13 ms·

Hard-won lessons about money and investing

366 points by sethbannon 12y ago

err4nt 12y ago
I'm at the start of a long career and trying to save sacrificially. I know if i over-save i still have it if i need it, but so far every dollar i have put into savings has been on a one-way trip! I wonder and worry about how to save up for later in life, and who knows what the political landscape will look like then. In my country inflation has been 2.16% on average during the years I've been alive. Where can I store my money in a way that I know it will be there later whn I need it? (I'm a little nervous about the bank, one time I had a court order against my bank account so it was drained, and I was beingpaid by cheque, but even when I took my paycheque to the bank to deposit it, until that debt was paid off i couldnt even take out enough for groceries. I want something that cant be taken away at a whim without recourse. I negotiated a deal with the collection agency for a repayment schedule, but they still drained my account 2-3 times after our agreement just because. Oops!)
- ollifi 12y ago
  Having time and mind for saving is an excellent place to be. There are no guarantees with these things. As you say the only sure thing is that inflation will destroy significant portion of your savings in only few decades. If you think things in timespans of several years you really should look into investing. This way you don't sit on your money but buy something that generates value and thus will be valuable also in future. Spread your investment over long time and wide range of different assets and you are as safe as you are going to get. Usually people suggest passive index funds with low fees to do this in practice. Don't take their word for it but study yourself.
- TheSpiceIsLife 12y ago
  I live in Australia. Here the interest rate on cash deposits is around 2.75%, or 3.6% for a 180 day term deposit minimum $10,000. Inflation the past few years has been between 2.2 - 2.9%. No point holding money in a bank account or term deposit as an 'investment' - I only hold cash because it's handy to have. All the books I read on the topic of investment were intended for Australians, so my advice is to read two or three books each on investing in the stock market and real estate, and understanding your countries tax rules as they apply to investors. It has been said that if you read three good books on any subject you should be able to converse with the professions and understand what they're saying. There probably isn't a place you can put money where a court order won't be able to touch it. Payment agreement before that happens is a good idea, but of course that isn't always possible.
- zo1 12y ago
  What little advice I can offer. From what I've gathered, there is no sure-fire way to protect your capital from constant things such as inflation and wild things such as economic "incidents", for lack of a better term. I've lately been thinking that some more reliable means would be to own a "wealth-generating" business. Or a few of them in varied industries, to mitigate risk. Another method that I've also thought about is antique art and possibly high-quality furniture as well. But that would apply in case of a major war-situation, assuming you could even get those physical items to safety.
  - walshemj 12y ago
    Indexed Link Gilt's or TIPS (in the USA) can do that
    - PhantomGremlin 12y ago
      TIPS open up a can of worms that most people probably don't want to deal with, unless the bonds are held in a tax-advantaged account (such as an IRA). Here's the skinny straight from the horse's mouth:[1] Form 1099-OID shows the amount by which the principal of your TIPS increased due to inflation or decreased due to deflation. Increases in principal are taxable for the year in which they occur, even if your TIPS hasn't matured, so you haven't yet received a payment of principal. I.e., you must pay annual taxes on an increase in principal for your TIPS bonds, even though you don't get your cash back from the govt until the bond matures. No thanks! Count me out of that one! As a possible alternative (which has its own problems) there are Series I savings bonds (which also attempt to compensate for inflation). Those have the advantage of:[2] Tax reporting of interest can be deferred until redemption, final maturity, or other taxable disposition, whichever occurs first. [1] http://www.treasurydirect.gov/indiv/research/indepth/tips/res_tips_tax.htm http://www.treasurydirect.gov/indiv/research/indepth/tips/re... [2] http://www.treasurydirect.gov/indiv/products/prod_tipsvsibonds.htm http://www.treasurydirect.gov/indiv/products/prod_tipsvsibon...
    - PhantomGremlin 12y ago
      My previous reply was critical of TIPS. But I didn't offer an alternative. This is a very complicated issue to deal with; there are so many pluses and minuses to all investments. But here's an alternative to TIPS: Roth IRA or Roth 401(k). You put your after-tax money in there and then you NEVER have to pay taxes on interest or capital gains. No taxes ever again. Of course that's at the whim of Congress. They can always bend you over 20 years from now by changing the law. TANSTAAFL.
j_lev 12y ago
> If you’re an employee working for salary, it’s going to be hard to reach that level of independence. ... You can try to radically lower your financial burn rate, but few Americans have taken that step. So many people are quick to dismiss living well within one's means as a way to financial independence. Here's the link to the facts again: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/ http://www.mrmoneymustache.com/2012/01/13/the-shockingly-sim... TL;DR: Live on 35% of your after tax income and you're retired in 10 years. Get it down to 25% and you retire in 7.
- seanmcdirmid 12y ago
  And don't have kids.
  - jamesaguilar 12y ago
    Or do, and cut from other areas/don't get on the hoighty-toighty daycare/lessons/private school treadmill. But kids are definitely an expense.
  - phamilton 12y ago
    Having kids doesn't change the math. That's MMM's point in the post. It's all about savings rate. Kids mean it is harder to save 35%, but the math doesn't change.
    - j_lev 12y ago
      I'd add that even if you aren't able to live on 35% for 10 years straight you shouldn't fall into the mindset that it's not worth aiming for at all.
- adamio 12y ago
  What about rent or mortgage? In most major cities low rent could be easily 35% of after tax income already
  - 12y ago
ForHackernews 12y ago
https://www.bogleheads.org/wiki/Getting_started https://www.bogleheads.org/wiki/Getting_started Short version: Open a Vanguard account and invest >=15% of your salary in the appropriate target date fund for the year you want to retire. P.S. Where possible, become a millionaire in Google's IPO.
- deleted 12y ago
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- lpolovets 12y ago
  Have target date funds been successful? The last time I checked, their historical performance (admittedly for only 6-7 years) seemed underwhelming.
  - deleted 12y ago
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  - JoshTriplett 12y ago
    If you care about a 6-7 year window, especially the most recent 6-7 year window, target date funds aren't for you. They'll underperform when the market is doing well. They'll also suffer less when the market tanks. Overall, they're a safer investment if you really do have a fixed target date and want to retire close to that date, and thus you have much less tolerance for risk. In particular, they tune for less risk the closer you get to the target date, to limit unexpected surprises. If you're near the beginning of your career, you don't have a fixed retirement date in mind, and you're investing a substantial enough fraction of your income that you will likely retire earlier than average, then you might want to pick a standard index fund with a fixed proportion of stocks and bonds based on your tolerance for risk, and leave it that way.
  - wiredfool 12y ago
    The last 6 or 7 years hasn't exactly been average for historical performance in either stocks or bonds. I'd expect that the target date funds would wind up underperforming in this sort of market, and likely outperform in down markets, especially once you factor in ill-advised market timing/panic changes when the bottom drops out.
mcfunley 12y ago
> Think about working for equity vs. salary It's really common for people to drastically overestimate the value of startup equity, or to just not understand the basic mechanics of it at all. In my experience people look at the face value of their options and are pretty clueless about how taxes (or even their strike price!) affect what they might actually wind up with.
- steven2012 12y ago
  I agree. It's easy for Matt Cutts to say that you should take more equity, because he has only seen massive success. I've been in the Bay Area exactly as long as he has, and I've had 1 company out of 6 where my options actually made me money. The rest were all worthless.
  - nikcub 12y ago
    If you're exchanging salary for equity you have to look at taking a job at a startup like an investment decision. I don't know what the broader startup stats are now, but 1 in 6 sounds about average. It means you should negotiate down vesting periods and try and spend a few years at each startup before figuring out if it will succeed or not. My anecdotal opinion is that more startups are cashing out for at least something because of acquihires and low-end mergers. I had a friend whose startup ran out of money, he accepted a few points of another startup in exchange for the assets of his failed startup and that startup that bought his assets ended up selling for $100M+ after less than a year earning him a decent return. On another note - it would be pretty cool if someone did the equivalent of an index fund but for employee options. Get together with 5-6 of your friends at different startups and exchange options with each other to hedge the risk. Another way to diversify your exposure is to get advisory roles at startups and pick up 25-100 b.p from 4-5 different companies for helping them out. This has worked out pretty well for myself. There are some VCs who will also invest a small slice on your behalf if you introduce them to a deal they end up investing in, which can also work out pretty well if you are able to spot good investment deals, know the founders, etc. For a culture where stock options, M&A and investing is so prevalent there really isn't much information out there in terms of making the right investment decisions and how to handle and work with money.
steven2012 12y ago
I'm of the opinion that the stock markets are now inherently unstable, and they will continue to crash every 7-10 years. I'm expecting a market crash somewhere between 2015 and 2017. Most of my money is in cash, but I do hold a few select stocks like AAPL, GOOG and TSLA. I also believe that the stock market is a game, not an investment vehicle. The nature of the market has transformed every since the day trader, quants and HFT have entered the markets. As long as you understand this, then putting money in the markets is fine. If you don't want to be a part of the game, then regular people should buy bonds (not bond funds, but actual bonds that pay interest). My opinion is that Wall Street has shifted focus since the 80s to trying to convince people to dump their money, all their money, into mutual funds. Then these massive fund managers take their 1-3% in various fees and just move money back and forth. I don't trust Vanguard any more than I trust any of these other large mutual fund companies, and I happen to know a lot of people that work at various asset management companies in the Bay Area. They print money without ever beating the SP500, instead they try to change the equation by claiming they beat the SP500 on a risk-weighted basis, etc. The entire thing is a sham, and as the OP remarked, why do the mutual fund managers have yachts but none of the clients do? It's because they make their money from the hundreds of billions of dollars they skim off the top of their customer funds.
- jamesaguilar 12y ago
  > I'm of the opinion that the stock markets are now inherently unstable, and they will continue to crash every 7-10 years. When you say "now," are you referring to the period from when financial markets were discovered until the present? Or some more specific period? As far as I knew, boom and bust are not exactly new developments.
  - steven2012 12y ago
