One thing i've been shocked by over the years is how often even well educated, highly intelligent individuals have a very poor education in personal finance and make terrible decisions. Theres just so much noise out there and its still crazy how much of the investment management industry exists despite showing negative value. If I had to sum up personal finance advice for the average person in a few bullets it would be this.
1. Invest in a well diversified portfolio that pays very low fees (vanguard funds for instance)
2. Do not try to time the market
3. Save as much as you can as early as you can - maximize your 401k/ROTH contributions
4. Never carry a balance on your credit card from month to month
And yet so much goes wrong...
It's worth noting that there is a not insignificant number of people who are poor because they make (financially) poor decisions. I say this completely not in a way that's judgmental or dismissive of the issues poorer people have (in the US in particular). There are a number of reasons for this. Decision fatigue  is one of them.
So when you have anything from a moderate amount of wealth, you probably know that time, patience and a little financial discipline is all that's required to preserve and even grow that wealth.
Have you ever noticed that it's mostly poor people who buy lottery tickets ? Likewise it's the poor who disproportionately fall for "get rich quick" schemes. Some of this you can attribute to bad judgment but also desperation plays a part. I mean, if you have $1000, what does a 10% return net you? $100? Who cares? But what if it could turn into $100,000? Now that'd be something! I suspect this plays into the gullibility of many when it comes to scams.
So in the Steadman case I imagine there was some of that but I also suspect many (or even most) investors were just trying to invest in their future without the promise of 1000x returns and just got duped.
Don't discount the "get rich quick" mentality though. I've seen this first hand. My father and uncle spent their entire lives trying to get rich quick.
My grandmother was a daughter of the depression and was really paranoid about future losses (when she passed we found vegetables and fruits she had canned 'just in case' in the cellar that were decades old!) But she also had an expression I liked. I would ask her what she was saving for and she would say "I don't know but I'm sure God will tell me what it is when the time is right."
You need to invest into something highly profitable to hit this goal without being so drastic, e.g. to have bought some Bay Area realty in 1980s, or some Apple stock around that time. This is not a common option, and it's mostly unavailable now.
I’m considerate of the fact that many have student loans, etc. and this isn’t feasible.
A blogger Mr. Money Moustche pushes hard on having a high savings rate compared to the norm.
The other thing to be careful of is the who "bought real estate in the '80s, those days are long gone" kind of things. If you bought real estate in Denver in 2010 you're doing pretty well right now. If you bought 10,000 shares of Facebook stock when they IPO'd and held it (that was only 6 years ago) it would be worth over $1.75M today. I'm not trying to exploit my hindsight, I'm trying to share with you that large changes in investment value happen all the time, markets change. So you should not tell yourself that such opportunities are "mostly unavailable now" they are just as available now as they were then. Sometimes you will win and sometimes you won't but if you are reasonably diversified in your investment plan you can take advantage of a growing economy.
Of course 2x median is quite high for most people; that's sort of baked into the definition of "median". I'd expect HN readers to be close to that because of higher tech salaries but acknowledge it's hard for everyone else.
Even with a salary 1.5x of median, you could live the lifestyle of someone making ~0.8x of median income i.e. a lower-income, but not poverty, lifestyle and save 50% (I think my math is right here). You can still lead a happy and fulfilling life at this spending level. There'll be no eating at nice restaurants, drinks at pubs with friends or annual foreign vacations. But plenty of weekend hiking, DVDs from the library, home-cooked meals, and boardgames with friends.
In a nutshell, it's possible but you'll have to change your entire way of living.
I have to strongly second all of these; the issue becomes, once you've done them, what more can you do? You get to a certain age and realize you have most of your career behind you, or you'd like to have most of your career behind you so you can retire early - how do you get there? It's a problem that cuts across different aspects in life: what to eat, how to exercise, etc. Min/maxing, munchkining applied to real life. Is it any surprise that software engineers looking to squeeze the last possible cycle or byte out of their software do these sorts of things? But much like software, premature optimization is the root of all evil . . .
So, unless the highly intelligent, well educated person has a particular interest in finance, it's probably going to appear to be the crooked, black magic shitstorm it really is.
You're right that the problems of finance aren't fundamental to the natural world, and they're not as elegant as the problems in mathematics and the mathematical sciences.
However, there is some basic amount of financial knowledge that people should have as a basis of functioning in the world. And I think many intelligent people should be interested in establishing that knowledge base because it can enrich their life.
