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My grandparents were children of the depression and encouraged me to invest in the vanguard 500 for as long as I could remember.

Once I joined the military and had a steady paycheck I started putting some money away each month. Fast forward twenty-something years and I’m so so so grateful to have had that influence which gives me optionally in my life.

No doubt investing with vanguard had a huge influence on their lives and I can’t imagine how many millions have been impacted.

Dollar cost averaging ftw!

My grandparents were children of the Depression and given their experience living through that they always considered the stock market to be gambling and thus never invested in the stock market. My parents absorbed that ethos and also never invested until they had to when they got a 401K (but they were well into their 50s)... then they liquidated their holdings as quickly as they could like they thought stocks were dirty, or something.

> always considered the stock market to be gambling

I also feel this way, and all of the terminology and marketing around the stock market definitely reinforces this belief. I have my retirement put into one of those diversified retirement mutual fund things which I completely ignore, but other than that, I don't mess around with stock market stuff at all. The up & down junk, trying to decide when to buy or sell, all that stuff makes me feel terrible. Same feeling as going to a casino. Not my kind of fun. I don't want anything to do with it.

The tricky thing is that the stock market CAN be gambling, but it doesn't have to be.

Day trading is gambling. Buying triple levered ETFs is gambling.

Investing in a diversified index is NOT gambling, because it isn't a zero-sum game, where you have winners and losers. You are investing in the growth of the economy as a whole.

> Investing in a diversified index is NOT gambling, because it isn't a zero-sum game, where you have winners and losers. You are investing in the growth of the economy as a whole.

I’ve genuinely never understood why this is so unintuitive to many otherwise intelligent people I’ve known. Over a long enough time horizon (and with prudent management of risk as one ages/approaches retirement) serious increase in wealth is all but guaranteed short of the US absolutely collapsing. And if that happens, then we’d all have bigger fish to fry.

> all but guaranteed short of the US absolutely collapsing. And if that happens, then we’d all have bigger fish to fry.

I mostly agree with your assessment, but lots of governments have collapsed, and that doesn't mean that everyone loses EVERYTHING. Some people are able to retain some assets, if they have them in the right form.

I do think some of the hedges people take don't make sense, though... if your hedge is to keep a bunch of cash around, you aren't hedging against your risk because your risks are correlated - the event that will cause all your stocks to go to zero will also cause the dollar to go to zero.

If you are truly hedging against the collapse of the US, you would try to get assets that would survive that... lots of possibilities, and some of them make more sense than others, but all of them have their own risks, and some of those risks are way more correlated than people realize.

Because there are real world counter-examples take Japan and stock performance there.

It has worked to this point, but past returns are not guarantee of future returns. On other hand well both political parties really enjoy line going up, so even if it leads to inevitable destruction lot will be done to keep it going up.

By this definition EVERYTHING is gambling.

Take all your life savings into a savings account? Well, you could lose it all if the FDIC and your bank collapse.

Take it all into cash under your basement? You are gambling that you won't have a house fire, that you won't be robbed, etc.

Keeping US dollars at all is gambling that the US dollar retains value - there are plenty of examples of currencies completely collapsing.

your comment reminds me of when i interned at a large cloud services provider

i was very much infatuated by the idea of total reliability on a global scale and couldn't wait to talk about the CAP theorem with anyone who would listen. Read much of the research. I still love to flip through Designing Data-Intensive Applications by Martin Kleppmann occasionally.

As I was learning about said company's server racks there was a component that I asked an engineer on my team about – "Isn't that a single point of failure?"

He looked at me, exhausted and stressed out, and just said "Take it far enough, the Earth is a single point of failure."

I got the point.

It's because intelligent people understand the truth: the market can stay irrational longer than you can stay solvent and in the long run we're all dead.

There are no guarantees (other than maybe death and taxes). There's only the likelihood that as long as the market is rational you will make money in the long run. As soon as you start setting odds on success, it becomes gambling.

Investing in the market at-large, though, is based on so many presuppositions of general global order that I struggle to understand what the entire market being “irrational” over an investing period of 30-40 years would look like short of a new world war. And I mean that sincerely and without hyperbole.

It's unintuitive because it's technically not true. All that suff about time horizon is right, but there's a legitimate reason that the fine print on the perspectus says you could lose your entire investment.

I’ll allow that I have the misguided presumption that I’d’ve been so smart as to have pulled my money out of the market just before Black Monday in 1929. But I still stand by the belief that the “gamble”, if following the Vanguard model of DCA and prudently managing risk over time to gradually shift from stocks to more stable “receptacles of wealth” whether bonds/gold/cash, is only a gamble that the United States (and thereby the world economy) will not utterly collapse on the scale of world war.

You're still gambling, you just have much better odds. Any perspectus will have fine print saying you could lose it all.

I consider it gambling when your expected value for your return is less than 1.

So, if you run a Casino, I wouldn't call it gambling because your expected value is greater than 1.

Everything is a 'gamble' in the sense that there is a chance of ruin. It is a gamble to drive your car to work, because you could die in a car accident. People don't normally call it gambling, though, because it doesn't fit what we mean when we say gambling - taking a sub 1 expected value risk for the chance of a big return.

Gambling isn't about the chance to lose money, gambling is about the rush of feeling like you're taking risks, the thrill of winning, and the crash of feeling like you're losing.

As such, if you setup auto-invest into SPY and never look at it, you're not gambling. You don't know if you're winning, you're not thinking about it like a bet.

If you go with your definition of gambling then, well, taking your salary in USD is gambling because the USD, just like SPY, could go to zero and you lose it all.

> You're still gambling

Is running a plumbing business gambling? Is opening and running a restaurant gambling? (Sure there's risk in running a business but risk is not the same as gambling.)

Because owning stock is basically owning a slice of a business. Owning a unit of a S&P 500 ETF or mutual fund is owning a slice of five hundred businesses.

I think this is a difference between 'gambling' and 'taking a gamble', and some people are confusing the two in this thread.

Yes, it is a gamble to start a business, but it isn't gambling.

You have agency over your business. You're just betting on a stock. You wouldn't own enough stock to have meaningful agency over it.

> You have agency over your business. You're just betting on a stock. You wouldn't own enough stock to have meaningful agency over it.

Yes you have more agency in deciding how to run the business, but you have little to no agency about the economic environment you're in. You're highly concentrated in one financial asset, which means any little hiccup can have huge repercussions for your life, especially since you probably only have one business in one particular economic niche.

Whereas if you own a portion of dozens/hundreds of businesses, you have less control of how they are run, but no one business doing badly will impact you as much, nor even one particular economic segment (energy, transportation, tech, agriculture). By owning a broad index of companies you are more diversified.

Further, with modern financial products you can diversify not just between market segments (S&P 500, Russell 3000), but across countries (which deals with the now do Japan retort).

> it isn't a zero-sum game, where you have winners and losers

Seems like someone who bought any time since last August and wanted to sell now would be a loser, right? Is now a good time to buy? What if the tarriff horrorshow continues and Apr 2 looks like a cakewalk? Should I put off buying until some time later?

I hate all of this and want to spend my time any way else. So, I do.

> someone who bought any time since last August and wanted to sell now would be a loser, right? Is now a good time to buy?

The parent is talking about longer term investing, about buying and holding diversified indexes for 10+ years.

Statistically, if you bought and held the S&P 500 for ~30 years, any day since its inception was a good day to buy.

So yes, last august was a good time to buy. Now is a good time to buy.

What the parent is talking about is the way of investing where you do not spend any real time on it.

The bare minimum time is to just setup an autoinvest in vanguard to buy some dollar amount of a broad index fund (like VFIAX) each month, and then never look at it again until you're ready to retire, or have to make a down payment or such.

When you take out money, you don't try to time that either, you just accept the rate is what it is at the time you sell, and only sell the amount you need.

And then, finally, if you want to not think about it much, hardly spend any time, but be slightly more diversified, you could do a 3-fund portfolio, setup autoinvest, and then adjust the autoinvest once a year to push it towards the desired balance. That's a few hours of initial setup time (reading Boggleheads wiki, setting up accounts and auto-invest), and then maybe 1 hour each year from then on (checking rough percent, adjusting auto-invest numbers to push more money towards anything that's lower than desired).

See: https://www.bogleheads.org/wiki/Getting_started and https://www.bogleheads.org/wiki/Three-fund_portfolio

Like I said in my first comment, this is what I'm doing with my retirement account. I'd prefer not to, but everyone says it's the thing to do, so OK. Still feels like gambling, though: https://www.cnbc.com/2018/09/13/these-retirement-funds-took-...

as long as you don't sell during this period, the exact time you buy should wash out? 30 years from now it won't really matter that much how efficient your monthly payment was in a particular year is the strategy

Like I said, I already have a retirement account that is doing this. I just keep the rest in high interest savings and CDs or whatever and not care about this stock market junk at all.

