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birb_cromble  1mo ago (text post)   1660 thread views

Weekly Finance Thread

Since a lot of us here have expressed interest in not starving to death in a gutter, I figured I'd start a weekly thread to discuss financial matters.

Ground Rules

  • Remember that we're all just Internet randos. Don't bet your life savings on a hot tip from this thread.
  • Keep culture war in the culture war thread. Yes, global events may impact our personal finances, but that does not mean we have to incessantly harp on culture war aspects here. If you are going to discuss it, please stick to the practical impacts of it on an individual level.
  • Be kind. Remember that everyone here comes from different circumstances. We all have different resources available and different risk tolerances.
  • Don't let the perfect be the enemy of the good. Better is better. Celebrate people when they take a step up and work to move their finances in the right direction. Don't flame out because they haven't followed what you consider the optimal path. Everybody has to start somewhere.
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US inflation numbers are looking pretty rough.

How do things feel on the ground around you? What are you doing to compensate?

Around me, I'm seeing price increases in groceries, but not as bad as some previous spikes over the last five years. I've scaled back my beef and seafood intake, and I'm buying more pork and chicken to pick up the slack.

The fuel shock has me driving less, and buying at my local Sam's Club instead of at whatever gas station happens to be nearby. It's not a huge part of my budget, but the fact that the price is highly visible as I go about my day makes the psychological aspect a lot more pressing.

I haven't noticed recent increases besides gas/diesel, which seems to be about $4.50/$6 around me.

About 4 months ago, most dry goods at the grocery store went up at least $1, with many of them going up $2 (there is only one grocery store, yay rural living). There has not (yet) been another big increase that I've noticed.

3.8% rate translates to about 0.3% increase in a month, which is small enough that I haven't noticed anything in particular. However, I've certainly taken notice of the gasoline prices going up to $4+/gallon (I think I saw $6+/gallon for diesel). I'm in a fortunate enough situation that I barely drive and my public transportation costs are subsidized by my workplace, so this hasn't affected my life directly, but I can only imagine how much gig economy workers are suffering, along with everyone who actually commutes via driving their own vehicles.

Let's say I managed to save up around 5000€. Is there any point in investing a sum that small? What if we also assume that another 5000€ join it every year?

Yes, it's worthwhile comparing to losing $ due to inflation

Invest - yes. Simplest investment is a savings account (not sure how they are called in Europe?) - you give your money to the bank, the bank pays you money for that. If you're not going to touch the money for a while, it's a no-brainer. But, of course, the profit you can gain this way is not large - in the US, for a short-term account (where you can take the money out anytime) it's about 3.5% per year, for longer terms may be more but not much. E.g. US Treasure I bonds now pay 4.26% but you have to keep the money there for a while (minimum 2 years). Certificates of deposit are offered by most banks and have varied terms and interests, but the idea is the same. If you limit yourself to respectable large banks, the risk is pretty much zero here.

The next step is stocks - here you can make more, on average 8% per year, and the simplest way would be to invest in a market-wide index fund. You should look for low-expense funds. With 8%, you'll more than double your money in 10 years. Of course, the risk is that stock market is volatile, so while on average it goes up, there could be long period - even years - when it's down. And unlike bank deposits, nobody guarantees you safe investment.

So, overall, yes, there is a point to invest money you're not using. How depends on your risk tolerance and time horizon. I'd avoid complex strategies until you understand them well, but even if you don't want to go into the weeds, it makes sense to invest at least in simplest ways. You would not make the maximum profit, but you would make some profit, which is better than just leaving the money to collect dust and earn nothing.

Is there any point in investing a sum that small?

I would personally say yes. Every choice you make with money is an investment; the only difference is the return.

If you're talking about equities specifically, it's a more qualified yes. Are you willing to lose it? Can you afford to let it sit there locked up in the market for years if the economy is flat? Can you think of a better use for it (eg: home down payment, paying off expensive debt)? If the answers to those are yes, yes, and no, it's usually a good choice.

To be very honest, I don't even know what equities is. Or are. I am, as they say, financially illiterate beyond "penny saved > penny earned".

My answers are

  • Willing to lose (entirely): No.
  • Can afford to let it sit: Yes.
  • Better uses: No.

Put simply, there are broadly two ways to invest:

  • Loaning somebody money who will pay you back (also called the credit market or debt market, sometimes casually referred to as bonds)
  • Buying a (usually) tiny ownership share in a company (equities, most commonly represented by stocks).

When most people talk about "the market", they mean common stocks or funds on public exchanges. It has historically offered the best long term return on investment, but it carries the most risk. Stocks tend to grow, but that's a trend that can't be applied with certainty between any two specific points in time. In a bad year (eg: 2008), you might see the face value of your investments drop by 50% and take several years to recover. If you pick individual stocks and you're very unlucky, every single company could go out of business and cost you everything. You can mitigate those risks by buying into funds, which are baskets of multiple stocks. They won't all be winners, but it spreads the risk at the cost of some potential returns.

No one is forcing you to sit through a full crash or the bottoming out process. Stoplosses exist. Always pre-define your risk.

Those can kill you by a thousand paper cuts. IMO risk management is better done with appropriate sizing and asset allocation. Things like stop-losses or puts add completely different risks and performance drags. And since 2010 a lot V-shape recoveries especially at the index level.

