Simple investing for a complete beginner? (Just… developing world index funds?)
[EDIT: Through conversation with Rolf Andreassen below, it has been brought to my attention that I am simply completely and irretrievably insane.
Sane and well-measured advice is therefore wasted on me, and I just wanted to edit in this notice here so that other well-meaning folks don’t get tricked into wasting their time trying to talk sense into a total nutcase like me. :)
(I appreciate all y’all, though. ^^ ) ]
So my dad set up a trust fund for me when I was a kid, and I’ve got 13k (CAD) now, which I am going to be taking direct control of.
Now, I have no interest in making a deep study of investment. I have a life to live and dealing with money is boring.
The only thing more boring than dealing with money, is dealing with a lack of money, and so I want to optimize the time and thought I spend avoiding that down to a minimum.
Four things occur to me:
1) Taking the naive and sparse knowledge I have of this area, basically just stuff I‘ve randomly osmosis’d up, this is my train of thought:
Markets are essentially random walks with an upward trend?
“Index funds” are magic boxes that you put money in and your money will grow at the same rate of the market that the fund “indexes”?
“Developing world” economies generally grow a lot quicker than those in the “developed world”?
(This makes sense to me. Places like the US, Canada Europe, etc, already have mature transportation and communication infrastructure. You can’t get much economic growth out of doing basic stuff like building a new highway here, but in, like, some African region that has previously been served by, I dunno, jungle-donkeys, it makes a proportionally much bigger difference.)
There are a few countries where “developing” is a euphemism for “totally messed up”, but in general it really does mean “growing”?
And there are enough of these places over the world, and they’re independent enough, that natural disasters/political trouble/etc in a few of them still leave a consistent and high rate of average growth?
So shouldn’t I just put all my money in a fund that “indexes” all these “developing” economies together?
2) My dad set up this trust fund with a bank that has a bunch of big expensive physical buildings for some reason. I recently read a letter from them saying that they will charge a $100 yearly fee for having less than 15k in an account.
Are there better options I should be taking than opening my own account with an institution that thinks it makes sense to charge me a hundred bucks for not being rich?
3) Me and muflax are actually going to go work full time on developing [this totally amazing educational technology that will completely revolutionize human civilization but you have no reason to care about that until you’ve seen a demo in action so nevermind].
We might spend as much as a year (yeah, that’s outside-view calibrated) working on it until we have something we can make a living off of while continuing development.
We think we can get total living costs for a year down into the 5k..10k range… maybe even lower. We’re going to be living in the UK, because of reasons.
So… can I leave this measly 13k in an investment account and still draw out of it for monthly costs?
4) Or is this whole “investing” thing something I should even be bothering with at all right now?
Should I just pop out the whole sum into a savings account that I can draw from as I need, and worry about reinvesting whatever is left over then, a year from now, after we have obviously started on our way to becoming rich and famous?
You have two separate questions tangled into one. I suggest you need to disentangle them. They are:
How should I invest a lump sum for minimum stress?
Should I invest my lump sum in my startup?
People seem to be answering number 1, but that rather depends on you having decided that the answer to number 2 is “no”. My opinion is that, if you believe your startup has a good chance of success, then yes, swing for the fences. Thirteen thousand is not a huge sum—if you get a reasonably good job, you can easily save up that much in a year. But it will keep you in ramen noodles long enough that you can tell whether your startup will succeed or not. So, your downside is very limited by adult standards, but the upside is presumably quite large.
If I were going to go for the startup, I would split my 13K in two halves. One half goes in a checking account, ready to pay for my ramen noodles for the next six months. The other half goes in a six-month CD, where it will accumulate 32 dollars and fifty cents of interest. Obviously this is not intended to actually make money, it’s a precommitment to not touching that half until next year. Then in February, take the money out of the CD and re-evaluate the startup. Does it still seem like a good idea? Great, more ramen noodles. If not, give it up, start looking for a job, and put the remaining 6532.50 in a proper investment account.
For added precommitment, you could try splitting up the first half into a ready sum and a three-month CD, perhaps even some one-month CDs that you roll over until you need them; the interest will be utterly derisory but it’s a convenient way of managing your monthly budgets.
Incidentally, if you haven’t already done so, for the sake of all the absent gods go and read Paul Graham’s essays.
… Yes, the winner is you.
