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if you are - a passive investor and dont want to spend much time thinking about it - want your money to earn a good return over inflation (5%+) - dont need the

if you are - a passive investor and dont want to spend much time thinking about it - want your money to earn a good return over inflation (5%+) - dont need the money for ~ 3 to 5 years (its ok not being liquid) then an sp500 index fund is probably best. not the 10x return you are looking for, otherwise you have to be a lot more speculative

AznHisoka 9y ago
For a middle-aged person, what % of my money should be in that index fund?
- dahdum 9y ago
  A good rule of thumb is 100 minus your age is your % of stocks to hold. Those stocks should be diversified index funds, so if you're 40 years old 60% in S&P500 ETF is pretty decent. The exact index funds to hold is a constant matter of debate (including whether to hold international). Doesn't matter as much as having that equity exposure and keeping the fund fees low. Lots of resources out there to do it yourself (https://www.bogleheads.org/wiki/Three-fund_portfolio https://www.bogleheads.org/wiki/Three-fund_portfolio) or you could use Betterment/Wealthfront/Personal Capital for extra fees.
  - jmulho 9y ago
    I agree about equity exposure, low fees, and simple approaches like a three fund portfolio. Here is a slightly more sophisticated way to think about the percentage that should be in equities. One year from now, equities could be up 25% or down 50%. Twenty years from now, equities are likely to be up, likely to have outpaced inflation, and likely to have outperformed "safer" alternatives (money market funds, bond funds, etc.). If you have a $10,000 bill coming due in one year, and $10,000 in the bank, it would be risky to invest any of it in equities. If you have money to invest that you won't be forced to liquidate for 20 years (e.g. your 401k at age 40), then it is probably fine to start with 100% of in equities. The percentage should be based on when you might be forced to liquidate each available investment dollar. In many cases this will agree with the rule of thumb. By equities I mean low cost equity ETFs (or index funds) that invest in broad indexes. I do not mean a portfolio of 10 to 30 stocks hand-picked by you or any fund manager. The hand-picked portfolio could be down 100% in 20 years, or in 1 year.
    - dahdum 9y ago
      We're on the same page mostly, but I think if forced liquidation is a real risk you should lower your equity % at the start to compensate. 100% at age 40 is overly aggressive, pretty sure you'd have better risk adjusted returns by including bonds in there from the start.
      - njarboe 9y ago
        With bonds at historic lows (negative interest rates have never seen since the beginning of money in ~600BC), I would not be so sure about that. What bonds would you invest in?
        dahdum 9y ago
        We're also at record equity levels and low interest rates, but that can change really quickly. I only put them in there because a lot of MPT models say it's a good idea. I have LQD, JNK, and BNDX.
- stevenwoo 9y ago
  You might want to consider a target retirement date fund that Vanguard, T.Rowe Price, and others offer that balance the funds every year according to the target date with more risk the farther one is from the end time. Here's one description https://investor.vanguard.com/mutual-funds/target-retirement/ https://investor.vanguard.com/mutual-funds/target-retirement... If you really wanted to manage the risk yourself and rebalance it periodically you could do that too and indulge in more risky sorts of funds but that's up to your inclination/time.
badpun 9y ago
I wonder if it will be true in this century. 20th century was exceptional for US economy, allowing for huge growth and hence great returns on stocks. The playing field looks very different now, though. Personally, given the circumstances, I’d be happy with 2% return over inflation.

AznHisoka 9y ago

For a middle-aged person, what % of my money should be in that index fund?

dahdum 9y ago
A good rule of thumb is 100 minus your age is your % of stocks to hold. Those stocks should be diversified index funds, so if you're 40 years old 60% in S&P500 ETF is pretty decent. The exact index funds to hold is a constant matter of debate (including whether to hold international). Doesn't matter as much as having that equity exposure and keeping the fund fees low. Lots of resources out there to do it yourself (https://www.bogleheads.org/wiki/Three-fund_portfolio https://www.bogleheads.org/wiki/Three-fund_portfolio) or you could use Betterment/Wealthfront/Personal Capital for extra fees.
- jmulho 9y ago
  I agree about equity exposure, low fees, and simple approaches like a three fund portfolio. Here is a slightly more sophisticated way to think about the percentage that should be in equities. One year from now, equities could be up 25% or down 50%. Twenty years from now, equities are likely to be up, likely to have outpaced inflation, and likely to have outperformed "safer" alternatives (money market funds, bond funds, etc.). If you have a $10,000 bill coming due in one year, and $10,000 in the bank, it would be risky to invest any of it in equities. If you have money to invest that you won't be forced to liquidate for 20 years (e.g. your 401k at age 40), then it is probably fine to start with 100% of in equities. The percentage should be based on when you might be forced to liquidate each available investment dollar. In many cases this will agree with the rule of thumb. By equities I mean low cost equity ETFs (or index funds) that invest in broad indexes. I do not mean a portfolio of 10 to 30 stocks hand-picked by you or any fund manager. The hand-picked portfolio could be down 100% in 20 years, or in 1 year.
  - dahdum 9y ago
    We're on the same page mostly, but I think if forced liquidation is a real risk you should lower your equity % at the start to compensate. 100% at age 40 is overly aggressive, pretty sure you'd have better risk adjusted returns by including bonds in there from the start.
    - njarboe 9y ago
      With bonds at historic lows (negative interest rates have never seen since the beginning of money in ~600BC), I would not be so sure about that. What bonds would you invest in?
      - dahdum 9y ago
        We're also at record equity levels and low interest rates, but that can change really quickly. I only put them in there because a lot of MPT models say it's a good idea. I have LQD, JNK, and BNDX.
stevenwoo 9y ago
You might want to consider a target retirement date fund that Vanguard, T.Rowe Price, and others offer that balance the funds every year according to the target date with more risk the farther one is from the end time. Here's one description https://investor.vanguard.com/mutual-funds/target-retirement/ https://investor.vanguard.com/mutual-funds/target-retirement... If you really wanted to manage the risk yourself and rebalance it periodically you could do that too and indulge in more risky sorts of funds but that's up to your inclination/time.

badpun 9y ago

I wonder if it will be true in this century. 20th century was exceptional for US economy, allowing for huge growth and hence great returns on stocks. The playing field looks very different now, though. Personally, given the circumstances, I’d be happy with 2% return over inflation.