New on Desk #111 — Investment Tips

All right, let’s do a simple edutainment topic next. Self-help literature, as it were.

Saving by investing, middle class style

This topic comes up somewhat regularly with my friends, and it seems like I’m a bit more informed in it than most. Just a matter of family background; I come from a certain type of rooted family background where some life hacks that just aren’t part of primary school education get passed on even in this individualistic world. The concept and ethos of “saving” (as in, saving money for the future) is part of that cultural package.

As I’ve actually gone over this material with several different friends over the last few years, I’ve noticed that I can actually condense a fairly useful basic introduction to “how to save” into a couple of basic observations that I feel fairly confident are useful, relatively timeless and unlikely to do harm to any friends who are only just setting out to integrate saving into their lifestyles. Nice topic for blogging, that.

First, because this is a serious topic, the obvious disclaimer: I’m not some kind of professional consultant (arguably a good thing when it comes to investing; the majority of investment consultants by head count do not have your interests in mind), and you shouldn’t just dash off to make changes in your lifestyle and investment strategy on the basis of this little piece. Take it more as a simple big picture view that might suggest some specific issues to study further. Ultimately, the nature of saving is such that the responsibility for your choices is on you, and you alone.

Philosophy of Saving, nutshell version

The true struggle for the soul of humanity is the fight between the cosmic alignment poles of consumerism and frugality. Here’s the positions, laid out bare without pretenses:

Consumerism conceives of your life as a shooting star: bright, unique, existentially satisfying. Also: over in an instant, burned to a husk that nobody can see from the ground once the brightness dims. Your task, as the shooting star, is to keep on burning by the means of experiencing, fulfilling, consuming as long and hard as you can. The best shooting star is short-sighted, spontaneous, fun-loving, working hard and partying hard. Extrovert instead of introvert. Life is gross domestic product, and your means of self-realization are defined by individualistic choices to engage with material opportunities provided by society.

Frugality perceives life very differently, as a system of interlinked duties, goals and achievements. A candle you burn to shed light on the matter of existence, if you will. A fulfilling life consists of exploration, deliberation, experimentation, integration and patient growth that, when taken together, form the substance of human experience instead of merely the form.

To be clear, this is not the old materialism vs idealism distinction of academic philosophy; both consumerism and frugality, as praxeological stances, can be conceived of in either type of cosmology. The distinction is closer to Apollonian vs Dionysian dichotomy; arguably the same thing, just expressed in terms of economic behavior across a human timeline.

The underlying reason for why I even need to teach saving is that saving money for the future only matters through a lens of frugality. People contain multitudes and nobody is only consumerist or only frugal, but if you are frugal, then you are likely to already be saving for the future, and if you are consumerist, you might not have conceived life in these terms at all. Saving only exists in a frugal worldview that perceives an obligation towards preparing and taking responsibility in the travails ahead. There is no immediate reward of self-realization in delayed gratification.

Applying these concepts to Finnish culture (and perhaps first world cultures in general), frugality correlates strongly with the social middle class, while consumerism correlates with the working class. In my experience (and this might be unique to Finland-type relatively egalitarian social democracies) this is all but the only meaningful measure for what these class society concepts mean in the modern world: I cannot possibly tell you if some plumber or teacher is working class or middle class without knowing whether they live from hand to mouth or operate a program of saving and investment to buffer their lives.

That’s what the class distinction ultimately comes to, in my experience: whether you conceive of your sustenance in terms of a monthly paycheck cycle or a stable foundation of ownership. For the working class the work is the sustenance; for the middle class the work is ultimately merely a more or less important income stream in a wider system of capital accumulation. Certainly class is not defined by the amount of income; modern individualistic society abounds in opportunities for mayfly success, but a rich consumer is still a consumer; to transition to middle class, you need to become a manager of wealth, not merely a producer-consumer.

