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banx comments on Open thread, Nov. 23 - Nov. 29, 2015 - Less Wrong
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Comments (257)
Yes, but those are the important ones. Stocks for high expected returns and bonds for stability. You can generalize "bonds" to include other things that return principal plus interest like cash and CDs.
What's the criterion of importance?
Um.... I hate to break it to you...
Important to the goal of increasing one's wealth while managing the risk of losing it. Certainly there are other possible goals (perhaps maximizing the chance of having a certain amount of money at a certain time, for example) but this is the most common, and the one that I assume people on LW discussing basic investing concepts would be interested in.
I'm not sure if you're referring to the fact that popular banks are returning virtually zero interest or if you're interpreting "cash" as "physical currency notes". If the former, I have cash in bank accounts that return .01%, 1%, and 4.09% (each serving different purposes). If the latter, I apologize for the confusion. The word is used to mean different things in different contexts. In the context of investing it is standard to include in its meaning checking and savings accounts, and often also CDs.
Given this definition, I don't see why only stocks and bonds qualify.
True, but given that you said "cash and CDs" I thought your idea of cash excludes deposits. Still, there are more asset classes than equity and fixed income.
My claim is that equity and fixed income are the important pieces for reaching that goal. With a total stock index fund and a total bond index fund you can achieve these goals almost as well as any other more complicated portfolio. Additional asset classes can add additional diversification or hedge against specific risks. What other asset classes do you have in mind? Real estate? Commodities? Currencies?
Fair enough. I was unclear.
They are, of course, important. The question is whether they are the only important pieces.
Real estate is the most noticeable thing here, given how for a lot of people it is actually their biggest financial investment (and often highly leveraged, too). Commodities and such generally require paying at least some attention to what's happening and the usual context of financial discussions on LW is the "into what can I throw my money so that I can forget about it until I need it?"