This is a place for people who are or want to become Financially Independent FI , which means not having to work for money. This subreddit deals primarily with Financial Independence, but additionally with some concepts around "RE".

Discovering and achieving life goals: Simplifying and redesigning your lifestyle to reduce spending. Your wants and needs aren't written in stone, and less spending is powerful at any income level. Working to increase your income and income streams with projects, side-gigs, and additional effort.

Becoming financially independent requires hard work and a healthy attitude towards money, but also a degree of privilege. When participating on this subreddit, please be mindful of the ways in which you are lucky. XKCD relevant to current news about the stock market. Also did I mention science? Actively researching and putting effort is sure to loose my money, but if I just mindlessly throw money at Vanguards, I'll be focking rich.

Wonder how has noone ever thought of it. That's not my reading of that sub. Yeah it's a pretty reasonable place, though they do pretty heavily preach Vanguard funds, which doesn't seem to be the worst thing in the world. Hey, if someone has a better idea with better historical performance and that's as easy to use as a total market index fund with negligible expenses, I'd love to hear about.

Yeah it's a very solid, set it and forget it type strategy. Not too much risk, with a decent consistent return. The only better option than Vanguard is the funds offered in the TSP, but only Federal employees have access to those. I might be a federal employee soon, where should I start researching about which of these exclusive funds are awesome? And also how to understand why they're awesome because I'm not very well informed about that type of thing currently.

You can go to tsp. The expense ratios are the lowest you will find anywhere. TSP investors also get access to the G Fund, which is as close to a free lunch as you will get. On the page for each fund there is a performance page, and the TSP funds almost always outperform their benchmark. I mean, lots of people have thought of it.

More importantly lots of people do it , and it still works. Unlike a trading strategy which tends to not work as soon as you circulate it widely. And fock it, I can't be bothered with the fact that the gerundive "putting" requires a preposition I'll just smite ye wall with any old spattery grammatikal shite I can yank forth from me bum, and see what sticketh thereupon.

And lo, the last wench what dared address me thusly, I did thrust my foot atwixt her buttocks and up her nether eye, and by God's wounds, I brake it off and there it remained. I think finance is more about the players involved and the psychology behind each player.

People like to think it's purely about numbers when in fact that's just a small portion. Stocks are about numbers in the same way that poker is.

The numbers and math involved could be understood by a kid in middle school but understanding the way they work together in reality as well as what the other players in the game will do is overwhelmingly, laughably more important. Its like saying I can be a chess grand master because I know all the moves the pieces can make in chess. If you think stocks are about numbers you have such a surface level understanding that you can't even SEE the game, never mind be good at it.

You're right, although I don't think it takes anywhere near a grand master level to be decent at trading. It certainly takes a lot of smarts, focus and discipline though. Does that mean psychologists would be good at playing the market then? How could a psychologist analyze the emotions of the millions of people buying and trading stocks each day?

You don't need to actually be in the same room as someone to predict what they are slightly more likely to do.

I'm imagining picking investments based on ideas like "North Korea just destroyed a Chinese fishing boat. I bet people will react with fear by selling in the Chinese market, then this will blow over like N Korea news always does and the market will recover. I'll buy Chinese stocks on the first day their market goes down, then ride the recovery. Sort of like that old joke about outrunning a bear: A lot of it is based on the probability of emotions. If you think people will get scared about something and buy or sell out of fear, then you can easily make money off that.

It's really just about know which indicators lead to what and how to size your positions appropriately. It also depends on your overall strategy.

xkcd: Engineer Syllogism

Some people trade by the day, by the week, by the year, etc. It all depends on you yourself. I think the main reason this won't work is that you also have to analyze and weight the probability of the 10, other events that day. So as well as the fishing boat incident you have a violently contested election in a small province in India, a missing child in the headlines in the UK, a new safer car design unveiled, a major Pharma company releases earnings above expectations and someone gets shot by a suspected terrorist in Indonesia etc etc Ok, but without interviewing those people participating in the market how can you know whether they're fearful of confident?

Being a psychologist could help. But the issue is that you're not analyzing individual people in trading. You're analyzing what you think potentially hundreds, thousands or millions of people will do. If you can apply your psychology skills on a wider scale and be able to react quickly to events, then I think it would be advantageous.

You'd have to learn some stuff about the numbers, but quite honestly the numbers are the easy stuff. Those are all useful backgrounds, and they're part of the reason Behavioral Economics is gaining popularity as a subfield. Older economic models relied on the assumption that a consumer would generally act in a very rational way. As someone who studies human behavior, I'm sure that with your background you already know that, as a species, we're not always great at rational decision making.

It does seem like psychology would help predict group behavior. However, I recall a scene in that movie Limitless, where the main guy was explaining how he applied his drug-fueled genius to beating the stock market.

