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For anyone who comes into this thread looking for long-term stock advice: put your money in some ETF (like vanguard) and call it a day. Look at previous rates o

For anyone who comes into this thread looking for long-term stock advice: put your money in some ETF (like vanguard) and call it a day. Look at previous rates of return if you're nervous (though past performance can't predict the future), and the return on the overall market over the years (it's ~+7%), and let compound interest do the rest.

minimaxir 11y ago
i.e. don't do a startup expecting to become a millionare as a retirement plan. :P
melling 11y ago
Where's the fun in that? People have used math to make their fortunes. https://en.m.wikipedia.org/wiki/D._E._Shaw_%26_Co https://en.m.wikipedia.org/wiki/D._E._Shaw_%26_Co. https://en.m.wikipedia.org/wiki/Renaissance_Technologies https://en.m.wikipedia.org/wiki/Renaissance_Technologies Aren't we all reading HN to learn?
- minimaxir 11y ago
  "Math" is a little bit of an understatement.
  - pvnick 11y ago
    Get some money, download a historical EOD price data set, sprinkle in some math, et voila, riches!
    - melling 11y ago
      No, you need more data than that. You can watch this. Start at 11 minutes. https://www.ted.com/talks/jim_simons_a_rare_interview_with_the_mathematician_who_cracked_wall_street?language=en https://www.ted.com/talks/jim_simons_a_rare_interview_with_t...
- x5n1 11y ago
  Those days are gone, sonny. Now the market is pretty much completely rigged.
  - tobylane 11y ago
    By rigged do you mean most potential for profit is taken by robots in milliseconds, or rigged like a mass conspiracy to defraud the world?
    - x5n1 11y ago
      The former, though the latter isn't that far fetched either.
      - melling 11y ago
        Yeah, but aren't you talking about pennies a share? How does this affect an trade that I'm going to hold for weeks or months?
        x5n1 11y ago
        "The answer I give them is that our markets are not rigged but are run/controlled/dominated by the flash boys/HFTs/machines that do not have the ability to think rationally but just trade on their algos and as a result you get absolute mayhem on days like today." http://www.forbes.com/sites/jaysomaney/2015/08/24/is-our-stock-market-rigged/ http://www.forbes.com/sites/jaysomaney/2015/08/24/is-our-sto...
        melling 11y ago
        Yes, always use a limit order. It looks like you can make some money on those big dips on crazy days.
        tedunangst 11y ago
        And, uh, not to repeat the question or anything, but how does that affect a position held for weeks?
- w1ntermute 11y ago
  And they've also used math to lose it: https://en.wikipedia.org/wiki/When_Genius_Failed https://en.wikipedia.org/wiki/When_Genius_Failed
  - beagle3 11y ago
    Did you actually read the book? The math people (Merton, Scholes) saw the craziness, pulled enough of their money out in time, and didn't lose it. The finance people (first and foremost Merriwether) were those who believed they are smarted than everyone and went bankrupt.
    - w1ntermute 11y ago
      I didn't say they understood the math they were using and lost it, I said they used math and lost it. Obviously if you always understand what is going on, you'll never find yourself up shit creek without a paddle.
      - beagle3 11y ago
        And I ask again, since you linked to this book - did you read it? Or was it just "these guys failed, and they started out by using math, so ..." statement? They did not use math at the time they lost money. They were were essentially gambling (doing "risk arbitrage", which is all risk and no arbitrage).
  - saosebastiao 11y ago
    I love the story of LTCM. It was pure mathematical hubris, but it was also amazing what they accomplished before they crashed. I mean 40% returns year over year for nearly 3 years wasn't just luck. The crazy thing about LTCM, and the thing that everybody overlooks is that LTCM didn't die by bankruptcy...they died because of the systemic risk of their portfolio size and the subsequent intervention from the federal reserve. They had $100B under management, but only lost $5B in 4 months. It was a major catastrophe, sure, but it was only major because of the implications from its absolute size. A 5% drop in 4 months is something that can be recovered from on a personal portfolio level or even a small hedge fund level...but at LTCM's size it was endangering the financial system as a whole because it was threatening to bankrupt overleveraged institutional investors. Jane Street Capital, while very opaque about what they do, has given me enough room to believe that LTCM has inspired a lot of their strategy. This always makes others perceive me as a quack that doesn't like history, but if another LTCM came around that was using the same strategy but on a much smaller scale and with a well spelled-out liquidation strategy, I would invest. In fact, I would probably bet big on it (>50% of my portfolio). Nobody is gonna touch it though, because everybody is so conservative in finance. "We're gonna follow LTCM's strategy" isn't a sales pitch, it's a punch line. But outside of finance, there is a ton of precedent for monumental successes with an idea that has failed before. And I think LTCM is one of those ideas.
- srdev 11y ago
  It takes more than a little math. I hang out in stock market chats that have a lot of programmer trying to do just this, and this comic is completely accurate: http://xkcd.com/1570 http://xkcd.com/1570
  - ericjang 11y ago