In some way you have to establish a positive risk/reward ratio that does not rely on luck. Everyone will have losing trades. Anywhere from 30 to 70 percent of the trades will be losers, depending on the criteria you have established, and the market cycle and skill and chosen method (daytrading and swing-trading is much harder to pull off with a decent hitrate than position-trading).

Depending on your hit rate, you'll need at least 2:1 or 3:1 bigger gains when you are right, compared to the losses when you are wrong.

A 33% drawdown will need a +50% increase to get that portion of your money back up. After -50%. you need a doubling. After -75%? You need 4x to get back to even. Forget about it. You really can't get into a habit of entertaining huge losers remaining in your portfolio.

I'm not saying that a hard stop at 10 percent is always the right one. It may depend on the wider environment and stage of the credit cycle and macro goings-on. If you know the sell-off is very likely to be temporary and not an indictment of your chosen companies, you can ride it out.

But you absolutely have to control the drawdowns in your losers somehow.

Choosing lower risk entry points with a higher probability of going up than down, is also a big part of successful investing. Learning the fundamentals of technical analysis is essential.

Honestly yes you can take large losses and be profitable. That’s something they lie to you about in the trading books. Many strategies do just fine with it.

But I think this conversation was more about investing than trading. The market often does do mini crashes (sometimes big %) then end up fully mean reverting and then going up. Someone investing their savings and not trading would be very poorly served with stop losses. We’ve had many crashes that then V-shape back up. The correct thing for them to do to manage risks is diversifying, maybe risks-parity, and keeping beta down to their risks tolerance.

Stoplosses exist.

That's the second step. The first step, when somebody is "financially illiterate beyond penny saved > penny earned", is to point out that the risk exists. Once that's done, you move on to how to deal with that risk.

You should not divide those steps into separate sessions because the first one will needlessly scare people away.

Is there a point in not investing that sum?

Commissions (trade fees) are pretty small these days. Pick a cheap online broker if you want to pick stocks yourself, or a cheap passive index fund (the annual fee can be absolutely tiny, like 0,1%).

Putting less than 500 in an individual stock becomes a bit silly, but with 5000 you can diversify somewhat (a handful of stocks) and still have it be worthwhile.

Can you recommend a good guide on how to get started with zero prior knowledge of investing?

Is there a point in not investing that sum?

Having it available in case some major household appliance breaks, or the car, or we need to organize a move.

Since I know that you are german, I'd recommend to get a scalable capital account ASAP and put the 5000€ into the Tagesgeld there to start with. It gives 2.5% with no volatility, no fees, minimal risk and full access to take it out any time. That helps serve as a good basic protection against inflation. There's probably similar options with Trade Republic and the like, but I'm not familiar with those.

From there, you can start trying out any of the other investment schemes others recommend here. From my side, I'd just invest a percentage you're comfortable with into a world ETF through a fee-less monthly plan.

https://www.bogleheads.org/wiki/Getting_started_for_non-US_investors

I looked up a newbie guide and skimmed through it for you. I've watched a few of this guy's videos before. He knows his stuff and seems honest.

https://youtube.com/watch?v=bqPSFw1eiNc

Watch the first hour. The rest is US specific tax stuff.

If you are going to become any good at this stuff though, there is no single guide that can be followed. Just like there is no single guide to becoming a doctor or any other profession. There is a lot to learn, and many sub-sections. If you are going to be an active investor with a good chance of success, you will need to read a bunch of books thoroughly and study for at least a few hours per week over a few years.

Having it available in case some major household appliance breaks, or the car, or we need to organize a move.

The emergency fund should generally not be invested. Definitely set alerts and/or stop losses if you do invest it. General advice: Investing without a pre-defined risk and a stoploss is like driving without any brakes. Investing 5000 does not mean you are actually risking the 5000. With a stoploss of 10%, and a catastrophic market crash of -10% in a single day, you will be getting out (if you have any sense) with a loss of 500. That, those -10 percent, is your risk. Always pre-define your risk and cut your losses short instead of freezing up with indecision.

I feel like playing with stoplosses and other advanced tools requires a lot of understanding, otherwise you'll implement the "buy high, sell low" strategy. For a person that doesn't know much about how it works, probably wide index hold would work better long term. If you get nervous and sell while down, and then when it goes up you're unsure it's really up until it's clearly very much up and then you get FOMO and buy - then you get sub-market returns.

General advice: Investing without a pre-defined risk and a stoploss is like driving without any brakes. Investing 5000 does not mean you are actually risking the 5000. With a stoploss of 10%, and a catastrophic market crash of -10% in a single day, you will be getting out (if you have any sense) with a loss of 500. That, those -10 percent, is your risk. Always pre-define your risk and cut your losses short

That's not at all general advice, that's typically considered a rather bad idea. Unless you're betting on single stocks you're not even that confident in, the market is going to recover from any fluctuations and you want to ride it all the way back up after any drops. General advice is to buy basic index funds and try to minimize how often you even look at them, trusting in the long run returns.

Having it available in case some major household appliance breaks, or the car, or we need to organize a move.

Do you have an emergency fund already set aside?

Anyone still here? I could use some help.

