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Bad investment advice for Poor People?
Old 10-07-2015, 12:36 PM   #1
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Bad investment advice for Poor People?

Sort of interesting, reminds be of various discussions here about how to factor a pension into investment strategy "Researchers at Morningstar argue it should be the other way around. It’s not as crazy as it sounds. They point out that lower earners receive a more generous Social Security benefit relative to the income they need to replace in retirement. That benefit ends up representing an overwhelming share of their assets."

Poor people are getting terrible investment advice - Quartz
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Old 10-08-2015, 07:44 AM   #2
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It's hard to read and accept an article like that after reading "Irrational Exuberance". The article rests on the unspoken premise that stocks are, by their nature, significantly more advantageous in the long run than the alternatives. That is put to the test in the book and doesn't do very well, especially with the CAPE at 25 or so. And the article also ignores the human nature aspect of people who aren't used to the downdrafts just bailing out at the wrong time. I'd bet that most lower income people would be better off with something they'd stick with, and I doubt that's something that can drop by 40% or more occasionally.
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Old 10-08-2015, 09:05 AM   #3
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Seems like a ridiculous premise. The poor people I know / have know wouldn't even know where to buy a stock, let alone strategist an asset allocation.
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Old 10-08-2015, 09:22 AM   #4
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My sisters-in-law keep their savings in bank savings accounts. Their brother despairs.
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Old 10-08-2015, 09:46 AM   #5
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I read through the supporting document--about state-run 401k plans for those who don't have access to them. According to the article, many have been proposed in many many flavors, and not a single one has been implemented that I could see. I think the poor are on their own figuring out an asset allocation according to their level of risk acceptance and where to invest (most people who are poor probably have no idea what that even means).

But I do get the point (and thanks for posting the link, timo)--if your social security covers your costs and is the overwhelming share of one's assets (although it's not really an asset, is it?), then theoretically more risk could be taken with that small share that is the poor's other assets. In reality? No.
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Old 10-08-2015, 01:53 PM   #6
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Quote:
Originally Posted by travelover View Post
Seems like a ridiculous premise. The poor people I know / have know wouldn't even know where to buy a stock, let alone strategist an asset allocation.
Those folks would make great participants to this forum. We were all poor (well most of us) at one time but many of us are not now poor. LBYM works at all levels.
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Old 10-08-2015, 05:52 PM   #7
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Those folks would make great participants to this forum. We were all poor (well most of us) at one time but many of us are not now poor. LBYM works at all levels.
True, but we on this forum are the tiny tail on a normal distribution curve.
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Old 10-08-2015, 06:17 PM   #8
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By far the best investment for poor people is to find and use government handout programs. Anything with value that is free.

Many poor people know this. The only ones who don't probably have substance or mental health isues.

Ha
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Old 10-08-2015, 06:34 PM   #9
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When it comes to survival, different people have different skills and resources. Perhaps we should not underestimate anybody's knack.
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Old 10-08-2015, 06:41 PM   #10
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This assumes more money = more happiness regardless of risk, though the theory of the diminishing marginal utility of wealth, if true, would suggest for at least some the opposite is true. For the risk adverse losing money may hurt more than extra money would bring in happiness / utility.

For a retiree with $100K in life savings, losing half in a down market at age 65 might not bring the most happiness compared to just hanging on to what they have.
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