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Young hackers who have a surplus of income and have funds to spare that aren't being channeled toward debt / family / donations, heed me: save as much of your salary as you can, and put it in boring investments (index funds / etc), probably through vanguard.com (no affiliation, I just use them and have heard nothing but good things from people I trust). You can pretty easily set up your job's direct-deposit system so that a portion of your salary goes directly into your investments without you ever seeing it, it's a good set-it-and-forget-it system. It adds up over time!

[Somewhat related: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-sim... ]

This book taught me the fundamentals of passive investing (https://www.amazon.com/Random-Walk-Down-Wall-Street/dp/03933...) and this website is THE online community for Bogle-style, passive investors (https://www.bogleheads.org/), once you understand the basics.

I read that book this year. The entire book can be summarised as.

Don't attempt to beat the market. The market cannot be beat (many examples in the book). Invest in index funds long term which is the right mix of risk/reward for most people.

It does have a chart in the back which tracks your age and situation. For example as you approach retirement you should start to liquidate your funds and buy government bonds so you aren't hit by a bad year when you have to start drawing on your investments.

It did convince me. I opened accounts with Wealthsimple and Questrade the next day.

A great site for fellow Canadians is http://canadiancouchpotato.com/ - you can skip the book.

That's a great summary and advice!

It's crazy there is this giant industry of overpaid people that exists only because people don't listen to that advice.

Disclaimer: I work in said industry.

>The market cannot be beat.

I really would like to believe this, but please explain to me how then how firms like Renaissance can exist ... Not sure whether it's relevant but I'll add that I'm an economics PhD student.

The market cannot be beat by 100% of amateurs piddling away on their brokerage account during a few spare hours a week.

The market cannot be beat by 99.9% of professional investors spending all their time day and night trying and with a team of people helping them.

I'm calling your bluff on you being an econ PhD student or maybe you have been one for a month or two at most...? If you are an econ grad student you know what RenTec is doing more or less. At least in theory if not specifics, people talk and there's plenty of econ papers explaining what's underneath major quant strategies.

People need to chill bringing up RenTec when finance comes up (Buffett too). Just like they need to chill bringing up Facebook when talking about startup valuations. Outliers are outliers.

Academia doesn't pay that much attention to the real world. Most of the papers out there are rubbish and would be considered junior level work, except with way too much detail.

There are pretty much no econ papers that would describe what happens inside the high end systematic firms. (Source: I work in the industry)

Bringing up the outliers is a perfect counterexample when wild sweeping statements are made. These are not even real outliers, they are valid samples.

>The market cannot be beat by 99.9% of professional investors spending all their time day and night trying and with a team of people helping them.

Professional investors pretty consistently beat the market. But not the ones that you see. The louder someone markets their fund, the more likely it is to be a scam. Your sample is of guys who heavily promote their fund and make money from management fees not performance.

The best managers aren't even made visible to you. Why would you attract attention to what you're doing if you have a good thing going?

I agree & the "pro-index" crowd would improve the accuracy, if not the effectiveness, of its message by saying "non-passive strategies can work superbly, but not for outsiders with <$1M in capital" instead of saying "no one beats the market in the long run" / "you can't predict which parties will beat the market in the long run".

>high end systematic firms

I'm not familiar with this term, would you mind giving me a general description of what kind of investing these firms take part in?

"Algotrading" generally refers to execution algorithms only, despite popular culture's interpretation.

When the funds portfolio is decided based on a system your fund is systematic. It's an important distinction.

Illuminati confirmed then right. My bad.

Professional investors are not pretty consistently beating the market...secular! Anyone can have a good year or two.

I'm not talking about dudes talking their book on CNBC. Yes there are shops that beat the market, but if you have beaten the market 5 years in a row, you can't keep it a secret even if you want to.

How exactly do you think the performance is made public, if the fund doesn't want it to be? This isn't about illuminati, this is just logic. You can't hide what you're doing from the institutions you have to deal with, but they won't exactly disclose it to general public.

Why would you promote your fund, if you have all the FUM you need? If you are doing well, why would you tell people about it? It is funny that your position is because you haven't seen it, it doesn't exist.

You say you work in the industry. How long have you been doing this and what do you do?

You don't have to answer but your questions are odd for someone with experience in the industry. But let's get into it:

How is performance made public? The same way people know what "stealth" startups are doing. Sometimes a document leaks and sometimes people talk. Usually both. Let's just say a manager is super secretive. Do you know how many people in the chain know performance anyway... Current and former employees. Current and former recruiters of these employees. Current and former clients. Current and former consultants to those clients. etc... And you're saying all these people also don't have that human urge to brag about these rock stars of the investment world? OK.

Even if that were the case, everyone has a cousin at State Street or HSBC, these people take coffee breaks and love to gossip performance and secrets breakdown there.

This is like Fermi's paradox. If all these funds out there are beating the market, then where the hell are they??

All of the funds beating the market are secretive and successfully secretive? For decades?

If it was as common as you imply there should be more of them known to the public by choice or by accident. That is logic.

Don't be the guy who mortgages his house to buy Herbalife products and tells his wife this is your year.

The comment above said 99.9% are not beating the market. There are thousands of funds out there. All funds are filing Form ADV's now...We know who exists. So yes there's a few people who do beat the market. Those 3 Russian guys in Texas and that story about the MIT PhD's working out of a house outside Miami and so yes, there's a few examples out there. Dinky family offices don't count. But no, there's a not a bunch of professional investors with serious weight under management and outside clients beating the market over a secular horizon.

