
Investing for Geeks - gk1
https://training.kalzumeus.com/newsletters/archive/investing-for-geeks?__s=esaiz3kazigwidftsigk
======
chollida1
Great post!!

I'd add a few things that I've learned over the years:

1) Always be invested in the market. Corollary, don't time the market. This is
by far the largest mistake people make.

Investors typically pull money out at the bottom after they've suffered a
physiologically devastating loss, like at the end of 2008 and hence they miss
the rebound, like 2009-now. This isn't quite the same but it shows what
missing the top 25 days in the market over the past 45 years does to your
returns.

[http://www.marketwatch.com/story/how-missing-out-
on-25-days-...](http://www.marketwatch.com/story/how-missing-out-on-25-days-
in-the-stock-market-over-45-years-costs-you-dearly-2016-01-25)

If you are an investor you need to be in the market, period.

2) Accept that you will lose money some years. If you are buying index funds
then you will get market performance, ex fees. Markets go down sometimes. Stay
the course.

3) Don't look every day or you will go nuts.

Keep in mind that the largest draw down (top to bottom) will be larger than
what the returns look like if you just look year over year. Ie if you look and
see the S&P lost 28% in 2008, understand that if you watched the S&P every day
of 2008 then it probably lost more than 28% from its top to its bottom but
rebounded slightly at the end of the year to make the year over year loss less
than the maximum loss.

4) Have some exposure to outside of the US markets. Consider the scenario of
investing all your money in the company you work for. In a rough time for your
company you get the double whammy of losing money and possibly your job at the
same time.

Similarly to how you are told to not invest all your money in the company you
shouldn't invest solely in the country you live in, same principle.

 __EDIT __see child comment, I mangled the English language in point 4

~~~
cesarbs
> Have some exposure to outside of the US markets.

This is the part that kills my ability to "set it and forget it". So many
things bother me about this. I know I _have_ to do it (because Japan), but how
much and on what markets?

* I don't like the idea of investing in emerging markets. Having grown up in one, I know how shady those can be and how cooked the books are. Growth is often an illusion. If an emerging market is "promising", I'd rather wait until it achieves developed status.

* Developed market indexes are dominated by Japanese stocks, which have gone nowhere in almost 3 decades. You have to accept that a good chunk of your money is going into a no-growth sink.

* I don't know what to expect from Europe. Or even Canada for that matter. When I look at those countries from a distance, I see that 1) their large corporations have been established looong ago (i.e. no new ones are created) and 2) heavy taxation and regulations in those countries doesn't seem to leave much room for profits, at least not as much as in the US. I'm probably wrong though, so please educate me.

I know home bias is supposedly wrong, but the American market is well studied,
well known, highly liquid, and there's a cultural aspect to its growth in that
its part of the general population's mindset to invest in it for long term
goals. I don't think that's the case in all (or even most) countries.

Part of me wants to go full jlcollinsnh/Bogle/Buffet, folks who say you don't
need international diversification. Another part of me wants to go as blind as
possible into it and just invest in a "world index" ETF like ACWI or VT. And
yet another part of me wants to do something in between but has no idea what
to do :)

~~~
tedmiston
> Part of me wants to go full jlcollinsnh/Bogle/Buffet

You can investment _just_ like Buffet if you Berkshire Hathaway Class B
(BRKB). Currently ~$145 per share.

I got that from the introduction to an investment book about Buffet.

~~~
cloudjacker
All these anecdotal quotes about Warren Buffett who issues bonds in Europe and
didn't create Berkshire from index investing

His successful leveraged investments are analogous to negative expected value
bets that people would typically relegate to degenerates.

He advocates indexing for the little people. This has nothing to do with what
he did, or does now. (And there's nothing wrong with that)

~~~
jjeaff
Yes, he doesn't invest in indexes himself, but it isn't just for the little
people. He recommends it for his family. The big secret to Buffet's success is
not his picking ability, it is his management ability and good business sense.
Yes, of course he does pick to an extent, but he also buys large enough
positions to sit on the board and install the right people to make things
happen. He also uses his already large portfolio to help create opportunities
between the companies he owns.

It's unlikely even Buffet himself could replicate his initial stock picking
success over a long period of time and he would be the first to admit that.

------
loteck
Read Goldstein's (edit: Bernstein's!) book "If You Can".

It's a whopping 16 page book of plain talk and he made it free on the
internet, no strings. [1] It's the best introduction to planning for
retirement, especially for those under 35, I've read so far.

[1]
[https://www.etf.com/docs/IfYouCan.pdf](https://www.etf.com/docs/IfYouCan.pdf)

~~~
cesarbs
Bernstein :)

------
hristov
I agree with most of this, except for the stuff on robo-advisors. You should
be very careful about those.

First of all their fees are too high. Wealthfront's 0.25% fee seems rather
small and it is smaller than what a lot of human advisers charge, but if you
compute it over a lifetime of savings with the negative compounding effect it
will cost you a lot.

Imagine you receive some money when you are 20 from a rich uncle and invest it
for 40 years using the wealthfront fee structure. After 40 years you will have
paid about 10% of your savings in fees. Or, in other words, you will have
about 10% more savings if you had taken a couple of hours to sit down and
decide which funds to invest in. Keep in mind that the wealthfront fees are in
addition of any etf or mutual fund fees you have to pay to get into investment
vehicles.

So yeah, compounding interest is a dangerous thing.

There is another problem with roboadvisers -- people put too much trust in
them. In our society there is this implicit trust of the computer, probably
bred from multiple sci-fi shows with all-wise computers. Well it is a very
dangerous thing when it comes to your savings.

You may not be the best investor, but you should take responsibility in your
investment choices. You should know what you are investing in and why. Even if
the thing you are investing in is a boring simple S&P 500 fund (as it should
be for most of you) you should know what it is and why you are investing in
it. You shouldn't just blindly follow some algorithm programmed by god-knows
who.

~~~
cbhl
The impression I get is that the two areas where robo-advisors shine is UX and
Tax Loss Harvesting.

The Betterment site is pretty, which makes me more inclined to put more money
into it more often. This is irrational, but for me this makes it worth more
than the 0.15% I end up paying them in fees.

I'm less sure about whether TLH is worth the 0.15% fee, though. The premise is
that you do some "equivalent" (to you, but not to the IRS) transactions,
report them on your tax return, and lower the taxes you pay today ("basis").
In exchange, you would have to pay those taxes later on your investments when
you withdraw them. Is this always the right answer (because those later taxes
are in compounded-inflation dollars)? What if I think my tax rate now is lower
than the tax rate in ten, twenty, fifty years?

~~~
neogodless
The amount I've already saved in tax dollars thanks to TLH is orders of
magnitude higher than what I've paid Betterment in fees.

That being said, you won't always benefit from it, and there are caveats you
should read about. I've decided to take a slightly more hands on but simpler
approach, and have moved all of my investments into a simple 4-fund portfolio
at Vanguard.

~~~
loeg
As you reach the $3k max and your portfolio continues to grow, the benefit to
fee ratio becomes worse.

------
teej
If you're healthy enough to swing a high-deductible health plan, consider
maxing out a "stealth IRA" aka health savings account. With a $3,350
individual / $6,750 contribution limit, it's a great tax-advantaged account
that can be treated just like a Traditional IRA. If you use it for medical
costs, which you are likely to have in retirement, you get tax advantage on
both ends.

