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Comment by deckard1 | Hacker News Reader

I don't think that's the case here at all. You're talking about people that are both savvy enough to have a savings account and familiar enough with investments to know that a savings account is bad compared to other investments. On top of also knowing another place to put their money (many people completely fear the stock market and all index products). The average American is just not sophisticated at all here. We're talking about a nation that isn't familiar with balancing a checking book (thanks to debit cards everywhere).

Many people that can invest elsewhere simply don't. Because they do not know about investing. They may be lawyers or doctors. But their money just accumulates.

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If there was one takeaway I was surpised by from "The Millionaire Next Door" it was, to paraphrase, high income professions like Law and Medicine tend to spend at very high rates, frequently invest poorly, and rarely accumulate a significant amount of wealth as a ratio to their income. The greatest wealth building households were two income, upper-middle class, with good, conservative savings habits. At the time of publication I think it was more valid than today, re: the change in distribution of wealth in the US over time.

This is the situation I am in. I'm not savvy enough to make investments that have meaningful or significant returns - so it all goes into a savings account.

I have 1 years' expenses saved and it just slowly accumulates because I don't know how to make a safe return on it. I don't want to invest say, 3 months savings only to lose it...

Definitely the "play to not lose" mentality rather than a "play to win" mentality but I see little reason to change that behavior.

You are actually taking on more risk than if you had some invested in different vehicles. The truth is you're losing more money by not having any of it generating higher potential yields. Likewise, putting all your money in higher yielding vehicles (for instance, call options) is a lot of risk too.

There's a calculus to understanding how much you should have put into different vehicles (including cash in a savings account) to take on the most conservative position.

The way you're playing is you are forfeiting and losing by taking on more risk than you think. It's weird to think about but you need to factor in inflation and cash becomes worth less when it is just sitting there. It isn't volatile but it is mainly deterministic. Some diversity in your arrangements would protect you better.

> The truth is you're losing more money by not having any of it generating higher potential yields.

I'm aware of this and can account for this loss. What I dislike is an unknown potential loss that I can't readily account for.

For example - if I invest $50k I need to account for the possibility I might lose the entire $50k, or a portion of it. Being realistic, I'm unlikely to lose it all, but even if I only lose $5,000 that puts me off from making that investment. It's very risk-averse behavior, which many people with a confirmation bias are against. Their $50k investment may have returned $150k and they begin to question why I wouldn't make that investment.

In other words, even if 3/5 people make $150k, as a risk-averse person, I see myself as already being part of the 2/5 people that lose the $5,000.

The only forms of investments I've ever done are playing the markets on MMORPG's. The markets are predictable, safe, and I can readily make a 8-10% ROI each night. If I could make investments like that in a real market I would in a heartbeat! :P

Check out Harry Browne's Permanent Portfolio:

https://en.wikipedia.org/wiki/Fail-Safe_Investing

It's a relatively low risk way to invest.

Investigate the "robo advisors" like betterment and wealthfront. You are exactly their target audience. You can safely ignore the general FUD you will read about their fees. The people writing that it costs too much are far more sophisticated than you and have traded a great deal of their time researching investing to be able to invest "cheaper" on their own. If you are extremely price sensitive, then you should look at wisebanyan which is "free", or use a referral link to join wealthfront to get the first $15k managed "free".

I'm in this exact same situation. I have very little trust in my knowledge of any other form of investing. Would much rather take the safe route.

It makes sense to hold savings in a savings account or CD if you're worried about risk of loss. The stock market is very volatile and you can lose your shirt if you don't know what you're doing. Ask me how I know this.

Compare your savings interest rate to the rate of inflation.

You're literally better off with credit card rewards and paying down the debt monthly, in many cases. That's how bad most savings accounts are.

But the balance for those not sophisticated enough to invest on their own is 401k. And many jobs [citation needed] (at least the ones I've been at) automatically start you off at 3% contribution, and they will automatically increase it by 1% every year (up to 6%), coinciding with your raises, if you do not tell them to do otherwise. Plus, they will put it in a target fund based on your estimated retirement age (ex. 2035 fund) that starts off aggressive, then gets more conservative when you get closer to that year. So it is mostly foolproof for the average person (although not the best possible returns for them).

Sounds like those companies have been reading Richard Thaler (behavioral economist who advocates such nudges). That sounds pretty much exactly like the sort of program he advocates for. As far as I know, it's not very common though. I've never seen it at any rate.

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