Through sheer laziness, I have accumulated a significant amount amoint of money in my bank account. I wish to invest half or more of it. I was initially considering a YOLO into Vanguard's S&P 500, but decided that a more conservative approach by buying into infrastructure related products would be helpful. I have strong expectations of near-term automation induced unemployment, and I suspect that AGI is only 3-5 years away. I begrudgingly pay into the NHS pension because it's a good pension, even if I doubt that it'll be of any relevance to me at 65. Not sure if should, but I do make some concessions to normalcy.

I have enough dough in the familial bank that I'm not exposed to catastrophic risk if my investments don't pan out, but I would appreciate advice.

No major expenses planned. No debt. No dependents.

The S&P 500 is pretty conservative. In over 15 years, the biggest drawdown was 20%. Even >10yr treasury bonds have more downside .

Didn't you say you got Claude 10x, why not just do some extended research, give it your thesis and ask for some companies. I find extended research to be helpful for analysing companies/investments, fitting your thesis to individual companies, researching them to see what they do...

20x. But it literally expired yesterday and I've settled or Pro. I did do plenty of research before that happened, but it's worth asking humans too. Possibly an accountant.

I'd love to help you, but I think you're going to need an EU person to offer suggestions. Investments vehicles aren't quite the same. I can try to offer some American advice on that.

I invested in XLU years ago as a conservative counterbalance to my growth funds, and it's been going nuts these last few years.

Thank you. It's precisely the kind of thing I was contemplating investing in, and I will note that I do wish to invest in the States, I just need to look more carefully into how hard that is from the UK.

I could use some investing advice. I have about $120k in Vanguard VTSAX and $100k sitting around in a bank account that I have no plans for at the moment. My goal is to be low effort and just sit long on it, since I'm lazy and just generally want it to sit around and not have to pay attention to it. Should I just buy more VTSAX? Are there better index funds I can throw my money in and get more returns long term? I don't want to have to actually pay attention to the stock market and buy and sell different things, but am not sure if I'm leaving money on the table by not knowing about XYZ fancy financing thing I could stick my money in.

I guess I’m moderately bearish. Maybe a little sell in May correction. So I think I would wait for a 10% correction to deploy.

Some funds I’ve come across that could be of interests is David Orr’s Militia Capital. Does long and short. A lot of Japanese value. It’s corrected. Has had solid performance since inception. It’s a younger fund but I think you want managers in their prime. They do burn out. So he probably has 10 years. Also Gator Capital always interested me some for financials exposure. I think you can take 10-20% of exposures outsides of just beta products. Bonds also look like a reasonable risks reward at 5% on 30’s. So you can probably put $50k of your cash into them now. If shit would hit the fan they definitely provide a good hedge to other exposures now. If QE was needed again you could get a lot of cap gains there.

I guess I’m moderately bearish. Maybe a little sell in May correction. So I think I would wait for a 10% correction to deploy.

You could be waiting for years, at which point you will be buying back at a much higher price than had you bought now.

Nothing I like more for being bearish than hearing markets will never go down. It’s been a big fast rally. And we are entering the most bearish time of the year. I feel find being on sidelines.

Last time we had a market talk some one said they were dumping all their spy and only buying oil stocks on war. Now oil indexes are down a few % and spy up 14%. My gut says oil stocks have more downside. Because of all the AI capex buybacks from tech firms have collapsed. Big IPOs will suck up capital this summer. I see a lot of market reasons for a correction.

I’m low on fomo. Usually sitting out the current thing and being patient has some value.

I'm going to wait for a correction

You could be waiting years

Nothing I like more for being bearish than hearing markets will never go down.

You must have a talent for hearing that, since that's not what the guy said!

It's extremely difficult to beat DCA by buying the dip.

Whatever that guy is selling is obviously false. Also noticed he doesn’t seem to pay interests to cash balances. I think it’s because he’s also not selling the rip. And the general upward trend of the market doesn’t guarantee the next dip is bigger than the average value over the prior time period.

I also never said just buy the dip. I said don’t buy right now.

Jane St made 17b last quarter. This place is filled with those types. There is an absolute ton of alpha in the market.

Whatever that guy is selling is obviously false.

Should be easy to show why and score a black eye on Big Dollar Cost Averaging.

I think it’s because he’s also not selling the rip.

Timing both the peak and the trough is significantly harder than timing just the trough though.

Also noticed he doesn’t seem to pay interests to cash balances.

True, but he's looking at S&P valuation corrected for inflation so I think that's implicitly assuming that cash reserves keep their real value.

Jane St made 17b last quarter. This place is filled with those types.

I don't think even this august forum is "filled with" some of the smartest people in the country. Also note that Jane Street employees 3500 people working together to make that money rather than lone forum posters. The odds are... Not great, even if you are a genius.

Should be easy to show why and score a black eye on Big Dollar Cost Averaging.

Trivial observation: If you have perfect information, your strategy should not do worse than one that ignores it.

There are two errors he's making1: He's buying when a drop is forthcoming, and failing to buy at a price that's the lowest it will ever be. The proper strategy looks like this. Every dollar buys the most shares that it would ever be offered (e.g. your December 1999 dollars will eventually be offered the 2009 price, so don't buy the microdip in January 2000. Your 2010 dollars will never get a better deal, so don't wait for 2012ish.).

I guess I'm more powerful than God? Feels weird.

