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PaperclipPerfector  3d ago (text post)   2188 thread views

Small-Scale Question Sunday for February 9, 2025

Do you have a dumb question that you're kind of embarrassed to ask in the main thread? Is there something you're just not sure about?

This is your opportunity to ask questions. No question too simple or too silly.

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A request for financial advice:

For the majority of my career, I've made such a small pittance in Western terms that I had no strong impetus or incentive to save any of it.

While the UK is certainly not as wealthy as the US, and doctor's wages are comparatively meager (and have been devalued considerably by inflation), I have a respectable sum already in my bank account. Part of this is that I simply don't have a life outside of work, and couldn't spend the money if I wanted to.

I'd like to invest the majority of it, around 10k GBP. My risk appetite is decent, but I also think the market is more efficient than I am in most regards (when I had forewarning that Nvidia would skyrocket, I didn't have any money to bet with). I don't want to see it get eaten away by inflation.

I believe the default course of action would be to buy index or mutual funds. I've been eyeing the S&P500.

I do intend to hold on to a few thousand GBP for expenses like buying a second hand car, expensive exams and the like. In the longer term, I'd need ~40k for a mortgage, assuming I choose to continue working and training in the NHS when my contract is up.

As you're in the UK, you can put 20k a year into a stocks and shares ISA and any gains you make are tax free. Just go open one with Vanguard and then you can pick the stock indexes to follow

Thank you! I doubt I'll be maxing that out anytime soon, so it's good to know.

When your personal contributions are greater than your investment gains: total stock market index funds. Doesn't matter which, just pick one.

When your investment gains are greater than your personal contributions: diversify from index funds into a mix following the "efficient frontier". Here's a calculator, though the free version is capped at 10 years of historical records.

Thank you! I'll try and make good use of it.

I believe the default course of action would be to buy index or mutual funds. I've been eyeing the S&P 500.

More specifically, the default course of action is to implement a glide path, starting with a high proportion of stock funds and a low proportion of bond funds when you're young, and gradually transitioning to a high proportion of bond funds and a low proportion of stock funds when you're old. Vanguard provides Target Retirement 20XX funds that implement glide paths automatically, both in the US and in the UKGBNI. Alternatively, you can just manually allocate your savings between a stock fund and a bond fund.

I agree that's sensible in a vacuum, but I sincerely doubt I'll be growing old and retiring the old-fashioned way. I'm willing to put my money where my mouth is in that regard.

(I really should opt out of the NHS pension, like hell that's going to be relevant in the thirty or so years till I could plausibly retire)

If it's 2030 and AI progress seems stalled at levels not significantly more advanced than it stands today, I could be persuaded otherwise. But for now, I'm more concerned with preparing for a singularity (with a decent risk appetite as I have little to lose) as opposed to saving for retirement.

Pick out some tech stocks you like. Nvidia or ARM or whatever you believe in. Make a thesis.

Index funds are boring, guaranteed mediocrity and it is very possible to beat them. I beat the NASDAQ by 78% over the last two years and probably much more over a longer period (the chart my bank gives me stops in September 2023), mostly thanks to being early on NVIDIA and crypto last cycle. It's not impossible to make those calls and beat index funds. You don't need to read reports, outsmarting the giga-quants at hedge funds isn't about doing more work or being smarter than them, it's just about deducing the right thesis from having the right vibes. The numbers are already priced in, vibes are where the alpha is.

Of course I've made lots of mistakes and lost lots of money in various errors. That is inevitable if you make aggressive moves and control your own money. I encourage against using leverage. I encourage patience. But risks are needed to earn rewards.

You don't need to read reports, outsmarting the giga-quants at hedge funds isn't about doing more work or being smarter than them, it's just about deducing the right thesis from having the right vibes. The numbers are already priced in, vibes are where the alpha is.

Heavily seconded. My best gains have been in stocks from companies whose business I have known and occasionally patronised over a half-decade.

You really, really shouldn't put your money where your mouth is on this one. You are gambling away your future for something which not only probably won't happen soon, but you don't even get any rewards from the gambling! There's no upside for you here, only downside.

I appreciate your concern, but if it helps, I'm willing to explain my stance.

I strongly expect widespread technological upheaval and even widespread unemployment by the turn of the century. If that does not come to pass, and human skilled labor retains its value, then a more standard portfolio that sacrifices returns for stability would be something I would be willing to pivot to. In hindsight, that would represent half a decade of suboptimal investment.