    I'm not talking bear markets, I truly believe there will be 50%+ drops every 7-10 years, which is something that you wouldn't expect pre-2000, except 1987. I think the stock market is a battle ground for amoral participants who are willing to break the stock markets in order to make as much money as they can, and the NYSE and NASDAQ don't seem to care.
jamesaguilar 12y ago
Hedonic adaptation is the devil. You'd hope/intuit that spending more resources would make you happier, but that's just not the way it works. That said, you can use knowledge of this quirk of human psychology to make you richer and more secure compared to your higher-consuming self, not sacrificing any long term contentment or satisfaction to do it. Here's a more in-depth review of the topic[1]. [1] http://www.mrmoneymustache.com/2011/10/22/what-is-hedonic-adaptation-and-how-can-it-turn-you-into-a-sukka/ http://www.mrmoneymustache.com/2011/10/22/what-is-hedonic-ad...
arkem 12y ago
I've been considering moving from holding Vanguard ETFs (one of their Total Retirement funds) over to Betterment or Wealthfront to take advantage of their automated tax loss harvesting. Does anyone have any thoughts about whether automated tax loss harvesting is worth the 0.15-0.25% fees that the robo-advisers charge?
- ForHackernews 12y ago
  Probably not worth it unless you have a very large portfolio and you're too lazy to do the tax loss harvesting yourself. It's especially not worth it if you're correctly holding most of your retirement savings in tax-advantaged accounts (401k/403b/IRA/HSA). You are, right? Also, it's worth noting that Schwab is launching a free robo-advisor service early next year[0] so that may be the nail in the coffin for startups like Betterment. [0] http://www.reuters.com/article/2014/10/03/us-charles-schwab-robo-advice-idUSKCN0HS1UV20141003 http://www.reuters.com/article/2014/10/03/us-charles-schwab-...
  - arkem 12y ago
    Thanks for the tip about Schwab, looks interesting, especially the 'free' part. Thinking about it, basis points feel too expensive for something that's done entirely in software. I suspect competition from existing players will drive the price right down.
- deleted 12y ago
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- prostoalex 12y ago
  Wait till the price drops to 0% https://intelligent.schwab.com/ https://intelligent.schwab.com/
  - tacos 12y ago
    Schwab is also aggressively pricing their ETFs vs Vanguard, beating them in many cases. Not worth switching, but "Vanguard is Best" isn't the rule either.
kirillzubovsky 12y ago
FYI, if "tax loss harvesting" is something you'd like to consider, there're companies out there which (for a fee), would do it for you. Their entire business model is to lose money for you, in a smart way. That said, if you need to use this method, you're probably wealthy enough to know how/where to use it.
- tempestn 12y ago
  Honestly IMO tax loss harvesting becomes very straightforward if you have a nice, simple portfolio of index funds. Your entire portfolio will be maybe 3-5 funds, so there really isn't much to keep track of. A few minutes reading the superficial loss rules for your jurisdiction should do it. (Generally, as long as you sell a fund at a loss and replace it with something similar, but tracking a different index, you're fine.)
dave1619 12y ago
I added a comment on Matt's blog post but it's waiting moderation so I'll post it here to hear other folks' input. "Hi Matt, I usually enjoy your posts but I felt this one lacking in a major way. Investing is something that has huge potential (ie., 100 fold). This is something that I’m sure you’re aware of as an early Google employee (you were invested in the company via stock options, etc). On the other hand, investing has huge downside as well (you can lose all your money). Many people are advocating people to take a mindless approach to investing by investing in low-cost index funds. I personally think this is decent/good advice for most people who don’t have the time, energy, experience, skills to make investing a lifetime passion. In other words, for the typical person who just wants to focus on his 9-to-5 job and other hobbies and not deal with the world of investing, then sure low-cost index funds are the way to go. However, there are some people who can benefit in huge ways by becoming experts in investing (whether this be in stocks, real estate, businesses, etc). A few disclaimers first… becoming an expert investor is extremely difficult and most people underestimate what it takes. It’s not about “picking” stocks or getting lucky. Rather, it’s about accumulating the skills, experience and expertise to evaluate investment opportunities in a wise and discerning manner, and to do it exceedingly well. I think it requires an immense amount of time and dedication. And I don’t think 98% of the people out there practically have the time, energy, motivation or focus to develop such skills. But for the 1-2%, I think it’s a possibility if they treat it as a serious lifetime endeavor."
- crimsonalucard 12y ago
  Lately, even the experts have a hard time beating the SP500.
- tempestn 12y ago
  In markets like real estate and private business, I agree with everything you wrote. In a liquid, public market like publicly-traded stocks though, I'm not so sure. I don't disagree that if you devote your life to it, you could possibly find an edge - although it will likely continue to get more difficult as institutional players become ever better at exploiting (and thus removing) any inefficiencies. But even if we accept that it's possible, you would almost certainly have to accept significant volatility to do so. And even if you didn't, you would ultimately be devoting your life to winning a zero-sum game. (Similarly it is possible to become good enough at poker or (with more difficulty) blackjack to make a living from them. Even a good living, potentially. But you're going to have to weather some downswings along the way, and you won't have any consolation in the fact that you're creating something of value - as you would starting a business for instance.) So I guess I don't disagree with anything you wrote, but I question whether it makes sense for a person to devote the majority of their energy to playing the stock market. (And I definitely agree with you that it would indeed take the majority of one's effort over the long term to have any reasonable chance of success beyond pure luck.) Edit: I should add that I would consider some proven, passive strategies such as tilting to small and value to be exceptions. These do theoretically allow for slightly superior returns without life-consuming effort, at the likely expense of taking on some additional dimensions of risk. I personally keep a moderate small/value tilt.
ballstothewalls 12y ago
Lesson number 1 is unequivocally wrong and contradictory with the start of the article. He says you shouldn't invest your money in single stocks, but then advocates for you to invest your money (by way of forgoing salary in favor of equity) into a start up company with (by definition) no track record of success or guaranteed future. Not to mention that when the start-up tanks (which it will do statistically) you will both lose your salary and your investments/equity will be worthless.
- burnstek 12y ago
  The assumption is that you work for the startup and have a critical enough position to earn equity, and therefore have more influence over its performance than that of a public company.
  - tempestn 12y ago
    Exactly. There's a big difference between investing time and money in a venture where you have some control over the outcome and unnecessarily concentrating your passive investments in a single company (or even in anything less than the broad market, given the ubiquity of low-cost index funds). And even then, assuming your startup succeeds, you wouldn't want to wait too long before diversifying some of the profits (which the article supports).
  - Matt_Cutts 12y ago
    That's right. In the same way that Buffett can select a company that he believes in and then drive it forward with a strategic investment, you're trying to do the same thing with the startup that you select and drive forward. And "startup" doesn't have to be 3-4 people. I remember trying to recruit an engineer when Google was maybe 150 people. I tried to convince the engineer that Google was doing well and it wasn't as risky as it looked, but she decided to go work for Siebel instead. In other words, don't waste money/time/effort on things where you can't make a big difference. Find an area where you can have a lot of leverage or expertise and put your chips there.
    - 12y ago
influx 12y ago
I use Wealthfront, which allows you to park your money into an account, and depending on your level of risk, will automatically balance it across the US Stock Market, dividend stocks, emerging and foreign markets, bonds, and natural resources. For account values over $100K, they will do tax loss harvesting for you automatically, and prevent wash sales. For over $500K account values, they will actually buy stocks for the entire S&P 500, and allow you to take tax losses on individual stocks (which you can't claim on ETFs). I found their presentation to be quite helpful: http://www.slideshare.net/adamnash/personal-finance-for-engineers-twitter-2013 http://www.slideshare.net/adamnash/personal-finance-for-engi... If you want an invite, PM me.
- jpp 12y ago
  An important note on tax loss harvesting: it only defers taxes. If you'll be in a lower tax bracket in the future, that can be good; but if you'll be in a higher tax bracket when you need the money (eg house down payment), tax loss harvesting will actually cost you money, so beware.
  - ssanders82 12y ago
    This can be balanced against the fact that you get to invest and compound that deferred tax until you do end up paying it, possibly several years later. So instead of multiplying your account by .65 every year (assuming 35% tax rate), you only multiply it once, at the end.
Animats 12y ago
If you do get a lot of money somehow, read The Challenges of Wealth, by Amy Domini. Most people who get a reasonably large chunk of cash all at once blow it, in an average of seven years. A sizable fraction of old pro athletes are broke. So are a sizable fraction of lottery winners. As a rule of thumb, any investment where they call you is no good. If it was any good, it wouldn't need paid sales reps.
- pbhjpbhj 12y ago
  >If it was any good, it wouldn't need paid sales reps. // Unless they wanted to increase their profits. Just because something is good doesn't mean that sales reps can't convince more people to want it.
  - jacquesm 12y ago
    The idea is that if it was any good there would be plenty of money thrown at them without having to approach random strangers cutting them in on the action just because they're such nice people. Of course they want to increase their profits, but that goes for any outbound sales effort. Just the fact that they try to convince you to want it doesn't mean it is good either, most likely it means you don't have the whole story. So if you do not initiate the contact stay away from investment deals, especially when they're telephone sales calls.
jandrewrogers 12y ago
For most people, the easiest way to become financially independent is to save aggressively. That aside, I have always invested in a small number of individual stocks, with minimal management or effort, and only moving positions between companies slowly over time. Basically, I make bets on long-term trends that I view as technologically inevitable. I don't invest in sexy companies (though some become sexy later), I invest in companies that are undervalued relative to the technology trends. That strategy is pretty trivial but it has allowed me to beat the S&P index pretty consistently over decades (famous last words) with the money I don't have a better use for e.g. savings. In fact, the margin by which I beat the S&P has been slowly improving, which I think reflects the increasing ability of tech to move the needle on the economy. Since this is a tech site, this would seem like a repeatable strategy that anyone could and would use. But apparently people don't. Of course, I could just be really lucky.
- justin66 12y ago
