> 1. Max your 401(k) or equivalent employee contribution.
> 2. Buy inexpensive, well-diversified mutual funds such as Vanguard Target 20xx funds.
> 6. Maximize tax-advantaged savings vehicles like Roth, SEP, and 529 accounts.
What if I told you that the people who own BlackRock, Vanguard, State Street, Fidelity, Northern Trust, and Geode -- six companies who own practically all of the S&P 500 -- have decided they will be emptying out every nickel from your pockets in the near future?
Yes, citizen, put all your money into the index funds especially, and just forget about it. Let the Experts in the casino handle it. You both agree: they know exactly what to do with your money, way better than you.
Thanks to the Experts, your retirement (and life) is now dependent on the performance of Quality Companies like the SpaceX pump and dump scheme, plus other dogs like OpenAI when they join the fray. I'm sure you have nothing to worry about.
By the way, the next giant market crash (1929 style) is imminent as the Everything Bubble has found its needle, so enjoy your window seat on the spaceship to Hell. You buys the ticket, you takes the ride.
> 3. Never buy or sell an individual security. The person on the other side of the table knows more than you do about this stuff.
This is the type of nonsense specialists always tell each other. Generalists have long experience having to deal with this strange mindset that it is only possible for a person to understand one narrow category of things, so everything else must be outsourced to Other Competent Specialists In That Field. Sharks in the financial markets are well aware of this mental weakness and love to introduce things like mutual funds, ETFs, index funds, etc to assure the marks their money is being handled by Competent Specialists who really have their best interest at heart.
Here is what better advice looks like: don't buy/sell any securities unless you, personally, know exactly how and why you're going to profit from it. Anything less is gambling. In this time of economic malaise, war, extreme uncertainty, if you haven't spent decades figuring out what's going on, then you shouldn't be touching any securities at all.
Yes, that means most market participants right now are nothing but gamblers, and the casino always wins.
There's a saying in poker: if you haven't figured out who the mark is in the first five minutes, it's you.
> 4. Save 20% of your money.
Finally, some decent advice. But save it for what? That part is left unanswered. And why only 20%? Saved money is always losing value due to being eaten away by inflation, so like a game of hot potato, you need to figure out a plan to deploy it profitably in a time of increasing uncertainty. In a high inflation environment, if you're not growing, you're going broke.
The correct answer at this moment in time (and good advice in general) is, save your money and invest in one or more proven, profitable, Great Depression-proof businesses that pay you a dividend.
> 5. Pay your credit card balance in full every month.
Better advice: stop borrowing money from sharks, live inside your means, and stop being tracked and owned by whoever owns the credit card companies.
[...]
> 9. Promote social insurance programs to help people when things go wrong.
If you follow all of this bad advice, you're going to be the one needing those 'social insurance programs.'
By the way, insurance is a scam.
Hope this helps.
For people like Warren Buffett, that's his full-time job—figuring out how and why he is going to profit.
Me? I'm not going to know shit, so I will "3. Never buy or sell an individual security."
"…save your money and invest in one or more proven, profitable, Great Depression-proof businesses that pay you a dividend"
Besides the obvious (that this is not really saving money if you are in fact investing it) I'm curious where the safe harbors were during the Great Depression. I've asked before and have not received an answer.
The people who were in cash bought land for pennies on the dollar and made a fortune.
(Because of course the banks went under and the cash with it.)
This means all this akward conversations about why I don't spend money on stuff that I don't need just because some YouTubers want me to.
There's nothing awkward about the following advice in conversations:
> 1. There are two ways to use money. One is as a tool to live a better life. The other is as a yardstick of status to measure yourself against others. Many people aspire for the former but spend their life chasing the latter. […]
> 3. Spending money can buy happiness, but it’s often an indirect path. Money itself doesn’t buy happiness, but it can help you find independence and purpose – both key ingredients for a happier life if you cultivate them. A big, nice house might make you happier, but mostly because it makes it easier to have friends and family over, and the friends and family are actually what are making you happy. […]
> 6. Everyone can spend money in a way that will make them happier. But there is no universal formula on how to do it. The nice stuff that makes me happy might seem crazy to you, and vice versa. Debates over what kind of lifestyle you should live are often just people with different personalities talking over each other. Author Luke Burgis puts it another way: “After meeting our basic needs as creatures, we enter into the human universe of desire. And knowing what to want is much harder than knowing what to need.”
