Back when I was a kid - in the '60s - mutual funds were not much of a thing. They weren’t something the average person seemed to invest in - maybe they had high initial investments. The market was all about buying individual stocks, and that was clearly more volatile than a fund managed by full time managers. So it was far more likely to get wiped out by bad investment decisions.
Isn’t the stock market pretty much a zero-sum game in this context? If one retiree is doing well because of stocks, doesn’t that mean some other investor (retiree or not) has lost that money?
i.e. it’s not really a social retirement scheme, just a way to redistribute wealth with risk?
I like this quote re: why people think about investing/money differently:
“People do some crazy things with money. But no one is crazy. Here’s the thing: People from different generations, raised by different parents who earned different incomes and held different values, in different parts of the world, born into different economies, experiencing different job markets with different incentives and different degrees of luck, learn very different lessons.”
no, because the total value of the stock market is increasing. It is not a static value.
Not really. Here’s a simple example:
Person A owns 10 shares of stock X, value $1 per share. So total value $10.
He sells all his shares to person B. Now A has $10 cash and B has $10 in stock.
A few months later, stock X has doubled in value, say. Now person B has $20 in stock.
What about person A? He still has the $10. He didn’t lose anything. At worst you can say he missed the opportunity, but that’s not the same as losing money.
Better have a bundle if you want to retire there. My sis looked into it, but quickly realized that a decent house in an ex-pat community was far out of her price range.
No. There are many reasons why not, but let’s take a very small example - dividends.
A dividend is a payment from a company to that company’s shareholders. So for every stock someone owns in IBM (for example), they get about 3% back every year. What other investor is losing in this exchange?
As people get closer to retirement, it’s advisable to shift towards a more income-focused portfolio, which usually involves bonds and dividend-paying stock.
Normally, that means getting an income fund mutual fund/ETF that diversifies among a large amount of such companies, not just single stocks (ask long term holders of Ford how that worked out for them in the 90s).
If you can qualify for permanent residency status in Costa Rica (I’m forgetting the exact term for that status) you also qualify for Costa Rican health care, called Caja.
Well, if you want to live in one of those communities, maybe. But tons of ex-pats don’t live in those and do just fine. You can live quite cheaply if you’re not trying to completely replicate your US lifestyle.
Fundamentally the stock market is a way to redistribute equity in the form of shares of ownership in companies. That appears to be something all people who are terrified of the stock market don’t seem to grasp. Those shares of stock you own represent real fractional ownership in that business. Yes, there is risk in the sense that businesses fail or stocks get over valued due to hype or whatever, but there are ways to reduce that risk (diversification, dollar-cost averaging, etc). And after each stock market crash, the market comes back in a relatively short time.
In contrast, I don’t really understand cybercurrencies.
- They don’t represent shares of any real underlying value of anything.
- They aren’t practical as actual currencies.
- Each bitcoin does represent real use of resources such as energy and computer processing time that could be used elsewhere to produce things of actual value.
- Most Bitcoin is owned by a relatively small number of people.
- There seem to be hundreds of cybercurrencies, the purpose of which I couldn’t tell you.
So in my mind, cybercurrencies run a high risk of someone someday saying “this is a waste of electricity” or “I can’t use these anywhere” and the bottom drops out.
That said, it would have been nice to put a token amount of money into Bitcoin when it first came out.
I’m actually a little relieved that I didn’t. My first near run-in with crypto was with a local Cajun restaurant. Owner was a really nice guy, really active on Facebook, and had a tech background. He started offering poboys for a bitcoin back when they were valued around $6. I absolutely know that if I had installed the software to start mining, any and all bitcoins I managed to acquired would have gone into buying what now would have been millions of dollars in poboys. I can’t even fathom the amount of regret I’d currently have.
When I left China, we bought about 80 bitcoins in order to simplify Chinese currency export controls, and immediately turned most of them back into USD, with no or negligible capital gains – it was just a medium. We didn’t really need to convert to USD, which we simply put into the taxable brokerage. Oops.
Not for long-term investors, because the economy grows over time. A share of stock represents a share of ownership in a company, and entitles you to a share of the profits earned by that company. That manifests as dividends that get paid out to each shareholder, typically a few times a year. The price of a share of stock is supposed to represent the net present value of all of the anticipated future dividends from that company. Your investment grows for two reasons:
- The company is turning a profit and paying out dividends to share holders. A very common policy for shareholders is to automatically reinvest those dividends, using them to buy more shares.
