[funklute]

> Most people don't think critically about their money

This is a bit of a naive viewpoint. Take your example of putting money in the stock market, regardless of its health and structure:

So I'll follow your advice and I'll think critically about it. I'm not an economist, but I'm technically and mathematically quite literate. And what I see is that historically, it's generally been a good idea to put money in the stock market. But of course that doesn't mean that will apply to the future.

Except, how can I tell whether the stock market is in good health? Even as an academic researcher, that is a really hard problem. The best I can do is look at the past, and then take a risk.

It's not my lack of critical thinking that is the problem. It's that it is a genuinely very hard problem.

[NoboruWataya]

I would go so far as to say that thinking you, as a retail investor, can correctly judge the "health" of the market shows a lack of critical thinking.

[2devnull]

Thinking that critical thinking is a specific thing (what makes one thought “critical” vs any other?) shows a lack or critical thinking. Thinking critically is not.

[BeFlatXIII]

It is equally naive to assume that a retail investor could judge which professional fund managers are scammers, which are rainmakers, and which have a real edge.

[eru]

That's why as a retail investor you put your money in low cost index funds.

It's easy to compare costs of funds: you can find them in the prospectus and the funds advertise them.

(If a fund makes it hard to find out the fees and costs, no need to sweat it: they are likely high, so you are safe avoiding that fund.)

[Taek]

The problem is that the stock market is moving in an increasingly greater-fool direction. Companies that don't ever pay dividends, companies that don't yield control rights, companies that have extensive protections for the founders, etc.

The problem with the stock market is not that its hard to tell whether you should be in or out. Its that there's so much pressure on the general population to own stock that the stock issuers can now get away with releasing essentially worthless stock (see Snapchat for an example) and still expect it to sell anyway.

[jovial_cavalier]

Most of my family is shocked that I haven't vested in a 401k account. The fact that I haven't decided to funnel upwards of 5% of my income straight into the big craps table elicits an almost medical concern from them. They come to me in hushed tones and ask why I'm making such an obvious mistake, so I ask them why they expect their portfolios to perform well, and of course they can't answer.

I think that's what GP is talking about. I don't think it's unreasonable to put your money into stocks, but there are a ton of people in America that put a ton of money into the stock market without even getting to the point of doing some of the reasoning you do in your post.

[dgfitz]

Can I ask how you have planned for the future/retirement, or are you one of the few who found a job you love and never work a day in your life?

[SamoyedFurFluff]

Even if you find a job you love it’s important to save. There is always a concern especially as one ages that they may become disabled in a way that severely impacted income

[jovial_cavalier]

The answer is that I have not, and I probably should. But my only point is that everyone seems to think that this solution is a slam dunk, and I just don't think it is.

[freeone3000]

A 401K account is tax-advantaged and can hold everything from mutual funds to T-bills. It is absolutely a mistake to not invest in one unless you never plan to withdraw.

[Pigalowda]

People put money in their 401k because it’s pretax and often has an employer match. So if you don’t, you’re basically refusing compensation that your employer is including in its pay/benefits package.

If no employer match then you are giving up just the tax benefit. If you don’t really care about that then whatever you alternatively invest in for retirement planning has to already make up for what, like 30% you save in going pretax?

Anyways, you do you.

[funklute]

That is a fair point!

[AndrewKemendo]

>And what I see is that historically, it's generally been a good idea to put money in the stock market.

I've been following the stock market since 1995 and have come to precisely the opposite conclusion

Why?

You have zero ability to predict the state of the market at the point that you need liquidity. So it doesn't matter if your portfolio increases for 20 years, if you need your liquidity during a crash, welp you're fucked.

[chii]

> if you need your liquidity during a crash, welp you're fucked.

But this simply means you didn't predict that you'd need the liquidity, which is easier than predicting the crash.

You have to know that as you get older, you will likely need that liquidity more. Thus, you should be swapping illiquid assets over time, as you get older, bit by bit.

