Scott Adams’ Financial Advice (2014) | Hacker News Reader

Scott Adams’ Financial Advice (2014)

mattcutts.com

68 pointsarikr54 comments

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Reminds me of https://web.archive.org/web/20171023045242/http://www.samefa...

"What is this simple free best personal finance advice that fits on a 3×5 card? "

* Max your 401k (or equivalent)

* Buy low fee, diversified whole market funds

* Never buy or sell individual stocks

* Save 20% of your money

* Pay your credit card balance in full every month

* Maximize tax-advantaged savings vehicles like Roth, SEP & 529

* Pay attention to fees and avoid active management

* Make financial advisors commit to a fiduciary standard (or fee-only!)

* Promote social insurance programs to help people when things go wrong

Translation: Earn at least 30% more than all your expenses combined, after tax.

Curious where you got the 30% from out of that? Where does the extra 10% come from on top of the "Save 20%" bit?

If you're saving 20% of your earnings, then that's 25% of the remaining 80% (which is assumed to be expenses). I estimated another 5% for the miscellaneous other stuff like buying shares, maxing 401(k), paying financial advisers etc. If all of that was meant to come out of the original "save 20%" then call it 25% (of expenses) rather than 30%.

Ah. You're just flipping around what the percentages are based off. Makes sense I suppose. Neat.

This kind of simple list reminds me of a simple gym workout or simple cardio.

For 95% of Americans, doing any kind of exercise is better than what they're doing (or nothing), and similarly, for 95% of Americans, a simple proscription like this that is easy to follow will be better than whatever they're doing currently.

Complexity can lead to paralysis and inaction, and any positive action, even if technically imperfect, is better.

Maybe I am missing something but how can this advice work for 95% of people? Maxing out the 401k and IRA would take $25,000 a year [0]. The median personal income in the US is only about $30,000 a year [1].

[0] https://www.irs.gov/newsroom/401k-contribution-limit-increas...

[1] https://en.m.wikipedia.org/wiki/Personal_income_in_the_Unite...

Just a nit pick: the maximum total employer plus employee contributions to all defined contribution plans by the same employer is $56,000 in 2019. This includes your maximum pre-tax contribution of $19,000. So the maximum you can contribute tax-advantaged (pre-tax 401k + after-tax 401k + $6,000 IRA) would be $62,000. Which, to your point, is beyond the savings reach of most folks.

EDIT: IRS source [1] for Mr. Downvoter!

1: https://www.irs.gov/retirement-plans/plan-participant-employ...

I believe the general meaning of "maxing out your 401k" is to take the maximum employer match. Could be wrong, but that is how I've always heard it used.

It doesn't. Depending on where you look, 40 - 80 % of Americans live paycheck-to-paycheck. (The Guardian says it's 80 %: https://www.theguardian.com/commentisfree/2018/jul/29/us-eco...)

Matt Cutt is just talking because he doesn't know any better, tech is booming, and he became wealthy because he joined a very successful company early on.

Usually the advice on this is max the employer match portion first. E.g. the fairly common 100% on the first 6%. At median income that would be $1800 for a 100% return on investment (after the vesting period). There are a bunch of things higher priority than maxing out the 401k for financial health. See https://www.reddit.com/r/personalfinance/wiki/commontopics#w... for a good way of evaluating how to order these.

"Pay off your credit card balance"

Most Americans will never be able to get past this one. If you can, you already know how to spend less than you earn and are way ahead of the game.

This advice is sort of like telling a society of overweight people to "eat less calories than you burn". True, but not very helpful.

I am fascinated at how credit cards are both quite a good deal and a very bad deal at the same time. If you use them right - which is mostly pay off each month - you can get nice sign-up bonuses (up to $600 is not unheard of if you're lucky), you can get 1.5-2% back on every purchase and 5-6% on selected categories, and if you're careful, you can also take zero APR longer-term loans with some credit cards (provided you pay them off properly) which helps structure unexpected spending like major appliance breaking down.

On the other hand, you get unbelievably bad deal with 20+% APR if you don't use them right, and on top of that various fines for not paying on time, so if you get the wrong end of the deal, you can pay 2x-3x of the original amount.

One of many things on the credit market which makes your life much easier if only you can prove you don't really need their service.

It's helpful in the sense that there is some amount of people at the edges, who aren't financially literate, but would like to be. To them, credit cards may have always been described as a necessity. Telling them that holding a balance is bad may be enlightening to them, and be the thing that sets them on the right path.

Never underestimate the value of seemingly obvious advice.

There are a lot of people who both invest and carry a credit card balance which is completely stupid.

I might quibble with one of the points:

> Put six months’ expenses in a money market account.

This is presumably supposed to be the "oh crap" emergency fund ... i.e., for major, unexpected expenses which can't or shouldn't be covered by credit card.

Putting this in a money market account can make it just a little bit too inconvenient to withdraw for emergencies, and it's subject to market fluctuations.