  Based on what you've written, it doesn't appear that you've measured the performance of whatever method you're using against an appropriately risk-adjusted benchmark. For example, beating the S&P 500 over a certain time period is okay but if you're doing it with a bunch of small- or mid-cap tech stocks, it's quite possible you're not being compensated adequately for the risk you're taking. For instance, if you're investing in companies with a market cap less than $10 billion, the risk and overall effort you're putting in is really indefensible if you aren't beating the S&P Mid-Cap Index. Which over the last twenty years - just a sample time period - outperformed the S&P 500 pretty hugely: http://finance.yahoo.com/echarts?s=%5EMID+Interactive#%7B%22range%22%3A%7B%22start%22%3A%221994-11-01T16%3A00%3A00.000Z%22%2C%22end%22%3A%222014-11-28T17%3A00%3A00.000Z%22%7D%2C%22scale%22%3A%22linear%22%2C%22comparisons%22%3A%7B%22%5EGSPC%22%3A%7B%22color%22%3A%22%23cc0000%22%2C%22weight%22%3A1%7D%7D%7D http://finance.yahoo.com/echarts?s=%5EMID+Interactive#%7B%22... Or do a little better and compare your performance against a real tech sector index. Do better still and use the tools of modern portfolio theory to measure your portfolio's performance. > Of course, I could just be really lucky. It's probably worth reading The Drunkard's Walk.
  - jandrewrogers 12y ago
crimsonalucard 12y ago
Everybody in the tech world is talking about investing in index funds. Historical evidence says this is the way to go, but when everybody is doing it, it makes me question whether or not it's the right choice. There's a possibility that the market is in another bubble right now.
- walshemj 12y ago
  the trouble with index funds is you participate fully in any crash/dogs eg index funds had to hold enron to the bitter end. some of my active funds saw the problems with the banks and got out before the crash now no index fund is ever likely to make up the difference - the active fund is now always ahead of the index
  - sumedh 12y ago
    > the active fund is now always ahead of the index but the question is how do you select the active fund which will consistently beat the market in the future.
    - walshemj 12y ago
      look for ones that have been around for 100 plus years and with 30-40 years of increasing dividend payments
      - Matt_Cutts 12y ago
        This guy named Bernie Madoff was able to outperform the market for years and years, I hear.
  - hnnewguy 12y ago
    >hold enron to the bitter end. Holding Enron in a portfolio consisting of hundreds of securities will have little impact on the overall portfolio returns. That's the whole point of diversification.
armansu 12y ago
Made me think (as most of the lessons coincide) about the book I'm reading at the moment - 'Money: Master the Game' by Tony Robbins: http://moneymasterthegame.com/ http://moneymasterthegame.com/
- clamprecht 12y ago
  Want to see how hard it is to predict the market? Watch this message from Tony Robbins to his followers in 2010: https://www.youtube.com/watch?v=KzREzgDoaZg https://www.youtube.com/watch?v=KzREzgDoaZg He says he believes the market may be entering a dangerous period and all but advises getting out of stocks. (Watch part 1 and part 2). If you followed his advice from 2010 until now, you've lost out big time. My point isn't that Tony Robbins was wrong, it's that it is very hard to predict the market.
grimlck 12y ago
"Google worked out a deal with “full service” broker to give us free accounts" That is actually really interesting. How much did this broker have to pay to get this box full of highly lucrative leads - access to a large set of newly wealthy individuals, many of which don't have experience with managing large amounts of money. A bunch of people who may be experts of technology, but probably are not experts on finance. It seems like inviting the fox into the hen house, and telling the hens what it deal it was
- j_lev 12y ago
  It also seems at odds with what was said in this article, linked to here on HN a couple of weeks back: http://www.modernluxury.com/san-francisco/story/the-best-investment-advice-youll-never-get http://www.modernluxury.com/san-francisco/story/the-best-inv...
  - Matt_Cutts 12y ago
    Just to answer this thread: Google did a fantastic job of educating employees before the IPO. They brought in a ton of smart people to bring us up to speed, emphasize the need to diversify and minimize risk, etc. Honestly, I couldn't ask for a company to do a better job of educating us. In addition, they arranged to give us default accounts with a broker so that we could sell our shares. My decision to park some money in commercial paper was strictly my own, and I should have done more research on it first.
- deleted 12y ago
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netcan 12y ago
I'm surprised he doesn't mention real estate or investing in friend/family businesses as an option. This isn't as safe as index funds, but it is an option where you can increase your success rate by being competent. It probably has a risk profile similar to working for equity at a startup, an option only available to people who work in or around startups.
- Sven7 12y ago
  Nor did he mention Facebook stock. Weird.
  - netcan 12y ago
    I'm not sure I understand your point. Are you just implying the FB is a bad investment and so are the ones I mentioned?
- tacos 12y ago
  He also didn't mention putting your money in TSP if you're an eligible federal employee, or talk about individual 401ks tied to an LLC to increase retirement saving limits, or why wandering the halls of Google makes you predisposed to think Cisco would be a no-way-to-lose investment. The article represents a smart but narrow dude's perspective on a very, very big world. That said, Real Estate during the "banks won't loan anyone money and interest rates are headed up storm" and "loan money to friends/family in the Shark Tank era" don't make my "top wealth-building picks" list for 2015...
briandear 12y ago
If you diversify enough, you can ensure a 0% return and a 0% loss. The argument for "diversification" is a recipe for safety, but not real wealth creation. Real wealth creation isn't "sticking your money in an index fund." It's a very middle class approach but as with anything, there's no such thing as a free lunch. If it takes 30 years of index funds to be able to retire, then you're doing it wrong. Investing in actual cash-flow producing assets is how you create wealth. Capital appreciation is only one part, the other part is creating cash flow. That means owning businesses, real estate and other passive income generators (IP, for example.)
- oscilloscope 12y ago
  Diversification is considered to be one of the only "free lunches" in finance. It can both increase your return and decrease your risk, with almost no downside. For example, going from 100% bonds to 80% bonds and 20% stocks will significantly increase a portfolio's expected return with reduced risk. Another example is owning the Total Stock market (small and mid-caps included) rather than just the S&P 500. http://bucks.blogs.nytimes.com/2011/09/06/why-and-how-diversified-investors-win/ http://bucks.blogs.nytimes.com/2011/09/06/why-and-how-divers...
netcan 12y ago
There is an economics article I’ve brought up several times on HN. It has a lot of non obvious deep implications: “The Nature of the Firm' (1937), By Ronal Coase” It tries to answer the question of why companies exist rather than bilaterally trade of goods and services between individuals in a market. IE, if centralised economies are so bad, why are free market economies dominated by enormous companies that are internally run like a Stalinist country. Instead of Apple making all the software and hardware and the babushka doll of precursor software and hardware, couldn’t we have Apple replaced by a market? The economics of the time (especially among proponents of centralized systems) focused a lot on “inefficiencies.” Why produce hundreds of iPad screen designs when only one is needed. Economies of scale. Coase’s answer to the question was transaction costs. The “cost” of weighing all the options and negotiating a deal to have you write a thousand lines of code to go into my bigger bundle of code. In modern companies like Apple this is extreme. But, if you think about it in a manufacturing economy, it makes more sense. Anyway, as I said, the more I think about it the deeper some of the concepts and implications seem to be. For example: (a) There are inefficiencies out there on the scale of East/West Germany. (b) Transactions costs are at the root of many/most major inefficiencies. The part of this blog that got me thinking about this was “working for equity vs. salary.” I think that for most people, the choice company they work for wass 80% chance and 20% uninformed bias. Applying for a job and interviewing is a big overhead (transaction cost) and your ability understand the company’s chances of success and the magnitude of this success isn’t very good. The fact that many people don’t know what percentage of the company their stock represents is the glaring proof. Prospective employees don’t have anywhere near the information that investors do. How much money is in the bank? What are revenues? Burn rate? Valuation at previous rounds? The poverty of information and the fact that transaction costs make it impossible for one to consider more than the tiniest semi-random sample of opportunities is exactly the kind of dynamic I think Coase’s work implies.
FiReaNG3L 12y ago
Literally everywhere for the past years I see the advice to invest in index funds - the only question I have is what happens when a critical mass of people do just that? Wouldn't that influence the market in some way?
- markovbling 12y ago
  that's the paradox of the efficient market hypothesis - if everyone is a passive investor then who keeps the market efficient? (...which is a common counter-argument for the markets being efficient. The reasoning behind passive investment is that, net of fees, it's difficult to out-perform the market although of course, everyone can't outperform the market because everyone collectively IS the market)
  - j_lev 12y ago
    Companies themselves buy and sell their own stock when they believe it is under/overvalued. And there will always be people out there who believe they have an edge and can pick undervalued stocks. These days I think in reality most people who have been into indexing for a while give themselves a bit of play money to invest in something more speculative.
- thejteam 12y ago
  And just like engineering standards, the nice thing about stock indexes is that there are so many to choose from.
tacos 12y ago
The tone is far too authoritative given the narrow experience of the author. Reading an Googler's quickie blogpost investment guide isn't the path to financial independence. It's barely the bot-filled advice of /r/personalfinance with a better PageRank. Microsoft pushed giving and 30 years later there are still people blindly pumping money into United Way. (Maybe not the best charity!) Google seems to have pushed their smart people into another half-baked set of assumptions. I'm forcing myself NOT to get involved on this one (the solution to one person's narrow experience isn't another guy with different narrow experience ranting in the comments) but I will point out that Schwab Charitable (their DAF) has lower minimums and fees than Vanguard. A lot of nerds spend more time researching a graphics card than a stock pick or charity. Like anything else, put the time in and you'll be rewarded over the long term.
- 7Figures2Commas 12y ago
  I agree. One of the most cringe-worthy parts of this post is the author's multiple references to bond funds. Owning bond funds is not the same thing as owning bonds and every bond investor should know the difference. Bond prices have an inverse relationship with interest rates. Bond prices fall when interest rates rise. When you own individual bonds, you cannot lose your principal if you hold to maturity unless the issuer defaults. Most bond funds do not hold bonds to maturity, so investors in bond funds have significant exposure to interest rate risk. This is especially true today given the interest rate environment. There are other ways to address interest rate risk with bond funds, especially if you have a longer horizon. You can buy short-term bond funds, and there are even defined maturity funds. But you don't find any mention of those in the post. It's just bonds = bond funds. It all comes back to your comment, "put the time in and you'll be rewarded over the long term." Even seemingly simple financial advice ("buy a bond fund!") is insufficient because it requires more time and effort to execute correctly than most people are willing to put in.
  - Retric 12y ago
