1) The historical inflation rate is 2-3% per year in the US.
2) In most times and places in the US real estate appreciates slightly more than the rate of inflation at 3-4% nominally. So real estate grows much more slowly than most expect. A primary residence should be seen as the cost of shelter, not an investment, because...
3) US stocks have appreciated at an inflation-adjusted rate of 6-7% per year (8-10% nominal) even accounting for booms and busts. Speaking of...
4) No one can reliably predict the business cycle let alone individual stock performance absent inside information. Stock picking is a losing game.
5) The best way to invest in stocks for the vast majority of people is to buy the market in an index fund and minimize fees.
So to distill this down to three life lessons:
1) Don't plan on renting your whole life because inflation will catch up with you.
2) Buy the most inexpensive house you can tolerate.
3) Put everything else in index funds every paycheck, and only check your balance every now and then. Let time be on your side.
Your real estate appreciation figure doesn't factor in things like: rent (either payed to you if its nor your primary residence or rent you don't have to pay if living in your primary residence) and all the tax breaks associated with home ownership. With those additional sources of income, it's possible for real estate to be competitive with stocks.
Renters are happier. That is worth something.
Selling my residence is so far down my personal list of "frictions to relocation" as to be irrelevant. I hate moving, period. So does my wife.
I also personally do not see having to dispose of a property when moving as that big a deal. Again, that's me.
> Renters are happier. That is worth something.
First off, the article doesn't say that. It says that owners are generally not any happier.
Second, it's one citation. You shouldn't be making absolute statements off one citation.
Third, the overall thrust of the research is the more general "experience > stuff". I find that to be a highly personal decision and not something where population studies can inform the individual.
Leveraging other people's money. You can't buy 100k of stocks with only 10-20k, but you can get a mortgage and buy 100k of real estate.
But, if you want to keep it super simple, I think the OP's advice is spot on.
Mortgage interest payments are still fully deductible, up to $750k of principal.
1) The monetary expansion rate of the US is between 7-9% per year. Historically production has been increasing faster than that, stocks aren't included in the index, and so measured inflation is lower.
1a) Because the money supply is continuously expanding, rents are also continuously increasing, and so over time owning a house is indeed an investment, and one that saves you substantial amounts of money. Calculations that its better to put that money into stocks or similar, typically ignore what happens to rent.
2..3) The US stock indexes have done that, if you measure from low to high. However, companies that fail are removed from the indexes, so this statistic is survivor biased.
4) stock picking is a winning game if you understand finance, and have the time and inclination to read company annual reports until your eyes bleed.
And yes stock indexes are the best bet for share investing, but putting everything into them is ill advised. Bear in mind that the time you are most likely to need that money, is just after one of the periodic great crashes of the stock market has thrown the economy into complete disequilibrium. Which is when it won't be there for you.
If I had to list financial lessons for most Americans they would be:
1. Pay down high-interest debt. Nowadays that's 5%+. Anything above 10% is an emergency.
2. Save an emergency fund: 2-3 months living expenses. Put most of this in a high-yield savings account earning ~2% interest.
3. Look at retirement savings plans that are advantageous for your taxes. Tradtional IRAs, Roth IRAs and employer-match 401ks are a few places to start. Try to save at least 15-20% of your income this way.
4. Great job! Continue to build your emergency fund (to 4-6 months), pay down moderate-interest debt (3-5%), and contribute to retirement accounts.
5. Put extra cash in stock and bond index funds in a taxable account. You can use this money anytime but its value will fluctuate (hopefully growing long-term).
6. Saving for a house? Sock more money in that high-yield savings account to hit a 20% down payment for a home mortgage.
7. Now you're ready for OP's life lesson #1. Buy a house you can afford and keep saving.
Even if you have a six-figure job, everything you need should be acquired like you're broke, because you literally have negative money until that $30k debt is wiped out. In fact, if you live that way for a few years on a six-figure salary, you should be able to knock that $30k out in one year and save up the downpayment for a property in the following years. I understand this isn't fun and most people wouldn't do it, but it is the solution.
The banks have made us very comfortable living with debt, and we have to do everything we can to resist it. Credit cards are great for cash back but you shouldn't carry a balance -- set the limit to an amount that you can pay in full every month.