My equivalent account currently has several hundred less dollars than I've paid in to it. I know it'll be better later on, but if I needed it right now, that would be a loss I'd hate to take.

You can now get 2.25% APY on savings accounts at legit banks (example: https://www.mymoneyblog.com/cit-bank-savings-builder-account...). Two and a quarter sucks way worse than a healthy market, but it's about on pace with inflation and it's a lot better than a crappy market. It's also a lot more liquid: if I needed the cash right now, I could do it with a bank-to-bank transfer and I should have the funds in my checking account pretty quickly. If I wanted to liquidate my market account, there's a couple-day waiting period while things are sold and transferred around.

I've found it helpful to break things down into:

- cash-on-hand: what I could walk into any business and spend right now;

- emergency fund: a modest stash that I could access in about one business day;

- near-term investments: market accounts and the like;

- long-term investments: IRA.

But as other folks have pointed out, if you're saving anything at all then you're doing better than most Americans.

Money market account != money market fund. For example, I have a MM account over at Capital One. It's FDIC insured. The only material difference (from the customer's perspective) between it and their traditional savings account is that you only get the 2% rate once you've met the minimum balance (otherwise the rate is lower than for the savings account). Transfers from the MM account to my checking account work in exactly the same way (and are just as fast) as savings to checking, even down to the 6-withdrawals-per-month limit.

Agreed that there are other options with higher rates and are considered regular savings accounts, but for most people the distinction doesn't matter. For me, the hassle of switching banks wasn't worth a quarter percent. YMMV.

You are confusing Money Market Accounts with "Money Market Funds". Money Market accounts like the one offered by Capital One are effectively like a savings accounts.

https://www.capitalone.com/bank/savings-accounts/online-mone...

The 70/30 split on stocks to bonds is a little suspect. Traditionally what you want to do is start your career with high (probably 100%) stock allocation and slowly move towards more more bond allocation with time. There’s no right single number there so maybe that’s where 70/30 came from, but yeah, don’t do that for your entire career.

Many people save nothing so saving something at 70/30 is a great first step.

If you even understand the difference between stocks, bonds, EFTs, index funds, mutual funds, etc then you're already ahead of the curve and this advice is too simplistic for you.

A 70/30 or 60/40 split with regular rebalancing can smooth out market fluctuations. When stocks do well this pulls money out and locks in the gains at a time when psychologically you want to let it rise. When stocks are doing badly this also forces you to buy at a discount when you might be inclined to keep the money on the sidelines out of fear of future losses.

70/30 is fine, you just want some in bonds.

The original split of 50/50 between stocks and bonds is prescribed by Ben Graham in his book the The Intelligent Investor, but he does keep it flexible.

I read a really interesting thread recently, can't find it but the gist of it was Index Funds appreciating isn't guaranteed (as they're pitched) and localizing at a country level is a mistake for the future w/giant "emerging" economies in China / India.

The counter "example"used was the Nikkei index which peaked in ~1990 and still hasn't recovered:

https://www.macrotrends.net/2593/nikkei-225-index-historical...

The argument was to leverage index funds as a component of portfolio along with real estate, etc.

Would be curious the HN view.

My view is that this may be true in isolated circumstances, but you need to be very careful of the origin of this advice. In the last decade, as money has poured out of actively-managed funds and into indexes, people who make their living from management fees have gotten really worried and have sponsored a lot of submarine stories spreading misinformation or outright falsehoods about index funds. (The Wall Street Journal has been a frequent source of this stuff). Most times when I see an article skeptical of index funds it either quotes, or in some cases was literally written by, somebody managing an active fund which has seen big outflow recently- thus hitting them in the wallet. It makes it hard to take seriously that they're offering unbiased advice.

i dont know anybody that pitches index funds as guaranteed appreciation, just that they will do average for cheaper.

There are plenty of index funds that take into account other countries, REIT indexes that hold real estate, etc.

Even if you use just a SP500 index, you get some global exposure as well - disney, coke, pepsi, etc are all worldwide brands.

Lets say its a given you can do better by adding more stocks, actively managed funds, actual real estate, etc, for the simplicity of it you get 80% of the way there with just one or two simple indexes.

Different people have different ideas of what an “index fund” means. Personally, I don’t consider it an index fund or a benchmark unless there’s a definition of what the fund tracks ( https://web.stanford.edu/~wfsharpe/art/active/active.htm ). And when there is, and I want to invest in that market, I expect to do better by paying a little money to accept the average return for that market than by paying more to try to get a better-than-average return (because to come out ahead, it has to be better by at least enough to pay for the higher fees). But you’re definitely right that “average return for the market” may not be positive.

An index fund by definition just tracks an indicator. You don't have leave the USA to see a long-term decline; the Nasdaq is currently below its Feb 2000 peak. All index-fund investing advice includes diversification across several asset clases. (Insert plug for https://research.wealthfront.com/whitepapers/investment-meth...)

