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Comment by listenallyall | Hacker News Reader

>> a stock market crash would blow up a lot of retirement planning

The low interest rates we've experienced over the last decade, which have only gotten lower as of late, have actually blown up retirement plans.

Used to be, $500,000 saved at 8% meant you could retire off the $40k interest + social security. It also meant that growing a savings account into $500,000 was not out of reach, even on a modest income. This was the plan many people in the 60's, 70's, 80's worked towards.

Now, getting to $500k in savings is much more difficult as compound interest is so much lower. And if you happened to get there, you'd earn a whopping $5000, maybe less, in interest per year.

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Wow, never considered how a stagnating economy will hurt retirement. This was eye opening in terms of numbers

Which is a good thing to me. I’d rather people “work” to earn rather than easily collecting rent through interest. Work in quotes since applying capital in risky investments is work compared to stashing money in an interest bearing account.

Also shows why having everybody "earn" a living off interest & investment income isn't feasible - if everybody's doing that, nobody's doing the work that generates the cash to pay the interest in the first place.

The best you could hope for is a younger generation of increasingly productive new workers being able to spin off enough profits to provide a return on the capital that generated that productivity. But the demographic time-bomb of relatively few Homelanders supporting relatively many Baby Boomers is going to upend that, and the stagnating productivity of the last couple decades isn't going to help.

Just as much rent is getting collected, but it's going straight to the top rather than into retirement plans.

What? Putting money in an index fund, or buying Apple stock, or a 401k, is "work"? Companies don't even get the money from secondary stock purchases, so the invested money is doing absolutely nothing.

Banks use deposits to create loans whose funds go directly to the companies receiving those loans. Banks which interview the loan applicants, review financials, ask for references, and which themselves tend to be pillars of the community (before the proliferation of national banks) and have a vested interest in helping it to thrive.

So, no, your premise is 180 degrees wrong. Savers were once paid high interest rates precisely because their dollars were necessary to directly fund risky investments like a new business or expansion. The bank's function was to determine high vs low risk and allocate depositors' money efficiently. Meanwhile, buying an index fund or Amazon stock and having a few irrelevant proxy votes on decisions already made, is the definition of "stashing" it away with zero utility.

> Companies don't even get the money from secondary stock purchases, so the invested money is doing absolutely nothing.

There would be no IPO market without a secondary market. Almost nobody is interested in buying a stock at IPO and holding it forever without being able to sell it.

> Companies don't even get the money from secondary stock purchases, so the invested money is doing absolutely nothing.

But they can issue new stock at the inflated values to fund expansion, which itself allows the company to grow profits and potentially grow future dividends. E.g. Tesla stock price quadrupled over the last year and then Tesla issued $2 billion worth of new shares in February.

Putting capital in risky investments is “work”. Expecting a 7% guarantee return on capital is rent-seeking. There is a difference.

> buying an index fund or Amazon stock and having a few irrelevant proxy votes on decisions already made, is the definition of "stashing" it away with zero utility.

that's absolutely not true.

The buying stocks (or indirectly via index funds) must mean somebody else is selling.

The person who sold the stocks will put the money obtained from the sale to use somewhere else. It moves capital just like any other economic transaction.

It may be that the seller will "just" buy another stock - and it looks like nothing's changed. But eventually a seller down the chain is either going to invest in something other than stocks (e.g., a bond), buy new IPO stocks, or to consume the money (e.g., retiree selling stocks to fund their living cost).

The problem with banks doing loaning is that they have to be conservative. They cannot loan out money that might not return - since they must return their depositor's money.

Investors, on the other hand, do not have this conservatism (for the right price). That's why stocks exist, and that's why bonds exist (for those willing to risk less than stocks).

Yes, obviously, stock markets are essential and efficient capital allocators, in aggregate. Perhaps I shouldn't have simplified. But a single retiree's $500k purchase of some megacorp's stock will have effectively zero impact, like a drop in the ocean. As you say, it's up to someone "eventually down the chain" to actually deploy the capital. Investing in an index fund adds even more layers. In contrast, a community bank deposit will get multiplied and quickly deployed directly to local businesses or homeowners.

The point being, `eanzenberg`'s idea that money in a savings account just sits there idly doing nothing, is false.

i would argue that money invested in stock market has an even higher investment velocity than a bank deposit.

after all, a bank cannot invest in risky assets. "eventually down the chain [of stock investments]" is very fast in terms of timing, and i guarantee you it is faster than a bank's loan process for small businesses.

I think you would benefit from a course in how capital markets work.

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