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Comment by dragontamer | Hacker News Reader

I dunno who his target audience is, but I assume that the majority around here are computer programmers with anywhere from $70k/year single income to maybe $500k/year dual income ?

Financial advice in general sucks. But when we get into the specifics... such as any say $150k/year programmer or higher, the generic financial advice of 6 months saving + max out 401k plan works.

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The plan for people at average, 50k/year combined income is closer to the go to college and get some skills that will launch your career.

What I do find amusing is our collective inability to talk about things that matter. Ex: the paycheck is the elephant in the room. And even though it is brought up in this post, the paycheck differences between families can lead to grossly different experiences.

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The r/personalfinance and r/financialindependence subreddits are quite good and even cover more exotic details like the “mega back door roth” otherwise known as “after tax 401k contribution in plan conversions to roth” (which can let you add an additional 36k to a Roth IRA over the 6k limit each year in addition to the normal 19.5k for a traditional 401k).

They’re mostly bogleheads so are a little risk averse, but for most that’s probably the right move anyway.

In the overall distribution of risk-aversion, bogleheads are more comfortable with risk than far too many savers. I’ve seen too many of my parents’ generation squander decades of investment returns because of the idea that stocks are risky.

I mean once you reach a certain age you really can’t afford to just hold on to your investments for a few decades because of a financial downturn. That retirement money is also most people’s emergency medical fund which can and does hit people in their 40s.

I’m not saying to put 100% of every liquid dollar you have into the market, but in your 40s, I think it should be the majority of your investment funds.

Boglehead advice agrees, with an explicit principle of “Never bear too much or too little risk”, suggesting 30-40% bonds in your 40s and the rest in stocks.

I think more people underperform from being too risk-averse than under-perform from having too much equity exposure and having an unfortunate overlap of a large expense and a downturn in the market.

The book "Lifecycle Investing," by Yale professors Nalebuff and Ayres, argues that a young person ought to invest 100% or even more (via leverage) in stocks. (More specifically, a young person with high future earning potential, which probably includes many people here with a career in tech.)

I'm fairly risk averse and don't totally believe their leverage calculations. But it did convince me that any non-negligible bond allocation is probably suboptimal.

Even just a few years back, some top-rated corporate bonds (e.g. Microsoft) weren't a bad investment--although equities of course ended up doing much better. These days? I'm not sure there's anything that's not one step away from putting money under the mattress that makes sense outside of equities.

Not just parents generation, our generation. I don’t play the stock market, I’m not skilled enough for it, but I do have a stocks/share ISA, but I’m also not against spending money to make it. Many people I know will happily continue to pay interest on an item, but have savings which is less than the interest on credit. They have a 20% credit card vs a 0.5% interest savings.

And little things like that can help in the long run.

Buying a mutual fund is precisely not "playing the stock market"

You don't have to be skilled. Just simple indexing will beat most of thepros anyway. Most active managers lag the market anyway.

$61.5k in yearly contributions is out of reach for most people. I can't even max out my 401k due to high cost of living (with a family) and mediocre income.

Totally - it was more of an example of the quality of the subreddits. If they’re willing to get those details right then they have the earlier steps really well established.

It's definitely high quality. I guess I'm just jaded about being a loser.

You are contributing to a 401k and have a family. The two data points you’ve revealed contra-indicate loser status.

TC?

You talk about maxing out your 401k, but have looked into you maximizing your income to the be able to save more?

(Of course money is not the only important thing in your life)

i agree, mega backdoor seems to be a perk for staff / VP level employees.

No, those are called deferred comp plans and they’re a whole separate ballgame. MBDR is much more accessible to your average six-figure earning employee.

There's also 403(b)

> The r/personalfinance and r/financialindependence subreddits are quite good and even cover more exotic details

The great thing is you can read the subreddits casually for ~3 months and learn everything you need to know to autopilot your financial plan for decades if you go the boglehead route. After that you mostly need to pay attention to major changes in tax law and entitlements.

I still read them all the time but I haven't learned anything new in years.

That also makes them less useful than they could be because they don't cover many advanced financial topics, like managing taxes, investments besides "VTSAX and chill". Everything is geared towards newbies.

There's much better advice on /r/fatfire in terms of more advanced investing and tax stuff, but you have to sift through a lot of not-so-humblebragging posts. There is so much to learn outside of the "make a 100k-200k income and put everything into three securities" even if you don't use it. Real estate investing, entrepreneurship, angel investing, trusts, different corp-types, estate planning, etc.

well said. fully agree with that.

Owning a small slice of a business where you're employed can also help make you rich if it grows a lot. In the tech world there are probably more financially independent employees than founders, because of the growth of some massive companies over the last few decades and high salaries. Probably a different story in the UHNW category though, very few employees can get to that level.

The obvious pitfall is that it is putting both your income sources in the same basket. Unless you have sufficient liquidatable savings that is a bit of a "flying jump kick" - if it lands it works great, if it doesn't you are left committed to a train wreck and pain will follow.

Definitely true - usually you don't have a choice though due to vesting schedules and/or illiquid markets pre IPO.

Yeah, but the audience of those financial gurus are the general public. So sure, their advice might work for the top 5%, but the rest of people will never "get rich" using that advice. Even that top 5% could be better off if building passive income, businesses, etc.

