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birb_cromble  4d ago (text post)   1364 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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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?

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.

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.

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