Investment and/or Personal Finance

I'm realizing a little bit why the government likes 401ks so much. For one thing, it encourages people to save for retirement (less use of social welfare programs). But also, it shifts income into retirement. You end up paying tax on your 401k distributions while you're not working, and that smears out government revenue in a budget-friendly way. To an extent, you get to control what tax bracket you're in, by taking 401k distributions right up to the next tax bracket. And that helps manage tax burden in retirement. At the same time, the government gets to force you to take distributions and pay taxes at a certain rate, which smooths out revenue.

I think a mistake that a lot of people make is not drawing down their 401k aggressively enough early on. Initially, you might be getting a return on your 401k that exceeds the rate that the government mandates that you withdraw funds. People then try to avoid taxes in the short term by keeping that balance high. The downside of this is that you're forced into a higher tax bracket later (and taxes go up). As the account balance goes up, and age goes up, mandatory distribution quantities increase. Eventually you might be forced into a tax bracket you never wanted to be in in retirment, all because you didn't draw down fast enough when you didn't need to.
 
I'm realizing a little bit why the government likes 401ks so much. For one thing, it encourages people to save for retirement (less use of social welfare programs). But also, it shifts income into retirement. You end up paying tax on your 401k distributions while you're not working, and that smears out government revenue in a budget-friendly way. To an extent, you get to control what tax bracket you're in, by taking 401k distributions right up to the next tax bracket. And that helps manage tax burden in retirement. At the same time, the government gets to force you to take distributions and pay taxes at a certain rate, which smooths out revenue.

I think a mistake that a lot of people make is not drawing down their 401k aggressively enough early on. Initially, you might be getting a return on your 401k that exceeds the rate that the government mandates that you withdraw funds. People then try to avoid taxes in the short term by keeping that balance high. The downside of this is that you're forced into a higher tax bracket later (and taxes go up). As the account balance goes up, and age goes up, mandatory distribution quantities increase. Eventually you might be forced into a tax bracket you never wanted to be in in retirment, all because you didn't draw down fast enough when you didn't need to.

How @Danoff sees the United States Government:




Please don't interpret this to mean I think you are wrong. :lol:
 
German small savers hit with negative rates

A co-operative bank has become the first German lender to pass on the cost of negative interest rates to new retail customers with small deposits, in the latest sign of how the European Central Bank’s policy is upending the country’s banking sector.


(I wonder how many other banks will do this?)
 
Have been looking more seriously into buying a home. Been looking at one in particular in the $600k range and good lord interest and property taxes are a lot. I had this notion that while they would be significant, I would be doing better as compared to rent. Afterall, the mortgage payment I was calculating was less than my rent. But then I discovered the property tax in the area I was looking was a stonking 1.4%. Putting that into my spreadsheet (and adding HOA fees - it's a townhome - and PMI - yeah, not gonna put down 120k), I would actually have more unrecoverable costs with buying a home at that price point than I would renting. Yes, I would be building equity...but I would be, financially speaking, better off by remaining in my rental and investing...well if the stock market wasn't currently imploding - that is to say the home value would be appreciating at a slower rate than the stock market, probably. All in all it's a big bummer. On the other hand, my prime motivation for wanting a house is to...have a house and it would be a monumental upgrade over my current situation. :indiff:
 
Have been looking more seriously into buying a home. Been looking at one in particular in the $600k range and good lord interest and property taxes are a lot. I had this notion that while they would be significant, I would be doing better as compared to rent. Afterall, the mortgage payment I was calculating was less than my rent. But then I discovered the property tax in the area I was looking was a stonking 1.4%. Putting that into my spreadsheet (and adding HOA fees - it's a townhome - and PMI - yeah, not gonna put down 120k), I would actually have more unrecoverable costs with buying a home at that price point than I would renting. Yes, I would be building equity...but I would be, financially speaking, better off by remaining in my rental and investing...well if the stock market wasn't currently imploding - that is to say the home value would be appreciating at a slower rate than the stock market, probably. All in all it's a big bummer. On the other hand, my prime motivation for wanting a house is to...have a house and it would be a monumental upgrade over my current situation. :indiff:

Property tax sucks. I take it you're already capped out on your SALT deductions? Property tax on your main place is tax deductible up to the cap. Also, your mortgage interest on your main place is tax deductible up to $500k of mortgage.

