
Ask HN: How do I learn about financial matters as a software engineer? - ra7
Hello there,<p>Just wanted to ask how I can learn about financial matters like equity, stocks et al? I am a recent grad and have little knowledge about financial management. I&#x27;d like to know more about it so that I can plan my finances better.
======
patio11
This is a question to which there is a Right Answer. That answer is low-cost
index funds.

Your options:

1) Invest in a Vanguard target retirement date fund. They will manage a
portfolio comprised of ETFs for you, and also change the mix over time, in
return for a fee.

2) Invest in Wealthfront or a similar "robo advisor" (Charles Schwab also has
one), who will manage a portfolio of low-cost ETFs for you, in return for a
fee.

3) Self-manage a portfolio of low-cost ETFs. You should probably not do this.
Your decisionmaking for it will be strictly worse than a machine's.

If you feel the need to know _why_ index funds are the Right Answer, read A
Random Walk Down Wall Street. This is the canonical answer among Bogleheads, a
group of devotees of the guy who invented low-cost index funds. (He made
Vanguard from the ground up.) If you want other book recommendations, they
have several:
[http://www.bogleheads.org/wiki/Books:_recommendations_and_re...](http://www.bogleheads.org/wiki/Books:_recommendations_and_reviews)

Most of the consequential decisions for you are not going to be in what to
invest in (because you will, being rational and aware that you cannot out-
compete the market with any degree of predictability, choose low-cost index
funds) but rather a) saving a generous amount every year, b) making especially
sure to max out tax-beneficial retirement contributions, and c) not panicking
and _selling_ your low-cost index funds on a day like today.

If you enjoy playing the stock market not because you want to maximize your
return (again, low-cost index funds) but because that sounds like a source of
fun, ask me again in, oh, 2 weeks.

~~~
kasey_junk
Completely agree with _all_ of your answers but would add a nitpicky option 4;

4) Self-manage a portfolio of 2-4 index funds across the spectrum of equities
and bonds, starting with a standard allocation rate (80-95% equities, the
remainder in bonds) and rebalancing yearly, while adjusting the rate as you
approach retirement age.

This is slightly different than the options you mention (though largely the
same formula). The reason you might do this is that it can be much cheaper
than the other choices (except for 3) and requires not much more savvy than
items 1 or 2.

Further, sometimes you get lucky with a 401k plan that will boost you into
higher fund categories (Flagshipt etc) and thus lower fees at much lower
investment points than an open market fund would require.

~~~
mechanical_fish
The stakes are high, so I'm going to be blunt: This is terrible advice. [1]

The amount you're trying to save with "option 4" can be estimated fairly
accurately; it's about 0.09% per year. [2] Over forty years, this savings will
compound and you'll make 3% more money, _if_ you never screw up the
rebalancing, and if you're at least as talented as a Vanguard analyst, and if
you remain so even as you grow older.

But the US market has gained more than 5% per year on average, so you could
make the same money by just investing for six extra months. Or, looking at it
the other way: If it costs you six additional months to get started with
option 4, you've just thrown away all your potential gains from option 4.

And option 4 has a much harder conversion funnel. You have to:

    
    
      1. surf to Amazon
      2. get the free Kindle version of William Bernstein's *If You Can* [3]
      3. read it
      4. Contemplate the inevitability of your own death.
      5. build a spreadsheet
      6. Make some strategic decisions
      7. open a Vanguard account before noon tomorrow
      8. Carry out at least four trades.
      9. Set up an automatic investment plan.
      10. Repeat steps 4 and 7 every year without fail for the rest of your career.
    

DON'T DO THIS. You are going to put this off for months. And every year you
put it off will cost you in the end.

patio11's advice converts better:

    
    
      1. Open a Vanguard account before noon tomorrow.
      2. Visit this page:
    

[https://investor.vanguard.com/mutual-funds/target-
retirement...](https://investor.vanguard.com/mutual-funds/target-
retirement/#/mini/overview/1487)

    
    
      ... and pick the fund that matches your age.
    
      3. Buy some of that fund.
      4. Set up an automatic investment plan to buy more of that fund.
    

DO THIS TODAY, I BEG YOU, YOUR KIDS WILL THANK ME ONE DAY.

\---

[1] I should know; I have followed this terrible advice for years. Writing
this essay may be the best investment I've ever made.

[2] Vanguard's Target Retirement Fund for 2055 (VFFVX) has an expense ratio of
0.18% and would be managed for me.

Or I can follow Vanguard's strategy on my own. At the moment, Vanguard's VFFVX
consists of:

    
    
      54%  VG Total Stock Market index (expense ratio 0.05%)
      36%  VG Total International Stock index (expenses 0.14%)
      7%   VG Total Bond Market II index (expenses 0.07%)
      3%   VG Total International Bond index (expenses 0.19%)
    

Weighting all those expense ratios by their fraction of the portfolio, I
compute that I can achieve an overall expense ratio of 0.09%. So I'm saving
0.09% compared to letting Vanguard do the work.

[3] Technically the book I read back in the day was Bernstein's _Four Pillars
of Investing_ , but I'm assuming that Bernstein has diligently refined his
teaching over the years and I can safely recommend his latest.

~~~
kasey_junk
Like I said, this is nitpicky to the nth degree (and in full disclosure I
advised my wife to do a target fund when she started investing). You can do
much, much worse than a target fund and hardly better.

That said, I've encountered many 401k plans over the years where the target
funds have very bad expense ratios (.35 or higher). Meanwhile there will be a
total market fund and a bond fund sitting closer to .08 or .09.

I personally, had a 401k plan that had the choice of a target fund at .28
expense ratio or a fidelity spartan class total market with NO initial
investment requirements. I was able to invest at 0.07 expense ratios when I
had less than $500 in a retirement account.

So, if you have the choice at a Vanguard target fund, yeah you aren't going to
do much better than that. But especially when someone else is limiting what
you can invest in, it can be advantageous to go with bare index funds.