    I don't think bonds are really a good investment for most people. They basically have the same edge case volatility as stocks(1) without the upside. If you have a diversified portfolio the worst stock market crashes where only an issue if you used leverage. (1)As in if the issuers fail you get nothing. PS: Granted if bonds where still paying 10+% that would be another story, but after taxes there only slightly ahead of inflation.
maguirre 12y ago
Interesting topic and one that really resonates with me. I have always been interested in learning how to make money the way "people with money" make it. Personally I have come to the conclusion that a few solid stocks paired with protective puts and/or call options (to make a little extra money for sideways markets) provides a decent way to generate some extra income and greatly reduces risk of losing everything from a single mistake
g_mifo 12y ago
Most of this is standard sane advice, but the tip about "work for equity [in the next Google] instead of chasing salary": well if we all could pick stocks like that, we would not need the rest of his advice!
applecore 12y ago
Regarding most of these lessons, in 2004, Google brought in experts on personal investing to educate employees heading into its initial public offering: http://www.modernluxury.com/san-francisco/story/the-best-investment-advice-youll-never-get http://www.modernluxury.com/san-francisco/story/the-best-inv... TL;DR: Put your money into some broad-based, low-cost index funds.
- walshemj 12y ago
  ah so why do the Rothschilds put a good chunk of family money in an active fund aka RIT Capital partners. index funds are fine for some one with only a couple of grand spare - with the sort of money that comes from a good ipo you need to be a bit more sophisticated than that.
  - deleted 12y ago
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applecore 12y ago
How many people are actually living entirely off passive income from interest, dividends, and capital gains? I feel that goal—which requires millions of dollars in investable financial assets—is only realistic for a tiny percentage of the population.
- walshemj 12y ago
  You could live quite well off only a £million or so in the UK so 2 mill in the USA will give you a nice life style - baring any catastrophic health issues
jafaku 12y ago
Consider also buying a bunch of bitcoins. The reward/risk ratio is too high in my opinion.
mbesto 12y ago
> Instead of a regular stock broker, I highly recommend Vanguard. Go with Vanguard whenever you can. This is good advice. YMMV but my retirement fund with Vanguard has been yielding ~10% annually (VWELX).
dredmorbius 12y ago
Matt's article (and the linked one of Scott Adams' advice) is a good and basic foundation. Adding to the reading list, I'd very strongly recommend the following: A Random Walk Down Wall Street by Burton G. Malkiel lays out the basics of portfolio diversification. http://www.powells.com/biblio/1-9780393340747-0 http://www.powells.com/biblio/1-9780393340747-0 The Great Crash: 1929 by John K. Galbraith tells the story and aftermath of the biggest stock market catastrophe of the past century. It is a slim, highly readable, and incredibly informative book. Parts of it read as if it could have been written yesterday. Much of it provides a background and context on the Crash that corrected a great many misunderstandings and holes in my own knowledge. Galbraith has a dry humor and is a strong (and often disliked by insiders) critic of much of the establishment. Fans of this book are recommended to view his video series The Age of Uncertainty. http://www.powells.com/biblio/1-9780395859995-9 http://www.powells.com/biblio/1-9780395859995-9 http://www.powells.com/biblio/1-9780395259474-2 http://www.powells.com/biblio/1-9780395259474-2 http://fixyt.com/watch?v=KGSID_Uyw7w http://fixyt.com/watch?v=KGSID_Uyw7w And adding to Matt's advice: have savings. The flexibility offered by "fuck you money" as Humphrey Bogart and others have noted is tremendously valuable.
- jseliger 12y ago
  Great comment! I want to emphasize this: A Random Walk Down Wall Street by Burton G. Malkiel lays out the basics of portfolio diversification. A Random Walk Down Wall Street is one of the best books I've ever read, and I'd only add that I think The Millionaire Next Door is also excellent. When most of us think about millionaires we think about Hollywood stars, tech company founders, and finance moguls. But most millionaires are actually normal people who spend below their means and invest what they can, usually in index funds and sometimes in a house. If they marry they don't divorce (divorce is very, very expensive and modern marriage is a high-risk endeavor). Chances are good that most of the millionaires you know don't live like millionaires—which is why they can be millionaires!
  - Chronic29 12y ago
    Becoming a millionaire today is easier than ever before.
brentiumbrent 12y ago
Simple advice: just use Wealthfront and take all of this advice at once, automatically. http://wlth.fr/1fsdN6t http://wlth.fr/1fsdN6t
brentiumbrent 12y ago
Simple advice: just use Wealthfront and take all of this advice at once, automatically. http://wlth.fr/1fsdN6t http://wlth.fr/1fsdN6t
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n72 12y ago
The tragic thing is that these lessons don't have to be "hard-won". I find it astonishing that a majority of even intelligent people don't do more basic research before making major decisions with something as important as their money. A few hours of research should turn up things like bogleheads.org, Bernstein, Malkiel, etc. Heck, a simple google of "site:ycombinator.com investing advice" should get you on the right track to all the advice you need in a few clicks.
dirtyaura 12y ago
What is especially hard in investing is timing. If you followed Matt's advice and put all your investments to index fund (say Vanguard Total Stock Market ETF, https://www.google.com/finance?q=NYSEARCA https://www.google.com/finance?q=NYSEARCA) in the late 2007, you would have lost almost 50% of your savings in a year. And this example is not far fetched. My startup got acquired in 2007 and I invested some of that money to the stock market in late 2007. Not all, fortunately.
- n72 12y ago
  This is a terrible way of looking at things, since your time horizon is far too short. If you had put your money in the market at the height and kept it in until now, you would have made money. On Oct 5, 2007, VTSAX was trading at 37.72. It is currently trading at 51.87. Moreover, what was the alternative? Cash would have lost value due to inflation. Fixed income would have gotten you less and also been vulnerable to inflation.
- hnnewguy 12y ago
  >I invested some of that money to the stock market in late 2007. Not all, fortunately. Why? The inflation adjusted CAGR of the S&P from Jan 1, 2007 to Jan 1, 2014 was almost 4%.
mathattack 12y ago
Remarkably good ideas, and I tend to view most posts like this as Snake Oil. Almost everyone should be doing most of their equity investments through a passive low cost index like Vanguard's.
gfodor 12y ago
This is the typical investment advice, and it's generally outdated and wrong to just invest in index funds based on asset classes if your goal is to diversify away volatility. For a layman's treatment debunking this view (don't mind the title): http://www.amazon.com/Jackass-Investing-Dont-Profit/dp/0983504008 http://www.amazon.com/Jackass-Investing-Dont-Profit/dp/09835... for a more academic flavor: http://www.amazon.com/Expected-Returns-Investors-Harvesting-Rewards/dp/1119990726 http://www.amazon.com/Expected-Returns-Investors-Harvesting-... the best book on stock picking i've read: http://www.amazon.com/Quantitative-Value-Web-Site-Practitioners/dp/1118328078 http://www.amazon.com/Quantitative-Value-Web-Site-Practition...
DanBC 12y ago
For a different take people might be interested in "A Mathematician Plays the Stockmarket", by John Allen Paulos (he also wrote the excellent "Innumeracy"). The book explains a bunch of mistakes he made when investing. http://www.amazon.com/Mathematician-Plays-The-Stock-Market/dp/0465054811 http://www.amazon.com/Mathematician-Plays-The-Stock-Market/d...
vpeters25 12y ago
> You are probably a bad stock picker You might find a stock that looks good, you check financials, fillings, read forum posts and "expert" financial blogs such as Seeking Alpha. They all concur: stock looks good, BUY! BUY! BUY! So you buy the stock thinking you are making an informed decision only for it to crash the next day after their latest SEC filing hits the wires. There you learn they all knew the filing was coming, so they pimped the stock hard so suckers like us bite. Corp officials, analysts, "expert" financial bloggers, even the SEC. They are all on it.
- mistermann 12y ago
  I doubt you'll believe me, but there are a lot of 100% independent investors that are on twitter and forums as well as write in-depth blogs who consistently outperform the market and do not resort to any sort of tricks like this. Of course, you have to find them (and I'm certainly not going to share as I have made a significant investment of time finding these people, and many of the stocks they buy are small caps), and you also have to (or should) do your own due diligence on every purchase. Seeking Alpha specifically is mostly full of people like you describe, but there is also some honest, legitimate advice there.
ingend88 12y ago
I am one of those people who have lived this advice and after 10 years of following some of the recommendations here, I can confirm that it works. Here are my 5 simple rules that I followed, no lottery/IPO, just a steady single income. - Max out 401K and get company match - Max out Roth IRA for me and my wife - Invest in Vanguard S&P 500 Index Funds, some international funds and some bonds - Invested in a property in India - Lived below 35% of the salary - Always bought a used car and kept the car for as long as it runs Results - After 10 years, I am financially independent - I am working for Google just because I enjoy working and not because I need a paycheck - My wife works as a teacher and she enjoys her job as well. She is working because she likes to and not because we need a paycheck What was hard ? - To see friends buying expensive cars just after getting their first job and not doing the same - Friends buying > 1M$ houses while I kept renting since I like the flexibility and staying in a community - Friends going on exotic trips I think at the end, its worth it.
- chatmasta 12y ago
  This is good advice but may also have some element of survivorship bias. If you haven't noticed, not everybody works for Google. In fact, not everybody works for a company that will match their 401(k). If you're lucky enough to be taking home a six figure salary (not to mention one that grows with bonuses as you progress) every year, maybe this advice is good. But you should consider in your advice that not everyone is taking home $xxx,xxx per year, plus bonuses, plus full company 401(k) matching and all benefits. You are very lucky that you were able to live below 35% of salary. Still, I wonder if advice would be different for people who are making less?
  - Matt_Cutts 12y ago
    For the case you're talking about, see Scott Adams' financial advice. I linked to it in my post.
  - ingend88 12y ago
    I think the mindset still applies. Surprisingly, I know people who get 6 figure salaries and yet are not financially independent. The secret here is to start early since the expenses rise exponentially after wife and kids.
CurtMonash 12y ago
I was a #1-ranked stock analyst (computer software and services industry) in the 1980s. I took a portion of my parents' money and doubled it in 18 months, by splitting it among 5 stocks that went to 4X, 3X, 3X, 0X and 0X. Then I left Wall Street, told them I no longer was in a position to do such stock picking, and they should put their money into Vanguard index funds. They were not pleased, and felt I let them down by not being more active in investing for them.
- hnnewguy 12y ago
  >it among 5 stocks that went to 4X, 3X, 3X, 0X and 0X What stocks?
  - CurtMonash 12y ago
    Symbolics was one of the bankruptcies. American Management Systems and Lotus were two of the winners. I've forgotten the others.
CurtMonash 12y ago
I was a #1-ranked stock analyst (computer software and services industry) in the 1980s. I took a portion of my parents' money and doubled it in 18 months, by splitting it among 5 stocks that went to 4X, 3X, 3X, 0X and 0X. Then I left Wall Street, told them I no longer was in a position to do such stock picking, and they should put their money into Vanguard index funds. They were not pleased, and felt I let them down by not being more active in investing for them.