The tax deductions make a massive difference.

Keep in mind too that a loan is essentially free, and a good hedge against inflation (and terrible with deflation). So for example, if you borrow $400k at 3% and inflation marches along at 3%, your loan is free.

PMI is also not necessary for $120k down on $600k.
 
Property tax sucks. I take it you're already capped out on your SALT deductions? Property tax on your main place is tax deductible up to the cap. Also, your mortgage interest on your main place is tax deductible up to $500k of mortgage.

The tax deductions make a massive difference.

Keep in mind too that a loan is essentially free, and a good hedge against inflation (and terrible with deflation). So for example, if you borrow $400k at 3% and inflation marches along at 3%, your loan is free.

PMI is also not necessary for $120k down on $600k.

Maybe my math is wrong, but I'm calculating an annual tax + annual interest payment of ~25k. This gets a bit confusing, but with I and my partner filing jointly (though, we probably wouldn't), it works out to be about $1400 over the standard deduction. Taking the top marginal rate of 22%, this works out to be about $300 back vs the standard deduction, not significant. I think you misunderstood about PMI. I'm looking at about $90k down. PMI seems to be a fairly marginal extra expense that would phase out around ~24mo into the loan. Not worth depleting my savings to avoid it, IMO.

It's frustrating because California is actually on the low side on a statewide average basis for property tax rates. They're typically around 0.8 in the state. It's just this particular city has very high rates (I think they are funding various capital projects...it's a pretty marginal city that is trying to improve their image). It basically makes the property as expensive as an $800k property in other towns nearby.
 
Maybe my math is wrong, but I'm calculating an annual tax + annual interest payment of ~25k. This gets a bit confusing, but with I and my partner filing jointly (though, we probably wouldn't), it works out to be about $1400 over the standard deduction. Taking the top marginal rate of 22%, this works out to be about $300 back vs the standard deduction, not significant. I think you misunderstood about PMI. I'm looking at about $90k down. PMI seems to be a fairly marginal extra expense that would phase out around ~24mo into the loan. Not worth depleting my savings to avoid it, IMO.

Yea for your numbers the mortgage don't make the tax incentives that great.
 
Yea for your numbers the mortgage don't make the tax incentives that great.

Tax Cuts & Jobs act kind of gutted the usefulness of both SALT deductions and Mortgage deductions. Oh well. Bleh. Again, it's good to be obscenely wealthy, less good to not be.
 
Tax Cuts & Jobs act kind of gutted the usefulness of both SALT deductions and Mortgage deductions. Oh well. Bleh. Again, it's good to be obscenely wealthy, less good to not be.

It can still make sense to buy.

I'm in the real-estate market at the moment as well. But I think that the next few months are going to be very interesting for real-estate, so I don't think I'd be buying until the fall at the earliest.
 
It can still make sense to buy.

I'm in the real-estate market at the moment as well. But I think that the next few months are going to be very interesting for real-estate, so I don't think I'd be buying until the fall at the earliest.

Vacation home? Warehouse for all your E30s?
 
Rental.

One thing to do is to not count mortgage principal against buying. As I mentioned before, inflation (or deflation) is also a huge factor.

Right. I'm comparing only unrecoverable expenses.

However, even mortgage principal is an opportunity cost. If you expect to earn just above inflation on your equity, you have to compare that to the money you could have invested in stocks or other investments, which typically (though volatile at the moment) would outpace the equity appreciation of the home. It's probably a marginal amount and for-naught if you don't actually invest that money anyways (like me, because I'm saving for the down payment!). I wish somebody would give me about $600,000. My problems would be over!

On the subject of rentals...that could be risky..depending on your market. In San Francisco and Silicon Valley rents have plummeted this month. This has not happened in the 5 years I've lived here. Granted, this could easily be a unique condition due to the abundance of tech workers who can now work from home for the forseable future (therefore just not live here) AND, I suspect, a ton of air b n b hosts putting their vacant listings on the market as traditional rentals thereby flooding the market putting downward pressure on prices.
 
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Right. I'm comparing only unrecoverable expenses.