Investment as a social good

Capitalist society argues, again stripping away any polite pretenses, that the world belongs to the frugal: ownership is a responsibility of disposing of what you own, and those who dispose ineffectively grow poor, while those who dispose effectively grow rich. It’s an interesting setup in how directly a system of highly advanced personal ownership privileges frugality and disadvantages consumption. If humans were immortal, consumerist humans wouldn’t even exist, for all would in time be overtaken by frugality, the choice of deferring satisfaction to the infinite future. Anything else would consume itself and become extinguished in the long run. Only in constant renewal of generations does dynamic change occur at all.

I’ll defer the question of whether the market-based personal responsibility society is a good thing (it’s a big topic!); for our purposes here the only thing that matters is that it is the society we have, and in this societal context saving is pretty much the winning play for a frugally-minded person: capital accumulation provides income independent of personal work-input, which means that you get to work less. (This is something that a working class observer might not always see very clearly: many middle class savings-investors aren’t into frugality due to some feverish dreams of becoming Mister Tophat and getting to pose on the poors; it’s more about being lazy and dreaming of a sustainable life of leisure. Being “independently wealthy”, as in independent of having to work. Frugality is, in my experience, mostly a combination of inclination for long-term thinking and an inclination for being lazy.)

A curiousity of the market economy is that the swarm intellect of humanity pretty much ends up setting up the aforementioned social classes of the frugal and consumer, and then encouraging consuming beyond all reason. The structural logic of capitalism is pretty much that the more short-sighted and spontaneous the consumer population is, the easier it is to perform value-extraction from them as workers, which ultimately turns into capital returns: you owning a mean of production is more lucrative for you if the world is full of consumers willing to sweat a lot to be able to purchase what that mean of production produces. A world dominated by frugal behavior patterns would be a world with vastly less investment opportunity for these frugal, joyless people, as there would be less people willing to work hard for wages to buy consumer goods and thus pay rent for the use of the capital goods that those frugal people compete between themselves to own.

The amazing paradox of this system is that the beneficiary conceives of life completely differently from the exploitee: from the viewpoint of a frugal-saving-owning person it makes sense to think long term, live frugally and let others work. And, more insidiously, it makes sense to encourage the adoption of consumerist attitudes in other people. The more short-sighted and wasteful other people are in their lives, the more on the hook they are to work and consume, turning the wheels of production that grind the grain of capital profit for the frugal investor.

Arguably the capitalist context causes a performative duty on the human population of Earth to make the individual choice of living frugally and partaking of the ownership responsibility over the world: choosing otherwise is not only personally short-sighted and ultimately the choice of wage slavery, but it’s also destructive in the large scale by encouraging rampant consumption. Ultimately the system has developed in a way where being an owner is more desirable the more animalistic the consuming class of society behaves, and the only way to bring any balance to capitalism from the inside is to encourage the growth of a larger and larger middle class; it reduces the profitability of being an owner if there is more desire in society to belong in the owning class, but it also improves accountability and rational decision-making in the management of capital if there is less consumer pressure driving investment decisions.

In other words, saving money is not only personally good for you (insofar as you value ataraxia and generally just prefer to not die in a ditch), but it’s also the only way to make a market economy work in anything resembling sanity. Frugal personality types, when learning more about the world and wondering about how to design their lives in our market society, often end up elevating the middle class ideal: develop a personally owned capital stake, leverage that to improve your life and attain your life goals.

This is all stuff that I feel should really be in the curriculum of the school system. Of course I won’t claim that this is the only possible worldview or way to live your life, but it is part of the cultural background I come from, so it often feels kinda skeevy to see people doing conspicuous consumption and generally just, well, living that thug life. I haven’t been raised to live that way, for good or ill. I’d love it if personal financial planning wasn’t just this occult science that passes in family subcultures, perpetuating between generations and having such a major influence on how people perceive entirely basic parts of our society like wages. What even are your wages for, anyway? Is your basic assumption when having money that it’s something that goes into the piggy bank, or does finding something to spend it immediately go on the to-do list?