1 If he was highlighting the mistake for other people instead of making it himself, I'd think he would show more analysis of exactly why it fails, instead of the raw fact that a flawed strategy can be bad.

He's buying when a drop is forthcoming, and failing to buy at a price that's the lowest it will ever be.

This isn't true - he's buying at the bottom between every pair of ATHs.

The point isn't that this is the best you can do with perfect information - the point is that even if you time each trough perfectly you still usually lose to DCA. More complicated strategies can beat DCA, but they are even harder to get right.

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To be clear I never proposed by the dip versus DCA. I kind of get his math. The key thing is he’s not always buying after a 14% 1 month rally. I proposed market timing which is not the same thing. MOST of the time DCA is better than buy the dip because equities usually go up, but it’s NOT always better. By claiming he had “perfect” information it implied he was doing a lot more trading. Then he threw together a backward optimized test with parameters that made his article look smarter. Obviously if you know every tick of the index you could absolutely crush basically every trading system. You turn $1k into a $1 billion in a year.

Jane St literally recruited off of this forum so I assume there are some lingerers.

The key thing is he’s not always buying after a 14% 1 month rally.

Sure. But he's buying at the trough between each ATH. "You can do better with perfect information if you trade more often" is not a rebuttal - in real life you don't have perfect information and having to make more perfect trades to beat DCA is harder than the outlined strategy.

Jane St literally recruited off of this forum so I assume there are some lingerers.

How? When?

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This is why I tend to DCA.

He’s correct DCA is quantitatively bad. If equities have a positive risks premium then DCA just means you invest later.

This is different than having positive market timing. I’m bearish now but DCA in general is an inferior strategy. Its main benefit is psychological since if you do it over time your less likely to be sitting on a loss even though on average it produces lower returns.

If you have a big pile up front you're right, but I do it each month as I earn the money.

Fair. I guess it’s used in the same way in the vernacular. You are just fully investing as you earn money.

If I were a financial advisor and someone came to me who just won $5m on the powerball there would be a lot of psychological reasons to DCA. Primarily me not getting fired if market goes down. If market goes down I can sell that now they get to buy cheaper. If market goes up they are happy about making money.

even then you end up missing out. research shows if you have any $ the optimal strategy is to go all in

I do it every month from cash flow, so it's not like I'm losing out much. I don't have a lump sum to sit on.

VTSAX isn't a bad choice. If you really want to forget that it exists, you may want to look at VT for international exposure, or a target date fund if you want to build up some bonds over time.

Personally I'm getting into the upper 6-figures now with VTSAX only, with the total amount from returns about to catch up to my total contributions, with my vanguard account 'personalized rate of return' now over 15% nominal since starting in 2017. I've assumed that probably after 1 or 2 mil, I would think about being more defensive with extra diversification, but maybe not.

It just seems hard to beat US index funds when it comes to getting the most out of confidently throwing a lot of money into investments you don't even have to look at or think about. I'm very appreciative that "VTSAX and chill" was the meme in the FIRE community, who are people who have an interest in actually making the most amount possible without resorting to gambles. A lot of other advice comes from people who have some need to cover their ass, so they'll hedge and try to be prudent suggesting bonds and/or international equities. As for the other side, the intuition that 'index fund advice is for average normie sheep, if you're smart you can beat the market', I'm just happy I don't have that itch because I think it's ruinous with way more losers than winners in the long run.

I'm also sympathetic to people who don't have the incomes or savings rate in order to start socking away enough money for index funds to feel impactful. I think that's where there's more of a sense of 'missed the boat' hopelessness and a felt need to gamble for an initial win to jumpstart/catchup into the index fund 'chill' game.

There's no such thing as investing lazily while achieving absolutely optimal result. If there was, everybody would be investing in exactly the same thing and it would be the only option recommended by anyone who is not a crook. However, the reality is if you take more risk, you can earn more reward. Or not. That's why it's called risk.

If you just want to park the money somewhere and forget about it while it is gaining value in lockstep with the market, a wide market index fund is the way to go. Compare which one charges least expense and follows the index most faithfully and just park there. Vanguard has pretty good offerings in that area, with very decent expense ratios.

However, as it will raise with the market, it will fall with the market. Broader portfolios, incorporating more asset classes (bonds, gold, resources, even cryptos if you're into that), may provide better long-term returns due to being more robust against volatile markets. On the other hand, you may use more risky but potentially more rewarding narrower strategies - like, investing everything in AI companies only - if it works out, you can make enormous profits, but it also can go bust very easily. I don't think a thing where you can get more reward with the same risk profile can exist long term in the market - if it pops up, people will start buying it, and drive the price up, thus diminishing the potential reward, until it will be roughly the same as other things with the same risk profile. Of course, people can be mistaken in determining the risk profile - but so could be you.

I'd say if you don't want to get too deep into it, and if you are not going to need this money anytime soon, and you plan to HODL regardless of what the market does today, then index fund is not a bad option. Another option may be a target date fund, if you know when you'd need the money, which provides more balanced portfolio so you won't find yourself forced to sell in the market dip because you need liquidity now. Do not be tempted to "keep up with the Joneses" and seek seemingly more profitable investment, unless you understand why it is more profitable and what risks you are taking there. Yes, you may leave some money on the table this way. Better than leave all the money on the table if something goes wrong.