366 points by sethbannon 12y ago

I'm at the start of a long career and trying to save sacrificially. I know if i over-save i still have it if i need it, but so far every dollar i have put into savings has been on a one-way trip! I wonder and worry about how to save up for later in life, and who knows what the political landscape will look like then. In my country inflation has been 2.16% on average during the years I've been alive. Where can I store my money in a way that I know it will be there later whn I need it? (I'm a little nervous about the bank, one time I had a court order against my bank account so it was drained, and I was beingpaid by cheque, but even when I took my paycheque to the bank to deposit it, until that debt was paid off i couldnt even take out enough for groceries. I want something that cant be taken away at a whim without recourse. I negotiated a deal with the collection agency for a repayment schedule, but they still drained my account 2-3 times after our agreement just because. Oops!)

ollifi 12y ago
Having time and mind for saving is an excellent place to be. There are no guarantees with these things. As you say the only sure thing is that inflation will destroy significant portion of your savings in only few decades. If you think things in timespans of several years you really should look into investing. This way you don't sit on your money but buy something that generates value and thus will be valuable also in future. Spread your investment over long time and wide range of different assets and you are as safe as you are going to get. Usually people suggest passive index funds with low fees to do this in practice. Don't take their word for it but study yourself.
TheSpiceIsLife 12y ago
I live in Australia. Here the interest rate on cash deposits is around 2.75%, or 3.6% for a 180 day term deposit minimum $10,000. Inflation the past few years has been between 2.2 - 2.9%. No point holding money in a bank account or term deposit as an 'investment' - I only hold cash because it's handy to have. All the books I read on the topic of investment were intended for Australians, so my advice is to read two or three books each on investing in the stock market and real estate, and understanding your countries tax rules as they apply to investors. It has been said that if you read three good books on any subject you should be able to converse with the professions and understand what they're saying. There probably isn't a place you can put money where a court order won't be able to touch it. Payment agreement before that happens is a good idea, but of course that isn't always possible.
zo1 12y ago
What little advice I can offer. From what I've gathered, there is no sure-fire way to protect your capital from constant things such as inflation and wild things such as economic "incidents", for lack of a better term. I've lately been thinking that some more reliable means would be to own a "wealth-generating" business. Or a few of them in varied industries, to mitigate risk. Another method that I've also thought about is antique art and possibly high-quality furniture as well. But that would apply in case of a major war-situation, assuming you could even get those physical items to safety.
- walshemj 12y ago
  Indexed Link Gilt's or TIPS (in the USA) can do that
  - PhantomGremlin 12y ago
    TIPS open up a can of worms that most people probably don't want to deal with, unless the bonds are held in a tax-advantaged account (such as an IRA). Here's the skinny straight from the horse's mouth:[1] Form 1099-OID shows the amount by which the principal of your TIPS increased due to inflation or decreased due to deflation. Increases in principal are taxable for the year in which they occur, even if your TIPS hasn't matured, so you haven't yet received a payment of principal. I.e., you must pay annual taxes on an increase in principal for your TIPS bonds, even though you don't get your cash back from the govt until the bond matures. No thanks! Count me out of that one! As a possible alternative (which has its own problems) there are Series I savings bonds (which also attempt to compensate for inflation). Those have the advantage of:[2] Tax reporting of interest can be deferred until redemption, final maturity, or other taxable disposition, whichever occurs first. [1] http://www.treasurydirect.gov/indiv/research/indepth/tips/res_tips_tax.htm http://www.treasurydirect.gov/indiv/research/indepth/tips/re... [2] http://www.treasurydirect.gov/indiv/products/prod_tipsvsibonds.htm http://www.treasurydirect.gov/indiv/products/prod_tipsvsibon...
  - PhantomGremlin 12y ago
    My previous reply was critical of TIPS. But I didn't offer an alternative. This is a very complicated issue to deal with; there are so many pluses and minuses to all investments. But here's an alternative to TIPS: Roth IRA or Roth 401(k). You put your after-tax money in there and then you NEVER have to pay taxes on interest or capital gains. No taxes ever again. Of course that's at the whim of Congress. They can always bend you over 20 years from now by changing the law. TANSTAAFL.

j_lev 12y ago

> If you’re an employee working for salary, it’s going to be hard to reach that level of independence. ... You can try to radically lower your financial burn rate, but few Americans have taken that step. So many people are quick to dismiss living well within one's means as a way to financial independence. Here's the link to the facts again: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/ http://www.mrmoneymustache.com/2012/01/13/the-shockingly-sim... TL;DR: Live on 35% of your after tax income and you're retired in 10 years. Get it down to 25% and you retire in 7.

seanmcdirmid 12y ago
And don't have kids.
- jamesaguilar 12y ago
  Or do, and cut from other areas/don't get on the hoighty-toighty daycare/lessons/private school treadmill. But kids are definitely an expense.
- phamilton 12y ago
  Having kids doesn't change the math. That's MMM's point in the post. It's all about savings rate. Kids mean it is harder to save 35%, but the math doesn't change.
  - j_lev 12y ago
    I'd add that even if you aren't able to live on 35% for 10 years straight you shouldn't fall into the mindset that it's not worth aiming for at all.
adamio 12y ago
What about rent or mortgage? In most major cities low rent could be easily 35% of after tax income already
- 12y ago

ForHackernews 12y ago

https://www.bogleheads.org/wiki/Getting_started https://www.bogleheads.org/wiki/Getting_started Short version: Open a Vanguard account and invest >=15% of your salary in the appropriate target date fund for the year you want to retire. P.S. Where possible, become a millionaire in Google's IPO.

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lpolovets 12y ago
Have target date funds been successful? The last time I checked, their historical performance (admittedly for only 6-7 years) seemed underwhelming.
- deleted 12y ago
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- JoshTriplett 12y ago
  If you care about a 6-7 year window, especially the most recent 6-7 year window, target date funds aren't for you. They'll underperform when the market is doing well. They'll also suffer less when the market tanks. Overall, they're a safer investment if you really do have a fixed target date and want to retire close to that date, and thus you have much less tolerance for risk. In particular, they tune for less risk the closer you get to the target date, to limit unexpected surprises. If you're near the beginning of your career, you don't have a fixed retirement date in mind, and you're investing a substantial enough fraction of your income that you will likely retire earlier than average, then you might want to pick a standard index fund with a fixed proportion of stocks and bonds based on your tolerance for risk, and leave it that way.
- wiredfool 12y ago
  The last 6 or 7 years hasn't exactly been average for historical performance in either stocks or bonds. I'd expect that the target date funds would wind up underperforming in this sort of market, and likely outperform in down markets, especially once you factor in ill-advised market timing/panic changes when the bottom drops out.

mcfunley 12y ago

> Think about working for equity vs. salary It's really common for people to drastically overestimate the value of startup equity, or to just not understand the basic mechanics of it at all. In my experience people look at the face value of their options and are pretty clueless about how taxes (or even their strike price!) affect what they might actually wind up with.

steven2012 12y ago
I agree. It's easy for Matt Cutts to say that you should take more equity, because he has only seen massive success. I've been in the Bay Area exactly as long as he has, and I've had 1 company out of 6 where my options actually made me money. The rest were all worthless.
- nikcub 12y ago
  If you're exchanging salary for equity you have to look at taking a job at a startup like an investment decision. I don't know what the broader startup stats are now, but 1 in 6 sounds about average. It means you should negotiate down vesting periods and try and spend a few years at each startup before figuring out if it will succeed or not. My anecdotal opinion is that more startups are cashing out for at least something because of acquihires and low-end mergers. I had a friend whose startup ran out of money, he accepted a few points of another startup in exchange for the assets of his failed startup and that startup that bought his assets ended up selling for $100M+ after less than a year earning him a decent return. On another note - it would be pretty cool if someone did the equivalent of an index fund but for employee options. Get together with 5-6 of your friends at different startups and exchange options with each other to hedge the risk. Another way to diversify your exposure is to get advisory roles at startups and pick up 25-100 b.p from 4-5 different companies for helping them out. This has worked out pretty well for myself. There are some VCs who will also invest a small slice on your behalf if you introduce them to a deal they end up investing in, which can also work out pretty well if you are able to spot good investment deals, know the founders, etc. For a culture where stock options, M&A and investing is so prevalent there really isn't much information out there in terms of making the right investment decisions and how to handle and work with money.

steven2012 12y ago

I'm of the opinion that the stock markets are now inherently unstable, and they will continue to crash every 7-10 years. I'm expecting a market crash somewhere between 2015 and 2017. Most of my money is in cash, but I do hold a few select stocks like AAPL, GOOG and TSLA. I also believe that the stock market is a game, not an investment vehicle. The nature of the market has transformed every since the day trader, quants and HFT have entered the markets. As long as you understand this, then putting money in the markets is fine. If you don't want to be a part of the game, then regular people should buy bonds (not bond funds, but actual bonds that pay interest). My opinion is that Wall Street has shifted focus since the 80s to trying to convince people to dump their money, all their money, into mutual funds. Then these massive fund managers take their 1-3% in various fees and just move money back and forth. I don't trust Vanguard any more than I trust any of these other large mutual fund companies, and I happen to know a lot of people that work at various asset management companies in the Bay Area. They print money without ever beating the SP500, instead they try to change the equation by claiming they beat the SP500 on a risk-weighted basis, etc. The entire thing is a sham, and as the OP remarked, why do the mutual fund managers have yachts but none of the clients do? It's because they make their money from the hundreds of billions of dollars they skim off the top of their customer funds.

jamesaguilar 12y ago
> I'm of the opinion that the stock markets are now inherently unstable, and they will continue to crash every 7-10 years. When you say "now," are you referring to the period from when financial markets were discovered until the present? Or some more specific period? As far as I knew, boom and bust are not exactly new developments.
- steven2012 12y ago
  I'm not talking bear markets, I truly believe there will be 50%+ drops every 7-10 years, which is something that you wouldn't expect pre-2000, except 1987. I think the stock market is a battle ground for amoral participants who are willing to break the stock markets in order to make as much money as they can, and the NYSE and NASDAQ don't seem to care.

jamesaguilar 12y ago

Hedonic adaptation is the devil. You'd hope/intuit that spending more resources would make you happier, but that's just not the way it works. That said, you can use knowledge of this quirk of human psychology to make you richer and more secure compared to your higher-consuming self, not sacrificing any long term contentment or satisfaction to do it. Here's a more in-depth review of the topic[1]. [1] http://www.mrmoneymustache.com/2011/10/22/what-is-hedonic-adaptation-and-how-can-it-turn-you-into-a-sukka/ http://www.mrmoneymustache.com/2011/10/22/what-is-hedonic-ad...

arkem 12y ago

I've been considering moving from holding Vanguard ETFs (one of their Total Retirement funds) over to Betterment or Wealthfront to take advantage of their automated tax loss harvesting. Does anyone have any thoughts about whether automated tax loss harvesting is worth the 0.15-0.25% fees that the robo-advisers charge?

