This is a factual but unhelpful comment. I (and many many other people) have a need for an emergency fund that is liquid at short notice. Storing _all_ my wealth in investment vehicles (and possibly needing to liquidate it at an inopportune time) would be foolish. The devaluation due to inflation can be considered the "convenience cost" of such a fund.
(There's also the consideration - and, to be clear, I'm not supporting this myself, particularly since "timing the market" is often a fool's errand; but it's worth considering to recognize how your first-order reaction misses many nuances - that if you have a strong conviction that a stock market crash is imminent, then holding dollars that devalue due to inflation to then be able to buy in after the crash is still profitable)
It is a helpful comment because a lot of people don't think about things in the terms that I'm outlying. In the same way that people don't think about how getting paid a salary in USD is the same as buying dollars.
Your response suggests that the only way to protect yourself is by holding cash and taking the loss as some sort of convenience cost. I'd say that there are other ways to hold liquid funds that try to combat inflation beyond just gambling in the stock market. To preempt a request for an example, gold is a popular method. And I know HN hates this, but the current bull market in crypto, is another. For that, I'd suggest more than just buy/hold and really delve into the lending/borrowing markets in DeFi.
Both gold and crypto have wildly different profiles than cash in a high interest savings account, so much so that suggesting them as a plug in alternative is at best disingenuous.
Not that that's always way you want! But most people need some sort of emergency fund, and very few things are liquid enough and stable enough to meet this need well. Laddered CD's, etc. can work but are fiddly. Cash accounts are king here for a reason.
On the long term investment side: sure cash accounts are a bad idea. On the other hand, the idea that the stock market is "gambling" but defi lending isn't is - idiosyncratic.
Wait a second. I'm only providing examples to better the discussion and now you're calling me disingenuous. I'm not shilling anything. Nor am I saying anything isn't without risk. Putting words into my mouth isn't cool either.
I'm saying you responded to someone explicitly talking about "emergency funds" with examples presented as if they have similar profiles (to savings account) for that use, and they simply don't.
I'll accept "disingenuous" was perhaps premature, apologies - you could also just be confused.
Both gold and crypto are poor vehicles for original commenter's need.
My comment about defi was just because you characterized the stock market as "gambling" (somewhat unfair, but certainly can be), but for somehow failed to annotate defi as an alternative that is "even more so gambling"...
> Both gold and crypto are poor vehicles for original commenter's need.
Why is gold a poor vehicle?
> My comment about defi was just because you characterized the stock market as "gambling"
If humans could predict the future, we wouldn't have gambling. That's what makes the stock market a gamble. Can you offset that with derivatives, like options? Sure! That said, you're showing your naivety around DeFi with your response. Lending/borrowing isn't a gamble beyond the underling risks involved.
Physical gold is too usually too illiquid. Digital gold solves that, but in general the short term volatility makes it imprudent for emergency funds.
> Lending/borrowing isn't a gamble beyond the underling risks involved.
This is called burying the lede, I believe. The underlying risks include significant structural risk on the institutions and vehicles themselves, not comparable at all to conventional banking.
NB: I was never suggesting stock market for emergency funds either. Investing is investing, and involves risks. If you want a useful distinction between investing and gambling, you would have both represented in stock market. I would suggest a more nuanced view would at least try to separate the two as useful concepts.
> Digital gold solves that, but in general the short term volatility makes it imprudent for emergency funds.
It depends on what you define as an emergency fund. If your view is that the macro economy (especially in the US) is not going well (heading into an inflation emergency), having divested into something other than dollars is the correct play here.
> not comparable at all to conventional banking
That's the point though. At least for me, I've long ago lost faith in conventional banking (aka: tradfi). This is why I put the time and effort into deep learning about DeFi.
Today, DeFi is relatively tiny and cannot support the larger asset markets. My hope is that it grows. As someone who found the internet in 1991 and watched and participated in that early growth, I don't see a reason why it can't happen again for something like DeFi.
Ignore the 'crypto scam' aspect of it all. There is a lot of positive things in 'being your own bank'. Early adopters of this risk are definitely reaping windfalls from it. Making a more general statement and not pointed at you directly, it is easy to sit on HN and shit on crypto and much harder to spend time listening to what some latchkey is trying to gently guide you towards, without being a shill.