Auto loans - never buy a depreciating asset with debt. When starting out, save up for a few months and get a cheap used car for cash, then level up every few years as your circumstances improve, until you're satisfied with your car. Always pay cash - if you can't pay cash for a car, you can't afford it.
Credit card debt should not exist, period (one exception: life-threatening medical emergency for oneself or a loved one, and no savings). Credit cards are not meant for borrowing money; they are for getting rewards points and building a good credit score.
sounds pretty applicable. As someone who found himself in precisely the described situation ($40K in student loans, a car loan, and some credit card debt resulting from living in the Bay Area on an entry level salary and not being disciplined enough to live within my means then, I can tell you that this advice is painful to execute, but actually the only thing that works.
You are renting to yourself-- at the market rate.
That doesn't follow. Depending on how much utility you derive from quality of house, the opposite could be an optimal move - buy the best house that you can afford.
Personally I wouldn’t find utility in an actual mansion but I’d certainly prefer something more than a 1 bedroom.
With kids that means at least one extra bedroom if not multiple. The activities I do would mean I’d derive value from a garage (for projects), a home gym (for indoor activities), and a yard (for outdoor activities). Game room / home theater would be nice too. That isnt a particularly large house but it will be rather pricey in an expensive metro like the Bay Area.
I think this is not the obvious conclusion, but a sensible conclusion. You could also, for example, buy bonds from companies that you are sure enough would not easily default. If you know nothing about shares an index fund is not a bad idea.
But, in South Africa at least, some companies have pension funds where even the broker doesn't know (or care maybe?) which shares the fund invests in. The guy at the top (that knows exactly which shares are held) are not always the cleverest or most honest. To be fair, I think these are rather mostly investment funds run by investment companies, rather than an index fund like the S&P 500.
I think once you start earning enough to invest more than just for pension, the picture changes somewhat and you could even invest in alternative things. Agriculture, for example, is a promising prospect for a richer investor, but you need to count your chickens only when they are already old and fat.
It seems like in your framework (point (2-3) of the first grouping) this is not true as long as your annual rent is less than 3-4% of required capital for comparable shelter (ignoring implicit leverage in a mortgage). You will do better in the long-run in stocks. Risk-adjusted, well that's another matter.
This is incorrect. Slow guys like Warren Buffet, and fast guys like Renaissance. Also a bunch of traders I either know or had some info about consistently beating the market.
Sometimes it is not inside information but public information that is hard to pick on. Or analysis that the average person can't do. Or access to other markets that can give you an extra handle that someone else doesn't. It is a big world out there.
> 2) Buy the most inexpensive house you can tolerate.
How about renting? You are young -> Studio. Got family and kids -> House. Back to being a couple after kids leave -> 2-bedrooms.
Expansions have been lasting longer and recessions are staying short.. that implies you should invest after one and take your money out before the length of the last one and will tend to outperform leaving money in.
Of course past performance doesn't guarantee future behavior, but all the points here are susceptible to that.
Where I live there are lots of people trying to get a start on the property ladder, so the cheaper places are also the worst value. The best bet here is to get a larger mortgage if possible to escape the lower-end ripoff.
In what index funds? I am primarily an index fund investor myself, but there are dozens of indexes to potentially invest in, so just saying "buy index funds" is inadequate advice.
4) Keep some liquidity: a 'f*ck you fund'. During bad times selling your assets at any price might not be wise.
1) Don't plan on renting your whole life because inflation will catch up with you.
After having been through an economics degree beforehand, I was impressed at comprehensiveness and conciseness. They're written to be read, unlike a lot of academic textbooks that are written to be references for lectures.
There are several thousands of pages in Volume I, but that's because they cover so much ground. If you're looking for a holistic understanding, and would otherwise pick up a dozen different paperbacks from some online blog list, you might do well instead to pick up the official introduction for finance by and for the financial industry.
For a general understanding of macroeconomics, I'd recommend just Cassidy's 'How Markets Fail' and you're set.
I'm seeing a couple of Google results that are different publishers. Do you have a link you'd mind sharing so I look at the right ones?
Nobody derived Navier-Stokes equations to reach the formulas that show the erosion of a river bank, or the discharge calculation of a weir. Doing so would be nearly impossible given the extremely high level of complexity.
