I also feel this way, and all of the terminology and marketing around the stock market definitely reinforces this belief. I have my retirement put into one of those diversified retirement mutual fund things which I completely ignore, but other than that, I don't mess around with stock market stuff at all. The up & down junk, trying to decide when to buy or sell, all that stuff makes me feel terrible. Same feeling as going to a casino. Not my kind of fun. I don't want anything to do with it.
Basically - total market index funds have very low cost, and the entire market has very rarely gone down 50%, and eventually recovered.
Since your company is matching you 50% (or 100%) on your contributions, if the market goes down you're losing "house money/free money" you wouldn't have otherwise.
Then after years and years they just get used to it.
It's like saying that because your sibling or friend ended up in a shitty relationship that you need to be celibate for your entire life . . . no, you don't. Just because Company A blew up doesn't mean Company B will.
And to be clear, I'm not a fan of stock picking as a core investment strategy, but I'm talking about dollar-cost averaging in equities (low-cost index funds) as opposed to stashing cash under the bed. Long-term, betting on the economy is free money.
But again, you're asking people to have a lot of trust in this executive team. Unless we have the legal and regulatory framework that can enforce that trust it all becomes very sketchy. And right now it seems like the legal and regulatory frameworks are under attack. It's becoming more a game of "who you know" and favor currying. That kind of erosion of trust is really dangerous for the markets.
There are more options than this. My savings account gives something above 4.5%, and if that rate does go down, there's CDs and stuff like that. And I assure you, I'm not poor, lol :)
Have you checked recently? Short term Treasury yields are hovering around 4% now, so I'd be surprised if HYSAs are yielding more than that today.
Incorrect. Public markets investing (which is what you're talking about here) is about betting that the market is undervaluing some business. This is fundamentally different from "betting on an exec team". The price matters a lot.
I mean, there's also some risk premia and some liquidity risk that you're being paid for, I guess.
But "betting on the competence of an exec team" is just wrong.
Gambling is the total opposite of that. Investing in an equity is saying "I have reason to believe this business or basket of businesses will continue to return profits to their shareholders." And you can do research into their financials, their industry, and so forth to make an informed decision. Gambling is just that . . . random chance in a game that's ultimately rigged against you. Investing is almost the opposite of gambling.
All of our existence involves gambling in the sense of balancing probabilistic risks. You need something more nuanced to distinguish gambling (the moral vice) from risk management (the inescapable survival tool).
Same way you convince them betting on the ponies is not gambling. If you pick a sure thing you're guaranteed to make money. All you need is a system.
How about:
> But in a casino the longer you play, the higher your chances of walking away a loser since the house has the edge.
> The stock market is the opposite of a casino. The longer you play, the higher your odds of success in terms of experiencing positive returns on your capital.
* https://awealthofcommonsense.com/2023/05/the-stock-market-is...
* https://www.cfainstitute.org/insights/articles/investing-vs-...
Day trading is gambling. Buying triple levered ETFs is gambling.
Investing in a diversified index is NOT gambling, because it isn't a zero-sum game, where you have winners and losers. You are investing in the growth of the economy as a whole.
I’ve genuinely never understood why this is so unintuitive to many otherwise intelligent people I’ve known. Over a long enough time horizon (and with prudent management of risk as one ages/approaches retirement) serious increase in wealth is all but guaranteed short of the US absolutely collapsing. And if that happens, then we’d all have bigger fish to fry.
There are no guarantees (other than maybe death and taxes). There's only the likelihood that as long as the market is rational you will make money in the long run. As soon as you start setting odds on success, it becomes gambling.
It has worked to this point, but past returns are not guarantee of future returns. On other hand well both political parties really enjoy line going up, so even if it leads to inevitable destruction lot will be done to keep it going up.
Take all your life savings into a savings account? Well, you could lose it all if the FDIC and your bank collapse.
Take it all into cash under your basement? You are gambling that you won't have a house fire, that you won't be robbed, etc.
Keeping US dollars at all is gambling that the US dollar retains value - there are plenty of examples of currencies completely collapsing.
i was very much infatuated by the idea of total reliability on a global scale and couldn't wait to talk about the CAP theorem with anyone who would listen. Read much of the research. I still love to flip through Designing Data-Intensive Applications by Martin Kleppmann occasionally.
