell: we make laws that actively limit or even prevent poorer people from holding non-cash assets "for their own protection").
- dsign 4y ago
  That blows my mind. I'm allowed to spend $10 in a bottle of alcohol or a packet or cigarettes, no questions asked, but I'm not allowed to spend those $10 in stocks of a tiny company unless I'm able to demonstrate that I sleep with the founders or make their lunch or run their accounting, or that I have so many millions on my name that investing $10 without doing any of the above really could not harm me.
  - Shaanie 4y ago
    It's not like accreditation exists to ensure poor people stay poor, framing it like that is disingenuous. Small-time investors are unlikely to be able to even semi-accurately estimate the value of a company, so they're much much more likely to be tricked into overpaying.
    - saurik 4y ago
      It isn't that it exists for that reason, it merely has that effect as a callous side effect of not really caring about the power imbalance it causes on said poorer people. "The road to hell is paved with good intentions" 100% applies to people trying to protect other people from none other than themselves.
- watersb 4y ago
  Can't hold more than roughly $5000 of real assets and qualify for Medicaid (subsidized healthcare). Keeping that cash in the mattress is a very real option for many people with huge responsibilities (child care) and very little power. [citations needed] - I don't know what the savings limits are as of October 2022.
  - robertlagrant 4y ago
    According to elderlymedicaid.com[1] it's based on income, and varies by state. [1] https://elderlymedicaid.com/medicaid-asset-limits https://elderlymedicaid.com/medicaid-asset-limits
  - 4y ago
valenterry 4y ago
Yes, if it were not for the inherent risk that comes with it. If you put the cash in your mattress you only face the risk of losing it due to it being stolen or when it burns. You can get insurance against that it this would need to be deducted as well. So effectively you are losing money. Now for money on your bank that pays interest it's not necessarily better. The bank can be robbed or simply go bankcrupt. And since the money there was used by the bank for various things, there's no guarantee you'll get it back. This inherent risk needs to be priced into the ROI. So IF the government always saves banks with buyout, then yes. That's also why I believe it's not a great idea and people of such a bank should lose at least a part of their assets/savings to understand the fact that the money isn's just stored by the bank.
- blagie 4y ago
  This is dumb. That's not an insult -- I'm not calling you dumb, but just your argument. 1) Banks are FDIC-insured, so unless the federal government goes under, my money can't be lost. If the US disappears, so does the dollar. 2) If people lose part of their money due to a policy like the one you propose, they won't "learn." You're asking ordinary people to be aware of things which are accessible to a fraction of a percent of the population. They'll assume banks are safe, and lose trust in "the system" if they're not. 3) Even so, I have no way of knowing what's going on at my bank. For all I know, the executives might be crooks embezzling money for the Italian mafia. We have organizations like the FBI, SEC, etc. since individuals can't investigate these things. I'd like to focus on my family and my job. That's why we've specialized. The current approach for banking is better than free market. Personally, I think banking would best be nationalized, a la China. It's not an industry where efficient free markets do very well. That's true for health care and parts of real estate too. (And yes, there are other industries I would privatize much more, like education. This shouldn't be an ideological socialist versus free market argument, so much as looking at the extent to which free market assumptions apply to a given industry)
  - valenterry 4y ago
    > This is dumb. That's not an insult -- I'm not calling you dumb, but just your argument. No worries, I'm here to discuss and learn things, so happy about your reply! > 1) Banks are FDIC-insured, so unless the federal government goes under, my money can't be lost. If the US disappears, so does the dollar. Yes, but there is still the chance of a "haircut" or similar. At this scale, rules can be bend. But my response was a bit more independent of the country, so maybe it doesn't apply well to the US, point taken. > 2) If people lose part of their money due to a policy like the one you propose, they won't "learn." You're asking ordinary people to be aware of things which are accessible to a fraction of a percent of the population. They'll assume banks are safe, and lose trust in "the system" if they're not. Maybe for the first time. But if you think about it, maybe the system is how it is _because_ people trust in it (too) much. There are a couple of options. For instance, the state can give a guarantee for only a limited amount of money (think $20k or something like that) per person and/or institute. Second, it might very well be that banks will come up with two different kinds of accounts: 1) an account where the money is not safe and can be used by the bank for investments - but you get interest. 2) an account where the money is safe, but you don't get interest but have to pay a fee for the bank's services. The money then stays your property and the bank just keeps it for you, so even if it goes bankcrupt, no one can take the money since it's still yours. I don't think that would be a bad idea. > 3) Even so, I have no way of knowing what's going on at my bank. For all I know, the executives might be crooks embezzling money for the Italian mafia. We have organizations like the FBI, SEC, etc. since individuals can't investigate these things. I'd like to focus on my family and my job. That's why we've specialized. I believe that for your health, your relationships (friends, familiy, ...) and your finances, you cannot delegate that, you must keep control yourselve. You can get people to help you, but in the end both control and responsibility are yours. That's what I think works best.
robertlagrant 4y ago
> Doesn't that practically mean the rich get richer and the poor stay poor? If it would be net 0 everything would stay the same? The rich aren't rich through this route, although things they do mean that bank interest rates are a guaranteed return for people who are less risk-tolerant. They're rich through one or more of: risk-taking, talent, hard work, luck, connections, etc, all of which feed into the one thing that makes them money: usefulness to other people.
zie 4y ago
Not because of this one thing, every bank offers some return on holding cash. Most are ridiculously low. Personally I like to think of it as, the US govt guarantees a return on overnight cash based on the Federal funds rate. Banks and other people that hold cash will give you that rate minus some fee(s) for the hassle of keeping up with your cash for you. Most banks have a very hefty fee, but not all banks. As of this writing: The Federal Reserve will pay 2.56% for cash deposited with them. Bank Of America pays 0.01%, for a fee of 2.55%/yr. Ally bank pays 2.25% for their savings account for a cost of .31%/yr If you are willing to hold cash in an ETF, ICSH will hold cash for a 0.08%/yr fee. For the record, I'm not against Bank Of America, I have an account with them, but I don't hold much, if any, cash with them for any length of time, because I know they charge a lot for that service.