5 ms·

As a mid-twenty-something who thinks he's pretty sensible overall with his cash, it's reassuring to see I'm not alone, but running with the current generation o

by lolwutf 13y ago

As a mid-twenty-something who thinks he's pretty sensible overall with his cash, it's reassuring to see I'm not alone, but running with the current generation of financial wisdom.

buyx 13y ago
Households controlling spending and debt may be smart, but withdrawing from stocks and investing in bonds strikes me as having been a panic move - not wise at all.
- kfk 13y ago
  Thing is, stocks are very scary, you can't just look at a balance sheet and make predictions because share price depends on market momentum. But you can look at a balance sheet and see how likely is that you will get your bonds money back.
  - arethuza 13y ago
    How do you know if a company has been using off balance sheet financing to make their balance sheet look healthier? [NB Not being snarky - I just remember the HN entry recently that mentioned the growth in off balance sheet financing.]
    - kfk 13y ago
      There are many problems that can eat your assets and are not in the B/S. I don't thing that creative accounting is very likely, especially in well established Corporations. One scarier issue might be law suits. But you can keep an eye on "easy" things like cash flow. A company that can run on 100M of cash and produces 1B of cash per year is very unlikely going to go so under that it won't be able to pay its creditors, for example.
    - VLM 13y ago
      kfk's answer is good. Aside from his advice ignore advice merely to diversify and hope. Diversify advice comes from old people still thinking in 10% return eras long ago. If you're getting 10% and have 20 diversified investments the failure of one is no big deal, even if you lost it all thats only a 5% loss and everything else returned a 10% gain for the year, so you really only lost 6 months. On the other hand, if you're getting 2% and have the same investments and one fails, then you've lost 5% and thats 2.5 years of growth where you'd have been better off putting the money in the mattress. And over that 2.5 years some other company will probably tank too leading to a cascading effect where "investing" your money at 2% or whatever is basically speculation/gambling you're better off picking up pennies from in front of steamrollers. Now diversification does help with "return OF capital" its just no longer useful as a "return ON capital" technique. You lose one of your 20 investments you're wiped out for a quarter decade, but at least you haven't lost all your money... yet.
      - Fomite 13y ago
        "Diversification" in this era means multiple ETFs or mutual funds of different investment vehicles (Large Cap, Small Cap, Real Estate, Bonds, etc.), not "10 stocks". A relatively simple implementation of this has given me a 13.46% return over the past three years.
        tixocloud 13y ago
        That's pretty impressive especially how the current trend is hitting on dropping mutual funds in favour of other investments. Side question: How long is one allowed to hold an ETF for?
        mynewwork 13y ago
        > Side question: How long is one allowed to hold an ETF for? As short or long as you want? You can algorithmically trade them in microseconds or buy and hold until you die and pass them to your heirs.
        Fomite 13y ago
    - retrogradeorbit 13y ago
      Another problem can be counter party risk. On the balance sheet something may be marked to market, but in sudden events the counter-party may be unable to meet the terms of the agreement at all.
  - danielweber 13y ago
    Someone with a very bond-heavy portfolio is extremely susceptible to interest rate risks, which aren't really going to go down much. Bonds are, generally, less risky than stocks, but piling too much into bonds is not the safest way to go. Stocks can offset bonds risks. Diversity, diversity, diversity.
  - snowwrestler 13y ago
    This is why you should invest in stocks via broad index funds. Diversification is built-in; you don't have to look at balance sheets. And the lower fees add a lot to your long-term return, compared to investing in individual stocks or managed funds.
- forgottenpaswrd 13y ago
  "but withdrawing from stocks and investing in bonds strikes me as having been a panic move - not wise at all." Stocks now are totally over priced, and investing in bonds is not wise when the central Banks are printing money. So the best thing you can do is use your money on yourself in a productive way.
  - buyx 13y ago
    At the time, I doubt that overvaluation was a problem. More likely it was classic "buy high and sell low" panic writ large.
  - enoch_r 13y ago
    Being able to consistently beat the market--for example, to be able to easily and confidently identify times when "stocks now are totally over priced"--is an enormously valuable skill. I mean, plenty of people say that stocks are over- or under-priced. But study after study shows that their predictions, on average, fail to beat the market. Study after study shows that someone whose predictions or buys were better than average one year fail to beat the market the next year. Study after study shows that market timing does not work. I'm not trying to be a jerk, but it always baffles me when highly intelligent, scientifically-minded people completely ignore the vast stores of evidence we've gathered about their likelihood of beating the market.
  - gohrt 13y ago
    > So the best thing you can do is use your money on yourself in a productive way And this is of course how macroeconomics is designed to work: Inflation makes "green paper" unappealing, which stimulates investment in productive activity, which generates products and services, which compete for the greep paper, which curtails inflation.

