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This 4×6 index card has all the financial advice you’ll ever need

155 points by bcn 13y ago

peter_l_downs 13y ago
Seems about right to me.
johnnyjustice 13y ago
What does HN think about the last statement? -Promote social programs for when things go wrong
- lisper 13y ago
  Seems like a no-brainer to me. The alternative is to have people panhandling on the streets. That's not pleasant -- on either side of the transaction. I'd rather live in a country where it wasn't necessary.
  - baddox 13y ago
    It's not a no-brainer to me. My brain desires more data on the economic efficacy of specific social programs, because even the broad implication that social programs reduce the number of people panhandling on the streets is not obvious to me.
    - coldtea 13y ago
      It's obvious to us, who have watched both sides of the coin play out in different European countries for decades...
    - lisper 13y ago
      The card said "support social programs." It didn't say to support any particular kind of social program. Of course you want to go find one that is more effective than doing nothing. But that people should support some sort of (effective) social program so that individuals (and their families) don't have to bear the full burden of bad fortune, or even bad decision making, seems like a clear win for everyone. > the broad implication that social programs reduce the number of people panhandling on the streets is not obvious to me I spent two years hanging out with pandhandlers, so I can tell you form first hand experience: there are a few people who choose that lifetyle, but the vast majority of them would give it up in an instant if they had a better alternative.
- humanrebar 13y ago
  Sounds like political advice more than financial advice. In a similar vein, I would advise people to support charities that help the less fortunate like food banks, but I wouldn't consider that financial advice.
  - jmduke 13y ago
    Cynically, you can consider it hedging one's bets (no pun intended.)
  - muzz 13y ago
    he clearly qualifies it for "when things go wrong", so the suggestion is more like some kind of insurance in case that happens
    - humanrebar 13y ago
      They have insurance for that. Why isn't that suggested then? No, someone thought they'd be cute and throw a political jab in there.
      - vkou 13y ago
        That is a form of social insurance.
        humanrebar 13y ago
        Social insurance is a misnomer in this context. I was referring to short- and long-term disability insurance, which will cover you for many disaster scenarios.
  - johnnyjustice 13y ago
    You are right it does seem more political then financial. Advising people to support charities would be financial advice, wouldn't it? I think its pretty good advice something like "Attempt to give 1% of your income to a good cause for when things go wrong"
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- ChuckMcM 13y ago
  So in the ideal world everyone around you is doing the same thing as the card. If that is true, then when something goes wrong there will be plenty of safeguards already in place. It takes a special kind of hubris to social welfare benefits believing you will never need them.
  - baddox 13y ago
    > So in the ideal world everyone around you is doing the same thing as the card. That still doesn't constitute financial advice, unless your choice to follow the card somehow influences others to follow the same card, which is unlikely at any measurable level.
    - lisper 13y ago
      > which is unlikely at any measurable level That's not true. We are social creatures. If the people start behaving a certain way that exerts a very powerful influence on those around them to adopt that behavior. (Unfortunately, this phenomenon holds for negative behaviors as well as positive ones.)
    - scythe 13y ago
      I think it is representative of the political volatility of many commenters here that they have chosen to interpret the last line as referring strictly to government programs. The world used is social, which could easily apply to, say, Masonic lodges, labor unions, or even (quite liberally) employer-funded disability insurance.
    - BrandonMarc 13y ago
      Not true. Those who are wealthy and happy give to charity, and not for greedy reasons or boastful vanity. Many charities provide a very valuable social safety net, and by carefully choosing what charity you give to, you can pick the ones that are the most efficient, the most effective, and the least wasteful. And no, paying taxes don't count ... you don't have a choice, there, and you can't personally ensure the money is spent to maximum effect.
- baddox 13y ago
  I think it's too broad, because the economic efficacy of social programs probably varies wildly, especially when we're talking about government social programs.
  - acdha 13y ago
    > economic efficacy of social programs probably varies wildly, especially when we're talking about government social programs. As opposed to literally everyone having to figure this out on their own? Say what you will about government programs, they're going to be more consistent than what you get pushing the problem out to millions of individual actors.
    - baddox 13y ago
      > Say what you will about government programs, they're going to be more consistent than what you get pushing the problem out to millions of individual actors. What I'll say is that I think this is a ludicrous assumption to make, for the same reason that it would be ludicrous to assume that government food distribution or automobile production would be more consistent than pushing the problem out to millions of individual actors.
      - acdha 13y ago
        > What I'll say is that I think this is a ludicrous assumption to make, You should read for comprehension next time: I'm not saying anything about efficiency, merely that consistency is an odd angle to pick.
    - dnautics 13y ago
      >they're going to be more consistent than what you get pushing the problem out to millions of individual actors. There are data that suggest otherwise: Walmart, not FEMA was the best at doling out aid during Katrina; on the other side of the political spectrum, the same could be arguably be said for OWS during Sandy. On the other hand, if you're going to argue that the government is consistently bad at doling out aid, you may be right, but I don't know how good the government is at providing welfare or social services. I presume it's not exceptionally good, or else private food banks, homeless shelters, and charities wouldn't have to exist.
joseph_cooney 13y ago
...If you happen to live in the United States, and the tax laws there don't change.
- muzz 13y ago
  well yes, but it should be too hard to replace "401k" with whatever tax-advantaged retirement program is available
  - kintamanimatt 13y ago
    Edit: Misinterpreted what a 401(k) is. I thought it was a tax-free savings account that you can borrow against, rather than a form of pension plan. The UK does have something somewhat similar: a personal pension scheme. The rest of this comment is wrong, but I'll leave it here for giggles. -- They don't really always exist. As far as I'm aware there isn't really the British equivalent of a 401k, for example. Brits have ISAs but they're just tax free savings accounts with an interest rate generally well below inflation. Cash ISAs also come with the restriction that you can only deposit a very low amount into them per year -- this year it's £5,760. You also can't re-deposit withdrawn money without that further deposit subtracting from your annual deposit limit. The trouble with putting large amounts of money in a savings account is that it generally comes with interest rates that (even before tax) are less than inflation. Savings accounts are great for socking away money to cover temporary shortfalls in income, but not much else.
    - steve-howard 13y ago
      You're not too wrong; you can borrow against a 401(k) (<50% of the balance, no more than $50k total). Most financial advice says to stay away, though.
      - derekp7 13y ago
        That is one thing I don't understand, is the advice to not borrow against your 401k. Lets say you have a 3-year auto loan, that is 7% interest. If you convert that to a 401k loan at 4%, that is a savings right there. Oh, but that money you borrowed isn't getting any investment returns in our 401k (I hear people say). But it is -- it is getting a 4% return (what you are paying back in interest). And considering that a well balanced fund is going to have some amount in a lower fixed-interest investment, that isn't much of a problem (just rebalance the fund when you take your loan out, then rebalance again as it gets paid off). The ONLY downside I see, is that you have to pay it back all at once if you lose your job, or face a 10% penalty (plus tax) on the loan balance.
