5 ms·

This is a factual but unhelpful comment. I (and many many other people) have a need for an emergency fund that is liquid at short notice. Storing _all_ my wealt

by scubbo 4y ago

This is a factual but unhelpful comment. I (and many many other people) have a need for an emergency fund that is liquid at short notice. Storing _all_ my wealth in investment vehicles (and possibly needing to liquidate it at an inopportune time) would be foolish. The devaluation due to inflation can be considered the "convenience cost" of such a fund. (There's also the consideration - and, to be clear, I'm not supporting this myself, particularly since "timing the market" is often a fool's errand; but it's worth considering to recognize how your first-order reaction misses many nuances - that if you have a strong conviction that a stock market crash is imminent, then holding dollars that devalue due to inflation to then be able to buy in after the crash is still profitable)

latchkey 4y ago
It is a helpful comment because a lot of people don't think about things in the terms that I'm outlying. In the same way that people don't think about how getting paid a salary in USD is the same as buying dollars. Your response suggests that the only way to protect yourself is by holding cash and taking the loss as some sort of convenience cost. I'd say that there are other ways to hold liquid funds that try to combat inflation beyond just gambling in the stock market. To preempt a request for an example, gold is a popular method. And I know HN hates this, but the current bull market in crypto, is another. For that, I'd suggest more than just buy/hold and really delve into the lending/borrowing markets in DeFi.
- archagon 4y ago
  This sounds a lot like becoming a professional investor. Most people don't have time for that (and there are no financial guarantees in any case).
  - latchkey 4y ago
    As soon as you get a 'real job', you're immediately pushed on the concept that you're supposed to stuff money into a 401k and let other people manage it for you because you're too busy or this stuff is too hard and others can do a better job at it for you. Sure, that's something that you can do, or you can decide to put the time and effort into learning more about finance and control what you do with your money a bit more. The choice is yours and yes, everything has some level or risk. Even ETF's have buckets of risk/reward.
    - scubbo 4y ago
      Absolutely right, and I salute the impulse to educate folks that taking financial responsibility and autonomy is something that is possible and profitable! (While still disagreeing with you that crypto fits the requirement-profile of an emergency fund :P )
      - latchkey 4y ago
        I just wish I had realized it earlier. I'd have never put any money into a 401k or the stock market. Worst performing asset class that I can imagine. Maybe some people are happy with the results they've gotten, but there is really a lot more you can do if you are willing to put the energy/time into it.
        archagon 4y ago
        On the other hand, I'm reminded of this article I recently read: https://www.theguardian.com/technology/2022/nov/04/how-i-lost-1m-during-the-pandemic https://www.theguardian.com/technology/2022/nov/04/how-i-los... You could easily argue that this guy made poor decisions with his money, but it's also all too easy for investors to attribute their success to skill, not just a few lucky bets. In the long run, my understanding is that few things will consistently outperform plain old index funds.
        latchkey 4y ago
        Yea, that article is 100% about gambling. Doing the research and buying a house/condo in the right area, at the right time, can easily outperform an index fund. It is probably harder to do than just plumping money into an index fund, but it is a good example here for how you can allocate your funds in a less 'conventional' way. Nobody said that making money was easy. =)
- ska 4y ago
