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Comment by stouset | Hacker News Reader

Absolutely.

4% inflation-adjusted returns aren’t going to turn a single contribution of $1,000 into $1,000,000 in anyone’s lifetime. We have a massive economic problem where the young and the economically disadvantaged face massive challenges achieving financial security. And without the spare funds to contribute non-trivial amounts regularly (and the financial education to buy-and-hold through thick and thin), even somewhere like Vanguard isn’t going to wildly change people’s fortunes.

I don’t know what the answer is (although I have some educated guesses) but what I know doesn’t really help is glorifying a gambling regime where one in millions gets filthy rich, one in tens of thousands gets kind of rich, one in hundreds does maybe a little better than the market, and everyone else is effectively donating what little they do have to the Wall Street elite.

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> the financial education to buy-and-hold through thick and thin

I find this somewhat dubious. If you buy-and-hold for a lifetime, you'll face at least a once-in-a-lifetime level of shock at some point.

The possibility that this shock will happen just when you need the funds occurs fairly regularly to generations of retirees: but always seems to be forgotten by gold-standard financial advice.

That's why you move from a risky stock portfolio to a safer bold driven portfolio as your age increases.

This helps, but not that much. (Assuming your risk assessment is correct)

Suppose a shock happened right before I planned to shift into a safer portfolio. What do I do then?

The only really correct answer is: "well, I didn't need that money anyway."

The idea is you are always shifting rebalancing.

If you are 45 you might be at 50/50 (safe/risky growth) by 55 25/75 by 60 90% is safe.

If something happens at 60 where you lose 50% of the 10% in growth stocks stats show that a 5 year recovery to base levels is likely.

There shouldn't be an exact moment you switch to a conservative portfolio. As you get nearer to retirement, you gradually rebalance. Often this is as easy as simply placing new contributions in safer investments. Less often it just involves exchanging one set of funds for another, say once per year.

Again, Target Retirement funds handle this completely transparently for you and require literally zero hands-on involvement.

This is quite simply nowhere near as hard as you're making it out to be.

> This is quite simply nowhere near as hard as you're making it out to be.

I'm going to quote a (sarcastic) reply to another of your comments:

"This is easy. Just find a job that pays you $350,000 a year."

If you have plenty of wealth and income, then it's easy.

But then, if you have plenty of wealth and income, it doesn't really matter what you do.

Avoiding that shock is generally (though not completely) resolved by going with a "target retirement"-style fund that shifts your portfolio towards less-risky assets the closer you get to depending on them. Barring this you can also approximate it yourself by weighting further into bonds and fixed-income assets as you age. The FIRE community does something similar with the "bond tent" strategy.

That said, I'm honestly deeply confused as to what you think the alternative is It's impossible to reliably predict crashes or their extent so by selling you're generally just locking in your losses. I personally know multiple people who liquidated during the Great Recession, and... well, not only did they sell at rock bottom prices during the fire sale, but they also failed to get back in to the market during the incredible rally of the last decade.

I know multiple people who got out during the Trump administration, expecting total financial meltdown. Those people are materially worse off than if they'd simply held. I know several who panic sold when the markets took a hit at the beginning of the pandemic. Yet again, they've locked in their losses and missed out on the positive returns that have occurred since then.

So, barring access to a crystal ball, what exactly do you think is the alternative?

i was one of those that was just certain trump was going to tank the economy. my thinking was "he has no clue, and his bumbling around will ruin it". very wrong, and missed out on a lot of gains. and not too sure of when to start dollar cost averaging back in.

The only correct answer to this is now. Right now. No one knows if this is the top of the market and tomorrow everything will come crashing down, or if this is the very bottom of a 10 year bull market. On average you do better not trying to time the market and just contribute on an automated schedule. Set up monthly contributions and buy regardless of whatever is happening in the market and then try to forget about it for most of the year.

you are correct. very good advice. thank you.

That's not exactly true; market value does not exist in a vacuum, it's the discounted future cash flows of the component companies. You can certainly look at the earnings of the component companies, and see how much growth is being priced in with the current valuations (and whether you think that is reasonable or not over the long term).

Now generally timing the market is not recommended; however, if the market has been going up for 5% a year for the previous 10 years versus going up for 20% a year (assuming same levels of inflation), it paints a very different picture, so at least in broad strokes you should be able to estimate where we are in a market cycle (telling the difference between 1998 and 2000 might be hard, but telling the difference between 1998 and 1994 should be fairly straightforward)

http://people.stern.nyu.edu/adamodar/pdfiles/invphiloh/valua...

My advice:

- Never sell. Ever. (Until retirement). [1] The natural extension of this is... always buy. Buy now. Buy.

- Keep a pool of cash on the side (whatever you can afford) to be ready to capitalize on any "fire sale" of stocks. This should be about 10% of your portfolio as a very liquid non-volatile asset (cash).

[1] Obviously life hits you hard sometimes and you HAVE to sell to cover unexpected bills. I am obviously not suggesting in those situations that you hold your stock to the detriment of your healthy, of a family members health, etc.

I think this is fine advice for anyone who has money that they don't and won't really need.

Positive expected value is positive expected value. This works great, as long as you have plenty of bankroll and can ride out any losses.

As you say, this advice doesn't apply to people who might need the money.

If you might need the money, how is donating it to Wall Street through day trading on -EV plays somehow better?

If you might need the money, it needs to be somewhere safe like a savings account or a CD. Once you have an emergency fund, you can start saving in higer-risk/higher-reward +EV investments like index funds.

You can also buy puts as you near retirement. Trading potential return for downside protection.

> the financial education to buy-and-hold through thick and thin

Buy the S&P500 through an index fund or SPY ETF. Then hold it for decades.

There you go. A two sentence financial education, and you'll do at least as well as the market, which has an upward bias over time.

Of course! A very large proportion of my net worth is VTSAX. Target retirement funds are potentially an even better option for the average retail investor.

But the educational part comes with teaching people why this approach tends to have better outcomes than others and also to help instill the understanding of how panic-selling during a downturn is a losing strategy of "buy high, sell low".

I didn't have significant assets during the 2008 crash, but I certainly did last March. And even though I've advised others to buy and hold for years, it took a lot of self-discipline and self-reassurance to not throw that all away and exit the market when it became clear what the extent of the pandemic was likely to be.

Even today I don't think I fully understand why the market has done as well as it has. But I do know I'm glad that in the end I was able to stick with the game plan I've been preaching all this time.

> 4% inflation-adjusted returns aren’t going to turn a single contribution of $1,000 into $1,000,000 in anyone’s lifetime.

Of course it isn't and no one suggested that. A more realistic scenario is investing 1,000/month for 35 years at 5% adjusted returns IS $1,000,000, and isn't even capping the maximum 401k limits.

I agree with you that this isn't possible when you're not employed or otherwise disadvantaged though.

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