However, even mortgage principal is an opportunity cost. If you expect to earn just above inflation on your equity, you have to compare that to the money you could have invested in stocks or other investments, which typically (though volatile at the moment) would outpace the equity appreciation of the home.

House equity is typically automatically inflation adjusted already, whereas stocks may not be.

It's probably a marginal amount and for-naught if you don't actually invest that money anyways (like me, because I'm saving for the down payment!). I wish somebody would give me about $600,000. My problems would be over!

You and everyone else.

On the subject of rentals...that could be risky..depending on your market. In San Francisco and Silicon Valley rents have plummeted this month. This has not happened in the 5 years I've lived here. Granted, this could easily be a unique condition due to the abundance of tech workers who can now work from home for the forseable future (therefore just not live here) AND, I suspect, a ton of air b n b hosts putting their vacant listings on the market as traditional rentals thereby flooding the market putting downward pressure on prices.

Yea, that's partly what I'm looking to capitalize on.
 
$14 Trillion in reparations, that's what is needed to solve our problem. If money is so easy to print, why not? If this will solve our essential problem underlying all the others, why not?
Robert Johnson, founder of Black Entertainment Television, told CNBC on Monday the U.S. government should provide $14 trillion of reparations for slavery to help reduce racial inequality.

The wealth divide and police brutality against blacks are at the heart of protests that have erupted across the nation following last week’s killing of George Floyd during an arrest in Minneapolis.


“Now is the time to go big” to keep America from dividing into two separate and unequal societies, Johnson said on “Squawk Box.”

“Wealth transfer is what’s needed,” he argued. “Think about this. Since 200-plus-years or so of slavery, labor taken with no compensation, is a wealth transfer. Denial of access to education, which is a primary driver of accumulation of income and wealth, is a wealth transfer.”
 
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@Eunos_Cosmo

On the subject of housing as a financial instrument... it's so damned complicated.

The stock market is based on almost nothing. There is a floor to the price of stocks that is upheld by the ability to purchase the company in a hostile takeover, and the ability of the company to offer a dividend. For a company that does not post a profit, that second one may be nil. Other than that, and the actual yield on the price of the stock (dividend), stock is speculation.

Housing offsets rent. Although the cost of repairs and property tax might eat into the offset by a good bit. It also comes with a great deal of luxury that renting simply does not. You (for the most part) get to stop moving, stop chasing a better rental situation, know that at the end of your lease term you're not dealing with a huge increase in rent, or a landlord that no longer wishes to rent and kicks you out (this happened to me). You can customize the property, and this is unbelievably satisfying. So there are a lot of non-financial benefits to owning, but primarily owning the house offsets rent.

You can speculate on the price of housing (like stocks), although housing is a significantly less volatile market than stocks, so the speculation game is a good bit more boring. I think right now is actually a decent time to be speculating though, and while I don't see a big potential for drastic price increases broadly in the US, I do see potential for some negative movement. One other consideration is that housing is a bit like gold, but more like how people think of gold than gold actually is. Gold tends to be fairly volatile, people flood to it when times are tough thinking it's safe. But the price of gold is wildly speculative, whereas housing has more immediate utility and a fair amount of "stick" when it comes to the ability to sell it in a panic or buy it in a panic. As a result, a house is "real" gold if you will. Also you can insure it (I hope you included home insurance in your calculations... earthquake insurance in CA is going to kill you if you get it, or not, either way). So housing is a great hedge against inflation.

So that's housing. There are some niches for housing, like specialized rental markets, and new construction. But that's fairly broad brush, and you should probably think of it in those terms. If you're going to compare the financial benefits of housing against opportunity cost of money in the stock market, you're almost necessarily speculating on the price of the market, and you should probably expect the market to go down... any day now... seriously why is it still going up?

If nothing else, you could consider it a diversification of your portfolio.

Now let's consider a mortgage, which is a financial instrument in and of itself and should be decoupled (as much as possible) from the actual decision to purchase the house. A mortgage is just a long term loan which might have some favorable tax treatment. Right now mortgage rates are at all-time lows, and those rates are down around near where inflation typically sits. Meaning over the life of a 30 year loan you might expect that mortgage to cost you $0 in terms of real buying power. Ever year you kick in your 3% of interest, and every year the mortgage is worth 3% less in purchasing power because of inflation.