by lolwutf 13y ago

As a mid-twenty-something who thinks he's pretty sensible overall with his cash, it's reassuring to see I'm not alone, but running with the current generation of financial wisdom.

buyx 13y ago

Households controlling spending and debt may be smart, but withdrawing from stocks and investing in bonds strikes me as having been a panic move - not wise at all.

kfk 13y ago
Thing is, stocks are very scary, you can't just look at a balance sheet and make predictions because share price depends on market momentum. But you can look at a balance sheet and see how likely is that you will get your bonds money back.
- arethuza 13y ago
  How do you know if a company has been using off balance sheet financing to make their balance sheet look healthier? [NB Not being snarky - I just remember the HN entry recently that mentioned the growth in off balance sheet financing.]
  - kfk 13y ago
    There are many problems that can eat your assets and are not in the B/S. I don't thing that creative accounting is very likely, especially in well established Corporations. One scarier issue might be law suits. But you can keep an eye on "easy" things like cash flow. A company that can run on 100M of cash and produces 1B of cash per year is very unlikely going to go so under that it won't be able to pay its creditors, for example.
  - VLM 13y ago
    kfk's answer is good. Aside from his advice ignore advice merely to diversify and hope. Diversify advice comes from old people still thinking in 10% return eras long ago. If you're getting 10% and have 20 diversified investments the failure of one is no big deal, even if you lost it all thats only a 5% loss and everything else returned a 10% gain for the year, so you really only lost 6 months. On the other hand, if you're getting 2% and have the same investments and one fails, then you've lost 5% and thats 2.5 years of growth where you'd have been better off putting the money in the mattress. And over that 2.5 years some other company will probably tank too leading to a cascading effect where "investing" your money at 2% or whatever is basically speculation/gambling you're better off picking up pennies from in front of steamrollers. Now diversification does help with "return OF capital" its just no longer useful as a "return ON capital" technique. You lose one of your 20 investments you're wiped out for a quarter decade, but at least you haven't lost all your money... yet.
    - Fomite 13y ago
      "Diversification" in this era means multiple ETFs or mutual funds of different investment vehicles (Large Cap, Small Cap, Real Estate, Bonds, etc.), not "10 stocks". A relatively simple implementation of this has given me a 13.46% return over the past three years.
      - tixocloud 13y ago
        That's pretty impressive especially how the current trend is hitting on dropping mutual funds in favour of other investments. Side question: How long is one allowed to hold an ETF for?
        mynewwork 13y ago
        > Side question: How long is one allowed to hold an ETF for? As short or long as you want? You can algorithmically trade them in microseconds or buy and hold until you die and pass them to your heirs.
        Fomite 13y ago
  - retrogradeorbit 13y ago
    Another problem can be counter party risk. On the balance sheet something may be marked to market, but in sudden events the counter-party may be unable to meet the terms of the agreement at all.
- danielweber 13y ago
  Someone with a very bond-heavy portfolio is extremely susceptible to interest rate risks, which aren't really going to go down much. Bonds are, generally, less risky than stocks, but piling too much into bonds is not the safest way to go. Stocks can offset bonds risks. Diversity, diversity, diversity.
- snowwrestler 13y ago
  This is why you should invest in stocks via broad index funds. Diversification is built-in; you don't have to look at balance sheets. And the lower fees add a lot to your long-term return, compared to investing in individual stocks or managed funds.
forgottenpaswrd 13y ago
"but withdrawing from stocks and investing in bonds strikes me as having been a panic move - not wise at all." Stocks now are totally over priced, and investing in bonds is not wise when the central Banks are printing money. So the best thing you can do is use your money on yourself in a productive way.
- buyx 13y ago
  At the time, I doubt that overvaluation was a problem. More likely it was classic "buy high and sell low" panic writ large.
- enoch_r 13y ago
  Being able to consistently beat the market--for example, to be able to easily and confidently identify times when "stocks now are totally over priced"--is an enormously valuable skill. I mean, plenty of people say that stocks are over- or under-priced. But study after study shows that their predictions, on average, fail to beat the market. Study after study shows that someone whose predictions or buys were better than average one year fail to beat the market the next year. Study after study shows that market timing does not work. I'm not trying to be a jerk, but it always baffles me when highly intelligent, scientifically-minded people completely ignore the vast stores of evidence we've gathered about their likelihood of beating the market.
- gohrt 13y ago
  > So the best thing you can do is use your money on yourself in a productive way And this is of course how macroeconomics is designed to work: Inflation makes "green paper" unappealing, which stimulates investment in productive activity, which generates products and services, which compete for the greep paper, which curtails inflation.