As I was learning about said company's server racks there was a component that I asked an engineer on my team about – "Isn't that a single point of failure?"
He looked at me, exhausted and stressed out, and just said "Take it far enough, the Earth is a single point of failure."
I got the point.
I mostly agree with your assessment, but lots of governments have collapsed, and that doesn't mean that everyone loses EVERYTHING. Some people are able to retain some assets, if they have them in the right form.
I do think some of the hedges people take don't make sense, though... if your hedge is to keep a bunch of cash around, you aren't hedging against your risk because your risks are correlated - the event that will cause all your stocks to go to zero will also cause the dollar to go to zero.
If you are truly hedging against the collapse of the US, you would try to get assets that would survive that... lots of possibilities, and some of them make more sense than others, but all of them have their own risks, and some of those risks are way more correlated than people realize.
As such, if you setup auto-invest into SPY and never look at it, you're not gambling. You don't know if you're winning, you're not thinking about it like a bet.
If you go with your definition of gambling then, well, taking your salary in USD is gambling because the USD, just like SPY, could go to zero and you lose it all.
So, if you run a Casino, I wouldn't call it gambling because your expected value is greater than 1.
Everything is a 'gamble' in the sense that there is a chance of ruin. It is a gamble to drive your car to work, because you could die in a car accident. People don't normally call it gambling, though, because it doesn't fit what we mean when we say gambling - taking a sub 1 expected value risk for the chance of a big return.
Is running a plumbing business gambling? Is opening and running a restaurant gambling? (Sure there's risk in running a business but risk is not the same as gambling.)
Because owning stock is basically owning a slice of a business. Owning a unit of a S&P 500 ETF or mutual fund is owning a slice of five hundred businesses.
Yes, it is a gamble to start a business, but it isn't gambling.
Yes you have more agency in deciding how to run the business, but you have little to no agency about the economic environment you're in. You're highly concentrated in one financial asset, which means any little hiccup can have huge repercussions for your life, especially since you probably only have one business in one particular economic niche.
Whereas if you own a portion of dozens/hundreds of businesses, you have less control of how they are run, but no one business doing badly will impact you as much, nor even one particular economic segment (energy, transportation, tech, agriculture). By owning a broad index of companies you are more diversified.
Further, with modern financial products you can diversify not just between market segments (S&P 500, Russell 3000), but across countries (which deals with the now do Japan retort).
Seems like someone who bought any time since last August and wanted to sell now would be a loser, right? Is now a good time to buy? What if the tarriff horrorshow continues and Apr 2 looks like a cakewalk? Should I put off buying until some time later?
I hate all of this and want to spend my time any way else. So, I do.
The parent is talking about longer term investing, about buying and holding diversified indexes for 10+ years.
Statistically, if you bought and held the S&P 500 for ~30 years, any day since its inception was a good day to buy.
So yes, last august was a good time to buy. Now is a good time to buy.
What the parent is talking about is the way of investing where you do not spend any real time on it.
The bare minimum time is to just setup an autoinvest in vanguard to buy some dollar amount of a broad index fund (like VFIAX) each month, and then never look at it again until you're ready to retire, or have to make a down payment or such.
When you take out money, you don't try to time that either, you just accept the rate is what it is at the time you sell, and only sell the amount you need.
And then, finally, if you want to not think about it much, hardly spend any time, but be slightly more diversified, you could do a 3-fund portfolio, setup autoinvest, and then adjust the autoinvest once a year to push it towards the desired balance. That's a few hours of initial setup time (reading Boggleheads wiki, setting up accounts and auto-invest), and then maybe 1 hour each year from then on (checking rough percent, adjusting auto-invest numbers to push more money towards anything that's lower than desired).
See: https://www.bogleheads.org/wiki/Getting_started and https://www.bogleheads.org/wiki/Three-fund_portfolio
Most growth comes large highly capitalised companies with money to invest in expanding knowledge and capital.
The startup making it big is still relatively rare thing in the grand scheme things.
And the majority of small businesses struggle or stay the same size for ages because they're operating in competitive markets.
However, unlike going to a casino, elected leaders are under enormous pressure to ensure positive expected value - which is precisely why "diversified retirement mutual fund things" are such a good idea for the public investor - they're basically saying "sign me up for EV, please and thank you".