Not doing it is equivalent to taking a bigger risk than you could afford to be taking.

[AndrewKemendo]

>But this simply means you didn't predict that you'd need the liquidity, which is easier than predicting the crash

Oh how silly of me to forget that investors have target liquidation periods and that even the most 101 level of investor knows that

Yet somehow something so basic as - predicting exactly when you are going to need your savings - eludes millions of people

Get real

[chii]

> predicting exactly when you are going to need your savings - eludes millions of people

it doesn't elude millions. it "eludes" those who didn't plan their financial journey, or take more risks than they should be (for example, not liquidating a chunk when planning on having a baby).

Just because people can't do it well, doesn't mean it isn't what they should be doing. Financial planning is not "put all money into the stock market and hope for the best", as the grandparent post implies.

[WJW]

Sure, but crashes don't make up even 10% of the total amount of time. If you needed liquidity at any other time, having been invested would have been the right thing to do. In addition, there are many options available to make more liquidity available at all times, from literal (put) options to just simple diversification and holding a part of your wealth in cash as an emergency fund.

It's good to focus on the bad outcomes as well as the good outcomes, and most people do indeed make the mistake of only considering the good outcomes. But looking at only the comparatively rare bad outcomes and then concluding that investing in the stock market is a bad idea is just availability bias.

[dublinben]

What’s the alternative then? How have you invested for the last twenty years taking this into account?

[AndrewKemendo]

I'm the lead investor in all the things I want to do including all the companies or non-profits I've founded

[momirlan]

one shouldn't put emergency money in the stock market, but only cash that is not needed as "liquid".

[mcv]

And as you move closer to the moment you may need your money (like retirement), you should move your investment from stock to safer investments. Ideally during a hype when everything is inflated of course, but anything other than a crash is a good time to sell.

[breezeTrowel]

I don't think it's that hard. Just ask - is the S&P500 lower now than it was three months ago? If the answer is "yes" then maybe stay in cash and put that money in when the answer is "no".

Alternatively, if you want to get "fancy", you can use the 50/200 SMA crossover to determine entry and exit points. It's a much safer bet than "buy and hold" since it avoids massive drawdowns.

[funklute]

Your first suggestion is basically momentum investing [1]. But as the wikipedia article alludes to, there are some issues with this, such as a potentially high risk, that one would need to carefully consider.

I think there is a big difference between merely applying critical thinking, versus investing the necessary time into essentially becoming a semi-professional day trader.

[1]: https://en.wikipedia.org/wiki/Momentum_investing

[breezeTrowel]

Hence my focus on an index instead of trying to pick individual stocks. It's more like index investing with guard rails.

[JW_00000]

> is the S&P500 lower now than it was three months ago? If the answer is "yes" then maybe stay in cash and put that money in when the answer is "no".

Wait, isn't that the wrong way round? You're waiting when it's low and buying when it's high?

[breezeTrowel]

"Buy low and sell high", while sounding good, is generally terrible advice since you only know what was "low" and "high" in retrospect. A stock (or an index, in this case) might hit a new low only for the price to crash even further. The same thing goes for highs. A stock or index making a new high may very well continue to rise.

So, instead of "buy low and sell high" it tends to be a lot easier to "buy into strength and sell into weakness".

[momirlan]

it is actually easy to figure "high" and "low", based on price vs value of a certain stock. Warren Buffet has been doing it for a while. most people don't have that discipline and prefer momentum.

[breezeTrowel]

Correct me if I'm wrong but wasn't Warren Buffett an activist investor who'd find undervalued stocks from companies that had poor management and, once his partnerships gained enough control, fire the current management and replace it? Sounds like a far cry from "buy low, sell high".

[Arch-TK]

The person you are replying to is buying when the derivative is positive and waiting when it is negative.

[JW_00000]

But you only know the derivative in retrospect, hence, he buys when the price has gone up (over 3 months) and stops when it has gone down. To me, it seems better to buy when the market has gone down for three months.