    I often wonder where Randall Munroe gets all his wisdom.
    - ericjang 11y ago
      edit: I didn't mean for this to be disparaging remark: I am genuinely impressed by how wise he is about so many topics, given that he is only 30 years old.
- iheartmemcache 11y ago
  Comparing Renaissance to any other firm is like comparing Berkshire-Hathaway to an average value-investment fund, or PIMCO to any other fixed income trading firm. James Simons (founder of Renaissance) was so smart he _co-founded a field of mathematics [differential co-homology] with Chern. Not only does the fund have a huge head-start (they were purely algorithmic trading in the 80s), but their commitment to academic pursuit over monetary gain is unparalleled. I.e., when asked who an ideal hire was for Renaissance, Simons said "anyone who has a PhD [in the applied or pure sciences, statistics, mathematics]" (you get a PhD because you love the field, you go to HBS or Wharton to make money). These guys are trained professionals who've dedicated literally decades to graduate level pure & applied mathematics, and are simply of another a caliber. I can read JAMA all I want, quite fun indeed, but if I practice surgery, I'm certainly going to slice an artery. You have a better chance of going to Atlantic City and putting 100k on black than successfully making money in trading any set of securities, whether its Asian fixed-income, blue chip Wall Street equities, or CME pork belly futures. Just because you back-tested something successfully doesn't mean you should throw your hat into the ring, the sharks will bite till there's nothing left.
  - melling 11y ago
    I never said that it was easy or that it took a little math. I said that it has been done before and that we are here to learn. I also can't figure out why I get all kinds of "it's really hard" and "be very afraid" comments on HN.
    - mahyarm 11y ago
      If you fuck up a computer, short of messing with BIOS voltage configurations, you can reset at no cost. It's near costless to make mistakes most of the time. With finance, high voltage electronics, and explosive chemistry, you can have very high cost consequences if you screw up. And people often delude themselves in finance. There is a also a return aspect in finance. You need a large amount of starting capital until 80hrs/wk of work will outpace what you make 80hrs/wk in your job. For example, lets say you make $250k/yr as a smart engineer. We assume best case scenarios and say you make %10/APR (very generous) over the index fund return. You would need $2.5million in starting capital before you can start matching your working self in returns. Most people don't have $2.5 million lying around. You would get better returns starting a business or investing in yourself and leaving your savings into index funds.
vladimirralev 11y ago
I think it's wise for everybody to allocate some funds for high-risk crazy investment in smaller companies, just 5-10%, as long as it's not a straightout scam that is. First, you learn a lot from your research and interactions. Second it is diversification. Third, you can put the money towards something you care about so even if you lose them it's not a big deal such as VR, cancer cure, some cool boat technology, new food, whatever.
- chronic41 11y ago
  I'd rather take the 7-8% over risky investments.
- cpfohl 11y ago
  Vanguard's VTSAX is an ETF that buys the whole Stock market (more or less, at least a representative portion). By definition that includes smaller high risk companies.
  - dlubarov 11y ago
    Slight correction: VTSAX is a mutual fund; VTI is the corresponding ETF. I agree that it's an excellent choice though -- easy diversification, very low expenses, low turnover. VT (which includes foreign stocks) is also worth considering for extra diversification.
    - cpfohl 11y ago
      Great point. I group VTI, VTSAX, and VTSMX all together in my head; with Vanguard the differences between Vanguard branded ETFs and MFs aren't really that noticeable if you're just buying and holding. Thanks for clarifying my suggestion, though!
hardwaresofton 11y ago
Oh also, as a follow up -- some friends of mine have been really impressed with/interested in LendingClub (https://www.lendingclub.com/ https://www.lendingclub.com/) -- personal loans, and they're distributed so not one person takes all the risk (so you don't put up the full amount, it's divied up)
- mattzito 11y ago
  Ooookay, I put a chunk of money into LendingClub, and here's what I learned: - Remember that the money that you make on this is taxed as income, which stinks for high income individuals - The alternative is to set up a lendingclub IRA and put money in there, but now you're somewhat limited as to how much you can invest, as well as being ineligible if you've got an employer retirement vehicle like a 401k - The return is very high at the beginning, and then tends to drop as more and more people default (or pay off early, which can be almost as bad from an investment perspective) - It takes work - it's interesting if you have the time and inclination to pick out the notes you want, or they have an automated system - I did a bit of both In the end, I'm making about 6.5% a year on it - not terrible, but at tax time every year it sucks when I'm getting charged state and federal income taxes on that 6.5%. I think it makes a lot of sense for folks who are not concerned about reducing their taxable income and want a more active investment option than just vanguard ETFs, or who want an IRA option with higher returns. But it's not as awesome as it seems at first glance.