Our answer to 2, from the depths of our souls, can only be: Hell. Fucking. Yes.
Now, Paul Graham is awesome (he has left me in a state of complete conviction that LISP is the One True Way, to which I must aspire), but that’s… alot of essays. (An entire herd of alots, majestically migrating across vast prairies of prose.)
And I think our “startup” is going to be a lot different from what is normally meant by the term, so… I’ma sketch said differences, and you can tell me what you think is relevant, if you want.
Our “startup” is never going to be a publicly traded company.
We’re actually not trying to become “rich”, but to win the freedom to focus on doing nothing but work on inherently awesome projects.
Once we’ve got our prototype, we’ll be able to easily start paying the bills through… basically tutoring celebrities and other rich people part time.
(That sounds bizarre, but we’ve got an outside view on this. The whole thing has basically been done before by people who had a clumsy grasp of the theory underlying the technology, and didn’t even take advantage of basic computer programming tools to assist in the analysis. Just… stipulate this point.)
Although we also have, like, web-app subscription models we expect to get some cash flowing through...
So we going for establishing a reputation that’ll allow us to maintain our frugal lifestyle easily off of a bit of consulting-y work, and some nice monthly cashflow for web-apps etc...
But essentially we’re doing a startup for… a non-profit?
We’re basically fantasizing not about giant IPO’s, but about massive Kickstarter popularity whenever we announce a new project. And eventually creating our own university. A school that actually is for learning.
So yes, we’re obviously insane. But let’s stipulate that trying to live a “sane” life would be worse than death for us, and that the only type of advice we could possibly make use of is tips on how to kick ass at pulling off crazy things.
What does Graham have that I should read?
Ok, first of all, I wish you the best of luck in your craziness. The time to swing for the fences is when you’re young; that’s when you can afford to take a couple of risks.
Your description does narrow down the kind of advice you should be looking for somewhat; it’s true that most of PG’s essays are directed at people who are trying to follow the “standard” route of venture-capital funding to an eventual IPO or buyout. Nonetheless, his advice on how entrepreneurs should act internally, as opposed to their relations with investors, still seems relevant. Try “Relentlessly Resourceful” and “Ramen Profitable” for starters. For myself, I find that I like his writing so much that I treat his essay page a bit like the Sequences: I go back and reread them every so often. So if your taste is like mine, you’ll end up reading it all eventually; bwah-hah-hah! That said, the best stuff does tend to be in the middle—the post-YC essays are less interesting.
It seems you are going for financial independence rather than huge wealth; perhaps you are already aware of this resource, but if not, you will likely find the blog of Mr Money Mustache motivating.
And what the heck, while I’m suggesting readings anyway, go have a look at the archives of Joel on Software; as with PG, the best essays are from around 2003-2006, or so, but still very much worth reading. They don’t ahve quite the same direct relevance to your project, but Joel seems to have done something similar to what you have in mind—build a company to sufficient-for-my-needs profitability without taking venture capital—so you might find it interesting to have a look at how he thinks. In particular, now I consider it, his Strategy Letter I seems relevant to your situation.
Edit to add: And, of course, beware of insight porn! You don’t want to spend more than your lunch break or so reading these authors, excellent as they are. Get some dang work done! :)
I know this is the conventional wisdom, but does it really make sense? It seems like older folks would tend to be wealthier and wealthier people ought to be less risk-averse, for instance.
Young people are wealthier in “time remaining until I cannot work anymore”. What’s more, betting 100% of your liquid assets is a much smaller risk for a poor student. Further, while old people have more wealth they also have more commitments, such as children; a young person risks only his own livelihood.
A year wasted is a year wasted whether it’s your 21st or your 61st.
Yep, but if you’re starting a business, you won’t be betting 100% of your liquid assets, you’ll be betting some fairly constant chunk of capital (living expenses for yourself + startup expenses for the business), which is likely going to be a much larger % of the liquid assets of a poor student.
I agree that children or a mortgage should make one more risk-averse.
BTW, the reason I’m asking these questions is I’m wondering if people just get irrationally risk-averse as they age, and rationally more people should be acting like young people and taking financial risks all throughout their lives.
Then would you also agree that a dollar wasted is a dollar wasted whether you have ten, or ten million?
Bankruptcy is the loss of 100% of your assets.
