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#1
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Financial myths which are untrue
While I was thinking about finance, it came across to me that maybe a lot of newbies think the wrong way about many things. So maybe you guys could help me make a list of some ideas that many people believe are true but really aren't. Plz correct me if i'm wrong about anything.
I'll start off: #1 You can save money and live off the interest. Completely untrue IMO. After taxes you barely beat inflation(if you do). Even with new high yield accounts that give 5%, if you're in the high bracket(like me) you'd only get a little over 3% post-tax. In the long run, using conservative savings and money-market accounts you can't really live off a lump sum because the purchasing power of your money falls. Every time I hear someone say they'd 'live off the 50k interest of 1 million' if they won it, I consider that pretty dumb. #2 You can't beat the stock market While most people here seem to believe that investing index funds is the way to go and historically they beat mutual funds, this shouldn't lead to the conclusion that no one can beat the stock market. While it is tough, it is possible for a person to beat the market in the long run. Similar to poker, many people think they're better than they are, and that makes them fish. Also, people should be wary of fund-managers who are more often salesman than actual traders/investors. But there are a handful of people who are quite +EV playing in this game. #3 Stock market is a zero sum game. In actuality the stock market is a positive sum game, which has averaged about 10% per year. Options and futures are zero sum markets, but not stocks. |
#2
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Re: Financial myths which are untrue
depends how old you are
if your 60 with 1 mil in the bank you probably can live off the interest |
#3
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Re: Financial myths which are untrue
[ QUOTE ]
depends how old you are if your 60 with 1 mil in the bank you probably can live off the interest [/ QUOTE ]True, but you're using the wrong term. You're not really living off the interest, you're living off of principal reduction (the interest just keeps your principal the same value in real terms). |
#4
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Re: Financial myths which are untrue
When Im 60 and I have 5 mill saved I think I could live off 5% interest or 250,000 I even with inflation I can handle that. Plus even if I am drawing down on a it a little bit I will still never use up the whole nest egg by the time I die 0-40 years later.
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#5
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Re: Financial myths which are untrue
ilikeaces did u even read what the person on top of you wrote?
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#6
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Re: Financial myths which are untrue
[ QUOTE ]
#1 You can save money and live off the interest. [/ QUOTE ] Obviously with some lump sum, you can live off the proceeds from risk-free investments. You're right that people underestimate the impact of taxes and inflation, and therefore underestimate how large the lump sum has to be. You're also right that the vast majority of people should be holding something other than 100% risk-free investments, no matter how much money they have. [ QUOTE ] #3 Stock market is a zero sum game. In actuality the stock market is a positive sum game, which has averaged about 10% per year. [/ QUOTE ] About 10% nominal per year, 6.7% real (for USA). |
#7
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Re: Financial myths which are untrue
I had to explain to my brother the other day that the stock market isnt a zero sum game. Hes a smart guy so I was pretty surprised he assumed that. I think most people do, espeically students, and that is why the image of a coldhearted capitalist exists.
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#8
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Re: Financial myths which are untrue
[ QUOTE ]
I had to explain to my brother the other day that the stock market isnt a zero sum game. Hes a smart guy so I was pretty surprised he assumed that. I think most people do, espeically students, and that is why the image of a coldhearted capitalist exists. [/ QUOTE ] This is because most people are ignorant, especially the smart ones, who act even more idiotic than dumb people cos' at least the dumb people don't pretend to know everything. |
#9
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Re: Financial myths which are untrue
[ QUOTE ]
I had to explain to my brother the other day that the stock market isnt a zero sum game. Hes a smart guy so I was pretty surprised he assumed that. I think most people do, espeically students, and that is why the image of a coldhearted capitalist exists. [/ QUOTE ] Can you explain this semi detailed? |
#10
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Re: Financial myths which are untrue
I explained that it isnt a zero sum gain due to prductivity and technological increases which allow more wealth to be created from the same amount of input, thus increasing wealth at noones expense.
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