So instead of trying to start with the fundamental equations and build "up", you start by analyzing the behavior and modeling it.
It isn't any different than what Kepler, Newton, Galileo, etc. did: you look at the real world and build models that describe the world with enough precision for what you need.
Sure, you might say that hydraulics isn't a science per-se, but an applied field and so on. In that case, so is economics.
There are absolutely academic economists who are doing a reasonable job trying to find the objective truth underlying human behaviour in economic life, understanding market forces, understanding relevant institutions, and so on.
However, the majority of what actually makes it into the public discourse is simply politically motivated reasoning, often in the form of hacks writing for think tanks that are paid for by special interests.
It's amazing to me that, at least when I was at university, the computer science curriculum had more content concerning ethics and our responsibility towards society than the economics curriculum.
No other field of knowledge is as poisoned by politics as economics, by far. That's why even though economics can be a decent science, a healthy amount of scepticism towards anything you read by (even supposedly academic) economists in the public discourse should be the default attitude.
"Many empirical controversies in economics are essentially disputes about whether or not certain variables constitute valid instruments" - Econometric Theory and Methods, Davidson & MacKinnon
Pretty broad statement. Some micro-economic theories, like the game theoretic models in auction theory, contract theory, mechanism design and behavioral economics are probably the most successful, accurate and impactful theories in all of social sciences, including psychology.
You may not realize how much your buying behavior, your salary, your interactions online and your use of technology are dependent on these models.
But comparing their success and use to fields like sociology, management and even psychology, their track record is frankly amazing.
We already know that Macroeconomics amounts to modeling systems that do not aggregate meaningfully from these successful micro-models.
Saying economics is not a science based on this, is like saying physics is not a science because we still can not find a unified theory. Which is a pretty good analogy for a Macroeconomic model that forecasts GDP (aka, everything).
You've never looked at a macroeconomics model, have you?
Economics is complicated because it is modeling the behavior of human beings.
Math is easy, computer science is easy, modeling the collective behavior of humans is hard.
But macroeconomics is indeed based on a lot of things, and you seem to be very misinformed. Macroeconomics relies very heavily on mathematical tools such as calculus and topology to model the collective behavior of humans.
If you are really interested in learning more, I recommend "Knowledge and the Wealth of Nations: A Story of Economic Discovery".
"Andrew Lo, an MIT economist, said that while physics has three laws that explain 99% of the phenomena, finance has 99 laws that explain only 3%. Not only do we not fully understand how the economy works but also there is an endless debate on how it should function."
You can have your own science threshold. But I think calling economics science is doing disservice to science. It distorts the public's perception of science.
(IMHO, biology, which also deals in very complex systems, gets a scientific pass because so much of it is based on well tested chemistry and its methods are heavily experimental. (Aside from evolution, that is.) Likewise, cosmology benefits from its well-grounded bases in physics and geology.)
But that doesn't mean the study of such complex systems can't or don't employ scientific methods or standards that improve their utility greatly. For example, I'm a big fan of Piaget's work, though I would hesitate to call it science. Such work offers compelling insights, though with little real hope of us seeing farther by standing on the shoulders of giants.
Every science has its object (that's what Plato thinks anyway) and thus different tools and methods are required for different objects. The tools in the science of philosophy are different to those of biology, which are still different to psychology. This is not a criticism of economics, philosophy, or science, since I don't consider science to be purely the methodology of the natural sciences. The multiplicity of seriously considered and valuable views within both philosophy and economics (there are more examples though) is unheard of in the natural sciences to my knowledge.
To say that economics is a science in the same sense as the natural sciences requires excluding heterodox schools since their methodology leads to different conclusions to orthodox economics. That is to say, we would need to declare one methodology as absolutely correct and all others as incorrect. From my limited knowledge reading around heterodox economics, I don't think such an exclusion is warranted.
 The likes of Sraffa, Veneziani and Yoshihara, Shaikh, Kliman, Mohun, etc.
Similarly, heterodox schools are usually peripheral because they are peripheral to the current academic discourse. So for example Marxian primary material is a critique of past-tense economics. Post-Keynesians have a fetish for one particular concept or method (flows, MMT, crisis prediction) and reject everything outside of it. The Austrian School rejects the use of data and even formal modeling altogether, all while academic economics becomes more experiment based.