To take a real world example, let's say you have a $100k downpayment saved up. Inflation occurs this year at 3%. Your purchasing power is now $97k. You've lost $3k in purchasing power. Let's say you took your $100k downpayment and bought a house with it. Now your purchasing power at the end of the year is $100k. You've lost $0 in purchasing power. Now let's imagine that you leverage your money into property via a mortgage. So you buy $600k worth of house with your $100k downpayment and owe $500k at 3% interest. At the end of the year your $500k is a net zero (inflation eats away at it at a rate equal to the interest). Your $100k downpayment is still worth $100k, so you've lost zero. But wait we're not done. Because you bought a house with it. A house that is worth another $500k and is ALSO a hedge against inflation. The house itself is worth another $515k at the end of the year. Meaning you've gained $15k in purchasing power.

You started with $100k. You end with $500k in debt (interest on debt balancing inflation), and gained $515k in house. Net gain, $15k.

Let's run it for 6% inflation. Your downpayment is net zero. Your mortgage is net $15k (because it lost value at a rate greater than inflation), and your house is net $30k. So you've gained a total of $45k compared to not investing your $100k in anything (edit: actually I think that's $51k on re-thinking the numbers), a return of 45% in a single year.

Let's run it for 3% deflation. Your downpayment is net zero again. This is because we're presuming that the value of the house tracks deflation and inflation perfectly. Meaning since you've converted your downpayment into a fraction of house, it changes in purchasing power by zero, it still buys the same amount of house. The mortgage actually gains 3% in value and costs you 3% interest. Meaning a total of 6% cost in purchasing power on your $500k of debt. So you lose $30k. Additionally, the rest of the house loses value, so you've lost another 30k. For a total loss of $60k.

I've completely ignored a 2nd order of detail of this calculation, and I'm fine with that.

Basically, a mortgage allows you to leverage yourself into property using borrowed money, and that gives you a much larger lever arm against inflation, and gives deflation a much larger lever arm against you. Right now, some deflation seems to be occurring, but it's not expected to last long.
 
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@Eunos_Cosmo

On the subject of housing as a financial instrument... it's so damned complicated.

The stock market is based on almost nothing. There is a floor to the price of stocks that is upheld by the ability to purchase the company in a hostile takeover, and the ability of the company to offer a dividend. For a company that does not post a profit, that second one may be nil. Other than that, and the actual yield on the price of the stock (dividend), stock is speculation.

Housing offsets rent. Although the cost of repairs and property tax might eat into the offset by a good bit. It also comes with a great deal of luxury that renting simply does not. You (for the most part) get to stop moving, stop chasing a better rental situation, know that at the end of your lease term you're not dealing with a huge increase in rent, or a landlord that no longer wishes to rent and kicks you out (this happened to me). You can customize the property, and this is unbelievably satisfying. So there are a lot of non-financial benefits to owning, but primarily owning the house offsets rent.

You can speculate on the price of housing (like stocks), although housing is a significantly less volatile market than stocks, so the speculation game is a good bit more boring. I think right now is actually a decent time to be speculating though, and while I don't see a big potential for drastic price increases broadly in the US, I do see potential for some negative movement. One other consideration is that housing is a bit like gold, but more like how people think of gold than gold actually is. Gold tends to be fairly volatile, people flood to it when times are tough thinking it's safe. But the price of gold is wildly speculative, whereas housing has more immediate utility and a fair amount of "stick" when it comes to the ability to sell it in a panic or buy it in a panic. As a result, a house is "real" gold if you will. Also you can insure it (I hope you included home insurance in your calculations... earthquake insurance in CA is going to kill you if you get it, or not, either way). So housing is a great hedge against inflation.

So that's housing. There are some niches for housing, like specialized rental markets, and new construction. But that's fairly broad brush, and you should probably think of it in those terms. If you're going to compare the financial benefits of housing against opportunity cost of money in the stock market, you're almost necessarily speculating on the price of the market, and you should probably expect the market to go down... any day now... seriously why is it still going up?

If nothing else, you could consider it a diversification of your portfolio.

