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Given what you have said, where should a US-based person put their savings in order to (1) keep up with inflation, and (2) make a reasonable return (somewhere i

Given what you have said, where should a US-based person put their savings in order to (1) keep up with inflation, and (2) make a reasonable return (somewhere in the 6-10% range)?

saryant 12y ago
Just buy everything. Retail investors are unlikely to beat the market as a whole, so just buy the entire market, hold it forever and keep costs low. For instance, Vanguard's Total Stock Market fund holds almost every publicly traded stock in America (~3700) and is dirt cheap.
- jackowayed 12y ago
  But it also makes sense to hedge against the market to some extent, right? Have some amount in safer things (bonds, even money market and/or some t-bill equivalent), things that sometimes go in different directions than the market (eg. commodities). What's a good way to find a balance for that?
  - saryant 12y ago
    Of course, that fund was just an example. John Bogle, founder of Vanguard, recommends "your age in bonds". So if you're 20, make bonds 20% of your portfolio. Some adjust this up or down depending on their appetite for risk (I think age minus 10 is the common advice from Vanguard now).
  - stygiansonic 12y ago
    Finding the right portfolio for yourself is actually a pretty involved question. It depends on your personal situation: Things like whether you have kids, whether you own a house or are planning on buying, what your retirement goals are, etc. A straightforward bond/stock split has been recommended, and it's probably the simplest but even then there are questions of which bond fund/ETF and which index/equity fund/ETF to choose. Creating a plan requires understanding what your tolerance for risk is. It doesn't have to take a lot of time [1] and some basic reading and math will enable you to pick what's right for you. Basically, are you willing to tolerate more volatility (i.e. variability in year-to-year returns) in exchange for higher returns in the long-term? 1. http://www.finiki.org/wiki/Portfolio_design_and_construction http://www.finiki.org/wiki/Portfolio_design_and_construction
  - dredmorbius 12y ago
    If you're hedging against a total market collapse, I'd suggest productive farmland and strong community ties.
- lsc 12y ago
  from top-level comment: >There's the Shift Index by Deloitte's Center for the Edge, which shows a long-term secular decline in return on invested capital (ROIC) from 1965 to 2009 by 75%. It's fallen from 6.2% to 1.3%, and is on track to negative returns in a little over a decade. http://redd.it/1y3z3n http://redd.it/1y3z3n The comment you are responding too is asking what to do assuming the top-level comment is correct, and the total return on invested capital is, in fact, declining. Buying a low load index fund is advice that few people are going to argue with, but it doesn't answer the question.
  - dredmorbius 12y ago
    The low-load index is still going to address the financial risk associated with carrying cash. Both financial vehicles and cash presume that the economic system will sustain itself. There's always the possibility it won't.
dredmorbius 12y ago
The combination of insurance protection and high return is not something you're going to find. The general argument is to invest in a broad market index (or even a spread of several stocks and/or bonds (6-12 gives a pretty high level of diversification, though a broad index based on the top 100, 500, or 1000 securities is of course even broader). That will give you protection from volatility in any one security. You won't be protected against general market (or financial system) risk. There are several bond issues which are specifically inflation-indexed, e.g., TIPS for the US: https://en.wikipedia.org/wiki/Treasury_security#TIPS https://en.wikipedia.org/wiki/Treasury_security#TIPS https://en.wikipedia.org/wiki/Inflation-indexed_bond https://en.wikipedia.org/wiki/Inflation-indexed_bond You're not going to find a 6-10% return on these though, generally.
stygiansonic 12y ago
For the average investor, who doesn't have copious amounts of time to do research, a low-cost index-tracking ETF would be one of the best investment vehicles. You would want to tailor your asset allocation to match your risk profile. Furthermore, your timeline (i.e. when you will need access to the funds) will affect your asset choices. If you have a short amount of time (less than five years) it's usually too risky to have a high or even moderate exposure to equities. In fact, if I knew that I would need to spend the money within five years, I would keep a large percentage in safe (i.e. guaranteed) investments.