He was asked if it was an analysis of group psychology, and the response was something like "oh, well obviously that's only useful for an extra percentage or two, no I did way more than that. Just a movie, obviously, but the message I took from it is that investment bankers already have people, experts, analyzing the group psychology of the market.

This is not a new idea, and therefore by applying these principals one would not be putting themselves ahead of the pack, only matching what is already being done. The stock broker knows he's not an engineer. The engineer doesn't know he's not a stock broker.

He thinks he's smart enough to pick stocks, while the stock broker realizes he's not smart enough to be an engineer. I'm an engineering student trying to "pick stocks". More like I'm trying to write an algo to buy and sell on stock indicators. I'm not saying that I'm smart enough to pick stocks but im using other tested and statistically strong stock trading techniques to hopefully make a positive return during random backtests.

What I do know, however, is computer programming languages and some basic math. Getting to know this game has got me thinking.

I've realised that what im trying to do is guess the future And nobody can guess the future Basically, I know nothing. However, using some mathematical techniques and trading techniques, hopefully I can write something that makes good decisions based on the history of a stock. Maybe in the future, implement a learning algo. Maybe in the future connect the algo to take non quantitative data into account when making decisions.

I take it you're aware of high frequency trading and the use of quants on Wall Street to build trading algorithms?

I am not trying to build something with that kind of advantage. I dont have the resorces for something like that I'm just working on something to manage my money without paying a financial advisor. Saving that couple percent on a small portfolio is important. Back when I was gainfully employed, I worked with a lot of "smart engineer" types. Quite a few of them used their smarts in very specific ways and knew next to nothing about investing.

I feel like the smart engineer would constantly be looking for improvement, but wouldn't move to a different strategy until he could prove that it was better than the other. That's not likely to happen, but at least he wouldn't blindly follow a strategy without figuring out that it is in fact the best. You can get leverage for 0.

I've been researching this idea for over a year but haven't taken the plunge. In theory, this should be impossible. Maybe you've found an inefficiency in the market, but my bet would be that there's a risk you haven't accounted for properly. No you don't understand the theory properly. This takes advantage of the diversification benefits of different asset classes. Here is a wiki article on the basics. Here is a video lecture by Nobel winner Shiller if you aren't a reader.

You should stop posting on this subreddit until you educate yourself since people here are looking for advice on how to manage their life savings and spewing ignorant, incorrect opinions with a confident attitude can cause serious damage to innocent people. Let's say you pick a nicely diversified portfolio that balances different asset classes so that based on historical data it should be very low risk, and you gear up so that your expected returns outweigh an index fund while still appearing lower risk.

Now you have a good chance of consistently beating the market for decades. But it's not a free lunch: The price you're paying is exposure to risk outside your model: Something bizarre happens to the economy and stocks and bonds both fall together, or anything else that upsets your carefully planned balance and causes a moderate drop in your portfolio, that is magnified by your leverage and suddenly you're bankrupt.

Correct or not, this attitude and tone is overly harsh for this community. I understand your point but you should take the opportunity to just educate OP and the rest of us instead of yelling at him for voicing his opinion.

I did educate OP and the rest of you I provided a wiki page and a Yale lecture from a Nobel prize winner. People do come here asking for advice about their life savings. Yes and the links and comment would have been fine if you had left it like that. It's that further comment and the arrogance that you know definitely know better that's uncivil and not nice.

It is perfectly civil. I said "please" and asked him not to post. If your opinion is that it is "not nice" then you need to grow a thicker skin. People here are looking here for how to manage their life savings and removing misinformation is more important than some college student's feelings.

How did you come to this conclusion? According to some people and myself: Simply put, the buy and hold strategy means purchasing the stocks or bonds you decide you want to hold I recommend an index fund or two , and then not selling them for a long time. By doing this, you avoid trading costs and short term gains taxes. The reason this is generally considered a good idea is that, although we can't time market crashes or peaks, over enough time, the market always goes up.

By buying and holding for a long time think years or decades , we ignore all the little crashes and focus on the long term profit to be gained. How can you say it isn't a path. It is a path and it is obsurd to say otherwise. I know people who are FI from trading. Sure, it can be one element of achieving FI. I've won and lost, but truthfully I never had the money to make it worthwhile.

I'm still working on my FI. Same argument can be made for most stuff. But if some random person on Reddit says it can't be done we should listen. We understand the concept of exponential growth, random noise and uncertainty. We also can see through pseudo-technical huckersterism you get as "financial advice" from the mainstream media for instance, active investing advice via Mad Money. I find that anyone who has spent some time with statistics and statistical theory has a better response.

STEM folks tend to cling to causal explanations, which can get you into trouble real quick with funky systems like the stock market. But I feel I've picked up some basic statistics just studying physics and it's built into most STEM fields. Maybe stat in particular is the best field to get a general understanding of the market. Yea, you're probably right. I'm a psychology cat myself, so I may have skewed perception of hard science folks, but an ability to think in numbers really does seem to help.