chad_strategic 11y ago
I used to agree with this strategy before I got an MBA. Then I studied the markets. Actually the MBA put me at a disadvantage, but regardless. The markets are so incredible corrupt. It's nice in theory, however this ETF strategy is extremely overcrowded, hence the 2008 meltdown. Hence, the August meltdown. Anything that works will eventually, come to an end... Let's not forget the people that make the guaranteed money in the ETF are the one's selling you them. (Might want to check your ETF fees as well) In the meantime... I created this http://www.strategic-options.com/trade/ http://www.strategic-options.com/trade/
- dsacco 11y ago
  >> Anything that works will eventually, come to an end... Let's not forget the people that make the guaranteed money in the ETF are the one's selling you them. >> In the meantime... I created this http://www.strategic-options.com/trade/ http://www.strategic-options.com/trade/ Sorry if this sounds rude, but this comment comes across as disingenuous to me.
  - chad_strategic 11y ago
    I'm not exactly sure what your getting at but in reference to it all comes to an end. Yes, ETFs are overcrowded and even Goldman wants a piece, so now you know it's corrupt. :) http://www.investmentnews.com/article/20150911/FREE/150919971/goldman-sachs-goes-low-cost-in-bid-to-attract-investors-to-etfs?NLID=daily&NL_issueDate=20150911&utm_source=Daily-20150911&utm_medium=email&utm_campaign=investmentnews&utm_term=text http://www.investmentnews.com/article/20150911/FREE/15091997... You also have tulips to blame in 1637. https://en.wikipedia.org/wiki/Tulip_mania https://en.wikipedia.org/wiki/Tulip_mania
- iheartmemcache 11y ago
  I know this is such a cliche question but if you've found the recipe for generating 9% returns, why are you selling it for $50 dollars a user rather than just starting your small/mid-cap fund? Capital is so cheap right now, people literally don't know what to do with the money they're sitting on. Even if the fed hikes in Sept (which it will), you charge .5% maintenance and 20% performance and you'll have absolutely no trouble raising money. (This is a genuine question, not a snarky one. I've always wondered would write a "how to get rich quick" book in my early teenage years, only to realize their methodology to get rich was to write that get rich book.)
YZF 11y ago
You can do better if you add bonds and perhaps international stocks and rebalance your portfolio yearly. Maybe 50% US market ETF, 20% world, 30% bonds. Bonds aren't very appealing right now though but as a general rule. If you're only in a US market ETF there's some non-neglible chance you'll be flat or down in 10 years esp. if you're unlucky enough to buy close to a bubble top. So long term in this context should read as > ~20 years.
- finance-geek 11y ago
  Bonds would include long term bonds, and they literally cannot get any higher in price. Rates are zero, long term rate expectations are zero for a while. This is horrible advice. The only way to go is down.
  - YZF 11y ago
    First thing, never say never. They could still get higher in price. I agree it's less likely then the other direction so for today you'd want to have less bonds in your portfolio. Over the long term however, which is what we're talking about, a mixed portfolio beats 100% stocks with less volatility. EDIT: If you look at buying a 10 year bond right now you get ~2.2% interest per year guaranteed today. If you buy the total US stock index it's hard to tell with any degree of certainty given today's high P/E ratios that the stock market will beat that. It might. But it's more risky. Hence there's a premium you're paying for risk. It's true that yields are likely (but not certain) to go up and so over time your new investments + rebalancing will buy you into those higher yields. Otherwise you're just trying to time the bond and stock markets which isn't simple, you can play a little of timing game (e.g. saying you think stocks are cheap and bonds are expensive today) but you can't usually predict better than the market already does.
    - YZF 11y ago
      Another important thing to keep in mind is that as yields go up stocks also go through a repricing, not just bonds. The interest rate is the measuring tape for all investments, if you can get a safe high return in bonds you don't go into stocks. If dividend yields are lower than bond yields you don't buy dividend stocks that are subject to other risks... EDIT: And while we're talking about this it helps to recall that there's a continuum that goes beyond 100% stocks. If you're so sure interest rates are going up and stocks are going up then you can borrow money at today's rates and invest it in stocks. I.e. use leverage. If you're right your returns will be much higher...
jameslk 11y ago
Is it warranted to feel a little uneasy about the dogmatic advice of "just put all your money in ETFs?" Aren't assumptions that something will always have a fair return the way bubbles are formed?
- WA 11y ago
  Not necessarily. With ETFs like MSCI World, you simply get the benefits of economic growth.
  - markvdb 11y ago
    May I suggest that limitless economic growth is a debatable premise to start from? Have a look at https://en.wikipedia.org/wiki/The_Limits_to_Growth https://en.wikipedia.org/wiki/The_Limits_to_Growth . From 1972, but still worth a look.
    - Geee 11y ago
      We already and always live at the limits. Innovation is pushing those limits further everyday. For example, Internet solved lots of limits related to physical locations, distances, and land areas, electric cars and sustained energy production will solve limited oil supplies, space exploration and asteroid mining will solve limited resources of other materials (if they aren't made irrelevant before that by other innovations). Etc..