[http://whitecoatinvestor.com/retirement-accounts/the-
stealth...](http://whitecoatinvestor.com/retirement-accounts/the-stealth-ira/)

~~~
tcoppi
Agreed, if you have an HSA available it is probably the second places I would
maximize contributions to, after a 401k/403b.

~~~
mikemac
HSA contributions are arguably better considering they are not subject to
FICA.

~~~
tcoppi
Yes, but only if they are deducted from your payroll by your employer, which
is usually the situation when you have an HSA, but not always. You won't get a
FICA refund if you contribute yourself off-payroll, but you will get an income
tax refund at least.

------
hundt
> You should open a SEP-IRA, which is a special account type that is similar
> to a 401k in mechanics but has very, very generous funding limits.

Actually, both account types have the same yearly limit; it's just that the
employer can contribute much more than the employee, and when self-employed
you can contribute as the employer.

In fact, the difference between SEP IRA and 401k is not the funding limits,
but the fact that the SEP IRA allows only employer contributions. You can
actually open a "solo 401k" for yourself if you are self-employed, and make
both employer and employee contributions. That will let you put more money
away for a given income than the SEP IRA, until you make 275k or so at which
point you have hit the cap for both (and the cap is the same for both).

Edit: Vanguard has a calculator to show the difference:

[https://personal.vanguard.com/us/SbsCalculatorController](https://personal.vanguard.com/us/SbsCalculatorController)

~~~
ryanwaggoner
This is exactly right, although with solo 401k, you can hit the cap of $53k
contributions with net profit of only ~$185k, not $275k, if you max both
employee and employer contributions.

Additionally, with a solo 401k plan, the $18k employee contributions can be
Roth.

~~~
hundt
Ah, good point about the Roth contributions! I'd forgotten about that
difference.

------
atmosx
> Often when I told people I was building a (toy) stock exchange they’d ask me
> for stock advice, which is about as well-considered as asking a WoW guild to
> deal with your terrorism problem.

And you think that's problematic? I have relatives telling me that they'll go
with _X_ anti-thrombotic therapy because a _cousin of the brother of a guy who
they met in the supermarket_ took it 6 years ago and worked _wonders_ for him.
I'm a pharmacist and I have rather _strong_ opinions about some drugs over
others, but I can take advices from doctors, physicians, nurses or anyone with
a _minimum_ degree of knowledge on the topic. Still, many times I have to
argue with with relatives, to the point where I get frustrated.

------
infinite8s
Question - is it fair to use the 8% historical market average when doing these
calculations (which include some of the most spectacularly productive periods
in the American economy)? All the predictions I've seen going forward look
like the average will be much lower (at least for the current generation), and
a rate of 4-5% means you need a much larger nest egg to drawdown a livable
amount each year in retirement.

Edit: It's not clear from the essay, but I'm assuming Patrick's 8% rate is not
adjusted for inflation (based on his 40k drawdown scenario - the other 3-4%
would cover inflation).

~~~
torkins
It's ridiculously high. For a better evaluation, see probably one of my
favorite visualizations of all time:

[http://www.nytimes.com/interactive/2011/01/02/business/20110...](http://www.nytimes.com/interactive/2011/01/02/business/20110102-metrics-
graphic.html?_r=0)

~~~
cairo140
I feel this graphic, while informative and delightful, is insidious in its
choice of scale and its lack of comparisons.

On scale, it makes it seem like +3% to +7% real returns is "neutral". This
makes it seem like the stock market is sometimes good sometimes bad but
overall it may as well be just okay.

On comparisons, it does a huge disservice by not adding a tab showing bond
yields and a tab showing cash/treasury yields (which would be dark red across
the board except light red around 1930).

I feel these slights make the graphic present stock investing in an unfairly
unfavorable light and makes the suboptimal strategy of keeping your money out
of the market seem much more favorable than it is.

~~~
torkins
The graphic isn't presented to compare stocks with the alternatives of
cash/bond yields. I think the major service done here is setting a realistic
expectation for the returns you might see in your lifetime. It's especially
relevant for people who's major investing periods have/will occur in the
2000-2020 timeframe of sluggish growth and ultra-low yield. The Jeremy Siegel
'8%' number is a really dangerous number to set your expectations on when
saving. If you do, you might be 20 years in and well outside the bounds of a
timeframe where compound interest can help you live the retirement you were
aiming for before you realize your mistake.

------
maerF0x0
> "Open a traditional IRA or a Roth IRA. The traditional IRA contributes pre-
> tax money, the Roth IRA post-tax money. The upshot is that if you believe
> your marginal rate at retirement to be higher than your present rate, you
> should pick a Roth IRA, otherwise, you should pick a traditional IRA. If you
> don’t feel like forecasting that, take my word for it that 90% of you should
> have Roth IRAs."

I simply cannot fathom why he would state that. I cannot imagine a scenario
where my retirement income would (nor should) be as high or higher than my
peak earning years.

Typically in retirement you have a home and all sorts of hard goods (clothes,
furniture, cars) paid off and thus need less money.

~~~
wyldfire
The risk that favors Roth IRAs includes the risk that the tax code will change
to include higher rates than the current tax code.

Also note that any increased or decreased "need" doesn't factor in to the
calculation.

~~~
hellogoodbyeeee
US income taxes are at historically low levels too.

~~~
lettergram
I would disagree - prior to WWI there was no income tax. Further, not every
state implanted income taxes (some still don't have any)

~~~
lloyd-christmas
undefined != 0

~~~
lkbm
Seems like in the case of tax, it does. They weren't taking a random % of
income in income tax based on what was in the memory cell from the previous
call stack. They were taking 0%.

------
conorgil145
As some others in this thread have said (and Patrick discusses in the post),
there are lots of things you can do to much more directly impact your change
of becoming rich and retiring well/early than optimizing your investments: get
a really good salary and don't spend a lot of money. One blog which I have
read is Mr Money Mustache [1], which focuses on those same concepts. Many of
the posts are good reads.

[1]: [http://www.mrmoneymustache.com/all-the-posts-since-the-
begin...](http://www.mrmoneymustache.com/all-the-posts-since-the-beginning-of-
time/)

~~~
charlesdm
I don't really agree with that. Investing well is almost always more important
than worrying about small expenses. Do you know how many people don't invest?
Like, 99% of people.

~~~
loeg
It depends on how long you have until retirement, which is influenced by your
saving rate as a percentage of income. If you can save 99% of your income, you
can retire real fast and your investment choices don't impact your pre-
retirement earnings very much.

(That's pretty much the gist of this post:
[http://www.mrmoneymustache.com/2012/01/13/the-shockingly-
sim...](http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-
behind-early-retirement/) )

That said, you need to be invested somewhat just to fund retirement. It can be
pretty conservative, though.

------
misnamed
Something else I would add - if you're working in the ups-and-downs world of
startups and technology, you may have meaty and lean years and during the good
years find you want to save more fore retirement than 401ks, SEP IRAs and ROTH
IRAs (if you're not priced out) allow.

One handy way to _extend your tax-advantaged space: buy Series I and Series EE
bonds from Treasury Direct._ Both are tax-deferred until you cash them in. You
can purchase up to 10K of each type per year. They are government-backed,
highly-safe fixed-income instruments.

I bonds will pace inflation (like TIPS) for up to 30 years. EE bonds have low
'normal' yields but they automatically double after 20 years (so around
3.5%/year annualized, better than the rates on 20-year Treasuries). These
rates are better than what you get on the open market.

And unlike normal bonds, they won't kick out payments that are taxable along
the way - you can save the tax bill until you have a lean year then cash them
back out (in the case of I bonds at least), or save them to the end of their
lifespan (or until they double in the case of EE bonds).