Its funny though, because beyond the level of "see numbers, turn off brain" that most folks have, you really don't need much mathematical ability at all like stats. I really think that one of the biggest things that keeps people from feeling confident in investing however is that variance is called risk, which is a bit misleading of a term to use. I suppose if economists were saying wigglyness instead it would all look a bit ridiculous. I'm an engineer and I take this phenomenon into account all the time.

People absolutely have an emotional response to certain words like "risk. I try to think carefully whenever I'm going to explain my trade-off decisions to someone else, using any of those words are a quick way to get them to not agree, regardless of logic I really think that one of the biggest things that keeps people from feeling confident in investing however is that variance is called risk.

Yea, but even that sounds more like a flammable liquid than is entirely suited to describe the concept. I maintain wiggleyness is the best I have heard so far. If you simply used 'variance', people would burn through cash on options. I agree, and will happily support your campaign to add "wigglyness" to the official lexicon. The point is to create a fancy sounding word to justify the millions of dollars you're giving to fancy money managers.

I think your post was downvoted due to a little bit of the typical STEM circlejerk sound in your post, but you're right. It's not that linear vs.

It does sound a little circlejerky, you're right. But there are people who hate math who refuse to address their finances Also, some people think that the stock market is a gamble. But if you understand the implications of long-term exponential growth, you're more likely to quickly realize the only gambles are short-term.

Retirement Plans: Last Week Tonight with John Oliver (HBO)

I guess it just comes down to the fact that if you're comfortable with math, the financial implications of your decisions are a lot more obvious. I certainly agree with you. It doesn't help that our culture assuming USA origin has money and personal finance as a taboo topic - many of my peer's parents hid finances from them! The sub-par teaching of Math in the USA combined with finances being taboo creates a particularly odd storm of ignorance on these important topics.

I wonder if anyone has ever analyzed the success rates of various professions that try to dabble in the stock market. For example, perhaps the long-term data from a large sample would show:. My point being, if there is ANY realistic likelihood of outperforming the market that can be attained through an amount of time a normal person could come up with, perhaps we should be doing it. The professionals don't outperform the market after fees, so I doubt that a bunch of randos will.

Find a formula that works dollar cost averaging and stick to it. You should immediately invest all excess cash you have beyond emergency fund, reasonably balance to cover expenses, etc. Excess cash shouldn't be sitting in your checking account doing nothing.

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Engineer Syllogism - explain xkcd

If you would also like to protect yourself, add the Chrome extension TamperMonkey , or the Firefox extension GreaseMonkey and add this open source script. Then simply click on your username on Reddit, go to the comments tab, scroll down as far as possible hint: So your advise is to keep gambling, but don't ever think about where your money is going?

Seven-Deuce is just as good as Aces, stop over thinking it!!!! If its rigged, you would be better off to just play. Are you advocating that people should not invest in the market? The stock market is made of emotions and irrational exuberance.

It's just quantified with numbers. The common advice is that you should not play the market because you are playing against more knowledgeable people than yourself. I follow that advice, I only buy mutual funds and ETFs. But what about for those of us who truly are above average? I don't work in finance, but I legitimately am way better than average in terms of education level, financial literacy, and data analysis. Does that mean I can be an exception to this rule?

I wish I knew. No matter how much I hear this advice against playing the market though, I can't help but think maybe I should. The problem is it's difficult to distinguish lucky performance in the stock market from skilled performance. Did your portfolio perform well because your analysis was good, or did you just get lucky?

The exact circumstances under which you invested will never appear again, so it's not like you can really test it. There are some investment managers who might have years, or even decade long streaks of good performance, but if you have enough people flipping coins one of them is bound to get 10 or 20 heads in a row.

It doesn't mean they're good at flipping coins. There are highly educated, highly intelligent math and physics and computer science majors who get hired by hedge fund companies, prop shops, and so on. So there must be something behind that train of thought, especially when it comes to high-frequency trading. Multiply that up by some big numbers and you're talking about a pile of money.

But then again, it sounds like you're talking about education and intelligence to analyze market trends, whereas the type of intelligence I'm talking about is how to build a better system for accessing the market, rather than being able to outsmart the market itself. You know, your response sort of gives me an answer.

My original thought was based on the logic that if I'm better than most average investors, I can predict their stupid behavior and profit from it.

However, this industry of predicting the reactions of average Joe is already fully saturated with nano-second reactions that incorporate all that predictive data in to the current market price. In effect, I can't profit from that info because someone else already has.

I posted in another comment that this seems like the old joke about outrunning a bear: That should be easy, right? But perhaps a more accurate analogy for that joke would be: That bear's gonna get you regardless of if you're a bit better than average.

