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Comment by throw0101a | Hacker News Reader

> Peter Lynch once said, “Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves.”

> The same is true of recessions.

> How do you prepare for one? The same way you prepare your finances for anything else.

> Instead of changing your portfolio because you think a recession is coming, create an investment plan that is durable enough to withstand a wide range of environments (one of which includes economic contractions).

> Give yourself a margin of safety with a high savings rate and an emergency fund not because it will help you survive a recession but because it will help you survive any number of curveballs life will inevitably throw at you.

> Pay your bills on time and create a good credit score not because it will help you during a recession but because it will help you anytime you need to borrow money.

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> > Give yourself a margin of safety with a high savings rate

If everyone does this, it creates a recession.

https://en.m.wikipedia.org/wiki/Paradox_of_thrift

Better to purchase durable goods (save real value, not shared delusion of money) (edit: or shelf-stable consumables), and invest in future productive capacity (backyard farm, work on your health and strength and education).

A backyard farm will be a productive investment for almost nobody. Farms take a huge amount of labor to be productive and farming has huge economies of scale. "I can grow lettuce and carrots in my backyard" doesn't produce enough food to even make a dent on your overall calorie needs.

It is a fun hobby and you can grow tastier food than the stuff at the grocery store but the people with kickass farms in their backyard that actually grow meaningful amounts of food have been doing it for years and years and spent lots of money on it.

Somewhat. Depends on what you want to do. Three year ROI can be reasonable. I probably spend about $100-150 per year on garden (and mushroom) stuff, with the higher years being in the beginning or for one time improvements (plus random new seeds to try just for fun). I get about $400-500 worth of produce every year. I try to focus on stuff that limits labor time like weed barrier and raspberries (no weeding, easy to survive, perennial). I also try to focus on expensive stuff like peppers, berries, mushrooms, and hops (for homebrew beer).

I also have an LLC for honey. It's generally low labor (compared to other livestock), but tends to have expensive equipment and replacement costs. It's possible to break even in 3 years on a small scale with cheap equipment.

So it can be productive and a net positive. During the season we can get 50-75% of our fruit and veggies from the garden with the remaining percentage being the desire for varieties I don't grow or can't be grown around here. Plus some canning, freezing, hot sauce, etc for later.. We can also get all the honey we desire, including to make mead, and still make a net profit on the bee operation of $100+ per year (can vary wildly based on the circumstances). I think this is a meaningful amount. Obviously this isn't something that you could scale to turn your 401k into.

Now I do some stuff for fun. This year I'm planning to malt my own wheat and barley that I will grow. Even if grain prices double, that's not going to help me financially since wheat will still be relatively cheap compared to other produce.

So you are ignoring labor. I think it's a fun hobby but if you value yourself at $0/hr then a lot of things become attractive price wise :)

In the broader discussion about preparing for large recessions, it seems optimistic to assume that in a big recession you'll have a sweet tech gig making big bucks. Think of the labor more like building sweat-equity in a garden "startup" or "investment".

No, I'm not. This gets into a bigger debate by economists on how to value self labor. And like I said in the post, labor is minimized.

OK you might not be, but your post did. Working in tech the entire cost of your produce for the year (you quoted $400-$500) is a few hours worth of income. I grow a garden and for me it's a lot more than a few hours of work (an order of magnitude more, maybe two).

"Working in tech the entire cost of your produce for the year (you quoted $400-$500) is a few hours worth of income."

This is highly presumptuous. We don't all make over $100k.

On top of that, you're assuming that you could offset the cost of the produce by working a few more hours. Many of us are salaried, not hourly, and have restrictions that we aren't allowed to work for other companies. The option to work more hours in that scenario is not a valid one. Trying to account for opportunity cost doesn't work when there's no opportunity being lost.

there is an opportunity cost but it's hard to precisely measure. if you're a salaried employee making $100k, you can't just work extra and automatically get to $110k. it might improve your chances of a raise/promotion in the next year, but that's uncertain. or you could spend extra time learning new tech or doing interview prep. if you're willing to change jobs, I bet the latter option nets you a lot more than $400/year.

"or you could spend extra time learning new tech or doing interview prep. if you're willing to change jobs,"

That's not really an option for me due to various family constraints, remote not being the best option for me, and my location being less than ideal.

"it might improve your chances of a raise/promotion in the next year, but that's uncertain."

It won't. Been there, done that, doesn't work.

Consulting for non-overlapping (with your employer) businesses is a very good answer.