There's a handful, and if you are at one of them congrats to you. But to come on a forum saying there's a bunch of professional investors beating the market, they just all happen to super secretive billionaires and they don't tell anyone about it. That's misleading. That's tech back office got your info from a e-book kinda talk. And it would be at odds with your original thesis that folks that beat the market are secretive and don't talk. So it makes me think you don't work at one, you just want to believe they exist. But again if you do work at one, congrats. Are you hiring? DM me.

So where are they?


He's wrong because he's assuming the average result of the zero-sum game is the only result you can have.

It's a simple fallacy most people with a statistics background understand, but the average journalist doesn't.

Saying you can't beat the market, is like saying you can't win at boxing, because on average nobody wins (there's always a winner for every loser).. but I would put my money on Mike Tyson in his prime.

Your expected value for investing across the market, will roughly converge to the market because of diversification. ~20 funds will start to approximate the underlying universe of stocks, because the range of views of the fund will be across all of them. All of the alpha will be evened out into beta.

So after fees - you would be better just investing in an index than a basket of funds. But there is dependence, a good fund is consistently a good fund. So if you get a chance, it's much better to invest in a good fund.

But the best funds aren't accessible to the public, so the public doesn't get to understand the market for what it really is. And there's a lot of shit ones that market heavily to the public.

There is also a populist idea to the notion that indexes beat hedge funds etc, it makes the average person feel good to think the top investors are no better than they are. So why would journalists peddle the true narrative?

Renaissance is part of the market, and it's the sort of thing that we individual investors can't beat. "The market can't be beat" doesn't mean no one can see better returns - it means a random yahoo like me simply can't compete with the information, processing power, and access funds like Renaissance have.

Thus, an average investor is a lot better off with an index fund instead of trying to pick individual stocks. (Funds like Renaissance's Medallion simply aren't available to people without tens of millions of dollars to throw around, too.)

So buy into the Renaissance mutual fund. There, you beat the market.

Renaissance doesn't run mutual funds. They aren't taking outside money in the market-beating fund.

Funds like Renaissance's have minimum investments in the millions, are often invite-only, etc. We average investors simply can't play in those leagues.

Past performance is not a guarantee of future returns?

People have been saying that about rentech for the last 20 years. People have also been saying that about berkshire hathaway for the past half century. At some point, past performance IS indicative of future returns.

I'm not sure about any Rentec mutual fund, I don't think such a thing exists, but aren't the funds they have open to institutional investors not doing particularly well?

When most people say Rentec they think Medallion, which while being spectacularly profitable over 20+ years, is now a closed fund only open to current employees last I heard.

Renaissance has hundreds of smart people trying to beat the market. Same with the HFT shops.

You can start one of those firms; in all likelihood, not all the potential profit has been extracted yet. You can hire a bunch of smart mathematicians and/or smart technologists, and spend time working on the problem. And then you'll be in good shape to beat the market. If you're an econ Ph.D. student hanging out on Hacker News, you're already well on your way to doing this with your life, if that's what you want to focus your life on!

But "you", the person with an unrelated day job fiddling with some investing app on your phone in your spare time, starting with a relatively small amount of capital compared to Renaissance's first year, and relatively small risk tolerance compared to Renaissance's first year, and definitely not enough money to hire a bunch of scientists full-time - "you" who's asking on a thread about passive income instead of lifelong career options - you are statistically unlikely to beat the market. That's what people mean by "You can't beat the market."

Two decades ago you might have asked how firms like Long-Term Capital Management can exist


That's a ridiculous argument. From that graph, LTCM lasted 4 years. Renaissance has lasted decades.

Rentech, in particular, data mines weak signals out of gigabytes of historical data, and has a team of PhD mathematicians working to find these signals. Each strategy has some small positive expected value, so in aggregate they can be profitable.

Two reasons you can't replicate this - 'you' aren't a team of super top notch mathematicians with decades of data, and even if you had an exact copy of their trading strategies, you don't have the capital to make the transaction costs, etc, worth it.

This is good advice, attempting to beat the market is something that everyone tries at least once, and repeats until they learn that it is futile. There are bigger interests than the "richest investor you know", and those interests will always win. Every single damn time. Instead, just follow them, and ride the wave.

Why did you choose Wealthsimple and Questrade instead of Vanguard like a lot of people on bogleheads recommend?

You can't buy directly from Vanguard in Canada. Questrade is essentially a very low cost broker (low as in free for ETFs).

You can buy certain Vanguard Funds from Canada. For example: VAB, VSB, VCN.

I think you misunderstood the parent. All three examples are ETFs with Canadian assets, available on the Canadian stock exchange.

OP's point is (most likely) that you can't buy them directly from Vanguard (i.e. using an account on www.vanguardcanada.ca) but will have to buy them using a broker (e.g. Questrade.)

Thanks Huppie, that's exactly what I was saying.

> The market cannot be beat

On average, and when bench-marked against itself taking into account fees. There are funds that consistently beat the market, that you should put money into over the index if given the chance.

But your general notion that the average person shouldn't try is a good one. At the end of the day you have to earn money because you took it from someone else. To think that there is a dollar for everyone is to ignore this simple truth.

Of course some funds beat the market. The problem is, there is no reliable way to know what those funds are until after they have done so.

It depends on your definition of reliability. Is driving a car reliable? There's no way of knowing it will crash but that doesn't stop you from getting in one.

You see it as a problem, if you are used to the idea of earning money instead of taking money I get that angle. But to investors it's not a problem but a fact of life.

How are you finding Wealthsimple?