- blazespin 11y ago
  Yes, but the fed/government backstops the s&p. Your only option really is to invest outside the U.S.
  - cbr 11y ago
    > the fed/government backstops the s&p How so?
- mahyarm 11y ago
  People don't put money into ETFs to get speculative returns, but better-than-bank-account returns with diversification. Bubbles are often formed by speculation, and usually in a singular asset class.
hugh4 11y ago
I just buy a few companies I like, hold forever, collect the dividends, avoid paying any management fees except for the fifteen-odd-bucks that I pay for every purchase. Will I make more or less than I would under your strategy? I don't know, but averaged over all possible universes it's unlikely to be significantly less, and this way I at least get the fun of being in control, and deciding where to put each new chunk of money.
- stouset 11y ago
  That $15/purchase is probably waaaay more than the equivalent amount of Vanguard fees, unless you're buying thousands of dollars in stocks at a time. And those fees add up to a significant amount over the lifetime of your portfolio. Speaking of your portfolio, if you're investing in "a few" companies, your volatility and risk are going to be enormous. Especially if you're not balancing your portfolio between industries, company sizes, and less risky investments. Automatic rebalancing is a fantastic way to obey "buy low, sell high", as you intrinsically buy more of cheaper instruments and less of expensive ones to maintain that balancing.
  - hugh4 11y ago
    Well yes, I do buy thousands of dollars at a time, you're right, it doesn't make sense to buy small amounts at a time. By "a few" I mean more like a dozen.
- blazespin 11y ago
  You are a stock picker. You just got lucky.
  - hugh4 11y ago
    How do you know I didn't get smart?
  - comatose_kid 11y ago
    The second sentence doesn't necessarily follow from the first. https://en.wikipedia.org/wiki/The_Superinvestors_of_Graham-and-Doddsville https://en.wikipedia.org/wiki/The_Superinvestors_of_Graham-a...
blazespin 11y ago
Put money into vanguard total market etf as a function of your age. As you get older, put less. Or, rather, put money into etf with lower risk as you get older. Same thing with startups. As you get older, work in jobs with less risk. Well, that is if you are optimizing for return. If you don't mind being poor, go crazy.
probably_wrong 11y ago
Maybe it's a bit off-topic, but am I the only one who has no idea what ETF nor Vanguard are? I found the webpage for Vanguard, and they apparently want me to call them if I'm new to the system. I also have no idea what investment funds, stock exchanges and commodities are. Whenever it comes to investing advice, I understand how my family must feel when their computers break.
- lukego 11y ago
  http://www.bogleheads.org/wiki/Bogleheads®_investing_start-up_kit http://www.bogleheads.org/wiki/Bogleheads®_investing_start-u...
- hardwaresofton 11y ago
  http://www.investopedia.com/ http://www.investopedia.com/ Don't worry, it's perfectly fine to not know what these things are. Maybe you haven't been working for long enough (or at the right companies) but I think people usually pick up an interest for this kind of stuff when they want to know what to do with RSU (Restricted Stock Units) or Options that they've gotten from a job. Some also get interested by the idea of having your money work for you (to make more money), instead of just spending money on things that don't bring return.
- zrail 11y ago
  Vanguard is the company founded by Jack Bogle, one of the first, and arguably the biggest, proponents of a method of investing called index investing. The goal is to match the aggregate performance of the market while paying the least amount of fees. Vanguard has a large selection of mutual funds[1] that match various stock market indexes[2]. Generally a mutual fund's value (called it's Net Asset Value or NAV) is calculated once at the end of each trading day. When you put money into a mutual fund, you buy at that price. An ETF[3] is a special type of mutual fund that is itself listed on a stock exchange. When you buy an ETF you're still buying a share of the underlying mutual fund, but the price changes throughout the trading day. The difference between the price you pay and the NAV of the underlying fund is called the premium (if you pay more than NAV) or discount (if you pay less). You don't have to call Vanguard if you want to open an individual, joint, or retirement account in the United States. You just go to their Open An Account page[4] and select which account you want to start. [1]: a company organized to aggregate many people's money and invest it in a particular way [2]: a list of companies that share some quality. For example, the "S&P 500" is a list of the 500 biggest publicly-traded companies in the United States. [3]: Exchange Traded Fund [4]: https://personal.vanguard.com/us/openaccount https://personal.vanguard.com/us/openaccount
Jack000 11y ago
I would add that this depends on your time horizon. If you did this in 2008 for example, it would have been a couple of years until you're above water again. There is always an aspect of market timing, even with ETFs. Looking at the massive bull run in the last 5 years, it certainly makes me nervous to enter the market right now, especially with the recent volatility.
deleted 11y ago
[deleted]

