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What if everyone did the RIGHT THING financially?

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  • What if everyone did the RIGHT THING financially?

    I have some philosophical questions for everyone.

    1. What if everyone invested in index funds?
    2. What if everyone lived within their means and saved well for retirement?
    3. Is financial well-being a zero-sum game? Meaning do some people have to live in squalor While others live in Penthouses?

  • #2
    We’d be in Japan.

    Comment


    • #3
      Probably the same as if everyone ate only healthy foods in moderate amounts, got plenty of daily exercise, didn't drink/smoke/inject harmful substances, flossed and brushed their teeth every day, and always wore a seatbelt.  In other words, a good thought exercise, but about as likely as a purple elephant popping suddenly into existence in my office.  (Technically possible, but just exceedingly unlikely.)

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      • #4
        Economy crashes. Reduced spending=no jobs. Dystopia. Might makes right. Zombies take over.

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        • #5
          Two different issues here - savings rate, and index investing. The effect of transitioning to, say, a 20% savings rate would depend on how long it would take. Do it in a year or even 5 years or more - economic collapse. If it is done over a very long period of time or if it's just always been your culture (Japan) then the effect is less noticeable or not at all. Now is it realistic to achieve this in America? ************************ no. We have fiscally irresponsible people from top to bottom.

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

          Regarding the latter issue, we will never achieve 100% index investing. The indicies are based on an active market. Someone needs to set that market. Greed and basic finance will always keep market makers who may very well have better returns than the indexers.

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          • #6







            I have some philosophical questions for everyone.

            1. What if everyone invested in index funds?
            2. What if everyone lived within their means and saved well for retirement?
            3. Is financial well-being a zero-sum game? Meaning do some people have to live in squalor While others live in Penthouses?
            Click to expand…


            What’s scary is the people who’ve saved own mostly ghost assets which cannot possibly perform in real terms.
            Click to expand...


            Scary?   I ain't afraid of no ghost!

             

            sorry.   Couldn't resist.

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            • #7




              Probably the same as if everyone ate only healthy foods in moderate amounts, got plenty of daily exercise, didn’t drink/smoke/inject harmful substances, flossed and brushed their teeth every day, and always wore a seatbelt.  In other words, a good thought exercise, but about as likely as a purple elephant popping suddenly into existence in my office.  (Technically possible, but just exceedingly unlikely.)
              Click to expand...


              Yes.   If everyone was fiscally responsible and responsible about self-care, most of us doctors would not have enough work to do and we would not be worrying about how to invest our extra money.  Whenever I get frustrated about the dumb things that people do to themselves that end them up in the hospital or doctor's office I remind myself that it is human nature that gives me job security.

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              • #8




                 

                Regarding the latter issue, we will never achieve 100% index investing. The indicies are based on an active market. Someone needs to set that market. Greed and basic finance will always keep market makers who may very well have better returns than the indexers.
                Click to expand...


                While it is intuitive that active management will be more successfully as the proportion who index increases, if you think about the math, since index funds match the market return the net return of active investors must match the market rate of return as well

                Discussed in much more detail here including caveats.

                 

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                • #9




                  We’d be in Japan.
                  Click to expand...


                  ... or Germany.
                  Erstwhile Dance Theatre of Dayton performer cum bellhop. Carried (many) bags for a lovely and gracious 59 yo Cyd Charisse. (RIP) Hosted epic company parties after Friday night rehearsals.

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                  • #10
                    By this logic there are no market setters, at least worth investing in. Therefore one should only hold index funds. But then there are no market setters, which means indexing becomes inefficient (based on a fixed market cap). Which means there are arbitrage opportunities. And then people set the market.

                    I can't see a reasonable argument for no one to ever actively invest or for active managers to not take funds from a bank and actively invest, thereby changing the market.

                    Comment


                    • #11




                      By this logic there are no market setters, at least worth investing in. Therefore one should only hold index funds. But then there are no market setters, which means indexing becomes inefficient (based on a fixed market cap). Which means there are arbitrage opportunities. And then people set the market.