Can't speak to the tool itself, but the site design and overall aesthetic looks gorgeous..

Ramit Sethi's I Will Teach You to be Rich is the personal finance book that introduced me to all the basics (e.g., paying off debts, how credit scores work, why not investing in index funds across diverse asset classes is moronic, etc.).

Dead practical advice despite the somewhat sleazy writing style (see title of book).

Earlier this year, at my last boring corporate job, I was trading stock trading stories with our head accountant. (Like the time my brother and I were trading stock tips about 10 years ago, when he turned me on to some up-and-coming German solar energy firm and I mentioned to him some small biotech company I had just read about. I invested a couple thousand dollars in the company my brother suggested and it was bankrupt within 24 months. My brother invested in both and the company I had mentioned -- I can't remember its name and only even vaguely remember the conversation -- has gone on to something like 50x return, easily making up for the losses from his lousy recommendation... But I digress.)

I told the accountant, who I always found watching CNBC in the break room and I suspect still dreamed of being a day-trader, that the best investment I ever made was our company's ESPP (Employee Stock Purchase Plan).

He said, "You know what? Same here."

(Standard disclaimer: max out your 401(k)/IRA contributions, first.)

> (Standard disclaimer: max out your 401(k)/IRA contributions, first.)

Minor quibble. Your 401k plan almost always has more fees than index funds at someplace like Vanguard.

1. Contribute to your 401k to get your entire company match.

2. Then max out an IRA, a Roth IRA, or a combination of the two based on your income level.

3. Only then continue to max out your 401k.


It's important to remember that this is putting all of your eggs in one basket to a certain extent though.

Your income, your 401k match, and your ESPP are all tied to your employer, so as long as things are good, ESPPs can be a great way to make easy money, but if things take a stark downturn, you can find yourself with ESPP you lost money on, a slouching 401k, and no job. The chances of that happening are fairly low, but still something that makes me a little uncomfortable about ESPPs.

Obviously your advice to max our 401k/IRA contributions first should mitigate a lot of this, but I think it's important to mention the risk too since there's a certain temptation for younger engineers who think it sounds like easy money and don't realize the full implications of it.

That's true, but I always sell my ESPP as soon as it is purchased. That is an immediate 15+% return. Our ESPP is 15% off of the lower of either the beginning or the ending of the offering. Of course the hope is that it will be the lower at the beginning of the offering so that the sell will be 15% + the amount the stock has risen since the beginning.

The only company I've worked at with an ESPP required you to hold the stock for 1 year before selling--not in the sense of tax incentives unfortunately, but you literally cannot sell before 1 year. I didn't realize there were ESPPs where you sell immediately. In that case, woo free money!

Well it is 15% but you are paying income tax on it because you aren't holding it for a year. So depending on your tax situation, it may be closer to 7-10%. Still good though.

The income tax on the profits. If you sell the espp instantly, there isn't much profit, so I'm guessing there isn't much tax?

Well, according to this guy: https://thefinancebuff.com/employee-stock-purchase-plan-espp... it is closer to a 90% return. The example he gives is exactly how my company's ESPP works.

"...the best investment I ever made was our company's ESPP (Employee Stock Purchase Plan)."

This is certainly not true for all companies. I lost over $100K due to our Employee Stock being driven into the ground over the course of a decade by a CEO and board who had loose ethics and no business running a company.

My advice is, before investing in you're ESPP (or Employee Stock Ownership Plan - ESOP), even if you're surrounded by exceptional talent, take a close look at your corporate leadership before purchasing. If they seem sleezy and disingenuous, they probably are and it may be 10 years before you realize you've been totally screwed.

It's good advice to save money and to spend conservatively, if you're poor.

On the other hand, the implicit question of the post was "what did you create to generate passive income" (it's called "Hacker" News, not "Invester/Banker" News).

I think you'll find that the poor generally don't save money -- they spend it, but I digress.

Also: Why isn't interest income considered passive income to you? "The fundamentals" are there for a reason, after all.

Poor people don;'t have enough money to save, by definition.

I don't think this is always accurate; a lot of poor people are poor through spending habits and poor financial management, not through lack of income.

I think that it's also good advice if you're not poor :)

Your second point is absolutely correct, but I still think that my comment answers the root question - how did you set things up such that you're automatically being given money for free on a regular basis? - in a way that is simple, requires very little effort, and has a very good chance of working for many people who are able to try it.

I have read a lot about passive investing (The Intelligent Investor, Mr Money Mustache etc.) but I live in France and it does not seem as simple as in the US to invest in a SP500 index fund for example. Especially if you want something that is quite tax efficient. Does anyone have any advice?

Just want to chime in to say that using a broker to buy index funds should be possible in France as well. I'm in The Netherlands and use DeGiro[1] which is available in France as well, so that might be an option. My investment portfolio basically consists of a few index funds, all can be bought once per month with this broker without a brokerage fee.

As for tax-efficient ways, my french isn't that good so I don't know the details but if I understand this topic [2] correctly you should have some options like PEA, PERCO/PERP, and/or PEE/PEI/PEG

N.B.: There will always be some discussion around this specific broker because their 'default account' contains a clause where this broker is allowed to temporarily loan your assets to other customers. Don't do this. You can get a so-called 'custody account' (which is basically a regular brokerage account) that's only marginally more expensive.

[1]: https://www.degiro.fr [2]: http://redd.it/3oht1m/

Open an investment account in the USA - it's fairly straightforward. I don't know your tax system in france, but you can invest in the US as an individual or an entity, probably worth talking w/ a tax attorney about how to do it - it's certainly done by others.