minimaxir 11y ago

i.e. don't do a startup expecting to become a millionare as a retirement plan. :P

melling 11y ago

Where's the fun in that? People have used math to make their fortunes. https://en.m.wikipedia.org/wiki/D._E._Shaw_%26_Co https://en.m.wikipedia.org/wiki/D._E._Shaw_%26_Co. https://en.m.wikipedia.org/wiki/Renaissance_Technologies https://en.m.wikipedia.org/wiki/Renaissance_Technologies Aren't we all reading HN to learn?

minimaxir 11y ago
"Math" is a little bit of an understatement.
- pvnick 11y ago
  Get some money, download a historical EOD price data set, sprinkle in some math, et voila, riches!
  - melling 11y ago
    No, you need more data than that. You can watch this. Start at 11 minutes. https://www.ted.com/talks/jim_simons_a_rare_interview_with_the_mathematician_who_cracked_wall_street?language=en https://www.ted.com/talks/jim_simons_a_rare_interview_with_t...
x5n1 11y ago
Those days are gone, sonny. Now the market is pretty much completely rigged.
- tobylane 11y ago
  By rigged do you mean most potential for profit is taken by robots in milliseconds, or rigged like a mass conspiracy to defraud the world?
  - x5n1 11y ago
    The former, though the latter isn't that far fetched either.
    - melling 11y ago
      Yeah, but aren't you talking about pennies a share? How does this affect an trade that I'm going to hold for weeks or months?
      - x5n1 11y ago
        "The answer I give them is that our markets are not rigged but are run/controlled/dominated by the flash boys/HFTs/machines that do not have the ability to think rationally but just trade on their algos and as a result you get absolute mayhem on days like today." http://www.forbes.com/sites/jaysomaney/2015/08/24/is-our-stock-market-rigged/ http://www.forbes.com/sites/jaysomaney/2015/08/24/is-our-sto...
        melling 11y ago
        Yes, always use a limit order. It looks like you can make some money on those big dips on crazy days.
        tedunangst 11y ago
        And, uh, not to repeat the question or anything, but how does that affect a position held for weeks?
w1ntermute 11y ago
And they've also used math to lose it: https://en.wikipedia.org/wiki/When_Genius_Failed https://en.wikipedia.org/wiki/When_Genius_Failed
- beagle3 11y ago
  Did you actually read the book? The math people (Merton, Scholes) saw the craziness, pulled enough of their money out in time, and didn't lose it. The finance people (first and foremost Merriwether) were those who believed they are smarted than everyone and went bankrupt.
  - w1ntermute 11y ago
    I didn't say they understood the math they were using and lost it, I said they used math and lost it. Obviously if you always understand what is going on, you'll never find yourself up shit creek without a paddle.
    - beagle3 11y ago
      And I ask again, since you linked to this book - did you read it? Or was it just "these guys failed, and they started out by using math, so ..." statement? They did not use math at the time they lost money. They were were essentially gambling (doing "risk arbitrage", which is all risk and no arbitrage).
- saosebastiao 11y ago
  I love the story of LTCM. It was pure mathematical hubris, but it was also amazing what they accomplished before they crashed. I mean 40% returns year over year for nearly 3 years wasn't just luck. The crazy thing about LTCM, and the thing that everybody overlooks is that LTCM didn't die by bankruptcy...they died because of the systemic risk of their portfolio size and the subsequent intervention from the federal reserve. They had $100B under management, but only lost $5B in 4 months. It was a major catastrophe, sure, but it was only major because of the implications from its absolute size. A 5% drop in 4 months is something that can be recovered from on a personal portfolio level or even a small hedge fund level...but at LTCM's size it was endangering the financial system as a whole because it was threatening to bankrupt overleveraged institutional investors. Jane Street Capital, while very opaque about what they do, has given me enough room to believe that LTCM has inspired a lot of their strategy. This always makes others perceive me as a quack that doesn't like history, but if another LTCM came around that was using the same strategy but on a much smaller scale and with a well spelled-out liquidation strategy, I would invest. In fact, I would probably bet big on it (>50% of my portfolio). Nobody is gonna touch it though, because everybody is so conservative in finance. "We're gonna follow LTCM's strategy" isn't a sales pitch, it's a punch line. But outside of finance, there is a ton of precedent for monumental successes with an idea that has failed before. And I think LTCM is one of those ideas.
srdev 11y ago
It takes more than a little math. I hang out in stock market chats that have a lot of programmer trying to do just this, and this comic is completely accurate: http://xkcd.com/1570 http://xkcd.com/1570
- ericjang 11y ago
  I often wonder where Randall Munroe gets all his wisdom.
  - ericjang 11y ago
    edit: I didn't mean for this to be disparaging remark: I am genuinely impressed by how wise he is about so many topics, given that he is only 30 years old.
iheartmemcache 11y ago
Comparing Renaissance to any other firm is like comparing Berkshire-Hathaway to an average value-investment fund, or PIMCO to any other fixed income trading firm. James Simons (founder of Renaissance) was so smart he _co-founded a field of mathematics [differential co-homology] with Chern. Not only does the fund have a huge head-start (they were purely algorithmic trading in the 80s), but their commitment to academic pursuit over monetary gain is unparalleled. I.e., when asked who an ideal hire was for Renaissance, Simons said "anyone who has a PhD [in the applied or pure sciences, statistics, mathematics]" (you get a PhD because you love the field, you go to HBS or Wharton to make money). These guys are trained professionals who've dedicated literally decades to graduate level pure & applied mathematics, and are simply of another a caliber. I can read JAMA all I want, quite fun indeed, but if I practice surgery, I'm certainly going to slice an artery. You have a better chance of going to Atlantic City and putting 100k on black than successfully making money in trading any set of securities, whether its Asian fixed-income, blue chip Wall Street equities, or CME pork belly futures. Just because you back-tested something successfully doesn't mean you should throw your hat into the ring, the sharks will bite till there's nothing left.
- melling 11y ago
  I never said that it was easy or that it took a little math. I said that it has been done before and that we are here to learn. I also can't figure out why I get all kinds of "it's really hard" and "be very afraid" comments on HN.
  - mahyarm 11y ago
    If you fuck up a computer, short of messing with BIOS voltage configurations, you can reset at no cost. It's near costless to make mistakes most of the time. With finance, high voltage electronics, and explosive chemistry, you can have very high cost consequences if you screw up. And people often delude themselves in finance. There is a also a return aspect in finance. You need a large amount of starting capital until 80hrs/wk of work will outpace what you make 80hrs/wk in your job. For example, lets say you make $250k/yr as a smart engineer. We assume best case scenarios and say you make %10/APR (very generous) over the index fund return. You would need $2.5million in starting capital before you can start matching your working self in returns. Most people don't have $2.5 million lying around. You would get better returns starting a business or investing in yourself and leaving your savings into index funds.

