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Saturday, July 12, 2025
Investing is hard
I should probably precede this post with some standard disclaimer of "this is not financial advice". But it is more a personal post about my feelings regarding investment. I am now officially retired. The good news is that I live in a mortgage-free house, and my state pension alone would allow me to survive at a moderately comfortable level. For anything beyond that, let's say going on a nice holiday somewhere, buying a new car, or dealing with unexpected expenses like for health, I have to rely on my savings. Again, the good news is that I *have* savings, which already puts me ahead of many others. But how to invest those savings so that they last a long time is a difficult question.
The general rule for retirees is the 4% rule, that is you can spend 4% of your savings per year, adjusted for inflation, and it is likely that the money will last for 30 years. The history of that rule is that it comes from a study of historic stock and bond returns. But historical averages are very different from the specific current situation. For example, right now bond returns are very bad, with 2022 having been the worst year ever for U.S. bonds. On the other side of the coin, global stock market indices, from the S&P 500 to MSCI World, are all at an historic high. Which is great if you have your money already invested, but not so great if you are looking to invest. One should "buy the dip", not buy the peak. The probability that a stock market which is already at an historic peak keeps on rising without a major correction for years is low.
If you look at financial news discussing global financial risks, this month of course there is a lot of talk about a possible U.S. debt crisis, due to the "big, beautiful bill" adding so much more U.S. national debt over the coming years. But that crisis might still be years away, it is very hard to say how much national debt is "too much", and it varies from country to country. The last big stock market correction was caused by Trump's "Liberation Day" tariffs, but since then the market has come to the TACO conclusion, "Trump always chickens out", and doesn't believe in a real major trade war anymore. Still, Trump is obviously a factor of volatility to the global stock market and investment returns.
Personally I believe there might be a next financial crisis which would be somewhat similar to the dot com crash of the early 2000's, just replacing the dot com bubble with an AI bubble. Note that this is independent from whether you believe that AI has huge potential. History shows that the internet in the late 90's had huge potential, and companies like Amazon obviously made billions from that. The financial crash was that investors were made to believe that the gains would come a lot faster than they actually did, and from investment flowing to some companies for which the financial gains through the internet were actually a lot lower than promised. With AI, where we don't even fully understand how it works, it is extremely difficult to predict how fast this technology is going to make how much money and to which companies. And examples like Builder.AI show that just like in the dot com crash, a lot of investment has been going to the wrong companies. There is some evidence that the still high valuation of Tesla, based on AI being able to turn every single Tesla into a fully self-driving Robotaxi, is too optimistic. And DeepSeek this year has shown that not all AI development supports the very high valuation of Nvidia. It is relatively easy to see how a series of events might turn investor sentiment on AI sour, burst the bubble, and lead to a major global stock market correction, especially with stock market indices like the S&P 500 being over 40% tech these days.
A standard financial advice from a few years ago would have been to buy an ETF of the S&P 500, and just let it sit for decades, and you'd easily get those 4% return you need for your retirement savings to last. But if you add the potential weakness of the dollar due to debt, the potential of an AI bubble burst stock market correction, and section 899 of the big, beautiful bill adding retaliatory taxes on foreign investors, it is far from clear that this is still good advice for Europeans.
- posted by Tobold @ 10:41 AM Permanent Link
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I read a paper a couple of years ago that sought to debunk the traditional "get very conservative" as you approach retirement as sort of a self-sabotaging yourself to mediocre returns. The general idea was that if you kept a growth mindset you'd end up with so much that even during the dips you'd be fine because of the heights. However, because of the heights you'd end up with way more than a very conservative approach.
I agree, it's hard because there seems to be no clear answer. I try to make the best informed decision that I can, but the stress of not knowing can be very high. I hope I've chosen the right approach.
I agree, it's hard because there seems to be no clear answer. I try to make the best informed decision that I can, but the stress of not knowing can be very high. I hope I've chosen the right approach.
All this revolves around the US, which IMHO is a crumbling empire in many ways. Aren't there better options to invest within Europe?