No, I think money is different from time this way. For example, it’s possible to have more money than you know what to do with, but having more time than you know what to do with is a rarer problem. My marginal utility for money is really high for my first few thousand dollars and then drops off. My marginal utility for time is shaped much differently… I would value 20 extra years of youthful happy life about twice as much as 10 extra years of youthful happy life. People are (rationally) risk-averse when they have small amounts of capital because their utility function for money is such that they would really like to have at least a small amount. I don’t see any corresponding effect for time (indeed, people say things like “it’s better to burn out than fade away”).
Personal bankruptcy, yes. So young people starting businesses would run a higher risk of personal bankruptcy and the drop in credit rating that implies.
Thank you very much! You are cool and I like you and I will look into those some time! :3
I don’t think I have to worry too much about “insight porn”. The closest I get is obsessively sampling the products of the nearest thing we have to “competition”, noting details of all the ways they screw up and how to avoid those problems (and making sure to hit the few points they ever get right!)...
I’m basically forcing myself to spend these next few weeks landing some cheap-or-free rent and other pre-move preparations.
The theoretical and engineering puzzles of building the figurative machinery are just so inherently fascinating, and the joy I anticipate at watching it all run is compelling. :3
Your edit seems to amount to an instruction to downvote and ignore you. I am not sure that it is achieving the purpose you intend (because I am not sure what purpose that could be).
I would respond with a mildly self-deprecatory comment that simultaneously ironically highlights the strange, unnecessary harshness and lack of humor one may find surprisingly commonly on LW, but I expect it would just get a bunch of downvotes and be a silly waste of time, amusing no one but myself.
Good decision. I’ll point out, however, that I was being kind, not harsh. Your behaviour was sending ‘troll’ signals and my impression was that you were not intending to. The hypomanic enthusiasm your post and followup replies suggest can be a powerful force at times but needs to be carefully managed lest it result in unintended (and unconsidered) consequences. If you really want to go the distance with your education startup you’ll need to balance the enthusiasm with, for want of a better term, stability. Understanding (and caring) how others will respond to the signals you give will also be absolutely critical. Much (perhaps even most) of the task of your startup creation (even an educational not-particularly-for-profit) will be in figuring out what you can do to invoke the desired behaviour in others.
(Note that using your terminology this isn’t advice to be ‘sane and well measured’, this is advice to do ‘insane’ right.)
..........… Okay, I have got to get out of this discussion. xD
Good but not-quite-optimal decision. ;)
I for one don’t understand why you specifically mentioned Rolf. He was extremely charitable with you, and did nothing but try to help. Why highlight him in particular in that context, of saying you’re insane or whatever?
… Yes, Rolf was awesome, and he is cool and I like him. That is entirely the point. The bit about him helping me to realize that I am “crazy” is a humorous way of giving mad props to his clear and incisive thinking.
Well go check out my long response to you, and see if I’m as incisive as him ;)
You imply that one should invest where economic growth is expected to be highest.
Note that it does not follow that shares in high growth companies (or countries) will lead to high returns. This is because the expected future growth may well be built into the current price.
That is, if everyone thinks something will be likely worth a lot in the future, the current price will be bid up to reflect this.
It is the uncertainty of the outcome that may arguably cause higher expected returns. If people have a distaste for uncertainty, then the price might be bid down leading to higher expected returns.
This is the idea that one must assume risk (uncertainty) to obtain excess expected returns. It is by no means ubiquitous: assuming risk may reduce expected returns. For example, people assume risk to gain exposure to negative expected returns in a casino (roulette, blackjack, &c). No doubt there are plenty of examples in financial markets where risk does not automatically yield excess expected returns.
In theory, all financial institution optimize around something like the efficient frontier. This should ensure that higher risk corresponds to higher returns. In practice, quantitative finance goes through a lot of approximations, therefore some real portfolios could be strictly dominated by other choices.
This is one of the reasons for the low-growth/low-variance profile of the more developed countries’ markets compared to the high-growth/high-variance profile of the developing ones.
I don’t have any investment advice, but my general advice is that you should calm down. You seem overly excited.
Not helpful. Ask yourself what exactly you were optimizing for when you wrote this post. Did you really think Owen would respond like, “Ah yes, I see where you’re coming from. I’m now going to shift my behavior toward this vague idea of calming down. I’m indebted to you for this post.”