vladimirralev 11y ago

I think it's wise for everybody to allocate some funds for high-risk crazy investment in smaller companies, just 5-10%, as long as it's not a straightout scam that is. First, you learn a lot from your research and interactions. Second it is diversification. Third, you can put the money towards something you care about so even if you lose them it's not a big deal such as VR, cancer cure, some cool boat technology, new food, whatever.

chronic41 11y ago
I'd rather take the 7-8% over risky investments.
cpfohl 11y ago
Vanguard's VTSAX is an ETF that buys the whole Stock market (more or less, at least a representative portion). By definition that includes smaller high risk companies.
- dlubarov 11y ago
  Slight correction: VTSAX is a mutual fund; VTI is the corresponding ETF. I agree that it's an excellent choice though -- easy diversification, very low expenses, low turnover. VT (which includes foreign stocks) is also worth considering for extra diversification.
  - cpfohl 11y ago
    Great point. I group VTI, VTSAX, and VTSMX all together in my head; with Vanguard the differences between Vanguard branded ETFs and MFs aren't really that noticeable if you're just buying and holding. Thanks for clarifying my suggestion, though!

hardwaresofton 11y ago

Oh also, as a follow up -- some friends of mine have been really impressed with/interested in LendingClub (https://www.lendingclub.com/ https://www.lendingclub.com/) -- personal loans, and they're distributed so not one person takes all the risk (so you don't put up the full amount, it's divied up)

mattzito 11y ago
Ooookay, I put a chunk of money into LendingClub, and here's what I learned: - Remember that the money that you make on this is taxed as income, which stinks for high income individuals - The alternative is to set up a lendingclub IRA and put money in there, but now you're somewhat limited as to how much you can invest, as well as being ineligible if you've got an employer retirement vehicle like a 401k - The return is very high at the beginning, and then tends to drop as more and more people default (or pay off early, which can be almost as bad from an investment perspective) - It takes work - it's interesting if you have the time and inclination to pick out the notes you want, or they have an automated system - I did a bit of both In the end, I'm making about 6.5% a year on it - not terrible, but at tax time every year it sucks when I'm getting charged state and federal income taxes on that 6.5%. I think it makes a lot of sense for folks who are not concerned about reducing their taxable income and want a more active investment option than just vanguard ETFs, or who want an IRA option with higher returns. But it's not as awesome as it seems at first glance.

