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comment by iammyownrushmore
iammyownrushmore  ·  799 days ago  ·  link  ·    ·  parent  ·  post: Does anyone know anything about personal finance stuff?

Hey yellow, thanks for the advice.

For context, I am most certainly at the risk aversion step, I should have been a bit more descriptive. The easiest part of reading about personal finance was the first two steps you outlined, which I was able to fulfill. I got inundated when it just went a little bit beyond that, but your comments in that regard are still very helpful.

    You very well could lose everything you give them. Just accept that if you're going uber risky. Think of the money as gone and everything else is a happy surprise.

I am not a gambling man, this is terrifying to me.




kleinbl00  ·  799 days ago  ·  link  ·  

...so... allow me to temper this a little bit.

You've probably heard the phrase "blue chip stock." This is a known, trusted, predictable large company ("large cap") whose finances are stable. The company has been profitable for a long time and there's every expectation that it will continue to be. These companies, by virtue of being profitable, pay out dividends - every quarter, you get some amount of money per share you own.

Let's say you piled eleven thousand dollars into Ford on May 17. Why May 17? Because shares were $10.92 on May 17 which means now you own 1000 (ish) shares of Ford which is convenient for the sake of math. Right now, Ford is at $10.94. You've experienced a capital appreciation of 4 cents per share - if you were to sell all your Ford stock, you would have made forty whopping dollars. Congrats! But also keep in mind that three weeks ago, Ford declared a quarterly dividend of fifteen cents per share... which means you made $150 on your Ford stock without having to do a thing.

This is one of the reason people participate in the market. So long as Ford continues to make money, and so long as you continue to own Ford stock, you will continue to make money. You can sell that Ford stock at any time and you can do whatever you want with that money (within the tax regime it's invested in - if it's in a retirement fund, you'll pay heavy tax penalties if you pull it out before you retire).

Ford (for example) is not much of a gamble. Some crazy penny stock biotech firm? That's a gamble. You don't buy it because it's going to pay you fifteen cents a share. You buy it because there's an off-chance GlaxoSmithKline will buy it and double your money. Of course, if GSK doesn't buy it, you're shit out of luck because that stock will go to zero appallingly fast.

This is the sort of stuff it's worth reading about. Fundamentally, there are alpha gains and beta gains within the market. Beta gains are the rising tide that raises all ships - people wouldn't participate in the market if it were a zero sum game; everyone benefits just by investing in companies that will probably be profitable. Alpha gains are money you make above and beyond whatever the market is making. Alpha gains are zero sum - for every dollar you make above the beta, someone else makes a dollar below.

Alpha gains are speculative. Beta gains are straight boring investing. Be boring. Be cautious, be careful, be slow, be steady, and be boring. Over the long run you will make money so long as you don't fuck around like a jackass chasing wall street. You will lose.

Here's twelve High Frequency Trading houses tossing Merck orders at each other for ten milliseconds.

dublinben  ·  799 days ago  ·  link  ·  

All this being said, a mutual fund based on an index like the S&P 500 is more diversified, and therefore less risky than any single equity. If you are afraid of "gambling" in the stock market, just park your money in a low cost passive index fund, and let it grow.

kleinbl00  ·  799 days ago  ·  link  ·  

Yes and no.

A NASDAQ ETF right now is mostly exposed to Facebook, Amazon, Apple, Netflix, Microsoft and Google. All of those stocks have insane P/E ratios. They're actually more prone to shock than something boring like 3M.

But

A diversified index fund covering lots of boring stocks is largely bombproof.

A 3X inverse ETF is based on an index and is about as stable as plutonium.

Either way, an ETF based on a long portfolio of dividend - paying stocks will pay a dividend. In many cases, particularly where the market is at, the dividend performance outstrips the appreciation performance.

rthomas6  ·  795 days ago  ·  link  ·  

What do you think about a Russell 3000 ETF? That and small-cap value ETFs are where I have most of the stock portion of retirement.

kleinbl00  ·  795 days ago  ·  link  ·  

Boy. I don't know that I can even say anything useful. I don't know that anybody can. My personal strategy is to find a lazy portfolio, backtest it, make sure I understand the way it moves and make sure I think it'll fare okay from what I understand of the geopolitical climate for the amount of time I expect to hold it.

Which basically says I'm macro AF, and that I disregard everything but fundamentals. It's probably about as conservative as you can go and I've definitely given up some gains that way. But it's what I understand, and what makes me feel like I have a reasonable sense of cause and effect.

I think the stock market is deeply overvalued and headed for a correction. From a macro sense, from a fundamental sense, a Russell 3000 ETF does not strike me as a good value at the moment. But that's my take, my tea leaves, my entrails, not yours.

OftenBen  ·  795 days ago  ·  link  ·  

Purely a butt-in:

I have a few grand of employer matched contributions in a TIAA account, since there is a 'correction' incoming, would that money be safer somewhere else?

kleinbl00  ·  795 days ago  ·  link  ·  

Prolly not. If you know what that fund is invested in you could do your own research. I'm nobody's investment counselor.

user-inactivated  ·  799 days ago  ·  link  ·  

I mean, you could always just keep it. You'll just be losing the real value at the rate where inflation outstrips your savings interest rate.