kondro 13y ago
I would have an opinion but Australian law prevents me from having one without providing a statement of advice.
- kintamanimatt 13y ago
  I doubt anybody could construe a general opinion that's not tailored for a specific individual's situation as financial advice, if that's what you're getting at. Maybe it's different in Oz.
  - kondro 13y ago
    You'd be surprised. Our law assumes quite a large amount of potential uneducation and general stupidity when it comes to an unsophisticated investor interpreting financial advice.
    - deleted 13y ago
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    - reginaldjcooper 13y ago
      You can't even post a, "this is not advice but here's what I am doing..."? That seems overly strict.
JoshTriplett 13y ago
Almost all of this is excellent advice, except for one point: "save 20% of your money". That's a bare minimum, which will let you retire after about 37 years of working. Bump it to 35% and you'll retire after 25 years. Bump it to 50% and retire in 17. Bump it to two-thirds and retire in 10 years. That's one of the most important factors in your personal finances: not how much you make off your investments, not whether you max your 401k, but how much of your income you save and how much you spend. The only more important factor is "never borrow money", and in particular "never carry a balance on a credit card".
- muzz 13y ago
  The savings part sounds like advice from Mr. Money Mustache, there was discussion about his advice here before. "Never borrow money" would include never having a mortgage, which would be a huge lost opportunity for many. Not to mention borrowing money to invest in oneself, start a business, etc.
  - JoshTriplett 13y ago
    A mortgage is one of the few exceptions, and even then you should carefully consider whether renting or buying makes more sense. A car, notably, is not a good exception. Education depends heavily on return on investment; you'd want to carefully analyze how much more you'll make with that education, how long it'll take you to pay off the debt, etc. It can certainly make sense when attempting to bootstrap yourself if your alternative is no higher education at all, but if you're in a financial position where you have to borrow for tuition, you may well qualify for better options such as scholarships. If you're reasonably well off and borrowing to go to a higher-end school, that makes much less sense. And yes, the savings -> years to retirement table came from a Mr. Money Mustache article: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/ http://www.mrmoneymustache.com/2012/01/13/the-shockingly-sim... .
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    - 13y ago
humanrebar 13y ago
I consider it to be a huge oversight that they left off building an emergency fund. Before buying a house, buying individual securities, or maxing any retirement contributions, you need enough liquidity in your investments to get you through an illness or layoff that leaves you without income for a year. It amazes me how otherwise intelligent peers of mine will be paying extra on mortgages, student loans, and retirement funds with less than $5k in the bank.
- solarmist 13y ago
  Wouldn't save 20% of your income cover that? It's just a management detail after that (i.e. leave some of that 20% liquid for emergencies).
  - humanrebar 13y ago
    I said you should have enough liquidity to get you through a year-long crisis. If you're saving 20% of your income, you're probably. However, unless you have especially nasty rates on student loans, paying them off shouldn't come before accumulating some fairly liquid savings. The same probably goes for paying extra on the principal on your mortgage and maxing out retirement plans.
    - solarmist 13y ago
      I was going exclusively by what was on the notecard. :)
- ajross 13y ago
  That sounds wrong. An unexpected year-long unemployment isn't unheard of, but for an already-employed investing professional (i.e. not a recent entrant/re-entrant to the employment market who wouldn't be able to take this advice anyway) it's really quite rare. Certainly it's not true that most people "need" to do that, as it won't happen to them. This sounds like the kind of failure mode better addressed by solutions like insurance instead of upfront savings.
  - 13y ago
nostromo 13y ago
Am I alone in wondering if the advice about broad index funds is no longer good? We're still below the s&p inflation adjusted high from ~2000 -- almost 14 years later. When will the gains finally arrive? I worry that there is some systemic problem in our economy that has leaders playing whack-a-crisis every five or ten years that erases years of gains. I've read John Bogle and I want to believe. But a few years ago I took some money out of index funds and placed it in a rental property and so far I've seen very predicable returns with no loss in principle, and it makes me wonder if I should keep bothering with index funds at all.
- JoshTriplett 13y ago
  Rentals are much more risky, as the housing crash demonstrated. If you really want to benefit from that market, buy a REIT unless you actually enjoy the work of being a landlord. The gains are here now, and I'm more concerned about a bubble personally. Vanguard's total stock market fund has year-to-date growth of ~17%, and their more-stable lower-growth "balanced" fund with bonds included has year-to-date growth of ~8.75%. Both of those are better than the usual estimate of 7% annual growth for retirement funds (a conservative 3% for inflation and 4% for income).
- cperciva 13y ago
  We're still below the s&p inflation adjusted high from ~2000 -- almost 14 years later. Only if you're looking at the price index. The total return index -- including dividend payouts -- peaked at 2108 in September 2000, and is now at 3027. After inflation that's a gain of 6%, for a real return of slightly under 0.5% per year... but hey, at least it's positive.
  - jayp 13y ago
    It's barely positive if you compare the two points. However, if you have investing regularly via your 401k (etc), you also bought in during the low periods. So, your gain would be much more than just minimal positive.
- a8da6b0c91d 13y ago
  I also question the advice to max out 401K and IRA contributions. Recent events in Cyprus, Argentina, and some other places have made it quite clear that such money is far from safe. If there's a fiscal crisis and the political class is backed into a corner, they will seize your money. They'll do some sleight of hand to claim you're getting an equal value retirement annuity, but that will be a lie. More generally it seems like all pop financial advice is based on the premise that the next 40 years will look much like the last 40 years. Historically that's been a bad bet. For example, you never hear about hedging for a deflationary crash, because that's unthinkable given recent history.
chris_mahan 13y ago
I trade in individual securities, but I put in the time to learn about the companies, the industry, and so on. Also, having taking econ, accounting, finance, and statistics in college helps.
- ajross 13y ago
  Professional traders have been known to put in the time to learn about this stuff too. Don't fool yourself. You might make some good bets. You might make some bad ones. You're not going to systematically outperform a market as an individual investor by anything but luck (or plausibly by chasing a "hunch" based on good intuition and evidence that the professionals missed -- but don't fool yourself, that's luck too).
  - chris_mahan 13y ago
    I have consistently outperformed the market since 2007, when I started investing (I refer to the market as the DOW). Just because the average salary in the United States is $57,000 (random-ish number) does not mean that's what I have to settle for because it's the average. If I put in the time, work smart, work hard, and keep learning, then the expectation is that I can beat the average income. Likewise, I can beat the average market by putting in more time, more effort, more learning, than the average investor. I tried forex for 2 years, and did poorly, so I stopped, and learned my lesson. I bet on Ford at 1.60. I bet on Tesla at 16, and 24. (not heavily mind you, just 2.5% of my portfolio). I research the companies, the management. I not only go to the annual report, but I also read books by the founders, read about their manufacturing (are they using lean like Toyota or lean like GE?). I went after Ford based on Mullally's performance at Boeing. I went after Boeing based on the 787's promises. (It's doing very well.) I read Deming. I lost $900 in American Airlines, and $300 in Washington Mutual. I did lose $6K on a $10K mutual fund that went south in 2007-2008. It looked like it would recover, but then wasn't following the market up. I've made a lot less money with mutual funds that with stocks. Granted, I've been riding a pretty nice wave since the drops of fall 2007 and mid 2008, but I don't blindly pick a stock and buy in. I'm very careful where I put the money, and will do 2-4 weeks of research on a single company. I also research their competition, and business trends in general. This means I don't watch TV, don't watch sports, and will do one movie per month with my son. Instead, I read. A lot. I do max my 401k because of company matching, but I'm not holding my breath on returns. There's an event horizon where it's better not to match and buy securities directly, because of the 1% or so fees. (You start out with twice as much, but you get less annual yield.) You don't pay taxes till you sell, and you can sell at a time of your choosing. I don't day-trade, I don't even month-trade. I generally invest for 7-15 years. Finally, I invest only my own money, and that is a very strong motivator for spending the time to do it right. (Small caps do slightly better than large caps--more risk, more return. Diversify.)