chad_strategic 11y ago

I used to agree with this strategy before I got an MBA. Then I studied the markets. Actually the MBA put me at a disadvantage, but regardless. The markets are so incredible corrupt. It's nice in theory, however this ETF strategy is extremely overcrowded, hence the 2008 meltdown. Hence, the August meltdown. Anything that works will eventually, come to an end... Let's not forget the people that make the guaranteed money in the ETF are the one's selling you them. (Might want to check your ETF fees as well) In the meantime... I created this http://www.strategic-options.com/trade/ http://www.strategic-options.com/trade/

dsacco 11y ago
>> Anything that works will eventually, come to an end... Let's not forget the people that make the guaranteed money in the ETF are the one's selling you them. >> In the meantime... I created this http://www.strategic-options.com/trade/ http://www.strategic-options.com/trade/ Sorry if this sounds rude, but this comment comes across as disingenuous to me.
- chad_strategic 11y ago
  I'm not exactly sure what your getting at but in reference to it all comes to an end. Yes, ETFs are overcrowded and even Goldman wants a piece, so now you know it's corrupt. :) http://www.investmentnews.com/article/20150911/FREE/150919971/goldman-sachs-goes-low-cost-in-bid-to-attract-investors-to-etfs?NLID=daily&NL_issueDate=20150911&utm_source=Daily-20150911&utm_medium=email&utm_campaign=investmentnews&utm_term=text http://www.investmentnews.com/article/20150911/FREE/15091997... You also have tulips to blame in 1637. https://en.wikipedia.org/wiki/Tulip_mania https://en.wikipedia.org/wiki/Tulip_mania
iheartmemcache 11y ago
I know this is such a cliche question but if you've found the recipe for generating 9% returns, why are you selling it for $50 dollars a user rather than just starting your small/mid-cap fund? Capital is so cheap right now, people literally don't know what to do with the money they're sitting on. Even if the fed hikes in Sept (which it will), you charge .5% maintenance and 20% performance and you'll have absolutely no trouble raising money. (This is a genuine question, not a snarky one. I've always wondered would write a "how to get rich quick" book in my early teenage years, only to realize their methodology to get rich was to write that get rich book.)

YZF 11y ago

You can do better if you add bonds and perhaps international stocks and rebalance your portfolio yearly. Maybe 50% US market ETF, 20% world, 30% bonds. Bonds aren't very appealing right now though but as a general rule. If you're only in a US market ETF there's some non-neglible chance you'll be flat or down in 10 years esp. if you're unlucky enough to buy close to a bubble top. So long term in this context should read as > ~20 years.

finance-geek 11y ago
Bonds would include long term bonds, and they literally cannot get any higher in price. Rates are zero, long term rate expectations are zero for a while. This is horrible advice. The only way to go is down.
- YZF 11y ago
  First thing, never say never. They could still get higher in price. I agree it's less likely then the other direction so for today you'd want to have less bonds in your portfolio. Over the long term however, which is what we're talking about, a mixed portfolio beats 100% stocks with less volatility. EDIT: If you look at buying a 10 year bond right now you get ~2.2% interest per year guaranteed today. If you buy the total US stock index it's hard to tell with any degree of certainty given today's high P/E ratios that the stock market will beat that. It might. But it's more risky. Hence there's a premium you're paying for risk. It's true that yields are likely (but not certain) to go up and so over time your new investments + rebalancing will buy you into those higher yields. Otherwise you're just trying to time the bond and stock markets which isn't simple, you can play a little of timing game (e.g. saying you think stocks are cheap and bonds are expensive today) but you can't usually predict better than the market already does.
  - YZF 11y ago
    Another important thing to keep in mind is that as yields go up stocks also go through a repricing, not just bonds. The interest rate is the measuring tape for all investments, if you can get a safe high return in bonds you don't go into stocks. If dividend yields are lower than bond yields you don't buy dividend stocks that are subject to other risks... EDIT: And while we're talking about this it helps to recall that there's a continuum that goes beyond 100% stocks. If you're so sure interest rates are going up and stocks are going up then you can borrow money at today's rates and invest it in stocks. I.e. use leverage. If you're right your returns will be much higher...

jameslk 11y ago

Is it warranted to feel a little uneasy about the dogmatic advice of "just put all your money in ETFs?" Aren't assumptions that something will always have a fair return the way bubbles are formed?