- The company has strong prospects for future growth (i.e. greater profits down the road). Maybe it’s an up-and-coming tech company that’s growing like a weed, or a mining company that just discovered a massive high-value ore deposit, and the news means they’re gonna be on easy street for the foreseeable future. This attracts the interest of investors, and the increased demand for shares increases the share price, which increases the value of your investment (since you bought before the share price went up).
So you invest a chunk of money when you’re young, and when you’re old, you own more shares (because of your reinvested dividends) and the share price is higher (because the company is bigger and spraying out more profit per share than it was when you were young). You sell your shares to realize your gain, and now the new owner of your shares is counting on the company to continue performing so that they can enjoy continued dividends and share price increases. As long as the economy continues to grow over time, nobody has lost.
This leads to the question of just how much an economy can continue to grow since the earth is finite with finite resources. It seems like there must be some point in the future where continued economic growth won’t be possible. But nobody knows where that point is, and so far, everyone who has bet against the long-term growth of the economy as a whole has lost that bet. There is no certainty in life, but until further notice, a well-diversified investment portfolio represents the best prospect for generating the nest egg a typical young person working in the US will need when they retire.
Looking back at our staff retention, it seems about a third of our hires did the 25 to 30 years (depending on age) to get the full retirement benefits.
Most of us long timers, came to see it as a pleasant prison, in the later years. I stayed about 8 years after, I felt the organization and I would have both benefited from a change in employment.
But once you are 70-80% along the path, all the incentives are to stick it out a few more years.
Which takes a real toll on moral, among the senior staff.
Not just contribute the max, but DON’T USE IT if you can manage to cover the expenses out of pocket each year.
We pay as much as we can out of pocket, so we can leave that money there to grow. When we retire, we can use it for all sorts of medical expenses like assisted living. We may even be able to use it for Medigap premiums (I need to check on that to be sure).
Unfortunately, no, according to this Forbes article. (Hopefully not paywalled.)
Once you’ve turned 65 and enrolled in Medicare, you can use HSA money tax-free to pay premiums for Medicare Part B and D. Medicare Advantage plans are also eligible for reimbursement. However, premiums for Medicare supplement policies are not eligible to be reimbursed tax-free from a health savings account.
This, of course, makes no sense. You can use HSA funds for Medicare or Advantage plans, but not for supplemental? Ridiculous.
I’m “semi-retiring” in June at age 49. The reason is simple: after 20 years in medicine and medical academia, I just don’t want to do it full time anymore. And given our modest lifestyle, aggressive saving and investing, and lack of kids to worry about, I really don’t have to.
The reason I’m “semi” retiring is mostly health insurance. I have a few health issues and take some expensive meds, so staying with my employer’s excellent plan is a good move. Also, while my net worth does put me in the FIRE range, I’m not quite ready to live purely off my savings and investments.
So I’m going to work one week a month doing the part of the job I really love (teaching and supervising residents), which will let me keep my benefits and pay enough to cover most of the bills. The other three weeks out of the month I’m going to travel, write, make music, and do all the other things I wish I had more time for now. I think of it as “flipping the ratio”.
The good news is that if it doesn’t work out the way I hoped, it won’t be hard to go back to something more full time.
Bizarre indeed.
I was likely remembering the bit about part B and D premiums.
Still better than nothing.
My employer has money put aside for me that could be used for Medigap premiums. Roughly 20k by now. Then they “improved” the program and it can now be used only for their sponsored MA program. Bastards. Needles to say, I consider that money gone.
Is it a bad enough program that taking the loss by going supplemental will be worth it?
I’ll be retiring in my late 50’s and plan on sticking with the work Kaiser HMO plan that I’m currently on until 65 (only with a lot more out of pocket than I’m used to). Then I’ll have to decide between sticking with the company-sponsored medical advantage plans (currently either the same Kaiser HMO or a UHC PPO) or going independent with supplemental insurance. It’s a ways away, but a lot of options to juggle. Frankly our Kaiser plan is pretty decent as such things go, but if I one day have to get cancer surgery I’d rather get treated at a state-of-the-art research facility (which exist in my area). Decisions, decisions - retirement is such a minefield.
It’s likely an okay plan - but to use the company’s, money, I now HAVE to go with an MA plan - which is not my preference (nor should it be, from what I read). I can always switch to MA later, but it’s basically impossible to go the other way (from MA to regular Medicare plus Medigap). The plan used to allow for either. So that’s a loss of several hundred dollars a month.
Don’t diss bitcoin. My investment is worth about 10 times its initial value.
Admittedly, the original investment was from a phone app that earned it, a few pennies at a time, 6 or so years ago Now I wish I’d put a few hundred dollars in.
I could sell it all and have a nice night at a hotel. Or a week’s worth of groceries.