IMO one of the communication issues is that there is more money to be made by media talking about individual stocks and how to time the market then by saying "buy SPY and forget about it".

I see the value in investing in and benefiting from the growth of a global economy. I despise having to do it in a way that only makes the large companies larger; real economic growth for me lies in small independent entrepreneurship, not in publicly held corporations.

But the reality doesn't really show that.

Most growth comes large highly capitalised companies with money to invest in expanding knowledge and capital.

The startup making it big is still relatively rare thing in the grand scheme things.

And the majority of small businesses struggle or stay the same size for ages because they're operating in competitive markets.

I am not talking about startups but classic entrepreneurship in non-tech areas, and it may be our definitions of growth also differs. From a systemic perspective, I am not a fan of cancerous growth. Not all growth is positive for the participants of a system.

It is, in fact, gambling.

However, unlike going to a casino, elected leaders are under enormous pressure to ensure positive expected value - which is precisely why "diversified retirement mutual fund things" are such a good idea for the public investor - they're basically saying "sign me up for EV, please and thank you".

Also unlike going to a casino, some stocks pay dividends and you would in principle receive a share of the proceeds (after paying creditors) if the company liquidates all its assets.

This mentality is why so many people stay poor.

How would you convince people that they aren't gambling when investing in stocks? It's easy to say that this fear will keep them poor, but how would you alleviate their fears? There certainly do seem to be features of the current market that seem quite akin to gambling. Are current price/earnings ratios warranted? What about market manipulation by tweets that we see from the current administration? It seems that insiders that are privy to certain information will do much better than your average investor. At some point, people don't want to be suckers and decide to no longer participate.

Because gambling is ultimately just betting on a random number generator that's actively weighted against you. Investing is betting on the competence of an executive team to run a business. One of these, you have no control over. The other one is a win-win situation. If the business does well, you do well.

It's like saying that because your sibling or friend ended up in a shitty relationship that you need to be celibate for your entire life . . . no, you don't. Just because Company A blew up doesn't mean Company B will.

And to be clear, I'm not a fan of stock picking as a core investment strategy, but I'm talking about dollar-cost averaging in equities (low-cost index funds) as opposed to stashing cash under the bed. Long-term, betting on the economy is free money.

By the strict definition of gambling, the grandparents are correct: Buying stocks (even a diversified mix of stocks) is technically "wagering something of value on an unknown future event." We don't know whether stocks will go up or down, individually or in aggregate. It is an unknown future event. For the last ~100 years, the S&P 500 has had positive returns 73% of years, but there is no reason to believe or disbelieve that this distribution will continue for the next 100 years.

By that definition, everything is gambling, because all activities involve risk. Even keeping your money in an FDIC-insured bank account doesn't protect against inflation risk, or against the risk of the U.S. government or financial system collapsing. So this definition of "gambling" is useless for practical purposes and we should pick a better one (or just stop using the word in this kind of discourse, since it tends to confuse people and provoke semantic disputes).

> "wagering something of value on an unknown future event." But that's so broad, every meal is a gamble. Taking opportunity cost into account as something of value, and the fact that the future is uncertain, literally every action is a gamble.

> as opposed to stashing cash under the bed.

There are more options than this. My savings account gives something above 4.5%, and if that rate does go down, there's CDs and stuff like that. And I assure you, I'm not poor, lol :)

> My savings account gives something above 4.5%

Have you checked recently? Short term Treasury yields are hovering around 4% now, so I'd be surprised if HYSAs are yielding more than that today.

You're right, looks like it's 4.25% at the moment. It's not something I check on much.

With a strategy like that, you're still not going to be nearly as rich as you could be, but you do you.

I already have more money than I know what to do with. I'd rather spend my time on things I enjoy (arguing on HN) than things I hate (understanding or caring about the stock market).

It may not matter for you, and that's fine. But it matters for people who don't have more money than they know what to do with and who need to be able to fund a reasonably comfortable retirement.

Yeah, totally. If they have a stronger stomach for gambling than I do, they'll (probably...) reap the rewards, and good for them! But it's not for me.

> Investing is betting on the competence of an executive team to run a business. One of these, you have no control over.

But again, you're asking people to have a lot of trust in this executive team. Unless we have the legal and regulatory framework that can enforce that trust it all becomes very sketchy. And right now it seems like the legal and regulatory frameworks are under attack. It's becoming more a game of "who you know" and favor currying. That kind of erosion of trust is really dangerous for the markets.

> Investing is betting on the competence of an executive team to run a business.

Incorrect. Public markets investing (which is what you're talking about here) is about betting that the market is undervaluing some business. This is fundamentally different from "betting on an exec team". The price matters a lot.

I mean, there's also some risk premia and some liquidity risk that you're being paid for, I guess.

But "betting on the competence of an exec team" is just wrong.

The point is that you are betting on the fundamentals of a business. Or a basket of businesses. And it's not just about whether a business is under/overvalued. That matters for growth stocks, but there are also stocks you can make scads of money on over the long term because they are boring, stable businesses that pay a consistent dividend you can then reinvest. Or boring, stable low-cost index funds that just track the market.

Gambling is the total opposite of that. Investing in an equity is saying "I have reason to believe this business or basket of businesses will continue to return profits to their shareholders." And you can do research into their financials, their industry, and so forth to make an informed decision. Gambling is just that . . . random chance in a game that's ultimately rigged against you. Investing is almost the opposite of gambling.

The best argument I've been able to find is when they're offered a company match in their 401(k) or similar.

Basically - total market index funds have very low cost, and the entire market has very rarely gone down 50%, and eventually recovered.

Since your company is matching you 50% (or 100%) on your contributions, if the market goes down you're losing "house money/free money" you wouldn't have otherwise.

Then after years and years they just get used to it.

It may not be possible, but you need to get people to realize that thinking in absolutes is not principled, it is naive.

All of our existence involves gambling in the sense of balancing probabilistic risks. You need something more nuanced to distinguish gambling (the moral vice) from risk management (the inescapable survival tool).

> How would you convince people that they aren't gambling when investing in stocks?

Same way you convince them betting on the ponies is not gambling. If you pick a sure thing you're guaranteed to make money. All you need is a system.

> How would you convince people that they aren't gambling when investing in stocks?

How about:

> But in a casino the longer you play, the higher your chances of walking away a loser since the house has the edge.

> The stock market is the opposite of a casino. The longer you play, the higher your odds of success in terms of experiencing positive returns on your capital.

* https://awealthofcommonsense.com/2023/05/the-stock-market-is...

* https://www.cfainstitute.org/insights/articles/investing-vs-...

I don't understand why this is being downvoted. This is exactly the mentality that Jack Bogle promoted: stay out of individual stocks, load up on a diversified stock index fund that pivots gradually toward stabler assets like bonds as you age.

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My Grandfather was young during the Great Depression, and his relationship with money was much different than I can imagine. His idea of diversified investments was cash in several different banks. He just didn't spend money if he didn't have to -- to the point of not wanting to get a cordless phone (which could be carried in his walker) because he had a perfectly good wired one in the phone nook.

When he died in his 90s, his car was the one he bought to visit my parents when I was born.

If you needed the money immediately, that's an understandable reaction to the Depression.

If you did dollar-cost averaging through the Depression, and didn't have any immediate need to withdraw, you'd have come out of it doing pretty well.

Many people aren't able to dollar-cost average through the times it would be most beneficial. There's a strong correlation between stocks getting cheaper and being temporarily unable to earn enough money to continue your usual investing.

How to become a millionaire:

1. Start with $10,000,000 2. Invest right before an economic downturn.

It is gambling, but the kind where the odds are in your favor!

They aren't wrong. It kind of is gambling, depending on how you do it. Even if you do it the smart way there's still some small risk. That's why the fine print on any perspectus says you could lose all of your investment.

Market/fund investment for us normal folk is so passive and disempowered that it really does amount to gambling. You put some share of your hard-earned wages in and hope for the best.

It's been shown to be a mostly rewarding strategy over the last century of so, averaged out at least, and so of course it's not really a foolish bet for most folks, but it's not the only way to secure one's financial health and isn't the ideal one for everybody.