~~~
torkins
Bonds are a horrific investment in today's market. Rates are lower than they
have been since WW2 when they were fixed by the government! The principal and
interest risk for owning bonds is essentially at an all time high. You'd
literally be better off in cash in rates rise even somewhat in the near
future.

~~~
tanderson92
The post you are responding to literally explains how EE bonds are better than
those you can buy on the open market.

Also, you cannot reliably time the market.

~~~
torkins
what makes you think this wouldn't be priced into bond yields? There is
trillions of paper in the market, an arbitrage is eaten by the entities who
make their living doing it. There is no secret edge.

~~~
tanderson92
EE bonds don't have 'prices', they have fixed yields if held for 20 years.

~~~
torkins
To be clear, there is a price for the bond, which is the amount you pay for
it. For EE bonds, you pay what you choose, and earn the Treasury-specified
rate on that amount. However, this amounts to being priced just like other
bonds. If you read the Treasury website, you'll find that they specifically
state that the rate for newly purchased bonds is set based on current market
conditions (today 0.1%). This balance between principal and interest is why
people use terms like 'yield' to accurately describe bonds. An EE bond is no
different (because there really is no edge), and if you make any more on it
(not much), it's because you're giving up the liquidity of a transferrable
bond.

~~~
mercutio2
Are you reading what you're replying to? Series EE bonds are guaranteed to
double your investment, a return of ~3.5%, if held for 20 years.

If you hold for 19 years, they are, as you point out, a terrible investment.
But the 20 year yield is decent, for a low risk product, in today's market.

~~~
torkins
I feel like I'm taking crazy pills. I said you make a rate based on the market
return (as stated on the treasury site). I also said the additional return you
get is based on having it be non-transferrable, and in the case of the
annualized 3.5%, 20-year term, severely illiquid asset. That's also true. I
think the risk of illiquidity is major risk, and I don't at all agree they are
decent investments for that reason. I realize this is a zombie thread but
can't help but reply. Just because there are other, also terrible, low risk
debt products in today's market doesn't make this one reasonable. The value of
an investment has to be measured based on what you're getting out of it, not
just relative to other investments. That's why I remarked on being better to
be in cash than bonds: bonds have a huge actualized and opportunity risk
relative to their yield.

------
pilingual
Also, don't listen to one person. Do your own homework.

[https://medium.com/@blakeross/wealthfront-silicon-valley-
tec...](https://medium.com/@blakeross/wealthfront-silicon-valley-tech-at-wall-
street-prices-fdd2e5f54905)

[https://news.ycombinator.com/item?id=9856151](https://news.ycombinator.com/item?id=9856151)

~~~
frinxor
wealthfront is a bad idea.

------
pbreit
1\. Pay off credit cards & loans

2\. Max out 401k, IRA

3\. Put most of your money in cheap index fund like
[https://investor.vanguard.com/mutual-
funds/lifestrategy/#/](https://investor.vanguard.com/mutual-
funds/lifestrategy/#/)

Note: this is not investment advice

~~~
bbcbasic
By loans you mean the mortgage too? Pay that off first?

In Australia you could pay off your mortgage then refinance in a brand new
loan to buy investments. The interest you pay on THAT loan is income tax
deductible.

~~~
h4nkoslo
Mortgages are a special case because the debt is usually tax-subsidized, and
depending on the state, one effectively has the option of giving the house to
the bank in lieu of paying the remaining balance.

~~~
bbcbasic
That is a difference in the US. In UK/Australia you pay the mortgage from your
post-tax salary.

Encouraging some people in Australia to perversely rent their house out and go
and rent a similar house (sometimes identical apartment in same block!) from
someone else, in order to get the interest offset against tax.

In the UK it is even worse, as you can only claim 20% of the interest cost on
an investment property even if you are paying 40% tax on the rental income
(!!)

------
loeg
Since you are all forum nerds, y'all might also enjoy:

* [https://www.reddit.com/r/personalfinance/wiki/commontopics](https://www.reddit.com/r/personalfinance/wiki/commontopics) ("I have $X, what do I do with it?") (and the rest of the PF wiki is a good general resource as well)

* [https://www.reddit.com/r/financialindependence/](https://www.reddit.com/r/financialindependence/) (How do I save enough to be able to stop working?)

* [https://www.bogleheads.org/](https://www.bogleheads.org/)

~~~
rcpt
Also
[https://www.reddit.com/r/wallstreetbets](https://www.reddit.com/r/wallstreetbets)

~~~
loeg
Only in jest.

------
EGreg
I want to ask something. People always ask me why I rent and "waste money"
instead of getting a mortgage etc.

I explain to them that I put most of the money I make into my company, and
have a greater ROI than if I put the money into real estate. But, since I have
to live somewhere, I rent.

Yet, I am not sure this argument is correct. If I had money for a down
payment, perhaps the strategy of getting a mortgage would win in the long run.
So, instead of getting into the details, I usually mention I also like to be
able to change apartments every year or so.

What are your thoughts - those of you who have now, or have had, growing
startups?

~~~
mikemac
I'd look at it from a different angle - you spend a lot ton of time and energy
on your company and don't want to have to deal with issues that come with home
ownership - it's easier to just call the landlord with any problem that pops
up.

Plus, if you decided to relocate to a different place there is a significant
cost of selling, which would wipe out any modest gains in appreciation.

------
MarlonPro
I'm on our company's 401K plan. If you know nothing about how the stock market
works, then the target date retirement fund is the way to go. The worst thing
you could do is not participating in your company's 401K plan, especially if
the company offers you matching dollars (Read: FREE MONEY). I started with a
target date retirement fund (managed by Schwab) but almost 2 years ago, I
decided to re-allocate my fund into 3 mutual funds: S&P 500, US Small-Mid Cap,
and International Large Cap. I'm happy that I re-allocated my fund. Ramith
Seti's "I will Teach You to be Rich" book inspired me. And, another influence
that made me re-allocate my fund is the "Three-Fund Portfolio" principle by
Boglehead's Guide to Investing. I don't currently have access to the funds
that Bogle suggested, but if I have extra money to invest, I'd open a Roth IRA
account (alongside my 401K) and do the following:

VTSMX 60% VGTSX 30% VBMFX 10%

or ETF's

VTI 60% VXUS 30% BND 10%

These allocations follow the Boglehead principle of 3-Fund portfolio / Lazy
portfolio

~~~
Veratyr
> I decided to re-allocate my fund into 3 mutual funds

Is there a particular reason you chose mutual funds rather than regular index
funds? Everything I've heard in the past says that mutual funds generally have
higher expenses without worthwhile increased returns.

~~~
douche
Vanguard funds have ridiculously low costs

~~~
MarlonPro
Yes. I surveyed blogs written about index fund. Most suggested Vanguard
(inventor of Index Fund). Like you probably noticed above, my ideal 3-fund
portfolio consists Index Funds/ETF's from Vanguard.