Don't think it's that straightforward. Probably need a SSN and there will be tax withholding of earnings

Process here. Not trivial but not insurmountable.



Open an ETRADE Securities account if I'm neither a legal resident of the U.S. nor a U.S. citizen You won't be able to open a brokerage account online if you are not a legal resident or citizen of the United States because we will need some additional documentation from you. If you're not sure if you're a legal resident, see the Help topic Determine my residency status. Request a brokerage account application by mail, or download it from our Forms & Applications page. Download a Form W-8BEN. Complete sections 1 through 6 of the application (the section on options trading isn't required). Send your completed application and Form W-8BEN, along with your initial deposit and any supporting documentation, to us at: By regular U.S. mail ETRADE Securities LLC PO Box 484 Jersey City, NJ 07303 - 0484

By overnight mail E*TRADE Securities LLC Harborside Financial Center 501 Plaza 2 34 Exchange Place Jersey City, NJ 07311 1-800-ETRADE-1

France doesn't have an ISA/Roth IRA/TFSA equivalent? Google tells me - PEA (Plan d'Epargne en Actions) - but this info was from 2006.

Thats right. With a PEA you can avoid capital taxes provided you hold your stocks long enough.

As per how to open a brokerage account for alien non US resident, several years ago I managed to open an account at interactive broker while living in hong kong. They have among the lowest fees of all brokers and good software. Pretty sure its also possible to open an account while residing in france.

One thing to note though: as an alien non US resident, any US dividends will be taxed at 30pct in the US, directly deducted by the brokerage company

Invest in a cheap French or Eurozone total market index fund. It only makes sense to invest in a fund that matches your local currency.

>It only makes sense to invest in a fund that matches your local currency. //

Why? Surely investing in a higher growth economy is better?

You're now exposed to foreign exchange risks too

Conversely, it could be a smart diversification move

I put 25k into my investments this year, and I made 40k in unrealized gains, following the above strategy. It works folks.

My blog post about financial independence: http://mays.co/why-financial-independence/

I mean, it does work, but using a sample size of one single year isn't the best way to explain or prove it.

Yes, it works. I've been investing a minimum of $500/week for the past 8 years. Currently I'm investment $1000/week. I make good money and keep my expenses low, and now have more than 33x my yearly expenses in investment/savings. I'm planning on retiring early...

At 33x annual spending you can retire today.

That is already passed the 4% withdrawal rate (can take out 4% every year and never decrease the principle), which is 25x annual spending in savings/investments.


I am aware, but am overly conservative. I just turned 40 so have a few good working years left at least.

Nice blog, but watch out for advising people that putting money in index funds 'pretty much assumes an 8% return'. Returns can vary wildly year by year even if 7-9% annual is accurate over the last 20-30 years or so. Bogle (and others) is estimating the coming year's returns to be lower than 7.

Thanks! I've heard that comment a few times so I think I will make a quick edit. Appreciate it.

Humanity has had numbers for some 200,000 years.

any hacker can, in the next ten minutes, cause their CPU to do more arithmetic than the arithmetic (explicitly adding 2+5, and so forth, multiplying two numbers in their heads) that every single person has done in the history of humanity. okay, but that's just numbers.

Today we live in a connected world where 2,000,000,000 people can be reached in any eight-hour period of time.

Any hacker can find any niche and make a product that will be the first search result within it (by being the first; making something that doesn't exist; and telling people).

Why save a salary, when you can create a business, create value, and scale to the entire Internet and give people some benefit?

Every hacker should start one or several businesses. While it may not exactly be a moral obligation, this brings humanity forward.

EDIT to clarify: I am disagreeing with the suggestion that hackers should save all or most of their money - (put in my parent comment as "save as much of your salary as you can") -- rather than saving it, they should invest it into their businesses, adwords to grow it, other advertising and business development expenses, hiring, etc.

Some of us bring in value by developing existing software packages which amplify the work effort of some critical sector or another. The renumeration for this work is in the form of regular pay. A portion of which should probably be invested smartly.

As software systems grow they turn into complex systems. They become embedded in the processes of the end users, while requiring constant boring work to remain alive.

I fail to see how this maintenance work is less worthwhile than developing new tools. Any complex task requires decades and decades of labour.

This is not to say that identifying niches that benefit from established tecnhinques and require only some domain specific customization would not also be wortwhile.

But claiming "everybody should find such a niche and become entrepreneurs" is quite bit too much. My mental energy is used in my daily work which brings added value to my orgs and our clients. The benefits of this are enormous - I can focus on deep, technically complex work while outsourcing payroll, taxes, liabilities etc. to my employer.

Effectively, I don't think many people can do deep work and become an entrepreneur at the same time. Also, expert skills in one domnain are no guarantee in some other. Star software engineers can turn up shit or stellar business operatives.

I think you are covering the software engineer in some weird halo of infallibility.

That said, I do have enormous respect for people who have created new businesses. But it hardly is the only way to bring in value.

>But claiming "everybody should find such a niche and become entrepreneurs" is quite bit too much.

This is how you end up at conferences where everyone you talk to is the CEO, but nobody is actually making any money (or, in large part, actually doing any business).

I also love entrepreneurship, but it is not, nor should it be, for everyone.

"The remuneration[1] for this work is in the form of regular pay. A portion of which should probably be invested smartly."

I guess my objection was to the idea of saving "as much as possible." I don't mean to imply that you shouldn't work for a salary: but you should take some of that salary and spend it on actively building or backing businesses, not just passively.