Also unlike going to a casino, some stocks pay dividends and you would in principle receive a share of the proceeds (after paying creditors) if the company liquidates all its assets.
When he died in his 90s, his car was the one he bought to visit my parents when I was born.
If you did dollar-cost averaging through the Depression, and didn't have any immediate need to withdraw, you'd have come out of it doing pretty well.
1. Start with $10,000,000 2. Invest right before an economic downturn.
It's been shown to be a mostly rewarding strategy over the last century of so, averaged out at least, and so of course it's not really a foolish bet for most folks, but it's not the only way to secure one's financial health and isn't the ideal one for everybody.
Scrappy hustlers, skilled trade workers, and (SMB-scale) entrepreneurs in particular can often see a better return by investing in themselves and in ventures in their own community, where things are not so passive. Likewise, people with modest dreams and a preference for stability often might prefer securing a paid off house, car, etc before throwing too much money into the casino -- even on good bets. And others with strong and healthy family bonds benefit most by prioritizing enrichment and opportunity for family members who can be trusted to return the favor in less flush/capable times. etc
Many young people have only really been exposed to the idea of market investment as a retirement strategy, and its a good one for many, but there are a lot of roads to staying financially healthy through late life.
You don't understand the power of diversification in portfolios. Yes, there are plenty of individual ventures that will return more than an index fund. But individual ventures are fundamentally volatile. They are volatile because human beings are not machines. People burn brightly and then burn out. People push hard and then fall sick. Cultures and institutions and trust are painstakingly built, and then wiped away in an instant by ideologues.
As an individual investor, you have your labor and your savings. You cannot productively diversify your labor, but you can diversify your savings.
yet, if you look at all people and companies that have grown extremely rich extremely quickly, there is one very common factor: they didn't take money out of the company, but reinvested every single penny. thats the way you can outgrow your competition which doesn't do the same thing. failing businesses are often those that paid too much to their owners.
Starting a business is one of the most risky things you can do. Much more risky then having a diversified portfolio. However the rewards can be amazing given the relatively small chance it hits jackpot.
First of all, to reinvest, you need to have some profits in the first place. Even getting to the point of having any revenue at all, you're losing 90% of entrepreneurs just to get there. Second, among those 10% of entrepreneurs who get to the point where they have any revenue (let alone profits), it's sheer hubris to think that you are unique or special in reinvesting; most entrepreneurs are not seeking to take their goose's golden eggs while they are the size of peas.
There are very, very, very few entrepreneurs who pass survivor's bias to talk about their golden eggs.
I just don't get it. My father and father-in-law both did it.
As such once people can lock in a reasonable retirement they often get really conservative.
To completely cash out - as in, not be invested at all - isn't wise.
US inequality increased significantly after the top tax rates, long term capital gains, etc declined significantly. There’s no question those are related, it was explicitly the intended effect.
Wealth inequality can increase from trends which are net positive but that doesn’t change the fact it’s a net negative. Thus, changes to the tax code specifically designed to increase wealth inequality working shouldn’t be surprising even if other factors are also in play.
The current situation of low land value tax rates and high earned income tax rates leads to two old people living in excessively large lots while two young working people give up goals of having kids because they don’t want to raise them in a 1,000 square foot rental they don’t consider stable enough.
And that’s the case as long as the income tax is at or less than 100%. Income taxes could well be collected from employers directly and never reach you (like some European countries do for roughly 50% taxes due). Ultimately what counts is how much your employment costs. Psychologically, it then may not feel like you are paying anything, because you don’t. You working supports public infrastructure for public benefit (which includes you again). Prefer to pay no taxes but having to build your own roads? Good luck with that.
No, its true as long as taxes on income plus the necessary-but-non-deductible expenses associated with maintaining the job that would not be required otherwise are less than the pay for doing the job.
But income taxes aren't the only taxes on income (payroll taxes exist), and costs of work (added wardrobe costs imposed by dress codes and expectations, commute costs, added childcare costs) are real.
Thus as the value of wages and investment returns is a direct result of government actions just as the value of land is a direct result of government enforcement of property rights, it’s got equal legitimacy for taxing both.
I wouldn’t want to think that somebody is taking something that belongs to me away from me. That is not a pleasant feeling.