------
dennisgorelik
It's a good investment guide, but I disagree with Patrick's advice on Roth
IRA. Roth IRA (unlike Traditional IRA) almost never makes sense. It is very
unlikely that tax rate at retirement would be higher than tax rate now,
because if your income at retirement is already high (meaning high-tax rate)
then you are very unlikely to get money out of your retirement fund. You are
much more likely to get money from your retirement fund at your low-income
years, when tax rate is quite low already.

~~~
jcdavis
While not wrong, you are looking at them in a vacuum, which isn't really
appropriate for much of this crowd. If you have a 401k at work, contributions
for IRAs start phasing out at lower income than Roth IRAs (In fact Roth IRAs
have no income limits if you are willing to do a backdoor contribution). Its
often not "Roth vs Traditional", but rather "Roth vs normal taxed account"

~~~
BHSPitMonkey
> If you have a 401k at work, contributions for IRAs start phasing out at
> lower income than Roth IRAs

Can you link to a source for this? I was not under the impression that IRA
contribution income limits were impacted by whether or not you also have a
401k at work.

~~~
jcdavis
Wikipedia has the tables listed:
[https://en.wikipedia.org/wiki/Traditional_IRA#Income_limits](https://en.wikipedia.org/wiki/Traditional_IRA#Income_limits)

Note that really its not a real contribution limitation, just a phase out of
the contributions being tax deductible, which is most of the point of using an
IRA

~~~
BHSPitMonkey
I still don't see what that has to do with additionally having a 401k, though.
Where is the stipulation that having a 401k affects your phase-out for
Traditional IRA deductions?

~~~
jcdavis
From that wikipedia article: "If a taxpayer's household is covered by one or
more employer-sponsored retirement plans, then the deductibility of
traditional IRA contributions are phased out as specified income levels are
reached (Modified Adjusted Gross Income is between)."

There is no deduction phase out if you don't have a 401k available through
work, but that is not the common case

------
tominous
From personal experience, before you put all your spare money in the stock
market, make sure you have the basics covered. Ask yourself, "What would
happen if my partner or I couldn't work for a few years?"

Money: Set up life insurance, income protection insurance, and decent medical
coverage.

Accommodation: You don't need to own your own home, but have some money
available to cover rent or mortgage if needed.

Social: Don't let your social life revolve exclusively around work colleagues.
Invest time in family and broader groups. Find a way to have achievements
outside of work.

So this happened to me. My wife and I went from a very comfortable double
income to countless hospital visits and no time or energy for anything else.
And this is just after we had kids.

I'll be forever grateful that my wife set up the safeguards above. I was 100%
invested in work, financially and socially, so it has been a huge shock and
could have been much worse.

~~~
AznHisoka
Mind if I asked what exactly happened in your life that led to this?

~~~
tominous
We found out my wife had cancer ("of unknown primary") in May last year. We're
in our early 30s so this should not be happening. Anyway, I think the same
advice would still apply for more mundane situations like a recession or a
failed business.

------
orestis
What is a Vanguard, Betterment, WealthFront equivalent for EU-residents?

Local banks usually offer a very small selection of funds and the fees are
usually 2%, which has a huge impact.

~~~
Ecio78
Vanguard is available in Europe as well, event though with a subset of
products.

In general, take a look at etf funds with low commissions.

Search on bogleheads the wiki pages for Europe (there are also few for
specific countries)

~~~
orestis
Their products might be available, but not the company. You are responsible
for finding a broker that has reasonable fees.

~~~
Ecio78
You are probably right and it's not so easy to find broker proposing them. But
I've read few days ago they are growing and thinking about improving their
presence in Europe so this may change. Still, if you want to build a simple
portfolio a-la Bogleheads I think it's easier to use big étf funds (they may
not be at the same fee level of vanguard but the competition pushed then low
enough to be ok)

------
Analemma_
Investing for non-investors: whatever the question, if you have to ask, the
answer is index funds.

~~~
MarlonPro
True. Buffet said so - S&P 500 Index Funds.

------
runamok
I am surprised by the 90% should invest in a Roth IRA vs. Traditional if they
do not have access to a 401k. I would expect the growth of pre-tax dollars
would outweigh having to pay taxes when I withdrawal. Put another way, I
expect my retirement income to be 1/2 or less than my current income...

~~~
milcron
It hugely depends on your tax expectations. For tech workers who typically
have high salaries, the 401k is a better solution since it reduces your tax
burden.

If your current tax bracket is rather low, or you expect to be earning lots of
money through retirement, then Roth IRA can be a better solution.

~~~
ryandrake
> If your current tax bracket is rather low, or you expect to be earning lots
> of money through retirement, then Roth IRA can be a better solution.

I think for a typical "geek" who this article is about, rare is the scenario
where you expect to be making that much more by (and throughout) retirement to
justify taking the tax hit now. Maybe this works for a doctor who's doing
residency and still paying for medical school, who eventually expects to be
raking it in. But for tech workers our compensation tends to plateau very
early and not grow a great deal throughout our careers. I know on a percentage
basis, my comp grew more in my first 5 years than it has in the last 15. This
scenario would appear to encourage tax-deferred investment.

------
jbpetersen
Alternately, a lot of people around here no doubt have unique opportunities to
speculate on how specific technologies will progress.

If you can spot something that's genuinely original in how it blends things
together, has enough expert mindshare to be a leader in its domain for the
foreseeable future, stands good odds of capturing a decent amount of the value
it creates for those who support it, and offers a way for you to throw money
at it: throw money at it.

It's a completely different game from trading in more mature markets where
politics and statistics become major forces alongside original innovation in
determining what happens next.

~~~
noodle
A lot of people around here do "invest" in this type of tech by working for
companies producing that tech. For the average person, you can't throw your
money at a random startup.

And generally, its not exactly a safe bet either. People who do throw their
money at startups tend to also have lots of other very safe, diversified
investments to balance out the risk of larger singular investments on specific
bets/companies/tech/ideas.

For example, the author is advocating and claims to invest in your basic
Vanguard Retirement Target fund, but he's also an accredited investor who also
does just what you suggest

~~~
jbpetersen
You made me realize I should've said time/money from the get go.

With startups specifically, I'm hoping Title III is just the beginning of
making them a lot more accessible for more casual investment, like throwing $5
at whatever cool/useful thing has caught your attention lately.

------
zeveb
> I haven’t written too much recently, which was largely because I was quite
> busy with Starfighter. Sadly, that wound down. On a happier note, I will now
> have a lot more time for writing, both personally and on behalf of Stripe,
> which I joined earlier this week.

As an aside, I'm sorry to read that Starfighter is closing down. Seemed like
an interesting idea, and one that could have been good for both employers &
employees. My best to tptacek — I know that he'd high hopes for it.

~~~
tptacek
Thanks! Not done yet.

------
3pt14159
I'm getting really sick of hearing programmers tell me about the efficient
market hypothesis as if it is some very hard rule, like big O notation.

The market is not efficient. Full stop. Stop telling me that I'm not going to
beat the market. I beat the market all the time. In 2007 I was telling
everyone I know that the housing market was about to burst. I sold all of my
family investing company's stocks (except for Apple) and I moved everything
into money markets / bank accounts. Bought back in during 2009, road the wave
up until about last year I started feeling a bit skiddish and sold off not
everything, but many things. I routinely pick individual stocks, like Apple,
Telsa, Amazon, Bitcoin; that I know are better. Apple: iPhone is better. I
don't care if some analyst at Goldman knew this before me 90% of the public
was still talking about how Blackberry had a keyboard. Telsa: the physics made
sense, plus Elon had that Silicon Valley-ness to him. Amazon I knew would win
with AWS and the whole "ecommerce is a bear" thing. Bitcoin: People like drugs
and buying things online, bought in at $4 a coin, have since sold almost all
of it.