No, you gave no details, and worded it in a way I can only imagine would be really annoying to be on the receiving end of. My guess is that it’s optimized for seeming to the gallery like you really ‘told’ this guy, or something like that, rather than being helpful in any way.
You are mistaken. This is a useful message to give, not petty one-upmanship. When enthusiasm crosses into erratic behaviour it can be unhelpful and having this pointed out is useful for anyone with a modicum of capacity for introspection. I can’t guarantee it will help in this case—from what I understand most instances of advice don’t work. Nevertheless it is useful, albeit terse, advice.
Maybe I’m making the mind projection fallacy, but I for one would not react well to being told to calm down like this. It would take every ounce of my painstakingly practiced rationality to not lose my ability to think when attacked with something that pattern-matches so heavily to petty oneupmanship.
Although the most charitably extracted content of the statement “calm down” may be true (“you seem to be acting very excited about this, but it would most likely be more useful to take a more calm approach”), it’s stated in a way that sounds like oneupmanship, and no explanation is given. What would work for me personally would be a well-thought-out reply explaining why my approach to the subject in question may be counterproductive, and serious explanations given for why certain emotions, such as “over excitement” may be contraindicated.
My guess is that this isn’t the mind projection fallacy though, as I’ve never had any success, nor virtually ever seen any, of people telling people to “calm down”, especially when no details are given. You seem to be operating under some theory like, “If it’s true, it’s useful.” Not so, clearly. Things need to be worded in a way that gets through. Anything else is arrogance, or some approach to human psychology that assumes we’re like robots, not reacting emotionally, and not susceptible to losing our rationality when things are stated the wrong way.
Telling someone to calm down, with no details given, when they think they really have something great, is nothing but reckless, if seen from the point of view of ‘trying to help’. I for one am not one for recklessness. Rational communication is a joint venture, where both parties must be careful in their wording, to navigate the messed up hardware we’re running on.
There’s “calm down” and there’s “are you sure you’re not having a manic episode right now?”. It could be actual actionable concern instead of just status jockeying noise.
Not so.
Nor am I. Hence the necessity of keeping a grip on oneself when enthusiasm begins to overwhelm consideration. Owen is behaving recklessly and saying things (like the edit in particular) that will give him negative consequences (because it is obnoxious and ill suited to the context). Sure, we could skip the polite advice stage and go straight to the ‘consequences’ part but that isn’t doing a kindness. If Owen happened to have the particular Berserk Button that you have described and so was unable to respond appropriately then it would be so much the worse for him. It would still be necessary to limit the amount of insanity on the site for the sake of everyone else.
Right, well the rest of my response still applies.
EDIT:
Sure, Owen has been behaving recklessly as well, but that doesn’t mean we should respond with recklessness of our own. Instead, as is always necessary, a charitable attitude and a careful disposition is necessary for changing most people’s minds about anything. (Notice though that in the thread with linkhyrule5, I admitted that I may be ascribing a harsher meaning to “calm down” than other people are.)
It’s pretty uncharitable of you to call what I was describing a “Berserk Button”. Makes it sound ridiculous or something, when what I was describing is something that’s built into everyone’s hardware, pretty much. I’ve spent my life toning down those sorts of emotional reactions, yet they’re still there, to some extent. Everyone has them, whether they admit it or not. You do too, and you’d be well-advised to start thinking of yourself in that light. It’s a fantasy if anyone thinks they’re rational enough to take the content of criticism without being affected by the presentation.
So much the worse for him? This is nothing but arrogance, thinking “if my approach doesn’t work, it’s they’re fault, not mine”. Again, rational communication is a joint venture. If you think just throwing out whatever you want, as recklessly as you want, will help anyone, you’re mistaken. Actually changing anyone’s mind requires a level of charitability that, ironically, I’m most likely not exemplifying in this post.
I agree with the last point, however. Sometimes writing for the gallery really is what’s advised. I guess I just reacted to what seemed like a lazy, uncharitable, reckless reply, with no obvious utility except as oneupmanship. But you bring up a good point, which is that you don’t want to let counterproductive behavior stand, where certain people in the gallery may incorporate them, when they otherwise wouldn’t have if you posted something. This makes ‘was it a good attempt to help the person you’re replying to’ no longer the only consideration, as I was assuming implicitly.
I replied because you were mistaken.