* https://collabfund.com/blog/my-new-book-the-art-of-spending-...
* https://www.goodreads.com/book/show/231148075-the-art-of-spe...
AI and robots will break economics by creating an era of "incredible abundance". He argued that if we can produce more necessities (goods and services) than we could consume, then the practical need for a medium of exchange simply disappears.
We don't have a good way to value our time, or our status, or many other economic intangibles. Instead we tend to hyperfocus on money, which isn't necessarily worthwhile.
We will fight for those things and money is just one way to measure that.
Points 1, 3 and 5 are probably the key ones and would still stretch most people.
Oh, and don't get married.
It's actually more exciting if you limit yourself and enjoy the struggle of trying to hit a high target. For example, moving to Mexico and trying to live on $3k a month. I did that a few years ago, it was awesome and I saved a lot of money.
Whether they save or not is another matter. Something like 30% of Americans don’t save a significant fraction of their income even though the data clearly indicates it is easy to do so.
This is controversial but very bad advice. No index funds, by their nature, will ever match the return of high-flying company stocks.
If you have very little investment capital available, then yes, allocate it all to index funds because you can't afford to narrow it down yet. But as soon as you have some room to invest in individual stocks, do it.
After about three decades investing, I can say that more than 95% of my returns are from just a small handful of individual stocks. The index funds are in the noise. More than 60% of my net worth is just from two stocks.
The point is you have to be able to let the home run ride or cut when it obviously isn’t and that is hard - it’s literally the whole ‘running money’ business and unless you’re in it, you are at a disadvantage.
Yeah, but did you know which ones from the start? The whole point of index funds or diversification in general is that you don't.
You don't, you can't.
You pick the best ones, many won't give you much return or even a loss, but sometimes you get a 100x. My best return was over 3000x, those are the ones that make up for all the losses.
As someone who has hung out in Reddit's personal finance areas for many years now, the paniced posts of March 2020 and in 2022 were very real. Lots of climbing people down from the ledge during those time periods.
Many folks realized that they may be more risk adverse than they thought. (And those were relatively short bursts: if the things had headed down for months (or longer) there would be much more sleepless nights for many people.)
Those were just minor blips. 2020 was a very short-lived dip of less than 30% and 2022 was a bit more sustained drop of ~35%.
The dot.com bust was an actual legit crash, at almost 85% drop.
I'd suggest at current valuations we need to be prepared for a crash at least as significant as that.
That is very true and a trap that is important to be aware of. Anyone who started investing after ~2010 has only ever experience a bull market, so expect severe pain at some point. It doesn't go up forever.
I'm old enough that my investing history inclused the dot.com implosion that wiped out nearly all of everything, and also the financial crisis of 2008. It remains true that investing in the winning companies is by far the best return by orders of magnitude.
I would hope you realize that your good fortune (aka luck) does not generalize to an entire population.
But it's not pure luck. Find good companies in an industry segment you fully understand (for me, that's Silicon Valley enterprise tech), invest early and hold on. You'll have many losers, that's totally fine. But the 50x or 100x returns will make up for it.
Sticking with index funds is very good advice:
* https://ofdollarsanddata.com/why-you-shouldnt-pick-individua...
* https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street
> After about three decades investing, I can say that more than 95% of my returns are from just a small handful of individual stocks.
The fact that a handful of stocks are responsible for the majority of returns has been known for years/decades:
> We study long-run shareholder outcomes for over 64,000 global common stocks during the January 1990 to December 2020 period. We document that the majority, 55.2% of U.S. stocks and 57.4% of non-U.S. stocks, underperform one-month U.S. Treasury bills in terms of compound returns over the full sample. Focusing on aggregate shareholder outcomes, we find that the top-performing 2.4% of firms account for all of the $US 75.7 trillion in net global stock market wealth creation from 1990 to December 2020. Outside the US, 1.41% of firms account for the $US 30.7 trillion in net wealth creation.