notdrunkatall 13y ago
Except for the 'never buy a security' bit, I fully agree.
- cperciva 13y ago
  Do you think you can beat the market? Are you a professional stock market trader? If you answered yes to the first question but no to the second, why?
  - briancaw2 13y ago
    I think with good domain knowledge and basic knowledge of economics and finance your average Joe can do better than the market. There's a lot of low hanging fruit in the stock market that a small investor in particular can grab because their size allows a certain level of under-the-radar activity.
    - jellicle 13y ago
      > I think with good domain knowledge and basic knowledge of economics and finance your average Joe can do better than the market. There's a word for people like you: suckers.
      - briancaw2 13y ago
        For starters: when we talk about "the market" here originally we're talking about mutual funds + etfs. Now back to the point. When I say average Joe I was probably understating things - I'm talking about your rational, generally college educated, sentient being. When I say basic knowledge of economics, I mean knowledge or intuition of how unemployment, interest rates set by the fed, and global events can effect the economy (mostly for getting out when things are tanking and jumping in when they are on the up and up). When I say general knowledge of finance I mean more specifically trading savy - types of trading (trend, value...etc), ways to trade (short, long, margin, leverage), ..etc. And when I say domain knowledge I mean generally the domain the person works in and can pick a winner from a loser. Now with that knowledge, the fact that a small investor can make small moves and not effect the security itself, and subtracting management fees, you mean to tell me just because a finance company puts their stamp on a mutual fund that means they'll do better than me? My returns and the returns of folks I know that fit that characterization disagree with you.
zedpm 13y ago
Seems like good advice, though a great many Americans are at a disadvantage because their employer doesn't offer a 401k. Even with no employer match, a 401k allows an individual to save much more money in a tax-advantaged account ($17,500 for a 401k vs. $5500 for an IRA). If you're a W-2 employee but your employer doesn't offer a 401k then you're pretty much stuck paying higher tax rates on any savings beyond $5500/year.
- mrb 13y ago
  With no employer match, a 401k has ZERO tax advantages. Because it merely delays when your income is taxed: after withdrawing it from the 401k. Mathematically you end up with the same capital whether your pay income taxes today and invest post-tax money, or whether you invest in a pre-tax 401k and pay taxes later.
  - sopooneo 13y ago
    If it is the case that you are going to move money around between funds then would the 401K would provide a benefit?Because you wouldn't have to pay capital gains tax every time you switch and have made money?
  - akjj 13y ago
    Even without an employer match, the 401k has the advantage that interest is not taxed. This makes a big difference over the course of a career.
  - dnautics 13y ago
    you could be even worse off, if the income is taxed later at a higher rate.
  - harterrt 13y ago
    That's not true if your tax rate changes over time, which it probably will. Specifically, when you withdraw during retirement it is likely you will not be earning much and your tax rate will be much lower than when you were working full time.
  - 13y ago
0003 13y ago
>Never buy or sell an individual security. The person on the othr side of the table knows more than you do about this stuff. The person on the other side is c++.
cmbaus 13y ago
If you follow that advice, you don't need a financial advisor.
- cmbaus 13y ago
  Even if a financial advisor meets the fiduciary standard, he or she may still not be looking out for your best interest. I'd say become educated, and bypass the advisor altogether.
dnautics 13y ago
self-contradictory: "Make financial advisor commit to a fiduciary standard"
- eatmyshorts 13y ago
  A Registered Investment Advisor (RIA) is required by FINRA to commit to a higher fiduciary standard than a broker (the more commonly used investment advisor). I think that's what he's referring to. Of course, most RIAs don't cater to anything but high-wealth individuals. Things are changing, though, as the Internet is enabling a number of RIAs to cater to those with lower levels of investment funds.
  - dnautics 13y ago
    I meant that the card was giving advice and the card hadn't committed to a fiduciary standard.
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jellicle 13y ago
There are a couple of good parts about this post. The first is the HN comments, which are an unintentional fountain of hilarity. But the second is the assumptions. 50% of the US population can't afford to put even a dollar into any sort of investment security. Of the 50% of the public that does own some sort of security, most of them are in the three-figures range. This index card, without realizing it at all, has targeted itself towards the top 10% of the population: people who have jobs with 401Ks, people for whom Roth IRAs will be useful. In other words, if you are well into being one of the richest people in the richest country in the world, here you go - save 20% of your income, and so on. And you'll be fine! So I'm just curious: suppose you aren't?
- leokun 13y ago
  The promote social insurance programs line comes in maybe.
- VikingCoder 13y ago
  I agree, but it is potentially useful to that demographic. If we made this two or three standard deviations more exclusive, the financial advice could be: Be born wealthy. Don't borrow against your trust fund.
- tptacek 13y ago
  The top 10th percentile of earners in US are barely even eligible to use Roth IRAs, which have gross income participation limits.
  - jcdavis 13y ago
    One can do a backdoor Roth conversion to get around that limit. (but you need to have no money in regular pretax IRAs to do so)
    - elasticdog 13y ago
      Well, you can have money in there...it would just be a taxable event when you do the conversion to a Roth, so you have to keep in mind that your taxable income will go up by the amount that you did not have a "basis" in.
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lpolovets 13y ago
Scott Adams, the creator of Dilbert, has a similarly good set of advice: - Make a will. - Pay off your credit cards. - Get term life insurance if you have a family to support. - Fund your 401(k) to the maximum. - Fund your IRA to the maximum. - Buy a house if you want to live in a house and you can afford it. - Put six months’ expenses in a money market fund. - Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker and never touch it until retirement. - If any of this confuses you, or you have something special going on (retirement, college planning, tax issues) ( hire a fee-based financial planner, not one who charges a percentage of your portfolio. (source: https://retirementplans.vanguard.com/VGApp/pe/PubVgiNews?ArticleName=DilbertGuidetoPersonalFinance https://retirementplans.vanguard.com/VGApp/pe/PubVgiNews?Art...)
- cmbaus 13y ago
  Typically fee based advisors charge a percentage of assets under management. The is opposed to traditional brokers who charge trade commissions. There are few who aren't paid based on AUM.
peterjancelis 13y ago
Doing a startup is inconsistent with the advice give here.
- superuser2 13y ago
  Because doing a startup is not financially advisable to most people without a financial cushion. It may be fun, it may be thrilling, and it may work out better than your wildest dreams, but good financial advice for the general public it is not.
- BrandonMarc 13y ago
  Debt for consumer needs != debt (investment) to build a business
- eatmyshorts 13y ago
