I’m unsure why there isn’t more about personal finance on Less Wrong,
For some reason a noticeable part of LW has decided that the answer to all personal finance questions is two words—“index funds”—and tends to be hostile to suggestions that finance is a bit more complex than that.
Note that “frugal living” and “personal finance” are quite different topics. EAs, for example, are interested in the former but not in the latter as they donate their free cash flow and so don’t have to manage it.
I don’t really see the early retirement movement being compatible with EA...
To me, it’s more about financial independence than early retirement. Financial independence gives you the options to do a lot of different things; “retire” and volunteer for an effective charity, continue working and donate 100% of your income to charity, continue working and balloon your nest egg to establish a trust to be donated to an effective charity upon your death, etc. The knowledge that you are 100% financially independent gives tremendous security that (as well as it’s other benefits, such as decreasing stress) allows someone to comfortably and without consideration give large amounts of money.
I believe that “giving large amounts of money without consideration” in this context does not include the part that you need for the financial independence.
In other words, if you need X money to be financially independent, and you have X+Y, you are free to spend up to Y in whatever way you wish, including e.g. donating the whole Y to a charity or investing them in a new project, even if for an average person spending Y this way would seem insane.
Until you reach X, you work because you have to. To some degree you are motivated by fear. You probably take jobs you wouldn’t take if you were born in a billionaire family.
After you reach X, the fear motive is gone. But you can still do things for other reasons, for example because they are fun, or because you feel competitive. Some of those things may bring you more money.
OK, so maybe you shouldn’t stop, but if you’re not primarily motivated by making money any more, the likelihood that whatever you do will incidentally bring you noticeably large amounts of money Y is not very high.
There are different kinds of “motivation by money”. Some people are in a situation where if they don’t make enough money, their children will starve. Some people already have all they need, and more money is just some kind of “score” to measure how successful they are in their projects; to compete against other people in similar situation.
Some activities bring average money reliably. Some activities have a small chance of huge success, and a big chance of nothing. Not having to make money frees your hands to do the latter kind of activities, without putting your family in danger of starvation. For example, you can spend all your day writing a book, with the goal of becoming famous. If you fail, no problem. If you succeed, you can make a lot of money.
Yes, the probability of such outcome is small, because it is P(doing something like this if you already have enough money) × P(succeeding).
Yes, the probability of such outcome is small, because it is P(doing something like this if you already have enough money) × P(succeeding).
So, we agree that the probability is small.
And, actually, it’s P(doing something like this if you already have enough money) × P(succeeding) × P(what you like to do has high-variance outcomes and could generate a lot of money). Maybe what you really like is just long walks on the beach :-)
For some reason a noticeable part of LW has decided that the answer to all personal finance questions is two words—“index funds”—and tends to be hostile to suggestions that finance is a bit more complex than that.
Isn’t the fact that finance is complex the very reason why unless you’re an expert you probably had better play it safe than try to outsmart the market and risk getting burned?
There are index funds that also include smaller-cap equity, non-US equity, and bonds. And even a large-cap US equity index fund is probably better than gambling except for the small minority of people who know what they’re doing.
My point is not that investments betters than index funds can’t exist
An “index fund” is not an investment. It’s a large class of very diverse investments with different characteristics.
Reading charitably, the advice the invest in an index fund really says “your investment portfolio should be diversified”. That is generally true, but woefully inadequate as a sole guideline to figure out where to put your money.
EAs, for example, are interested in the former but not in the latter as they donate their free cash flow and so don’t have to manage it.
I think this is a mischaracterization, as 1) I don’t think giving everything above a certain threshold is a majority behavior (note that GWWC’s pledge only requires you to give 10%), and 2) EA’s discuss investing for the purposes of giving more later.
What I was trying to mean was that effective altruism might benefit from those who don’t retire, per se, but become financially independent early in life, and can remain so for the remainder of their lives, so that they can spend the rest of their careers volunteering for effective causes and organizations. Thought I can’t find the particular blog post right now, I recall Peter Hurford pondering that if he concluded doing direct work in effective altruism was the path for him, instead of earning to give, he might keep working a high-paying job for sometime regardless. That way, he could gain valuable experience, and use the money he earns to eventually become financially independent, i.e., ‘retire early’. Then, when he is age forty or something, he can do valuable work as a non-profit manager or researcher or personal assistant for free.
