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I will sum up what we know in general about investing: Keep fees low and diversify. That is the best you can do without specialized knowledge or effort (and, d
by startupdiscuss 8y ago
I will sum up what we know in general about investing: Keep fees low and diversify.
That is the best you can do without specialized knowledge or effort (and, depending on how strong a view you have of the efficient market hypothesis, even then this might be the best you can do).
In this case you should put the bulk of your money in a robo-advisor like wealthfront or betterment. (I am not related to them in any way).
If you do have insight into something -- maybe you are keyed into local real estate development or you feel you know your industry -- you could get a higher return. Take some small percent of your wealth (say 5%-20%) and put it into this thing you may be good at.
This is my favorite overview:
https://research.wealthfront.com/whitepapers/investment-methodology/ https://research.wealthfront.com/whitepapers/investment-meth...
- pembrook 8y agoThe problem with using is a robo-advisor is, if you earn even a moderately good income you're basically going to giving them hundreds of thousands of dollars in fees over your lifetime. Even though 0.25% seems small, I calculated the fees would compound over the next 40 years to over $460,000.00 for my wife and I. Thats an insane amount of money to pay someone just to put money into Vanguard index funds. Also, being a DIY investor forces you to actually learn how these things work, so you'll have a better chance of not making a stupid behavioral mistake when the market drops next time. By ignoring the whole "learning" portion of investing and just throwing your money at Wealthfront you'll be liable to pull your money out or stop contributing at exactly the worst time.
- startupdiscuss 8y agoThose are two different issues though. Firstly, if you believe that you should hold your money through a crash, then you are free to do so whether or not you invest through Wealthfront. Secondly, that is a huge amount of money. Congratulations on making so much. Yes you can save that money by learning yourself but do value your time. If you are going to rebalance, tax harvest etc it can add up time wise. Thirdly, learning yourself may not be about saving in the areas that the robo-advisor is good. You don't want to learn about tax harvesting because it is better to leave that automated. You might want to learn about a particular stock, but even that is better left to analysts and you can rent the research. I had a friend who worked at Goldman. He analyzed three stocks total. He worked 16 hour days. He knew more about any of those stocks than I ever could.
- pembrook 8y agoFor your average index fund portfolio, rebalancing has been statistically proven to actually make investor returns lower. The value of rebalancing is in keeping your risk profile constant, not increasing your returns. By selling winners you lose exposure to one of the most persistent risk factors: momentum. Also, the value of the TLH services provided by Roboadvisors have been grossly over-stated and they have since backed off form their initial claims. Read this for more info: https://www.kitces.com/blog/evaluating-the-tax-deferral-and-tax-bracket-arbitrage-benefits-of-tax-loss-harvesting/ https://www.kitces.com/blog/evaluating-the-tax-deferral-and-...
- startupdiscuss 8y agoI am not defending the choices they make. If you believe in rebalancing, let the robo-advisors do it. (I don't rebalance personally).