What's fortunate is that the amount of knowledge required to simply understand one's degrees of freedom and the outcomes is pretty basic. Even if you don't find it interesting, you should be able to slog through it in less than a day. And that's a good thing because it would take a lot longer than a day to get to the state of the art in finance but that's not critical to understanding why it's unfavorable to use a credit card to buy a car.
I've found a lot of other great individual articles, but no other "how do I even start?" resource with much value.
Consumer advocacy agencies usually have excellent advice. Credit unions seem to have well-intentioned advice but the information can be incomplete.
E.g if you're about to buy a car, read a few articles about getting car loans, don't just take the dealership finance person at their word.
I've been meaning to get around to making a decision tree for technical people who never had to bother with this stuff but I don't know how much time I need to dedicate to "please don't buy a jetski if you're unemployed".
If nobody could get a home loan the housing prices would drop. But, loans don't create wealth so long term would be closer to break even than you might think.
Imagine that you're a farmer and you work your land by hand, or with the assistance of animals. You don't have enough capital to buy a tractor, which is very expensive. Only by working your land for 15 years will you save up enough money to afford a tractor.
However, if you could buy a tractor, then you could substantially improve your efficiency and grow way more crops. Perhaps with a tractor, you can grow 10 times as many crops or more. Ironically, if you already owned a tractor, then you could quickly earn enough to pay for one, but without one your earnings are too small to afford one.
So, someone comes along and loans you the capital to buy a tractor. It's not a huge risk for them, because if you default, they can repossess and resell the tractor. So you take the loan for a low interest rate and buy a tractor. With the tractor, you're so much more productive that you pay off the loan within a few years. Everyone is better off, both you and the person who provided the loan.
With this effect occurring all throughout society, everyone is better off in aggregate than they would be without loans. Without a loan, you might need to save for many years; with a loan, you can front-load the productivity benefit of a capital purchase. These loans fuel wealth creation.
Loans also enable people to achieve a higher quality of living. Imagine a young working professional has a stable job and a good income. If home loans were not available, the professional might need to save for 20 or 30 years before accumulating enough funds to be able to purchase a home in cash. Because home loans are available, the professional can purchase their home much sooner in their life, and therefore enjoy the benefits of home ownership throughout their life.
A society without any loans at all is a society in which people live as paupers during their 20s and 30s, before finally accumulating enough wealth to purchase a vehicle or housing or capital in their 40s or 50s. The gap between the rich (who have inherited money) and the poor would widen vastly in such a society. Loans are a vehicle for wealth creation, a vehicle for people to better themselves.
Lastly, these types of loans are not especially risky or bad. Home loans and auto loans are responsible and relatively low risk because the property can be repossessed in the event of default; this enables lenders to offer low interest rates, such that the "cost" of the loans is not very high.
Now, we can debate the benefits of ownership vs. rentals. But, the risk profiles look very different.
The banks should only lend money to people who would be capable of saving for a house. But if you're capable of saving for a house, and someone has money they're not using, why not use their money to buy the house and pay them back?
If every party satisfies their self-interest, their transaction creates value (which is distinct from wealth).
Financial market problems are finance problems to the extent that North Korea's nuclear tests are physics problems. The body of knowledge exists, an actor uses it.
My personal estimation is that a lot of the good things in this world exist because of fractional banking and finance and that humanity is better for it. I think we can do better, but throwing the baby out with the bathwater is a recipe for disaster.
Replace 'finance industry' with 'airline industry'. Sure, the airlines pollute, and planes crash and that's unimaginably bad. But each time a plane crashes, all the subsequent trips get safer. We're never going to make it perfect, but we can make it easier to roll the dice. And people don't fly places and engage finance for no reason - they do so to improve their lives. We should focus on improving peoples lives, whether that's making it easier for them to find a place to live or transport themselves.
What happens without loans? Well, someone with capital to give out a home loan could just as easily buy then rent out a house. This would increase the pressure on home construction industry to build things to last. Further assuming there was no tax subsidy we would reach a different equilibrium.
I don't know if this would be 'better' but it would have different costs.
Some of my actively managed funds managed to avoid a lot of the loss on bank shares - a tracker would have had to keep holding risky bank stocks or say enron and take the loss
As one Wall street type said "when the shoe shine boy was giving you stock tips" he started to get worried
> In the WSJ feature, the darts won 55 of the 142 contests, and the pros won 87. That 61% to 39% margin would be a blow in an election, but remember: this is not just any old human vs. darts. This is the best in the business against randomness.