It is actually really easy if you are smart enough to be a programmer to beat
the market. Just make sure you understand the domain you are in really well,
and be cautious of overall trends in the economy. I've averaged 18% year over
year returns with a _diversified_ portfolio (yes, more than a quarter of that
is bonds or and another quarter is super low risk dividend companies like
consumer staples).

"Survivorship bias" I hear you say.

Maybe there should be this other word "suvivorship bias bias" where one is
incapable of having their view of the efficient market hypothesis challenged
because this is the only thing that comes to mind when they talk to someone
about investing.

There are ways to do better than the S&P 500. Patrick is right about one thing
though, you won't pick winning stocks from reading the newspaper but you might
miss a 2008/2009 if you read The Economist instead of Time Magazine.

[http://www.tradersnarrative.com/wp-
content/uploads/2008/03/a...](http://www.tradersnarrative.com/wp-
content/uploads/2008/03/after%20the%20fall%20house%20prices%20economist%20magazine%202005.png)

[http://img.timeinc.net/time/images/covers/pacific/2005/20050...](http://img.timeinc.net/time/images/covers/pacific/2005/20050613_400.jpg)

~~~
vintageseltzer
> "Survivorship bias" I hear you say.

I understand your sentiment, and have felt the same way. I made the same bets
on Apple, Tesla and Amazon at around the same time and beat the market. I
think the issue is — can you replicate that for the next 30+ years? I don't
think I can.

------
marpstar
When I was working at Best Buy in college I was employed part time and they
offered 401k. My mother instructed me to contribute as much as would max out
their match, explaining that it was essentially "free money". I don't remember
what the match was. I eventually rolled the whopping $2,600 into an IRA that's
grown pretty well the past 8 years. It's a ridiculously easy thing to do that
pays off, literally.

------
paolav
Any tips / guides for non-USA / european citizens?

~~~
hackerboos
Canada: [https://i.imgur.com/YcceUqa.jpg](https://i.imgur.com/YcceUqa.jpg)

------
somic
"Your company will probably extend a term saying “We will match your
contributions up to N% of your salary.” You should always and under every
circumstance invest enough money to max out your employer match. It is free
money if you take it."

This is a reasonable default option but not necessarily the best for everyone.

There is a flaw in this statement - you are encouraged to save more today in
order to maximize amount of money in your retirement account, with side effect
of some immediate tax savings (which btw will not be in absolute figures but
will be in rate - if you save more to 401k, your tax rate will be lower but
amount of tax you will pay will still be higher).

If you are too far from retirement and have other goals that will come before
retirement that could be very important to you, it becomes a decision just
like anything else, not a no-brainer.

This is because of tax law - you are very constrained in your ability to take
money from 401k before retirement if you need it.

~~~
csharpminor
Yes, some people cannot afford to save for retirement. As the article
mentions, you shouldn't invest money that you can't live with for at least 10
years.

However, the opportunity lost for every year you defer retirement
contributions is huge, especially when you factor in the employer match you
could be getting.

If you assume a $200 a month contribution at about a 3% rate of return, the
difference between 39 and 40 years of contributions is $7,600. Discounting the
$2400 in contributions you would have made, that's still $5,200 lost just for
waiting a year. And we're not even factoring in an employer match.

Again, agree that for some this may be a tough decision. But generally
speaking, if you receive a salary and have the option to participate in a
retirement plan, you should do it.

~~~
somic
Participate in 401k plan - yes, 99% people would benefit from starting as
early as possible. Max out your per-paycheck 401k contribution (including in
order to maximize employer match) - not always. The farther you are from
retirement age, the bigger your opportunity cost is going to be (your 401k
money is locked-in into retirement account).

There are also certain 401k rules that may play very hard against you. For
example, take a look at mandatory withdrawals ("required minimum distribution"
\- RMD) for some types of retirement accounts in the US at certain age + how
your retirement account suffers disproportionately if market is down when you
start mandatory withdrawals.

I know the math you are talking about, it does make sense conceptually and
that's why it's cited in all 401k materials, real life with its rules and
uncertainty is bit more complicated.

------
tharshan09
This is very US based. Does much of this advice change, say if I were a, UK
citizen? (other than the obvious 401k etc)

------
icedchai
I'm currently investing $1000/week into Vanguard funds. I've been doing this
since 2007, started at $500/week, and gradually moved up. The key is to always
be investing. Currently I am focused on international and energy. I feel these
are "low" and will come back in 5 or 10 years. Maybe I'm a fool.

Sometimes, it is difficult to resist trying to time things, and if the market
drops 2% or 3%, I'll buy more. So far, it has worked out, but holding on
through massive losses can really hurt. Throwing your money into a correction
can feel really strange. In February, I was down probably 40 or 50K over a
month. But I stuck it out. I even bought some individual stocks (mostly SaaS
companies) that are up 40% or 50% (CRM, HUBS, etc.)

~~~
nojvek
You must be making crazy money to invest that much per week. That's barely my
salary after tax.

Sometimes reading HN makes me feel really poor

~~~
icedchai
I do okay. What helps most is I live in an area with a low cost of living, and
my house is paid off.

------
nojvek
There are lots of words in here that someone new to stocks wouldn't
understand. From the gist I make vanguard is a good starting point. Is there
someone you can call talk for a consultation to explain this in a layman's
language?

~~~
loeg
Yep. [https://investor.vanguard.com/financial-advisor/financial-
ad...](https://investor.vanguard.com/financial-advisor/financial-advice)

------
ArtDev
If I don't know where the profits are coming from and for what cost, investing
may not for me.

There are a few companies with good ethics, mostly in tech, that I would
invest in. I don't see myself investing in a mutual fund or index fund though.

------
freditup
If your company doesn't do any 401k matching, how worth is is to put money
into it vs. regular investing? In my case it's likely I may want access to the
money before retirement age, so I'm not sure what the best option is.

~~~
enraged_camel
The primary advantage of a 401k is that contributions are deducted from your
taxable income.

If you make $100,000 and put 10% of that into a 401k, your income tax will be
based on a $90,000 income.

You do pay taxes on the money you put into a 401k when you start withdrawing
from it during retirement, but what matters is this: if you believe your
income during retirement (i.e. the money you'll be paid regularly out of your
retirement accounts) will be _less_ than your income today, then contributing
to a 401k means you will end up paying a lot less in taxes overall, over the
course of your life.

There are ways to take money out of your retirement accounts before retirement
age, but it depends on certain scenarios[1]. If you need to access the money
before retirement age outside of those scenarios, then do a regular brokerage
account.

Regardless though, you should definitely open a Roth IRA if you're eligible,
and contribute the maximum amount every year. Contributions to your Roth IRA
are after-tax, so they won't be taxed when you take them out during retirement
- since they have already been taxed. This makes them very advantageous.

[1][http://www.bankonyourself.com/401k-withdrawal-
rules](http://www.bankonyourself.com/401k-withdrawal-rules)

~~~
anarazel
If you plan on staying a us resident, that is. Several cross-national taxation
agreements (Germany, Austria at least), don't have double-taxation avoidance
for roth type accounts.

------
p8donald
I am in the EU and I am investing my money in peer-to-peer lending.

You lend your money to other people through the marketplace and they pay it
back with interest. The ROI is about 10% to 15% per year. I think it is low
risk since you can choose the type of the loans you want to invest in (loans
secured by real estate or short term loans with buy back guarantees). You can
also diversify since the minimum investment is €10.

I don't think you can invest hundreds of thousands or millions of euros (the
market is not so big) but the market can definitely support tens of thousands
of euros.