A quick history of saving and investment

Anyway, enough about the philosophy of saving here; I’ll take it for granted that we’re convinced about wanting to save money and derive benefits from the practice. Next, a few words about the practicalities.

There is an important distinction to be made between saving and investment as concepts; saving is when you put money aside for future use, while investment is when you use money to purchase a capital interest that you hope will turn into more money in the future. “Savings-investment” or “investment saving” is when you save by investing: you have money to set aside, and instead of merely storing it, you invest it into something or other. An investment being savings implies certain things that aren’t necessarily obvious, such as the need for the investment to be divestable: something that you can sell to recoup your capital. It’s savings money after all, you might well need it for something later. Slightly different from both professional investment and fixed investment scenarios, and not only in the size of the capital stake.

Working class people also save as part of their general life management; a typical piece of advice I often see is trying to maintain a reserve fund equal to three months of your living expenses. Such a buffer is just plain common sense for anybody willing to take a whit of responsibility for their own life. Without a monetary buffer you are always just one economic setback away from destitution.

However, traditional working class saving is not capital investment. It used to be the case in the pre-industrial world that actual investment into capital goods was impossible for anybody except the elite ruling classes of society. In such a world the forms of saving and investment that commoners could partake in were in many ways constrained, and the practical way to save money often ended up just being keeping some extra money set aside. Still a good idea for the frugal person, but not the crazy capital gains situation that we find in the modern world. Today, with the advent of exciting modern innovations like stock exchanges (been going for just what, ~300 years), and with the ever-increasing efficiency of trade, we’re in the exciting world of citizen capitalism: it is entirely trivial for anybody with disposable income to partake of the capital ownership that used to be the special privilege of the great land-owners and merchant princes in the old world.

The expansion of the owning class has been an on-going process over the last hundred years or so in most of today’s developed world. In Finland, for example, nowadays about 70% of adult population are middle-class in the sense I discuss here, with major capital assets. (To be clear, usually it’s home ownership; only ~10% manage an active investment portfolio.) A hundred years back a similar fraction was about 10% or so, mostly consisting of rural land-owners, with at most 1% owning active investment capital.

However, citizen capitalism is still very much a work in progress: only 10% of the population engages in active capital management (that home ownership number isn’t perhaps that good as a measure here), and the culture of thinking of saving-investment as something that the “better class of people” do is seemingly very common, if my circles of friends are anything to judge by. If we, as a society, are really committing to this market economy thing (I should hope we are, because otherwise what the fuck have we been doing for the last 100 years?), there’s still much to be done to get to a point where everybody actually understands what the name of the game is, and plans their economic activities accordingly.

What all this means is that while saving itself is practically very simple, easy and cheap, the biggest hurdle in doing it seems to generally be about realizing that you should. The economic system has seriously gotten to the point where it is long-term rational, frugal, to put aside like 50 € a month as savings that you can invest effectively. That’s… that’s not middle class money, that’s straight up working class. Just about anybody who is actually employed at all could save that much, and therefore enter a practice of managing their own wealth as something more than just funny money you use to buy beer. The only excuse we have for so few people partaking of the capital income streams of our society is that, out of gormlessness or mendacity, we do not teach and facilitate participation.

Finally, just in case it doesn’t go without saying: saving is an easier choice to make when you actually have disposable income. My heart goes out to anybody living in poverty. (A technical definition of poverty, in case you didn’t know: poverty is when your entire income goes into subsistence. Poor people by definition cannot save at all.) I find it entirely non-controversial that a society choosing the market economy has the moral responsibility to effectively address poverty, guaranteeing both care and opportunity (to improve one’s lot and get to a point where capital accumulation is an option). Anything less directly undermines the fundamental moral justification of capital ownership: you cannot be allowed to personally own and manage part of our common world if, by so doing, your social contract leaves others destitute. People who claim ownership to be an inherent moral right, more important than joint ecological right to existence that we all enjoy, are evil. Power begets responsibility, and capital is power. The owning class has no moral right to expect the poor, who do not partake of the benefits of the system, to abide by its rules; insofar as the poor do, it can only be achieved by violence or false consciousness.