But the irony is that the generic advice actually applies to the hacker news audience pretty well.

People reaching 100k/year or so single income should be able to save comfortably. And a lot of programmers are on an appropriate career path to get there in a few years

I wish that were true for me.

But I think you're missing the point. The advice for most people (the target audience of the gurus) is wrong. It's just a coincidence that this article is posted on HN and it would be disingenuous to examine it from only this position/context.

> So sure, their advice might work for the top 5%, but the rest of people will never "get rich" using that advice

The median household income in the United States is $79.9K. Assuming that a family of four can live on $50K (including taxes) in - most - locations, which is twice the poverty limit, they can theoretically save $30K a year in a mix of 401K, IRA, and general investment accounts.

This amount, if invested over thirty years with a 7.5% annual return (which is lower than what the S&P has historically returned by a fair amount), would give them a nest-egg of $3M. If they only manage to save half of that amount, they would still have $1.5M by retirement.

Now, this is a very feasible scenario for families in their twenties to late thirties, which is why many of the names mentioned in the article harp on the importance of investing early. It doesn't work nearly as well once you reach that point.

However, the opposite - not saving or investing, and having a large amount of consumer debt - leads to significantly worse outcomes.

> The median household income in the United States is $79.9K.

No, its not, that's the median family income, which only counts groups of two or more people related by birth, marriage, or adoption living in the same home, whereas median family income includes single-member households and those whose members have no family relation, and thus is significantly lower, about $65K.

If we want to be pedantic, I was using the median - family - income estimate from HUD, which includes Puerto Rico and extrapolates off of the 2018 ACS. The Census Bureau, which lags by a year or so, puts the figure at $86K.

"The median household income in the United States is $79.9K. Assuming that a family of four can live on $50K (including taxes) in - most - locations, ... "

I think the main problem here lies in assumption of the distribution over the various locations. $50k+ in Appalachia is good money and you might be able to save $30k out of $80k. One would not be saving and investing in many of the large cities and their suburbs (where more people live).

One thing to note is that the $1.5M-3M is not inflation adjusted and would be worth much less than it is today. It will result in better outcomes, but it won't make people rich, like many claim. $1.5M is just enough to keep a couple out of poverty who will be retiring at 65 years old, 35 years from now. This is especially true if people live longer and the cost of healthcare continues to increase much faster than inflation.

"(which is lower than what the S&P has historically returned by a fair amount)"

The next decade is supposed to be much lower. (Past performance is not an indicator of future returns).

> in many of the large cities and their suburbs (where more people live)

A 50K expense target is comfortably doable in most locations (that is, outside of San Francisco, New York City, and VHCOL suburbs). Keep your housing and car expenses reasonable, and cook at home.

> It will result in better outcomes, but it won't make people rich, like many claim.

$3M in investments allows for a ~$150K annual withdraw at retirement in near perpetuity. Add in social security, and the average take home for a dual income family will be at or over $200K a year. With this and assuming no other changes to their expenses, every year, they can 1.) go on 4-5 overseas vacations flying business class, 2.) eat out every night, 3.) purchase a new Mercedes E or S class. This isn't a bad way to live.

> One thing to note is that the $1.5M-3M is not inflation adjusted and would be worth much less than it is today.

$3M today will be worth ~$1.5M thirty years from now, assuming a 2.5% inflation rate. Even if they have only invested $1.5M, the $30K thrown off every year by $750k when, added with social security, still makes for a comfortable retirement.

Assuming a 2.5% annual inflation rate, that $200k will not be worth as much in 35 years. You would need $475k in 2056 to equal $200k today. $200k in that year is the equivalent of $85k today and after the first 15 years would be the equivalent of $58k. And that will only decrease in value further into retirement. One have to dig into the capital.

"they can 1.) go on 4-5 overseas vacations flying business class, 2.) eat out every night, 3.) purchase a new Mercedes E or S class. This isn't a bad way to live."

I find it hard to believe that people making $85k or $58k today can do these things. I think it will be even tougher with healthcare costs associated with aging.

"still makes for a comfortable retirement."

Yes, I think it would be a comfortable retirement. Where is the claim that it would make one rich? Otherwise where is the argument...

"It will result in better outcomes, but it won't make people rich, like many claim."

You also haven't addressed the $1.5M side of it properly. That $30k you're talking about is only worth $12k. If the income is $100k per year (half the $3M number), that's the equivalent of about $42K per year at retirement and only $29K after the first 15 years. I'm pretty sure money would be tight in any suburb or city on that amount. They certainly aren't rich.

> max out 401k plan works

What are the advantages of 401k instead of say dumping it into half-VOO half-crypto and making millions one way or another?

A 401K is a box, not a specific investment. You can put things like VOO in the box. Anything in the box is tax advantaged however.

Tax advantages basically mean you make the dollars invested inherently worth more

The variance in potential outcomes of holding VOO is much, much lower than the variance of holding crypto.

Buying VOO buys a share of the profits of the work of many millions of people. It also speculates that other people will continue to want to buy those profits.

Buying a token only speculates that more people will want to buy that particular token. It's much harder to project that people will continue to want it.

Oh yes. So that's why half-half.

A risk parity approach would say more like 95% to 5%, but that works too.

Oh sure, one half can be bigger than the other half.

Tax deferment and stability.

And hopefully, taxes will be same or lower when you retire.

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