~~~
hackerboos
What service do you use for this? I'm aware of Zopa in the UK.

~~~
p8donald
mintos.com and twino.eu

------
anovikov
Any advice for non-Americans? I'd like to get to Vanguard but...

~~~
nfriedly
I think Vanguard also serves non-US-citizens:
[https://global.vanguard.com/portal/site/home](https://global.vanguard.com/portal/site/home)

------
ozim
I think this should be opening sentece, after which a lot of people can just
skip all other investment advice: "Only invest money you won’t touch for 10+
years."

~~~
phil248
Honest question: Then what do you do with the rest of your money? Say you plan
on buying a home in 5-8 years, what is one expected to do with tens of
thousands of dollars over that time period? Earn 1-2% on bonds?

------
rudyl313
I've written up my philosophy on beating the market, which is a little less
conservative with respect to believing that markets are efficient and
investing in the indices is the only prudent way to invest:

[https://docs.google.com/document/d/1KXfTFYfmhb9Cy5NE0uRuf8Sv...](https://docs.google.com/document/d/1KXfTFYfmhb9Cy5NE0uRuf8SvqZArtLuRje6EeY5caEI/edit?usp=sharing)

------
jsonmez
So, I thought I'd type up a bit of more detailed explanation of my story and
why I think real estate is a great investment for software developers, since
my previous comment was a little lacked.

I bought my first house when I was 19.

It's a little two bedroom shack in Boise, Idaho, which I bought in 1999 for
$68,000.

I still have that little shack. Today it's worth about $135,000 and the
tenants I had in it essentially paid the mortgage on it and I own it free and
clear.

I've actually got 26 total rental units and I generate about $10k a month of
almost completely passive income off of them, net.

I made a ton of mistakes along the way, but I learned quite a bit--which I'm
happy to share.

Over the years, I tried to buy one property every year.

At first I could only afford small properties and would put 10% down, so I was
a bit leveraged.

But, eventually I was able to afford bigger properties and put more money
down.

I always bought properties using 30 fixed loans and that ended up working out
well.

I watched in horror as many of the other investors I knew--who were really
speculators--went under, during the big housing crash.

I actually thrived during this time, picking up properties for cheap.

All the time I was working as a software developer, I had this goal of
retiring early.

I kept saving as much as I could and investing real estate... little by
little.

Like I said, I made mistakes, but learned from them and got smarter as I got
more experienced.

Eventually, I had built up enough cash flow to actually "retire." This
happened a few years ago.

Why is real estate such a good investment?

Well, I think there are two main factors: leverage and hedging against
inflation.

Leverage is extremely powerful.

A bank will lend you a large amount of money, sometimes 90% or more, for you
to invest--if you buy real estate.

This isn't the case with other investments.

So, you can buy a house for $100k, put $10k of your own money into it and if
it goes up 10%, and is worth $110k, you make 100% return on your $10k.

That's insane. I don't know other investments where that is possible with such
low risk--if you mitigate the risk properly.

Now, I don't depend on appreciation--and you can't count on it--but, you don't
even need it.

Just the cash flow alone can get you excellent returns on your money. Again,
with little risk and huge upsides.

Hedging against inflation is also a beautiful part of real estate investment.

Most other investments are hurt by inflation, real estate isn't.

In fact, if you owe money on a mortgage and inflation hits, you actually owe
less.

Home values go up with inflation, as do rents.

I know it's a bit difficult to believe--I probably wouldn't if I hadn't done
it myself--but, I have done it and I did escape the rat race.

Anyway, if you'd like to know more, let me know and I'll post the link to my
YouTube videos and the video course (that is in beta) that I am releasing on
specifically real estate investment for software developers.

~~~
douche
I think I read one of your articles discussing this before I bought my home,
and it helped convince me to pull the trigger. I was renting one unit in a
duplex, when my landlord put the building on the market. After some months,
the price he was asking came down into the range where I could make a play for
it, and I did. With a software developer's income, I had no trouble getting
approved for a mortgage, and was able to take advantage of FHA incentives to
get a low interest, low down-payment loan that I scraped together a down
payment for by tightening my belt for a few months. Best decision I ever made.

Since it is a duplex, I've been able to rent out the other unit, and the rent
on a big, 2BR apartment in this market is enough that it more than pays the
mortgage, leaving me to just pay the property taxes.

~~~
jsonmez
BTW, would love to hear more about your success. Email me at
john@simpleprogrammer.com if you get a chance and I'll be happy to give you
some free advice in exchange for hearing more of your story.

------
BeetleB
Good points. I'll point out that a 10 year window is too short.

Look at this post to get an idea of 5 yr vs 10 yr vs 20 yr vs 30 yr windows:

[http://blog.nawaz.org/posts/2015/Dec/pay-down-mortgage-or-
in...](http://blog.nawaz.org/posts/2015/Dec/pay-down-mortgage-or-invest/)

10 years has enough volatility that you shouldn't use it to compare between
funds.

------
k2xl
One issue with the Roth IRA. You're contribution limit goes to zero after you
make more than around 180K (depending on how you file).

~~~
benmanns
You can contribute to a non-deductible IRA and then after a (short) period
convert it to a Roth IRA. If you don't have other traditional IRA funds (the
basis is pro-rated across all traditional IRA accounts).

~~~
loeg
Google "backdoor Roth" for more thorough description and discussion.

------
wyclif
It's very, very rare that I say to myself, "Self, I'm glad I read that sign-up
email this morning." Thanks, Patrick.

------
lamby
Any similar articles specific to a UK resident?

~~~
IanCal
The UK personal finance subreddit has a lot of good content

[https://www.reddit.com/r/ukpersonalfinance/wiki/lumpsuminves...](https://www.reddit.com/r/ukpersonalfinance/wiki/lumpsuminvestment)

[https://www.reddit.com/r/UKPersonalFinance/wiki/isa](https://www.reddit.com/r/UKPersonalFinance/wiki/isa)

------
SimonPStevens
Can someone explain why he says that 90% of people should expect to have a
higher marginal rate of tax at retirement and so are better saving to a Roth
pension with post tax money now?

I'm UK based but the principles seem the same, and I'm fairly sure I'm paying
more tax now than I will be after I retire.

------
simonista
Does anyone have suggested reading on what the estimates of 8% (or 7% or 5% or
whatever gets used) are based on? Is there any data to support that the next
30 years will see those types of returns from the total market on average?

~~~
lutorm
Data by definition can't be from the future, so unless you by data mean
"extrapolations", then that can't be the case.

------
pmorici
Whoa, startfighter.io is winding down? That is the first I've heard of that.

------
torkins
For an audience that might be interested in being a bit more self-directed,
take a look at the approach of the guys at
[http://tastytrade.com](http://tastytrade.com).

------
_audakel
Good point - on Should I Invest In Crowdfunding?

"Crowdfunding has a bit of an adverse selection problem, where only companies
which are insufficiently attractive to more professional angels .... go"

------
vehementi
There's a 3rd option which is to not eat robo advisor fees (0.6%-1%) and
instead do the purchases yourself through a brokerage. Option #1 doesn't
really dominate this.

------
eigenvalue
Another idea that has worked very well historically: buy spin-offs. As a
category, they consistently outperform for a variety of structural reasons
(forced selling, lack of awareness/coverage, perverse management incentives at
the time of the spin that often lead to a low share price, better management
from increased focus,etc.) This free site has a list of upcoming spins:
[http://www.stockspinoffs.com/upcoming-
spinoffs/](http://www.stockspinoffs.com/upcoming-spinoffs/)

------
DocG
Not a bad investment plan. I do real estate. Earn around market medium and
will have initalt investment to pull out or give to children at my will.

------
seangrogg
A great post on the whole, but out of curiosity does anyone know how he
arrived at $40k off of $1m with present-day examples?