  Replace 401K with SEP or Simple 401K, and I think the rest of the advice is valid. Also, consider the true cost of working for that startup. Stock with a startup effectively is valueless, and should be considered as such. If you can't save while working with a startup, or you have no savings as a backup if (and usually when) the startup fails, then you should consider a more traditional, established company instead.
kjs3 13y ago
While I don't per se think this is bad advice, the implicit "since you have disposable income, save some of it" pretty much invalidates the concept that it's "all the financial advice you’ll ever need". That's some pretty entitled bullshit there.
ww520 13y ago
I don't know how good the advise is to max out 401K and other retirement account. Some of the 401K accounts have very limited choice of investment. For example, you can't do real estate investment. If you know what you are doing, you might want to retain the money outside and do the investment yourself on investment that are not available in a typical 401K account.
- deleted 13y ago
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- eatmyshorts 13y ago
  Look at the costs associated with each of your 401K investment options. Usually, most plans include at least one that is not actively managed, and their management costs tend to be significantly lower. Additionally, but avoiding actively managed funds, you also avoid the "chasing the tail" syndrome that leads to almost all active managers under-performing index funds over time. Layer in the tax benefits of 401K accounts, and I think the advice to max out 401K and other tax-shielded investments, and to look for "inexpensive, well-diversified funds" is very good advice. If followed correctly (few do, from the sounds of the replies to this article), I think you'll find that the advice is sound.
ChrisAntaki 13y ago
This might be blunt, but I found this advice to be misleading. Many lost large percentages of their 401ks in the ~2000 and ~2008 crashes. Crashes historically happen at least once every decade.
gremlinsinc 13y ago
this is nothing new... this is stuff straight out of the automatic millionaire by David Bach..wanna get rich? First step is pay yourself and get out of debt... then build up some solid investments.. real estate is a good way to build assets and wealth flipping or rentals..rentals for long term obviously. Or do what 80% of us reading hn plan on doing ...build something awesome and get bought out for 10 mill.
- sopooneo 13y ago
  I never understood why real estate would be such a good investment. If one house is good, why not 100 as part of an REIT?
  - twelve40 13y ago
    It's different than REIT, not necessarily universally "good". One obvious difference is with a house you get a collateral for a huge low-cost leverage, that in some cases might be easier to settle if things go South (e.g. shortsale). Another one is rent you save/collect from someone else.
    - sopooneo 13y ago
      To me, rent just seems like a form of dividend payment, which is of course not unique to property ownership.
      - gremlinsinc 13y ago
        I know someone who bought a 4 plex here in Dayton for $50k in cash, and earns 500 per unit ie 2k per month or 24k per year. Paid for the investment in 2 years, and is now earning 24k per year residual and bought another property for 78k. Renting is a good investment if you can handle sourcing tenants and outsourcing or handling maintenance issues.
kamaal 13y ago
As some one who takes great meticulous care in planning and investing regularly, both for the long term and super long term(retirement savings), I can pitch in and offer some advice here. First advice I would give is, totally avoid using credit cards. It might sound impractical, but I've found some workarounds for it. Which is to use my debit card as a credit card. Go frugal for a few days and save some money in the savings account, then use that money as credit to yourself. The worst thing about any kind of debt/loan is the interest part. Lesser interest you pay the better, except in situation where you are making an investment with the loan(like buying a property of a home) and the value of the investment is growing faster, when the at the same time inflation is decreasing your loan's net value. Second advice I can give you is to buy your own home and avoid paying rent. If you look at the whole thing having your own home is vastly more profitable than renting some one else's home on a long term. Then there are a few assorted advices I would like to give, especially to people in India(My country), But I believe it applies equally to else where to. Buy gold in small quantities regularly. Gold is protected from inflation, and is the near standard of economic growth around the world. And value of growth(over long term) always grows. Once you have sufficient gold- sell it and, learn to buy real estate in city outskirts. You will see in any growing city, sooner or later outskirts merge into main city areas and then real estate prices shoot up. Take loans to do this, if and only if the loan is small and as I said before, inflation affects your loan faster than, the rate at which its value grows. Make the mandatory 1 lac per year(if you can't make as much as you can), tax savings investments on things like endowment insurances which serve as both life insurance and long term investments. Its good if you could rotate money by building a home which you could rent out. It will serve as a steady source of income later and after retirement. Lastly at the risk of attracting downvotes, please don't invest in stocks and show pointless heroics if you don't understand that business. Far more people have burnt their hard savings hoping for magical miracles to happen and make them millionaire while dealing in stocks. In short if you know how to do it, do it. Else keep out for your own good.
- ChrisNorstrom 13y ago
  My friend... That sounds like some really BAD advice. Gold (even Warren Buffet warns against), Real-Estate (which is extremely risky, limits your job and movement flexibility), No Credit Cards (so you plan on having no credit history?), I don't even know where to begin. That's some terrible advice.
jjoe 13y ago
First advice: max your 401k. That's selfish. That's what Wall Street wants you to do. Reality is whomever manages the funds has only one short-term goal in mind: year end bonus. It's very common for traders to move on shortly after bonuses are given out leaving "cooked" books for the next trader to deal with. The plan is always to never get caught holding the short term strategy book. I find the typical trader archetype to be repugnant. There's so much of it that goes against technical-minded people with even the tiniest sense of ethics. If you're financially disciplined you're better off investing elsewhere.
Jugurtha 13y ago
Seeing the comments here about people is interesting. Whether it's in the comments or in reality, most people aren't conscious they are poor. Poverty isn't a privilege reserved to those who live under bridges, or take showers once in a while. Driving to work and back every day, stuck in traffic, getting home exhausted and not wanting to do anything is poverty. It's amazing how many guys I know who start working and consider it a success and start spending cash, get a car on credit, get a mortgage and what not. They actually think that having an expensive car makes them rich, yet can't even afford a part of that car breaking. It's a disaster for them. So, if you have to slave for a pittance (or not, you're slaving anyway). If you can't afford to be ill with some weird disease and getting properly treated for it without waiting social security. If you can't afford a good life for your children. If you can't buy something (a car, a house) without a loan and it still doesn't represent a good portion of your assets.. If you can't do that, you're poor. Poor in money, and most probably poor in time, too.
anovikov 13y ago
What about non-US people? U.S. index funds are off limits to us, and European ones are hard to trust, and normally require a lot of difficult paperwork to get in unless you are a citizen of a particular country, and operate off a very localized, and very small equities market (say Austrian, however healthy Austrian economy is i find it hard to bet my retirement savings on it, especially given neither my income nor my expenses have anything to do with it). And yes, fees of those funds are way higher than Vanguard's, due to their small size. With income in 7-figure range, one can buy commercial real estate, which gives decent returns and is a good replacement for exchange-traded equities. But what about others?
ckeck 13y ago
Correction: Don't have a credit card bill to begin with. Let the excuses and reasons for them fly, think whatever...fact is they are not necessary. While some smaller percentage of people can be responsible, for many it just invites problems. Don't get one in the first place.