Foundational assumptions of savings investment

This is actually the part that I was thinking of writing, but apparently I could only get here after the above sermon about the delivering powers of compound interest. Joys of reading a newsletter authored as stream of consciousness, you get the raw deal.

After a lifetime of partaking in being a casual middle class savings-investor I have some sense of what works, what is rational, for somebody desiring to save by investing. Specifically, your investment interests have the following qualities:

Small capital: You are investing with a relatively minor capital stake. It is, in fact, so small that active management cannot possibly be worth the effort. The practical minimum is maybe like 1k €, ranging up to maybe over 100k €. At some point between 100k € and 1M € my advice here stops applying due to certain economies of scale, and in general if you have 1M € to invest, maybe don’t get your tips from some random blogger.

Passive saving: You want to take advantage of investment profit in your saving plans, but don’t want to make investment into a hobby. This is an important distinction, because what makes for a good investment is a function of risk, returns and work that goes into managing the investment. Speculative investing (aka gambling) is right out, of course; I want to tell you have some basic investment strategies for rational passive savings-oriented investing, not to encourage consumerist fantasies about quick profits.

So those are preconditions: you’re a interested in developing a passive investment plan, and are working with relatively small capital stakes. Also, a third absolute precondition for engaging in this stuff: distinguish your capital stake as money distinct from your living expenses, discretionary expenses and generally money that you plan your life over. Any money you decide to save should be money you do not need in the foreseeable future. It is not a good practice to invest anything you actually need. Doing so causes a time-bias that is at the root of much of the unprofitable investing. Consider a 3-month time scale at least, and consider any money you put into your capital stake to be money you will only recover with at least that much delay. Often there’s no particular reason why you couldn’t divest some types of investments quicker than that (like, a week is often fairly practical when working with the stock exchange), but planning on that causes your investment strategy to be too reactive, and you shouldn’t rely on the idea of divesting investments in response to common life crises. Maybe you can do that, but don’t assume it.

And, of course, the fundamental lesson: invest well, instead of investing badly. This issue actually comes up regularly in the media as the macro trend of citizen capitalism progresses; capital investment is historically a process and world of serious ownership and professional management, so when large new layers of society join the game, it is easy for the newly wealthy to end up making bad investments. Even a good investment does not absolutely guarantee your capital stake’s safety, but there is difference between the actively malicious, the highly risky, and solid investments with reasonable risk/return ratios.

Assuming a scenario where all of the above is unproblematic, it seems that you can generally on average expect an annual return of 5% or more for a solid investment in the modern world. That’s the ultimate purpose of all this blather: you’re putting aside money so that every 100 € can produce a 5 € of profit per year. Given sufficient capital, and perhaps some patience in reinvesting the profits, this profit on capital investment could become something meaningful, or at least worth the effort, for the savings-investor.

The investment opportunities I recommend

Finally, the gist of the matter: in a world full of people who want your money, where should you invest? I have very carefully picked out some destinations that I think are appropriate for a beginning savings-investor who wants fairly low risks, good returns and simple management. Like so:

Home Ownership

This is a bit of a special case, but I’ll mention it because in Finland, and to my understanding other countries, it is often a hell of a great deal to own your own home. In fact, it is and often should be the first serious investment that a newly emerging middle class family (remember, my definition of middle class means that you’re middle class if you own your home) makes.

Home ownership is so great as an investment for several reasons:

Captive market: Investing into housing in general is a mid-tier investment hobby thing that I’d consider too risky and work-intensive for a newbie, but investing into your own home actually solves some of the absolutely most difficult parts of the idea of buying a home and then trying to find somebody to pay rent: you’re your own customer, and therefore do not have to worry about the usual customer relationship challenges. The economic logic is literally exactly the same as in being a landlord (an ancient, profitable investment!), except you have a superb tenant in the form of yourself.