The majority of folks employed doing tech (day to day work is technical) aren't employed by tech (i.e. for a tech firm shipping product). And those that are (HN-wise) tend to be employed at more targeted enterprises.

Both of which are to say... there are likely a lot of clients you could consult for after hours, fully disclosing to your employer, that your employer wouldn't have any competitive concerns about.

And critically, consulting is almost always hourly. Which vastly simplifies the expectations and transactions.

I'm not assuming that at all, just putting a value on your time. You could consult (I do) and you might find your time is more valuable than you think.

At the end of the day I'm not trying to convince you growing vegetables isn't worth it, it is! Just that justifying in terms of saving costs probably isn't that great of an argument. Most hobbies are not cost effective. But life would be pretty awful without them.

"You could consult (I do) and you might find your time is more valuable than you think."

I'd have to quit my current job. Most places around me (Philly area) pay below average and less than I currently make.

Here in California that LLC will cost you $800 per year just to exist, even if you sell nothing.

If I remember correctly, it's $70 every 10 years here.

I have friends who grow large quantities of potatoes and veggies in general. They really do drastically reduce their food bills.

I have more modest ambitions. I like to grow lots of sprouts and fresh herbs for cooking. No real calories but makes simple meals made without processed foods (e.g., with brown rice, beans, homemade pasta, tiny amounts of animal protein, etc.) much tastier.

Potatoes still cost like $1/lb at the store. Less if you are grabbing Russets. It is hard to drastically reduce food bills by targeting crops that are incredibly cheap. But it surely is done by some people!

What I mean here is that the huge majority of people who attempt to plant potatoes in their backyard are going to pull up like $20 worth of potatoes a year after a couple years of failed attempts. That's not really meaningfully understood as an investment.

Home gardens are fun. They are great for things like herbs (as you say) where you only need a small amount in a dish and the little clamshells at the store are both low quality and $5. But they aren't a "productive investment" except in very extreme circumstances.

Also you will starve to death eating fruits and vegetables from your backyard. You're not going to grow a meaningful amount of grain. Chickens are an option, but you have to feed them.

> doesn't produce enough food to even make a dent on your overall calorie needs

Grow potatoes. My grandad did, and it seemed to keep his family doing pretty well.

They might contain more calories, but they're also significantly cheaper than fruits/veggies. So much so that it's probably not worth your time/money even if food prices go up 100%.

But also other things. At the time I was digging tatters with my grandad, I was also reading with him a cartoon adaption of Melville's great book "Moby Dick", and from that point on digging up tatters was interspersed with cries of "Thar she blows!" and "Tis the great white whale!" as the tatters came to the surface.

You don't get this stuff with lettuce.

Edit: should of course be "taters", per Sam Gamgee.

I did the sums - it takes me 6 minutes of paid work to earn enough to buy a day's calories worth of potatoes.

I was always told that salad leaves are by far the best thing to grow for amateurs - relatively easy to grow, but very expensive in the supermarket.

> I did the sums - it takes me 6 minutes of paid work to earn enough to buy a day's calories worth of potatoes.

Assuming you have a job to work at. Or that (food) supply chains have not gone sideways.

What you grow in your garden depends on (a) whether you're just doing it for fun, and/or (b) if you're offsetting certain risks you're worried about. E.g., how hard is it (for Ukrainians) go get potatoes with a war on? How hard is it to get groceries after an earthquake (or hurricane)?

>Assuming you have a job to work at. Or that (food) supply chains have not gone sideways.

If you want to mitigate that I still suspect it's cheaper to buy rice and beans, then stockpiling that, than it is to operate a vegetable garden every year. Not to mention, a stockpile works any time of the year. A vegetable garden only produces food during harvest time.

>E.g., how hard is it (for Ukrainians) go get potatoes with a war on?

how easy it is for ukranians to get potatoes when the ground has only recently thawed?

>How hard is it to get groceries after an earthquake (or hurricane)?

How useful is your vegetable garden when everything has been blown away and/or is rotting in the ground from all the water?

I'd add "difficult to transport" and "freshness delicate" to the characteristics list.

There's a huge amount of produce out there that we simply never see, because it's inhospitable for ship-to-grocery. Or that we don't eat at its best, even if we're able to get it.

E.g. banana varieties, fresh figs, most things green and/or leafy

Potatoes could go up in price by a factor of like 50x before it'd become remotely cost effective to grow them. A productive backyard is going to produce like, what, $20 of potatoes annually?