However, I was dumping government into that same cost of work category as commuting costs. It just makes more sense to work in a country where you make 100x as much even if you’re paying 50% in taxes than a failed state with zero income taxes. As such it also makes sense for governments to impose income taxes to be able to pay for things like education that improve short or long term productivity.
Why can’t land value tax be used? It already is in the USA (and probably around the world), but the labs value tax rates can be increased to properly allocate tax liability to this who consume more.
Tax homes based on the number of rooms and people suffer without closets even though total revenue remains the same. Income taxes have this wonderful property where factory workers can’t game the system thus avoiding distortions. Land taxes high enough to offset income taxes results in all sorts of unpleasant side effects.
The US approach of funding local schools is horribly inefficient. People like it because it reinforces the class system, but just as with closets people end up with lower standards of living because they’re optimizing around arbitrary rules.
How is this relevant to land value tax?
> Income taxes have this wonderful property where factory workers can’t game the system thus avoiding distortions. Land taxes high enough to offset income taxes results in all sorts of unpleasant side effects.
Why would earned income taxes not have unpleasant side effects if land value taxes have unpleasant side effects? All taxes affect the market, and they are supposed to.
Isn’t it unpleasant that people in large lots who inherited from their ancestors’ pay very little tax for all the security an orderly society provides and all the courts/police/military that keeps their land safe?
Isn’t it unpleasant that too low land value tax rates keep empty store fronts, empty lots in the middle of urban areas, increasing the lengths people have to travel and removing the ability to walk anywhere?
> The US approach of funding local schools is horribly inefficient. People like it because it reinforces the class system,
Only because it’s a flat tax rates. If it was a power law formula, then people using less land (aka those in apartments and in general, far poorer) would pay far less than those on 0.06 acre lot townhomes who would pay less than those on 0.15 acre lot mansions. Not to mention all the rich landowners (via REITs and other real estate holding companies) paying far more for commercial real estate, incentivizing them to make productive use of their land, such as dense housing and not keeping spaces empty.
It’s an example of distortion.
> Why would earned income taxes not have unpleasant side effects if land value taxes have unpleasant side effects?
Distortion requires some way to optimize for the tax by charging behavior unnaturally. Maximizing income results in the same behavior with and without an income tax. Instead distortion comes modifications like not taxing health insurance and lower rates on long term capital gains etc.
A land value tax incentivizes less efficient allocation of resources on the other hand because land becomes artificially more expensive. For example it heavily disincentivizes farming etc. Obviously you’d end up with same kind of tax breaks but now you’re further distorting the market.
It already does, and no one is going to farm a few acres in the middle of a metro or suburb. They will hoard the land and keep it empty or underutilize it with low density housing/business to serve as a piggy bank they can 1031 exchange.
And again, the big distortion is old and wealthy people disproportionately benefiting from an orderly and secure society, while paying the least, while young people who work pay the most. See Additional Medicare Tax for another example.
> Maximizing income results in the same behavior with and without an income tax. Instead distortion comes modifications like not taxing health insurance and lower rates on long term capital gains etc.
I disagree from a society wide perspective, levying a higher tax burden on rent seekers is beneficial. Rent seeking needs to be disincentivized, and using earned income tax to keep rent seeking taxes low (such as land value and estate and cap gains taxes) is overall a negative for the future of society.
Even more distortion.
When you look land value tax and start thinking ahh but this impact needs to be mitigated that’s a sign there’s an inherent problem with the approach. There’s an endless list of things people would tweak if it was high enough replace income taxes the flawed system that resulted would still just be less efficient overall.
Just by comparison people don’t single out professions and say lawyers should have higher rates than doctors. You’re not tempted to try and manipulate the economy through central planning as we would be with land value taxes.
I never implied preferring not to pay taxes. Marginal land value and consumption tax rates would set incentivizes properly.
Earned income tax is the rich and the old and their younger beneficiaries benefiting (rent seeking) off of others’ labor.
If I had a nickel for every time a recruitment process was jeopardized by my asking for the company to cover travel expenses to the interview, I would have two nickels. Which isn't a lot, but it's weird that it happened twice.
Define "liquidating". Do you mean moving all investments in the 401k to cash and equivalents? That seems sensible if you don't want any more market-risk exposure going forward. Withdrawing everything at once seems ill-advised because you'll get hit with high taxes unless your 401k balance is really small.
> Even right now a lot of people retire and then liquidate their 401k