Go to college, regardless of tuition.
Put your money in the stock market, regardless of its health and structure.
Buy bonds, regardless of the interest rate.
Own a house, regardless of market conditions.
---
Most people don't think critically about their money, which makes them easy prey for greater-fool games built on top of institions they were educated to trust.
This is a bit of a naive viewpoint. Take your example of putting money in the stock market, regardless of its health and structure:
So I'll follow your advice and I'll think critically about it. I'm not an economist, but I'm technically and mathematically quite literate. And what I see is that historically, it's generally been a good idea to put money in the stock market. But of course that doesn't mean that will apply to the future.
Except, how can I tell whether the stock market is in good health? Even as an academic researcher, that is a really hard problem. The best I can do is look at the past, and then take a risk.
It's not my lack of critical thinking that is the problem. It's that it is a genuinely very hard problem.
Alternatively, if you want to get "fancy", you can use the 50/200 SMA crossover to determine entry and exit points. It's a much safer bet than "buy and hold" since it avoids massive drawdowns.
Wait, isn't that the wrong way round? You're waiting when it's low and buying when it's high?
So, instead of "buy low and sell high" it tends to be a lot easier to "buy into strength and sell into weakness".
I think there is a big difference between merely applying critical thinking, versus investing the necessary time into essentially becoming a semi-professional day trader.
I've been following the stock market since 1995 and have come to precisely the opposite conclusion
Why?
You have zero ability to predict the state of the market at the point that you need liquidity. So it doesn't matter if your portfolio increases for 20 years, if you need your liquidity during a crash, welp you're fucked.
But this simply means you didn't predict that you'd need the liquidity, which is easier than predicting the crash.
You have to know that as you get older, you will likely need that liquidity more. Thus, you should be swapping illiquid assets over time, as you get older, bit by bit.
Not doing it is equivalent to taking a bigger risk than you could afford to be taking.
Oh how silly of me to forget that investors have target liquidation periods and that even the most 101 level of investor knows that
Yet somehow something so basic as - predicting exactly when you are going to need your savings - eludes millions of people
Get real
it doesn't elude millions. it "eludes" those who didn't plan their financial journey, or take more risks than they should be (for example, not liquidating a chunk when planning on having a baby).
Just because people can't do it well, doesn't mean it isn't what they should be doing. Financial planning is not "put all money into the stock market and hope for the best", as the grandparent post implies.
It's good to focus on the bad outcomes as well as the good outcomes, and most people do indeed make the mistake of only considering the good outcomes. But looking at only the comparatively rare bad outcomes and then concluding that investing in the stock market is a bad idea is just availability bias.
Extending the idea of thinking critically about money, it's a safe bet that a majority of the population have no idea how money itself is issued or who issues it.
"Most investors when they buy a publicly traded stock believe that they own a part of some company. They think that somewhere there is a stock certificate or some indication of ownership that has their name on it, but this is not the case. When you buy a “stock” you are actually purchasing a security that affords certain entitlement rights related to registered stock which actual owners hold. The registered shares of a private company are directly owned by shareholders. In contrast, the registered shares of nearly all publicly traded equities are owned by Cede & Co., which is the nominee of the Depository Trust Company (DTC). (A nominee is a company whose name is given as having title to a stock, but does not receive the financial benefits of ownership.) Cede is a subsidiary of the Depository Trust Company (DTC) which is a subsidiary of the Depository Trust and Clearing Corporation (DTCC) and the DTCC is a private company owned by elite Wall Street firms and money center banks. If you need background or a refresher on DTC and DTCC, click on this link. Effectively, elite Wall Street firms and money center banks, not institutions and individual investors, own almost all of the registered shares of publicly traded companies in the US... Effectively, you are buying a financial derivative from brokers of a financial derivative they hold from Cede that is just a digital entry in your DTC account." [0]
[0] https://smithonstocks.com/part-8-illegal-naked-shorting-seri...
What does owning a stock mean, if it doesn't mean owning all entitlements, rights and obligations related to said stock?
The technical financial structure is a bit irrelevant, since this structure is created to reduce transaction costs. It made ownership of stocks much more accessible, and thus, more people could buy into it.
The idea you presented - that you don't really "own" the stock, because some other party is holding it in trust - is simply not true. After all, you do the same with the money in your bank account. Unless, of course, you're one of the few people remaining that hold out with hard cash, or even physical gold.
I would not trust the article. It reeks of the same conspiracy theory as https://wtfhappenedin1971.com/
>> What does owning a stock mean
Ownership requires property rights but you only get contractual rights. If you want to sell your stock and you both parties want to conduct that transaction under a different jurisdiction, perhaps for tax advantage, you can't choose to do that, because you don't own the property rights.
>> The technical financial structure is a bit irrelevant
That's a pretty controversial take because:
>> since this structure is created to reduce transaction costs
It also served to ensure a middleman was enshrined in all future transactions. What if you want to change the middleman, what if you don't want a middleman at all? Like I say, controversial.
>> you don't really "own" the stock, because some other party is holding it in trust - is simply not true.
History shouts loudly for us to be cautious here but presently we're blessed with a freedom to blissfully ignore those warnings.
>> you do the same with the money in your bank account
You don't. In one scenario you're a party to a private contract and in the other you're under-written to the tune of $250k (assuming USA)
>> hold out with hard cash
What does that mean in the context of a fiat currency?
It's easy to compare costs of funds: you can find them in the prospectus and the funds advertise them.