VTIAX, maybe? AKA "rest of the world", since VTSAX is US market only? Not necessarily more returns, but the global market does sometimes outperform the US market, and that bit of diversification isn’t a bad thing.

If you don't mind EFTs instead of mutual funds, you could always go VT, which is VTSAX + VTIAX -- aka "the entire global market in one fund". Minimum effort, maximum diversification.

Financial adjacent question, I guess: I'm expecting to make a large purchase via credit card (and pay it off immediately). If I'm not much of a traveller, how worth it are some of the fancy credit cards with massive sign-up-bonuses (and then cancel after a year to not pay the next annual fee)? I have no interest in churning, merely taking advantage of a rare large purchase.

Yes, this can be quite lucrative. BTW Chase Sapphire Reserve is running a pretty large promotion now, which can get you about $3k value in bonuses if you play it right (and if they accept you) at the price of $795 annual fee. So, over $2k pure profit (I don't even think it's taxed? Not sure). Plus you get all the goodies they provide for a year, and then you can cancel. These things are absolutely worth it, if you play them right. The catch is: you need to have the excellent credit, Chase would not allow you to do it too often (look up 5/24 rule) and only once per card usually (though some forget about it in 3 years or so) and of course you need to make the minimal spending ($6k for CSR, higher for more lucrative cards like Amex Gold and Platinum), and of course you need to have the discipline to pay it off in time, never overspend and cancel in time when it stops working to your advantage.

Depending on how big the purchase it and how good you credit report is, there might be even more profitable offers around. Absolutely worth it and can get you thousands of dollars in direct or indirect (e.g. miles or points) bonuses. Of course, you need also to be able to use it - e.g. Chase points are great when used for travel, but you need to actually travel for that, if you never travel, you don't get the benefit. I travel almost every month, so for me there's a lot of use in such offers.

Credit is excellent (848 Experian; 825 VantageScore); purchase is ~10k. I looked at the AmEx Platinum since they're willing to give you an offer prior to a hard credit pull, and it was only 100k points, which barely seemed worth it. I'm leaning towards going for the CSR.

Amex is great in that regard that they'd tell you upfront whether they'd play and how much it will be, but all these offers are highly variable, it's not unheard of to have targeted or temporary offer for double the usual and then go back to the normal figure in a month.

Very worth it. Credit cards are tools for massive wealth transfer from the incompetent to the competent. Capital One actually reject me recently which after some light research, it's likely because I won't be profitable (in interest and fees) for them. There is usually one or two purchases a year that it's always worth it to open a credit card for. For example opening a Hawaiian Airline credit card to get highly subsidized flights due to the Sign On Bonus (SUB) to Hawaii that year for example.

I won't be profitable (in interest and fees) for them

I have never paid interest or fees in my life (except for annual fees of course) and I have a couple of dozens of cards, and never been rejected or heard about anybody rejected for this reason. Of course, you can never know, but I think there's another reason. Recently having and cancelling similar card from the same provider, or having too many new cards recently could be it. I am sure credit card vendors are well aware of churning and they are largely ok with it, of course they'd prefer to make more money but I haven't ever heard of a policy to reject well-qualified applicants because they're not going to pay interest.

same, I was surprised too. But I searched it up and looks like it is a known Cap1 behavior. It would have been my first card with Cap1, and the first one I signed up for in a while. though maybe now you say it, i wonder if the bilt card changing did anything.

This stock market rally has been insane. I think this is the greatest increase in a 1-month period ever, a 180 degree reversal of sentiment from panic 1.5 months ago over Iran to now euphoria even as oil prices remain high.

There is a possibility that the market pricing in AGi/takoff...in other words, this is really it. To invoke the meme, "it's happening". What will happen is the stock market will go vertical, something like 50-100% gains in a year for 3-5 years in anticipation of massive gains in productivity and earnings due to AI, which will be reflected in earnings reports later. So stocks will temporarily be wildly overvalued until the productivity wave hits.

One way to play this, which I am running now, is a two-pronged strategy: invest in something like a mix of leveraged S&P 500/nasdaq indexes funds (e.g. QLD, SSO) and then a small fraction out-of-money SPY call options.

So I may buy SPY call options that expire at $860 in 5 months at $100/contract. This is 17% out of money. If the S&P 500 continues its current trajectory for the next 5 months, this is a target of $1062 .This works out to a profit of $20,000 per contract. It's like a lottery ticket , but with much better odds. I think most people would agree, even AI skeptics, that AGI is much more probable than winning the lottery.

Many industry experts agree that there will be some AI phase or paradigm shift, if it hasn't already happened. If this means GDP and earnings forecasts have to be ratcheted upward for the next decade or longer, of course this will be reflected in stock prices. Even going from only 3% to 6% real GDP growth or 10% to 20% margins , when compounded over decades, implies a huge revaluation of stock prices that will be nearly instant.

IMO higher productivity doesn’t always lead to higher profits. Depends on pricing power. Shale oil has always been my favorite example for this.

That's a bold theory, and it will be interesting to see if your strategy pays off.

I'm of a somewhat different mindset. My personal experience is that we're not seeing the automation gains we expected, the friction involved in scaling is eating into the capability gains, and the hype may have been premature.