Given what you have said, where should a US-based person put their savings in order to (1) keep up with inflation, and (2) make a reasonable return (somewhere in the 6-10% range)?

saryant 12y ago

Just buy everything. Retail investors are unlikely to beat the market as a whole, so just buy the entire market, hold it forever and keep costs low. For instance, Vanguard's Total Stock Market fund holds almost every publicly traded stock in America (~3700) and is dirt cheap.

jackowayed 12y ago
But it also makes sense to hedge against the market to some extent, right? Have some amount in safer things (bonds, even money market and/or some t-bill equivalent), things that sometimes go in different directions than the market (eg. commodities). What's a good way to find a balance for that?
- saryant 12y ago
  Of course, that fund was just an example. John Bogle, founder of Vanguard, recommends "your age in bonds". So if you're 20, make bonds 20% of your portfolio. Some adjust this up or down depending on their appetite for risk (I think age minus 10 is the common advice from Vanguard now).
- stygiansonic 12y ago
  Finding the right portfolio for yourself is actually a pretty involved question. It depends on your personal situation: Things like whether you have kids, whether you own a house or are planning on buying, what your retirement goals are, etc. A straightforward bond/stock split has been recommended, and it's probably the simplest but even then there are questions of which bond fund/ETF and which index/equity fund/ETF to choose. Creating a plan requires understanding what your tolerance for risk is. It doesn't have to take a lot of time [1] and some basic reading and math will enable you to pick what's right for you. Basically, are you willing to tolerate more volatility (i.e. variability in year-to-year returns) in exchange for higher returns in the long-term? 1. http://www.finiki.org/wiki/Portfolio_design_and_construction http://www.finiki.org/wiki/Portfolio_design_and_construction
- dredmorbius 12y ago
  If you're hedging against a total market collapse, I'd suggest productive farmland and strong community ties.
lsc 12y ago
from top-level comment: >There's the Shift Index by Deloitte's Center for the Edge, which shows a long-term secular decline in return on invested capital (ROIC) from 1965 to 2009 by 75%. It's fallen from 6.2% to 1.3%, and is on track to negative returns in a little over a decade. http://redd.it/1y3z3n http://redd.it/1y3z3n The comment you are responding too is asking what to do assuming the top-level comment is correct, and the total return on invested capital is, in fact, declining. Buying a low load index fund is advice that few people are going to argue with, but it doesn't answer the question.
- dredmorbius 12y ago
  The low-load index is still going to address the financial risk associated with carrying cash. Both financial vehicles and cash presume that the economic system will sustain itself. There's always the possibility it won't.

dredmorbius 12y ago

The combination of insurance protection and high return is not something you're going to find. The general argument is to invest in a broad market index (or even a spread of several stocks and/or bonds (6-12 gives a pretty high level of diversification, though a broad index based on the top 100, 500, or 1000 securities is of course even broader). That will give you protection from volatility in any one security. You won't be protected against general market (or financial system) risk. There are several bond issues which are specifically inflation-indexed, e.g., TIPS for the US: https://en.wikipedia.org/wiki/Treasury_security#TIPS https://en.wikipedia.org/wiki/Treasury_security#TIPS https://en.wikipedia.org/wiki/Inflation-indexed_bond https://en.wikipedia.org/wiki/Inflation-indexed_bond You're not going to find a 6-10% return on these though, generally.

stygiansonic 12y ago

For the average investor, who doesn't have copious amounts of time to do research, a low-cost index-tracking ETF would be one of the best investment vehicles. You would want to tailor your asset allocation to match your risk profile. Furthermore, your timeline (i.e. when you will need access to the funds) will affect your asset choices. If you have a short amount of time (less than five years) it's usually too risky to have a high or even moderate exposure to equities. In fact, if I knew that I would need to spend the money within five years, I would keep a large percentage in safe (i.e. guaranteed) investments.