Nevertheless, there are heterodox professors even at universities ranked within the top 10, and numerous initiatives for inclusion. So given the wide chasm that needs to be bridged for academic discussion, I think the degree of exclusion is actually rather low.
Marxism has come a long way since Marx, though; a big part of the field today is the applicability of Marxian theories to aspects of modern economies, such as globalization, neoliberalism, imperialism and digital goods. By saying their critique is only aimed at political economy, you're charging them with irrelevance, which to me doesn't seem the case. Being ignored does not mean irrelevance.
Astronomy is not the study of things that resist being predicted and self-modify to be unpredictable upon being successfully predicted.
All that said here are some things we know in macroeconomics;
In the long run inflation is caused by an increase in the money supply;
If you unexpectedly increase inflation you will have an economic boom as people are fooled by the short run disequilibrium between their expectations of the real value of money and what their nominal money now buys, likewise an unexpected fall in inflation will lead to a recession;
You can have at most two of control of inflation, control of the interest rate and a floating exchange rate. If interest rates go up you will attract investment and your currency will appreciate unless you have capital controls. If you want to maintain the value of your currency you have to keep your domestic real interest rate very close to the global real interest rate, unless you have capital controls. If you choose to forego capital controls and have a floating currency you can control interest rates and inflation but you may have large inflows and outflows of capital; If you contract the money supply like the Federal Reserve did after the 1929 stock market crash (30% decline in monetary base, 30%!) you will have a recession.
Re your third paragraph. You make many claims which may or may not be correct, but at the end of the day nobody has any kind of track record of prediction long term inflation rates of GDP numbers. This means that there is little value in counterfactual claims (if we did x then y would happen). Every study (such as your allusion to '29) are explanative, not predictive. Explanative studies have relatively little to do with what makes something a science (prediction).
Finally, this is not to say that there is absolutely nothing meaningful in economics. Surely if you arbitrarily set tax rate to 100% or 0% you would have negative consequences. Similarly, if Fed changes current rates dramatically, this would have consequences. It's just for "normal" changes in policy we have basically no predictive power other than something like nearest-neighbor search in historical observation.
Look for example at GDPnow forecast vs. reality. GDPnow is very spiky, since it changes constantly, but its performance is overall pretty accurate, and during each period its data use more than halves the RMSE. In other words, it has predictive power.
 -- figure 2 https://www.ft.com/content/60581224-3335-11e8-b5bf-23cb17fd1...
I assumed another reason Economics is so hard is because cycles are so long that there are not many to test theories with, especially once you consider unique contexts around specific cycles. Would appreciate if you could opine on this aspect of difficulty?
Also, I'm always amused that after so many years there is still such a two sided dogma on Keynesian vs non Keynesian economics - is one side being difficult or is there really room for debate?
The first decision you must conceptualize with a utility curve? Which dogma to choose.
While in physics, math, computer science, etc. it's way easier to stay politically neutral, because there are no politics involved. In these sciences, the money is also pointing in the right direction.
What I mean by that last part is, for example nutrition studies always have different parties that want the science to point to a different direction. Sugar, meat, ... industries try to influence those things a lot.
The issue, and I think this is something that most economists would definitely dispute, is that there are few real hard and fast "laws" of economic behaviour. And this leaves scope to construct theories and even test theories in a way that is not objective. This occurs in other sciences too ofc but there is far more scope for this in economics.
If we go into the meta: I think all disciplines go through this at some point. History went through it in the late 19th century, and eventually got over it by simply acknowledging that historians are human too. Economics is very far from this point but it will get there. And once it becomes more clear what actual knowledge looks like then I think economics will be on more solid footing (I don't think economists understand that no-one believes their bullshit about objectivity, I really don't and it reflects badly on them).
Also, the OP mentions finance...there is a big difference between finance and economics. First, things that get published in academic finance have an effect on the data. If you publish a strategy that works, returns will that strategy will drop off. Second, there is a lot of self-promotion. Finance is a fast-moving, aggressive field which is great because it leads to high output but a lot of the results can't be reproduced.
To someone who doesn't do martial arts, white belt means something to me (inexperienced), as does black belt, all other colours are unknown points in between.