~~~
FabHK
Safe withdrawal rates are a whole chapter in itself.

If you want to be 100% sure that your money lasts to the end, i.e. your death
(in real terms), you cannot erode your principal, in real terms.

Thus, if you have, say, a 5% total return nominally, but 2% inflation, you can
withdraw 3% p.a.

(Taxes complicate things, particularly insofar as you pay taxes on the nominal
returns.)

However, with this strategy you bequeath your original principal at the time
of death (in real terms, i.e. grown by inflation), which might be too much.

Thus, people generally argue for taking out a bit more, which might give you,
say, 4% withdrawal with 5% nominal returns and 2% inflation (taking out about
1% or your principal p.a., halving it over the course of 70 years).

When you erode principal like that, you run a small chance that you run out of
money if your

a) returns are lower than expected or

b) you live longer than expected.

A solution to a) is, as the name suggests, fixed income (i.e. bonds), which
have no equity risk and (when you hold a bond with fixed rates to maturity) no
interest risk. You are stuck, however, with credit risk (bond issuer goes
bust) and inflation risk (except with inflation adjusted bonds).

A solution to b) are annuities, that is an insurance product that pays you a
fixed amount until you are dead, pooling the early/late mortality risk. The
market for these is very different for different jurisdictions, one reason
being, as usual, tax issues.

~~~
IanCal
4% also sounds like a reference to the Trinity Study:
[https://en.wikipedia.org/wiki/Trinity_study](https://en.wikipedia.org/wiki/Trinity_study)

~~~
seangrogg
Very useful resource. Thank you.

------
YZF
I agree with some of the points but a note of caution. Stock markets today are
significantly different than those of the past and the kind of low interest
rate, low growth environment, we've been in over the last decade or so has no
precedent.

"In the 10 year period from 2006 to 2015, the average return was a little
lower than 8%"

From the peak of the '99 bubble till around today we have about 2% yearly
return on the S&P 500 (excluding dividends). You would actually do much better
if you were in bonds. Between '99 and '09 you would actually lose money. Two
takeaways from these, one is that you can't just pick some period and build a
theory over that, the second is that when you're invested in stocks there is a
non-negligble probability of losing money over a 10 year horizon. The only
reason stocks are so high these days is that their prices are supported by
zero interest rates. That doesn't mean they can't go higher for various
reasons but you need to be cautious. Everyone talks about buying stocks right
about when things get frothy, not too many people post this sort of financial
advice at the doom and gloom bottoms. Over long periods, dollar cost
averaging, you'll do OK. Don't rush in at a top and obviously don't sell at a
bottom, something a lot of people end up doing.

Privately held tech companies, especially startups, can actually have a better
return vs. public companies. The problem is not the return, the problem is
getting a strong, diversified portfolio. Unless you are a VC you can't really
do that. In general small caps tend to outperform large caps and startups tend
to outperform small caps, in aggregate, over long durations. It's really not
about out-picking stocks, it's about being able to diversify.

There are a few factors affecting diversification. Different markets and asset
classes tend not to be perfectly correlated. This means that some may be
overvalued at the same time that some our undervalued. While it's not always
easy to tell (sometimes it is easy, when no one wants to buy) I would think
one should offset their weighting to areas they consider to have better value.
As long as those areas are themselves well diversified (e.g. Europe or
Emerging Markets) the long term risk you are taking is low. The other factor
is that having multiple assets allows you to construct a better portfolio.
This is known as the "Efficient Frontier". Assuming you have some information
about how the different assets correlate with each other (which is a big
assumption but still) you can combine those assets to create a higher
returning portfolio with less risks.

Personally I'm invested in a mix of stocks (worldwide), fixed income, real
estate (through funds) and bonds. I keep adding to this. I make some macro
bets (e.g. I've been heavier Brazil, Greece, emerging markets, junk bonds ATM)
through long term weighting of my portfolio and I keep an eye on those. Out of
my current bets Greece hasn't worked out (yet) but the others have. YMMV.
These are not the kind of bets where I can suffer heavy losses over extended
periods (IMO) but there's certainly increased risk. I don't expect US stocks
to have great returns over the next decade or so but I'm still in there with
some portion of my investment. My horizon is 10-20 years and I very rarely
sell anything (except the stock I get from work :). I try to buy when people
are panicking but it's hard to find good panic these days ;)

~~~
azatris
Interesting. What sort of returns have you had over the whole period (and how
long)? What sort of scale of investments are we talking about - 10k-100k?
100k-1M?

~~~
YZF
My return over the last 12 months is 8%. This is less than the S&P but I'm
only about 60% in stocks so I'll take that. Scale of about 400k. I used to own
more individual stocks and had less % of my total money in the stock market
and have been trying to shift to a more hands-off, diversified, portfolio over
the last 3 years or so. I've been learning about investing and managing my
money for the last 15 years. I don't have accurate numbers for that entire
period, need better software.

I wouldn't sleep well if I was 100% in stocks so I realize I'm giving
something up in very long term returns.

Ask me again in 10 years.

------
neur0tek
Great post. Love Vanguard

------
bluetwo
If you are self-employed and incorporated, and are really crushing it, you can
open both a 401k and a Roth 401k to maximize the amount you can stuff away.

~~~
loeg
You can only contribute $18k as employee and $35k as employer (under 50 years
old, anyway). Those totals are across both traditional and Roth 401(k)
accounts. If you have 401(k)s at multiple, unrelated employers, you can get
employer contributions from both to a total over $35k. But if both are
Individual 401(k)s, I don't think that applies.

~~~
bluetwo
Yes. If you use both, you can work it so you hit the maximum 53k per year, or
59k per year if you are 50+, and have a big chunk in the Roth side so you
won't have to pay taxes on the money later (You pay now, of course).

[https://www.nerdwallet.com/blog/investing/roth-ira-
roth-401k...](https://www.nerdwallet.com/blog/investing/roth-ira-
roth-401k-roth-solo-401k-whats-difference/)

~~~
loeg
Why would you do that instead of just putting away 53k pre-tax, as a self-
employed with Solo 401(k)?

~~~
bluetwo
In theory, having a chunk in the Roth is a better deal. You pay taxes on that
money now, but down the road, you don't have to pay when you withdraw.
Assuming it has grown multiple times, you pay much less in taxes by doing it
now. And, you are not forced to take mandatory withdrawals when you are older.

I understand the penalty for early withdraw, should you need to do that at
some point, is more forgiving with a Roth as well.

It is more paperwork and more math to setup both.

------
perseusprime11
related topic but how important is having a financial advisor?

------
thr0waway1239
Just to play devil's advocate, what if Peter Schiff is right again? :-)

~~~
tunesmith
right about what?