(If a fund makes it hard to find out the fees and costs, no need to sweat it: they are likely high, so you are safe avoiding that fund.)
I think that's what GP is talking about. I don't think it's unreasonable to put your money into stocks, but there are a ton of people in America that put a ton of money into the stock market without even getting to the point of doing some of the reasoning you do in your post.
If no employer match then you are giving up just the tax benefit. If you don’t really care about that then whatever you alternatively invest in for retirement planning has to already make up for what, like 30% you save in going pretax?
Anyways, you do you.
The problem with the stock market is not that its hard to tell whether you should be in or out. Its that there's so much pressure on the general population to own stock that the stock issuers can now get away with releasing essentially worthless stock (see Snapchat for an example) and still expect it to sell anyway.
Also, no one suggests buying bonds for the sake of it. It makes no sense and never did. Bonds are little but a balancing component for stocks.
There’s also the possibility of the market going 1917 Russian collapse or 1949 Chinese collapse, in which case you’d be left with literally nothing over night.
And not that dramatic, there’s also the chance of the Western market going October 1929, and not everyone is Lord Keynes in order to afford to ride that event out for the following 10-15 years (and I think Keynes was lucky there).
Just by virtue of being a stock market, it's not guaranteed to always keep going up (e.g. look at other stock markets like, let's say, Japan).
In fact, the US stock market has been largely unique in the amount of long term growth it's seen.
This means that the default advice of "put your money in the stock market because, long term, it will go up" is wrong. It is wrong in the sense that _even if_ the bet is positive EV, the reason for the advice is wrong.
Instead, you'd have to argue about why the US market is special, what mechanism has allowed it to go up, and why that mechanism will persist in the future.
The same is largely true for housing btw.
Capital always generates return. If it doesn't it just moves to the other place where it does. If there is no stock market, there is no way to freely move that money and it means that private property is no more, and owning capital is more of a job of "being able to milk something for profit", rather than a passive income source. That means we no longer have capitalism. Do you claim the world is really a place like that?
Or, do you claim that there are other mechanisms for that but the stock market. Which?
For people playing the game, the actual value is not the important part, what is important is that they think the hype will continue and that the price will continue to go up. Their intention is to sell just before the hype ends, to profit off the supposed "greater fools". You lose if the "greater fools" you expected are not here.
Scammers trying to outscam each others if you want, not much trust here.
When you buy US bonds at a low interest rate you are lowering your risk because those bonds are supported by F-35s, nuclear bombs, and aircraft carriers, while, in general, other countries bonds don't have that shield. This is not an investment advice but if you have money bonds should be taken into account.
Stock market? Technology advances are accelerating, that is a reality, so buying ETFs does not seem bad to have some participation. The story doesn't end in software startups.
Go to college? Well, the tuition could be insignificant if the diploma gives you the signal and network to scale after graduating. If it is not, you can study in another place with zero or minimum tuitions or skip college.
I’m not convinced that this is a bad thing. The basic reason is due to broad market ETFs like VT/VTI/VXUS and similar.
The problem an individual investor has is primarily an issue of information density and information asymmetry. They don’t have the time to be an expert at the same level as institutional/professional investors, and institutional/professional investors have better sources of information.
So what can you do? Observe the behavior of institutional/professional investors as a proxy for your own analysis. What you see on even relatively short timescales is that as some investors leave the market pulling prices down, the lower prices convince other investors to enter the market (more deeply). Individual companies/stocks may flounder, but the market as a whole on a long enough timescale appreciates in equivalence to inflation + new value.
This is inclusive of crashes, which are historically the /best/ times to invest. If you aren’t trying to pick stocks you completely change the risk calculation (and the reward, you won’t get 100x multiples). There’s nothing stupid about consistently investing in a broad market fund, but I’m open to evidence to the contrary.
Kahneman and Tversky identified several cognitive shortcuts (heuristics) that people use to make judgments and decisions, which can lead to systematic errors (biases)... often leading to irrational decision-making. Their research explains several irrational decision-making processes that we demonstrate while investing (either in private or public markets.)
Thinking Fast and Slow is such a great book…
The average student loan debt per student is around 30k, which is easily negated by the college wage premium, and also a much lower unemployment rate for college grads. it is not even close. This holds even for low-ROI majors and low-ranking colleges.
Put your money in the stock market, regardless of its health and structure.
after factoring in dividends , S&P 500 has pretty much outperformed everything and has a 10 % annual return, which solidly beats inflation.
Own a house, regardless of market conditions.
same as above. even someone who bought a home in 2004-2008 would be ahead now. home ownership easily beats renting.
market timing has generally been shown to be futile. the best time to buy stocks is always now.
We once thought there would be such premium. Wages held stagnant as people started going to college, though, and have continued to.
If what you are trying to say is that college filters out those who are not well suited to high level careers, there is no doubt truth to that, but that is not the same as a premium. It is not like college can cure someone's disability. The same person sees no change, statistically.
But it is faulty to think that going to college will cure what ails them. Statistically, most people who are capable of graduating from college do. Everyone capable of graduating from high school does. Those who fall short, so to speak, were held back due to limitations of themselves. The same limitations that hold them back throughout life.
As before, incomes have held stagnant. There is no premium. If you're born a top performer, it doesn't really matter what exactly you do – the numbers show that you have always been a top earner. College didn't change that. If you're born with down syndrome, it again doesn't matter what you do – the numbers show that you have always been a bottom earner.