There are two main assumptions threaded through this: that your personal discount rate is less than or equal to the market’s risk-free rate of return, that you expect to retire in old age, and that you think nothing will happen first to render your savings moot.
Financial strategy always depends on your expectations. If you expect civilization to collapse, then you may want to invest in guns and MREs. If you expect society to move beyond the need for money, then any money you have left after that point is wasted.
The question then becomes: is it worthwhile to hedge against other outcomes? You’re paying a price in exchange for protection from some outcomes. On the other hand, not hedging means that those outcomes will screw you and you’ll have to improvise. For example, maintaining enough in savings to last the next 6 months can help if you lose your job, but it’s money that could be spent on other things.
It seems to me that it’s reasonable to expect some form of the modern financial system to exist in 50 years, and for those with a decent income it’s not too odious to build up a decent nest egg over the course of 40 years.
The question then becomes: is it worthwhile to hedge against other outcomes?
Yes, but it’s very different to say “you should hedge against the case where you get a medical disability and the Singularity doesn’t happen” and “you should do what would have put you in the best position today.” My parents, both looking at retirement shortly, maxed out their retirement accounts and got significant benefit from doing so; I have a similar disposition and financial situation but 2015 looks very different from 1985. It is not enough for me that I won’t be taxed on the money after 2048 once I start to draw it down; the cost in flexibility from not being able to invest it in a Bitcoin-like opportunity is really high.
So it seems to me that any subsidy that beats the penalty (in the US, I believe you pay the tax you would have paid plus 10%) is worthwhile because it’s still free money (even if you pay the penalty), but beyond that it may be better to buy disability insurance (or something similar) than do pure retirement saving.
Do you feel confident that you could recognize a Bitcoin-like opportunity if one did appear, distinguishing it from countless other unlikely investments which go bust?
Do you feel confident that you could recognize a Bitcoin-like opportunity if one did appear, distinguishing it from countless other unlikely investments which go bust?
When I have thought that there was a narrow time window during which long-run predictable effects were mispriced, I have been correct 3 out of 3 times (but didn’t follow through at all once, or completely another time, for various logistical reasons). Obviously, I haven’t successfully recognized every such opportunity, but it seems like I’m good enough at recognizing gold when I come across it that when I think I’ve found gold it makes sense to bet on that belief. I tell people to expect that sort of thing roughly once every five years; this is emphatically not a claim that I can look at the market and make a good pick every day.
They’re also not all at the scale of Bitcoin. The smallest of the three was when I correctly predicted the point of maximum pessimism during the Deepwater Horizon spill to within a week, which was worth about a 50% gain as the price returned to normalcy.
Yes, but it’s very different to say “you should hedge against the case where you get a medical disability and the Singularity doesn’t happen” and “you should do what would have put you in the best position today.”
Of course. The future will be different from the present. Strategies that work today may not be viable tomorrow (just look at CD rates from the early 80s and contrast with today). However, if you assign a reasonable probability to the United States maintaining political and economic stability, and for money still being important, then some level of saving for the future seems to be a safe bet.
It is not enough for me that I won’t be taxed on the money after 2048 once I start to draw it down; the cost in flexibility from not being able to invest it in a Bitcoin-like opportunity is really high.
It depends on the person. If you’re the sort to be active with your money and seize opportunities, that’s one thing. If you’re the sort to spend money on frivolities, then tossing a certain portion into a retirement fund isn’t a bad idea.
Financial strategy always depends on your expectations. If you expect civilization to collapse, then you may want to invest in guns and MREs. If you expect society to move beyond the need for money, then any money you have left after that point is wasted.
The question then becomes: is it worthwhile to hedge against other outcomes? You’re paying a price in exchange for protection from some outcomes. On the other hand, not hedging means that those outcomes will screw you and you’ll have to improvise. For example, maintaining enough in savings to last the next 6 months can help if you lose your job, but it’s money that could be spent on other things.
It seems to me that it’s reasonable to expect some form of the modern financial system to exist in 50 years, and for those with a decent income it’s not too odious to build up a decent nest egg over the course of 40 years.
Yes, but it’s very different to say “you should hedge against the case where you get a medical disability and the Singularity doesn’t happen” and “you should do what would have put you in the best position today.” My parents, both looking at retirement shortly, maxed out their retirement accounts and got significant benefit from doing so; I have a similar disposition and financial situation but 2015 looks very different from 1985. It is not enough for me that I won’t be taxed on the money after 2048 once I start to draw it down; the cost in flexibility from not being able to invest it in a Bitcoin-like opportunity is really high.
So it seems to me that any subsidy that beats the penalty (in the US, I believe you pay the tax you would have paid plus 10%) is worthwhile because it’s still free money (even if you pay the penalty), but beyond that it may be better to buy disability insurance (or something similar) than do pure retirement saving.
Two related articles: Saving for the long term, Why is it rational to invest in retirement? I don’t get it.
Do you feel confident that you could recognize a Bitcoin-like opportunity if one did appear, distinguishing it from countless other unlikely investments which go bust?
When I have thought that there was a narrow time window during which long-run predictable effects were mispriced, I have been correct 3 out of 3 times (but didn’t follow through at all once, or completely another time, for various logistical reasons). Obviously, I haven’t successfully recognized every such opportunity, but it seems like I’m good enough at recognizing gold when I come across it that when I think I’ve found gold it makes sense to bet on that belief. I tell people to expect that sort of thing roughly once every five years; this is emphatically not a claim that I can look at the market and make a good pick every day.
They’re also not all at the scale of Bitcoin. The smallest of the three was when I correctly predicted the point of maximum pessimism during the Deepwater Horizon spill to within a week, which was worth about a 50% gain as the price returned to normalcy.
Of course. The future will be different from the present. Strategies that work today may not be viable tomorrow (just look at CD rates from the early 80s and contrast with today). However, if you assign a reasonable probability to the United States maintaining political and economic stability, and for money still being important, then some level of saving for the future seems to be a safe bet.
It depends on the person. If you’re the sort to be active with your money and seize opportunities, that’s one thing. If you’re the sort to spend money on frivolities, then tossing a certain portion into a retirement fund isn’t a bad idea.
LOL.
“I spent half my money on gambling, alcohol and wild women. The other half I wasted.” ― W.C. Fields
A.J. Simpson says that you’re an untrustworthy person.
Are you Weedlayer?