Stocks & Investing

[mykonian]

taxwise, similar. I think whatever assets you have are counted as your wealth from a certain point on, but regardless that's not taxed too badly, while dividents/interest are indeed a form of income.

The problem is that you're making a bet that you personally can out-guess investors even as you're asserting you're choosing low-risk stocks.

Yes and no. I'm betting they got it right, and that whatever I buy or sell has no practical influence on the pricing (it doesn't). "They" invest in everything, and set the price for a certain risk, reward and potential. Now there's tons of products to choose from. I have a certain reward I'd like as a goal, never more either. That's a fixed point. After that I want to find the products with the least uncertainty, which also means the least potential. That means you end up with a spread in certain products. None of them are risk free, but by looking for the least volatile you have less potential, but also less risk. As such, I'm not hoping they do better than the investors thought. I'm hoping they do exactly what the investors projected: sit there, pay out money, hold value, be boring. Which has as a downside that they compete with the interest rate.

Another major downside, and frankly "the" major downside, is that if the economy actually does exceptionally well, those very products are totally not interesting, money shifts away to the stocks with potential, interest rate rises. The stocks might come along with a better climate for a small extent (raw materials would, they are cyclical), bonds wouldn't. I don't have any sense for the math of it, but I hope I can balance that risk to break even in the value of the pieces, and collect my divident/interest still. I'd "lose out" on a ton of money compared to a tracker. You could see that as betting against the market (hence the "yes and no"), otoh, I couldn't care less. What I want to beat is my savings account in an as controlled possible fashion, not other people. If I'm betting as you say, I'm happy to lose.

Compared to the funds you showed, I have "lost". Yet, you can't make 7.5% or 10% on average without significant downwards risk. Like ignoring that I don't quite get how they do it while I can look at interest rates, divident history, solvability, operational values etc, the fact that something is offering me 7.5% makes me turn it down, if you get me? It's too much, I'm paying somewhere for that. I know there must be a significant risk there, but yet I can't understand the product.

[zoraster]

You're viewing the economy as a zero-sum game, but it's not. Risk doesn't necessarily increase in direct proportion to potential growth. There's a general curve to the risk/reward proposition.

Diversification within a category IS reducing risk. All a fund like an index fund does is give you automatic diversification and access to a certain sector of the economy. If you want to invest in super-unrisky stuff, you can! You just invest in a fund that does that. I don't think this is a hard concept to understand, so I'm probably explaining this poorly.

Alternatively, you can provide diversification yourself by investing in a ton of stuff, but you have to have significant capital to do that in any effective way, and any sort of transaction costs will likely make that prohibitive.

You're acting like I'm suggesting that you need to take a leap on something "promising" 8% return. I'm not at all. I'm saying that if you want a low risk situation with a "promise" of 4%, you can totally do that, but you're better off diversifying to accomplish that.

[mykonian]

You're viewing the economy as a zero-sum game, but it's not. Risk doesn't necessarily increase in direct proportion to potential growth. There's a general curve to the risk/reward proposition.

I don't really get what this means. I get it's not linear. Otoh, there are no freebies. Everything is priced in, and you bet the market works.

Alternatively, you can provide diversification yourself by investing in a ton of stuff, but you have to have significant capital to do that in any effective way, and any sort of transaction costs will likely make that prohibitive.

Yes and no. If you don't trade, the transaction costs are spread out over years. So yeah, this is the route I chose to go ~5 years back. I'm in a limited amount of sectors, not in a limited amount of products, though since I didn't really rebuy bonds too readily I'm behind on that side.

Like, I'm not crazy, lol. I've put aside money I could miss for a decade at the moment I started, I've spread, I've traded a very limited amount. I just really do not like package products, products that change, anything else that makes it opaque, and forget about leverage products, though that's not because they are too complicated. Like, do you know what you are getting into when you invest in a fund? And if yes, how long did it take to read through the prospectus to get that understanding?

[Katsuki]

What's complicated about an index fund?

[mykonian]

Nah a pure tracker only has questions how they handle cash or stock divident really. They just try to mirror the index, those rules are sort of easy to get, just invest proportionally, given the index measures it that way. You are spreading by size of total shares*price, but what gives. It's not optimal and it's not supposed to be. But the moment a fund is handling money in a certain sector, I wouldn't know what rules are obvious, how they choose their proportions, etc.

[zoraster]

It's pretty close to optimal for an ordinary investor. http://fortune.com/2016/05/11/warren-bu ... -fund-bet/

It's optimal largely because it's very, very hard to beat the market over the long-term and so the best thing that can be done is to reduce costs.

[mykonian]

Not sure why the hedge fund link was of use here.

[Ranmaru]

Do you guys have a life insurance plan? I forgot I signed up for one and have been paying around $30 per month for a while now. (Which I thought was dental insurance) I intend to keep it, since I am young. Wonder what you guys think? I use Security Life Insurance.

[shaft.ed]

Life insurance is only really needed if you have dependents

[zoraster]

yeah. what shaft said. The investment type is a bad investment, and the term life insurance is just what insurance should be: protection against the worst for those who survive you, but if there's no one who relies on you for money in the first place, you're actuarialy better off investing that $360 a year.

[Katsuki]

Aren't the benefits of life insurance generally tax related?

[zoraster]

In what way?

[Firebringer]

Life insurance proceeds aren't taxable. At least federally.

[shaft.ed]

Life insurance proceeds aren't taxable. At least federally.

but what do you care about the proceeds
youre dead

[zoraster]

also outside of iras and the like, your money you would have given to your beneficiary also isn't taxable unless you have over 5.6 million. And if your money is going to your spouse then even that isn't a concern.

[Ranmaru]

Got it, thanks guys. I have no dependents so I will consider dropping that then and look into investing options instead.

[inte]

what if u faked ur death and then tried to claim the insurance benefit?

free money

[zoraster]

i think they might catch on if you're both the decedent and the beneficiary.