[webwright]

"the #1 reason for any "How I did <anything regarding money>" is really, "I am cheap.""

I read it as "what happens when you invest intelligently in a booming real estate and stock market" (especially the former). I don't think this path is open today.

[scarmig]

At this point, investing capital in real estate and stock markets is a fool's errand. They're done. Maybe they're okay as a savings vehicle (maybe!), but you should not realistically expect to make more than 2-3% returns after accounting for inflation, fees, taxes, and time spent on them. And, no, you're not going to be able to consistently outperform people who specialize full time in those kinds of investments and who have access to insider information.

The real trick is to invest in something you do have access to insider information about and that you do do full time: being yourself. Invest in human capital, aside from a financial baseline to diversify for when your human capital starts to rapidly depreciate.

In some ways this is cheap. Reject certifications besides the most basic (a degree). Focus on getting an education instead. Buying a top of the line computer, high speed internet access, and books to learn from, for developers, is an almost negligible expense that will go a long way. And the most valuable way to learn--creating useful projects--can more than pay for themselves.

In other ways this is expensive, though. Choosing to invest in a 401k* takes an hour or two of your life per year, while investing in yourself is at least one or two hours a day. This is very, very expensive if you're already spending 50 hours a week sitting at a computer pounding away at brain-deadening code. (On the other hand, if you can get paid while also increasing your human capital... you've hit gold. Stay there until you've stopped rapidly learning, and then jump to the next big thing.)

Key point, though: there are multiple areas you have to invest in. Yes, a professional skill like coding is useful. But who knows what it'll be like in 5 or 10 years? Make sure to put time into your relationships, your physical health, your non-coding hobbies (drawing, banjo, typography, whatever). This diversification exposes you to more long-term investments: they help you maximize your luck surface area and will come in handy surprisingly frequently down the line.

How do all these retire-at-30 articles fit in? They aim to maximize financial investments early on by under-investing in many categories of self-capital, hopefully catching a good bull market, and rapidly switching to building self capital at 30. The obvious flaw is the assumption of outsized returns--they're not going to be as big as hoped--but that can be dealt with by tinkering with the numbers a bit.

The more fundamental issue is that it's not diversifying. It's risky. If you've saved up 500k by 30 by working long hours and frugally cutting coupons on your time off, that's nice, and if things work out right you might be fine. But suppose the defaulting of some government thousands of miles away sets off a chain reaction of bank failures that ends up massively contracting the economy you live in. There goes most of your savings. Yes, you might have invested in bonds, but you wouldn't have been pulling in those massive returns you were banking on to retire so early. And your job, having been funded by massive amounts of loose capital, suddenly disappears. Oh, you're farked, and you'll have to start nearly from scratch again after the economy recovers. Back to giving up your weekends to the whims of an MBA. (If anyone's willing to hire an expensive 35-year-old developer when there are all these recent college grads willing to work like dogs so they can retire at 30.)

Or even simpler: you hand in your resignation on your 30th birthday, walk out the door, and are hit by a semi driven by some overworked and drugged up trucker. Wow, that sucks. At least all those hard-earned dollars will go to some charity or another.

The ideal, I think, is to semi-retire as soon as you can, and work 15 to 20 hours a week at jobs you find interesting or fun. You get the best of both worlds and have diluted the amount of risk you face at any one time.

*Controversial statement here: 401k's are the biggest scam alive today, you're not only freezing your capital but also betting on taxes being lower in the future than they are today.

[ryanwaggoner]

At this point, investing capital in real estate and stock markets is a fool's errand. They're done.

Absolutely ridiculous. When I hear a lot of people spouting nonsense like this, I know it's time to buy. American corporations are making a killing right now; why exactly would I not want to buy a piece of that business? Especially when it's on sale? Similarly, real estate is dirt cheap right now. Have people decided they no longer need housing?

Think what you want, but I'm actually doing it, right now, as are many shrewd investors I know. And I'm doing quite well.

[matwood]

Exactly. Saying that most investing is done is just as bad as people saying real estate will never go down. Generally when everyone feels one way, it's time to act on the opposite.

I'm also actually doing it right now. I own stocks and close on my first house Friday.

Now for a crazy side anecdote. My cousin closed on her first house a few weeks ago. It took her 5 houses to finally get one. The reason? Her other 4 full price offers were rejected because someone else outbid her. Yep, outbid in the down market. It certainly doesn't mean that the market has turned, but it shows the interesting difference between what the news reports is happening, what people think is happening, and then what's really happening.

[scarmig]

Doesn't the fact that my POV is apparently outnumbered 7:1 undermine the idea that everyone is a bear? =)

Instead of subjective measures like what everyone feels, I prefer to focus on things like P/E and Case-Schiller ratios. Though they obviously have their limitations, they tend to suggest that the market is still overvalued relative historical norms. And I see no reason for our economy to prosper in the near- and medium-term.