That really seems like it’s more true for anger, or similar emotions. When I’m just bouncing off the walls in optimism “calm down” works.
Well that’s interesting. I don’t know, could be me overgeneralizing from my own experience. At least where I grew up, “calm down” was never used charitably. It was always designed to be annoying oneupmanship. It was as if getting too excited wasn’t cool, because it meant you weren’t “mature enough” to be jaded, and that sort of thing.
(I’ve found it extremely difficult to shed associations from my time growing up, and despite years on the Internet, communicating with people all over the world, my dominant associations are often still just based on the culture I was exposed to during those formative years.)
… Huh.
Yeah, that’s definitely a cultural thing. I don’t think I’ve ever heard “calm down” used like that.
“Chill, bro,” and the like, definitely. “Calm down” was usually reserved for mature people and grown-ups :P.
Oh, alright, allow me to adjust down to the objectively correct level of excitement...
=ಠnಠ=
Better?
Let me suggest a way of thinking about investing. Here are a variety of things that an investor might want to do:
1: Minimize Bankruptcy Risk. (Chance of losing all of money)
2: Minimize Downsides. (Chance of losing some moderate chunk of money)
3: Keep Money Liquid. (Have your money be available for other things)
4: Maximize Upsides. (Chance of gaining some moderate chunk of money)
5: Maximize Speculative Upsides. (Chance of becoming rich.)
These are good things, but when investing, you generally don’t get to pick all of them. For instance, I think my current strategy for my retirement account does a decent job of getting 1,2 and 4.
Now, you and I don’t have to have the same values: As an example: You are throwing all of your money into a startup. That generally goes against 1. If the startup fails, all your money is gone, and so you aren’t minimizing bankruptcy risk. And values can change: Your risk tolerance is not a fixed amount.
So a rough way to start is to categorize “In which order of priority are these goals are important to me right now and what will that be like in the future?”
A lot of investment sites also have these kinds of rough tests to get an idea of your risk tolerance so they can suggest advice accordingly, although they aren’t necessarily perfect. This link seems to explain some of the issues that come up: http://www.businessweek.com/magazine/content/09_32/b4142059711173.htm
As a side note, if you go to your bank and ask them about investing your money, they will probably make you take one of these tests, and then suggest investments that match your profile (not necessary the best choices, but it could give you an idea of what you can expect).
Sorry, but no can do. Part of the Less Wrong mission is “improving the sanity waterline”. We can’t sit by and let you be insane. I for one encourage people to spend as much to as necessary to talk sense to you. You signed up for this when you made the post.
… D’awww. :)
I love how, sometimes, Lesswrongers can be so sweet in this totally unique and awesome way. :3
However, I actually meant “insane” in the same way FAI and cryonics are insane.
However however… Inferential distance!
This is how I have come to feel:
I will say only that we have access to a Theory of Instruction that is to the field of education what Newton’s Principia was to the field of physics. If you’re really interested, then I could give you a fascinating reading list (and what is “libgen”?), but I aint gonna explain much. I’ve got engineering skills to teach myself, and there’s a lot of bootstrapping to be done! :D
Although the outside view says it’s unlikely you’re correct in making such a strong statement, it’s of course more than possible that you really do have something that significant. Just remember that the design of human brain hardware is such that it requires a constant, extremely high level of vigilance to prevent the goals one has in mind from shifting imperceptibly from ‘optimizing for the goal in question’ to ‘optimizing for some sort of social approval somehow related to the goal’.
Keep in mind that you’re essentially telling us you have something that could be ridiculously important for the world, but that you can’t tell us about it yet. This makes it impossible for us to independently verify whether it’s actually true, which allows you to parade around signaling this awesome fact about yourself without worrying about really being put on the spot and being criticized, potentially finding that what you have isn’t as awesome as you thought it was.
Just as people tend to embellish the content of their dreams, and make slight changes to the details in order to make them better fit as an analogy or something like that for what they’re talking about, because nobody can look back at a recording and know whether it’s true or not (not yet, anyway), in the same way you’re setting yourself up in a situation where nobody can look at that ‘recording’ and verify whether you really have what you say you have, or not. You say you have something significant, but you tell us you can’t explain anything yet.
