Say your a fresh student out of college looking to invest 5 grand. The S&P500 will just make enough you can fight inflation. Want to make money you can spend in the next year or 2? Well that means you have to accept more risk if you want better returns.
For a new college student who has 5 grand, I get the long term goal is to build money. But I also see that as 5k which could be used right now on a vacation or funding a dream. This is opportunity cost. When you invest, in order to make money we lock our investment into the market where the harder it is to liquidate the better returns you will see on average.
All of this is incredibly depressing when you feel like you know just enough to know how your screwed with where your at, and feeling like this is not a viable method to build financial success. Worst is knowing how little you know, despite trying to learn about economics and financial theory....and realising you basically are stuck with traditional paths of investing.
I don't think thats true....? Annualized returns are something like 7% after adjusting for inflation
Small players have advantages the big guys don't have at scale and vice versa. The same goes for many markets beyond just finance.
I see it as similar to flaky tests. Let's say you work on a codebase with ~100,000 tests. About 1% are flaky, where the average flaky test fails 0.1% of the time. On the surface that sounds like it's pretty low risk, but once you do out the math your unit tests will only pass about 36% of the time. Maybe a 0.1% flaky rate is acceptable, but not at that scale.
Long term investing plays the same numbers game. Let's say you invest in a risky stock for ~3 years, where "risky" means it has a 0.1% chance of failing in any given day. There's a ~36% chance you win, but you'll probably lose.
ioblomov•2mo ago