Based on your background I think you would be amazed how much business you could create by investing in/overseeing a developer in India or China, for example. Your knowledge/background + $5000 goes waaaaaay farther than you think. (regardless of who the owner ends up.)

To me this is the opposite of the advice to passively save as much as possible!

[1] I corrected the spelling of this word - I mispelled it before too.

"you should take some of that salary and spend it on actively building or backing businesses, not just passively."

Active investment is highly context sensitive. I'm not denying someone might be plausibly in a position with sufficient information, domain knowledge, connections and a small amount of capital to operate as you suggested.

Your claim that operating on this manner is the obvious best choice for everyone is highly controversial. For starters, private investment requires trust and communication and just the culture barrier to understand the true rules of business and engagement are non-trivial for someone who's native culture is for example northern european.

Basically, I'm totally clueless. I have no idea how to a) hire an indian software dev for a few thousands b) what value added activity I should require of them and c) to whom to sell their work to.

I do know, however, how to invest into low cost index funds with reputable finance organizations. Thus the latter from economic perspective is a highly more enticing option.

I presume you have some specific situation in mind. Perhaps you could give some 'hypothetical' scenarios and what their profit model is?

Active investment is essentially a second job. Not everyone has the ability or desire to spend even more hours working.

I don't want to start a business and in fact I specifically plan to never start a business. Sounds terrible. All that... business stuff. I shudder to think about it.

I do like programming, and I plan to spend my productive time on this Earth programming on projects that interest me and help humanity in some way, but I just absolutely 100% have no plans to start a business. I admire your excitement about the idea, but I think that maybe not everyone feels the same way :)

(I also recognize that maybe not everyone feels that automatically saving+investing as much of your income as possible is a good idea - I'm mainly attempting to reach those folks who do think it's a good idea and just need a little bit of prodding to actually set it up.)

Serial entrepreneur here. Love your attitude. You play to your strengths and keep it chill. Not my style but a rock-solid strategy nonetheless.

> rather than saving it, they should invest it into their businesses

"Saving it" here is not hiding it under the mattress. Buying stocks is literally investing it, only into other people's businesses. Buying corporate bonds is lending it to other people's businesses so they can grow. And investments into existing established businesses could easily be argued to have at least as large a potential impact as starting out on your own with a minor project that is more likely to fail than not.

I'm all for entrepreneurship but the original question asked about passive income. Your suggestion is clearly very active.

Yes but why answer the question when you can get on a soapbox instead?

My soapbox was prompted by the words, which I'm not embellishing, "save as much of your salary as you can".

I don't think there's anything wrong with saving or with passive investments. But it shouldn't be as much as you can. Engineers have other very good uses of their money, which I outlined.

> Why save a salary, when you can create a business, create value, and scale to the entire Internet and give people some benefit? Every hacker should start one or several businesses. While it may not exactly be a moral obligation, this brings humanity forward.

How does starting a business bring humanity forward? Maybe I'm just pessimistic but as far as I can tell the pursuit of money largely just ruins things.

I would think that a "hacker" would make things just because they can and enjoy it, without concern for things like profits or market value. Indeed weren't the very first hackers amateurs and not professionals, in the literal sense?

I'm not saying that people should just forego money completely of course, as I am just as guilty of anyone of wanting more money. I just don't understand why "every hacker should start one or several businesses." if we're solely concerned about humanity.

> Why save a salary, when you can create a business, create value, and scale to the entire Internet and give people some benefit?

Risk tolerance.

If, for whatever reason, my business doesn't turn as much of a profit as I'd hope, and I've spent everything I could on it, I'm in an awful position: both as a person who needs to keep a roof over my head, and as someone hoping to do good things for humanity. If I'm on the verge of bringing humanity miles forward, and fail, I've done less good than if I reliably brought humanity a few inches forward.

On the other hand, if I do save my salary up, I can choose at some later point to spend all of my time and energy on something cool, and keep spending that time and energy until something happens, because now my risk tolerance is much higher. And then it's much more likely I will bring humanity forward by the miles I wanted to.

For what it's worth, my best passive income was from investing as much of my income as I can part with paycheck to paycheck. No boring investments though, always the exact same two funds: UWTI and DWTI, both of which are gone, they delisted on Dec 8th.

That said...there are many funds like them, those in particular are 3x leveraged crude oil ETF's. That means if the price of oil rises 1%, UWTI rises 3%. If it falls 1%, DWTI rises 3%. Crude oil as a market has "predictable volatility", that (simply) means that within a given day, the price will rise/fall repeatedly within a sane range(given no extraordinary circumstances). Identify this range, and buy and sell on both sides(short and long) to take advantage of the range. Follow the big money(banks), and you'll be just fine. Never go against the flow, you will (virtually) always lose.

This is very bad advice. 3x funds are not meant for long term buy an hold. They experience contango and even if they index end up flat you can still lose money from the gyrations of the market. Nobody should b investing in in leveraged etf longer than a few days.

I didn't say to buy and hold it...that would be very foolish unless you know something that noone else does(which is unlikely). I was talking about using the daily volatility to profit from following the banks. ie: day trading. My positions in leveraged funds last less than 60 minutes, and the average is probably closer to 10 minutes.

Before you jump into 2x or 3x, you should be able to reliably generate returns from a non-leveraged ETF tracking the same commodity.

So what happens to UWTI when the price of oil falls 1% and to DWTI when it rises 1%?

They'll move 3x. When oil falls 1%, UWTI rises 3% and DWTI falls 3%. That's good for a short term bet if it goes your way. In the long term it corrodes the value.