Now let's consider a mortgage, which is a financial instrument in and of itself and should be decoupled (as much as possible) from the actual decision to purchase the house. A mortgage is just a long term loan which might have some favorable tax treatment. Right now mortgage rates are at all-time lows, and those rates are down around near where inflation typically sits. Meaning over the life of a 30 year loan you might expect that mortgage to cost you $0 in terms of real buying power. Ever year you kick in your 3% of interest, and every year the mortgage is worth 3% less in purchasing power because of inflation.

To take a real world example, let's say you have a $100k downpayment saved up. Inflation occurs this year at 3%. Your purchasing power is now $97k. You've lost $3k in purchasing power. Let's say you took your $100k downpayment and bought a house with it. Now your purchasing power at the end of the year is $100k. You've lost $0 in purchasing power. Now let's imagine that you leverage your money into property via a mortgage. So you buy $600k worth of house with your $100k downpayment and owe $500k at 3% interest. At the end of the year your $500k is a net zero (inflation eats away at it at a rate equal to the interest). Your $100k downpayment is still worth $100k, so you've lost zero. But wait we're not done. Because you bought a house with it. A house that is worth another $500k and is ALSO a hedge against inflation. The house itself is worth another $515k at the end of the year. Meaning you've gained $15k in purchasing power.

You started with $100k. You end with $500k in debt (interest on debt balancing inflation), and gained $515k in house. Net gain, $15k.

Let's run it for 6% inflation. Your downpayment is net zero. Your mortgage is net $15k (because it lost value at a rate greater than inflation), and your house is net $30k. So you've gained a total of $45k compared to not investing your $100k in anything (edit: actually I think that's $51k on re-thinking the numbers), a return of 45% in a single year.

Let's run it for 3% deflation. Your downpayment is net zero again. This is because we're presuming that the value of the house tracks deflation and inflation perfectly. Meaning since you've converted your downpayment into a fraction of house, it changes in purchasing power by zero, it still buys the same amount of house. The mortgage actually gains 3% in value and costs you 3% interest. Meaning a total of 6% cost in purchasing power on your $500k of debt. So you lose $30k. Additionally, the rest of the house loses value, so you've lost another 30k. For a total loss of $60k.

I've completely ignored a 2nd order of detail of this calculation, and I'm fine with that.

Basically, a mortgage allows you to leverage yourself into property using borrowed money, and that gives you a much larger lever arm against inflation, and gives deflation a much larger lever arm against you. Right now, some deflation seems to be occurring, but it's not expected to last long.

I don't disagree with anything you said and I've gamed out quite a few of these scenarios (especially inflation & deflation) myself. I don't think a deflationary death spiral is out of the question, honestly.

I got bummed out when I compared a five-year outlook on renting (at my current rate anyways) vs buying and determined that JUST the property tax and mortgage interest (nevermind maintenace, insurance, etc) exceeded what I would pay in rent - and that's including tax benefits. I would effectively being paying the same 'rent' for the privilege of also paying a mortgage principal. I'm thinking I hold off for now...see where things land in the fall. Still awaiting soils report for the property I was looking at...going to pass it along to a structural engineer I know to at least see if the thing is built well enough.
 
If the stock market was in a period of "irrational exuberance" before Covid-19, which caused the most severe economic disruption since the great depression, and that disruption is nowhere near over with - and could in fact become worse, and yet the stock market is approaching those levels that, even when times were good were, again, described as "irrational exuberance" leads me to believe that we are in the largest bubble ever. There is no fundamental basis for the stock market prices right now. Inexperienced retail investors are falling over themselves to get in and sell to the next guy. Worse still, veteran traders appear to be using pre-market trading to build up hype on certain stocks which then the retail investors pour into. ****'s broken. FOMO and ignorance are pushing things to what will ultimately be a tragic conclusion.

Just about every bull-leaning article I've read in the past few weeks points to pure meta analysis - that is, the state of the greater economy is not even mentioned. It's as if the stock market has become an economy unto itself, with no basis in the real world. The prices certainly seem to reflect that, but it cannot go on forever. I like this bit in the first article you linked:

While the index is exhibiting similar trading tendencies to its historical performance in 2009, DataTrek does note the internal differences between the S&P 500 then and the S&P 500 now.