  Both gold and crypto have wildly different profiles than cash in a high interest savings account, so much so that suggesting them as a plug in alternative is at best disingenuous. Not that that's always way you want! But most people need some sort of emergency fund, and very few things are liquid enough and stable enough to meet this need well. Laddered CD's, etc. can work but are fiddly. Cash accounts are king here for a reason. On the long term investment side: sure cash accounts are a bad idea. On the other hand, the idea that the stock market is "gambling" but defi lending isn't is - idiosyncratic.
  - latchkey 4y ago
    Wait a second. I'm only providing examples to better the discussion and now you're calling me disingenuous. I'm not shilling anything. Nor am I saying anything isn't without risk. Putting words into my mouth isn't cool either.
    - ska 4y ago
      I'm saying you responded to someone explicitly talking about "emergency funds" with examples presented as if they have similar profiles (to savings account) for that use, and they simply don't. I'll accept "disingenuous" was perhaps premature, apologies - you could also just be confused.
      - latchkey 4y ago
        Gold was the first example I used, but you have now latched onto DeFi because well... omg, not that horrid crypto thing on HN!
        ska 4y ago
        That's not what I said, or meant. Both gold and crypto are poor vehicles for original commenter's need. My comment about defi was just because you characterized the stock market as "gambling" (somewhat unfair, but certainly can be), but for somehow failed to annotate defi as an alternative that is "even more so gambling"...
- scubbo 4y ago
  I think you're comparing apples to oranges. Even Crypto's most ardent supporters would not disagree that prices are volatile - which means that it doesn't suit my stated requirement that there's never a bad time to liquidate the investment (if my roof springs a leak right as WhateverCoin takes a nosedive, I'm shit out of luck). I will admit that I've never invested in gold, but if you're talking buying actual literal physical gold then I can't imagine that it can be liquidated as quickly as would be necessary; and, whether you're talking about buying literal gold or an abstract investment tied to Gold, I'd be very surprised to hear that it has an appreciation rate that beats HYSAs - and hey, if it does, I'm extremely grateful to you for pointing out an alternative investment strategy to diversify with! To be clear, my requirements are: * Near-instantly liquidatable (a day is maybe ok, hours is better). * Value is not volatile - explicitly, extremely high likelihood that, whenever I need to extract value from it, the value will not have significantly lowered (I assume there's some economic theorem which states that this puts an upper bound on the interest I can expect to earn). * A distant third is "combats inflation as much as possible", but I recognize that a lower interest rate will be earned because of the first two requirements. EDIT: > the only way to protect yourself is by holding cash and taking the loss as some sort of convenience cost. I'd say that there are other ways to hold liquid funds that try to combat inflation beyond just gambling in the stock market. I suspect we may have our priorities crossed. I'm not trying to hold liquid funds that try to combat inflation - I'm trying to hold liquid funds that have a strong guarantee of non-volatility. I agree with you that if the constraint of volatility is relaxed, then there are many better (higher-rate-of-return) options than a HYSA.
  - latchkey 4y ago
    It sounds like you missed the very end of my comment. "For that, I'd suggest more than just buy/hold and really delve into the lending/borrowing markets in DeFi." Crypto itself is volatile, however there are more complex (and potentially risky depending on how you look at it) ways of mitigating the volatility via lending/borrowing (and options for that matter) DeFi markets. All of which are easily liquidated, in seconds and low transaction costs (that are offset by earnings). Of course a lot of this is still very early days in terms of knowledge and exposure. That's a big reason why you might not be aware of what's possible in DeFi.