Lets say UWTI is trading at 100 today. Oil is trading at 50.

Day1: Oil falls 47.5 (5% drop). UWTI will fall to -> 100 * ( 1 - 3 * 0.05) = 85

Day2: Oil rises back to 50 (5.26 % rise). UWTI will rise to -> 85 (1+ 3 * 0.0526) = 98.42

So even though oil price recovered, you lost $1.58. Over a period of time, rise and fall in oil prices corrodes the value of UWTI & DWTI (and similar leveraged ETFs)

http://earlyretirementextreme.com/ is a bit nicer to read and goes a bit deeper than mrmoneymustache.

I would also add that the author's book http://earlyretirementextreme.com/ere-book is great, and lets one get the essential points of what he has to say without trawling through numerous posts.

Any tips for something solid vanguard-like in the EU?

GERMANS: Be aware! Don't buy any US ETFs when you pay taxes in Germany. There is pretty heavy penalty tax on ETFs. Depends on the difference of the price on the first day of trading of the year and on the last. If unlucky you can pay 50% tax on your gains. I did just this year pay 45% and I won't be getting it back. Read thru this first: https://www.justetf.com/de-en/news/etf/steuereinfach-in-etfs...

I have read the link you posted and I'm still not clear on how you would end up paying ~50% and not be able to get it back.

If your ETF is "ausländisch thesaurierend" ("foreign accumulating"), declaring it will be a bit more complicated but not that hard. Would you mind explaining your situation a bit better? Maybe I'm missing something (and I wouldn't want to, since I'm looking into this topic myself at the moment).

Do you mean also for accumulating ETFs? Are you supposed to list all ETF purchase prices/start-of-year value, and the end-of-the-year value in the tax declaration, then?

Do Germans not have any practical way to invest in accumulating funds?

DENMARK: Similar problem - you pay yearly capital gains tax on foreign ETF :(

You can buy Vanguard via their ETF funds using any broker. I do.

Just beware of taxes.

Rules are a bit different. I'm in the UK and you need £100,000 to go direct with Vanguard and thus you need to go with a broeker.

https://www.charles-stanley-direct.co.uk/ is a good shout, but there may be better depending on how you'd like to invest.


For non-EU/US residents I got a recommendation for http://int.tddirectinvesting.com/

I use Nutmeg, had a return of 7% over two years, and I've also just opened an account with MoneyFarm.

Nutmeg has a really nice looking website and is heavily promoted, but I'm not really sure it's a great recommendation as the associated fees are higher than competitors.

Is there a value add that I'm missing?

I'm using DEGIRO (based in the NL), seems to be OK, decent website and low fees. They have this weird thing about loaning out your shares in the regular accounts; I couldn't quite get the risk I'd be exposed to in that case, so I went with a Custody account.

Same here. Just wondering, are you using the Ireland based Vanguard ETFs (i.e. VWRL, VEUR, etc.) or the US-based ones (VTI, VGT, etc.)?

Neither :) I'm using an Amsterdam based one: https://www.euronext.com/en/products/etfs/IE00B3XXRP09-XAMS

While traded on the Amsterdam stock exchange, the domicile of the fund is still Ireland.[1]

Anyway, since you're in Europe, curious why you chose this fund (S&P 500) over something with more exposure outside the US?

[1]: https://www.vanguard.nl/portal/instl/nl/en/product.html#/fun...

Ah, right, I didn't pay close attention. I selected the S&P mostly as a simple "default" choice to start. It doesn't really matter, since it'll be a while before I can invest any significant amounts.

I get vanguard in the Uk via HL, some funds are on there and the fees are not too bad for the most part.

If you're on HL, you could also look at their 'core trackers':


For example, that provides the FTSE all-share through an L&G fund:


Which has fractionally lower fees than the Vanguard equivalent:


The fees on HL are quite high though, it's worth shopping around the brokers. http://monevator.com/ is a great resource for this stuff.

Nutmeg might be worth looking at. I've used it for my pension pot since I left my perm job and went contracting/freelance.

That probably depends a lot on which country you live in.


I user interactive brokers and just buy VOO (vanguard S&P500 etf)

Oh, I invest the automated way too and figured that's the best way given I know this is important for nest egg and such and I want to spend as little time as reasonably possible managing investments .

For my Indian friends here (or people interested in investing in the Indian market), I'd suggest http://scripbox.com (no affiliation, just a happy customer).

I started a year ago when I was 25, and am glad I started this early(-ish).

Do you have any thoughts or sources on Indian micro-loan investments? It looks like a way to help people in need while gaining some profit off their success. I'm more interested in the former, but I do not wish to simply donate. I do not believe it to be the way to go about these things.

Do you mean something like Kiva or Zidisha? They're quite popular, but there's a very real chance that the borrower can default on your investment. Not a huge deal though, because if you're micro-lending then this is expected. I don't think the interest rates are good either.

Doing it for charitable reasons is fine, but it's not a great way to make money IMO.

I recommened reading the parents link but if it's all a bit too much for you vanguard does funds that are already diversified and deals with the rebalancing on your behalf.


Thumbs up, this is what I use.

Do I have any rational expectations to beat inflation by having well diversified index funds?

Historically, as a guideline, you'd have made about 7% p.a. on average, well above inflation. The question is whether you can handle the drawdown (can you keep your nerves during a crash?)

then again: beware of averages. Historical PE ratios are quite high (though EV/FCC would be more instructive) - so it is unlikely that the next couple of years will bring 7%. We're living in a world of free money: if central banks change interest rates the party could come to an end.