First, valuations are far apart. On day 58 of the S&P 500's 2009 rally, the index traded at 10.4x trailing earnings, DataTrek said. Today, the index trades at 19.6x trailing earnings.

10.4 & 19.6 are enormously far apart! 19.6 is damn near 100% larger! That means that stocks are twice as expensive vs earnings right now compared to 2009. To me that sort of undermines their entire premise. I would expect a 20x PPE in a robust, healthy economy...not in the midst of a catastrophe. But whatever.

At least that's my opinion, man.
 
If the stock market was in a period of "irrational exuberance" before Covid-19, which caused the most severe economic disruption since the great depression, and that disruption is nowhere near over with - and could in fact become worse, and yet the stock market is approaching those levels that, even when times were good were, again, described as "irrational exuberance" leads me to believe that we are in the largest bubble ever. There is no fundamental basis for the stock market prices right now. Inexperienced retail investors are falling over themselves to get in and sell to the next guy. Worse still, veteran traders appear to be using pre-market trading to build up hype on certain stocks which then the retail investors pour into. ****'s broken. FOMO and ignorance are pushing things to what will ultimately be a tragic conclusion.

Just about every bull-leaning article I've read in the past few weeks points to pure meta analysis - that is, the state of the greater economy is not even mentioned. It's as if the stock market has become an economy unto itself, with no basis in the real world. The prices certainly seem to reflect that, but it cannot go on forever. I like this bit in the first article you linked:



10.4 & 19.6 are enormously far apart! 19.6 is damn near 100% larger! That means that stocks are twice as expensive vs earnings right now compared to 2009. To me that sort of undermines their entire premise. I would expect a 20x PPE in a robust, healthy economy...not in the midst of a catastrophe. But whatever.

At least that's my opinion, man.

Yeah ... well I agree. There's a lot of weird **** swirling around - the actions of the Fed, the Trump administration, the implications of an election year, inexperienced retail investors, predatory professional investors. Aside from what is happening in the US, the ramifications of the coronavirus for the wider global economy are still unfolding.
 
I think people started to realize that with all the money printing, interest rates will stay low for a lot longer than Covid will be around. If 10 year treasuries yield 0,7% and 30 year treasuries 1,5%, a company like Coca-Cola with a 3,5% dividend yield is a no brainer.

If you believe that government debt will never be paid back, but just be rolled over into new debt and inflated away(like it always has), it makes perfect sense to buy stocks now.

 
I think people started to realize that with all the money printing, interest rates will stay low for a lot longer than Covid will be around. If 10 year treasuries yield 0,7% and 30 year treasuries 1,5%, a company like Coca-Cola with a 3,5% dividend yield is a no brainer.

If you believe that government debt will never be paid back, but just be rolled over into new debt and inflated away(like it always has), it makes perfect sense to buy stocks now.



If you think that the choices are stock or cash... I guess a case could be made (not a short term one though). It's a false dichotomy.
 
I was re-reading some older posts and I came across this one...

The tough part is what to buy. San Francisco housing could probably give up 10% or more (I have no idea, I don't live there are watch it, I'm mostly basing that on what I know has been a long run-up). My house in LA dropped $200k from where I bought it during the last bubble. I don't think that we're headed for another 2008 in housing. That situation was insane. People were forging mortgage applications left and right, they were buying places with 5 year ARM mortgages with zero down (or negative interest), and expected to make hundreds of thousands of equity in a few short years and do it again. Some people did, and laddered through 6 or 7 properties, and they were crapping their pants when the rates jumped, prices dropped, and their ARMs broke loose.

That kind of insanity is not what I see right now. I see a lot of people who are wary of housing. And that makes me think there is no way it could be as bad as it was. The behavior I saw in 2007 and the years leading up to it was bonkers, there-is-no-way-this-is-real, something-has-to-give, how can this be happening type behavior. Today seems absolutely tame by comparison, and people have fresh memories of that time keeping them from over-doing it.

Housing does not remind me of 2007. The stock market absolutely does.
 
If you think that the choices are stock or cash... I guess a case could be made (not a short term one though). It's a false dichotomy.

Sorry for the late reply. I wanted to write a detailed reply but didn't have the time.