by scubbo 4y ago

latchkey 4y ago

It is a helpful comment because a lot of people don't think about things in the terms that I'm outlying. In the same way that people don't think about how getting paid a salary in USD is the same as buying dollars. Your response suggests that the only way to protect yourself is by holding cash and taking the loss as some sort of convenience cost. I'd say that there are other ways to hold liquid funds that try to combat inflation beyond just gambling in the stock market. To preempt a request for an example, gold is a popular method. And I know HN hates this, but the current bull market in crypto, is another. For that, I'd suggest more than just buy/hold and really delve into the lending/borrowing markets in DeFi.

archagon 4y ago
This sounds a lot like becoming a professional investor. Most people don't have time for that (and there are no financial guarantees in any case).
- latchkey 4y ago
  As soon as you get a 'real job', you're immediately pushed on the concept that you're supposed to stuff money into a 401k and let other people manage it for you because you're too busy or this stuff is too hard and others can do a better job at it for you. Sure, that's something that you can do, or you can decide to put the time and effort into learning more about finance and control what you do with your money a bit more. The choice is yours and yes, everything has some level or risk. Even ETF's have buckets of risk/reward.
  - scubbo 4y ago
    Absolutely right, and I salute the impulse to educate folks that taking financial responsibility and autonomy is something that is possible and profitable! (While still disagreeing with you that crypto fits the requirement-profile of an emergency fund :P )
    - latchkey 4y ago
      I just wish I had realized it earlier. I'd have never put any money into a 401k or the stock market. Worst performing asset class that I can imagine. Maybe some people are happy with the results they've gotten, but there is really a lot more you can do if you are willing to put the energy/time into it.
      - archagon 4y ago
        On the other hand, I'm reminded of this article I recently read: https://www.theguardian.com/technology/2022/nov/04/how-i-lost-1m-during-the-pandemic https://www.theguardian.com/technology/2022/nov/04/how-i-los... You could easily argue that this guy made poor decisions with his money, but it's also all too easy for investors to attribute their success to skill, not just a few lucky bets. In the long run, my understanding is that few things will consistently outperform plain old index funds.
        latchkey 4y ago
        Yea, that article is 100% about gambling. Doing the research and buying a house/condo in the right area, at the right time, can easily outperform an index fund. It is probably harder to do than just plumping money into an index fund, but it is a good example here for how you can allocate your funds in a less 'conventional' way. Nobody said that making money was easy. =)
ska 4y ago
Both gold and crypto have wildly different profiles than cash in a high interest savings account, so much so that suggesting them as a plug in alternative is at best disingenuous. Not that that's always way you want! But most people need some sort of emergency fund, and very few things are liquid enough and stable enough to meet this need well. Laddered CD's, etc. can work but are fiddly. Cash accounts are king here for a reason. On the long term investment side: sure cash accounts are a bad idea. On the other hand, the idea that the stock market is "gambling" but defi lending isn't is - idiosyncratic.
- latchkey 4y ago
  Wait a second. I'm only providing examples to better the discussion and now you're calling me disingenuous. I'm not shilling anything. Nor am I saying anything isn't without risk. Putting words into my mouth isn't cool either.
  - ska 4y ago
    I'm saying you responded to someone explicitly talking about "emergency funds" with examples presented as if they have similar profiles (to savings account) for that use, and they simply don't. I'll accept "disingenuous" was perhaps premature, apologies - you could also just be confused.
    - latchkey 4y ago
      Gold was the first example I used, but you have now latched onto DeFi because well... omg, not that horrid crypto thing on HN!
      - ska 4y ago
        That's not what I said, or meant. Both gold and crypto are poor vehicles for original commenter's need. My comment about defi was just because you characterized the stock market as "gambling" (somewhat unfair, but certainly can be), but for somehow failed to annotate defi as an alternative that is "even more so gambling"...
scubbo 4y ago
I think you're comparing apples to oranges. Even Crypto's most ardent supporters would not disagree that prices are volatile - which means that it doesn't suit my stated requirement that there's never a bad time to liquidate the investment (if my roof springs a leak right as WhateverCoin takes a nosedive, I'm shit out of luck). I will admit that I've never invested in gold, but if you're talking buying actual literal physical gold then I can't imagine that it can be liquidated as quickly as would be necessary; and, whether you're talking about buying literal gold or an abstract investment tied to Gold, I'd be very surprised to hear that it has an appreciation rate that beats HYSAs - and hey, if it does, I'm extremely grateful to you for pointing out an alternative investment strategy to diversify with! To be clear, my requirements are: * Near-instantly liquidatable (a day is maybe ok, hours is better). * Value is not volatile - explicitly, extremely high likelihood that, whenever I need to extract value from it, the value will not have significantly lowered (I assume there's some economic theorem which states that this puts an upper bound on the interest I can expect to earn). * A distant third is "combats inflation as much as possible", but I recognize that a lower interest rate will be earned because of the first two requirements. EDIT: > the only way to protect yourself is by holding cash and taking the loss as some sort of convenience cost. I'd say that there are other ways to hold liquid funds that try to combat inflation beyond just gambling in the stock market. I suspect we may have our priorities crossed. I'm not trying to hold liquid funds that try to combat inflation - I'm trying to hold liquid funds that have a strong guarantee of non-volatility. I agree with you that if the constraint of volatility is relaxed, then there are many better (higher-rate-of-return) options than a HYSA.
- latchkey 4y ago
  It sounds like you missed the very end of my comment. "For that, I'd suggest more than just buy/hold and really delve into the lending/borrowing markets in DeFi." Crypto itself is volatile, however there are more complex (and potentially risky depending on how you look at it) ways of mitigating the volatility via lending/borrowing (and options for that matter) DeFi markets. All of which are easily liquidated, in seconds and low transaction costs (that are offset by earnings). Of course a lot of this is still very early days in terms of knowledge and exposure. That's a big reason why you might not be aware of what's possible in DeFi.