Nasdaq composite was 4698 in Feb 2000. Currently it is 6584. ( see here : https://finance.yahoo.com/quote/%5EIXIC/history?period1=9467... )

You're correct, but its inflation-adjusted Feb 2000 peak was 6970.

Source: https://www.macrotrends.net/1320/nasdaq-historical-chart

> I read a really interesting thread recently, can't find it but the gist of it was Index Funds appreciating isn't guaranteed (as they're pitched) and localizing at a country level is a mistake for the future w/giant "emerging" economies in China / India.

China has supposedly grown up to 10% GDP year on year and yet returns on China ETFs were terrible. The expectation of growth has been priced in long ago - possibly more growth than will actually take place.

Plus, how would you know what the Chinese are up to? Do you speak Chinese? Are you going to follow Chinese news? If you're in the US, you get a much better impression of what's going on in the S&P500. Like, when your president is Donald Trump and he tells you to "buy the dip", you know it's time to reduce your exposure.

As a first commenter, I think I can say this is at least decent advice. Especially around paying off debts (he specifically mentions credit card debit, but it applies to most forms, Imo). Ignoring the other stuff around Scott Adams, I think this is decent for most, but of course depends on the individual.

What other stuff around Scott Adams, and what's the relevance to this?

He's nuts.

He's become a bit of a conservative-leaning pundit lately. I actually find his take on Trump to be quite useful. But I can see how that would turn a lot of people off to even his non-political thoughts.

Regardless of your (or my) personal political leanings, don't you think it's a bit of a thought-bubble red flag if you consider someone as automatically discredited for holding a ~majority (or even major minority) political stance?

I think people let politics get in the way of a lot of otherwise useful information they could take in. So I think I agree with you, but I'm not sure that I disagreed with you to begin with...

Yeah, I wasn't disagreeing with your point so much as just commenting on the fact that so many people here say "X says blah but they're a conservative so who cares what they think." I probably could have worded it better, though.

honestly Adams has been doing more trolling than political-punditry nowadays is probably the main reason people are dismissive of him

It's not even so much his political stance as his lunatic ravings about it: there's not a drop of policy in his talk about trump, it's all weird mysticism about how persuasive a personality trump has, sort of reminds me of the way PUA types talk.

What's a PUA type?

PUA = pick up artist. There's a whole subculture that is somewhat terrifying.

Indeed. He doesn't even endorse Trump so much as praise his hypnotic influence. Very strange things to hear about anyone. If you heard someone praise Elon Musk or Barack Obama as having a masterful way of manipulating people, and they kept bringing it up over and over... You'd assume they were nuts.

He's a lunatic narcissist with questionable critical thinking skills http://comicsalliance.com/scott-adams-plannedchaos-sockpuppe...

I believe his response to that was that people were purposely misinterpreting what he said. I haven't looked into it in detail for a while, but last time I did, it seemed like a perfectly reasonable defense.

How do you misinterpret him going around the internet anonymously praising himself?

People are mad at him for supporting Donald Trump.

People act as though it's something new, but he's always been the authoritarian sort, who encourages you to question authority... provided you didn't disagree with him. His Dilbert fan club e-list was called Dogbert's New Ruling Class, and he always seemed to take the joke a bit too seriously, even back twenty years now. I'm not one bit surprised he supports Trump, and the controversy there amuses me since it's not anything new about him. He's not the rebel some Dilbert readers believe he must be, but a new boss, same as the old boss.

Great advice. (Not so easy to stick with all of it, but it is very sound advice.)

Please add 2014 to the title

I would add investing in precious metals to that list. Especially silver and gold right now. Its been extremely undervalued, and steadily moving sideways. When this stock market tanks even more then it has the last few weeks, we are going to see metals sky rocket like it has in the past. Gold and silver are an indispensable long-term inflation hedge. Look at jpmorgan, they were shorting silver for how long, now they are going long buying almost 2million ozs a day, i think they are up to over 750million ozs. All the central banks are buying up as much as they can get there hands on, so id say its a safe move to use a % of your savings and buy physical silver and gold. Im staying away from the paper precious metals investments, because if we do have a financial melt down, at least i know ill have some of my savings in my physical possession. ;]

While I do own some physical silver - can you provide a basis for this in some documentation or articles?

No, that's very poor advice. Precious metals are comparable to individual stocks -- by making a purchase, you are not "investing"; you are speculating. There is no guarantee of long-term gains.

How do you buy gold bars with the minimum overhead and trusted purity? I’m curious in diversifying. Also how would you sell for fiat?

Heads up I also agree that this is a risky bet but I already have broad market diversification, this is just a speculative investment.

Precious metals often take a dive in a market crash because people need to sell assets to cover margin calls and other debts that come due.

Here is what Warren Buffet had to say about gold...

“You could take all the gold that’s ever been mined, and it would fill a cube 68 feet in each direction. For what that’s worth at current gold prices, you could buy all—not some—of the farmland in the U.S. Plus, you could buy 16 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?”

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