                      I can’t see a reasonable argument for no one to ever actively invest or for active managers to not take funds from a bank and actively invest, thereby changing the market.
                      Click to expand...


                      Zero entropy?

                      :P

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                      • #12
                        What would happen if everyone did the RIGHT THING financially?

                        Pigs would have wings and roost in trees.

                        Comment


                        • #13
                          Part of me does worry that the stock market is in essence a giant Ponzi scheme and once everyone around the world has maxed on their investments in it it will simply stop going up.

                          But luckily we’re probably a long way from that point. And also I don’t really understand the stock market so my worries are most likely completely wrong.

                          Comment


                          • #14
                            Fun topic to think about. I’ve often chuckled at the thought that all of us “fiscally responsibile” WCI followers who save aggressively and invest wisely are at the same time relying heavily on the fiscally irresponsible habits of the masses. We actually need the general public to do the exact opposite of what we preach...buy crap they don’t need and they can’t afford. Also, since we’re docs, it helps if they continue to drink, smoke, eat crap, and never exercise. It’s so simple that it’s hard to believe that “the secret” doesn’t go viral. Fortunately for us, most humans lack the awareness necessary to see beyond their own unconscious behavior. Therefore they continue to be driven primarily by their egos which usually results in lots of foolish/nonsensical decisions throughout their lives. For instance, why does anyone ever start smoking to begin with? It’s clearly a totally idiotic behavior yet new people are still driven to it in large numbers every year. It’s because of unconscious forces convincing them it’s worthwhile. Lots of human, and I guess animal, behavior can be explained this way. There’s something evolutionary to it for sure. We’re trying to attract the opposite sex, maintain or elevate our social status, etc. I often think “what would an alien observing our behavior from outer space think of what we’re doing?” Many of the self destructive things we do on a regular basis would make zero sense to someone looking down on the big picture...war over religious beliefs is a big one. Not taking care of our own bodies or our planet is another. We’re strange creatures when you really think about it. At least ants in an ant farm seem to be doing sensible things most of the time.
                            The answer to the op’s question is that our financial system clearly depends on foolish human behavior. So if humans suddenly started making smart financial decisions, the system would quickly collapse...which is fortunately is never going to happen because humans are predictably foolish creatures.

                            Comment


                            • #15




                              Fun topic to think about. I’ve often chuckled at the thought that all of us “fiscally responsibile” WCI followers who save aggressively and invest wisely are at the same time relying heavily on the fiscally irresponsible habits of the masses. We actually need the general public to do the exact opposite of what we preach…buy crap they don’t need and they can’t afford. Also, since we’re docs, it helps if they continue to drink, smoke, eat crap, and never exercise. It’s so simple that it’s hard to believe that “the secret” doesn’t go viral. Fortunately for us, most humans lack the awareness necessary to see beyond their own unconscious behavior. Therefore they continue to be driven primarily by their egos which usually results in lots of foolish/nonsensical decisions throughout their lives. For instance, why does anyone ever start smoking to begin with? It’s clearly a totally idiotic behavior yet new people are still driven to it in large numbers every year. It’s because of unconscious forces convincing them it’s worthwhile. Lots of human, and I guess animal, behavior can be explained this way. There’s something evolutionary to it for sure. We’re trying to attract the opposite sex, maintain or elevate our social status, etc. I often think “what would an alien observing our behavior from outer space think of what we’re doing?” Many of the self destructive things we do on a regular basis would make zero sense to someone looking down on the big picture…war over religious beliefs is a big one. Not taking care of our own bodies or our planet is another. We’re strange creatures when you really think about it. At least ants in an ant farm seem to be doing sensible things most of the time.
                              The answer to the op’s question is that our financial system clearly depends on foolish human behavior. So if humans suddenly started making smart financial decisions, the system would quickly collapse…which is fortunately is never going to happen because humans are predictably foolish creatures.
                              Click to expand...


                              Was thinking similarly while watching videos of skiing, snowboarding. Got me thinking how weird we are that whatever we see, a wave, lake, hill, slopes, we think...how can I strap myself on to something and ride that baby! Its usually simple too, a board or two with wheels if necessary gets the job done.

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