Well-attested: Home ownership is a very common, very popular thing in society. This means that banks and every other institution you have to work with know and understand exactly what you are doing when you tell them that you want to e.g. get a loan to buy a home. This translates directly into very competitive loan terms, likely far better than you’d get if you declared intent to take the loan money and invest it in the stock exchange. (That’s another one of those mid-tier investment game moves that I don’t recommend to newbies.)

Favoured politically: Our society doesn’t exactly frown on other types of citizen capitalism either, but home ownership is something that is strongly ideologically favoured by large parts of the political establishment. While there are globalist-consumerist interests in changing this, I would judge that the macrotrend is unlikely to turn against home ownership this century in Finland. And as long as this is the situation, investment in your own home benefits from a various palette of tax breaks and other benefits.

Thus, in summary: deciding to own your own home means that instead of paying rent, you pay down a cheap loan guaranteed by the very property you’re investing in. It’s by far the simplest, safest way for a savings-investor to leverage capital: you get to live in a house while not even having paid for it yet. And when you do pay for it, you actually own something real and useful, instead of living from hand to mouth. You could even divest the home at some point if you need the capital for something else.

Because homes are so great as loan guarantees, some people like to actually maintain a home loan long term and, instead of paying it down, invest the money into other things. This is still fairly uncommon in Finland, but e.g. Swedes seem to do it routinely. Food for thought, because those home loans really are usually very attractive compared to other financing options.

The only serious downside in this investment plan is that homes are fairly sizable investments, which means that you either need a good credit score (stable employment, basically) or need to already have a spare 100k € or whatever lying around looking for a home. This all means that investing in a home might not be an option for the most precarious would-be investors.

Low-Expenses Index Fund

This is more like what you’d expect me to recommend, maybe: “index fund” is technical jargon for what amounts to a type of stock exchange investment. Specifically:

Investment Fund: A fund is a joint investment pool managed by a reliable party like a bank or investment company. Funds basically exist to reduce and redirect the bureaucratic leg-work involved in purchasing and managing investments. They are particularly valuable as a way for a large number of small investors to pool their capital in a way that enables them to take advantage of larger investment opportunities than they otherwise could. The most prominent funds (and what we’re looking into here) invest into stock exchanges, but there exist funds for most any type of investments; there are funds that hold and manage forest or housing, resource futures or cryptocurrencies, for example.

Index Fund: An index fund is an investment fund that decides what exactly the fund invests in by using a regular script, called an “index”. The normal way for investment funds to function is that the fund manager makes visionary choices (as per the fund’s general idea, there’s still some overarching rules) about what to invest in, and tries to pick good investments and generally manage the fund well. An index fund is much more mechanical; a typical index fund might e.g. be rules-limited to simply purchasing some of every stock offered in a given stock exchange, in proportion to their market caps (the valuation of the underlying corporation). Index funds have advantages in being cheaper and generally more unbiased than actively managed funds.

Low-Expense: The dirty secret of investment funds is that arguably a traditional, actively managed fund is a fraudulent idea: the fund management claims that their active management strategy enables the fund to “beat the market” (produce more profit than just buying a comparable index), and this therefore justifies the sometimes fairly high expenses that the management skims off the top. There is no trickery in what the deal is, but after several decades of global experience with investment funds it seems that the underlying claim simply is not true: nobody seems to be able to hire an investment manager who consistently produces so much better returns that it justifies the increased expenses. The conclusion is clear: if you are to invest in a fund, it absolutely must be a low-expenses one!

For context, I’ll say that I for the longest time didn’t believe in investment funds at all, exactly because of the expenses issue: historical data series over the last 20 years clearly shows that I actually pick stocks better than the vast majority of funds, and I’m not anything special in that regard, I’m just willing to take bolder positions. Thus I, for the longest time, recommended that new savings-investors should start their investment practice with the modestly challenging notion of directly buying stocks (of specific types, there’s some science to it). The kind of investment fund offers that were aggressively pushed at small investors over the last decades are at best misinformed, at worst scams. There’s too much science on this to claim otherwise, as far as I know.