I think you shared the reason for diversification - own your own home, have a second one paid off and have a portfolio of stocks/bonds etc.
That’s my aim!
That’s my aim!
# posted by 
: 13/7/25 00:56
: 13/7/25 00:56
I let the broker that manages my account figure it all out for me, and he has been getting me around 5-10% per year (say an average of 7ish). However, if I had just followed the normal advice of "stick it all in an S&P 500 index fund" I could have been getting 20% recently. Also, bitcoin will now clearly hit 200K at some point during the Trump presidency (which would be 80%), but I have no intention of investing in that.
So I probably could beat my broker, but I don't really intend to try because to me a reliable 5+% beats a even a likely 20-30% annually if the downside is a possible -90%. And there are very good reasons to think that the S&P 500 could crap itself one day soon (many of them are way overvalued when you compare their valuations to their revenue) and that bitcoin could vanish like a soap bubble (any major profit taking could start a cascade).
So I probably could beat my broker, but I don't really intend to try because to me a reliable 5+% beats a even a likely 20-30% annually if the downside is a possible -90%. And there are very good reasons to think that the S&P 500 could crap itself one day soon (many of them are way overvalued when you compare their valuations to their revenue) and that bitcoin could vanish like a soap bubble (any major profit taking could start a cascade).
@Yeebo But what about the fees? I was planning to go for ETFs not only because a study has shown that 85% of brokers don't beat the market, but also because a broker typically takes 2% of the money placed as fees, while an ETF typically takes 0.2%. I had money placed at a broker where some years it yielded just 3%, and it was 2% for the broker, 1% for me, which I didn't find satisfactory.
ETFs are definitely the way to go vs a traditional broker.
As Janous has noted, the thinking regarding becoming more conservative around retirement has started to shift. Ideally you set aside 2-4 years of expenses in something safer (bonds or other fixed income) and the rest in equities. This mitigates sequence of returns risk, while allowing for far more growth potential.
Personally, I'm 100% equities as my time horizon is long, and my anticipated retirement spend allows for a very high amount of luxury spending which could be trimmed in down years. Nonetheless, I'll probably still set aside 1-2 years in fixed income prior to pulling the retirement trigger.
For what it's worth, analysts have been predicting a significant SP500 pullback for the past decade, and it's still hitting record highs. Even if it went to a historic crash, you'd still be ahead if you'd invested in the SP500 in 2025 when people were saying it was overvalued. There might be a correction tomorrow, or it might be a decade away. As long as you're globally diversified, you should be able to weather all but the most catastrophic storms.
As Janous has noted, the thinking regarding becoming more conservative around retirement has started to shift. Ideally you set aside 2-4 years of expenses in something safer (bonds or other fixed income) and the rest in equities. This mitigates sequence of returns risk, while allowing for far more growth potential.
Personally, I'm 100% equities as my time horizon is long, and my anticipated retirement spend allows for a very high amount of luxury spending which could be trimmed in down years. Nonetheless, I'll probably still set aside 1-2 years in fixed income prior to pulling the retirement trigger.
For what it's worth, analysts have been predicting a significant SP500 pullback for the past decade, and it's still hitting record highs. Even if it went to a historic crash, you'd still be ahead if you'd invested in the SP500 in 2025 when people were saying it was overvalued. There might be a correction tomorrow, or it might be a decade away. As long as you're globally diversified, you should be able to weather all but the most catastrophic storms.
A lot of companies are also just lying about the capabilities of AI in order to get money from investors. Like Blockchain before it AI has become a buzzword that unscrupulous people use to generate interest in their company and sucker ignorant investors out of their money. I definitely think we'll see a bubble pop and AI investment drop to the point where only large companies who develop their own models will be viable AI investments.
I'm not saying what I do is optimal. Far from it. When I say I "could probably beat my broker" by doing some combination of an index fund and bitcoin, I doubt I am wrong.
For example, check out the "Vanguard S&P 500 ETF." It has consistently kicked the ass of my broker almost every year. However, I still worry if I did that the S&P would crap itself and I wouldn't be paying enough attention to notice it in time.