WA 11y ago
Not necessarily. With ETFs like MSCI World, you simply get the benefits of economic growth.
- markvdb 11y ago
  May I suggest that limitless economic growth is a debatable premise to start from? Have a look at https://en.wikipedia.org/wiki/The_Limits_to_Growth https://en.wikipedia.org/wiki/The_Limits_to_Growth . From 1972, but still worth a look.
  - Geee 11y ago
    We already and always live at the limits. Innovation is pushing those limits further everyday. For example, Internet solved lots of limits related to physical locations, distances, and land areas, electric cars and sustained energy production will solve limited oil supplies, space exploration and asteroid mining will solve limited resources of other materials (if they aren't made irrelevant before that by other innovations). Etc..
blazespin 11y ago
Yes, but the fed/government backstops the s&p. Your only option really is to invest outside the U.S.
- cbr 11y ago
  > the fed/government backstops the s&p How so?
mahyarm 11y ago
People don't put money into ETFs to get speculative returns, but better-than-bank-account returns with diversification. Bubbles are often formed by speculation, and usually in a singular asset class.

hugh4 11y ago

I just buy a few companies I like, hold forever, collect the dividends, avoid paying any management fees except for the fifteen-odd-bucks that I pay for every purchase. Will I make more or less than I would under your strategy? I don't know, but averaged over all possible universes it's unlikely to be significantly less, and this way I at least get the fun of being in control, and deciding where to put each new chunk of money.

stouset 11y ago
That $15/purchase is probably waaaay more than the equivalent amount of Vanguard fees, unless you're buying thousands of dollars in stocks at a time. And those fees add up to a significant amount over the lifetime of your portfolio. Speaking of your portfolio, if you're investing in "a few" companies, your volatility and risk are going to be enormous. Especially if you're not balancing your portfolio between industries, company sizes, and less risky investments. Automatic rebalancing is a fantastic way to obey "buy low, sell high", as you intrinsically buy more of cheaper instruments and less of expensive ones to maintain that balancing.
- hugh4 11y ago
  Well yes, I do buy thousands of dollars at a time, you're right, it doesn't make sense to buy small amounts at a time. By "a few" I mean more like a dozen.
blazespin 11y ago
You are a stock picker. You just got lucky.
- hugh4 11y ago
  How do you know I didn't get smart?
- comatose_kid 11y ago
  The second sentence doesn't necessarily follow from the first. https://en.wikipedia.org/wiki/The_Superinvestors_of_Graham-and-Doddsville https://en.wikipedia.org/wiki/The_Superinvestors_of_Graham-a...

blazespin 11y ago

Put money into vanguard total market etf as a function of your age. As you get older, put less. Or, rather, put money into etf with lower risk as you get older. Same thing with startups. As you get older, work in jobs with less risk. Well, that is if you are optimizing for return. If you don't mind being poor, go crazy.

probably_wrong 11y ago

Maybe it's a bit off-topic, but am I the only one who has no idea what ETF nor Vanguard are? I found the webpage for Vanguard, and they apparently want me to call them if I'm new to the system. I also have no idea what investment funds, stock exchanges and commodities are. Whenever it comes to investing advice, I understand how my family must feel when their computers break.

lukego 11y ago
http://www.bogleheads.org/wiki/Bogleheads®_investing_start-up_kit http://www.bogleheads.org/wiki/Bogleheads®_investing_start-u...
hardwaresofton 11y ago
http://www.investopedia.com/ http://www.investopedia.com/ Don't worry, it's perfectly fine to not know what these things are. Maybe you haven't been working for long enough (or at the right companies) but I think people usually pick up an interest for this kind of stuff when they want to know what to do with RSU (Restricted Stock Units) or Options that they've gotten from a job. Some also get interested by the idea of having your money work for you (to make more money), instead of just spending money on things that don't bring return.
zrail 11y ago
Vanguard is the company founded by Jack Bogle, one of the first, and arguably the biggest, proponents of a method of investing called index investing. The goal is to match the aggregate performance of the market while paying the least amount of fees. Vanguard has a large selection of mutual funds[1] that match various stock market indexes[2]. Generally a mutual fund's value (called it's Net Asset Value or NAV) is calculated once at the end of each trading day. When you put money into a mutual fund, you buy at that price. An ETF[3] is a special type of mutual fund that is itself listed on a stock exchange. When you buy an ETF you're still buying a share of the underlying mutual fund, but the price changes throughout the trading day. The difference between the price you pay and the NAV of the underlying fund is called the premium (if you pay more than NAV) or discount (if you pay less). You don't have to call Vanguard if you want to open an individual, joint, or retirement account in the United States. You just go to their Open An Account page[4] and select which account you want to start. [1]: a company organized to aggregate many people's money and invest it in a particular way [2]: a list of companies that share some quality. For example, the "S&P 500" is a list of the 500 biggest publicly-traded companies in the United States. [3]: Exchange Traded Fund [4]: https://personal.vanguard.com/us/openaccount https://personal.vanguard.com/us/openaccount

Jack000 11y ago

I would add that this depends on your time horizon. If you did this in 2008 for example, it would have been a couple of years until you're above water again. There is always an aspect of market timing, even with ETFs. Looking at the massive bull run in the last 5 years, it certainly makes me nervous to enter the market right now, especially with the recent volatility.

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