Comment by grellas | Hacker News Reader

Comment by grellas | Hacker News Reader

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People's investment philosophy will vary and tolerance for risk will play a major role in it all.

My own view is this, and it is based on a lifetime of having made all the typical mistakes.

Steady is the best way to go for your investable funds. That means, go with stocks for a decent segment of your investments but temper this with investments that will help preserve capital when things get rocky. Keep a ratio between the two that is age-appropriate. There is a rule of thumb floating about among advisors that your stock percentage should be 110 minus your age. This may or may not be a good ratio for you but some method that helps discipline you in these decisions will help you and this is not a bad one for many people. The other major factor is to avoid impulse buying or selling and to keep transaction costs at a very low level - and this usually means going with broad-based no-load index funds for much of the ride.

Doing the above will not make anyone rich. It will, however, ensure that you have the best chances of getting decent, normal returns on average over time while helping to preserve your capital as you go. If you want extraordinary returns, get them through your startup or by doing extraordinary things in your work. For your investments, the rule is different. You do not "underperform" by hitting averages with your investments. You simply meet the goal that should be the defining goal for most people in that area.

Beyond the slow and steady recommendation, I also think this is a reminder that most people really shouldn't be paying attention to the day to day movement of the stock market. Even after all the panic, standard total market ETFs are currently down between 1-2%. It would look like a perfectly normal day on the market if you ignore the intraday prices. It is amazing how much of the market volatility disappears when you lower the number of data points you are recording. Just keep investing that X% of your paycheck and rebalance a few times a year if needed.

Yep. If you invest broadly enough, then shrug this off and consider that the market is on sale today. Your existing holdings will return to their yesterday prices at some point, and everything you buy in the meantime will have gone up.

Pardon my ignorance, but why will the : "existing holdings will return to their yesterday prices at some point" ? The way you put it seems so inevitable (although "at some point" may be 100 years from now). So, as you're not the only one to say that, I'd like to know what makes you think that the holdings will get back to their previous level ? Because, if they increase from their current position, then you certainly imply that they will increase indefinitely, which in turns mean (because you didn't frame that), that putting money on stock exchanges is always a good move, because holdings value increase...

It depends what you mean by holdings. If you mean a basket of holdings that is adequately diversified, then most people assume it is true because it has (almost) always been true. So while Apple may never again be as high as it is today, a portfolio including Apple and 50 other companies can reasonably be expected to go up in the long term. The simplest explanation for this is that the economy generally grows over the long term due to an increase in the productivity of the workforce due to both population growth and technological improvements.

This is what I meant. I'm making the "crazy" assumption that the market hasn't hit the highest peak that we'll see in the next 30 years

There is obviously nothing guaranteeing that will happen. However, it has done so every single time that a correction has happened in the past. This is where the word "faith" applies to the markets.

This is pretty much it.

Thinking rationally, we can see pretty obviously that this is a case of using the past to predict the future. It's never guaranteed to work, but since it tends to be the common sentiment shared among so many investors, it does become somewhat self-perpetuating. At the end of the day, the market does move based on sentiments, after all.

However, it probably is a good idea to try to shield yourself from potential downsides when this sentiments changes in the future (and it certainly can).

It tends to fluctuate within a range but just to play devil's advocate, note that it took about 30 years to recover from the 1929 crash.

It's a good strategy to buy in over time to reduce the risk that you pumped all your money in at the peak of a bubble. It averages things out, so spikes and drops are not as big of a deal.

Your stocks from 1929 would not have recovered for quite a long time, but your stocks from 1925 would only take 6 years to get back in the black.

> most people really shouldn't be paying attention

eh, IDK about that. I was cooping at a company that bottomed to $2.50 ~February 2008. I had been reading everything I could get my hands on regarding the Fed, their history, and general fiscal policy. I had about $7k in cash I was planning to dump into the company's ticker.

But in February, when it was $2.50, I wasn't quite confident of my analysis.

In May or so I had completed my replica-painting of the full picture, I was sure enough to make a jump. Unfortunately the stock had rebounded to ~$9 by then. I'd missed my chance, Fed had already moved, markets were assured, life was continuing on as normal. They later got bought out (4 years later) for $22/share. Would have wiped out my student debt.

Note, this was not trading on any special insider information I had, it was simply my personal analysis of the stability of the company's business model in a rough economic environment, combined with confidence in Bernanke's unwillingness to permit much of any form of market turmoil (he received his PhD for his analysis of what the Fed did wrong that lead to the great depression-- conclusion: not nearly enough).

off topic: my next BUY recommendation was ARMH in 2010 ~$12.50. I figured nobody could be so much dumber than me and my expertise to not also see the imminent growth of the smartphone market at a time when half of everyone I knew were still on flipphones. So then I checked later and they'd made it all the way to $30-something.

so then I said to myself 'no more' and bought NVDA at $16, but had to sell at $12 for other reasons. Lol.

this is dangerous stuff because you're implying that a few success stories or missed opportunities are representative of what folks can expect

no...each should be very careful...in my case, I was dead right twice. The third was a wash, and is why I don't bother unless I'm 100% certain (which I wasn't, the third time)

Don't mislead the inexperienced: there is no such thing as 100% certainty unless you're peddling something or being peddled abd then it's gambling and luck and manipulation and a game of chicken.

The FTSE is where it was 17 years ago. Since this time everything has gotten way more expensive.

Anyone in the UK following this advice from age 20 to 35 is staring down the barrel of working forever.

The problem is they have a share in growth in the UK over the past 15 years and that growth is next to nothing.

IMHO the old advice needs to be taken with caution. This is not your dad's market.

1) If you put all of your money in exactly 17 years ago, then, yes. You would be at the same place.

2) It still would've been paying you dividends that entire time

3) If you, rather than investing an imaginary lump sum at the top of the market 17 years ago, invested slowly as your savings accumulated over time, you would be ahead.

The FTSE hasn't exactly been sitting still all those 17 years.

I'm not sure point 3 is correct. Buying regularly would have seen you buy below today's price and above it.

Dollar cost averaging lowers risk and increases returns. If you can afford it, you may also want to have a look at value averaging.

It lowers risk making returns and/or losses less volatile. It does not increase returns. Of those dumping a lump sum in some lose more some win more and averaging them smooths it out. It's not a magic have your cake and eat it.

Yes, there was a bubble so if you invested all in one hit, all in equities, your timing was unlucky and you ignored the return from dividends then it doesn't look good.

Selective end points. Dollar cost averaging is a simple way of solving this particular problem.

The FTSE 100 total return index is at 5,898.87 i.e. the levels of November 2012: https://www.google.com/finance?cid=15424700

google finance for that goes back to 2012 and no further!

i don't know much about stocks but agree with your last line in general, encapsulated by patio11's tweet

    I occasionally get asked for advice by students. Biggest one: resist following scripts which evolved to serve a world which no longer exists

You have to adjust for dividends.

Better: make a core position in Vanguard LifeStrategy.

best: buy $XIV today

Any particular reason?

It's cheap today, maybe not tomorrow when the panic will have worn off.

To algo market makers, inverse and leveraged indices are free money. They are bought almost exclusively by clueless traders with poor execution, making it easy for market makers to shave their pennies, and due to their dynamic leveraging requirements, bleed value during market gyrations like a puddle evaporating water.

Don't buy indices with a coefficient other than 1 unless you think Wall Street is a noble cause to give money to. If you want to short volatility, use options on major indices. Better yet, don't short volatility at all unless you know what you're doing.

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