The near-universal popularity of tax-deferred retirement plans (free growth for retail investors, less churn for corporations, offloading of social safety net risks for governments) make me suspicious of them the same way I’m suspicious of mortgage interest deductions.
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The 3 big loopholes: carried interest, mortgage deduction, tax-deferred retirement are the 3 pillars of industrial era capital management. All 3 supposedly favor “long-term” investment in assets but maybe they actually create over-the-horizon deadweight loss sinkholes?
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What if $ is just a really bad medium for societal planning beyond lifespan horizons?
Hypothesis: If average lifespan is 75y, economy will allocate towards assets that peak in value in 76y and then crash as deadweight. Real estate, zombie blue chips, cronyist political parties.
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There is small and steeply discounted bias towards 100, 130 year horizons (children, grandchildren) but come on. Who actually has any good investment ideas that far out. So again bias ends up favoring stuff like residential real estate. Which adds inertia to housing stock churn.
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In general, horizon based planning is bad because it creates the illusion of long-term sustainability wisdom. You can’t invest wisely in the long term if you can’t think of anything to invest in that will a) last that long, b) actually be useful past that horizon.
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Even basic infrastructure is of dubious long-term value. The concrete paradise of 70 years ago is today’s emissions nightmare. Glorious highway systems and jazzy malls turn out to be overbuilding when economy dematerializes and localizes.
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Replying to
The leap from basic portfolio theory advantage of bundles of assets over individual assets isn’t sufficient justification for tax-deferred accounts I think. Maybe index funds don’t index to the economy at any given time, but its natural frequency in the frequency domain.
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Replying to
Vogel (who made the Vanguard fund) is pretty much on the side of tax law arbitrage. That's what separates index funds from profitable active funds. Fees and taxes and the opportunity cost of that capital not compounding
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