There are obviously other options. Let's go through them.

1. Cash/Money market funds

Good for keeping a few months worth of expenses on hand but they offer no yield at all at the moment. Even Cds barely yield 1% currently.

2. Government bonds

Also barely no yield at all and you're extremely vulnerable to inflation if you buy long dated ones.

3. Corporate bonds

Ok yields but they are set on life support by the Fed. For the risk involved they yield not remotely enough.

4. Precious metals

Never been a fan. You'll probably preserve you're purchasing power over the long term but there's no guarantee. It took 35 years for gold to retake it's high from 1980.

5. Real estate

Is a valid alternative. If you buy for personal use and you have no intention of moving go for it. If you want to buy rental properties you have to do a lot of research and take on a lot of personal risk. I personally don't know enough about the laws and regulations involved to actually try it. Gross rental yields of about 5% in good cities are not enough for me to take on the risk.
REITS could be an option, but they are highly levered and behave like stocks in a downturn.


That leaves stocks. I'm not saying to buy any stock on the market(like the Robinhood crowd buying Hertz), but instead investing in a balanced portfolio of low cost index funds and a few individual stocks if you're comfortable with it.

My situation is the following:

I own a condominium which I inherited from my uncle.

I keep about 10% of my net worth in cash for emergencies, 40% in individual stocks and the rest in a Vanguard FTSE all world ETF.


Having 90% in stocks is obviously risky, but as long as I don't take on any debt I think I should be fine over the long run.
 
Sorry for the late reply. I wanted to write a detailed reply but didn't have the time.

There are obviously other options. Let's go through them.

1. Cash/Money market funds

Good for keeping a few months worth of expenses on hand but they offer no yield at all at the moment. Even Cds barely yield 1% currently.

2. Government bonds

Also barely no yield at all and you're extremely vulnerable to inflation if you buy long dated ones.

3. Corporate bonds

Ok yields but they are set on life support by the Fed. For the risk involved they yield not remotely enough.

4. Precious metals

Never been a fan. You'll probably preserve you're purchasing power over the long term but there's no guarantee. It took 35 years for gold to retake it's high from 1980.

5. Real estate

Is a valid alternative. If you buy for personal use and you have no intention of moving go for it. If you want to buy rental properties you have to do a lot of research and take on a lot of personal risk. I personally don't know enough about the laws and regulations involved to actually try it. Gross rental yields of about 5% in good cities are not enough for me to take on the risk.
REITS could be an option, but they are highly levered and behave like stocks in a downturn.


That leaves stocks. I'm not saying to buy any stock on the market(like the Robinhood crowd buying Hertz), but instead investing in a balanced portfolio of low cost index funds and a few individual stocks if you're comfortable with it.

My situation is the following:

I own a condominium which I inherited from my uncle.

I keep about 10% of my net worth in cash for emergencies, 40% in individual stocks and the rest in a Vanguard FTSE all world ETF.


Having 90% in stocks is obviously risky, but as long as I don't take on any debt I think I should be fine over the long run.

There are still more options. Undeveloped land, oil wells, collectibles (cars, paintings, statues, watches, etc.), solar panels, venture capital, physical precious metals or gems, ammo. There's more too. Your options for "cash" are not limited to any one nation's currency either, or fiat currency at all. For example cryptocurrency and cryptocurrency mining resources.

Debt can also be quite helpful, especially against inflation. I note that you're advocating for owning stocks to avoid inflation when debt, which you say you don't want, does an even better job of hedging inflation.
 
There are still more options. Undeveloped land, oil wells, collectibles (cars, paintings, statues, watches, etc.), solar panels, venture capital, physical precious metals or gems, ammo. There's more too. Your options for "cash" are not limited to any one nation's currency either, or fiat currency at all. For example cryptocurrency and cryptocurrency mining resources.

Debt can also be quite helpful, especially against inflation. I note that you're advocating for owning stocks to avoid inflation when debt, which you say you don't want, does an even better job of hedging inflation.

Completely agree about debt. Some of that inflation hedging effect is already backed into the stock returns though, because most companies take on lots of debt to finance their operations.

Taking on additional personal debt is in my opinion not necessary and with my capital allocation also not wise.
 
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