Investing in Stocks vs Education

[Scipio]

What's likely to give more returns to a person in the long term, more education or investing their money in Index Funds, for example?

For example, Person A has a bachelors degree and works as an English teacher. If he gets a Masters degree he can work as a professor at a university with reduced hours and a lot more curricular freedom. He might get paid close to the same but have more opportunity for lucrative outside work.

Or, Person A has a bachelors degree and is a teacher who saves about $10,000 USD per year. He decides to invest that into Index Funds and kinda "forget" about them for the next couple decades.

What are your opinions in general about these investment vehicles?

[Tara680]

I know this really isn't one of the options, but:

There are more millionaires made each year in entrepreneurs, than all the other fields combined.

[Scipio]

Index investing is purely passive income with almost no time investment. So the work involved is a lot less than starting a business.

But I think yeah, that's kind of off topic. I'd like to know what can lead one to financial freedom, investing in your education or securities.

[Tara680]

I would say education, but only if you use that education to learn about finance, marketing, accounting, those kinds of things.

There are plenty of highly educated people that are deeply in debt.

[scorpio1980]

Investing, without a doubt. I can invest in stocks that pay a high dividend, and not only build my net worth over the long run, but cash out those dividends for income. Then I need to work no more, at least in conventional thinking since studying of the markets and stocks make me bleed all sorts of happiness.

[Scipio]

Scorpio, how much time do you spend investing in each stock? Are you successful yet?

Do you think someone can become financially independent with index funds? I think I don't enjoy investing as much as other activities.

[pjhaggerty]

I think the answer to this question can also depend on what you mean by 'education'.

Do you mean a degree? A degree certainly can earn you more money. It also costs a ton up front. It takes several years to pay back the (probable) debt from the degree, and several more for the earnings to overtake what you would've made from just investing the same amount of money.

Do you mean practical education? For example, books, courses, coaching, classes, etc. This type of education doesn't demand a higher salary like a degree does, but it does increase your output, which can lead to a higher salary. It also costs much less than a degree. It can be free if you go to libraries and get creative for the seminars and coaching etc.

In fact, if you did practical education on a 40,000 dollar a year budget you could probably save enough money and educate yourself so that you could easily overcome the earnings you would've gotten from a degree.

So, in summary do both. Skip the degree, learn practical stuff, and invest extra income. This only works if you reduce your lifestyle costs, but it's the plan i'm following.

[Scipio]

Well, I mean like in the examples in my original post. If I get an MA (for about 12-14k) I can get a lecturer job at a university in Korea. If I just learn about linguistics for free or for cheap, I probably cannot get that type of job. Korea is even more superficially concerned with degrees than the US. 90% of high school graduates go to university.

So, when I go back to Korea I can use the money I save in my first year working to:

A. Put it away for my education
B. Invest early

Note that I will be investing later, even if I do (A). And I'm not paying $100k for a university degree, to me that is completely unheard of.

[John Tedder]

Investing in your own education is always a smart investment. It will always pay a dividend.

The stock market is unpredictable.

[BitterFlower]

^^IA

Plus truly being successful in investing requires being more active in your investing role than just socking money away in index funds.

My minor was in Finance and we had an investments class where you track stocks each week. My accounting/finance background helped me smartly pick stocks and derivatives (we weren't allowed to use index funds), but even trying to maintain a weekly spreadsheet was tiresome to me. I did "okay", but didn't see wild returns and even got a few losses because I didn't act quickly enough. There was a reason why daytraders were killing themselves or other people during the late 90s.

To quote Suze Orman (whose advice I like at times):"I have a million dollars in the stock market, because if I lose a million dollars, I don't personally care."

HTH

[Scipio]

Well,

I don't want to invest that way. As Steve recommends, spend your time doing something you love. I'd rather spend that 15 hours per week that would have to be spent on researching companies, earning money in an area I like more.