Please do not take my statement as what I would consider wise advice.
For example, check out the "Vanguard S&P 500 ETF." It has consistently kicked the ass of my broker almost every year. However, I still worry if I did that the S&P would crap itself and I wouldn't be paying enough attention to notice it in time.
Please do not take my statement as what I would consider wise advice.
The expand on bitcoin a bit: It's definitely a pyramid scheme. But so far the investors with real money have pretty much stayed out of it.
The reason IU expect it to hit 200K is that Trump is trying to make crypto look like a legitimate investment (he has his own coin). If Trump ever manages to get the big players to jump into crypo, bitcoin will hit likely hit 200K before the big investors take their profits and all that "value" disappears into thin air. If you were to invest in bitcoin the next time it dips under 100K and then sell when it hits 150 or 200 I think you could do pretty well in the next year.
However, like everything I have mentioned don't have enough faith in that to actually try it with "I need this or I am fucked" money. I don't know with any degree of certainty what price will trigger the apocalypse, and I am too conservative to try and gauge it. I have basically fallen into the exact trap that Janous discussed.
For me, "almost certain to have enough" beats "likely to have a lot." Regardless of what I think is likely to happen, that is always my primary investment strategy. If I ever get into a position of "I certainly won't have enough unless I do something" that could change.
The reason IU expect it to hit 200K is that Trump is trying to make crypto look like a legitimate investment (he has his own coin). If Trump ever manages to get the big players to jump into crypo, bitcoin will hit likely hit 200K before the big investors take their profits and all that "value" disappears into thin air. If you were to invest in bitcoin the next time it dips under 100K and then sell when it hits 150 or 200 I think you could do pretty well in the next year.
However, like everything I have mentioned don't have enough faith in that to actually try it with "I need this or I am fucked" money. I don't know with any degree of certainty what price will trigger the apocalypse, and I am too conservative to try and gauge it. I have basically fallen into the exact trap that Janous discussed.
For me, "almost certain to have enough" beats "likely to have a lot." Regardless of what I think is likely to happen, that is always my primary investment strategy. If I ever get into a position of "I certainly won't have enough unless I do something" that could change.
I agree that financial security is more important than winning the jackpot. Especially if we discuss investment during retirement. I don’t have children, so my interest in dying rich and leaving a fortune to somebody is limited.
Hello Tobold. I am couple of years away from retirement myself and I have a question. Do you miss working and in particular do you miss the status that having a role in the workplace gives? This is one of the aspects of retirement that I am most concerned about. It isn't that I have a particularly big job but I do have a role. People rely on me and respect me for it. I am already becoming aware that people making plans for more than a few years ahead are factoring me out of those plans and I find it unsettling. Did you find this to be an issue and If so how have you dealt with it?
@mbp Yes, this is definitely an issue. My Ph.D. in chemistry and my job in chemistry research led me to think of myself as a "chemist". Obviously since retiring I don't do any chemistry at all, and there is a part of me that is now missing. I wouldn't say that I miss working, but I sure do miss the daily social interaction with coworkers and business partners. And while the early retirement my company offered was generous and had many advantages, I also felt an amount of hurt, as the offer basically translated into "you're an old dinosaur, we don't need you anymore".
I would say that as long as you still have your health and some financial security, retirement on balance is a lot better than working. But the transition sure can be unsettling, as habits from decades of work suddenly disappear in a puff of smoke. It helps to have other purposes in life than working, like family or hobbies. It would be horrible if your only occupation would be to wait for death.
I would say that as long as you still have your health and some financial security, retirement on balance is a lot better than working. But the transition sure can be unsettling, as habits from decades of work suddenly disappear in a puff of smoke. It helps to have other purposes in life than working, like family or hobbies. It would be horrible if your only occupation would be to wait for death.
Thank you for replying Tobold. I am looking forward to the freedom but I realise I am going to have to develop some new hobbies to fill the gap left by work. Especially social hobbies. I don't think that playing computer games is going to be enough.
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# posted by : 22/7/25 13:35
: 22/7/25 13:35<< Home