ForHackernews 12y ago
Probably not worth it unless you have a very large portfolio and you're too lazy to do the tax loss harvesting yourself. It's especially not worth it if you're correctly holding most of your retirement savings in tax-advantaged accounts (401k/403b/IRA/HSA). You are, right? Also, it's worth noting that Schwab is launching a free robo-advisor service early next year[0] so that may be the nail in the coffin for startups like Betterment. [0] http://www.reuters.com/article/2014/10/03/us-charles-schwab-robo-advice-idUSKCN0HS1UV20141003 http://www.reuters.com/article/2014/10/03/us-charles-schwab-...
- arkem 12y ago
  Thanks for the tip about Schwab, looks interesting, especially the 'free' part. Thinking about it, basis points feel too expensive for something that's done entirely in software. I suspect competition from existing players will drive the price right down.
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prostoalex 12y ago
Wait till the price drops to 0% https://intelligent.schwab.com/ https://intelligent.schwab.com/
- tacos 12y ago
  Schwab is also aggressively pricing their ETFs vs Vanguard, beating them in many cases. Not worth switching, but "Vanguard is Best" isn't the rule either.

kirillzubovsky 12y ago

FYI, if "tax loss harvesting" is something you'd like to consider, there're companies out there which (for a fee), would do it for you. Their entire business model is to lose money for you, in a smart way. That said, if you need to use this method, you're probably wealthy enough to know how/where to use it.

tempestn 12y ago
Honestly IMO tax loss harvesting becomes very straightforward if you have a nice, simple portfolio of index funds. Your entire portfolio will be maybe 3-5 funds, so there really isn't much to keep track of. A few minutes reading the superficial loss rules for your jurisdiction should do it. (Generally, as long as you sell a fund at a loss and replace it with something similar, but tracking a different index, you're fine.)

dave1619 12y ago

I added a comment on Matt's blog post but it's waiting moderation so I'll post it here to hear other folks' input. "Hi Matt, I usually enjoy your posts but I felt this one lacking in a major way. Investing is something that has huge potential (ie., 100 fold). This is something that I’m sure you’re aware of as an early Google employee (you were invested in the company via stock options, etc). On the other hand, investing has huge downside as well (you can lose all your money). Many people are advocating people to take a mindless approach to investing by investing in low-cost index funds. I personally think this is decent/good advice for most people who don’t have the time, energy, experience, skills to make investing a lifetime passion. In other words, for the typical person who just wants to focus on his 9-to-5 job and other hobbies and not deal with the world of investing, then sure low-cost index funds are the way to go. However, there are some people who can benefit in huge ways by becoming experts in investing (whether this be in stocks, real estate, businesses, etc). A few disclaimers first… becoming an expert investor is extremely difficult and most people underestimate what it takes. It’s not about “picking” stocks or getting lucky. Rather, it’s about accumulating the skills, experience and expertise to evaluate investment opportunities in a wise and discerning manner, and to do it exceedingly well. I think it requires an immense amount of time and dedication. And I don’t think 98% of the people out there practically have the time, energy, motivation or focus to develop such skills. But for the 1-2%, I think it’s a possibility if they treat it as a serious lifetime endeavor."

crimsonalucard 12y ago
Lately, even the experts have a hard time beating the SP500.
tempestn 12y ago
In markets like real estate and private business, I agree with everything you wrote. In a liquid, public market like publicly-traded stocks though, I'm not so sure. I don't disagree that if you devote your life to it, you could possibly find an edge - although it will likely continue to get more difficult as institutional players become ever better at exploiting (and thus removing) any inefficiencies. But even if we accept that it's possible, you would almost certainly have to accept significant volatility to do so. And even if you didn't, you would ultimately be devoting your life to winning a zero-sum game. (Similarly it is possible to become good enough at poker or (with more difficulty) blackjack to make a living from them. Even a good living, potentially. But you're going to have to weather some downswings along the way, and you won't have any consolation in the fact that you're creating something of value - as you would starting a business for instance.) So I guess I don't disagree with anything you wrote, but I question whether it makes sense for a person to devote the majority of their energy to playing the stock market. (And I definitely agree with you that it would indeed take the majority of one's effort over the long term to have any reasonable chance of success beyond pure luck.) Edit: I should add that I would consider some proven, passive strategies such as tilting to small and value to be exceptions. These do theoretically allow for slightly superior returns without life-consuming effort, at the likely expense of taking on some additional dimensions of risk. I personally keep a moderate small/value tilt.

ballstothewalls 12y ago

Lesson number 1 is unequivocally wrong and contradictory with the start of the article. He says you shouldn't invest your money in single stocks, but then advocates for you to invest your money (by way of forgoing salary in favor of equity) into a start up company with (by definition) no track record of success or guaranteed future. Not to mention that when the start-up tanks (which it will do statistically) you will both lose your salary and your investments/equity will be worthless.

burnstek 12y ago
The assumption is that you work for the startup and have a critical enough position to earn equity, and therefore have more influence over its performance than that of a public company.
- tempestn 12y ago
  Exactly. There's a big difference between investing time and money in a venture where you have some control over the outcome and unnecessarily concentrating your passive investments in a single company (or even in anything less than the broad market, given the ubiquity of low-cost index funds). And even then, assuming your startup succeeds, you wouldn't want to wait too long before diversifying some of the profits (which the article supports).
- Matt_Cutts 12y ago
  That's right. In the same way that Buffett can select a company that he believes in and then drive it forward with a strategic investment, you're trying to do the same thing with the startup that you select and drive forward. And "startup" doesn't have to be 3-4 people. I remember trying to recruit an engineer when Google was maybe 150 people. I tried to convince the engineer that Google was doing well and it wasn't as risky as it looked, but she decided to go work for Siebel instead. In other words, don't waste money/time/effort on things where you can't make a big difference. Find an area where you can have a lot of leverage or expertise and put your chips there.
  - 12y ago

influx 12y ago

I use Wealthfront, which allows you to park your money into an account, and depending on your level of risk, will automatically balance it across the US Stock Market, dividend stocks, emerging and foreign markets, bonds, and natural resources. For account values over $100K, they will do tax loss harvesting for you automatically, and prevent wash sales. For over $500K account values, they will actually buy stocks for the entire S&P 500, and allow you to take tax losses on individual stocks (which you can't claim on ETFs). I found their presentation to be quite helpful: http://www.slideshare.net/adamnash/personal-finance-for-engineers-twitter-2013 http://www.slideshare.net/adamnash/personal-finance-for-engi... If you want an invite, PM me.

jpp 12y ago
An important note on tax loss harvesting: it only defers taxes. If you'll be in a lower tax bracket in the future, that can be good; but if you'll be in a higher tax bracket when you need the money (eg house down payment), tax loss harvesting will actually cost you money, so beware.
- ssanders82 12y ago
  This can be balanced against the fact that you get to invest and compound that deferred tax until you do end up paying it, possibly several years later. So instead of multiplying your account by .65 every year (assuming 35% tax rate), you only multiply it once, at the end.

Animats 12y ago

If you do get a lot of money somehow, read The Challenges of Wealth, by Amy Domini. Most people who get a reasonably large chunk of cash all at once blow it, in an average of seven years. A sizable fraction of old pro athletes are broke. So are a sizable fraction of lottery winners. As a rule of thumb, any investment where they call you is no good. If it was any good, it wouldn't need paid sales reps.

pbhjpbhj 12y ago
>If it was any good, it wouldn't need paid sales reps. // Unless they wanted to increase their profits. Just because something is good doesn't mean that sales reps can't convince more people to want it.
- jacquesm 12y ago
  The idea is that if it was any good there would be plenty of money thrown at them without having to approach random strangers cutting them in on the action just because they're such nice people. Of course they want to increase their profits, but that goes for any outbound sales effort. Just the fact that they try to convince you to want it doesn't mean it is good either, most likely it means you don't have the whole story. So if you do not initiate the contact stay away from investment deals, especially when they're telephone sales calls.

jandrewrogers 12y ago

For most people, the easiest way to become financially independent is to save aggressively. That aside, I have always invested in a small number of individual stocks, with minimal management or effort, and only moving positions between companies slowly over time. Basically, I make bets on long-term trends that I view as technologically inevitable. I don't invest in sexy companies (though some become sexy later), I invest in companies that are undervalued relative to the technology trends. That strategy is pretty trivial but it has allowed me to beat the S&P index pretty consistently over decades (famous last words) with the money I don't have a better use for e.g. savings. In fact, the margin by which I beat the S&P has been slowly improving, which I think reflects the increasing ability of tech to move the needle on the economy. Since this is a tech site, this would seem like a repeatable strategy that anyone could and would use. But apparently people don't. Of course, I could just be really lucky.