155 points by bcn 13y ago

peter_l_downs 13y ago

Seems about right to me.

johnnyjustice 13y ago

What does HN think about the last statement? -Promote social programs for when things go wrong

lisper 13y ago
Seems like a no-brainer to me. The alternative is to have people panhandling on the streets. That's not pleasant -- on either side of the transaction. I'd rather live in a country where it wasn't necessary.
- baddox 13y ago
  It's not a no-brainer to me. My brain desires more data on the economic efficacy of specific social programs, because even the broad implication that social programs reduce the number of people panhandling on the streets is not obvious to me.
  - coldtea 13y ago
    It's obvious to us, who have watched both sides of the coin play out in different European countries for decades...
  - lisper 13y ago
    The card said "support social programs." It didn't say to support any particular kind of social program. Of course you want to go find one that is more effective than doing nothing. But that people should support some sort of (effective) social program so that individuals (and their families) don't have to bear the full burden of bad fortune, or even bad decision making, seems like a clear win for everyone. > the broad implication that social programs reduce the number of people panhandling on the streets is not obvious to me I spent two years hanging out with pandhandlers, so I can tell you form first hand experience: there are a few people who choose that lifetyle, but the vast majority of them would give it up in an instant if they had a better alternative.
humanrebar 13y ago
Sounds like political advice more than financial advice. In a similar vein, I would advise people to support charities that help the less fortunate like food banks, but I wouldn't consider that financial advice.
- jmduke 13y ago
  Cynically, you can consider it hedging one's bets (no pun intended.)
- muzz 13y ago
  he clearly qualifies it for "when things go wrong", so the suggestion is more like some kind of insurance in case that happens
  - humanrebar 13y ago
    They have insurance for that. Why isn't that suggested then? No, someone thought they'd be cute and throw a political jab in there.
    - vkou 13y ago
      That is a form of social insurance.
      - humanrebar 13y ago
        Social insurance is a misnomer in this context. I was referring to short- and long-term disability insurance, which will cover you for many disaster scenarios.
- johnnyjustice 13y ago
  You are right it does seem more political then financial. Advising people to support charities would be financial advice, wouldn't it? I think its pretty good advice something like "Attempt to give 1% of your income to a good cause for when things go wrong"
- deleted 13y ago
ChuckMcM 13y ago
So in the ideal world everyone around you is doing the same thing as the card. If that is true, then when something goes wrong there will be plenty of safeguards already in place. It takes a special kind of hubris to social welfare benefits believing you will never need them.
- baddox 13y ago
  > So in the ideal world everyone around you is doing the same thing as the card. That still doesn't constitute financial advice, unless your choice to follow the card somehow influences others to follow the same card, which is unlikely at any measurable level.
  - lisper 13y ago
    > which is unlikely at any measurable level That's not true. We are social creatures. If the people start behaving a certain way that exerts a very powerful influence on those around them to adopt that behavior. (Unfortunately, this phenomenon holds for negative behaviors as well as positive ones.)
  - scythe 13y ago
    I think it is representative of the political volatility of many commenters here that they have chosen to interpret the last line as referring strictly to government programs. The world used is social, which could easily apply to, say, Masonic lodges, labor unions, or even (quite liberally) employer-funded disability insurance.
  - BrandonMarc 13y ago
    Not true. Those who are wealthy and happy give to charity, and not for greedy reasons or boastful vanity. Many charities provide a very valuable social safety net, and by carefully choosing what charity you give to, you can pick the ones that are the most efficient, the most effective, and the least wasteful. And no, paying taxes don't count ... you don't have a choice, there, and you can't personally ensure the money is spent to maximum effect.
baddox 13y ago
I think it's too broad, because the economic efficacy of social programs probably varies wildly, especially when we're talking about government social programs.
- acdha 13y ago
  > economic efficacy of social programs probably varies wildly, especially when we're talking about government social programs. As opposed to literally everyone having to figure this out on their own? Say what you will about government programs, they're going to be more consistent than what you get pushing the problem out to millions of individual actors.
  - baddox 13y ago
    > Say what you will about government programs, they're going to be more consistent than what you get pushing the problem out to millions of individual actors. What I'll say is that I think this is a ludicrous assumption to make, for the same reason that it would be ludicrous to assume that government food distribution or automobile production would be more consistent than pushing the problem out to millions of individual actors.
    - acdha 13y ago
      > What I'll say is that I think this is a ludicrous assumption to make, You should read for comprehension next time: I'm not saying anything about efficiency, merely that consistency is an odd angle to pick.
  - dnautics 13y ago
    >they're going to be more consistent than what you get pushing the problem out to millions of individual actors. There are data that suggest otherwise: Walmart, not FEMA was the best at doling out aid during Katrina; on the other side of the political spectrum, the same could be arguably be said for OWS during Sandy. On the other hand, if you're going to argue that the government is consistently bad at doling out aid, you may be right, but I don't know how good the government is at providing welfare or social services. I presume it's not exceptionally good, or else private food banks, homeless shelters, and charities wouldn't have to exist.

joseph_cooney 13y ago

...If you happen to live in the United States, and the tax laws there don't change.

muzz 13y ago
well yes, but it should be too hard to replace "401k" with whatever tax-advantaged retirement program is available
- kintamanimatt 13y ago
  Edit: Misinterpreted what a 401(k) is. I thought it was a tax-free savings account that you can borrow against, rather than a form of pension plan. The UK does have something somewhat similar: a personal pension scheme. The rest of this comment is wrong, but I'll leave it here for giggles. -- They don't really always exist. As far as I'm aware there isn't really the British equivalent of a 401k, for example. Brits have ISAs but they're just tax free savings accounts with an interest rate generally well below inflation. Cash ISAs also come with the restriction that you can only deposit a very low amount into them per year -- this year it's £5,760. You also can't re-deposit withdrawn money without that further deposit subtracting from your annual deposit limit. The trouble with putting large amounts of money in a savings account is that it generally comes with interest rates that (even before tax) are less than inflation. Savings accounts are great for socking away money to cover temporary shortfalls in income, but not much else.
  - steve-howard 13y ago
    You're not too wrong; you can borrow against a 401(k) (<50% of the balance, no more than $50k total). Most financial advice says to stay away, though.
    - derekp7 13y ago
      That is one thing I don't understand, is the advice to not borrow against your 401k. Lets say you have a 3-year auto loan, that is 7% interest. If you convert that to a 401k loan at 4%, that is a savings right there. Oh, but that money you borrowed isn't getting any investment returns in our 401k (I hear people say). But it is -- it is getting a 4% return (what you are paying back in interest). And considering that a well balanced fund is going to have some amount in a lower fixed-interest investment, that isn't much of a problem (just rebalance the fund when you take your loan out, then rebalance again as it gets paid off). The ONLY downside I see, is that you have to pay it back all at once if you lose your job, or face a 10% penalty (plus tax) on the loan balance.

kondro 13y ago

I would have an opinion but Australian law prevents me from having one without providing a statement of advice.

kintamanimatt 13y ago
I doubt anybody could construe a general opinion that's not tailored for a specific individual's situation as financial advice, if that's what you're getting at. Maybe it's different in Oz.
- kondro 13y ago
  You'd be surprised. Our law assumes quite a large amount of potential uneducation and general stupidity when it comes to an unsophisticated investor interpreting financial advice.
  - deleted 13y ago
    [deleted]
  - reginaldjcooper 13y ago
    You can't even post a, "this is not advice but here's what I am doing..."? That seems overly strict.