Scrappy hustlers, skilled trade workers, and (SMB-scale) entrepreneurs in particular can often see a better return by investing in themselves and in ventures in their own community, where things are not so passive. Likewise, people with modest dreams and a preference for stability often might prefer securing a paid off house, car, etc before throwing too much money into the casino -- even on good bets. And others with strong and healthy family bonds benefit most by prioritizing enrichment and opportunity for family members who can be trusted to return the favor in less flush/capable times. etc

Many young people have only really been exposed to the idea of market investment as a retirement strategy, and its a good one for many, but there are a lot of roads to staying financially healthy through late life.

> entrepreneurs in particular can often see a better return by investing in themselves and in ventures in their own community, where things are not so passive.

You don't understand the power of diversification in portfolios. Yes, there are plenty of individual ventures that will return more than an index fund. But individual ventures are fundamentally volatile. They are volatile because human beings are not machines. People burn brightly and then burn out. People push hard and then fall sick. Cultures and institutions and trust are painstakingly built, and then wiped away in an instant by ideologues.

As an individual investor, you have your labor and your savings. You cannot productively diversify your labor, but you can diversify your savings.

yes, diversification is the basis for sound investing.

yet, if you look at all people and companies that have grown extremely rich extremely quickly, there is one very common factor: they didn't take money out of the company, but reinvested every single penny. thats the way you can outgrow your competition which doesn't do the same thing. failing businesses are often those that paid too much to their owners.

> reinvested every single penny. thats the way you can outgrow your competition which doesn't do the same thing

First of all, to reinvest, you need to have some profits in the first place. Even getting to the point of having any revenue at all, you're losing 90% of entrepreneurs just to get there. Second, among those 10% of entrepreneurs who get to the point where they have any revenue (let alone profits), it's sheer hubris to think that you are unique or special in reinvesting; most entrepreneurs are not seeking to take their goose's golden eggs while they are the size of peas.

There are very, very, very few entrepreneurs who pass survivor's bias to talk about their golden eggs.

That's not being financially healthy. That's far closer to gambling than investing in a diversified portfolio is. Just because you add the potential for an extremely high return does not make a strategy financially healthy.

Plenty of businesses also fail. In fact a large chunk do.

Starting a business is one of the most risky things you can do. Much more risky then having a diversified portfolio. However the rewards can be amazing given the relatively small chance it hits jackpot.

Even right now a lot of people retire and then liquidate their 401k

I just don't get it. My father and father-in-law both did it.

I agree it’s a terrible strategy on average, but Money has diminishing marginal utility. Having 1/10th as much money is far worse than having 10x as much is better.

As such once people can lock in a reasonable retirement they often get really conservative.

This is why high progressive tax rates, let alone high marginal tax rates, are justifiable. The less you earn, the lower a percentage of your earnings you can afford to lose before having to make drastic lifestyle changes. However, relatively low on the absolute income range for Western countries, you reach a point where you could lose 90% of your income, live in a high-cost-of-living area, and still experience negligible change in your circumstances. Tax rates should be based on analyzing where that point is.

Tax rates should also be based on what the public expenditure need is, not just maximum revenue.

The redistributive effect of taxes is a feature, not a bug. Inequality distorts political and social dynamics. One of the functions of taxation is to make rich people less rich, and we shouldn't run from that.

It doesn't seem like taxes are a cure for inequality. At least I don't see any examples of it.

The goal is to mitigate inequality not eliminate it. Someone making 10x as much as the average person has minimal impact, 100x isn’t a big deal, but you keep adding zeros especially with passive income and there’s significant repercussions.

US inequality increased significantly after the top tax rates, long term capital gains, etc declined significantly. There’s no question those are related, it was explicitly the intended effect.

It doesn't seem to have the intended effects in other countries. Income inequality has gone up in other places such as Europe too. The real driver seems to be the modernization of jobs with the job types moving from secondary to tertiary types, especially knowledge work. The main reason the wealth is uneven here more so than in other countries is because of the big tech companies that we have and others don't. All those unrealized gains from company ownership are the main driver of the extra 20-30% the top people have vs the top people of other countries.

Again it’s a question of scale. There’s a bunch of countries with higher levels of wealth inequality than the US like Zambia and Russia so it’s the result of lots of forces.

Wealth inequality can increase from trends which are net positive but that doesn’t change the fact it’s a net negative. Thus, changes to the tax code specifically designed to increase wealth inequality working shouldn’t be surprising even if other factors are also in play.

That’s true up until the point of budget deficit.

I find earned income tax is never justifiable. Working should never cost you money. Marginal land value tax rates do make sense though (and marginal sales tax rates, but that’s harder to implement).

The current situation of low land value tax rates and high earned income tax rates leads to two old people living in excessively large lots while two young working people give up goals of having kids because they don’t want to raise them in a 1,000 square foot rental they don’t consider stable enough.

> Working should never cost you money.

And that’s the case as long as the income tax is at or less than 100%. Income taxes could well be collected from employers directly and never reach you (like some European countries do for roughly 50% taxes due). Ultimately what counts is how much your employment costs. Psychologically, it then may not feel like you are paying anything, because you don’t. You working supports public infrastructure for public benefit (which includes you again). Prefer to pay no taxes but having to build your own roads? Good luck with that.

> And that’s the case as long as the income tax is at or less than 100%.

No, its true as long as taxes on income plus the necessary-but-non-deductible expenses associated with maintaining the job that would not be required otherwise are less than the pay for doing the job.

But income taxes aren't the only taxes on income (payroll taxes exist), and costs of work (added wardrobe costs imposed by dress codes and expectations, commute costs, added childcare costs) are real.

Functioning governments drastically increase worker productivity through several means such as enforcing the rule of law, sanitation, infrastructure etc. This is also why people want to immigrate to countries with such high tax rates and more specifically income tax rates.

Thus as the value of wages and investment returns is a direct result of government actions just as the value of land is a direct result of government enforcement of property rights, it’s got equal legitimacy for taxing both.

I don't disagree with anything you said but I also don't see how it bears any relationship (positive or negative) to my post that it responds to.

To be clear, I agree the costs of work caps maximum tax rates well below 100%.

However, I was dumping government into that same cost of work category as commuting costs. It just makes more sense to work in a country where you make 100x as much even if you’re paying 50% in taxes than a failed state with zero income taxes. As such it also makes sense for governments to impose income taxes to be able to pay for things like education that improve short or long term productivity.

> As such it also makes sense for governments to impose income taxes to be able to pay for things like education that improve short or long term productivity.

Why can’t land value tax be used? It already is in the USA (and probably around the world), but the labs value tax rates can be increased to properly allocate tax liability to this who consume more.

Because market distortion harms society?

Tax homes based on the number of rooms and people suffer without closets even though total revenue remains the same. Income taxes have this wonderful property where factory workers can’t game the system thus avoiding distortions. Land taxes high enough to offset income taxes results in all sorts of unpleasant side effects.

The US approach of funding local schools is horribly inefficient. People like it because it reinforces the class system, but just as with closets people end up with lower standards of living because they’re optimizing around arbitrary rules.

> Tax homes based on the number of rooms and people suffer without closets even though total revenue remains the same

How is this relevant to land value tax?

> Income taxes have this wonderful property where factory workers can’t game the system thus avoiding distortions. Land taxes high enough to offset income taxes results in all sorts of unpleasant side effects.

Why would earned income taxes not have unpleasant side effects if land value taxes have unpleasant side effects? All taxes affect the market, and they are supposed to.

Isn’t it unpleasant that people in large lots who inherited from their ancestors’ pay very little tax for all the security an orderly society provides and all the courts/police/military that keeps their land safe?

Isn’t it unpleasant that too low land value tax rates keep empty store fronts, empty lots in the middle of urban areas, increasing the lengths people have to travel and removing the ability to walk anywhere?

> The US approach of funding local schools is horribly inefficient. People like it because it reinforces the class system,

Only because it’s a flat tax rates. If it was a power law formula, then people using less land (aka those in apartments and in general, far poorer) would pay far less than those on 0.06 acre lot townhomes who would pay less than those on 0.15 acre lot mansions. Not to mention all the rich landowners (via REITs and other real estate holding companies) paying far more for commercial real estate, incentivizing them to make productive use of their land, such as dense housing and not keeping spaces empty.

> How is this relevant to land value tax?

It’s an example of distortion.

> Why would earned income taxes not have unpleasant side effects if land value taxes have unpleasant side effects?

Distortion requires some way to optimize for the tax by charging behavior unnaturally. Maximizing income results in the same behavior with and without an income tax. Instead distortion comes modifications like not taxing health insurance and lower rates on long term capital gains etc.

