Thursday, May 6, 2010


Felix Salmon writes:
My feeling is that if you’ve got a nest egg which you want to keep safe for retirement, then investing it in the highest-yielding TIPS you can find is probably as good a strategy as any. You won’t get rich that way, but at least you’ll be protected against stock-market losses and against inflation. On the other hand, if you don’t have enough money for retirement and you need serious positive returns on your investment, then you’re going to have to start speculating. Either that or going out and earning more money.

Most people, I think, overestimate their risk appetite, and only realize when it’s too late that they really couldn’t afford to lose that money after all. Which is why right now in many ways is a better time to sell stocks for retirement and put the proceeds in something safe like TIPS, than it is to buy stocks for retirement. If you were sickened when the stock market was at its lows and promised yourself that you would be much more cautious in future, then now’s probably as good a time as any to take advantage of the big run-up that we’ve seen in stocks and rotate into something which allows you to sleep well at night. Unless you enjoy investing — and few of us do — I see no great reason to jump with both feet, Scott Adams style, into this increasingly unpredictable and senseless market.

FLG can't believe that somebody as informed about the stock market would conflate the currently unpredictable and senseless market with retirement investing. Unless you are near retirement, who gives a shit about the next year or two? Or even five?

Furthermore, Felix also writes:
After all, I’m pretty sure that Scott Adams doesn’t have a great degree of certainty about the magnitude of the equity premium over the next decade or three, and the first priority when it comes to retirement funds is that you don’t lose them.

If the stock market doesn't rise over two or three decades, then you've probably got bigger problems than your 401K balance. Like "two men enter, one man leaves."

Felix, who FLG has always thought was Leftish even though he didn't read him all that often until recently, conforms to FLG's theory that lefties' have a high discount rate, i.e. a short-term focused. Consequently, the current market uncertainty plays very highly in his analysis, and frankly, makes him write things in this post that FLG thinks are so overly risk averse as to be stupid. Not knowing the risk premium over the next two-three decades with certainty isn't speculation, it's investing. If that's the criteria, than nobody has ever invested in history and everybody should keep their money under the mattresses.

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