JoshTriplett 13y ago

Almost all of this is excellent advice, except for one point: "save 20% of your money". That's a bare minimum, which will let you retire after about 37 years of working. Bump it to 35% and you'll retire after 25 years. Bump it to 50% and retire in 17. Bump it to two-thirds and retire in 10 years. That's one of the most important factors in your personal finances: not how much you make off your investments, not whether you max your 401k, but how much of your income you save and how much you spend. The only more important factor is "never borrow money", and in particular "never carry a balance on a credit card".

muzz 13y ago
The savings part sounds like advice from Mr. Money Mustache, there was discussion about his advice here before. "Never borrow money" would include never having a mortgage, which would be a huge lost opportunity for many. Not to mention borrowing money to invest in oneself, start a business, etc.
- JoshTriplett 13y ago
  A mortgage is one of the few exceptions, and even then you should carefully consider whether renting or buying makes more sense. A car, notably, is not a good exception. Education depends heavily on return on investment; you'd want to carefully analyze how much more you'll make with that education, how long it'll take you to pay off the debt, etc. It can certainly make sense when attempting to bootstrap yourself if your alternative is no higher education at all, but if you're in a financial position where you have to borrow for tuition, you may well qualify for better options such as scholarships. If you're reasonably well off and borrowing to go to a higher-end school, that makes much less sense. And yes, the savings -> years to retirement table came from a Mr. Money Mustache article: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/ http://www.mrmoneymustache.com/2012/01/13/the-shockingly-sim... .
  - deleted 13y ago
    [deleted]
  - 13y ago

humanrebar 13y ago

I consider it to be a huge oversight that they left off building an emergency fund. Before buying a house, buying individual securities, or maxing any retirement contributions, you need enough liquidity in your investments to get you through an illness or layoff that leaves you without income for a year. It amazes me how otherwise intelligent peers of mine will be paying extra on mortgages, student loans, and retirement funds with less than $5k in the bank.

solarmist 13y ago
Wouldn't save 20% of your income cover that? It's just a management detail after that (i.e. leave some of that 20% liquid for emergencies).
- humanrebar 13y ago
  I said you should have enough liquidity to get you through a year-long crisis. If you're saving 20% of your income, you're probably. However, unless you have especially nasty rates on student loans, paying them off shouldn't come before accumulating some fairly liquid savings. The same probably goes for paying extra on the principal on your mortgage and maxing out retirement plans.
  - solarmist 13y ago
    I was going exclusively by what was on the notecard. :)
ajross 13y ago
That sounds wrong. An unexpected year-long unemployment isn't unheard of, but for an already-employed investing professional (i.e. not a recent entrant/re-entrant to the employment market who wouldn't be able to take this advice anyway) it's really quite rare. Certainly it's not true that most people "need" to do that, as it won't happen to them. This sounds like the kind of failure mode better addressed by solutions like insurance instead of upfront savings.
- 13y ago

nostromo 13y ago

Am I alone in wondering if the advice about broad index funds is no longer good? We're still below the s&p inflation adjusted high from ~2000 -- almost 14 years later. When will the gains finally arrive? I worry that there is some systemic problem in our economy that has leaders playing whack-a-crisis every five or ten years that erases years of gains. I've read John Bogle and I want to believe. But a few years ago I took some money out of index funds and placed it in a rental property and so far I've seen very predicable returns with no loss in principle, and it makes me wonder if I should keep bothering with index funds at all.

JoshTriplett 13y ago
Rentals are much more risky, as the housing crash demonstrated. If you really want to benefit from that market, buy a REIT unless you actually enjoy the work of being a landlord. The gains are here now, and I'm more concerned about a bubble personally. Vanguard's total stock market fund has year-to-date growth of ~17%, and their more-stable lower-growth "balanced" fund with bonds included has year-to-date growth of ~8.75%. Both of those are better than the usual estimate of 7% annual growth for retirement funds (a conservative 3% for inflation and 4% for income).
cperciva 13y ago
We're still below the s&p inflation adjusted high from ~2000 -- almost 14 years later. Only if you're looking at the price index. The total return index -- including dividend payouts -- peaked at 2108 in September 2000, and is now at 3027. After inflation that's a gain of 6%, for a real return of slightly under 0.5% per year... but hey, at least it's positive.
- jayp 13y ago
  It's barely positive if you compare the two points. However, if you have investing regularly via your 401k (etc), you also bought in during the low periods. So, your gain would be much more than just minimal positive.
a8da6b0c91d 13y ago
I also question the advice to max out 401K and IRA contributions. Recent events in Cyprus, Argentina, and some other places have made it quite clear that such money is far from safe. If there's a fiscal crisis and the political class is backed into a corner, they will seize your money. They'll do some sleight of hand to claim you're getting an equal value retirement annuity, but that will be a lie. More generally it seems like all pop financial advice is based on the premise that the next 40 years will look much like the last 40 years. Historically that's been a bad bet. For example, you never hear about hedging for a deflationary crash, because that's unthinkable given recent history.

chris_mahan 13y ago

I trade in individual securities, but I put in the time to learn about the companies, the industry, and so on. Also, having taking econ, accounting, finance, and statistics in college helps.

ajross 13y ago
Professional traders have been known to put in the time to learn about this stuff too. Don't fool yourself. You might make some good bets. You might make some bad ones. You're not going to systematically outperform a market as an individual investor by anything but luck (or plausibly by chasing a "hunch" based on good intuition and evidence that the professionals missed -- but don't fool yourself, that's luck too).
- chris_mahan 13y ago
  I have consistently outperformed the market since 2007, when I started investing (I refer to the market as the DOW). Just because the average salary in the United States is $57,000 (random-ish number) does not mean that's what I have to settle for because it's the average. If I put in the time, work smart, work hard, and keep learning, then the expectation is that I can beat the average income. Likewise, I can beat the average market by putting in more time, more effort, more learning, than the average investor. I tried forex for 2 years, and did poorly, so I stopped, and learned my lesson. I bet on Ford at 1.60. I bet on Tesla at 16, and 24. (not heavily mind you, just 2.5% of my portfolio). I research the companies, the management. I not only go to the annual report, but I also read books by the founders, read about their manufacturing (are they using lean like Toyota or lean like GE?). I went after Ford based on Mullally's performance at Boeing. I went after Boeing based on the 787's promises. (It's doing very well.) I read Deming. I lost $900 in American Airlines, and $300 in Washington Mutual. I did lose $6K on a $10K mutual fund that went south in 2007-2008. It looked like it would recover, but then wasn't following the market up. I've made a lot less money with mutual funds that with stocks. Granted, I've been riding a pretty nice wave since the drops of fall 2007 and mid 2008, but I don't blindly pick a stock and buy in. I'm very careful where I put the money, and will do 2-4 weeks of research on a single company. I also research their competition, and business trends in general. This means I don't watch TV, don't watch sports, and will do one movie per month with my son. Instead, I read. A lot. I do max my 401k because of company matching, but I'm not holding my breath on returns. There's an event horizon where it's better not to match and buy securities directly, because of the 1% or so fees. (You start out with twice as much, but you get less annual yield.) You don't pay taxes till you sell, and you can sell at a time of your choosing. I don't day-trade, I don't even month-trade. I generally invest for 7-15 years. Finally, I invest only my own money, and that is a very strong motivator for spending the time to do it right. (Small caps do slightly better than large caps--more risk, more return. Diversify.)

