4 ms·

Minor irritation: That’s not what time value of money means.

scarface_74 2y ago
It is. It’s better to have made enough to save $300K when you’re 25 and put it in the stock market and let it grow than make $300K when your 50. $300K is worth more when you’re 25 and retiring at 65, than it is when you’re 55. “The time value of money (TVM) is a financial principle that states that money in the present is worth more than the same amount in the future.”
- liontwist 2y ago
  It’s a subtle point, but it’s backwards. Money is worth more NOW so you can spend it to acquire skills, resources, and goods. If you wait then you are living life without those things. And delaying early strategic wins. Passive investing is renting out that optionality to other people, like starting a 401k early.
  - scarface_74 2y ago
    Money is worth more now because it can be invested and grow in the future instead of getting more money in the future that is worth less because you have to take into account either inflation or what the money could have made even if you are just looking at the risk free returns - ie discounted cash flows
    - liontwist 2y ago
      > Money is worth more now because it can be invested and grow in the future This is circular. Why would money magically get more valuable in the future? Money is valuable for its uses, not intrinsically. The reason why you can get interest on money is because people and businesses need it NOW to do productive things, more badly than in the future. This is the entire principle behind discounting cash flows.
      - scarface_74 2y ago
        The same amount of money is worth less in the future than it is in the present because it can grow even at a risk free rate. Yes, I need some of my money now to pay my expenses. But if you had 200K extra to invest in 2010 and chose to invest it and instead chose to work somewhere paying $200K less than you could have thinking I can make $200K more in 14 years. You would have lost out on 605% returns.
        liontwist 2y ago
        Ill repeat: > Money is valuable for its uses, not intrinsically. Investing in it’s truest form is consuming money to make entirely new goods and services. To put it one more way. If the treasury was paying zero percent forever. Would there still be time value of money? Absolutely.
        scarface_74 2y ago
        https://www.investopedia.com/terms/t/timevalueofmoney.asp https://www.investopedia.com/terms/t/timevalueofmoney.asp What do you think you are doing when you “invest” in the stock market? Yes I know when you buy stocks aside from the IPO or secondary offering you’re buying from other people and the company doesn’t get the money directly.
        liontwist 2y ago
        What do you think the business is doing with your money when you buy stocks and bonds? They spend it to accomplish a goal. The ability to accomplish that goal now is more valuable than the cash.
        scarface_74 2y ago
        And? The value of the money to you or the business is worth more now than 10 years from now. Meaning just like I said, it makes more sense for you as an individual to have made $300K and live off $100K and invest it in 2010 than to wallow in obscurity at failing startups and then start saving at 35. This is the textbook definition of the time value of money - as quoted from Investopedia.
- Maxatar 2y ago
  It's totally cool if you want to argue what you're arguing about the value of investing early to unlock long term compounding gains but... don't call it the time value of money. Time value of money means something different than what you're arguing.
  - scarface_74 2y ago
    https://www.investopedia.com/terms/t/timevalueofmoney.asp https://www.investopedia.com/terms/t/timevalueofmoney.asp The time value of money (TVM) surmises that money is worth more now than at a future date based on its earning potential. Because money can grow when invested, any delay is a lost opportunity for growth. The time value of money is a core financial principle known as the present discounted value.
    - liontwist 2y ago
      I asked ChatGPT to explain why money has time value without referring to making other money (circular). I think this is a good description which represents my view. Notice that these are true regardless of the existence of central banking: Opportunity Costs of Waiting: Money available now can be used to address immediate needs or desires—buying goods, accessing services, or achieving goals. If that money is delayed, those opportunities may be lost, diminished, or deferred, reducing its practical utility. Uncertainty Over Time: The future is uncertain, and there is a risk that the purchasing power or usefulness of money might change due to factors like inflation, changes in circumstances, or unforeseen events. Money available now provides a guarantee of utility that might not exist in the future. Personal Preference for Timing: People often value immediate access to money because it aligns with their current priorities. For example, having money now could allow someone to travel, invest in education, or address urgent health needs—opportunities that may not hold the same relevance or availability later.
      - scarface_74 2y ago
        And even if you ask it straight out. It jibes with my definition as well as does the investopedia. https://chatgpt.com/share/678ee649-6e30-8010-b16b-d152ac228df0 https://chatgpt.com/share/678ee649-6e30-8010-b16b-d152ac228d...