However — and it’s interesting how long it has taken for this option to come to Finland, it’s not a particularly recent invention — index funds actually change the equation here! Because index funds are extremely diversified (this is important for stock investing) and cheap to manage, they directly attack the weaknesses of the otherwise desirable investment fund idea. The index fund never beats the index (by definition), but the index is already a good investment, so what kind of short-sighted greedy gambler would even ask for more?

At this writing there are some nice cheap index funds available in Finland. “Cheap” in this context means that buying into the fund, divesting the fund, and managing the fund are not very expensive for the fund owners. The worst of active funds can eat up several percentage points of profit annually, while the cheapest index funds are actually entirely zero-expense for the investor. (There’s obscure reasons for why managing such a fund is still profitable for the manager, in case you’re wondering. Ask if you’re curious, this newsletter is already long enough as it is.)

There’s some science in the choice of the specific index that you want to invest in, and it’s not necessarily a dumb idea to invest in several to get more geographical diversity, but then again I do think that it’s not a bad thing to just outright invest in Nasdaq Helsinki (Helsingin pörssi). It’s the patriotic thing to do (for me), reasonably stable, consistently profitable, and the Finnish economy is inherently fairly globally connected, so you’re more geographically diversified than it might seem. It’s a big world and you could spend ages building your investment portfolio up into the perfect inhuman “I stand for nothing” investment, but there’s some merit to taking a stand, too.

I’m actually kinda eager for the finance wizards to bring out some serious index-style investment funds for ethical investing. The complicated, crude way that market economy works, that could actually see some serious sea-change in what corporate citizenship even means. But for that to work some absolutely trustworthy, unbiased indexing has to happen over what “ethics” even means in this context. Once that happens, I expect that there might be some serious amounts of money in the markets, ready to invest in a sustainable combination of profit and responsibility.

While waiting for that, the typical cheap index fund indexes over a given stock exchange, so it’s easy to invest in e.g. the Finnish stock exchange in general, or the Swedish exchange in general, and so on. These indexes already involve hundreds of more or less independent investments managed by the fund, which is far more than it would be reasonable for you to manage as an independent small-time trader.

In terms of profit, I should mention here that stock investments (which index funds investing in stock markets of course are) are historically, on the average, the most profitable form of publicly accessible type of investment over the last hundred years. Just another one of those fairly reliable general observations: stock indexes consistently beat the housing market, land ownership, speculating on gold, whatever you can think of, more often than not. Funds also enjoy some tax trickery advantages compared to direct stock investments, which further benefits this option.

Also, one more thing about index fund saving: it’s very compatible with the kind of “put aside 50 € a month” saving that often comes up when modestly aspirant newcomers to investing consider their capital stake. A good index fund (I won’t name names in this article, ask me in private if you really want me to name-drop specific investment companies) may well enable you to throw in 50 € monthly with zero fees. Just, extremely convenient even for small-time investors.

Other investments of consideration

The above two are my generic go-to recommendations for somebody who’s just stepping into saving-via-investing: stop paying rent for your home by buying it, and put any extra into a cheap index fund (do these two steps in whatever order makes better sense for your situation). I know that it might seem unlikely from outside the scene for this to actually be the “best” investment plan out there, and I could write in length about the reasoning, but for now let’s just call it the concise summary of my supposed subject matter expertise.

I think that the above investment plan has extremely competitive risk/return/effort ratios for the kind of savings-investor I’m thinking of here, but I’ll also mention a few other ideas here, just in case they might appeal to you. The following are also basically solid investments with their own specific charms:

Direct stock investment: This is the classic of citizen capitalism, and what my father started me with. Passive investment strategy keeps effort low, but you need to have enough sense to pick not entirely horrible stocks for your portfolio. The main issues are the skill thing (you need a bit of willpower, clarity and sheer understanding of how the world works to choose your portfolio) and a tad high-ish minimum stake: if you’re an idiot (surprisingly common) then investing in stocks might be a bit too risky, and if you don’t have at least say 5k € to put into it, then the overhead expenses (what your service provider charges for handling the purchases) will eat up too much of the profits for it to be worth it.