Just ask yourself, why did you write the OP, and why are you responding as you are? Are you sure this whole enterprise isn’t just your brain hijacking some effort you came up with in the past, for the purpose of feeling the fun emotional effects of telling people about how awesome you are? Why exactly did you write this post? Ostensibly it was to look for advice on something, but perhaps for your identity it was just an excuse to bring this stuff up, since you otherwise may not have had a chance to signal this whole thing.
Just remember: The best evidence that you really have something, rather than just thinking you do, for fun and games, would have been if you didn’t write any of these posts. If you can keep this to yourself until it really comes to fruition, not only will your brain be in a better position to optimize for being awesome instead of just looking like you’re awesome, but you’d have better evidence in your own mind that this isn’t all just an identity high.
To conclude though, I want to say that you might have something this significant, and I really hope you do. Education needs serious change, and if you have something that could cause as much progress as Isaac Newton’s treatise, then you will have done the world a great service. But until then, I urge you to never say anything to anyone that they can’t independently verify. God help your mission if you don’t heed this warning, because believe me you’ll be screwed. If you want to talk about this stuff, write some posts on what you do have clear in your mind, or what you can share. Maybe we’ll have some useful input, or otherwise maybe you’ll be put on the spot for real, and we can see that you really are awesome, instead of this loose stuff we’re dealing with right now.
One of the best pieces of advice one could get for clear thinking is the following: Don’t tell anybody anything they can’t independently verify, especially if it’s high stakes. For you, if you really have what you think you have, this is extremely high stakes. Please don’t say another word about this, forget about trying to show off until you can show them for real. Good luck to you, and I don’t think you’re crazy. Don’t say that. It’s just a hack you’re putting in place to allow yourself to say things that sound crazy without feeling like an idiot. Go back to trying to optimize for not sounding like a nutcase, because nobody here will think you are. We all have ambitions. Talk about them for real; expose them to real criticism. Or otherwise don’t talk about them.
Again: Good luck with your project. None of this is written to deter you. It’s written to put you in a better position to put into effect what you may well have. This world needs some serious help. Don’t let trying to impress people get in the way of the potential you have to do something great.
Seeing as how classical mechanics is an effective theory for physically restructuring significant portions of reality to one’s goals, you are promising something tantamount to a full theory of knowledge acquisition, something linguists and psychologists smarter than you have worked on for centuries.
Calm down with promises that will disappoint you and make an MVP.
Yes.
Minimum Viable Products have been done, hence the excitement… just built mainly for markets where the ultimate “consumers” have pretty much no influence over “purchasing policy”… and stuff …
It’s not a theory of learning, but a theory of instruction...
As to “smarter than me”, I didn’t develop the theory, and it’s largely dumb luck I came across all the puzzle pieces in a way that made it perfectly obvious how much of a Big Deal the implications could be...
A year ago, I’d’ve talked your ear off at this point trying to explain how damn cool this is and how much you should care, but now I’m wondering if I should shut up and keep it to myself for a while longer...
I mean, you could extract the information from various crackpot rants that I’ve left around the web, but… I think I’m safe from you making the effort at this point. xD
Okay, so I didn’t really think about whether I wanted to get into this at all beforehand, and I need to talk to my partner.
I have a bunch of moving-to-another-country practical matters I should be focusing on right now anyway.
I’ll get back to you guys in a few days.
What do you mean by “have access to”?
Also, I’d be interested in that reading list, if it wouldn’t be too much effort for you to put together.
Hm, yeah, that’s a really weird way to phrase it unless you have certain… historical things in mind. Strictly speaking, everyone “has access” to all the books and other resources you need. It’s just really unlikely for anyone to notice that it’s something worth focusing on.
Okay, I wrote my response to Technoguyrob to double as a response to you. I’ll get back to you in a few days.
With muflax, huh. This sounds like it’ll be epic to watch, regardless of how it turns out.
ours is the romance that shall shake down the very foundations of human civilization, and give birth to a new world in their place, yes
(… “ha ha but serious” xD )
That’s “Ha ha only serious”
… Yes, thank you for pointing out the exact conjunction used in the original meme that I was riffing on. Definitely the key point. xD
(“sarcastic only actually genuinely genial”)
I realise you only meant this flippantly, but… it sounds really unpleasantly dismissive to me. Just wanted to flag this.
Good luck with the money, I’m afraid I have no useful knowledge!