A land value tax incentivizes less efficient allocation of resources on the other hand because land becomes artificially more expensive. For example it heavily disincentivizes farming etc. Obviously you’d end up with same kind of tax breaks but now you’re further distorting the market.

Land value tax rates can vary within and without metro areas.

It already does, and no one is going to farm a few acres in the middle of a metro or suburb. They will hoard the land and keep it empty or underutilize it with low density housing/business to serve as a piggy bank they can 1031 exchange.

And again, the big distortion is old and wealthy people disproportionately benefiting from an orderly and secure society, while paying the least, while young people who work pay the most. See Additional Medicare Tax for another example.

> Maximizing income results in the same behavior with and without an income tax. Instead distortion comes modifications like not taxing health insurance and lower rates on long term capital gains etc.

I disagree from a society wide perspective, levying a higher tax burden on rent seekers is beneficial. Rent seeking needs to be disincentivized, and using earned income tax to keep rent seeking taxes low (such as land value and estate and cap gains taxes) is overall a negative for the future of society.

> vary within and without metro areas

Even more distortion.

When you look land value tax and start thinking ahh but this impact needs to be mitigated that’s a sign there’s an inherent problem with the approach. There’s an endless list of things people would tweak if it was high enough replace income taxes the flawed system that resulted would still just be less efficient overall.

Just by comparison people don’t single out professions and say lawyers should have higher rates than doctors. You’re not tempted to try and manipulate the economy through central planning as we would be with land value taxes.

You claimed working costs you. You’re free to have that perspective but I think it is unfortunate and does not contribute to one’s well being. You can, simply for your own benefit, decide to take a different view on it, without having to change any factual truths. You get paid for your work.

I wouldn’t want to think that somebody is taking something that belongs to me away from me. That is not a pleasant feeling.

Hardly anyone would work if the downsides outweighed their personal benefit. Actually, some people decide not to. It’s a trade-off that I’m personally happy to take by working. I enjoy my benefits. Feel free to quit! If it would cost me more than I gain from it, your original point, I would certainly do that.

> Prefer to pay no taxes but having to build your own roads? Good luck with that.

I never implied preferring not to pay taxes. Marginal land value and consumption tax rates would set incentivizes properly.

Earned income tax is the rich and the old and their younger beneficiaries benefiting (rent seeking) off of others’ labor.

This is why you might say, transition out of stocks being the majority of you portfolio to bonds.

To completely cash out - as in, not be invested at all - isn't wise.

Did they need the money for life expenses?

Spending from your 401k is different than liquidating it (until the end... if you've got a month or a year of funds in the 401k and you take it all out, sure that's liquidated, but if it took you 10+ years to use it all up, it's not liquidating in casual conversation)

> Spending from your 401k is different than liquidating it

Define "liquidating". Do you mean moving all investments in the 401k to cash and equivalents? That seems sensible if you don't want any more market-risk exposure going forward. Withdrawing everything at once seems ill-advised because you'll get hit with high taxes unless your 401k balance is really small.

I would assume this means take a full withdrawal of the 401k and dump it into a checking account.

> Even right now a lot of people retire and then liquidate their 401k

As children of the depression, where did your grandparents get the knowledge to invest in the market? From what I've seen, lots of people weren't keen on the market after growing up through the depression. Good on your grandparents.

Agreed, that generation generally viewed the stock market as gambling and thus didn't tend to invest. I'm not sure I can blame them for coming to that conclusion after living through the Roaring 20s bubble and the ensuing Depression.

> that generation generally viewed the stock market as gambling and thus didn't tend to invest

which, i reckon, might've been what made returns high as that cohort didn't invest as much while prices were down, and thus made more returns as prices grew in the future.

The recent growth in people (esp. young people) investing (from it being easier than ever, to availability of information about investing) would make prices grow higher faster. This, i predict, means future returns are actually going to be lower for this generation.

Since everyone "knows" index funds are the way to go, thats what everyone does, which IMHO is one of the reasons why stocks are so overvalued

>Since everyone "knows" index funds are the way to go, thats what everyone does, which IMHO is one of the reasons why stocks are so overvalued

Its been general knowledge for a long time. Even more so now, yes, but even before the internet. Famously Warren Buffett has proclaimed that the average person should be investing in index funds for many decades, for example. Bogle published his methodologies like 40 years ago. Value investing was also well understood (and is what made Warren Buffett a billionaire).

Neither of which of these strategies have seemed to overtake the public en masse, even as investing has become easier. There seems to be some disconnect in the human brain that most people can't seem to get their act together with investing[0].

Anecdotally I have been a big Boglehead for quite some time, and long talked people's ear off about it, which inevitably means I'm talking about investing in index funds (the 'holy bogle trinity'[1]). Yet, while I continue to build wealth this way, nobody I know has followed this sound advice, even as I have openly shown that its reasonably sound and likely better than most other forms of investing.

Instead, people buy stock in specific companies, or still trade crypto, or see themselves as day traders etc. with all kinds of predictable (and mixed) results.

There seems to be some allure in the human mind that drives it. I'm not entirely sure what it is, but passive index fund investing while sound, and certainly well known, isn't as 'hot' as it should be.

All this is to say, I don't think its overvalued at all. I think its still undervalued relative to performance

[0]: even when given all the knowledge and tools, though financial literacy isn't great in the US, its not the only reason behind this.

[1]: The three fund portfolio: https://www.bogleheads.org/wiki/Three-fund_portfolio

> I'm not entirely sure what it is, but passive index fund investing while sound, and certainly well known, isn't as 'hot' as it should be.

and i'm glad for it, since i am still accumulating, and i'd prefer it if the prices aren't too high. If other people fail to heed good advice when they here it, they also deserve to get whatever they get in the future.

And companies getting onto an index seems potentially fraught with corruption when so much money is at stake. Is there a publicized algorithm that determines which companies get into an index or are palms greased?

That said, I mostly invest in indexes even though I have concerns. I've just done much better over the years with index investing than investing in single stocks. Diversification is maximized in index investing.

> getting onto an index

the S&P 500 index is hand picked (by some committee iirc) at S&P.

But there's only 1 type of index fund - the total market, cap-weighted index fund - that's worth investing in as a passive investor. Not any specific index that excludes some stocks while including others.

well it is a "gambling" tho, they are right but you cant avoid that like you still need to invest some of money into that

The way it worked for my grandpa, who also lived through the depression was basically this:

1. Living through the depression made him singularly focused on money, to the point where that's basically all he talked about

2. Throughout life, he tried everything to hustle money - normal job, individual stock tracking, index funds sure, but then also hustling collectibles at garage sales (especially rare coins, because, you know, they are also money), a wide ranging used car sales operation (he'd drive 10 hours cross multiple states to get a good deal on a car to flip), etc etc.

3. He also was pretty good with math (money is numbers), and wasn't dumb, so in the very long run he kept rough track, and realized that of all the things, index funds probably did the best, and also took like zero time. But at least he had his kinda fun doing it.

So when before I went to college (even at age 12), he'd call us up and tell us to go to a good but cheap state school, and study something like engineering that makes a good income.

So then after I graduated (from a good and cheap state school, with two engineering degrees, and also a CS degree), and got a real job, his phone calls changed to telling me to invest in the S&P 500 with as much as I could, and ignore crashes. (He would also call and try to predict crashes, some he missed (dot com), some of which he got right (2007-8), and some of which were basically fiction (2013, 2015).

So I lived like a monk for 5+ years and still live pretty frugally. I think the highest I've ever spent on my income is 50% of after tax, and it used to be more like 20-25% before house+kid.

On the plus side, working for a long time at a >50% savings rate means you're much more immune to short term work shenanigans like layoffs.

On the down side, you gotta resist buying new stuff all the time, which can be hard when there's lots of cool stuff.

My parents did quite a bit of "investing" by stock picking when I was little. That didn't work well and I didn't invest anything at all for quite a bit of time. One day I by chance discovered the /r/personalfinance subreddit and the bogleheads forum and that's when I started investing. Dollar cost averaging ftw indeed.

I had a brain fart while writing this comment. I meant to say "indexing ftw" (and also that appears to be the main innovation of Vanguard).

> I started putting some money away each month

To be honest, the positive of your story is less Vanguard, more this. You probably benefited more from old-fashioned compounding than Vanguard itself.

Too many people, sadly, don't put some money away each month.

They spend, and then they spend some more on credit, spending beyond their means.

Yes, of course, there will always be people who genuinely live paycheck to paycheck due to whatever reason.

But for people with a stable, reasonably well-paid job, its almost criminal not to put some money away each month.