~~~
thr0waway1239
Maybe you already know, but he is this perma-bear investor who became a
YouTube meme in early 2009.[1]

He was the guy who was constantly warning about the potential for a 2008 style
crash starting around 2006. The longer the bubble was going up, naturally, the
more and more he was mocked. Until it all came tumbling down.

The point is, he is basically saying what we are seeing now in 2016 looks like
the run up to the crash in 2008. Although his critics would rightly point out
that he has been saying the same thing for effectively most of the last 10+
years.

If you think 2008 could and should have been avoided, you might not agree with
his views. If you think it was a long overdue correction, you would be more
likely to agree.

Finally, how this relates to the article mentioned here: while timing the
market is definitely difficult, I suppose there are times when you are better
off not entering the market at all lest your investing psychology gets
permanently burnt. The next year or so might be one of those periods. (In
other words, my personal view is - just hold on to your cash for a while and
do nothing with it).

[1]
[https://www.youtube.com/watch?v=Z0YTY5TWtmU](https://www.youtube.com/watch?v=Z0YTY5TWtmU)

------
cloudjacker
> Crowdfunding has a bit of an adverse selection problem, where only companies
> which are insufficiently attractive to more professional angels

They mean every idea that doesn't have a 10 billion market to disrupt and gain
1% of

Its crowded at the bottom, enjoy the liquidity preference!

------
asciihacker
Forex, Binary Options and Cryptocurrency can return in months what traditional
investing takes decades to do.

I know which I prefer.

~~~
tptacek
So can blackjack.

~~~
douche
Back when online poker was booming, I knew some guys that paid off their
college tuition grinding on FullTilt

~~~
Tomte
Because they could spot and enter many small markets with "fish".

In finance and investment there is (to a first approximation) only one big
market, and you are the "fish".

Those guys wouldn't have made their tuition walking into the Bellagio and
entering the Big Game.

~~~
douche
One of the guys actually did go pro and made a pretty good living at it for a
while, besides writing some books and video series on texas hold 'em

[http://www.businessinsider.com/how-andrew-seidman-started-
pl...](http://www.businessinsider.com/how-andrew-seidman-started-playing-
poker-2013-9)

------
alejohausner
Why don't geeks read Mark Hulbert? Every time I see people discussing
investing, it's usually about index funds. Stock picking is supposedly fool's
gold, so you should buy the whole market, or so goes common wisdom.

But the market can be brutal. It can have decades-long stretches of terrible
returns. If you had all your money in index funds, and retired in 1929, you
would have made no money for 25 years. If you retired in 1967, 15 years. If
2000, 10 years. Do you have 10 years of living expenses saved up?

There _are_ good stock pickers out there, people who focus on fundamentals.
And you don't have to take their word for it. Mark Hulbert has been
subscribing to many stock pickers' newsletters, trying out their picks, and
reporting objectively on the results since 1980. Some libraries subscribe to
his monthly report, but since investing is a very long-term process, the same
handful of newsletters keep showing up in the report: you only need to look at
a few recent Hulbert reports to find good stock pickers.

~~~
reddytowns
I somewhat agree, but I wonder if times are changing.

Some background, I bought Hilbert's newsletter in 2003, and then bought and
followed The Prudent Spectular, based off of its recommendation. I did so
religiously, and even though I'm glad for it's advice which helped me ride
through the collapse of 2008 without selling, the returns haven't been
spectacular.

I wonder now, though, if the game has changed. Has there been so much ongoing
disruption due to the advancement of tech, that what worked before won't work
anymore.

Which is to say, the problem with stock pickers is that it takes a long time
to measure their performance, and what worked in the last 20 years may not
work in the next.

Btw, I don't know why you are getting downvoted. What you say is interesting
and certainly has merit.

~~~
alejohausner
I don't know if you'll read this, but here is some info for you. I subscribed
to Hulbert until mid 2014, and had a look at the yearly tables where he
summarizes the performance of all the newsletters he tracks, with 1, 5, 10,
and 15 year averages. With a bit of algebra, you can use those yearly 1, 5,
10, and 15 year averages to estimate the performance of the Prudent Speculator
for single years, going back to 1992. Here's the numbers I got (percent/year):

2013 5.3

2012 17.8

2011 -2.3

2010 21.8

2009 38.4

2008 -43.0

2007 1.0

2006 14.6

2005 16.0

2004 27.1

2003 102.6

2002 -35.0

2001 11.2

2000 2.2

1999 19.1

1998 -0.1

1997 -15.5

1996 44.8

1995 56.4

1994 77.9

1993 -13.7

1992 35.6

You started in 2003, and dropped it sometime after 2008. The average for 2010
through 2013 is 10.6% per year, which is OK, but I think is in line with the
broad market index.

One of the recent Hulberts has a recent semilog plot of the newsletter's
returns, and by I eyeballing it can see that, while it outpaced the market
from 2000 to 2007, it has pretty much tracked the market since 2008. So it
hasn't beaten the index lately.

Hulbert also reports that the newsletter's author prior to 2002 (when he died)
used margin to augment the returns. Since 2002 another person is picking the
stocks, and they're not using margin, so that might account for the recent
pedestrian returns. 10% is nice, but I agree it's not spectacular.

Looking at recent behavior dissuaded me from following it. I wanted a bit more
money from my investments. But I can see how, in 2003, the previous decade
made the plan look really good to you. I would have done the same thing as
you.

~~~
reddytowns
Actually I never dropped it. I'm still thinking of jumping but not sure what
to jump to. Part of me is hoping value oriented investing (which is The
Prudent Speculators' main principle of investing) will make a comeback, but
I'm not sure how likely that is.

They say that value oriented investing wins out over growth at the end, but
here is a graph comparing the two that tells a different story over the last
10 years, IWO is a growth fund and IWN is a value fund (unrelated to The
Prudent Speculator, but same strategy):

[https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&...](https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1474313040000&chddm=987631&chls=IntervalBasedLine&cmpto=NYSEARCA:IWN&cmptdms=0&q=NYSEARCA:IWO&ntsp=0&ei=nengV7mlJZCa0ATAg7WACQ)

I was thinking of Louis Navellier, he seems to pay a little closer attention
to the winds of the market, where as The Prudent Speculator just ignores them
for the most part, and follows their basic strategy, but his newsletter is
kind of pricey.

I don't want to invest in mutual funds, because I have the USA Citizenship
curse that means I am taxed on profits. So, I try to shuffle around my losers
every year and keep my winners alone. This way, I save money on taxes (aka Tax
harvesting)

If you don't mind sharing, did you decide to follow a newsletter based on
Hulbert's? If so, what is it?

~~~
alejohausner
Well, I would rather not say, but a couple of plans stand out, which I might
look into:

The Forbes Special Situation Survey. They're value oriented, and have been
around for a long time. They hold about a dozen stocks at a time.

Investment Quality Trends. These guys have been around since the 60s. They
pick high-dividend stocks. Their notion of 'high-dividend' uses some chart
tea-leaf reading: they assume that a stock's dividend yield will tend to range
between a historical min and max, and they recommend a stock if it has a high
dividend, relative to its own historical range. Lots of boring stocks like KO
and IBM, but the newsletter does pretty well historically, and has low
volatility.

Another method I've thought about about is the 'Permanent Portfolio'. It's not
a newsletter. Simply put 25% each in an index fund ETF, stock ETF, gold ETF,
and cash. Rebalance once per year. It's popular with end-of-the-world
preppers, and underperforms the market, but it has VERY low volatility. Good
for sleeping at night.