[hkmurakami]

We can argue whether there are opportunities out there or not (I personally believe that there are), but in this link I see many instances of annual returns far greater than 10%. The writer seems to have an above average understanding of the market (or just got lucky), and presuming that the average Joe (who is the target audience of his blog) can replicate these returns in any given economy sounds rather absurd to me.

Retirement managers typically assumed 8% annual return for portfolios, but in recent years have adjusted this number to 5-6% per annum. The writer's returns are at times more than 3x this number. Generalizing his experience to the wider population is going to be dangerous.

[Confusion]

I agree, though I'm currently saving some money because I expect the markets to go back down to 2008 lows. I'll buy then. Companies like Coca Cola and Shell are as good as ever, but will be much cheaper then.

  Have people decided they no longer need housing?

That may not be an entirely valid comparison, because it seems simply too many houses have been built.

[thematt]

Saying that real estate and stock markets are "done" is ridiculous. I don't know where you got the 2-3% return expectation from, but outperforming professional investors need not be the goal. Independent (retail) investors can generate sufficient market returns to live a very comfortable retirement without having to be disappointed that they're not the next Warren Buffett.

To your point, investing in human capital (yourself) is valuable -- but it's not enough. The problem is it doesn't scale. If your biggest asset is yourself, your biggest income is going to be from each additional hour you work. If you invest in other assets (real estate, companies, whatever) you can generate passive income without having to work.

I agree with your controversial statement about 401K's, not just from the future tax prediction standpoint, but also from the perspective of limiting your investment options.

[pja]

If you look at reasonable returns back in the days when we weren't busy pulling forward demand with ever rising debt / GDP ratios, 2-3% over inflation is pretty much the best you can reasonably expect if you can't afford to lose your capital.

What's "done" is the days when real (post-inflation) returns of 7-8% were achievable from passive stock market investments. Any retirement plan based on those assumptions is probably underfunded.

[goblin89]

IMO passive income can be dangerous in that it may negatively affect your motivation to invest time in yourself. The trick is actually using that income for self-investment in the first place. Self-investment is essential, while passive income isn't (I think that's among the points of grandparent).

[rdl]

401k is ok even if tax rates go UP, due to compounding gains.

However, IMO, it makes sense to Roth as much as you can. Especially if your're a startup founder in early stages, making <$200k/yr, it probably makes sense to do Roth IRA (up to 105k), Roth 401k, or Roth IRA backdoor contributions (via 401k to Rollover IRA to Roth IRA, or SEP IRA to Roth IRA). Pay the taxes now, be able to compound tax free, and distribute tax free.

I'm suspicious of the public markets in general, due to the baby boomers retiring, the sense that a lot of it is fraudulent, and the rigged nature of the markets, but it's probably the only way to do passive investing.

[todsul]

Opportunity abounds at every point in time. Most of all, at times like this when markets are flailing after a severe and (somewhat) protracted period of chaos.

Even if we were at the peak of markets (arguably the worst time to invest), there are so many opportunities that oppose real estate and public equities. I'm not talking about selling stocks short, but potentially commodities, natural resources, agriculture, business, and so much more.

The thing is, we're not at market peaks. Not even close. If anything, I'd cite this pessimism and cynicism as a good indicator to start buying.

[AJ007]

There absolutely are always opportunities, but those opportunities are not always available to those that won't or can't treat the investments as a full time job.

As long as there is inflation, all you need to do is buy assets to make money. When there is stagnation or deflation, making money becomes very hard work and luck plays a bigger role. That is because the number of wrong answers exceeds to number of right ones.

[thematt]

There absolutely are always opportunities, but those opportunities are not always available to those that won't or can't treat the investments as a full time job.

Perhaps, but more often than not I hear this excuse given by people who don't spend any time researching their investments. According to the BLS, the average American spends 2.7 hours per day watching TV. If that time were instead spent on investing people would be surprised at the difference in the financial situation.

As long as there is inflation, all you need to do is buy assets to make money.

If you're only keeping pace with inflation I hope you plan to consume a lot less in the future, otherwise you're just treading water. I don't consider that "making" money.

[angstrom]

That's exactly what I read:

Step 1: Be born at the right time to take advantage of market conditions.

I see no reason to escape work. Rather my goal has always been to enjoy what I do. No matter the money pile, you'll never be able to repurchase your youth.

[veyron]

That is true of almost all success stories though ...

[kahawe]

> what happens when you invest intelligently in a booming real estate and stock market

Or, more realistically... what happens when you just get lucky swimming on the rising tide.

I wonder what OP did after year 10 when the real estate crash and the current financial crisis kicked in? No matter how clever your investments, the whole market came down.