Living below your means and saving is absolutely important, but the Vanguard-style index fund is what made the compounding you mention available to the general public. Without that investment vehicle, cash saved would lose value relative to inflation or be subject to a lot more risk, making retiring at a reasonable age much harder.

Yep, you would be shocked at what a high savings rate and consistent investing can do for someone, even without ever earning a FAANG salary. Being financially comfortable takes so much stress out of life.

[flagged]

Do we think index funds will continue to be this financial savior for regular people in the future?

On the one hand total market index exposure is fantastic.

On the other it’s accumulating more and more with a few firms giving them exceptional power.

Does this unravel at some point? It’s hard to think the index itself could go bad but perhaps everything behind the scenes could fall apart?

In the time since Index Funds were created, retail trade commissions have gone to zero and fractional share trading has become mainstream possible.

If it becomes untenable to trust firms to manage index funds, it would be possible , if onerous, to replicate at least a S&P 500 in a retail brokerage. There's a lot of nice things the fund does to earn their 0.03% expense ratio that you'd miss out on, especially convenience; but you'd also be able to vote your shares as you wish for all that that's worth.

The indexes themselves I don't think can stray too far from their mission, or funds will throw a fit, S&P 500 index consideration is nearly a mechanical judgement. At the tail end of companies on the 'all market' type indexes, there's perhaps room for shenanigans that could be material for those doing the manipulation, but given the realities of a market value weighted index, it won't make much difference to those following the index if an inappropriate company is added to the index and followers have to spend 0.001% of their fund on it.

>Do we think index funds will continue to be this financial savior for regular people in the future?

I've never argued that there are not market inefficiencies that can be exploited by active managers, but the twist is the very act of exploiting those opportunities quickly eliminates them. Thus why it's so hard for an active manager to beat index funds long term. If you're worried about a few high market cap companies dominating stock indexes, you could always tilt towards small cap value. That sector has under performed for decades, but every dog has it's day.

> On the other it’s accumulating more and more with a few firms giving them exceptional power.

I think that the next step will be for individual investors to instruct that their shares be voted according to certain guides. And then the step after that will be for large index investors to be able to directly vote their shares.

> On the other it’s accumulating more and more with a few firms giving them exceptional power.

Which firms are you referring to? Firms like Vanguard or firms like Apple?

I don't really see how Vanguard gets "power" here. They have no choices. They can't deviate from the index, so the money they control doesn't give them "power" to affect anything.

Or if you mean firms at the top of the index like Apple, they owe their power to their competitiveness and profit-making ability. I don't really see how inclusion in indexes inflates their power, except in an arguably slightly higher stock price. But it's not allowing them to engage in "powerful" behaviors they wouldn't otherwise. Apple isn't buying up companies it wouldn't if it weren't in index funds, for example.

> I don't really see how Vanguard gets "power" here. They have no choices.

They do have voting rights in companies that are part of the index. In my judgement, that's the more reasonable interpretation of the GP's point.

On the other hand, the more of the market held in index funds, the less is available to active investors to perform their valuation service, as described elsewhere in this discussion.[0]

[0] https://news.ycombinator.com/item?id=43859024

Ah thanks, I hadn't thought about that aspect. That totally makes sense.

Is there any information on how Vanguard exercises this? Looking online it's hard to find any actual reporting on it.

It seems like Vanguard could either not participate in governance at all, participate in a kind of "neutral" fiduciary way designed to ensure accountability but without pissing off any segment of Vanguard investors, or could be more "activist" which is where it could abuse that power.

Is there some kind of US law that forces it to operate in a fiduciary way? Or isn't that just what's best for business anyways? I'm still wondering if there's any realistic opportunity for abuse of power here.

They are fiduciaries and it seems they take the more neutral stance but that doesn’t guarantee anything in the future which is one of my concerns.

https://corporate.vanguard.com/content/corporatesite/us/en/c...

Vanguard do still have a lot of control by choosing their investments, because many of the people investing through them are buying blended funds rather than ones invested in a single index. For instance, if you look at funds like the LifeStrategy ones (which you'll commonly see recommended online by people), it's made up of lots of different funds:

https://www.vanguardinvestor.co.uk/investments/vanguard-life...

So while they can't easily pick and choose which S&P 500 stocks they include in a fund like that, they can decide if the S&P 500 is 1% or 10% or 50% of what that fund invests in. And given the total amount of investments they have, if they decide to move towards or away from certain countries/indexes/etc that could have a significant impact.

>Do we think index funds will continue to be this financial savior for regular people in the future?

why not? its an basket of stocks. correct me if i'm wrong but in the long run, index beat out stock picking.

i did some stock picking just for fun. two of my picks that i put real money into end up badly that i lose money.

One of the key ideas behind the stock market is that is allows capital to efficiently allocated - perform well and have good potential more people buying their shares, and companies that perform badly or have poor potential get fewer. So money should go towards more productive companies, although how well this works in practice is debatable.

Passive investment breaks that approach, because you're basically buying shares in every company in an index, regardless of its performance or future prospects.

And if passive investment is 1% (as it was back in the 90s) of the market then that's not a big deal, because most of the investment should still be based around performance and productivity. Nowadays its more like 50% - but what happens when that gets even higher? Does the stock market still work effectively if 90% of the money is just blindly invested without any regard of individual company performance or merit? 99%? 100%?

I don't know. But we may well reach a point where the inefficiency of passive investment creates serious problems.

There will always be active investors who look to profit off the inefficiency of passive investing. As long as we maintain healthy competition among them price discovery isn't a problem IMO.

My prediction is that index funds will become even bigger as investing is opened up to populations outside of the west. Its likely that most of the economy will be fairly automated and steadily rising unless we face major worldwide shocks (World War, plague, environmental catastrophe etc)

The book 'Trillions' by FT journo Robin Wigglesworth is very good on this subject

Anything stand out to you? I’ll add it to the list but in the meantime I found these points from Chat interesting.

3. Impact on Corporate Governance

With substantial holdings across numerous companies, major index fund providers possess significant voting power in shareholder decisions. Wigglesworth discusses the implications of this influence, questioning whether these firms can effectively oversee corporate management without the traditional incentives that drive active investors.

4. Systemic Risks and Market Stability

The author also examines the potential systemic risks posed by the dominance of index funds. He explores scenarios where market shocks could be exacerbated by the passive nature of index investing, potentially leading to increased volatility and reduced market resilience.

> perhaps everything behind the scenes could fall apart

The problems in the world that would result in the entire top line public companies falling apart that make up the TSM or even S&P 500 fall apart protractedly - not like a few companies getting knocked out and replaced by others but the _entire concept_ failing - would be of such magnitude that people's retirement savings would probably not be the 20th thing on their list to worry about. Look at how COVID even at its worst could barely knock things down more than 25% or so for a few months.

I’m less concerned about all the companies failing and more concerned about the implications of an index itself that is managed by a few titans.

what happens in a theoretical market where 100% of investors were in an index funds?

companies lucky enough to be listed in the S&P or whatever would get a huge influx of cash, but their actual quarterly performance wouldn't change whether people buy/sell their stock because people aren't picking and evaluating individual companies. so... what would determine their price?

Unless this theoretical market prevents individual investment, anyone who has opinions on any company being over- or under- valued would then be able to take advantage of the passive investors and make a lot of money buying and selling. And this would affect the price.

But then it's no longer your theoretical market that is 100% passively invested.

but even if you know a company was under valued, you should only invest in it if you think it'll be 'properly valued' in the future. for that to work, there needs to be a mechanism for price discovery on individual stocks. but if (nearly) nobody is buying individual stocks, how would it be possible?

and it's not even that the index fund is driving price discovery of the aggregate market because people using these funds just keep dumping money in on a schedule because they've internalized the message "time in market beats timing the market".

Discounted returns of dividend or buybacks from profits

>what happens in a theoretical market where 100% of investors were in an index funds?

That would never happen, because the more a market tilts towards index investing, the larger the incentive and opportunity that active management has to exploit misspriced assets. The trick is that the very act of exploiting that opportunity updates the price and eliminates it long term, and the harder it becomes for active investors to find misspriced assets.

TLDR: Active managment effectively performs a service to the market, and gets rewarded for it, but the reward is small and fleeting

I wonder if we reach a point where the concept of "mispriced" stops really making sense?

Because when you say a stock is undervalued, isn't what you're really saying is that you think it's value with increase at a higher rate than the rest of the index in future, because it will attract above-average rates of investment from other active investors? Or to put it another way, "in the future more people will want to buy this stock than other stocks, so its value will go up".

