Location: Beating the Market by Saving?

  • Thread starter FallenApple
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In summary: The earlier you start investing, the better off you will be in the long run, as you will have more years of compounding....I don't know if theret is data to support this, but if you are in a high cost of living area, there probably is only so much frugalness and cost cutting you will be able to do.I'm not sure which one would be an advantage.Another thing to think about is the tax rate on your earnings in the locations you are considering....I think compounding is a game that everyone can play. But I think some mathematics and knowledge of psychology would help in my assessment.Generally, the higher the income compared
  • #1
FallenApple
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So if I decide to live in a very high cost of living area of the United States, presumably because supply and demand would imply that the income is higher since businesses can only charge what they do if the local residents can afford it, would I be better off living there? Based on that basic economic assumption, if I decided to be very frugal and only foot the bill for living and food while cutting back on everything else, would my saving's purchasing power, across the world, exceed the purchasing power of people living in other less income lucrative states/countries for the same percentage point? If yes, then I think its a good strategy.

This is an important question because its essentially my attempt at making a big profit out of saving money.
 
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  • #2
The earlier you start investing, the better off you will be in the long run, as you will have more years of compounding. I don't know if theret is data to support this, but if you are in a high cost of living area, there probably is only so much frugalness and cost cutting you will be able to do. I'm not sure which one would be an advantage. Another thing to think about is the tax rate on your earnings in the locations you are considering.
 
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  • #3
I think compounding is a game that everyone can play. But I think some mathematics and knowledge of psychology would help in my assessment. Generally, the higher the income compared to the cost of living, the more people should on average should perceive an equitable rate of return on their investment and lower diminishing loss on bad ventures. Which mean they are more willing to spend on products they like because they, very well, may have overinflated egos from their status compared to contiguous economies.
 
  • #4
Living in a high-cost, high-income area (Southern California), I have noticed that people take advantage of moving to lower cost areas after retirement. The apparent advantage of living here is the higher wages contribute more to Social Security taxes (federal government retirement fund open to almost everyone), thereby increasing your retirement income. The banks here also pay much higher than average interest on longterm savings. If you choose to buy a home/property here, the annual price inflation has exceeded the national average for decades.

The Silicon Valley area in Northern California takes the above to an extreme, but I hear that the cost-of-living may outpace the income. There are a few people on this site that reside in that area. Perhaps they can better address this.
 
  • #5
FallenApple said:
...supply and demand would imply that the income is higher since businesses can only charge what they do if the local residents can afford it, would I be better off living there?...
No. This logic if you put it this way is a very sophisticated cargo cult, but it is still just a cargo cult. The financial power depends on those who lives there, not on the area itself. If a poor man moves into such an area he will just gets higher bill for living and nothing else => instead of getting rich he will just spend more.

Ps.: high living cost areas usually comes in pairs with some kind of high-payments areas (this is what gives the financial strength to bear the high living costs). Also, sometimes it is hard to get those jobs if you do not live in a specific area. But while it is complex and might look like moving being the reason to get rich, actually it always starts with the job.
 
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  • #6
Rive said:
No. This logic if you put it this way is a very sophisticated cargo cult, but it is still just a cargo cult. The financial power depends on those who lives there, not on the area itself. If a poor man moves into such an area he will just gets higher bill for living and nothing else => instead of getting rich he will just spend more.

Ps.: high living cost areas usually comes in pairs with some kind of high-payments areas (this is what gives the financial strength to bear the high living costs). Also, sometimes it is hard to get those jobs if you do not live in a specific area. But while it is complex and might look like moving being the reason to get rich, actually it always starts with the job.

I live in the Bay Area and I found out that my rent, while exorbitant, still only accounts for about 1/4 of my monthly earnings. It's not bad, but I want to know if I can get a better ratio say in New York. Ideally, I want to get that ratio down to 1/6 if at all possible for the same work I put in.
 
  • #7
Tom.G said:
Living in a high-cost, high-income area (Southern California), I have noticed that people take advantage of moving to lower cost areas after retirement. The apparent advantage of living here is the higher wages contribute more to Social Security taxes (federal government retirement fund open to almost everyone), thereby increasing your retirement income. The banks here also pay much higher than average interest on longterm savings. If you choose to buy a home/property here, the annual price inflation has exceeded the national average for decades.

The Silicon Valley area in Northern California takes the above to an extreme, but I hear that the cost-of-living may outpace the income. There are a few people on this site that reside in that area. Perhaps they can better address this.