Current market behavior looks more like a melt-up to me than anything predictive, and practically speaking, where else would people put their money right now? The federal funds rate has been in the shitter more often than not for a quarter century, so treasuries aren't a great option. Commercial debt took an absolute ass-pounding in 2022, and this year's refinancing cliff could hit it just as things were recovering. Preferred stock is all over the place. Dividends have been kind of shit because of the tax treatment compared to capital gains. All that's really left is capital appreciation on equities, and that needs a pretty significant growth story to justify the risk. Luckily, AI is a great story.

Given all that, I've been tilting into value funds lately. Avantis has one that I rather like.

That would just be trying market-timing/trying to outguess the market. No need to get fancy when you can just HODL the market.

The SPY return from the recent bottom on March 30th was about 16.7%, which is a solid haul for 29 trading days (from me manually counting). However, the historical annual volatility of the S&P500 is about 19% which means a 29-day has an expected SD of about 6.5%. Thus, a 16.7% return would be expected for about 1 in 200 independent randomly selected 29-day periods. Rare, but not unthinkably so—one could expect to see 2 or 3 of them over their investment lifetimes. Plus, stock returns tend to be thick-tailed and I selected this 16.7%, 29-day period retrospectively with the benefit of hindsight, so this is already a rigged experiment.

A less cherry-picked selection of March ME to April ME already drops the SPY return to a still impressive but-much-less-so 10.51%. You'd expect to see such a result or higher about every 1 in 20 months.

I myself have a sizeable allocation to leveraged ETFs, but I've long held leveraged ETFs as it was part of my planned investment glidepath. I'm trying to reduce my LETF exposure, as they've well-exceeded my planned allocation given the market run-up. My net worth to income ratio is making this rather difficult, though, as I've already cleaned them out from my tax-advantaged accounts and I refuse to sell positions with large capital gains from non-tax-advantaged.

Yeah it's a long shot, but if the AGI narrative is true, then I think it's possible. Imagine the S&P 500 goes up 20-30% in 3 months. I would be beating myself up for not buying those contracts for $100. I have already acted by putting $ in 5-month contracts and more in 900+ day SPY contracts in anticipation of either rapid or slower "takeoff". This is only 1% of my total account value, but the upside is 300x or more, so I see it as a positive EV. I can easily hedge out the 1% with selling index puts or bonds.

The rest of the $ is in the usual index fund mix, but then there is the lottery play of OTM calls when AI AGI FOMO takes over. If AI is once in a lifetime technology, we could see a once in a lifetime or ever rally.

Oh, good timing, I just crossed a very large milestone in my portfolio today. A few questions:

  • What do you think the chances are that we are currently in a large (AI related or not AI related) bubble that will pop? It seems like the money printing of the past few years has massive upward pressure on the stock market so I don't know how to unpick the two.
  • I have always been a saver and live fairly frugally. But I am itching to increase my standard of living with some of my invested money. At what number in USD would you personally be comfortable beginning to draw down, say, 4% of your portfolio a year to increase your standard of living sustainably?
  • It seems like I am outpacing the rate of inflation with my investments. For example I have doubled my money in 4 years, whereas I am not paying nearly 2 times as much for gas or groceries or restaurants compared with 2022. And it seems like inflation is much slower at the lower end of prices- for example goods at thrift stores or antique stores seem to be retaining low prices while things like houses and fine art are exploding in valuation. Do you think it's likely to stay this way in the US for a while or do you think the inflation will be coming for lower priced goods as well?
  • Do you think it's too late to buy bitcoin or is it still wise to buy it today? I have only like $2000 worth of bitcoin because I never found it very appealing or interesting but I can see its use in hedging against fiat currency debasement and many people smarter and richer than me are still interested in its success.
  • The older I get, the more I have access to but the less I want. I have already satisfied most of my needs and desires from my youth. How do I generate more desire within myself as I grow older? (I am in my mid thirties if that is relevant.)

What do you think the chances are that we are currently in a large (AI related or not AI related) bubble that will pop? It seems like the money printing of the past few years has massive upward pressure on the stock market so I don't know how to unpick the two.

Between 0 and 1 probability. In other words, who knows. (I think it's not). But this is irrelevant , imho, because the market has gone up so much, and stands to keep going up even more, that even if it were a bubble and does pop, you may still be missing out by not buying now, as no one knows where the top may be. People who thought home prices were overheated in 2013-2014 or waited for lower prices after Covid, were either forced to rent forever, sit on sidelines forever , or buy at a much higher price. If the Nasdaq gains another 30% this year and 100% within 2 years, you would need a pretty big crash to undo just those gains, so we're talking a once in 15-50 year event. I do not like those odds. I would rather just hold my nose and buy, accepting that market is possibly overvalued, but also that I will not get a better price either. Overpay now or regret later.

It seems like I am outpacing the rate of inflation with my investments. For example I have doubled my money in 4 years, whereas I am not paying nearly 2 times as much for gas or groceries or restaurants compared with 2022. And it seems like inflation is much slower at the lower end of prices- for example goods at thrift stores or antique stores seem to be retaining low prices while things like houses and fine art are exploding in valuation. Do you think it's likely to stay this way in the US for a while or do you think the inflation will be coming for lower priced goods as well?