But if everyone else is the market is investing passively, where does disproportionate future demand come from?

I think maybe you should go back to first principles.

Why does a share of a company have any value? Well, if you buy 10% of the stock of widget co, you presumably get 10% of it's earnings, be that through dividends, share buy backs, etc. It's stock price will reflect that. It also reflects the future potential growth.

For some companies, (utilities, etc) there isn't much future growth so the price is mostly a function of it's ability to pay out dividends. For a tech startup, they're not paying out dividends any time soon and the price reflects it's potential to someday be BigCo with massive earnings and massive dividends.

There will always be active investors trying to beat the market, and they aid in price discovery.

So you think that active investors would shift much more towards trying to make money from dividends, rather than from speculation on the future share price?

No, I think active investors make money from trying to find over/under priced equities, and the value of those stocks is inherently a function of current and future returns.

So is your thesis that active investors will actually start to perform better as index investing continues to rise further? I believe over 50% of it is now passive.

The potential rewards to active investors are higher, but the very act of exploiting those opportunities exhausts them. As always, 10% of traders will beat the market, even net fees. The rest will continue to underperform the index, and importantly, the cadre of 10% traders changes from year to year and decade to decade and there's really no predicting it.

It's always interesting to read the frustrations of star fund managers and how difficult it becomes to sustain success just as they get popular.

probably way more efficient as only a small group of the base index funds are doing company-by-company evaluation? If we contrast the sub-prime mortgage crisis where repackaging mixed in more and more dogshit every time, this feels like the opposite.

It's not being "lucky enough." It's based on market capitalization.

It feels like after living through the great recession, a pandemic, incipient authoritarianism, that that system unravelling is exactly the kind of thing that could fall apart on some of us when we near our retirement years.

It unravels when unemployment spikes and all of these automatic 401k contributions stop and eventually reverse as the unemployed start draining their retirement savings to survive.

That sounds like a general stock market unwinding not necessarily the index system breaking down?

The system is designed to only let one or two dominoes fall at a time.

What is the evidence that it has been designed this way?

I think I'd still recommend index funds and real estate for a young person today. Buy the biggest house you can reasonably afford, and invest every spare bit of money you have in an index fund. Do everything you can to move from the worker class to the capital owning class, because that's where the returns go. And inflation isn't going away.

In theory, capitalism could fail completely. In theory, governments could stop inflating their currencies. I sure wouldn't bet that way though.

>Buy the biggest house you can reasonably afford

Strongly disagree with this. Buy the house you need, and only if you intend to stay there at least 5 years.

On the one hand I acknowledge the US tax code and housing policy encourages home ownership, but on the other, you're completely discounting the utility costs, maintenance / reno drag, and transaction costs that come with owning more home than you need.

While I was moving every year or so for new opportunities, I happily rented. When I moved to a local tech hub where I felt I could put down roots? I happily bought, but I only bought what I needed.

I saw a lot of classmates buy a home prematurely, and effectively be 'stuck' looking for work in the same small job market their whole career, where moving really helped mine.

>Buy the biggest house you can reasonably afford

You should really look at real estate one of two ways when buying.

Either you're buying a home and you live there. Its unwise to treat that in the same vein as index funds. While its definitely an asset, the mindset of living vs investing in something isn't the same, and I recommend not conflating the two.

On the other hand, if you buy real estate as an investment you should remove any thoughts about it being a living space for you and/or your family. At that point, it should be seen as something you'll rent out to others (primarily the best way I currently have found to turn a profit on investing in real estate) or doing more speculative house flipping ventures, home builds etc.

I don't really think this blanket advice is the best advice. I do think its important to own your home - simply because of how society is structured, it heavily favors home owners, plus rent is simply lining someone else's pocket, where as eventually owning a home free and clear removes a major liability from you life. To simply buy the 'biggest you can reasonably afford' could land one in a bad place

My theory: your primary residence should not be viewed as an investment, because you've got to live somewhere; if you sell it and cash out you need to turn around and find housing in what is a hot market, or move into a van down by the river. However, Millions of older, reliable voters own their home and it's the primary store of much of their wealth. Any government that impacts this will be out on the street asap. So your house is likely a good investment, but you can't think of it like other shorter-term, liquid investments.

This conundrum of generations having much of their wealth stored in their home is part of the real problem around housing in general. This is why we decided to rent out our properties after evaluating our situation and understanding that it made more sense to generate consistent profits off real estate in the form of rental income than incur all the liabilities of simply buying and living in one.

I personally think it should be one or the other - you either are buying real estate as an investment vehicle (to flip, rent, speculatively build etc) or buying it to live in, but in which point you don't treat it as a primary store of wealth - but unfortunately home ownership in the US is structured that if you buy and live in a home, you inevitably end up with it being treated as both a store of wealth and a home in which you live, and you're constantly tugging between the two things which have very different considerations.

I think a land value tax and liberal zoning laws would go a long way to fixing some of this, but is another discussion entirely

Real Estate in Canada is interesting. We invest way more of our wealth in it than Americans, yet many can't afford to get started with their first purchase. Somehow the government needs to get more people into houses without destroying the nominal value (i.e. triggering big price decreases). I suspect they'll focus on supply and programs to help people pay the high list prices, but not try and control what a home costs directly. Inflation can then solve some of the real volume problem, but with a lot of knock-on impacts and also push it down the road. Tough scenario to try and address...

>i.e. triggering big price decreases

I think this would be fine if the government was willing to eat some cost of mortgage adjustments. The biggest problem with price decreases in what I believe to be in the way you mean - that existing home owners see their values drop - is one the mortgage is underwater you have an upside down situation for both the owner and the bank.

One way to offset this is if the government eats the difference in some way. I don't exactly know how this would be structured, but if this were to be the case, I imagine it would go a long way to getting more people on board with housing reform.

It shouldn't have ever been treated like a store of wealth to begin with. You're either the homeowner or the landlord, this middle path of being both your own homeowner and effectively treating it as a store of wealth - there by in a sense making you your own landlord if you will - is the problem.

I don't think you're wrong in your advice to build wealth, but the situation I see the working class in doesn't sit well with me. And building a society were the prime directive of life is buying property and stocks seems doomed.

I see the situation as this: The middle and upper-middle class have become invested in a perpetuating a system that ultimately will strangle them or their descendants.

Wealth begets wealth, power begets power. It might be a law of nature that things like to polarize. Likely we'll see a return of society consisting of two groups: rich and powerful, poor and powerless.

Most older engineers I meet seem to associate with the mindset and politics of billionaires and multi-millionaires, and see themselves almost in the same club sometimes. I guess making a lot of money does that to people. Add to that the truth expressed by Steinbeck about the USA "The poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires."

I think we have a problem where housing and stocks must continue to make return on investment. Housing prices must keep raising, hurting the next generation. Young people increasingly don't have the luxury of job stability to buy a home. Companies must keep increasing profit, leading to offshoring, outsourcing, stricter working conditions. And now middle class government jobs must be cut and privatized so that capitalists can make profit on providing a service. All the while the top percent owns and increasing share of the wealth pie.

I felt I needed to reply because while what you are saying is the way things are, I wish it didn't have to be that way.

I totally agree with you! If we can work to change the game we should, I'm probably just being pessimistic as to our chances.

why "the biggest house you can reasonably afford"?

In the US, the mortgage markets are propped up by the government and are basically subsidized as good investment vehicles. You can pretty much guarantee that governments aren't going to get their act together and make housing affordable (change zoning laws etc) so it makes sense to buy ASAP.

>In the US, the mortgage markets are propped up by the government and are basically subsidized as good investment vehicles. You can pretty much guarantee that governments aren't going to get their act together and make housing affordable (change zoning laws etc) so it makes sense to buy ASAP.

I have some thoughts on this. Not because owning a home is a bad idea, but because you should really factor what you're buying and why. None of this is to say your premise is incorrect, but merely there should be more nuance when thinking about this.

Buying a place you want to live in is fundamentally different than buying an investment vehicle.

I currently rent an apartment, but also own multiple investment properties. Why? Because it makes more sense for my situation, where I myself may need to move more often and therefore some aspects of being in a home that isn't turning profit into my pocket are undesirable, where as buying a house where I am going to live has a very different set of checkboxes, namely between economic issues in the macro and personal health stuff where myself or my wife have to travel a bunch, we're regionally limited and have determined we may or may not want to live in our current metro long term.

