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What are you talking about? The almost universal advice before buying stocks is that it's only good for the long term, because at any particular moment it migh

by edanm 4y ago

What are you talking about? The almost universal advice before buying stocks is that it's only good for the long term, because at any particular moment it might lose its value. It is always stressed that you shouldn't use money to buy stocks if you might need that money in the next ten years. It is also recommended to move money from stocks to a safer instrument as you get closer to needing to use it.

izacus 4y ago
What's a safer instrument in these years though?
- lotsofpulp 4y ago
  If “in these years” means possibly needing to sell within 0 to 5 years, then safer would be USD, short term treasures, I bonds, muni bonds, AAA corporate bonds (or correspondence bond ETFs), etc.
qwytw 4y ago
That doesn't change the fact that equity in public companies is basically equivalent to cash (aside taxation etc.)
- lotsofpulp 4y ago
  Perhaps you mean the liquidity of shares in public companies is “basically” equivalent to the liquidity of cash. But I would disagree there too. There are big differences in liquidity for different companies’ shares, and it varies with time.
  - crazygringo 4y ago
    If we're talking about liquidity in publicly traded companies, the kind average people are investing in, that doesn't matter for any practical purposes. You might as well say there are big differences in ATM fees depending on where you withdraw money, and it varies by bank. But that's not the point. These tiny details are utterly irrelevant to the fact that stock value is as real as cash. It's not "paper value" where gains and losses are somehow imaginary or don't count.
    - lotsofpulp 4y ago
      >the fact that stock value is as real as cash. It's not "paper value" where gains and losses are somehow imaginary or don't count. Sure, but what is also real is that nominal equity prices can go up or down at anytime, whereas the nominal amounts of cash should not. When VOO price goes down, I think of that as a very different loss than if my checking/savings account balance were to have gone down without me withdrawing from it. One should not expect nominal equity prices to be a certain number, or a certain minimum number, especially single stocks. It is paper value, as far as I am concerned.
      - crazygringo 4y ago
        > I think of that as a very different loss Well you shouldn't. Your net worth is measurably different because it's all liquid. It's a cognitive illusion if you're thinking of them any differently. And if you're making a big financial decision like whether you can afford a bigger house, I sure hope you're treating them the same. And at the end of the day even the nominal value of cash isn't what matters -- it's the real value. Inflation and even currency fluctuation change the real value of what your cash can purchase daily, so the value of your cash is changing too. (The only difference is that cash fluctuations are usually slower and more gradual, and that contracts about future payments are generally denominated in currency rather than equity, but of course not always.)
        lotsofpulp 4y ago
        > And if you're making a big financial decision like whether you can afford a bigger house, I sure hope you're treating them the same. On the contrary, I would suggest most people ignore their equity such as stock when considering whether or not they can afford a mortgage for the very reason of this thread title. > And at the end of the day even the nominal value of cash isn't what matters -- it's the real value. I prefer to use the term “purchasing power” rather than “real value”, but I agree with this. >Inflation and even currency fluctuation change the real value of what your cash can purchase daily, so the value of your cash is changing too. Correct, which is why buy equity such as stock or broad market ETF. I think the purchasing power of the equity will be higher than cash sufficiently far into the future. But I do not see the point of worrying about decreases in equity prices in the near future long before I plan on selling. I guess there is no right or wrong, but I feel like worrying about short term changes in price is how people actually lose money by selling low and bugging high, rather than just buying and holding.
crazygringo 4y ago
I mean, the universal advice is also not to hold too much cash because it gets eaten away by inflation. But none of this has any relevance to the fact that, for immediate spending purposes, cash and liquid publicly traded stocks are identical. It utterly irrelevant whether you "should" only hold stocks for money you don't think you'll need for 10 years (which is highly debatable, and day traders certainly disagree). The point is, if you need the money next week, your stocks and your cash are identical. That's all that matters.

by edanm 4y ago

izacus 4y ago

What's a safer instrument in these years though?

lotsofpulp 4y ago
If “in these years” means possibly needing to sell within 0 to 5 years, then safer would be USD, short term treasures, I bonds, muni bonds, AAA corporate bonds (or correspondence bond ETFs), etc.

qwytw 4y ago

That doesn't change the fact that equity in public companies is basically equivalent to cash (aside taxation etc.)

lotsofpulp 4y ago
Perhaps you mean the liquidity of shares in public companies is “basically” equivalent to the liquidity of cash. But I would disagree there too. There are big differences in liquidity for different companies’ shares, and it varies with time.
- crazygringo 4y ago
  If we're talking about liquidity in publicly traded companies, the kind average people are investing in, that doesn't matter for any practical purposes. You might as well say there are big differences in ATM fees depending on where you withdraw money, and it varies by bank. But that's not the point. These tiny details are utterly irrelevant to the fact that stock value is as real as cash. It's not "paper value" where gains and losses are somehow imaginary or don't count.
  - lotsofpulp 4y ago
    >the fact that stock value is as real as cash. It's not "paper value" where gains and losses are somehow imaginary or don't count. Sure, but what is also real is that nominal equity prices can go up or down at anytime, whereas the nominal amounts of cash should not. When VOO price goes down, I think of that as a very different loss than if my checking/savings account balance were to have gone down without me withdrawing from it. One should not expect nominal equity prices to be a certain number, or a certain minimum number, especially single stocks. It is paper value, as far as I am concerned.
    - crazygringo 4y ago
      > I think of that as a very different loss Well you shouldn't. Your net worth is measurably different because it's all liquid. It's a cognitive illusion if you're thinking of them any differently. And if you're making a big financial decision like whether you can afford a bigger house, I sure hope you're treating them the same. And at the end of the day even the nominal value of cash isn't what matters -- it's the real value. Inflation and even currency fluctuation change the real value of what your cash can purchase daily, so the value of your cash is changing too. (The only difference is that cash fluctuations are usually slower and more gradual, and that contracts about future payments are generally denominated in currency rather than equity, but of course not always.)
      - lotsofpulp 4y ago
        > And if you're making a big financial decision like whether you can afford a bigger house, I sure hope you're treating them the same. On the contrary, I would suggest most people ignore their equity such as stock when considering whether or not they can afford a mortgage for the very reason of this thread title. > And at the end of the day even the nominal value of cash isn't what matters -- it's the real value. I prefer to use the term “purchasing power” rather than “real value”, but I agree with this. >Inflation and even currency fluctuation change the real value of what your cash can purchase daily, so the value of your cash is changing too. Correct, which is why buy equity such as stock or broad market ETF. I think the purchasing power of the equity will be higher than cash sufficiently far into the future. But I do not see the point of worrying about decreases in equity prices in the near future long before I plan on selling. I guess there is no right or wrong, but I feel like worrying about short term changes in price is how people actually lose money by selling low and bugging high, rather than just buying and holding.

crazygringo 4y ago

I mean, the universal advice is also not to hold too much cash because it gets eaten away by inflation. But none of this has any relevance to the fact that, for immediate spending purposes, cash and liquid publicly traded stocks are identical. It utterly irrelevant whether you "should" only hold stocks for money you don't think you'll need for 10 years (which is highly debatable, and day traders certainly disagree). The point is, if you need the money next week, your stocks and your cash are identical. That's all that matters.