Corporate and government bonds: The classical counterpoint of stock market investments. Bonds are generally more secure, but pay less than stocks. (Bonds are loans: you make a profit when the debtor pays back the loan, with some extra on top.) With stocks you can lose out because the value of a corporation you’ve invested in goes down for whatever reason. With bonds only a total default (very unlikely with government bonds of stable states in particular) sees you losing the invested capital. Bonds are extremely unsexy in the current financial markets, and time will tell if they’ll ever recover, but they used to be an important part of competent investment portfolios for centuries, so better not forget about their existence quite yet. Before the recent times it used to be the case that even if you absolutely do not want to risk your capital stake in anything exciting, you should at the very least purchase the bonds of your own national government: it’s the patriotic thing to do, and was very likely to earn you a few percentage points for negligible risk. Let the state use that money for something useful instead of literally just sitting on it!

Housing investment: The ancient concept of one person owning a house and another renting part or whole for an apartment. Similarly, you could rent space for a business. This could seem like a wacky thing for a small-times investor to consider, but landlording actually has some fairly attractive features when you’re more experienced in being a capitalist. It’s often counter-cyclical to the stock exchange (so when stocks perform weakly your housing investments aren’t affected), and the returns can be good. There are investment funds that can get you easily into this market, but I understand those don’t necessarily perform very well; to get the real profits you should take up the hobby of being a landlord — purchase an apartment you think somebody would want to live in, find a renter and then enjoy the monthly rents rolling in. It can work, but it’s not low-effort, landlords actually do need to do stuff to manage their investments.

Forest management: I imagine that this is totally a Finnish peculiarity, but here in inland Finland it’s not that uncommon for somebody to be a small-time forest owner. My brother’s big into the lifestyle, for instance, always buying new plots when good deals come onto the market. It can be fairly profitable, too; loses a bit to the stock market on average, but if you enjoy doing your own maintenance work on the forest, then it’s a kind of fairly lucrative self-employment thing. Also counter-cyclical and insulated from the stock market, which is valuable for portfolio diversity, just like housing investments. But you gotta want to be a forest magnate, it’s another hobby disguised as investment.

So yeah, you could go into any of those if you happen to have some specific positioning that makes them more attractive than my golden index fund plan.

A warning word about speculation

I know that I’ve been sermonizing a lot here (this article is much longer than it would need to be, just for the information content), but I’m genuinely worried about some friend (not like anybody else reads the blog) reading this and then rushing out to put all their money into some damn fool thing. So to reiterate, only invest capital stake, not money you actually need for something; invest well, rather than trying to be clever.

Savings-investment is not gambling. Gambling in investment context is called speculation, and I’m perfectly aware that it’s attractive in the same macho short-sighted thug lyfe way that overt gambling is. The world has plenty of narratives on offer about quick profits, opportunities to prove that you’re more clever than the next fox, hidden secret tricks of investing, comparisons to the other guy’s success, and generally just an endless fount of bullshit calculated to encourage investors to commit to high risk investments. Sometimes these are honest in the sense that the high profit margin is real and compensated by a high level of risk; other times the investment opportunity is inherently empowered by a pyramid scam (the investment does not produce real capital gains, the manager just shuffles capital around to make it seem like it does).