notdrunkatall 13y ago

Except for the 'never buy a security' bit, I fully agree.

cperciva 13y ago
Do you think you can beat the market? Are you a professional stock market trader? If you answered yes to the first question but no to the second, why?
- briancaw2 13y ago
  I think with good domain knowledge and basic knowledge of economics and finance your average Joe can do better than the market. There's a lot of low hanging fruit in the stock market that a small investor in particular can grab because their size allows a certain level of under-the-radar activity.
  - jellicle 13y ago
    > I think with good domain knowledge and basic knowledge of economics and finance your average Joe can do better than the market. There's a word for people like you: suckers.
    - briancaw2 13y ago
      For starters: when we talk about "the market" here originally we're talking about mutual funds + etfs. Now back to the point. When I say average Joe I was probably understating things - I'm talking about your rational, generally college educated, sentient being. When I say basic knowledge of economics, I mean knowledge or intuition of how unemployment, interest rates set by the fed, and global events can effect the economy (mostly for getting out when things are tanking and jumping in when they are on the up and up). When I say general knowledge of finance I mean more specifically trading savy - types of trading (trend, value...etc), ways to trade (short, long, margin, leverage), ..etc. And when I say domain knowledge I mean generally the domain the person works in and can pick a winner from a loser. Now with that knowledge, the fact that a small investor can make small moves and not effect the security itself, and subtracting management fees, you mean to tell me just because a finance company puts their stamp on a mutual fund that means they'll do better than me? My returns and the returns of folks I know that fit that characterization disagree with you.

zedpm 13y ago

Seems like good advice, though a great many Americans are at a disadvantage because their employer doesn't offer a 401k. Even with no employer match, a 401k allows an individual to save much more money in a tax-advantaged account ($17,500 for a 401k vs. $5500 for an IRA). If you're a W-2 employee but your employer doesn't offer a 401k then you're pretty much stuck paying higher tax rates on any savings beyond $5500/year.

mrb 13y ago
With no employer match, a 401k has ZERO tax advantages. Because it merely delays when your income is taxed: after withdrawing it from the 401k. Mathematically you end up with the same capital whether your pay income taxes today and invest post-tax money, or whether you invest in a pre-tax 401k and pay taxes later.
- sopooneo 13y ago
  If it is the case that you are going to move money around between funds then would the 401K would provide a benefit?Because you wouldn't have to pay capital gains tax every time you switch and have made money?
- akjj 13y ago
  Even without an employer match, the 401k has the advantage that interest is not taxed. This makes a big difference over the course of a career.
- dnautics 13y ago
  you could be even worse off, if the income is taxed later at a higher rate.
- harterrt 13y ago
  That's not true if your tax rate changes over time, which it probably will. Specifically, when you withdraw during retirement it is likely you will not be earning much and your tax rate will be much lower than when you were working full time.
- 13y ago

0003 13y ago

>Never buy or sell an individual security. The person on the othr side of the table knows more than you do about this stuff. The person on the other side is c++.

cmbaus 13y ago

If you follow that advice, you don't need a financial advisor.

cmbaus 13y ago
Even if a financial advisor meets the fiduciary standard, he or she may still not be looking out for your best interest. I'd say become educated, and bypass the advisor altogether.

dnautics 13y ago

self-contradictory: "Make financial advisor commit to a fiduciary standard"

eatmyshorts 13y ago
A Registered Investment Advisor (RIA) is required by FINRA to commit to a higher fiduciary standard than a broker (the more commonly used investment advisor). I think that's what he's referring to. Of course, most RIAs don't cater to anything but high-wealth individuals. Things are changing, though, as the Internet is enabling a number of RIAs to cater to those with lower levels of investment funds.
- dnautics 13y ago
  I meant that the card was giving advice and the card hadn't committed to a fiduciary standard.

deleted 13y ago

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jellicle 13y ago

There are a couple of good parts about this post. The first is the HN comments, which are an unintentional fountain of hilarity. But the second is the assumptions. 50% of the US population can't afford to put even a dollar into any sort of investment security. Of the 50% of the public that does own some sort of security, most of them are in the three-figures range. This index card, without realizing it at all, has targeted itself towards the top 10% of the population: people who have jobs with 401Ks, people for whom Roth IRAs will be useful. In other words, if you are well into being one of the richest people in the richest country in the world, here you go - save 20% of your income, and so on. And you'll be fine! So I'm just curious: suppose you aren't?

leokun 13y ago
The promote social insurance programs line comes in maybe.
VikingCoder 13y ago
I agree, but it is potentially useful to that demographic. If we made this two or three standard deviations more exclusive, the financial advice could be: Be born wealthy. Don't borrow against your trust fund.
tptacek 13y ago
The top 10th percentile of earners in US are barely even eligible to use Roth IRAs, which have gross income participation limits.
- jcdavis 13y ago
  One can do a backdoor Roth conversion to get around that limit. (but you need to have no money in regular pretax IRAs to do so)
  - elasticdog 13y ago
    Well, you can have money in there...it would just be a taxable event when you do the conversion to a Roth, so you have to keep in mind that your taxable income will go up by the amount that you did not have a "basis" in.

deleted 13y ago

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lpolovets 13y ago

Scott Adams, the creator of Dilbert, has a similarly good set of advice: - Make a will. - Pay off your credit cards. - Get term life insurance if you have a family to support. - Fund your 401(k) to the maximum. - Fund your IRA to the maximum. - Buy a house if you want to live in a house and you can afford it. - Put six months’ expenses in a money market fund. - Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker and never touch it until retirement. - If any of this confuses you, or you have something special going on (retirement, college planning, tax issues) ( hire a fee-based financial planner, not one who charges a percentage of your portfolio. (source: https://retirementplans.vanguard.com/VGApp/pe/PubVgiNews?ArticleName=DilbertGuidetoPersonalFinance https://retirementplans.vanguard.com/VGApp/pe/PubVgiNews?Art...)

cmbaus 13y ago
Typically fee based advisors charge a percentage of assets under management. The is opposed to traditional brokers who charge trade commissions. There are few who aren't paid based on AUM.

peterjancelis 13y ago

Doing a startup is inconsistent with the advice give here.