[maest]

That doesn't work, lol

[celtoid]

Using your example of the stock market, thinking critically about money also entails understanding how the stock market works. Most people don't understand how it's built in the first place. When buying a "stock", one is actually buying a derivative of a derivative.

Extending the idea of thinking critically about money, it's a safe bet that a majority of the population have no idea how money itself is issued or who issues it.

"Most investors when they buy a publicly traded stock believe that they own a part of some company. They think that somewhere there is a stock certificate or some indication of ownership that has their name on it, but this is not the case. When you buy a “stock” you are actually purchasing a security that affords certain entitlement rights related to registered stock which actual owners hold. The registered shares of a private company are directly owned by shareholders. In contrast, the registered shares of nearly all publicly traded equities are owned by Cede & Co., which is the nominee of the Depository Trust Company (DTC). (A nominee is a company whose name is given as having title to a stock, but does not receive the financial benefits of ownership.) Cede is a subsidiary of the Depository Trust Company (DTC) which is a subsidiary of the Depository Trust and Clearing Corporation (DTCC) and the DTCC is a private company owned by elite Wall Street firms and money center banks. If you need background or a refresher on DTC and DTCC, click on this link. Effectively, elite Wall Street firms and money center banks, not institutions and individual investors, own almost all of the registered shares of publicly traded companies in the US... Effectively, you are buying a financial derivative from brokers of a financial derivative they hold from Cede that is just a digital entry in your DTC account." [0]

[0] https://smithonstocks.com/part-8-illegal-naked-shorting-seri...

[chii]

The long winded post of your simply is just spreading a form of FUD.

What does owning a stock mean, if it doesn't mean owning all entitlements, rights and obligations related to said stock?

The technical financial structure is a bit irrelevant, since this structure is created to reduce transaction costs. It made ownership of stocks much more accessible, and thus, more people could buy into it.

The idea you presented - that you don't really "own" the stock, because some other party is holding it in trust - is simply not true. After all, you do the same with the money in your bank account. Unless, of course, you're one of the few people remaining that hold out with hard cash, or even physical gold.

[celtoid]

The author of the explainer was an Executive VP at Smith Barney. Perhaps you should read what he's sharing.

[flaviut]

Executive VP at a bank is just a standard rank-and-file role. It is not a leadership position.

[chii]

There's copious amounts of allegations of illegal naked short selling but zero actual evidence - not even circumstantial evidence. The article mentions coincidences that might've happened, by citing how stock prices seems to adjust to news so quickly as to being evidence of it being manipulated.

I would not trust the article. It reeks of the same conspiracy theory as https://wtfhappenedin1971.com/

[celtoid]

I'll believe a Wall St veteran over a nameless internet person. Thanks though.

[paulryanrogers]

Meh, appeal to authority reinforcing a densely packed post doesn't win me over. Still appreciate they took the time, and it's helpful to know details. I'd prefer it was shorter and approachable to outsiders like myself.

[CraigJPerry]

Hubris.

>> What does owning a stock mean

Ownership requires property rights but you only get contractual rights. If you want to sell your stock and you both parties want to conduct that transaction under a different jurisdiction, perhaps for tax advantage, you can't choose to do that, because you don't own the property rights.

>> The technical financial structure is a bit irrelevant

That's a pretty controversial take because:

>> since this structure is created to reduce transaction costs

It also served to ensure a middleman was enshrined in all future transactions. What if you want to change the middleman, what if you don't want a middleman at all? Like I say, controversial.

>> you don't really "own" the stock, because some other party is holding it in trust - is simply not true.

History shouts loudly for us to be cautious here but presently we're blessed with a freedom to blissfully ignore those warnings.

>> you do the same with the money in your bank account

You don't. In one scenario you're a party to a private contract and in the other you're under-written to the tune of $250k (assuming USA)

>> hold out with hard cash

What does that mean in the context of a fiat currency?