I don't intend to YOLO onto tech stocks, I seek to invest heavily in American index funds, which I am happy to hear is more or less sensible according to the responses. I intend to spend only a few thousands, per year, on more volatile actions like stock picking.

Even if I suddenly realize, oh shit, I need to save for retirement and college for my (future) kids, that realization would take hold in my early 30s. I would only need to liquidate some of my holdings and reinvest them. I'm not advocating for taking short timelines as an excuse to put * all* financial planning out the window, but I think that a 5 year cutoff is reasonable according to my beliefs about the future of technology and its ramifications on industry. Some might want to withdraw into unchecked hedonism, content in hopes that a post-scarcity civilization will bail everyone out, but I acknowledge that as a possibility while not forgetting that hey, it's good to hold onto your money and grow it for now.

Ok, I misunderstood. I thought you were going for full on YOLO hedonism/risky high payout bet as a strategy, but if you're hedging your bets that's fair.

One reason to be part of a pension like the NHS is that it puts you in an alliance with a large constituency who might plausibly have enough political power between them to keep the gravy train going down the road.

If you're going to invest in the stock market, put the money in an index fund as suggested. I've been making around 10% annual returns doing this. You're not going to beat the market making risky bets because you don't have better information than the market. Trying to pick stocks is just gambling.

If you are truly dead set on out-performing index funds, then you need to invest in something that you have more direct control over, like a business you own or a property you manage.

Remember to take advantage of ISAs for tax free saving. You can put 4k a year into a lifetime isa with a government bonus of 1k, that's huge. You can withdraw that to buy your first house too, and keep it in bonds or something if you just want the money parked safe.

The UK has a ton of stupid little programs for saving and borrowing that you need to learn about by word of mouth. My dad made a tidy profit on a super low-interest loan through a government program when he bought his first house, even though he paid cash for it.

Thanks! I think I dimly recall someone mentioning them, but it had entirely slipped my mind before you reminded me.

I believe the default course of action would be to buy index or mutual funds. I've been eyeing the S&P500.

Yup. It really is that simple. I hold VFFSX, although there are a number of similar low-to-zero fee large-cap US stock indices that are all "S&P500".

Even if you think you could beat the market, you have to decide if it's worth the stress/effort. I think it's very much not. Surely, if optimizing for dollars, your effort is better put into advancing your medical career. Similarly, if you find yourself cleaning toilets at home, either a) capitalism is fundamentally broken or b) you should hire a housekeeper.

Some mix of VFFSX + safer or anti/un correlated asset classes makes sense if you are either particularly risk averse or particularly concerned with timescales shorter than 10-15 years. But, this leaves expected value gains on the table, and requires more thinking, so I'd advise mildly against. See e.g. Butterfly Portfolio.

Beyond that, two notes:

  1. Obviously pay off debts that are higher than expected returns (~8% in nominal dollars) before investing
  2. Rent vs buy is nontrivial. Do not assume buy is the better answer, even if you are certain you will never move. Owning is a headache and a risk. The reasons it has historically been better to own are: a) laws that have driven up house values, but could change; b) people are too stupid to invest the cashflow saved by renting, whereas owning forces you to invest (in a single asset class!), making owning correlate with net worth (amongst many reasons)

Surely, if optimizing for dollars, your effort is better put into advancing your medical career.

Sadly the NHS mostly operates on assigned hours put in = seniority = more money paradigm.

As a trainee, I get predictable and fixed yearly increments, which are nice enough, especially since I could get away with spending less than half my monthly salary if I wasn't so fond of takeout.

Speaking broadly, in most other places, doctors, especially in surgical fields, can double or triple their salaries if they put in the hours. This is much harder to do if you're an early-stages trainee. Completion of training would take about 6 more years, and that's when the opportunity to work private and make bank begins.

I've also missed the glory days when locum roles weren't grossly over subscribed, and you could rely on picking up an odd 3 or 4 shifts a month to almost match your base pay. There are too many underemployed fresh grads and international medical graduates like yours truly clawing at the door.

If I were to attempt to "beat the market", it would likely take the form of buying tech stocks.* And I wouldn't put more in than I could afford to lose! I doubt I'm going to be forced to liquidate anytime soon, so I would have little issue with holding a dip.

*You can't really price-in a technological singularity, and unless everything goes sideways, I expect broad slices of the market to soar and not just MANGA.

On the topic of renting or buying, the only real reason I'd buy is if I was convinced I wanted to tie myself down geographically (and had a family), especially since you point out that re-investing the difference between rent and home loans would obviate most of the difference. It's too early to make that call, and I prefer my money relatively liquid.

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