This is why the stock market is so great for wealth creation and inflation hedging, even compared to collectibles, cars, etc. Only MTG & Pokémon cards have outperformed the stock market long term. I am not sure about art--not much liquidity, lumpy markets and possible manipulation.

Do you think it's too late to buy bitcoin or is it still wise to buy it today? I have only like $2000 worth of bitcoin because I never found it very appealing or interesting but I can see its use in hedging against fiat currency debasement and many people smarter and richer than me are still interested in its success.

You're too late by 8 years. Stocks are clearly better.

Oh, good timing, I just crossed a very large milestone in my portfolio today.

Congratulations! While I did not hit a large milestone or anything, I did hit a new net-worth PR on Friday thanks to another good day for equities. I imagine many are in a similar boat.

What do you think the chances are that we are currently in a large (AI related or not AI related) bubble that will pop? It seems like the money printing of the past few years has massive upward pressure on the stock market so I don't know how to unpick the two.

Me looking at a bubble in the elevator: "I don't think about you at all." Bubbles are only identifiable ex-post. Best to just stay the course with whatever you're doing instead of trying to time the market or outguess it. Investing at all time highs yields similar results as all other days.

I have always been a saver and live fairly frugally. But I am itching to increase my standard of living with some of my invested money. At what number in USD would you personally be comfortable beginning to draw down, say, 4% of your portfolio a year to increase your standard of living sustainably?

4% might be a bit aggressive. Many recommend 3% instead for greater safety.

You can always start off slow by just stopping contributions and spending all your earned income, and reinvesting dividends/coupons to see how it feels. Then move on to spending earned income and any distributions instead of reinvesting. This would be to avoid triggering capital gains taxes. Then the final boss is actually starting to sell down your positions, capital gains be damned, and withdrawing.

it seems like I am outpacing the rate of inflation with my investments.

I would hope so! That's the whole point of investing in anything riskier than government inflation-linked securities.

Do you think it's too late to buy bitcoin or is it still wise to buy it today?

Buy bitcoin if you desire cryptocurrency exposure in your investment portfolio, don't otherwise. No ones really knows where the price is going. Today's a good a day as any to buy if you want that exposure. I personally own only a trivial amount of BTC for buying things from... alternative vendors.

The older I get, the more I have access to but the less I want. I have already satisfied most of my needs and desires from my youth. How do I generate more desire within myself as I grow older?

Marry a spendthrift or someone who likes keeping up with the Jones's and you'll never have to generate such a desire yourself! Hooray!

What do you think the chances are that we are currently in a large (AI related or not AI related) bubble that will pop?

The last few tech-related meta cycles have both changed everything and not consistently boomed or busted from a stock price perspective. Personal computing in the '80s took over everything, but even Apple's stock has been up and down and looked like a loser before Jobs returned. The Internet around 2000 looked like it would change everything --- and it did --- but my pets.com shares were a bad idea.

I'd bet AI is similar, and picking a specific single winner is improbable. Weak predictions: local models can do most of what people want; big models don't scale much past human abilities, but enough to be game-changing; AI doesn't think truly creatively well enough to replace human cultural achievements, but it's consensus-centering output may be a pragmatic counterbalance to rage-seeking social media algorithms.

I'd bet AI is similar, and picking a specific single winner is improbable

Wasn't that kind of the issue with early railroads? They wound up being transformative, but a great many of the early companies and frontrunners didn't do well?

  • I personally think we're in a bubble, but I don't know if it will pop, or we'll have a flat decade as the market digests current valuations.
  • Retirement planning suggests that 4% has a 90-95% chance of carrying you through 30 years of your investments covering your entire lifestyle. So, given that, I'd start withdrawing when I was in my late 60s or when I had genuine Fuck You money.
  • I think that current world events are going to hit a lot of lower cost goods. Petroleum products are an input into nearly everything these days, either directly or to move materials.
  • I can't speak to Bitcoin. I personally think all of it except maaaaaybe Ethereum is insane, but the market clearly disagrees.
  • Is reduced physical wants a bad thing? As I get older, I find a lot more value in human connections. If you have the money, use it to buy time and participate in your community. See if you can find somebody to mow your lawn and use that extra hour each week to volunteer, engage in the arts, etc.

As one further bit of commentary, you say

It seems like I am outpacing the rate of inflation with my investments.

I would be careful with that. If you're in your mid thirties, there's a decent chance you've never been financially active in a true down market. 2008 was awful. It didn't matter what inflation was, because everything was down 20-50%. Sequence of returns risk is scary if you ever have to withdraw in that kind of environment.

I am 20 years older than you and would increase my standard of living by reducing current saving vs pulling from investments. Before I did that I would ask myself if we were entering a decade where I saw no increase in net worth would I still feel my investments were sufficient for my plans at the end of that decade.

If I lost my job now I would be fine for the rest of my life and likely be in a position where growth in investments exceeds my living costs. & I only need to consider another 40 years of life. I would still be cautious about increasing my living costs because once you do buy really nice yarn it can be hard to go back to the affordable stuff. But you can be perfectly happy if you never stop limiting yourself to the affordable stuff. OTOH while I also like nice tea, it's something I only indulge in on rare occasions and I am fine with the cheap stuff on the daily. If we entered a lost decade I would mourn my yarn and not think twice about my tea. (I do buy nice yarn - out of current income. I might pull from savings for a once in a lifetime experience but I would prefer to save up for it out of current income if I had the time to do so.)