justin66 12y ago
Based on what you've written, it doesn't appear that you've measured the performance of whatever method you're using against an appropriately risk-adjusted benchmark. For example, beating the S&P 500 over a certain time period is okay but if you're doing it with a bunch of small- or mid-cap tech stocks, it's quite possible you're not being compensated adequately for the risk you're taking. For instance, if you're investing in companies with a market cap less than $10 billion, the risk and overall effort you're putting in is really indefensible if you aren't beating the S&P Mid-Cap Index. Which over the last twenty years - just a sample time period - outperformed the S&P 500 pretty hugely: http://finance.yahoo.com/echarts?s=%5EMID+Interactive#%7B%22range%22%3A%7B%22start%22%3A%221994-11-01T16%3A00%3A00.000Z%22%2C%22end%22%3A%222014-11-28T17%3A00%3A00.000Z%22%7D%2C%22scale%22%3A%22linear%22%2C%22comparisons%22%3A%7B%22%5EGSPC%22%3A%7B%22color%22%3A%22%23cc0000%22%2C%22weight%22%3A1%7D%7D%7D http://finance.yahoo.com/echarts?s=%5EMID+Interactive#%7B%22... Or do a little better and compare your performance against a real tech sector index. Do better still and use the tools of modern portfolio theory to measure your portfolio's performance. > Of course, I could just be really lucky. It's probably worth reading The Drunkard's Walk.
- jandrewrogers 12y ago

crimsonalucard 12y ago

Everybody in the tech world is talking about investing in index funds. Historical evidence says this is the way to go, but when everybody is doing it, it makes me question whether or not it's the right choice. There's a possibility that the market is in another bubble right now.

walshemj 12y ago
the trouble with index funds is you participate fully in any crash/dogs eg index funds had to hold enron to the bitter end. some of my active funds saw the problems with the banks and got out before the crash now no index fund is ever likely to make up the difference - the active fund is now always ahead of the index
- sumedh 12y ago
  > the active fund is now always ahead of the index but the question is how do you select the active fund which will consistently beat the market in the future.
  - walshemj 12y ago
    look for ones that have been around for 100 plus years and with 30-40 years of increasing dividend payments
    - Matt_Cutts 12y ago
      This guy named Bernie Madoff was able to outperform the market for years and years, I hear.
- hnnewguy 12y ago
  >hold enron to the bitter end. Holding Enron in a portfolio consisting of hundreds of securities will have little impact on the overall portfolio returns. That's the whole point of diversification.

armansu 12y ago

Made me think (as most of the lessons coincide) about the book I'm reading at the moment - 'Money: Master the Game' by Tony Robbins: http://moneymasterthegame.com/ http://moneymasterthegame.com/

clamprecht 12y ago
Want to see how hard it is to predict the market? Watch this message from Tony Robbins to his followers in 2010: https://www.youtube.com/watch?v=KzREzgDoaZg https://www.youtube.com/watch?v=KzREzgDoaZg He says he believes the market may be entering a dangerous period and all but advises getting out of stocks. (Watch part 1 and part 2). If you followed his advice from 2010 until now, you've lost out big time. My point isn't that Tony Robbins was wrong, it's that it is very hard to predict the market.

grimlck 12y ago

"Google worked out a deal with “full service” broker to give us free accounts" That is actually really interesting. How much did this broker have to pay to get this box full of highly lucrative leads - access to a large set of newly wealthy individuals, many of which don't have experience with managing large amounts of money. A bunch of people who may be experts of technology, but probably are not experts on finance. It seems like inviting the fox into the hen house, and telling the hens what it deal it was

j_lev 12y ago
It also seems at odds with what was said in this article, linked to here on HN a couple of weeks back: http://www.modernluxury.com/san-francisco/story/the-best-investment-advice-youll-never-get http://www.modernluxury.com/san-francisco/story/the-best-inv...
- Matt_Cutts 12y ago
  Just to answer this thread: Google did a fantastic job of educating employees before the IPO. They brought in a ton of smart people to bring us up to speed, emphasize the need to diversify and minimize risk, etc. Honestly, I couldn't ask for a company to do a better job of educating us. In addition, they arranged to give us default accounts with a broker so that we could sell our shares. My decision to park some money in commercial paper was strictly my own, and I should have done more research on it first.
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netcan 12y ago

I'm surprised he doesn't mention real estate or investing in friend/family businesses as an option. This isn't as safe as index funds, but it is an option where you can increase your success rate by being competent. It probably has a risk profile similar to working for equity at a startup, an option only available to people who work in or around startups.

Sven7 12y ago
Nor did he mention Facebook stock. Weird.
- netcan 12y ago
  I'm not sure I understand your point. Are you just implying the FB is a bad investment and so are the ones I mentioned?
tacos 12y ago
He also didn't mention putting your money in TSP if you're an eligible federal employee, or talk about individual 401ks tied to an LLC to increase retirement saving limits, or why wandering the halls of Google makes you predisposed to think Cisco would be a no-way-to-lose investment. The article represents a smart but narrow dude's perspective on a very, very big world. That said, Real Estate during the "banks won't loan anyone money and interest rates are headed up storm" and "loan money to friends/family in the Shark Tank era" don't make my "top wealth-building picks" list for 2015...

briandear 12y ago

If you diversify enough, you can ensure a 0% return and a 0% loss. The argument for "diversification" is a recipe for safety, but not real wealth creation. Real wealth creation isn't "sticking your money in an index fund." It's a very middle class approach but as with anything, there's no such thing as a free lunch. If it takes 30 years of index funds to be able to retire, then you're doing it wrong. Investing in actual cash-flow producing assets is how you create wealth. Capital appreciation is only one part, the other part is creating cash flow. That means owning businesses, real estate and other passive income generators (IP, for example.)

oscilloscope 12y ago
Diversification is considered to be one of the only "free lunches" in finance. It can both increase your return and decrease your risk, with almost no downside. For example, going from 100% bonds to 80% bonds and 20% stocks will significantly increase a portfolio's expected return with reduced risk. Another example is owning the Total Stock market (small and mid-caps included) rather than just the S&P 500. http://bucks.blogs.nytimes.com/2011/09/06/why-and-how-diversified-investors-win/ http://bucks.blogs.nytimes.com/2011/09/06/why-and-how-divers...

netcan 12y ago

There is an economics article I’ve brought up several times on HN. It has a lot of non obvious deep implications: “The Nature of the Firm' (1937), By Ronal Coase” It tries to answer the question of why companies exist rather than bilaterally trade of goods and services between individuals in a market. IE, if centralised economies are so bad, why are free market economies dominated by enormous companies that are internally run like a Stalinist country. Instead of Apple making all the software and hardware and the babushka doll of precursor software and hardware, couldn’t we have Apple replaced by a market? The economics of the time (especially among proponents of centralized systems) focused a lot on “inefficiencies.” Why produce hundreds of iPad screen designs when only one is needed. Economies of scale. Coase’s answer to the question was transaction costs. The “cost” of weighing all the options and negotiating a deal to have you write a thousand lines of code to go into my bigger bundle of code. In modern companies like Apple this is extreme. But, if you think about it in a manufacturing economy, it makes more sense. Anyway, as I said, the more I think about it the deeper some of the concepts and implications seem to be. For example: (a) There are inefficiencies out there on the scale of East/West Germany. (b) Transactions costs are at the root of many/most major inefficiencies. The part of this blog that got me thinking about this was “working for equity vs. salary.” I think that for most people, the choice company they work for wass 80% chance and 20% uninformed bias. Applying for a job and interviewing is a big overhead (transaction cost) and your ability understand the company’s chances of success and the magnitude of this success isn’t very good. The fact that many people don’t know what percentage of the company their stock represents is the glaring proof. Prospective employees don’t have anywhere near the information that investors do. How much money is in the bank? What are revenues? Burn rate? Valuation at previous rounds? The poverty of information and the fact that transaction costs make it impossible for one to consider more than the tiniest semi-random sample of opportunities is exactly the kind of dynamic I think Coase’s work implies.

FiReaNG3L 12y ago

Literally everywhere for the past years I see the advice to invest in index funds - the only question I have is what happens when a critical mass of people do just that? Wouldn't that influence the market in some way?

markovbling 12y ago
that's the paradox of the efficient market hypothesis - if everyone is a passive investor then who keeps the market efficient? (...which is a common counter-argument for the markets being efficient. The reasoning behind passive investment is that, net of fees, it's difficult to out-perform the market although of course, everyone can't outperform the market because everyone collectively IS the market)
- j_lev 12y ago
  Companies themselves buy and sell their own stock when they believe it is under/overvalued. And there will always be people out there who believe they have an edge and can pick undervalued stocks. These days I think in reality most people who have been into indexing for a while give themselves a bit of play money to invest in something more speculative.
thejteam 12y ago
And just like engineering standards, the nice thing about stock indexes is that there are so many to choose from.

tacos 12y ago

The tone is far too authoritative given the narrow experience of the author. Reading an Googler's quickie blogpost investment guide isn't the path to financial independence. It's barely the bot-filled advice of /r/personalfinance with a better PageRank. Microsoft pushed giving and 30 years later there are still people blindly pumping money into United Way. (Maybe not the best charity!) Google seems to have pushed their smart people into another half-baked set of assumptions. I'm forcing myself NOT to get involved on this one (the solution to one person's narrow experience isn't another guy with different narrow experience ranting in the comments) but I will point out that Schwab Charitable (their DAF) has lower minimums and fees than Vanguard. A lot of nerds spend more time researching a graphics card than a stock pick or charity. Like anything else, put the time in and you'll be rewarded over the long term.