> In their new book, Dubner and his coauthor Steven Levitt cite a study by CXO Advisory Group examining 6,000 stock market predictions by so-called experts over several years. Experts’ overall accuracy rate was 47.4%.
> Indeed, according to the Wall Street Journal’s online screening tool, only 71 of 17,785 funds—just 0.4%—outperformed the S&P over 10 years.
The only way to get higher than market returns is by outsmarting someone else and causing them to lose potential gains.
Eh. If you're smart and in technology you can beat index funds pretty easily. I'm not even counting Bitcoin. I time the market too.
Your advice works for the median person, but if you're in the intellectual 1% or 0.1% beating the market is pretty easy.
1. You should have a really good reason for buying a high P/E or negative EPS stock. It should be grounded in unit economics and entrenchment, not marketing. Tesla is a good example, I knew it was just a matter of unit economics. The technology was solid. Made over 10x sans options. Apple is another good example: They had a low P/E and I thought they were well situated to make money from services if they could just figure out how to design better software. They did it.
2. When the cover of Time magazine is this:
And The Economist is this:
Put two and two together and put everything in cash. Sure I missed out on two years of growth, but after the recession hit I bought back at half. Bought back in when things had stabalized and recently sold 85% of the portfolio because fundamentals look wacky. It might take a month it might take two years, but another recession is coming.
3. Research the damn thing. If you don't understand it well enough don't buy it. You're not losing money by failing to buy the next hot thing. I read the entire Bitcoin paper before buying to make sure it could handle different stresses. My only regret was not leaning harder into it when I bought it at $4 CAD / BTC. I was too sheepish about "internet monopoly money" even though I knew it could hit $10k or $50k a coin if it took off.
4. Don't necessarily max out your 401k / RRSP. Tax rates are going way, way, way up once the baby boomers hit the social safety net. If you aren't at the top marginal rate you're using up tax deferment that will be better once you are. Plus having money outside of these vehicles makes investing in your friends startup easier. The only exception is if you're buying a house and you can loan yourself money from it (since it's like buying the house tax free).
5. Bubbles can go on for way longer than you think. Just be fucking patient. Do I wish I mortgaged a house in Toronto in 2009? Sure. But the stock market has gone up too and housing at these levels is unsustainable. At the very least housing price growth will subside.
But let's look at the fund in question: how did they stay funded? The same way a lot of bad funds stay funded: people put money in and never look at it again. And those people are not the ones updating stop limits, looking at charts, and basically making a hobby of their finances. Those people should be buying index funds. And there is absolutely nothing wrong with that. With the time I've spend reading books, tracking markets, etc., I could have learned a language, started a business, build my own house, whatever. Because after looking at returns over the last twenty years, yeah, I have demonstrated I can consistently beat the market (or more likely, can leverage opportunities of sheer luck), but not by enough to make the opportunity cost worth it if I didn't actually like doing it as a hobby.
And folks should completely ignore your point #4, especially the part about buying a house "tax-free". Eh, not quite.
I also agree that it isn't just intelligence, but I do think you can't do much if you aren't at least in the top 5%, even with a whole hell of a lot of training. Much of investing is a zero sum game, and it's extremely competitive.
I also agree that most people should do broad basket, diversified ETFs and I also think your stop-loss strategy is above average, but I think you could probably do better if you were willing to take more risks on individual companies / technologies.
As for returns, I agree that it doesn't look good on paper for the first 20 years, but the difference compounds and building experience matters. I'm now at the point where I'm both better at it and I have more at my disposal to grow. Last time I checked, not counting crytpo-currencies, I'm averaging around 18% per year pre-inflation across a mix of bonds, stocks, and funds. Now, much of that has been a combination of timing / luck on currencies. So let's call it 15% to be safe. Doubling every 5 years, I'm 32 and I started this at around 15. I put maybe 200 hours into it a year and the family portfolio not counting housing or shares in hard-to-sell startups is almost $1m. Another 40 years of this is going to really make all this effort worth it, provided we don't have something catastrophic like a world war / economic collapse.
On getting downvoted:
I don't let it bother me. I try to remember that sometimes I see things I know are factually wrong get upvoted and that sometimes I'm getting upvoted despite being wrong. The votes aren't the truth, even if they do correlate.