So... What do you want that would require you to supplement from savings rather than current income? If you lost your job how much of a runway do you have? If your investments had no growth for a decade could/would/should you stop pulling from them during that time? If you needed to drop back to your current living standard how hard would it be? Could you do an experiment without locking yourself into a dependency? You have 60-70 years of remaining life to play with it. It's a tough balance.

What do you think the chances are that we are currently in a large (AI related or not AI related) bubble that will pop? It seems like the money printing of the past few years has massive upward pressure on the stock market so I don't know how to unpick the two.

Betting against AI will make you broke, betting for AI will make you broke. Staying away is the smartest thing so far. Take Deepseek - they did magic with inference and the model is next to free now. I use it as daily drivers for heavy coding sessions and it is essentially free - I can barely burn trough 1$ daily. Even if they increase the price - I guess I will have the same USD consumption after 31st of may because flash is just a gem. With china compute ramping up and open models being so close behind the closed ones - the margins that Anthropic and OpenAI expect are just not there.

On the other hand - the technology is transformative. I don't think that there is a single programmer left that doesn't use AI heavily - even the holdouts grudgingly started to admit that latest models are better than juniors. I expect tokens to end up like electricity and oil - ubiquitous, affordable, metered by consumption but absolutely commodified with a mix of locally and remotely running models.

My current investment thesis, while still recuperating capital after selling most of my portfolio for a house downpayment, is a mix of ETFs and mutual funds. I really like this SHLD ETF I found which is all the major international Defense companies. My theory is that as we move to a multipolar world, weapon sales will go up. I just don't feel like tracking individual winners, especially since the Defense Industry in general has a lot of graft.

I invested in Intel over a span from 2021 to 2024 with the thesis that Pat Gelsinger would turn them around, and also that some powers that be would realize we shouldn't keep all our chip fabricating eggs in one basket off the coast of China. I ate shit on that thesis for 5 long years of continuously losing money.

I'm up 300% of of today.

And this is why I go long and don't fuck with contracts.

Also, I doubt it's going to stick, so now I'm considering my exits.

Intel granny, is that you?

so now I'm considering my exits.

That's probably smart.

Stuff like this is the same reason I don't buy individual stocks anymore.

The hardest part I feel is starting to save. The gapping maw of the future will be those who saved and invested and those who did not. This future inflation will crush future retirees. The current bull run of everything going up has spoiled a lot of new investors and honestly still looks like it has steam to continue to me.

My strategy is to split between index funds and ETFs and also buy some individual stocks I like or want to track. For funds I mainly check fees and past performance, for stocks I see whether they're making money.

For my stocks I'm heavier into Tech and much heavier into American companies. I only recently added an international index fund because of Hormuz, which might be backwards thinking.

For my stocks I'm heavier into Tech and much heavier into American companies. I only recently added an international index fund because of Hormuz, which might be backwards thinking.

Most investment advisors recommend having some international exposure. How much do you have?

My current is held is low like 1% of total invested things in an international index, but I've added it to my 401k and HSA elections at about 25% so it will increase as the year goes on.

Approving this instance.

Not sure if we need another repeating thread…was there something wrong with (Financial) Wellness Wednesday?

May I suggest Market Mondays?

No one associates the Wednesday thread with 'financial wellness'.

It's filled with everything else and rarely anything about investing etc.

I suggested Saturday for this stuff, because that's the only day that isn't taken on this forum.

Shit. It's Friday and not Saturday, isn't it?

I feel like a dumbass now.

Haha!

That's kinda cute.

Nice points in the OP tho.

It felt like the Wednesday thread was getting a little overloaded and turning into a general grab bag.

If you'd prefer it there I'll gladly accept that.

We’re discussing it.

For now, carry on :)

I mentioned a while ago that I've gotten into fixed income investing.

I'm trying to fill some of the gap between treasuries and equities in my portfolio, and so far that's going alright. Calculating whether a fund is worth the risk premium is tricky, and one where I'm currently striking out a little is JSI.

Since I bought it, I'm up 0.38% on total return because of the distributions, but the share price is down very slightly. In an attempt to understand why, I've been learning about something called "extension risk". Since JSI is mostly mortgage backed securities, it tends to lose value in an environment like this one, where a lot of people are holding onto their mortgages for dear life because refinancing or buying a new home might double their cost of living.

I probably won't increase my holdings in this fund, but I probably won't sell it for now.

I don’t think extension risks is the main reason it’s down. I doubt those assumptions have changed much. It’s just rates higher leads to lower price.

The big issue with this product is if we would hit a crisis you won’t get big cap gains on QE again. Since then more people refinance. The benefit is you get higher yield. So if you wanted to bet on henta virus leading to lockdowns then you would prefer treasuries.

Share price of fixed income will always go down slightly when the market is rising. The share price isn't what you care about, it's the monthly dividend.

I have a few other funds that are flat or appreciating though. I understand the rule of thumb, so I thought it was odd that JSI and only JSI was falling.

@thejdizzler @Sloot @TowardsPanna @FtttG

You ask and I deliver.

May need to ping a moderator; it's showing as Deleted By User for me.

Same.

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