In conclusion. The HN crowd are pedantic and argumentative, so stay away from metaphors. :)
"Python for Finance: Analyze Big Financial Data" (2014, 2018) https://g.co/kgs/qkY8J6 ... https://pyalgo.tpq.io also includes the "Finance with Python" course and this book as a PDF and Jupyter notebooks.
Quantopian put out a call for the best Value Investing algos (implemented in quantopian/zipline) awhile back. This post links to those and other value investing resources:
https://westurner.github.io/hnlog/#comment-19181453 (Ctrl-F "econo")
"Lectures in Quantitative Economics as Python and Julia Notebooks"
https://news.ycombinator.com/item?id=19083479 links to these excellent lectures and a number of tools for working with actual data from FRED, ECB, Eurostat, ILO, IMF, OECD, UNSD, UNESCO, World Bank, Quandl.
One thing that many finance majors, courses, and resources often fail to identify is the role that startup and small businesses play in economic growth and actual value creation: jobs, GDP, return on direct capital investment. Most do not succeed, but it is possible to do better than index funds and have far more impact in terms of sustainable investment than as an owner of a nearly-sure-bet index fund that owns some shares and takes a hands-off approach to business management, research, product development, and operations.
Is it possible to possess a comprehensive understanding of finance and economics but still not have personal finance down? Personal finance: r/personalfinance/wiki,
"Consumer science (a.k.a. home economics) as a college major"
1) Learn some accounting first. I see a ton of truly weird debates about economics and taxes that are based completely false ideas of basic accounting concepts.
2) If you use DEGIRO as a broker, make sure you understand the tax implications of their cash handling. They keep customer "cash" in a money market fund, not in a bank account. This is especially relevant if you hold foreign currency in your account. It's also relevant if the amount of disposals in each tax year has consequences for your tax return (such as the £45000 threshold for submitting a CGT return in the UK).
For instance, if you transfer money into your DEGIRO account or you sell stocks and don't use (or transfer) that money on the same day, DEGIRO will move your money into the MMF. So you are effectively buying MMF shares.
When you use your money at a later date to buy securities or because you want to transfer money out of the DEGIRO account, they will automatically sell MMF shares on your behalf to cover the cost.
In some tax jurisdictions this disposal of MMF shares may be subject to capital gains tax (or other taxes). The exact tax treatment depends on the tax status of the MMF in the country where you pay taxes (usually where you live). You may also have to pay taxes on any interest you receive from your MMF shares.
Now, if the base currency of your DEGIRO account is the same as the currency in which you owe taxes and you're using Auto-FX (that is you're not holding other currencies in your account), this whole structure is unlikely to affect the amount of tax you owe. The price of the MMF hardly changes at all, so there will not be any taxable gains or losses in the fund currency.
But if you pay taxes in a currency other than the base currency of your DEGIRO account or you don't use Auto-FX, then any change in exchange rates may cause taxable gains or losses on disposal. You may also have to report the number of disposals, the total proceeds from disposals and/or each individual disposal in your tax return, even if no gains or losses have resulted from those disposals.
That's why it's important to know what the tax treatment of those money market funds is in your jurisdiction and if you have to include the MMF disposals in your tax return or not. Are the MMFs registered in your country at all? If not, you may have to pay higher taxes on any gains. Are they transparent for income tax? There are many questions.
It's easy to think of DEGIRO's strange structure as an internal affair for them. But that is not necessarily the case depending on the tax laws of your country and the tax status of these particular money market funds in your country.
DEGIRO is a Dutch company. They report all disposal proceeds as well as any interest income to the Dutch authorities who will then pass that information on to the tax authorities of your country of residence under CRS (Common Reporting Standard) rules.
Obviously, the information the tax authorities receive from DEGIRO should be consistent with what you report in your tax return. It's all the more important to understand the tax implications of DEGIRO's cash funds as mistakes you make in an offshore brokerage account may incur far higher penalties than the same happening in a domestic account.
I asked DEGIRO about the tax treatment of their money market funds. Their reply: "We don't give tax advice".
I personally wouldn't advise option-trading as part of any personal investment strategy, unless you're doing it with a limited amount of money strictly as a hobby / educational gamble. It's just too complex a topic to risk money on without serious research - and that cost time (money) too.