Maybe we need more webs-of-trust on social networks that should influence how votes are counted. Because if you just judge thing by the words on their own, somethings can sound wrong or crazy at first blush even if they are right. For example, Facebook's Instagram acquisition was seen as dumb, but it was genius. Although maybe this idea is wrong. Maybe we already overweigh the opinions of the connected and powerful.
In another universe, you're commenting on HN, saying "investing in bitcoin was a complete waste of money, after it was abandoned en masse in 2015".
Hindsight is 20/20, that goes both for missing opportunities, and for losing money.
For every example of someone like you that says "it's easy, just time the market, and you'll make a bunch of money", there's several people that tried, and failed.
In the end day trading and timing the market are gambling. It's no different to betting on the result of a sports match, you have information and odds, but in the end, there is the random element. For every person that strikes it rich betting on horses, there's a lot of people who lose a lot of money.
It can be gambling, but that's like saying dating is gambling because there is an element of chance involved with whether or not you get physical with someone.
No. It's not. There are people that are good at romance. There are people good at understanding and predicting technology. This whole mantra of "it's just gambling!" is by a bunch of people that didn't have an approach rooted in discipline and science.
I pretty much stop reading when I get to this point in someone's comment. This statement is as ridiculous as it is irresponsible.
I could try to describe the fallacy in general terms but I don't have to because your reasoning is obviously bullshit. Tesla has not made any money yet - they are still burning through billions a year financed by junk bonds. The value of Bitcoin is also almost wholly speculation; how could it be otherwise when it's limited to 7 slow, public, expensive, wasteful transactions per second. Both those assets could crash to zero next year.
So, yeah, you managed to get in at the top of some major bubbles, which could be called "intellectual" except you can't even identify the real reasons for your success. And in general this is not a healthy approach to finance because these assets don't make money - they just transfer it from later investors to earlier investors.
2. Run it straight for a few years, but then really hammer the fund with crazy bad expenses (and possible self dealing -- but keep it legal) Do so poorly that any account with a pulse will withdraw all their funds.
3. What's left over is free money for you draw down as 'expenses' for as long as it lasts.
Recessions aren't all bad. They have a cleaning effect, sweeping up the cruft and inefficient operations, while exposing the outright frauds in the process.
It's amazing the fund lasted as long as they did...
Interesting read regardless, too bad it wasn't longer as the usual articles typically are on this site.
Feels a bit too generous. Like saying a fire that destroyed your house was beneficial because it dealt with all those pesky fire hazards you hadn't been aware of/addressed yet.
The best you can say is that at least it prevented anyone else from moving in unawares and dying in the fire. But it's still a total loss for anyone who already lived there.
The premise seems to be that these actively managed funds, on average, don’t do any better than the market index. So just put your money in an index fund and avoid all the fees from the so called experts.
Even the recommendations there are more complicated than I prefer. Vanguard has some wrapper funds (Life Strategy, Target Retirement) you can pick from that mean even more simplicity and less room for error. Tax efficiency is the only reason I would get more involved.
Source: asked my attorney because for the past three years running we've received the previous owner's W2 in the mail. First year I called the company and sent it back. We just shred it all now.
I see nothing about that here:
"Whoever knowingly and willfully obstructs or retards the passage of the mail, or any carrier or conveyance carrying the mail, shall be fined under this title or imprisoned not more than six months, or both."
Reading/trashing mail in my box isn't obstructing or retarding anything in passage or conveyance.
It's illegal to steal mail from a box that's not yours, or from the post office, or a mail carrier.
It's entirely possible to accidentally open someone else's mail - many of us just open whatever's in the box, especially homeowners. That's not illegal, it was in your box and it was unintentional and done without malice.
What's illegal is if you then intentionally prevent that mail from being delivered, IE, throw it away. So if you scrawl "return to sender" on it and put it back in the box then you're perfectly legal. There's no indication that the author didn't do that. Edit: that's what I get for skimming, they didn't do that, but are trying to track down the heirs.
Furthermore, you are certainly allowed to open the mail of the deceased if you are the next of kin. In fact, you can put in a request to get their mail forwarded to you with the post office.
There's other cases where it's entirely legal to open someone else's mail, such as mail addressed to your minor child.
>I still have the check from Ameritor (signed by Carole Kinney’s husband Jerome), and I’d love to pass it along to Heilman’s survivors
Doesn't seem like the author returned it to the sender.
The whole debacle of solving this mystery could've been avoided by not stealing mail from someone you don't know and instead marking it return to sender.