Agreed, but I think given the kind-of self-deprecating tone elsewhere, this was intended as a jibe at OP’s own superficial knowledge rather than at the transportation systems of developing countries.
Yeah, this struck me too. I don’t think you had any bad intent, I get that you were trying to make fun of yourself, but it didn’t quite work.
I’m going to point you toward http://www.reddit.com/r/personalfinance/ Not as smart on average as LW, but more focused.
...
Do you know who the voyageurs were?
They were men who had to work in a massive wilderness where the only “infrastructure” was a bunch of rivers.
So they would just build a goddamn boat right there in the middle of nowhere with some bark they ripped off a tree, and canoe across a fucking continent. And where they couldn’t paddle, they would get out and carry the damn thing, even when it was loaded down with a mountain of beaver skins.
Nobody “dismisses” these guys.
I’ll tell you who we do “dismiss”: The aristocratic assholes back in Europe who funded this whole phenomena with their insatiable hunger for ridiculous furry top-hats made out of giant pond rats (a fashion statement which they somehow failed to realize should do nothing but scream out to society at large in towering letters of fire, “I AM A BRAINLESS GIT”).
In short, you sound unpleasantly dismissive of jungle-donkeys. ;)
I don’t quite understand your point here, but no matter. As the others have noted, it’s not that you seemed to have bad intent with that phrasing. It just stuck out uncomfortably to me and I felt like pointing it out since you might not want to convey the connotations that it seems to be carrying.
Ohhh~~?
Try to think about it from this angle: What are the connotations of you saying that the phrase seems to carry “dismissive” connotations? ;)
Cookbook for standard best practices in the US:
Open a Roth IRA account
Select a fund for when you retire
Contribute $5000 every year to that fund.
If you have money left over, or make more than $50,000 per year and so should be saving more than $5,000 per year, set up a general savings account with the same target retirement fund.
Keep your other finances in order. Keep enough cash in your bank account to last you at least 2 months, preferably 3 or more, plus $1000. Emergencies will happen. Don’t do anything stupid like acquire credit card debt. If you follow only one step, follow this step.
Yeah, I actually just discovered that I’ve gone completely off the deep end, so your sane and measured advice is completely useless to me, sorry. xD
(
Nope
What is this “retire”?
Nope.
Ha ha ha what.
Well yeah, of course. )
I think I’d edit in a notice to the top of the post so other well-meaning folks like you don’t get tricked into wasting your time trying to talk sense into a total nutcase like me. :)
(I appreciate all y’all, though. ^^ )
I imagine that many of the corporations in the S&P 500 and other “developed world” indexes do plenty of business in “developing” countries in addition to “developed” ones, so overseas economic growth should be reflected at least somewhat in domestic stock markets as well.
What’s your plan B, in case your startup fails (most do)? If your answer is “it won’t”, I recommend sparing yourself the agony and buying $13k worth of lottery tickets.
The worse case scenario is that a year from now we end up having to work a couple days a week slinging coffee/janitoring etc! :3
Better case scenarios are like (quoting muflax) “3 months programming, 9 months living off savings”.
This rule is usually false. Low beta stocks tend to perform as well as or better than high beta stocks.
(See the book Finding Alpha by Eric Falkenstein for evidence).
Yes, but with a relatively high variance.
This is more or less true (minus some potential entry/manteinance costs)
In general this is true, but the variance here is even higher. Lately, though, they are not performing particularly well (see here for example).
Yes, diversification reduces the risk, but the risk for equities remains in general significantly higher then the one for e.g. government bonds (i.e. losing your money is a real concern).
That said, even with a very good allocation, it should be very hard to make more than 8-10% a year with you investent (not impossible, mind you, chaotic systems are chaotic). This means rouglhy 1-1.3K per year in you condition. Of course, mr. exponential says that the longer the investment, the better (barring future market instabilities). It’s up to you to decide if it’s worth it. On the other hand, if you don’t need the money now, there are other forms of investing that block your capital for a longer period of time, but with much lower risk.
EDIT Maybe it’s an obvious advice, but be careful about what you’re doing. If there’s someone you trust to whom you can ask questions and submit invesment proposals for evaluation, absolutely do it. In any case, try to learn at least the basic features of what you’re investing in (e.g. stock markets’ returns have fat tails, whch means high probability of heavy losses, various derivatives can have many complicated features). I’ll be glad to answer any questions, here or by PM, the best I can, but any specific investment must be evaualted on its own.