But it does seem possible to be financially free through that method eventually, right? I'll be able to invest about $10,000 per year and I'm 22. Hopefully my income will increase as I age and that investment could increase as well.

[hawkal]

I believe education would turn out to be more rewarding but only if you choose degrees that you can turn into a business. For example if I went to university think I would take degrees in computer science and business management.

That way you have the creative outlet of computer science coupled with the outlines of business with business management.

I would be happy to earn a passive income from share trading but the problem is that I don't see how anyone could get passionate about 'the work'. The money yes.

Where as choosing a good education and starting your own business means you can put all your effort and passion into it because it's like your baby. You want to see it grow into what you dream of it becoming which would be much more fulfiling than share trading.

[scorpio1980]

Originally Posted by hawkal

I believe education would turn out to be more rewarding but only if you choose degrees that you can turn into a business. For example if I went to university think I would take degrees in computer science and business management.

That way you have the creative outlet of computer science coupled with the outlines of business with business management.

I would be happy to earn a passive income from share trading but the problem is that I don't see how anyone could get passionate about 'the work'. The money yes.

Where as choosing a good education and starting your own business means you can put all your effort and passion into it because it's like your baby. You want to see it grow into what you dream of it becoming which would be much more fulfiling than share trading.

I'm the exact opposite, nothing bores me more than writing, and trying to grow an online buisness, believe me I tried. Finances in general interest me, I'm studying forex right now, and I love checking up on new companies, trying to figure out if they are a good buy. A ton of people are passionate about stocks, and different markets in general, thats why these people succeed at it. Some people actually look at stocks, forex, options, etc as nothing more than betting, and they figure you are destined to lose money. What they fail to understand is that in order to profit you have to educate yourself, and when I say educate I mean years of studying. Just like any other profession, you have to learn it first. You wouldn't be a very good engineer without years of training, same goes for the markets. The markets can make you a very good living in your spare time.

[hawkal]

The reason for my point of view is because of creation. I would never trade forex because in order for you to gain someone else has to lose. It creates no value at all. Stock trading on the other hand I am happy to trade with because it helps a business grow and I potentially get a cut in the value created.

See I could enjoy the life style of investing for a living. The problem though would be trusting the markets if I relied on investments. I'm sure we've all heard of stock traders who've jumped off buildings because they couldn't cope with the losses.

Also when trading stocks, at what point do you get to enjoy the fruits of your labour? If you sell the shares you lower your investment and potential returns but if you buy more you lower your income. Unless of course you're able to invest enough to be able to live off of the dividend payments if you make good trading decisions.

[The Big D]

Originally Posted by Scipio

What's likely to give more returns to a person in the long term, more education or investing their money in Index Funds, for example?

For example, Person A has a bachelors degree and works as an English teacher. If he gets a Masters degree he can work as a professor at a university with reduced hours and a lot more curricular freedom. He might get paid close to the same but have more opportunity for lucrative outside work.

Or, Person A has a bachelors degree and is a teacher who saves about $10,000 USD per year. He decides to invest that into Index Funds and kinda "forget" about them for the next couple decades.

What are your opinions in general about these investment vehicles?

A 100% long position in index funds is a lousy investment strategy IMO because it does horribly during market collapses. While you will occasionally hear people make claims of moderately good returns by that method, those claims are heavily dependent on the start and end dates of the period they look at, and tend to be made right near the peak of an economic cycle (the worst possible place to implement the perma-long strategy).

If you want something long term and moderately robotic that works, take and S&P 500 and apply a 50 day exponential moving average. Go long S&P futures (or ETFs if you're allergic to futures for some reason) every time the S&P crosses upwards through the average (polled near market close every day), and go short (or neutral, if you're allergic to shorts) every time it passes downward through the average. Use a stop loss about 10% past the average to cover yourself in the event of something horribly weird happening. Set you leverage based on say 1/4 Kelly Criterion.