I can’t recall if he’s the only person who has considered this career model, but maybe some should take a closer look at it. This is how early retirement beyond frugal living habits might benefit effective altruism.
become financially independent early in life, and can remain so for the remainder of their lives, so that they can spend the rest of their careers volunteering for effective causes and organizations.
The problem is that you have to show this is better than just giving all your “excess” money to the effective causes right away and continuing to work in the normal manner.
Well, nobody from within effective altruism has written much up about this yet. It’s not something I’m considering doing soon. Until someone does, I doubt others will think about it, so it’s a non-issue. If some take this consideration for their careers seriously, then that’s a problem they’ll need to assess, hopefully publicly so feedback can be given. At any rate, you make a good point, so I won’t go around encouraging people to do this willy-nilly, or something.
This seems like a case of privileging the hypothesis. Why should we have to show that early retirement + EA volunteering is superior to working a standard job and donating free cash flow, and not the other way around?
keep working a high-paying job for sometime regardless. That way, he could gain valuable experience, and use the money he earns to eventually become financially independent, i.e., ‘retire early’. Then, when he is age forty or something, he can do valuable work as a non-profit manager or researcher or personal assistant for free.
This is a career path I am very seriously considering. At the very least, I will continue to invest/save my money, if for no other reason that it doesn’t seem intuitively obvious to me that I should prefer saving 100 lives this year to 104 lives next year. Add to this that I expect the EA movement to more accurately determine which charities are the most effective in future years (MIRI is highly uncertain to be the most effective, but could potentially be much more effective) and subtract the fact that donations to current effective charities will potentially eliminate some low hanging fruit. After all of that, I suspect it is probably a little more optimal to save money and donate later than to donate now. However I still can’t shake the feeling that I’m just writing reasons for my bottom line of not giving my money away. This is a difficult question that there have been a number of threads on, and I don’t claim to have a good answer to it, only my answer.
The only suggestion that I see get brought up here as an alternative to index funds is “invest in Bitcoin/altcoins!”, to which hostility is understandable.
For some reason a noticeable part of LW has decided that the answer to all personal finance questions is two words—“index funds”—and tends to be hostile to suggestions that finance is a bit more complex than that.
Note that “frugal living” and “personal finance” are quite different topics. EAs, for example, are interested in the former but not in the latter as they donate their free cash flow and so don’t have to manage it.
I don’t really see the early retirement movement being compatible with EA...
To me, it’s more about financial independence than early retirement. Financial independence gives you the options to do a lot of different things; “retire” and volunteer for an effective charity, continue working and donate 100% of your income to charity, continue working and balloon your nest egg to establish a trust to be donated to an effective charity upon your death, etc. The knowledge that you are 100% financially independent gives tremendous security that (as well as it’s other benefits, such as decreasing stress) allows someone to comfortably and without consideration give large amounts of money.
In the context I treat them as synonyms.
Ahem. That is an excellent way to stop being financially independent in short order.
I believe that “giving large amounts of money without consideration” in this context does not include the part that you need for the financial independence.
In other words, if you need X money to be financially independent, and you have X+Y, you are free to spend up to Y in whatever way you wish, including e.g. donating the whole Y to a charity or investing them in a new project, even if for an average person spending Y this way would seem insane.
If you’re making money with the goal of being financially independent you’re done when you have X so you can and should stop. Where does Y come from?
I don’t agree with the “should stop” part.
Until you reach X, you work because you have to. To some degree you are motivated by fear. You probably take jobs you wouldn’t take if you were born in a billionaire family.
After you reach X, the fear motive is gone. But you can still do things for other reasons, for example because they are fun, or because you feel competitive. Some of those things may bring you more money.
OK, so maybe you shouldn’t stop, but if you’re not primarily motivated by making money any more, the likelihood that whatever you do will incidentally bring you noticeably large amounts of money Y is not very high.
There are different kinds of “motivation by money”. Some people are in a situation where if they don’t make enough money, their children will starve. Some people already have all they need, and more money is just some kind of “score” to measure how successful they are in their projects; to compete against other people in similar situation.