I was thinking about moving overseas to Asia for retirement where the US dollar has a lot of buying power. I won't be able to use Social Security then, but I think it will pan out. I'm feel bit wary about getting a home in the US if its not done with cash. Mortgages feel a bit risky especially if the market tanks, which it did in 2008.

I live in Silicon Valley. It is indeed true that rent and food is more expensive here. It almost feels like everything is a ripoff. But then again, the pay here is cosy. I'm just trying to maximize leftover money and never use it on overpriced entertainment where I can use that same money to buy banquets in say Thailand.
 
  • #8
I'm not sure that there is anything fruitful in discussing finances with someone who considered skipping out on debt an investment strategy, but this whole discussion is based on an unproven (and dubious) assumption: that one can save a constant fraction of one's salary, irrespective of cost of living.
 
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  • #9
Vanadium 50 said:
I'm not sure that there is anything fruitful in discussing finances with someone who considered skipping out on debt an investment strategy, but this whole discussion is based on an unproven (and dubious) assumption: that one can save a constant fraction of one's salary, irrespective of cost of living.

Debts are liabilities. It's important to not have them. I've never said skipping out on them is a good idea if one can pay comfortably, but if one is hit with a huge medical bill, then clearing it through bankruptcy or moving may save more money in the long run. Basic math.

If the fraction cannot be determined, then how is one supposed to come up with a good strategy?
 
  • #10
Vanadium 50 said:
I'm not sure that there is anything fruitful in discussing finances with someone who considered skipping out on debt an investment strategy, but this whole discussion is based on an unproven (and dubious) assumption: that one can save a constant fraction of one's salary, irrespective of cost of living.

I was born in Long Island, New York; raised in Cupertino, California; college in Santa Barbara, San Jose and San Francisco; worked and lived for several years in Bangkok (Kung-Taape), Thailand. So, I have some direct experience of the people and economies of the places the OP mentions.

The locals where I retired have an expression for (politely) residents with attitudes expressed by the OP: tourist.
 
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  • #11
FallenApple said:
Debts are liabilities. It's important to not have them. I've never said skipping out on them is a good idea if one can pay comfortably, but if one is hit with a huge medical bill, then clearing it through bankruptcy or moving may save more money in the long run. Basic math.
Define "if one can pay comfortably..." My view is that if you owe someone some money, you owe the money, whether or not you can comfortably repay it. When you take on a debt, you are promising that you will repay it. If you skip out, it means that your promise was worthless.
In your previous thread, and that @Vanadium 50 referred to, you said this:
FallenApple said:
I'm the type of person that refuses to be slave to financial liabilities. I'm sure that in such a scenario, I would try bankruptcy first, while at the same time packing my bags just in case.
The only circumstances in which I would sell something to you would be cash on the barrelhead.
FallenApple said:
If the fraction cannot be determined, then how is one supposed to come up with a good strategy?
A study of economics would be a good start. Why would you think a site devoted to physics and the sciences would be a good place to get information?

Thread closed.
 
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Related to Location: Beating the Market by Saving?

1. What does "beating the market" mean?

Beating the market refers to the ability to achieve a higher return on investment than the overall average return of the stock market. It is often used to describe the success of individual investors or fund managers in outperforming the market as a whole.

2. How can saving contribute to beating the market?

Saving refers to the act of setting aside money for future use. By consistently saving and investing a portion of one's income, individuals can build wealth over time and potentially achieve higher returns than the overall market. This is because they are able to take advantage of compound interest and the power of long-term investing.

3. What role does location play in beating the market by saving?

Location can play a significant role in beating the market by saving, as different geographic areas may offer different investment opportunities. For example, certain cities or regions may have booming industries or growing economies that can lead to higher returns on investments. Additionally, the cost of living and tax laws can vary by location, which can impact one's ability to save and invest effectively.

4. Are there any specific strategies or techniques for beating the market by saving?

There are various strategies and techniques that individuals can use to beat the market by saving, such as diversifying their investments, regularly rebalancing their portfolio, and staying informed about market trends and developments. It is also important to have a long-term mindset and avoid making impulsive decisions based on short-term market fluctuations.

5. Is beating the market by saving a guaranteed outcome?

No, beating the market by saving is not a guaranteed outcome. While saving and investing can increase the likelihood of achieving higher returns, there is always a level of risk involved in the stock market. It is important to carefully research and assess potential investments and to have a well-diversified portfolio to mitigate risk.

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