And basically everybody I know who has attempted potatoes (and sweet potatoes) has pulled up a failed harvest for at least the first year.

There exist people who have highly productive backyard farms. Almost nobody who starts a backyard farm will achieve that within five years.

> If everyone does this, it creates a recession.

If everyone suddenly switches from low-savings to high-savings, yes, that may happen. But if everyone consistently has a not-low savings rate, then that is the 'baseline' that the economy will base its production on. It's the sudden changes that can cause problems and not necessarily the/a steady state.

Even sudden changes up can cause problems, as we've learn with supply chains when everyone switched from buying services (going out) to buying goods during the lockdown(s).

Of course 'just save more' isn't an answer for some people, as the author's coworker observed:

* https://ofdollarsanddata.com/the-biggest-lie-in-personal-fin...

If everybody has high-savings, then does anybody actually have high savings? As in, would it still be possible for everyone to redeem those savings for concrete goods and services?

I don't think that's much different than today. There's tons of money tied up in intangible things, or speculative stuff above it's true value. If everyone tried to buy tangible things, then inflation would happen. Too much money + plus not enough things = price increase to take advantage of that money until there's no excess.

Yes, thats the whole issue of inflation and the pandemic. No one could do anything, so they saved money. There was less stuff as factories closed.

then...

Inflation.

A savings rates (of a person's income) of 15% is higher than a savings rate of 5% is higher than a savings rate of 0%. Some of those savings goes to building an emergency fund (which eventually tops out), while other savings goes into a retirement account to generate for future income; some may go into a child's education fund.

Eventually most people will retire and draw down their savings. Eventually one's child will grow old and go to some kind of post-secondary school and need money for tuition, books, etc.

That doesn't really answer OP's question, which is how everyone would turn those savings into goods/services. At the end of the day, the production capacity of the economy is fixed, and if there's more dollars chasing the same amount of goods, the value of goods will go up and the value of dollars will go down.

> That doesn't really answer OP's question, which is how everyone would turn those savings into goods/services.

You don't. Saving = not-spending = not getting goods and services. At least not at the present moment.

You save now to protect against future income risk (e.g., emergency fund) and future income needs (e.g., retirement). You convert savings to cash flow when non-savings (e.g., employment income) dries up.

>You save now to protect against future income risk (e.g., emergency fund) and future income needs (e.g., retirement). You convert savings to cash flow when non-savings (e.g., employment income) dries up.

Everything you described works at an individual level, but fails at a societal level, which is what the GP was talking about. If society as a whole saved a bunch of money, and a few years later there were some sort of society-wide income risk (eg. war), those dollars won't do you much good.

I'm not sure I agree that the production capacity of the economy is fixed. It's heavily dependent on the value of that production.

Just because something is high value and resources from lower valued production can be diverted into them, doesn't mean that the production capacity of the economy as a whole isn't fixed. At the end of the day there's still only so many people available to do stuff, and so many machines/raw materials available.

> Better to purchase durable goods (save real value, not shared delusion of money)

I don't understand what you mean by it being better to purchase durable goods. Do you mean things like appliances and vehicles? Those things depreciate.

Saving, and investing in stocks (diversified) has been a better move historically than just about anything else you could passively do with your money.

"Durable" means holds it value for later use or sale.

> Saving

Not cash, because inflation.

> and investing in stocks (diversified)

Creates a bubble if people aren't consuming. "diversified" is load bearing there. Invest in a range of companies that are creating persistent value, sure. Not consumable or rapidly depreciating luxuries.

I don't think it makes any sense to try to hold people responsible for keeping the economy running hot as individuals on top of being rational self-interested actors.

On macroeconomic terms, "investing" and "saving" are synonyms. The savings you put on paper instruments are just lent to somebody making an investment.

So, no, investing in future productive capacity is exactly the kind of thing that triggers that paradox.

Anyway, everybody seems to severely overrate their understanding of those things. I would advise people to not use macroeconomic theories to plan their own lives.

"If everyone does this, it creates a recession."

Theoretically, at least during the transition period. In reality I don't think there's any real danger of that given that the majority of people in the US don't even have $1k in a bank account. I don't think culture and circumstances are going to change fast enough to make that happen.

Money is not a delusion, it’s a data structure. The distribution of money is the state of a market. A market is a protocol for multi agent coordination. It’s effective because it minimizes the amount of information-exchange required to participate.

Good advice is good advice, most people won't heed it, so we're safe.

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