Not necessarily. If the interest rates are reduced because the economy improved, then the growth could stay similar.

Aren't interest rates reduced to stimulate a struggling economy, and increased if economy improving?

Right. If interest rates are increased, that's a sign of a stronger economy and the market might go up in response. On the other hand, traders might decide the Fed is mistaken, the economy is not in fact stronger, and they'll react to the higher interest rates by taking fewer loans and the market will go down.

Basically, the change is already priced-in and you shouldn't worry about timing the market. Buy and hold.

Interest rates go up when the economy is improving.

Oops. That's what I meant to say: s/reduce/increase/

>Do I have any rational expectations to beat inflation by having well diversified index funds?

You should get inflation + some economic growth + risk premium for holding equity.

How confident can I be of this? Why are banks struggling to get even 2% return on their investment if I can just go on and get 7% on average?

There's no guarantee at all. In a really bad year (2008?) you might get -50% or worse. Then you might get some really nice returns in the years after (or not!). If you average over several decades, historically, the returns have been around 7 or 8 per cent per year, but the standard deviation is enormous. Just look at a long-term chart of e.g. the S&P 500 at https://finance.yahoo.com/chart/%5EGSPC - click "Max" and "Settings" -> "Logarithmic" (you'll want a logarithmic axis so that equal percent changes are equal distance on the plot). You'll see that on average it went up over the decades, but between June '07 and February '09, it lost over 50%, and tripled since then.

I encourage you to read up on this, but someone else with more knowledge should recommend some books.

All of this is correct, but the standard S&P 500 index doesn't include dividends, so your typical index fund will (should) do 1-4% better each year than the S&P 500. The S&P 500 does have a lesser-known version that includes the total returns: https://www.google.com/finance?q=INDEXSP%3ASP500TR&ei=WWJNWK...

Index funds such as SPY do include the dividends. VGO (specifically) also has a 1.94% yield.

Banks operate on a completely different model so it's not a useful comparison, but the answer is that they are borrowing at ~0% and lending 2%+ so they view the world differently

banks are heavily regulated and cannot just put deposits (the money you put into a bank constitute a loan to the bank) into stocks. They have to invest more conservatively, e.g give money to solid companies or hold low risk bonds. See Basel-rules to learn more about risk weighted assets (RWA): https://en.wikipedia.org/wiki/Basel_III

>if I can just go on and get 7% on average?

I didn't mention any numbers. If economic growth is low, and inflation is non-existent, you will not approach 7%.

>Why are banks struggling to get even 2% return on their investment

Where do you get that information?

risk --> reward.

bond etfs have been sold off, so they are cheap and yields are up.

This isn't really passive income outside of the 2% dividend yield of a total market index fund, which isn't all that great. A $500,000 investment only yields about $10,000 annually. (Not to mention the significant risk of a market drawdown in a given year.)

I think the idea is that you can plan on withdrawing 4% every year as well. The more flexible you are with your expenses, the more you can withdraw while ensuring you will have sufficient income throughout your retirement. I like the hybrid constant-percentage / constant-dollar withdrawal method where you keep 7.5 years of withdrawals in bonds and the rest in stocks. So a $1m portfolio produces $40k per year so 7.5x * $40k is $300k in bonds, and $700k in stocks. https://www.bogleheads.org/wiki/Withdrawal_methods#Combinati...

... otherwise known as a 401k.

Probably don't do this (use taxable investment accounts) unless you have at least 15% going to your tax-advantaged retirement account(s).

Good point, I forgot to mention that. I think that it's possible for a lot of young people in our industry to save significantly more than 15% of their income, and so I should have said: max out your contributions to retirement accounts every year and then set things up such that you're automatically saving as much of your remaining salary as is comfortable (e.g. if you're a recent college grad working in SF, and you have roommates, you might find that this percentage is pretty high!).

I was on the "max out retirement accounts" train when I was younger. When I got older and home prices got massively inflated, I wished I kept more of that in non retirement accounts to be made more easily liquid for a home without steep penalties.

Saving tax while something grows is great, unless you need that cash sooner. Then it is not too helpful. I wish there were a tax advantaged vehicle to use for setting aside money for a home.

So yes, definitely invest in tax advantaged accounts, but do so with a solid understanding of your expected financial needs as best you can model for the next 5-10 years. If you need access to that money sooner, what you'd lose on tax may be worth the flexibility of having those investments somewhere more easily liquidated.

You can avoid the 10% tax penalty for early withdrawal for your first home if it's in a Roth IRA, up to $10k. It's not very tax advantaged though.

[1] https://www.irs.gov/publications/p590b/ch02.html

This is confused.

EVERY contribution you make to a Roth IRA/401k can be pulled out, tax-free, at any time for any reason. It's the earnings you have to be careful about. But for example if you have contributed $20k to your Roth IRA or Roth 401k, and it is now worth $35k, then you can pull out $20k at any time for any reason, while for the other $15k you have to wait until 59 1/2, or use SEP withdraws, etc.

In addition, for a first-time home purchase you can pull out up to $10k without penalty (but with normal income tax applied) from a traditional IRA or 401k.

$10k is well within the variance of fees and fluctuating interest rates on a home purchase. On the scale of real estate (in and around the cities that have significant tech employment) it's pocket change.

You can also loan yourself a bit of your 401k to buy a home. It's not a lot but at least helps https://smartasset.com/mortgage/when-to-leverage-a-401k-for-...

Has anyone invested on a peer-to-peer lending platform? Curious of how the risk & reward for such platforms compare to those of ETFs and index funds.