That said, I absolutely did buy one of the properties with the future intent of living there myself, I simply am delaying that to make money on the property rather than letting it sit empty. I'm easily a few years away from permanently moving into it myself, but in the advent I decide to live elsewhere long term than where I am right now, I at least have the income stream.

and absolutely, the regulations (and there by, the law) favors home owners every time. Renters get screwed in this I even tell this to young renters who rent from me. You simply can't get a break on the ever growing rise of rent vs a fixed rate mortgage, but you gotta understand what you're buying and why, and don't conflate the difference between a home and an investment vehicle, as many people do.

This is really good advice - the "your home is an investment" is realtor talk to get you to overspend.

A house is a depreciating thing you can live in, and is expensive! Once you correctly account for ALL the expenses (not just mortgage, insurance, and property tax!) you discover that renting may be advantageous.

But they do often go up in value over time (ignoring maintenance keeping them together) and sometimes beat inflation (especially when leveraged).

I'd go so far as to say - though this is based on my experience, keep that in mind - in saying that your first home should be seen as an investment vehicle so you can understand the mechanics of owning a home while reaping the upside of another income

This helped us tremendously. Rental income while not game changing when you own only 1-2 properties, does help build up your assets. It also allows you to offset some expenses as business expenses, which is nice.

There is overhead of course, and we pay a property management company to do things on our behalf and they get a small percent of the rent every month, but overall it taught us a ton and we did it without incurring significant additional expenses thankfully.

Now we are up to our 6th rental property and things are going smooth so far.

This is building true wealth via real estate in my opinion. Assuming we keep going, we'll likely own 12+ properties eventually, which we will sell down the road many years from now likely for significant upside, all the while having steady income coming in from them until we sell.

The danger in real estate investing is that 80% of the time it's (moderately) easy money, 10% of the time it's annoyingly break-even, and 10% of the time it's absolute soul-crushing, bankruptcy-inducing devastation.

And since you're usually in one or two properties to start, if your first one is the tenant from hell in a downmarket, you're going to feel it.

There is truth to this, you have to structure yourself a certain way.

The best thing you can do is structuring everything through a corporation. This also allows some additional avenues when considering financing too. It also gives you the liability shield in case things go sideways.

There's overhead here though, for sure, and plenty of ways to go about it the wrong way, many footguns exist. Its not stress free.

If you want truly passive investments, index funds are the way to go. Which is why I think buying a home for living should fundamentally have different criteria

All renting gets you is the "privilege" of paying someone else's mortgage. The entire point of homeownership is to build equity and pay off the mortgage.

That way, when you retire, your nest egg can go further because you only have to pay the property taxes, and when you die, you can pass the value along to your heirs and build generational wealth.

Houses are not index funds; ideally they should only appreciate at the rate of inflation. But they are absolutely long-term builders of generational wealth through the equity in the home. Heirs can sell them and then invest the proceeds, or live in them themselves without a mortgage.

They can be great, but you need to really run the numbers and check the assumptions.

Housing where it is "affordable" (read: median salary can afford a house) is a great way to get a leg up on the pile - though remember that the average age of a person RECEIVING and inheritance is 60.

But in places were buying a house is $2m but renting the same one is $3k a month, it's hard to ever make the numbers work.

>All renting gets you is the "privilege" of paying someone else's mortgage. The entire point of homeownership is to build equity and pay off the mortgage.

Where I live, what renting currently gets you is an enormous discount compared to the cost of a mortgage and the opportunity cost of parking your cash into a downpayment. Renting and investing downpayment level money is literally a better deal than buying a house.

Why do I care if I'm "paying someone else's mortgage"? The interest payments to the bank aren't building me equity either! It's all money, going one way or another, equity is just more money, and sometimes buying a house means more money goes out than in compared to renting, even if it's more intuitively satisfying.

You care when you're 60 years old, trying to figure out how to live the rest of your life on a fixed income, and still either have to pay rent for the rest of your life or spend a big chunk of cash on a house, because you didn't spend 20-30 years paying a mortgage.

Not if I literally have higher assets than if I did spend 20-30 years paying a mortgage!

I don't necessarily agree with the advice, but I think there's a few reasons to consider it.

A lot of people find their first house too small and buy a larger house later. IMHO, most people have an idea of how many children they'd like to have and some idea of when. I think the idea of the advice is not to buy a small house that fits your needs as a single person and wait until you have a family to buy a larger house that fits your needs as a family, but to just buy the big house?

a) If you buy your first one big, maybe it will be big enough and you won't need to switch. That saves transaction costs, and keeps you price anchored to your first purchase. If your house is in a state with something like Prop 13 that effectively anchors property tax to purchase price, buying the final house earlier can save you a significant amount of property tax over the years.

b) I think house prices rise faster on larger homes than smaller homes (especially condos and things). If that's the case, buying a right size house first then a new right size house later if your needs grow means you'll have a larger gap to cross over time.

c) probably something about house prices always going up, it's implied in a lot of arguments (and it works except when it doesn't ...)

Because in the USA the deck is stacked so hard toward home ownership that it's completely batshit.

Nothing else will let you take a government-protected 30 year fixed rate loan at rates barely above what the US government itself pays, that you can pay off anytime and cannot be called, leveraged to 80% or more.

And then the loans are often non-recourse, and the asset protected in bankruptcy.

https://johntreed.com/collections/real-estate-investment/pro... has even more ways that the government is fighting hard to force you to accept leveraged appreciation.

"Inflation isn't going away" is an argument against holding cash, but since salary increases have kept up with inflation, how is it an argument for "move from the worker class to the capital owning class"?

>since salary increases have kept up with inflation,

On the actual whole, they haven't. In the last few years, salary increases did for the time period of 2020-2023 (as far as I am aware that is what we have data for around this assertion) but generally they have not.

IMO, a better measure is how well have salary increases kept up with gains in productivity, and when you look at that its truly abysmal.

When an individual faces the choice on how much to depend on salary and how much on investment income, I don't see how productivity of labor has any relevance.

For example, I might be a member of a guild that keeps my salary nice and high while having the negative effect of keeping the productivity of the guild constant, which would be bad for society, but good for me.

Also, we are mostly software developers here, and dev salaries certainly have kept up with inflation.

>When an individual faces the choice on how much to depend on salary and how much on investment income, I don't see how productivity of labor has any relevance.

I was saying this in reference to how much we get paid. As a reflection of value / worth. Compared to the value generated, our salaries are relatively small, and its hard to argue otherwise when you look at productivity gains.

If you want to capture more of those gains, being invested in index funds is a good step in that direction.

>Also, we are mostly software developers here, and dev salaries certainly have kept up with inflation.

Even if this is true - and I don't know that it is so broadly true that it can be accepted as the median circumstance of HN users - that situation won't last forever, and more importantly salary is not controlled by you its controlled by another entity.

The entire premise of the conversation is convert your salary - something you may depend on but isn't something you have sole control over - into things that you do have more control over (index funds) or effectively sole control over (real estate investments most commonly).

This allows you to decouple your wealth from any single entity, which is the central goal.

owning assets is better than owning fiat currency. assets are real and will always have value.

also the US tax code heavily favors owners. Income tax can be > 30% but capital gains tax is < 20%

It seems like it has to at some point. Things have been so unsustainable for so long

I would love to hear from a Vanguard employee on their tech challenges, e.g., why is the client web interface significantly worse than competitors? Or is it purposeful? E.g., slow down, trade less?!

I actually like their revamp a lot (last few years?). They have a million subdomains they send you around which is weird, but I don't mind the current UI. Sometimes they still send you to an old page though, like for scheduled investments (if I recall). What are the parts that irk you, out of curiousity?

I think Fidelity's Net Benefits (which I believe is distinct from the personal site) is pretty bad though.

I HATE the new web interface. It's significantly slower, shows less useful information, and has many more times where it just doesn't work as compared to the old web interface. If there was an option to go back to using the old web interface fully, I would sign up for that immediately.

For an example of a thing I hate about the new web interface is trying to buy a stock. You end up in some different part of the website where after you place your order it shows you a differently formatted order status page than the normal order status page. There's an Exit button at the top. Pressing the Exit button will pop up asking if you want to leave because you'll lose all your unplaced orders, of which you have none because how you got to the Order Status page was by fully placing an order. It's confusing for no reason.

Vanguard is really good at listening to feedback and using that to inform fixes to the various web and mobile applications. So if you're using the UI and see a survey, you should absolutely submit this feedback. They listen to it, and effect that change quite quickly on modernized pages.

I provide them feedback in their surveys and through unprompted methods at least once a year about how much I detest the new web UI. Don't worry :)

Agree with all you've noted. I'd also add that 'Exit'/'Close' buttons sometimes don't work (I use Firefox btw). Worse, you have to click so many different buttons to buy just one index fund.