superuser2 13y ago
Because doing a startup is not financially advisable to most people without a financial cushion. It may be fun, it may be thrilling, and it may work out better than your wildest dreams, but good financial advice for the general public it is not.
BrandonMarc 13y ago
Debt for consumer needs != debt (investment) to build a business
eatmyshorts 13y ago
Replace 401K with SEP or Simple 401K, and I think the rest of the advice is valid. Also, consider the true cost of working for that startup. Stock with a startup effectively is valueless, and should be considered as such. If you can't save while working with a startup, or you have no savings as a backup if (and usually when) the startup fails, then you should consider a more traditional, established company instead.

kjs3 13y ago

While I don't per se think this is bad advice, the implicit "since you have disposable income, save some of it" pretty much invalidates the concept that it's "all the financial advice you’ll ever need". That's some pretty entitled bullshit there.

ww520 13y ago

I don't know how good the advise is to max out 401K and other retirement account. Some of the 401K accounts have very limited choice of investment. For example, you can't do real estate investment. If you know what you are doing, you might want to retain the money outside and do the investment yourself on investment that are not available in a typical 401K account.

deleted 13y ago
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eatmyshorts 13y ago
Look at the costs associated with each of your 401K investment options. Usually, most plans include at least one that is not actively managed, and their management costs tend to be significantly lower. Additionally, but avoiding actively managed funds, you also avoid the "chasing the tail" syndrome that leads to almost all active managers under-performing index funds over time. Layer in the tax benefits of 401K accounts, and I think the advice to max out 401K and other tax-shielded investments, and to look for "inexpensive, well-diversified funds" is very good advice. If followed correctly (few do, from the sounds of the replies to this article), I think you'll find that the advice is sound.

ChrisAntaki 13y ago

This might be blunt, but I found this advice to be misleading. Many lost large percentages of their 401ks in the ~2000 and ~2008 crashes. Crashes historically happen at least once every decade.

gremlinsinc 13y ago

this is nothing new... this is stuff straight out of the automatic millionaire by David Bach..wanna get rich? First step is pay yourself and get out of debt... then build up some solid investments.. real estate is a good way to build assets and wealth flipping or rentals..rentals for long term obviously. Or do what 80% of us reading hn plan on doing ...build something awesome and get bought out for 10 mill.

sopooneo 13y ago
I never understood why real estate would be such a good investment. If one house is good, why not 100 as part of an REIT?
- twelve40 13y ago
  It's different than REIT, not necessarily universally "good". One obvious difference is with a house you get a collateral for a huge low-cost leverage, that in some cases might be easier to settle if things go South (e.g. shortsale). Another one is rent you save/collect from someone else.
  - sopooneo 13y ago
    To me, rent just seems like a form of dividend payment, which is of course not unique to property ownership.
    - gremlinsinc 13y ago
      I know someone who bought a 4 plex here in Dayton for $50k in cash, and earns 500 per unit ie 2k per month or 24k per year. Paid for the investment in 2 years, and is now earning 24k per year residual and bought another property for 78k. Renting is a good investment if you can handle sourcing tenants and outsourcing or handling maintenance issues.

kamaal 13y ago

As some one who takes great meticulous care in planning and investing regularly, both for the long term and super long term(retirement savings), I can pitch in and offer some advice here. First advice I would give is, totally avoid using credit cards. It might sound impractical, but I've found some workarounds for it. Which is to use my debit card as a credit card. Go frugal for a few days and save some money in the savings account, then use that money as credit to yourself. The worst thing about any kind of debt/loan is the interest part. Lesser interest you pay the better, except in situation where you are making an investment with the loan(like buying a property of a home) and the value of the investment is growing faster, when the at the same time inflation is decreasing your loan's net value. Second advice I can give you is to buy your own home and avoid paying rent. If you look at the whole thing having your own home is vastly more profitable than renting some one else's home on a long term. Then there are a few assorted advices I would like to give, especially to people in India(My country), But I believe it applies equally to else where to. Buy gold in small quantities regularly. Gold is protected from inflation, and is the near standard of economic growth around the world. And value of growth(over long term) always grows. Once you have sufficient gold- sell it and, learn to buy real estate in city outskirts. You will see in any growing city, sooner or later outskirts merge into main city areas and then real estate prices shoot up. Take loans to do this, if and only if the loan is small and as I said before, inflation affects your loan faster than, the rate at which its value grows. Make the mandatory 1 lac per year(if you can't make as much as you can), tax savings investments on things like endowment insurances which serve as both life insurance and long term investments. Its good if you could rotate money by building a home which you could rent out. It will serve as a steady source of income later and after retirement. Lastly at the risk of attracting downvotes, please don't invest in stocks and show pointless heroics if you don't understand that business. Far more people have burnt their hard savings hoping for magical miracles to happen and make them millionaire while dealing in stocks. In short if you know how to do it, do it. Else keep out for your own good.

ChrisNorstrom 13y ago
My friend... That sounds like some really BAD advice. Gold (even Warren Buffet warns against), Real-Estate (which is extremely risky, limits your job and movement flexibility), No Credit Cards (so you plan on having no credit history?), I don't even know where to begin. That's some terrible advice.

jjoe 13y ago

First advice: max your 401k. That's selfish. That's what Wall Street wants you to do. Reality is whomever manages the funds has only one short-term goal in mind: year end bonus. It's very common for traders to move on shortly after bonuses are given out leaving "cooked" books for the next trader to deal with. The plan is always to never get caught holding the short term strategy book. I find the typical trader archetype to be repugnant. There's so much of it that goes against technical-minded people with even the tiniest sense of ethics. If you're financially disciplined you're better off investing elsewhere.

Jugurtha 13y ago

Seeing the comments here about people is interesting. Whether it's in the comments or in reality, most people aren't conscious they are poor. Poverty isn't a privilege reserved to those who live under bridges, or take showers once in a while. Driving to work and back every day, stuck in traffic, getting home exhausted and not wanting to do anything is poverty. It's amazing how many guys I know who start working and consider it a success and start spending cash, get a car on credit, get a mortgage and what not. They actually think that having an expensive car makes them rich, yet can't even afford a part of that car breaking. It's a disaster for them. So, if you have to slave for a pittance (or not, you're slaving anyway). If you can't afford to be ill with some weird disease and getting properly treated for it without waiting social security. If you can't afford a good life for your children. If you can't buy something (a car, a house) without a loan and it still doesn't represent a good portion of your assets.. If you can't do that, you're poor. Poor in money, and most probably poor in time, too.

anovikov 13y ago

What about non-US people? U.S. index funds are off limits to us, and European ones are hard to trust, and normally require a lot of difficult paperwork to get in unless you are a citizen of a particular country, and operate off a very localized, and very small equities market (say Austrian, however healthy Austrian economy is i find it hard to bet my retirement savings on it, especially given neither my income nor my expenses have anything to do with it). And yes, fees of those funds are way higher than Vanguard's, due to their small size. With income in 7-figure range, one can buy commercial real estate, which gives decent returns and is a good replacement for exchange-traded equities. But what about others?

ckeck 13y ago

Correction: Don't have a credit card bill to begin with. Let the excuses and reasons for them fly, think whatever...fact is they are not necessary. While some smaller percentage of people can be responsible, for many it just invites problems. Don't get one in the first place.