Some activities bring average money reliably. Some activities have a small chance of huge success, and a big chance of nothing. Not having to make money frees your hands to do the latter kind of activities, without putting your family in danger of starvation. For example, you can spend all your day writing a book, with the goal of becoming famous. If you fail, no problem. If you succeed, you can make a lot of money.
Yes, the probability of such outcome is small, because it is P(doing something like this if you already have enough money) × P(succeeding).
So, we agree that the probability is small.
And, actually, it’s P(doing something like this if you already have enough money) × P(succeeding) × P(what you like to do has high-variance outcomes and could generate a lot of money). Maybe what you really like is just long walks on the beach :-)
You can also be motivated by “Earning to Give”, or something to the same effect. That was largely the point of my thread.
I don’t think that the majority of people within the EA donate all the money that’s free cash flow and save nothing.
Our preliminary results from the 2014 EA survey suggest you’re right.
Isn’t the fact that finance is complex the very reason why unless you’re an expert you probably had better play it safe than try to outsmart the market and risk getting burned?
What makes you think that investing in what is typically large-cap US equity is “playing it safe”?
There are index funds that also include smaller-cap equity, non-US equity, and bonds. And even a large-cap US equity index fund is probably better than gambling except for the small minority of people who know what they’re doing.
Of course, but LW rarely gets into specifics of which index funds other than prefer low-cost ones.
Heh. Do you think there might be a fallacy involved in this argument?
Sure, it’s not like these are mutually exhaustive. Then again, hiding cash under your mattress probably isn’t better than index funds either.
My point is not that investments betters than index funds can’t exist, it’s that it’s hard for most people to know what they will be ahead of time.
An “index fund” is not an investment. It’s a large class of very diverse investments with different characteristics.
Reading charitably, the advice the invest in an index fund really says “your investment portfolio should be diversified”. That is generally true, but woefully inadequate as a sole guideline to figure out where to put your money.
I think this is a mischaracterization, as 1) I don’t think giving everything above a certain threshold is a majority behavior (note that GWWC’s pledge only requires you to give 10%), and 2) EA’s discuss investing for the purposes of giving more later.
What I was trying to mean was that effective altruism might benefit from those who don’t retire, per se, but become financially independent early in life, and can remain so for the remainder of their lives, so that they can spend the rest of their careers volunteering for effective causes and organizations. Thought I can’t find the particular blog post right now, I recall Peter Hurford pondering that if he concluded doing direct work in effective altruism was the path for him, instead of earning to give, he might keep working a high-paying job for sometime regardless. That way, he could gain valuable experience, and use the money he earns to eventually become financially independent, i.e., ‘retire early’. Then, when he is age forty or something, he can do valuable work as a non-profit manager or researcher or personal assistant for free.
I can’t recall if he’s the only person who has considered this career model, but maybe some should take a closer look at it. This is how early retirement beyond frugal living habits might benefit effective altruism.
The problem is that you have to show this is better than just giving all your “excess” money to the effective causes right away and continuing to work in the normal manner.
Well, nobody from within effective altruism has written much up about this yet. It’s not something I’m considering doing soon. Until someone does, I doubt others will think about it, so it’s a non-issue. If some take this consideration for their careers seriously, then that’s a problem they’ll need to assess, hopefully publicly so feedback can be given. At any rate, you make a good point, so I won’t go around encouraging people to do this willy-nilly, or something.
This seems like a case of privileging the hypothesis. Why should we have to show that early retirement + EA volunteering is superior to working a standard job and donating free cash flow, and not the other way around?
This is a career path I am very seriously considering. At the very least, I will continue to invest/save my money, if for no other reason that it doesn’t seem intuitively obvious to me that I should prefer saving 100 lives this year to 104 lives next year. Add to this that I expect the EA movement to more accurately determine which charities are the most effective in future years (MIRI is highly uncertain to be the most effective, but could potentially be much more effective) and subtract the fact that donations to current effective charities will potentially eliminate some low hanging fruit. After all of that, I suspect it is probably a little more optimal to save money and donate later than to donate now. However I still can’t shake the feeling that I’m just writing reasons for my bottom line of not giving my money away. This is a difficult question that there have been a number of threads on, and I don’t claim to have a good answer to it, only my answer.
The only suggestion that I see get brought up here as an alternative to index funds is “invest in Bitcoin/altcoins!”, to which hostility is understandable.