In contrast, I can do all that in one pop-up/side panel in Fidelity or Charles Schwab. I have been a long time user of Vanguard (almost two decades) and I wish they revert to their old web UI, which is informative and simple enough to get all the jobs I need to do in an efficient manner.

Oh interesting. I guess I only follow the fund purchase flow on the website once and a while and everything else is automated, so I don't end up using the site as much. Probably makes me a not-so-great testimonial in hindsight.

Most of my Vanguard investments are in a very small number of IRA mutual funds which have automatic monthly deposits configured, but even just for the few trades I do with fun money each month the current web UI grates on me. I know it can be better, Vanguard used to be good at this.

Not the OP, but besides the subdomains, it feels like each section/UI/subdomain was designed by a different team. The overall interface doesn't feel cohesive (to me).

In my experience, every brokerage UI is dripping with tech debt. You can see all of the layers of paint put on over the years on top of some old ass legacy system underneath it all. You click around enough and find 2000s UI elements still in most of them.

There has been an immense push to modernize the Vanguard site and the underlying architecture. This has been an enormous effort over multiple years. Since Vanguard was always a "no-branches" company, it's always been web-based. So, as a result, much of the site was built at the "bleeding edge of the time" but they are now in a position where that needs to be fully modernized.

Vanguard's architecture is enormous, but they are getting closer and closer to fully modernizing the site and retiring legacy completely. Its something that has been happening and will continue to happen over the next few years.

Not an employee, but the reason I ended up not using them is because when I went to sign up, due to having a 401K account with them via a previous employer, I had to call their customer hotline, and their customer representative wanted alot of sensitive information over the phone - including giving them a password for my account.

I refuse to do business with a company with that shoddy of security practices. There's no reason what the representative was doing couldn't have been done online through a secure portal that respects my privacy, but alas, it could not.

I went with Fidelity. Its been great. Though all these brokerages have their pros and cons, I groked the setup at Fidelity pretty fast.

Vanguard is one of the few financial institutions that supports webauthn.

But you still can’t turn off sms fallback? Or can you now?

There is a way, apparently, but it's complicated. Bogleheads may have something on it.

The worst aspect of their web interface is poor information density. Take a look at this page as an example: https://investor.vanguard.com/investment-products/mutual-fun...

The Futu[1] has amazing trading interface, native app, no Java (looking at you, Interactive Brokers), for all desktop systems as well as mobile ones.

[1] https://www.futunn.com/en

Vanguard regularly pushes the envelope on cutting fees for investment products. In 2025 they reduced their fee structure by 350M (1)

(1) https://corporate.vanguard.com/feecuts

Jack Bogle probably did more for the average American investor than anyone else in history (maybe barring economic policy or something). His book [0] on the history of Vanguard, it's founding, and their growth is just a fantastic read.

They really did feel like this bastion of customer focused passive investing in the brokerage industry for a _long_ time. They eventually helped seriously popularize index funds to the point where every major firm offers a low cost index fund, because they have to to compete. They continued to lower their fees whenever they could to the point where VTSAX is .04% (with their ETFs being even lower).

He even turned down an offer to create the first ETF (I forget the guy that brought the idea to him), but he explained the idea to Bogle and Bogle politely declined because he thought that having the ability for intraday trading went against the Vanguard model of set and forget passive investing. That guy eventually went to the firm that runs SPY, if I recall from the book. They eventually began offering ETFs, obviously, but Bogle was always more of a mutual fund guy from the way that book puts it.

Bogle really seemed to be for the people. The man was wealthy, but not nearly as wealthy as he could be because they continued lowering fees. Their mutualized fund structure is also a massive part of that.

After he left Vanguard, you saw more traditional brokerage offerings - more active funds and more pushes for offer advisors to you over the phone. If I recall, Bogle expressed some displeasure in that.

You can tell I'm a Bogle fanboy, but I'll gladly wear that badge.

[0] https://www.goodreads.com/book/show/42938221-stay-the-course

The guy's name being John, but his nickname being "Jack", always confuses me.

Don't quote me on this, but I believe that Jack is a pretty common nickname for John, at least based on the John/Jacks I've met in my life.

Wow, TIL! Thanks - I googled it and you are right. I never knew they were related.

I recently learned that index-following ETFs have a mildly concerning problem that could be equivalent to an annual fee approaching 1%. It's caused by rebalancing that happens by, for example, stock buybacks or equity raises, which typically happen when the trade is beneficial for the active investor side of the trade. See latest video on Ben Felix's channel.

Yeah, I saw that video. IMHO it's much more of a problem with smaller indexes. If you buy total stock market (VTI) just how often is a company going to be moving in and out of that index?

I noticed he didn't really have much in the way of suggestions for the individual beyond suggesting DFA funds. Given those aren't easily available without signing up for their advisor services, I am deeply skeptical that the savings would be enough to pay for their fees.

Also, Aiui, for a very large index like VTI and fund admins have some flexibility for inclusion and weighting. They look out for obvious problems and try to adjust a bit.

It's not just company being added or removed from the index but also company selling new shares or buying existing shares.

Dimensional U.S. Equity Market ETF (DFUS) is an ETF freely tradable by many brokerages.

Comparing the overlap between the two does not convince me it's worth the extra .06 in fees

https://www.etfrc.com/funds/overlap.php

https://www.youtube.com/watch?v=mqIHa6URUPk

Is there an explainer available that isn't in the form of an 18 minute video?

This is basically just a marketing press release.

Yes but same with every other company blog post posted here

They've completely lost my business here in the UK.

They are no longer the cheapest UK ETF or fund provider in any category, and their Vanguard Investor platform isn't the cheapest either.

I find the number of people in this thread with views against index funds to be disturbing.

When you invest in an American stock market index fund, you get a highly diversified financial instrument at a fee that is so low that it is nearly free. You're buying into the proceeds of the strongest cultural force that is stronger in America than anywhere else in the world: greed. The force underlying your investment is that every CEO of every public company in America is working to make you richer, because if they succeed at making you richer, they've made themselves much richer in the process. You are investing in the greed of thousands of public company CEOs. When their greed pays off, you get paid off.

No American president, least of all Donald Trump, is going to stop the raw power of American greed, and that's not going to change without some kind of religious revolution of morals in a country that has become increasingly less religious over time.

I think a huge part of the problem is people's conflation of individual stock investment (which is risky), option trading (which is often gambling in the worst meaning of the word), and investing in mutual/index funds.

I've talked to bunch of people who seem to hate stocks in general.

It really feels like a bunch of people think the stock market is completely fake, gambling, and anyone who invests is directly contributing to strengthening capitalism, which is bad

The fact that like 60-70% of Americans have direct exposure to markets through IRAs and 401k's and benefits incredibly from it is an anathema.

I love Vanguard, and I would like see more companies like them. They offer a great service to millions of people, manage vast amounts of money, but the top leaders are not multi-billionaires.

The people who destroyed value investing brag about their bubbles.

I wish vanguard would release a 0-fossil fuels fund. I'd buy it in a heartbeat

VGT is 0% fossil fuels, ESGV is 0.54%.

I'm deeply worried about the number of people I see online who don't understand what Vanguard (or Blackrock, State Street, etc.) do and develop conspiracy theories instead. I think it presents a real risk for ETFs going into the future.

Oh thanks for the new rabbit hole. I took a peek inside and it seems to be:

Since they have so many shares of so many companies, they are secretly the shadow owners/operators OF all those companies.

ESG scores and similar have a very real and visible impact. Maybe if you are that worried instead of calling them all conspiracies you could actually address them.

Are index funds the biggest amoral pyramid scheme in existence today? It’s incredible how the prevailing advice is to indiscriminately contribute to the largest profiteering organizations. Its like encouraging everyone to go to college. No way it'll go tits up when time to retire.

I think you are making the argument-- poorly formed, frankly-- that if indexed investments become a big enough share of stock investing it will drive up the price beyond the fundamental value of equities more so than just investing individual equities.

The stock market response to "liberation day" implies that stocks don't all move together as you would expect if indexing was driving everything. Certain FANG stocks did very poorly, some mid cap or European stocks did great. The market is still trying to respond to the perceived actual value of companies, not just the expectation that more indexes will pile in and buy.

If people over invest in anything, including equities, the return on those investments will decline and bubbles will form. That can happen with the purchase of selective equities or with indexes. What Vanguard has done has probably not changed the market as much as lowering the cost to participate in it.