Yeah I think that's a better way of looking at it. You aren't against the Harvard MBA. You're against a computational cluster designed by MIT computer scientists following a set of models designed by teams of PHDs and math olympiad winners, consulted by ex-presidential economics advisors.

I've thought it through and reached the conclusion that it's not enough to be better than the average investor- you have to be better than the average dollar in the market. And the good investors are in for orders of magnitude more dollars than the bad investors, so you really do need to be exceptional for this to work, not just more savvy than your average person with a retirement account. If you haven't, you should look into high-frequency trading.

It's interesting for me computer science background , at least. More than half the trades in a day are done by HF trading. In short, computer programs account for more than half of the decisions on whether to make a trade in a given day. Granted, many of those are micro-arbitrage scenarios as I noted above, but still Morgan or Charles Schwab back in the day that one day these things called computers would be making the majority of trades in this marketplace.

Yea but the "average" investor literally doesn't even come close to matching their chosen indexes. So even matching the index makes you above average: See, as an above-average data analyst I understand that such anecdotes are utterly meaningless. What we need are data from large samples. What I'm wondering is whether the cartoon is accurate or not. For example, what if we analyzed the success rate over a given time period of those who dabble in the stock market, comparing PhD-level engineers versus the average layman population?

My guess would be that the engineers would do better, I'm just not sure exactly by how much. Given that a simple index of the market consistently outperforms actively managed funds, I'm not sure what advantage you're imagining an engineering PhD would confer, unless it's a PhD in buying and holding index funds.

Good point, although I've always been a little skeptical of that fact. How could it be possible that an entire industry exists based on the false premise that it's possible to predict the success of the stock market? If they consistently underperform, shouldn't I be able to follow a managed fund, buy when it sells, sell when it buys, and come out ahead? Actively managed funds consistently underperform in aggregate due to fees and transaction costs.

If you just reverse-mirror a random actively managed fund you will also accrue these costs and so on average will underperform low-fee index funds. Or just buy and hold index funds. As an engineer I can relate.

Tried trading, lost money. Thankfully I was smart enough to use only a small portion of my money. This happens in geek circles every so often. The 'Hey, this is just a system I can figure out easily! This comic has been referenced 44 times, representing 0.

Pretty sure he's not, but with as many XKCD comics are out there, he probably revisits similar ideas from different angles on occasion.

As a guy who has advised developers who have had successful startups in financial matters When you lose money, where does it go?

I pay someone to buy the stock for me and that money disappears, how does that work? You bought something that everyone thought was worth a certain amount, and now people realized it's actually only worth somewhat less. The money you lose in the stock market is the abstract shared valuation until you actually sell. That is how people make money too. Say you buy a mustang gt People stop you all the time and ask to buy it. You paid 90k for it. Some times people offer k and some times people offer 80k.

Where did the money go when they offer 80k? You still own the car and will own it until you sell it or you crash it company going out of business. You only lose money if you sell when people offer less than you pay.

Headlines - explain xkcd

There are two sides to every exchange, with middlemen in between. So if you're selling after it loses value, someone else is buying it on the cheap. The stock market is a zero sum game, so every dollar you win comes out of someone else's pocket, and vice versa.

Currency trading is a more like a zero sum game. Stocks generally go up over the long term, so if everyone held a diversified portfolio all would be wealthier after a reasonable length of time.

Bitcoin is a zero sum game, the price changes all the time. In stock market, it is also zero sum, but only when including stock issuers as participants.

Consider how much money MSFT has lost in the market since selling their shares in their IPO dividends, share buybacks etc are losses to them. I have a good friend that said more or less the same thing days ago. I was able to convince him to start a Roth IRA with some of the money he was planning on throwing at the stock market but not all of it I like the bottom three panels of this Achewood comic for explaining the stock market: Use of this site constitutes acceptance of our User Agreement and Privacy Policy.

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This is an archived post. You won't be able to vote or comment. Now which way will the psychologist expect the market to go and when do you buy?

It's all fun and games until I lose all my money. Here is a wiki article on the basics Here is a video lecture by Nobel winner Shiller if you aren't a reader You should stop posting on this subreddit until you educate yourself since people here are looking for advice on how to manage their life savings and spewing ignorant, incorrect opinions with a confident attitude can cause serious damage to innocent people.

What's a buy and hold strategy? That being said, there will always be smart people with poor judgment. Not that anyone remembers anything after the final For example, perhaps the long-term data from a large sample would show: I feel STEM background people aren't better at investing. It's like playing baseball by yourself against the Yankees. I stick to index funds and a paid off home for my investments now. It was the alt-text in this one. I guess dividend stocks would be like driving for uber?

Anyway just thought you should know where the down votes where coming from. Posts are automatically archived after 6 months.