It is. It’s better to have made enough to save $300K when you’re 25 and put it in the stock market and let it grow than make $300K when your 50. $300K is worth more when you’re 25 and retiring at 65, than it is when you’re 55. “The time value of money (TVM) is a financial principle that states that money in the present is worth more than the same amount in the future.”

liontwist 2y ago
It’s a subtle point, but it’s backwards. Money is worth more NOW so you can spend it to acquire skills, resources, and goods. If you wait then you are living life without those things. And delaying early strategic wins. Passive investing is renting out that optionality to other people, like starting a 401k early.
- scarface_74 2y ago
  Money is worth more now because it can be invested and grow in the future instead of getting more money in the future that is worth less because you have to take into account either inflation or what the money could have made even if you are just looking at the risk free returns - ie discounted cash flows
  - liontwist 2y ago
    > Money is worth more now because it can be invested and grow in the future This is circular. Why would money magically get more valuable in the future? Money is valuable for its uses, not intrinsically. The reason why you can get interest on money is because people and businesses need it NOW to do productive things, more badly than in the future. This is the entire principle behind discounting cash flows.
    - scarface_74 2y ago
      The same amount of money is worth less in the future than it is in the present because it can grow even at a risk free rate. Yes, I need some of my money now to pay my expenses. But if you had 200K extra to invest in 2010 and chose to invest it and instead chose to work somewhere paying $200K less than you could have thinking I can make $200K more in 14 years. You would have lost out on 605% returns.
      - liontwist 2y ago
        Ill repeat: > Money is valuable for its uses, not intrinsically. Investing in it’s truest form is consuming money to make entirely new goods and services. To put it one more way. If the treasury was paying zero percent forever. Would there still be time value of money? Absolutely.
        scarface_74 2y ago
        https://www.investopedia.com/terms/t/timevalueofmoney.asp https://www.investopedia.com/terms/t/timevalueofmoney.asp What do you think you are doing when you “invest” in the stock market? Yes I know when you buy stocks aside from the IPO or secondary offering you’re buying from other people and the company doesn’t get the money directly.
        liontwist 2y ago
        What do you think the business is doing with your money when you buy stocks and bonds? They spend it to accomplish a goal. The ability to accomplish that goal now is more valuable than the cash.
        scarface_74 2y ago
        And? The value of the money to you or the business is worth more now than 10 years from now. Meaning just like I said, it makes more sense for you as an individual to have made $300K and live off $100K and invest it in 2010 than to wallow in obscurity at failing startups and then start saving at 35. This is the textbook definition of the time value of money - as quoted from Investopedia.
Maxatar 2y ago
It's totally cool if you want to argue what you're arguing about the value of investing early to unlock long term compounding gains but... don't call it the time value of money. Time value of money means something different than what you're arguing.
- scarface_74 2y ago
  https://www.investopedia.com/terms/t/timevalueofmoney.asp https://www.investopedia.com/terms/t/timevalueofmoney.asp The time value of money (TVM) surmises that money is worth more now than at a future date based on its earning potential. Because money can grow when invested, any delay is a lost opportunity for growth. The time value of money is a core financial principle known as the present discounted value.
  - liontwist 2y ago
    I asked ChatGPT to explain why money has time value without referring to making other money (circular). I think this is a good description which represents my view. Notice that these are true regardless of the existence of central banking: Opportunity Costs of Waiting: Money available now can be used to address immediate needs or desires—buying goods, accessing services, or achieving goals. If that money is delayed, those opportunities may be lost, diminished, or deferred, reducing its practical utility. Uncertainty Over Time: The future is uncertain, and there is a risk that the purchasing power or usefulness of money might change due to factors like inflation, changes in circumstances, or unforeseen events. Money available now provides a guarantee of utility that might not exist in the future. Personal Preference for Timing: People often value immediate access to money because it aligns with their current priorities. For example, having money now could allow someone to travel, invest in education, or address urgent health needs—opportunities that may not hold the same relevance or availability later.
    - scarface_74 2y ago
      And even if you ask it straight out. It jibes with my definition as well as does the investopedia. https://chatgpt.com/share/678ee649-6e30-8010-b16b-d152ac228df0 https://chatgpt.com/share/678ee649-6e30-8010-b16b-d152ac228d...