All I'm saying is any discussion including it has to realistic that it is fundamentally a risky at current time. Will it outgrow that? We'll see.
> It depends on what you define as an emergency fund. If your view is
Now this is just moving goalposts, why do that? Everyone was talking about emergency funds in the usual sense. Introducing hedging against the USD based economy is at best a distraction (even if that's what you personally want to talk about) and counterproductive.
I think you're comparing apples to oranges. Even Crypto's most ardent supporters would not disagree that prices are volatile - which means that it doesn't suit my stated requirement that there's never a bad time to liquidate the investment (if my roof springs a leak right as WhateverCoin takes a nosedive, I'm shit out of luck). I will admit that I've never invested in gold, but if you're talking buying actual literal physical gold then I can't imagine that it can be liquidated as quickly as would be necessary; and, whether you're talking about buying literal gold or an abstract investment tied to Gold, I'd be very surprised to hear that it has an appreciation rate that beats HYSAs - and hey, if it does, I'm extremely grateful to you for pointing out an alternative investment strategy to diversify with!
To be clear, my requirements are:
* Near-instantly liquidatable (a day is maybe ok, hours is better).
* Value is not volatile - explicitly, extremely high likelihood that, whenever I need to extract value from it, the value will not have significantly lowered (I assume there's some economic theorem which states that this puts an upper bound on the interest I can expect to earn).
* A distant third is "combats inflation as much as possible", but I recognize that a lower interest rate will be earned because of the first two requirements.
EDIT:
> the only way to protect yourself is by holding cash and taking the loss as some sort of convenience cost. I'd say that there are other ways to hold liquid funds that try to combat inflation beyond just gambling in the stock market.
I suspect we may have our priorities crossed. I'm not trying to hold liquid funds that try to combat inflation - I'm trying to hold liquid funds that have a strong guarantee of non-volatility. I agree with you that if the constraint of volatility is relaxed, then there are many better (higher-rate-of-return) options than a HYSA.
It sounds like you missed the very end of my comment.
"For that, I'd suggest more than just buy/hold and really delve into the lending/borrowing markets in DeFi."
Crypto itself is volatile, however there are more complex (and potentially risky depending on how you look at it) ways of mitigating the volatility via lending/borrowing (and options for that matter) DeFi markets. All of which are easily liquidated, in seconds and low transaction costs (that are offset by earnings).
Of course a lot of this is still very early days in terms of knowledge and exposure. That's a big reason why you might not be aware of what's possible in DeFi.
Fair point. I will certainly admit that, despite having made a decent (not spectacular) profit in crypto in 2021-22, the cascading high-profile failures and rug-pulls have made me lose faith in the individuals involved. The technology and concepts themselves are a different matter. I love and enthusiastically support what people _claim_ to be working towards, but an overwhelming weight of evidence suggests that the rational thing to do is to assume that any crypto project is vapourware, a scam, or some combination. Here's hoping I will be proved wrong one day, I really hope so.
As soon as you get a 'real job', you're immediately pushed on the concept that you're supposed to stuff money into a 401k and let other people manage it for you because you're too busy or this stuff is too hard and others can do a better job at it for you. Sure, that's something that you can do, or you can decide to put the time and effort into learning more about finance and control what you do with your money a bit more. The choice is yours and yes, everything has some level or risk. Even ETF's have buckets of risk/reward.
Absolutely right, and I salute the impulse to educate folks that taking financial responsibility and autonomy is something that is possible and profitable!
(While still disagreeing with you that crypto fits the requirement-profile of an emergency fund :P )
I just wish I had realized it earlier. I'd have never put any money into a 401k or the stock market. Worst performing asset class that I can imagine. Maybe some people are happy with the results they've gotten, but there is really a lot more you can do if you are willing to put the energy/time into it.
You could easily argue that this guy made poor decisions with his money, but it's also all too easy for investors to attribute their success to skill, not just a few lucky bets.
In the long run, my understanding is that few things will consistently outperform plain old index funds.
Doing the research and buying a house/condo in the right area, at the right time, can easily outperform an index fund. It is probably harder to do than just plumping money into an index fund, but it is a good example here for how you can allocate your funds in a less 'conventional' way.
Probably not anymore. Rates are up, CPI is down. 4.25% is probably close to break even now or will be very soon. Vanguard treasury money markets are paying a bit higher without FDIC backing but they are pretty risk free.