I am not aware of an 3 year period in which this is a losing strategy, although I've only looked back about 30 years. It's almost always profitable in one year too, but since the positions are often held for months, it's hard to define "one year" worth of trading. It does VERY well with most crashes (you would have been short late last year through march, in 1987, 1929 etc).

[Scipio]

Big D,

What do you think of this strategy?

Rolling LEAP Options Rolling LEAPs on Indexes

[ar81]

What is better?
Having a job (education) or gambling (invest in stock market)?

The difference between gambling and stock market is that investors use to have a herd behavior, like cows in a stampede or like a crowd at the stadium, guided by emotions.

Stock investing also involves to sell. Many people feel attachment when they buy. For good investors, selling is just like buying.

Universities study statistical data on stocks and business and still they got losses. Using stats to foresee your future in stocks is a risky business.

Harvard and Yale Report Losses in Endowments
http://www.nytimes.com/2009/09/11/bu...vard.html?_r=1

[Scipio]

Originally Posted by hawkal

That way you have the creative outlet of computer science coupled with the outlines of business with business management.

Steve Pavlina manages his own business and never took a class on business management. Believe me, I've been in them and the A students can't even talk in front of a class, so how are they going to be managers? Business admin, management, etc degrees are a dime a dozen and teach hardly anything. You have the right focus--that business will take you somewhere. However, I think it's untrue that business degrees will take you somewhere.

[Scipio]

Originally Posted by ar81

What is better?
Having a job (education) or gambling (invest in stock market)?

Investing is different than gambling.

Note that I did not say I want to have a job--what I want to be is self-employed. If I had to choose between being an owner (investor) or an employee, I'd say being the investor is superior. Note that securities investing takes a lot of education to get it right just like any other career where you want to excel. Hence the thread: Why would I want to spend so much time on getting it right when I could work on my purpose?

[aelle]

Education is a reward in itself for me, whereas I get no pleasure or accomplishment in playing the stock market. I think this should weigh in the choice too.

[The Big D]

Originally Posted by Scipio

Big D,

What do you think of this strategy?

Rolling LEAP Options Rolling LEAPs on Indexes

First, that appears to be a method of leverage rather than a strategy that defines what positions you would want to take and when.

That said, I'd need to dig into it more, but here's my first thoughts:

Options have two components to their price: the price of the underlying relative to the strike price, and a estimate of the future volatility of the underlying combined with the time to expiration. You probably know that, but it bears stating.

A long option position suffers a perpetual drop in the second price component as time progresses. So it seems to me that this strategy would continually eat that cost with no advantages except leverage relative to a long stock position.

Combine that with the hideous bid/ask gap that seems to plague options, and the general fact that implied volatility exceeds actual volatility most of the time (ie. it's better to make markets than take positions with options) and I just can't see this as a winner. If wanted to leverage a stock play, here would be how I would rate the available vehicles in order from best to worst:

1) borrowing from my broker (ie margin)
2) borrowing from some other low rate source (equity line of credit etc.)
3) borrowing from friends/family/co-workers
4) single stock futures
5) options

I also think there may be errors in the pricing model discussions in that article, but I don't have time to convince myself one way or the other right now.

[The Big D]

Originally Posted by Scipio

Investing is different than gambling.

I disagree - investment is exactly the same as positive expectation gambling. You're making a series of bets that you think, on average, will return more money than you wagered. It's no different than a blackjack card counter upping his bet when the count goes good, or a skilled poker player sitting down at a table with less skilled players or someone with good sports handicapping skills betting the difference between their handicapping and the line.

[Scipio]

Originally Posted by The Big D

I disagree - investment is exactly the same as positive expectation gambling. You're making a series of bets that you think, on average, will return more money than you wagered. It's no different than a blackjack card counter upping his bet when the count goes good, or a skilled poker player sitting down at a table with less skilled players or someone with good sports handicapping skills betting the difference between their handicapping and the line.