This is if you don't need that capital to create your own businesses or other streams of revenue.

What are the returns, in percentage?

Vanguard is index funds, so the returns are as good (or bad) as the market.

Wouldn't it be a better idea to invest in bonds or more stable sources of investment for the next few years until we can make sure of the impact of Brexit-Trump? I wouldn't be surprised if AAPL and other giant third sector companies fall in value right now.

You're talking about market timing which is incredibly hard (some say impossible) to do over a long period of time. Sure, you might miss the down here (if there is one), but then you also might miss the move back up. There is a saying that time in market is much better than timing the market. If you consistently put money in, you'll naturally also buy the downs. At that point, you just need to periodically rebalance, and with age start to shift to less risky investments.

In investing terms, you're talking about a "less risky" rather than "better" idea. You'll only know if something was better after the event in question has passed.

Passive investing when you have many years before retirement means you worry about long term trends rather than short term risks.

Ah, you see, because the market is famously perfectly efficient, equity and bond markets have already priced in the expected effect of Brexit-Trump. So investing in equities now essentially gets you a discount over what they would have cost had Brexit-Trump not happened.

Whereas (more seriously) investing in "more stable" things like bonds forces you to pay a premium, because every man and his dog has desperately been chasing stability, safety, yield, etc since 2008, in many cases using quantitatively eased money to do so.

while coupons (e.g. the regular payout) might be stable, bonds, too, can fall in value. One interest rate hike by the FED or ECB would send bond prices tumbling.


> liberal hubris

When a thread takes a turn for the worse, please don't reply unless you can make it better, not worse still. Political name-calling makes it worse still.

Since I had to ask you to keep partisan politics out of HN threads only a couple days ago, I'd like to emphasize the point. This is not what Hacker News is for. Please (re)-read:



How is the comment you replied to liberal hubris? There is uncertainty with regard to Britain voting to leave the EU. Since the U.S. election the bond market in the U.S. has fallen quite a bit. This is unusual given that the only new information comes from the election. Clearly there are impacts from the election that an average person wouldn't be aware of. Hence the comment about adopting a wait and see attitude. While this may not be a good strategy it hardly qualifies, necessarily, as liberal hubris.

Average..? Ex., 1%-5%/yr

It depends on the fund. I just did a report on this for one of my classes. https://github.com/wihl/stats107-project/blob/master/writeup...

All the code is in the same repository as R Markdown.

MOOC or are you at Harvard? Was the course worthwhile?

Through the Extension school, all online. I found it worthwhile.

7% in the long term, but with big fluctuations.

Which fund? According to whom?

SPY / VFIAX / S&P 500 has a CAGR 4.9% from Nov 2000 to Nov 2016.

Not too long ago the long term rolling returns for the S&P 500 where still somewhere around this number. This article [1] is from 2012, not much has changed in the last four years.

"The average 30-year rolling total return for the S&P 500 starting with 1926, is 2,478% or 11.21% annualized (geometric mean). There were several 30-year periods that had annual returns between 8% and 10%."

Having said so, past returns don't guarantee anything for the future. They might give you an indication though.

[1]: http://allfinancialmatters.com/2012/08/29/sp-rolling-total-r...

Edit: Here's [2] a better (?) graph of the S&P 500 with the 30 year rolling returns, inflation adjusted and dividends reinvested. Source[3]

[2]: http://imgur.com/Ja1xOcA [3]: http://redd.it/3fsdex


Mr Money Moustache has 2 or 3 rental properties which are wealth appropriating not wealth creating. He's using the wages of other families. He goes on about how $10 is a lot yet takes far, far more in rent each week.

What's wrong with renting properties?

>which are wealth appropriating not wealth creating

Literally everything anyone buys is paid for by a portion of their wealth, not sure what you are trying to say here.

Not sure where to start here. Are you suggesting money gained is a proxy for wealth created? It's the product of an imperfect system. Some people add more value than they are paid for, others the inverse. The system heavily favours economic rent extraction via land. Almost all new debt is issued via land.

Quite simply people have figured out it's a rigged game and are piling in, hence the asset bubble and the fallout effecting an entire generation, which perhaps you missed.

I'm not really interested in discussing this with you either as just pointing out things are paid for is just taking the existing system without any question as "correct".

I understand what you are saying, but I think you are missing an important concept. If you created more value than you spend, you have an extra. Other people want to spend more than they created. So what happens is that people who have the extra, can loan their value to those who have a deficit. This loaning can also be considered a service. People are not forced into renting. What Mr. Money Mustache is saying is "Hey, don't be the guy with the deficit, be the guy with the surplus, because everyone with the deficit will work for those with the surplus". What I hear from US with all their credit cards, it seems it's a culture of spending way more than you earn. Spending money that you will receive at the end of the month. Which is pretty stupid.

He's saying "i live frugally, be like me" then doing something that doesn't scale. We can't all be the landlord, rent seeking.

He says: Earn a lot, spend little, invest the difference. Once the revenue of your investments covers your spending, retire. That's what he's saying. And the key is indeed living frugally, which makes it all easier. And yes, he rents out houses, that's his investment. I don't see anything wrong with this.

If everyone was a landlord, then that would be a pretty bad investment now would it?

I disagree with his wealth appropriation and the idea that he is somehow living frugally whilst relying on that appropriation. Fundamentally we cannot all claim the labour of others using the system to force their hand.

> we cannot all claim the labour of others using the system to force their hand.

What does this even mean? He is providing a good/service, and people are willing to pay him for that good/service. He's not living off the pain and suffering of others...

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