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3710251
> Four out of every seven common stocks that have appeared in the CRSP database since 1926 have lifetime buy-and-hold returns less than one-month Treasuries. When stated in terms of lifetime dollar wealth creation, the best-performing four percent of listed companies explain the net gain for the entire U.S. stock market since 1926, as other stocks collectively matched Treasury bills. These results highlight the important role of positive skewness in the distribution of individual stock returns, attributable both to skewness in monthly returns and to the effects of compounding. The results help to explain why poorly-diversified active strategies most often underperform market averages.
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2900447
Of course you have to know not just when to pick them, but to unpick them as well when they stop performing well:
> […] Since 1926, the median ten-year return on individual U.S. stocks relative to the broad equity market is –7.9%, underperforming by 0.82% per year. For stocks that have been among the top 20% performers over the previous five years, the median ten-year market-adjusted return falls to –17.8%, underperforming by 1.94% per year. Since the end of World War II, the median ten-year market-adjusted return of recent winners has been negative for 93% of the time. The case for diversifying concentrated positions in individual stocks, particularly in recent market winners, is even stronger than most investors realize.
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4541122
To recommend to the general public and random people that they try to pick the winners when >96% of stocks give below market index returns is the height of financial irresponsibility.
Believe what you like, I'm cool with that.
I have many Wall Street friends who are aligned with your approach, so you are in good company.
My returns over the last 30 years obliterate their returns, because turns out investing in high flying companies will have much better returns than an index fund. You do you.
Only if you gamble correctly. And the '50-100x returns' you cite elsewhere are really hampered by a bunch of duds that lose money. Generic index fund would return ~1700% in 30 years. That basically means you have to pick right 16-33% of the time. That math just doesn't work out.
8 is simply a contradiction of the prior at best.
I wouldn't recommend this after seeing how SpaceX was literally shoved down lots of people's throats.
If you're going to buy a "total market" fund, then SpaceX is part of the market. There were strange financial things with GE, Enron, etc, and they were part of index(es): you have to take the good with the bad when it comes to human (economic) behaviour.
Most stocks suck:
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3710251
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2900447
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4541122
but you don't know ahead of time which will go from not-sucking to sucking (LSE: RR is up 10x in the last five years), or vice versa. Predicting the future is hard:
* https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street
so it's not worth the effort for the vast majority of people.
Understandable, but unless you buy the stock from them at IPO, you're not giving them money. I agree with Cullen Roche's four points on ESG investing; second one:
> 2) The secondary market is a bad place to enact change. The intelligent defense of ESG is “by reducing the demand for a stock we can increase its cost of capital and impact its operating performance.” This is true to some degree, but I think this is dramatically overstated. For instance, the firms in the S&P 500 are all large established firms that have more than enough capital to finance their operations. They aren’t using the secondary equity markets to fund their operations. In fact, most firms have so much capital that they’ve been net buyers of stock in the last 50 years. So, this puts the cart before the horse. The better way to think of public companies is to think of them like horse betting. We can bet on the horses, but secondary market purchases are just private exchanges, not cash issuance to firms. As a result, betting on the horses doesn’t change the outcome of the race. Similarly, our secondary market purchases and sales have a far smaller impact on the firm’s operations than we might think.¹
* https://www.pragcap.com/my-view-on-esg-investing/
Roche's point in 'doing good' with investing is to make as much money as you can and then fund the movements and organizations that you wish to succeed (worked for the Koch brothers and others of their ilk).
This is actually the 'schtick' of a book that was written ten years ago:
> Emails and comments on his blog asked for a real index card with financial advice, so Pollack jotted down nine rules in two minutes, took a picture of it, and posted it online.[1][4] The image went viral, and was covered on many internet news sites.[4][5][6] Pollack and Olen wrote The Index Card three years later, which Pollack compares with the original index card as commentary to the Ten Commandments.[1][7]
* https://en.wikipedia.org/wiki/The_Index_Card
"""
The original index card, pictured above, has:[9]
"""All-in-all, not terribly bad advice; one could do a lot worse.