7Figures2Commas 12y ago
I agree. One of the most cringe-worthy parts of this post is the author's multiple references to bond funds. Owning bond funds is not the same thing as owning bonds and every bond investor should know the difference. Bond prices have an inverse relationship with interest rates. Bond prices fall when interest rates rise. When you own individual bonds, you cannot lose your principal if you hold to maturity unless the issuer defaults. Most bond funds do not hold bonds to maturity, so investors in bond funds have significant exposure to interest rate risk. This is especially true today given the interest rate environment. There are other ways to address interest rate risk with bond funds, especially if you have a longer horizon. You can buy short-term bond funds, and there are even defined maturity funds. But you don't find any mention of those in the post. It's just bonds = bond funds. It all comes back to your comment, "put the time in and you'll be rewarded over the long term." Even seemingly simple financial advice ("buy a bond fund!") is insufficient because it requires more time and effort to execute correctly than most people are willing to put in.
- Retric 12y ago
  I don't think bonds are really a good investment for most people. They basically have the same edge case volatility as stocks(1) without the upside. If you have a diversified portfolio the worst stock market crashes where only an issue if you used leverage. (1)As in if the issuers fail you get nothing. PS: Granted if bonds where still paying 10+% that would be another story, but after taxes there only slightly ahead of inflation.

maguirre 12y ago

Interesting topic and one that really resonates with me. I have always been interested in learning how to make money the way "people with money" make it. Personally I have come to the conclusion that a few solid stocks paired with protective puts and/or call options (to make a little extra money for sideways markets) provides a decent way to generate some extra income and greatly reduces risk of losing everything from a single mistake

g_mifo 12y ago

Most of this is standard sane advice, but the tip about "work for equity [in the next Google] instead of chasing salary": well if we all could pick stocks like that, we would not need the rest of his advice!

applecore 12y ago

Regarding most of these lessons, in 2004, Google brought in experts on personal investing to educate employees heading into its initial public offering: http://www.modernluxury.com/san-francisco/story/the-best-investment-advice-youll-never-get http://www.modernluxury.com/san-francisco/story/the-best-inv... TL;DR: Put your money into some broad-based, low-cost index funds.

walshemj 12y ago
ah so why do the Rothschilds put a good chunk of family money in an active fund aka RIT Capital partners. index funds are fine for some one with only a couple of grand spare - with the sort of money that comes from a good ipo you need to be a bit more sophisticated than that.
- deleted 12y ago
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applecore 12y ago

How many people are actually living entirely off passive income from interest, dividends, and capital gains? I feel that goal—which requires millions of dollars in investable financial assets—is only realistic for a tiny percentage of the population.

walshemj 12y ago
You could live quite well off only a £million or so in the UK so 2 mill in the USA will give you a nice life style - baring any catastrophic health issues

jafaku 12y ago

Consider also buying a bunch of bitcoins. The reward/risk ratio is too high in my opinion.

mbesto 12y ago

> Instead of a regular stock broker, I highly recommend Vanguard. Go with Vanguard whenever you can. This is good advice. YMMV but my retirement fund with Vanguard has been yielding ~10% annually (VWELX).

dredmorbius 12y ago

Matt's article (and the linked one of Scott Adams' advice) is a good and basic foundation. Adding to the reading list, I'd very strongly recommend the following: A Random Walk Down Wall Street by Burton G. Malkiel lays out the basics of portfolio diversification. http://www.powells.com/biblio/1-9780393340747-0 http://www.powells.com/biblio/1-9780393340747-0 The Great Crash: 1929 by John K. Galbraith tells the story and aftermath of the biggest stock market catastrophe of the past century. It is a slim, highly readable, and incredibly informative book. Parts of it read as if it could have been written yesterday. Much of it provides a background and context on the Crash that corrected a great many misunderstandings and holes in my own knowledge. Galbraith has a dry humor and is a strong (and often disliked by insiders) critic of much of the establishment. Fans of this book are recommended to view his video series The Age of Uncertainty. http://www.powells.com/biblio/1-9780395859995-9 http://www.powells.com/biblio/1-9780395859995-9 http://www.powells.com/biblio/1-9780395259474-2 http://www.powells.com/biblio/1-9780395259474-2 http://fixyt.com/watch?v=KGSID_Uyw7w http://fixyt.com/watch?v=KGSID_Uyw7w And adding to Matt's advice: have savings. The flexibility offered by "fuck you money" as Humphrey Bogart and others have noted is tremendously valuable.

jseliger 12y ago
Great comment! I want to emphasize this: A Random Walk Down Wall Street by Burton G. Malkiel lays out the basics of portfolio diversification. A Random Walk Down Wall Street is one of the best books I've ever read, and I'd only add that I think The Millionaire Next Door is also excellent. When most of us think about millionaires we think about Hollywood stars, tech company founders, and finance moguls. But most millionaires are actually normal people who spend below their means and invest what they can, usually in index funds and sometimes in a house. If they marry they don't divorce (divorce is very, very expensive and modern marriage is a high-risk endeavor). Chances are good that most of the millionaires you know don't live like millionaires—which is why they can be millionaires!
- Chronic29 12y ago
  Becoming a millionaire today is easier than ever before.

brentiumbrent 12y ago

Simple advice: just use Wealthfront and take all of this advice at once, automatically. http://wlth.fr/1fsdN6t http://wlth.fr/1fsdN6t

brentiumbrent 12y ago

Simple advice: just use Wealthfront and take all of this advice at once, automatically. http://wlth.fr/1fsdN6t http://wlth.fr/1fsdN6t

deleted 12y ago

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n72 12y ago

The tragic thing is that these lessons don't have to be "hard-won". I find it astonishing that a majority of even intelligent people don't do more basic research before making major decisions with something as important as their money. A few hours of research should turn up things like bogleheads.org, Bernstein, Malkiel, etc. Heck, a simple google of "site:ycombinator.com investing advice" should get you on the right track to all the advice you need in a few clicks.

dirtyaura 12y ago

What is especially hard in investing is timing. If you followed Matt's advice and put all your investments to index fund (say Vanguard Total Stock Market ETF, https://www.google.com/finance?q=NYSEARCA https://www.google.com/finance?q=NYSEARCA) in the late 2007, you would have lost almost 50% of your savings in a year. And this example is not far fetched. My startup got acquired in 2007 and I invested some of that money to the stock market in late 2007. Not all, fortunately.

n72 12y ago
This is a terrible way of looking at things, since your time horizon is far too short. If you had put your money in the market at the height and kept it in until now, you would have made money. On Oct 5, 2007, VTSAX was trading at 37.72. It is currently trading at 51.87. Moreover, what was the alternative? Cash would have lost value due to inflation. Fixed income would have gotten you less and also been vulnerable to inflation.
hnnewguy 12y ago
>I invested some of that money to the stock market in late 2007. Not all, fortunately. Why? The inflation adjusted CAGR of the S&P from Jan 1, 2007 to Jan 1, 2014 was almost 4%.

mathattack 12y ago

Remarkably good ideas, and I tend to view most posts like this as Snake Oil. Almost everyone should be doing most of their equity investments through a passive low cost index like Vanguard's.

gfodor 12y ago

This is the typical investment advice, and it's generally outdated and wrong to just invest in index funds based on asset classes if your goal is to diversify away volatility. For a layman's treatment debunking this view (don't mind the title): http://www.amazon.com/Jackass-Investing-Dont-Profit/dp/0983504008 http://www.amazon.com/Jackass-Investing-Dont-Profit/dp/09835... for a more academic flavor: http://www.amazon.com/Expected-Returns-Investors-Harvesting-Rewards/dp/1119990726 http://www.amazon.com/Expected-Returns-Investors-Harvesting-... the best book on stock picking i've read: http://www.amazon.com/Quantitative-Value-Web-Site-Practitioners/dp/1118328078 http://www.amazon.com/Quantitative-Value-Web-Site-Practition...

DanBC 12y ago

For a different take people might be interested in "A Mathematician Plays the Stockmarket", by John Allen Paulos (he also wrote the excellent "Innumeracy"). The book explains a bunch of mistakes he made when investing. http://www.amazon.com/Mathematician-Plays-The-Stock-Market/dp/0465054811 http://www.amazon.com/Mathematician-Plays-The-Stock-Market/d...

vpeters25 12y ago

> You are probably a bad stock picker You might find a stock that looks good, you check financials, fillings, read forum posts and "expert" financial blogs such as Seeking Alpha. They all concur: stock looks good, BUY! BUY! BUY! So you buy the stock thinking you are making an informed decision only for it to crash the next day after their latest SEC filing hits the wires. There you learn they all knew the filing was coming, so they pimped the stock hard so suckers like us bite. Corp officials, analysts, "expert" financial bloggers, even the SEC. They are all on it.

mistermann 12y ago
I doubt you'll believe me, but there are a lot of 100% independent investors that are on twitter and forums as well as write in-depth blogs who consistently outperform the market and do not resort to any sort of tricks like this. Of course, you have to find them (and I'm certainly not going to share as I have made a significant investment of time finding these people, and many of the stocks they buy are small caps), and you also have to (or should) do your own due diligence on every purchase. Seeking Alpha specifically is mostly full of people like you describe, but there is also some honest, legitimate advice there.

ingend88 12y ago

I am one of those people who have lived this advice and after 10 years of following some of the recommendations here, I can confirm that it works. Here are my 5 simple rules that I followed, no lottery/IPO, just a steady single income. - Max out 401K and get company match - Max out Roth IRA for me and my wife - Invest in Vanguard S&P 500 Index Funds, some international funds and some bonds - Invested in a property in India - Lived below 35% of the salary - Always bought a used car and kept the car for as long as it runs Results - After 10 years, I am financially independent - I am working for Google just because I enjoy working and not because I need a paycheck - My wife works as a teacher and she enjoys her job as well. She is working because she likes to and not because we need a paycheck What was hard ? - To see friends buying expensive cars just after getting their first job and not doing the same - Friends buying > 1M$ houses while I kept renting since I like the flexibility and staying in a community - Friends going on exotic trips I think at the end, its worth it.

chatmasta 12y ago
This is good advice but may also have some element of survivorship bias. If you haven't noticed, not everybody works for Google. In fact, not everybody works for a company that will match their 401(k). If you're lucky enough to be taking home a six figure salary (not to mention one that grows with bonuses as you progress) every year, maybe this advice is good. But you should consider in your advice that not everyone is taking home $xxx,xxx per year, plus bonuses, plus full company 401(k) matching and all benefits. You are very lucky that you were able to live below 35% of salary. Still, I wonder if advice would be different for people who are making less?
- Matt_Cutts 12y ago
  For the case you're talking about, see Scott Adams' financial advice. I linked to it in my post.
- ingend88 12y ago
  I think the mindset still applies. Surprisingly, I know people who get 6 figure salaries and yet are not financially independent. The secret here is to start early since the expenses rise exponentially after wife and kids.

CurtMonash 12y ago

I was a #1-ranked stock analyst (computer software and services industry) in the 1980s. I took a portion of my parents' money and doubled it in 18 months, by splitting it among 5 stocks that went to 4X, 3X, 3X, 0X and 0X. Then I left Wall Street, told them I no longer was in a position to do such stock picking, and they should put their money into Vanguard index funds. They were not pleased, and felt I let them down by not being more active in investing for them.

hnnewguy 12y ago
>it among 5 stocks that went to 4X, 3X, 3X, 0X and 0X What stocks?
- CurtMonash 12y ago
  Symbolics was one of the bankruptcies. American Management Systems and Lotus were two of the winners. I've forgotten the others.

CurtMonash 12y ago