All investment has some inherent risk, I’m not trying to say that good investments are somehow risk-free. When I suggest to some friend that they should be saving for the future, and maybe consider putting their money into an index fund because I have some confidence in that, I am in fact taking the risk that they’ll listen to me and then I hear later that the fund went down like 5% over the year (instead of the more usual 5–10% profit). That’s the name of the game. However, responsible investments are different from gambling. Consider this:

Gambling has neutral or negative expected return: True investments are real-world productive affairs. Your capital makes gains because it is being used for something that has human value. Ideally it’s even good value, you’re not just funding an arms merchant or a drug lab or something. But the investment is doing something, and that something produces profits, and part of those profits come back to you in the form of capital gains. This means that the stock exchange produces a profit on average. This is not true of gambling processes! Playing poker, or betting on horses, or speculative investments (purchasing an instrument in the hopes that its value will go up later so you can sell it) are not inherently profitable this way, because no true value is being generated. It’s just shuffling the deck chairs on a sinking ship. (The sinking here is caused by the casino taking its wig, in case that wasn’t clear; the bank always wins when you gamble, and that winning comes out of the pool of profits that the gamblers share between them.)

Gambling has no inherent capital conservation: A fundamental reason for why solid, responsible investing into true economic practices works as a stochastic practice is that the underlying random distribution tables of how your investment’s value develops are very, very biased against you losing your capital stake. There are some major investment opportunities well available in the market (and therefore competing with other options) that provide extremely strong capital protection, such as government bonds; it is almost impossible for those to default, it’s more likely that you die in a car crash than you losing your capital stake by purchasing those. Same goes for the riskiest investments I recommend: you can lose capital value in the stock market or when purchasing a house or a forest, but it’s deeply unlikely for you to lose it all; the value fluctuations are caused by real economics rather than some merry-go-round of arbitrary speculative dynamics. Even a stock market paper, which sometimes behave like black magic, cannot possibly lose more value than the underlying corporation has physical asset value. The thing is real and thus valuable, it’s just a question of how valuable. This is, again, not true in gambling or speculative investing.

I should note that some speculative investments are kinda noble endeavours, and I do encourage people with an excess of money to be open to funding e.g. novel technology developments that might pan out for big bucks, but probably won’t. But are you a person who can just afford to gamble on something like that? Do note, the reason to do it is because you care about the outcome, not because it makes you rich. I am not advising on speculative high-risk investments here, only on how ordinary citizens should engage with the financial institutions of capitalism to become real stakeholders in the system instead of merely its slaves. That should have nothing to do with speculative investments.

Because it’s timely, I guess I should comment on cryptocurrencies and NFTs here, as well: they are absolutely speculative as investments, please don’t decide that your personal introduction to the world of capital management should be buying into this stuff out of some misplaced ideological loyalty to a generational nerd experience. If crypto is useful, it will be that without your gambling on it. As an investment it is inherently immoral speculation, because no value is being generated in currency speculation. You’re just gambling with a large number of anonymous others, and the stupid prize of this stupid game is that you manage to eke out a profit that directly impoverishes some other damn fool. If that was all the promise of capitalism, the redistribution of wealth by a gambling mechanism, it would be the most worthless thing ever invented.

AP Report Pile: Coup de Main #72

The third session of our Illmire adventure continued from where we’d left it last time: the Knights Temp had crushed the cult presence in Illmire’s temple to Pelor, without finding our kidnapped henchman, so the motivations were clear on what to do next. I’ll let Tuomas describe it again:

This is one of those cases where describing what happened is much more straightforward than the super-detailed tactical maneuvers the players used to micromanage the situation. In hindsight the GM could well have chosen a much quicker pacing as well, just rolled some single-roll check to find out how thoroughly successful the bust would be. The stakes were kinda minor for how much time we put into the inn. On the other hand, the tensions were very high, as we were expecting more serious resistance than we ultimately found.

I’m playing The Bard in these adventures! It’s great how the 1st level character can be useful for all these big-ass heroes by being the party face. My take on the role in general is that I’m less of a wacky bard and more a serious take on what a feudal herald type professional might be: a fixer, lawyer, general advisor. I guess I have some bardic music stuff as well, but The Bard uses that mainly rhetorically. Less of a rocker and more of a manager.

State of the Productive Facilities

Spending all my time writing these newsletters. Like damn, did this one really need to be 7.5k words long? Not like I’m going to be cutting it down for no reason, but still…