You can't say that it's all just social dynamics.
Take for instance, there is no social dynamics rule you can state like the rule of supply and demand, or the principle of time preference (that ceritas paribus, people prefer things sooner than later). These are not just 'social dynamics'.
There are two kinds of 'body movements' by humans, 'involuntary' or 'non-rational', like sneezing, or tripping, vs voluntary or rational, like you choosing to brush your teeth, or driving a car or negotiating a contract.
If a human says that he doesn't want to divorce his wife but he can't feel the same passion towards her, or if someone is trying to lose weight but is unable to stop eating, then trying to understand that action is psychology.
However, if we just stop to the fact that if you perform an action, irrespective of your 'stated' reasoning behind it, it does demonstrate something.
When we look at these actions which are pertinent to monetary aspects of those rational or voluntary actions, we find out that we can build a whole system of science (or logic, if you don't like saying it's a kind of science), which leads us to other conclusions.
For instance if you say that you would love to spend the spring break in France, but then when the time comes, you find out that tickets are cheaper for Mexico, and instead you spend it in Mexico, then that means that your demonstrated preference was to have that extra money and do other things with it in Mexico, instead to have less money in France (irrespective of what you said).
What this means is that if prices of Mexico tickets were changed and it becomes as expensive as tickets to France, then you will change your decision also (though you don't have to, in which case we will learn that you actually didn't care about going to France anyways).
Either way, when you build a system of all the logical inferences, like in Mathematics, smaller concepts and axioms can lead you to build other complex mathematical conclusions, you have the same thing in economics (which leads you to the concepts of interest rates, prices, supply and demand, autistic intervention, binary intervention, triangular intervention etc).
How is the study of social dynamics something other than a natural science? How is the use of mathematical models incompatible with the study of social dynamics? It doesn't seem to me that other social scientists feel that that they're studying something unnatural, or that mathematical models aren't useful in understanding it. Do you know of social scientists that believe otherwise?
1. Do not buy an expensive car;
2. Do not buy a car unless really necessary (of course not feasible/practical in many parts/cities of the world);
3. Avoid all kinds of subscriptions you can. Anything that consistently affects your income;
4. If you're making good income, don't act like it's going to be like this for ever;
5. Try to stay ahead in your career so that you're eligible for the upper end salaries;
People have trouble with the "can afford it" part, anything can look affordable if it's broken down into enough monthly payments. But one must look at the bigger picture and also work towards not having to borrow money for the rest of your life.
The problem I have with most personal finance advice is it usually comes down to simply moralizing. The whole point of personal finance is it should be personal.
I kinda agree with you that personal finance shouldn't be about moralizing, but only in cases where that moralizing actually doesn't really affect you at all. The bullshit stuff about not buying coffee and instead saving up to thousands of dollars or whatever.
An expensive car (usually just a car in general) ends up being one of the most significant financial investment in the large majority of Americans' lifetime. So its wise to moralize about a decision which has the possibility of having such a huge impact.
The only time I would personally consider buying a fancy car is that if I got really really lucky and made over $10 million dollars somehow, at which point a $100k car is not insignificant, but not a sizeable part of my wealth portfolio. Until then I have my trusty Civic to take me around : ).
Some people are gearheads, just because you aren't doesn't mean you should moralize the preference of others.
The existence of outliers doesn't prove a rule wrong.
That is such a flagrant micharacterization of what I'm trying to say. Don't put words in my mouth. I was asking an honest question about whether the things you spend money on really give you happiness. If they do, awesome. If not, you blew a hole through your finances leading to even more unhappiness.
There are no memories from money in the bank...
Except we do understand how the economy functions. Maybe not well enough to predict everything with 99% certainty, but as well as we can understand any complex phenomenon. He's right however that everyone has a different opinion and their ideology leaks into their economic analysis.
Also, this article is more about finance than economics. Want to understand economics? Learn about supply/demand and game theory. Want to learn about macroeconomics? Study models like the IS/LM model.
Want to attempt to make money with some sort of investment? This article is an OK intro. But always keep in mind that lots of very smart people with very specific schooling and tons of experience are trying to do the same thing, and they'll always beat you to the punch, because you studied CS and they studied finance.