I would agree that this is true, but I’d caution against thinking of even government bonds as a textbook “risk-free” investment. There seems to be general agreement that balancing government budgets would create economic tragedy, but in that case the only reason to expect your bonds to be repaid is because someone else will buy more bonds later (because he expects to be repaid by someone else buying even more bonds even later). This reasoning has been correct for US bonds for several decades, but it’s still a little too close to “housing prices always rise so who cares if some mortgages default” or “I’ll resell the stock after it goes up more so who cares if the company is making a profit” for my liking.
On an unrelated note: has nobody mentioned tax issues yet? Canadians now have Tax-Free Savings Accounts available, and avoiding taxes on capital gains may be nearly as important as avoiding fees from overly expensive financial institutions. Keep enough liquid savings for emergencies and unexpected expenses, though.
Correct consideration, I personally know a greek guy who bought decennial bonds from his own country five years before the collapse and got heavily screwed. This should be a more remote possibilitie for e.g US bonds, and it’s kind of a “second order consideration” for someone who is just approaching the idea of investing money. I’m not sure of the taxing policies in the US, so I can’t really help, but the priciple it’s true. One of the reasons why I was suggesting Insurance Companies in another post is that they usually are subjected to a different (lighter) tax regime.
All that said… how would you respond to question 4?
You can kind of tell that it was the question I came to realize was key, through the process of writing the post...
Should I even bother with this “investment” stuff right now, or just move the whole 13k sum to a simple savings account and worry about reinvesting it in a year?
It depends on when you think you will need the money, and how much dependant you are on that amount. If you plan on using it at some point (e.g. for buying a car) then try something with low risk. Usually insurance companies have good low risk funds, which guarantee a minimum return of 2-3% a year, and average round 4-5% (they mainly invest in bond: you could do it directly on your own, but if you know nothing about finance, you should probably trust them).
If, on the other hand, you think you could afford to risk losing some money in the short run, then go for the equity investment, but try to spend some time to evaluate it and chose the mean return/risk profile that fits you best.
Hm.
Well, I just did a quick google search for
developing economiesand looked for graphs that seemed to deal with the comparison I’m interested in.For instance:
http://carnegieendowment.org/images/article_images/decoupleR1.gif
http://blogs.worldbank.org/files/prospects/charts/nl33cj23.sn0/chart-small.png
http://static.seekingalpha.com/uploads/2011/9/4/saupload_trendr1.png
http://farm5.static.flickr.com/4094/4771449749_7c63d01bdc.jpg
http://www.imf.org/external/pubs/ft/fandd/2012/09/images/dervis2.jpg
And my dad put the majority of investments in “Canada” and “US”, which… are in the group of economies represented by the lower lines. (And the rest in “world”, which is the average of the low and the high lines.)
As far as I can tell, his decision was based on… a heuristic that developing countries are lower status, and lower status=poorer=not a good investment? (I say “decision”, but I don’t know if it even occurred to him as an option...)
Just be careful that markets /= economy. The developing economies might still grow steadily, while their markets can fluctuate a lot. One of the most widely used Indexes for emerging markets is the Morgan Stanley BRIC. You can easily google and find some funds that invest in it and look at their performance to get an idea. The first one that I found (here) has a decent summary of its most important features. You can see that it is actually losing money . A very important number you should look at is the standard deviation, which is written to be 23% over three years. On the contrary, investing e.g. in the US health care sector has given much better results (see here) with less risk.
To summarize: what you say it’s true in the long run, but equity investments have a significant short and medium-term evolution, which is generally independent of the long-term trends.
If your money is going to be based in Canada, you can use the same setup I have—a basic self-directed brokerage account embedded in a TFSA, invested in various index funds run by the bank(I use TD, but I’m sure other banks have similar options). As long as you keep your money in the same place for at least three months at a time and keep it under the TFSA cap(probably about $25k, depending on your age), you pay no annual fees, no transaction fees, no taxes, and somewhere between 0.2%-0.5% per year to run the fund. It’s pretty much impossible to pay less than that for investing.
I doubt that developing country stocks will outperform others.
One important reason that high growth doesn’t help investors much is that companies in high growth countries tend to issue more new shares in order to finance the growth.
I prefer to invest in countries which are rated as having low corruption.