If a black jack player is card counting, he is not gambling. Gambling is based purely on chance, whereas investment is based on some controllable factors which you have to have knowledge of. I do agree with you that a card counter is doing something similar, although I don't think it should be called gambling, which is leaving everything to chance.

Do you subscribe to the Efficient Market Hypothesis maybe?

[The Big D]

Originally Posted by Scipio

If a black jack player is card counting, he is not gambling. Gambling is based purely on chance, whereas investment is based on some controllable factors which you have to have knowledge of. I do agree with you that a card counter is doing something similar, although I don't think it should be called gambling, which is leaving everything to chance.

Do you subscribe to the Efficient Market Hypothesis maybe?

I'm guessing you don't spend much time with gamblers. Ask any winning blackjack or poker player if what they do is gambling, and they will say yes and look at you funny. They don't call themselves "professional gamblers" for nothing.

I do not subscribe to the efficient market hypothesis. In fact, I know it to be false in a wide variety of useful scenarios, although I'm not inclined to prove the point to anyone who disagrees.

I should note that calling something gambling has no negative connotation to me. I gamble all the time. I owe most of my wealth to gambling.

[Scipio]

Originally Posted by The Big D

I'm guessing you don't spend much time with gamblers. Ask any winning blackjack or poker player if what they do is gambling, and they will say yes and look at you funny. They don't call themselves "professional gamblers" for nothing.

I made some money from beating blackjack bonuses online for a while. It doesn't matter what someone labels himself, I know what gambling is.

[The Big D]

Originally Posted by Scipio

I made some money from beating blackjack bonuses online for a while. It doesn't matter what someone labels himself, I know what gambling is.

That statement seems inconsistent with your past posts, but I don't see any point in pursuing it since the only way to prove what I'm saying would be to drag you somewhere where professional gamblers can be found, and ask them if they're gambling.

Being, as a population, some of the most cynical jackasses in the world I would expect someone who was stuck to point to a diminished chip stack and reply "No, I'm losing. What the **** does it look like?"

[Marth]

Hi I'd like to know where you can find more info on index funds, maybe a list and their charts. Thanks for any help

[The Big D]

Originally Posted by Marth

Hi I'd like to know where you can find more info on index funds, maybe a list and their charts. Thanks for any help

Have you googled "index fund"? The Wikipedia and Investopedia articles are useful starting point.

Googling the name of an index plus "index fund" in quotes will find you data on specific funds that track that index.

You can get charts from yahoo or google finance once you know the ticker from previous googling.

[ar81]

Originally Posted by Scipio

I made some money from beating blackjack bonuses online for a while. It doesn't matter what someone labels himself, I know what gambling is.

Certainly if you invest in a company you know, that's fine, because you know for certain what happens to the company. But if you invest in stock market, you are not certain. Balances can be altered. Do you remember Enron? Would you bet your future on such gambling?

Also, you may need not to be a herd guy, like many investors in the stock market who react following collective emotions.

[The Big D]

Originally Posted by ar81

Certainly if you invest in a company you know, that's fine, because you know for certain what happens to the company. But if you invest in stock market, you are not certain. Balances can be altered. Do you remember Enron? Would you bet your future on such gambling?

Also, you may need not to be a herd guy, like many investors in the stock market who react following collective emotions.

Even when there is no foul play a la Enron, investing is gambling. When you buy a stock, you're wagering it will go up. This is not a forgone conclusion. Therefore you are gambling.

If you choose:
a) the stock
b) the time you enter your position
c) the method(s) by which you will exit your position

well, then it's a gamble where the odds are in your favor. But it's still a gamble, and some significant portion of the time you will lose.

Perhaps the definition of "gamble" is relevant here (from Webster):

intransitive verb
1
a : to play a game for money or property
b : to bet on an uncertain outcome

2 : to stake something on a contingency : take a chance

All three definitions clearly apply to both successful and failed investing.