For anyone who's interested, https://reddit.com/r/badeconomics is a great resource for takedowns of this kind of garbage.
He's not an infallible visionary and should not be taken as gospel, but I don't think we should disqualify all of his ideas and opinions. I've enjoyed reading a lot of his books.
However, as you said, he's not a good introduction into the economy and probably isn't accessible for many beginners.
I think this is horseshit.
The reason being: most of what you read online will be heavily modified to support the ideology of the author... which quite frankly, outside of neuroscience, is the biggest problem Economics faces: politics and ideology.
Economics is not finance, nor is finance economics.
Economics is about resource management, and both micro/macro are just that at different levels. The real holy grail of Econ is how merge them, what I think lies I the effects of agglomeration...
If you want to get your white belt in economics: go read something historical, not mathematical. Ricardo, Keynes, Friedman, Smith, Galbraith, Veblen, Marx, Krugman... the math and statistics come easily and intuitively if you understand the theory.
Rates of change themselves don’t make you fluent in economics, showing why the fuck you even need that rate of change is economics.
Basic accounting concepts and terminology is also quite useful, as another commenter said.
Then the function of the central banks, why they do what they do, and how.
I do recommend, to understand the GFC, Reading “Financial Accounting Theory”, by William R. Scott, pages 9-15 (section 1.3). If you want to understand dodgy accounting, this is also a good book.
Aside from Mankiw’s principles of Microeconomics, Bernanke’s Principles of Macroeconomics is also good.
Most importantly, the key takeaway of those introductory books is to diversify your portfolio, which, if you do, should limit your losses in events such as those you mention.
> The next step on your journey should be to get some practical experience. The best way to do this is to open a brokerage account to invest some of your own money.
Wow, I can't believe someone would suggest doing this as a way to learn finance, when ALL finance literature reaches exactly the same conclusion: that is a terrible idea.
The author clearly doesn't understand finance and financial markets...
But hey, follow his advice anyone, someone has to make really bad investing decisions so that us making the solid investment decisions can beat the average.
Few things teach as well as the "...and it's gone" moment when you're dealing with money you worked for. Better to learn the lesson with a couple hundred dollars in play when you're young than with a couple hundred thousand when you're forty and you think your expertise in <whatever> gives you an edge in <unrelated investing thing>.
It is a guaranteed way to lose money on average. It is just like gambling: if you want to do it for fun, and count the loss on your budget, fine. But don't fool yourself into thinking that it is a sensible investment or that you're doing it because "you know finance".
Just don't. It is a bad idea and particularly a symptom of overconfident people who think that "they are smart and can read trends and predict the market". Nope.
Maybe I'm reading too much into the original text, but when I said, "amount you can afford to lose," I intended an implicit "because you will lose it and then you will learn" that I think the author is also implying.
If you do a 9 week fake money stock pick'em exercise (say in a FINA class), people will follow it for exactly 9 weeks, some will lose, some will win, and everybody who doesn't win will take away "gee I should have picked better, that was obvious in retrospect" which obviously isn't the point.
With real money, I feel like you're more likely to learn the intended lesson. If it works out for nine weeks, you'll keep at it because it's actual money. You'll learn eventually.
But you won't learn, because there is nothing to learn, just as there isn't anything to learn from betting on the lottery or in a casino.
Well, there is one thing to learn: you should not do it!
> If you do a 9 week fake money stock pick'em exercise (say in a FINA class), people will follow it for exactly 9 weeks, some will lose, some will win, and everybody who doesn't win will take away "gee I should have picked better, that was obvious in retrospect" which obviously isn't the point.
On average, people will lose.
Seriously, people won Nobel prizes proving this. Do you think that they were wrong?
> With real money, I feel like you're more likely to learn the intended lesson.
Which is: you should not be doing it in the first place!
This is like spending $10,000 in a casino to learn that you should not be putting your investments in a casino.
Here, I'll save you some money: I'll charge you just $500 to tell you that you should not be actively trading and picking assets.
You're welcome, please give me your CC info so I can charge you.
When people say "save" or "invest" without context, people end up borrowing at high interest in order to do so. I saw a guy on Reddit with like $30,000 in credit card debt and $20,000 in a savings account.