Ask HN: How do you invest your money? | Hacker News Reader

Ask HN: How do you invest your money?

63 pointssergiotapia84 comments

/r/personalfinance has turned me on to the idea of investing for retirement.

How does HN invest their money?

- Passive robo-investing with Wealthfront/Betterment?

- Actively searching for stock on the rise/timing the market?

- Real estate purchasing then renting those out?

While investing is important (personally it's 50/50 stock index fund and US treasuries), another important thing to do is reduce your expenses.

1. The lower your expenses the less money you need on an ongoing basis. This means you need less savings to fund your lifestyle.

2. The lower your expenses the more money you have left over to save and invest.

The combination means you have more money and it lasts longer. This is pretty important career-wise because it makes it much easier to find a better job: when you need to quit or lose your job you have much longer to find a good job, you don't need to take the first one you find.

Expanded version here: https://codewithoutrules.com/2016/08/08/living-below-your-me...

You missed an important benefit: expenses are mostly post-tax, so reducing your expenses by $1 may reduce the amount you need to earn by $1.50 - $2.

Also, 50% in treasuries seems overly conservative for most investors, especially if they're young. That's basically just going to match inflation. You may have your reasons, just wanted to point that out :)

Oh, huh, good point re post-tax benefit of expenses, hadn't thought of that.

I'm pretty conservative regarding investment, yes. Been through two massive bubbles+crashes so far :)

AND the lower your expenses, the lower your 25x* expenses number is, so the less you need to save to be financially independent.

* If you are going by the 4% rule http://www.investopedia.com/terms/f/four-percent-rule.asp

If you're interested in being financially independent, I would take a look at the following article:

https://earlyretirementnow.com/2016/12/07/the-ultimate-guide...

They look at the 4% rule, what it's based on, and see if it's actually valuable for those looking into early retirement.

Being 50% in treasuries right now is not particularly conservative. The Schiller P/E ratio was only higher in 1929 and 1999:

http://www.multpl.com/shiller-pe/

So, broadly, equities look like a pretty bad deal right now.

The Schiller P/E has historically been pretty useful, but it's not a great tool for comparing pre 2001 and post 2001 market valuations because of changes in GAAP. Check out http://www.philosophicaleconomics.com/2013/12/shiller/ for a more in depth explanation.

Thanks for the link, interesting read.

There's also q, which has same result as Shiller P/E 10 but is calculated very differently: http://smithers.co.uk/page.php?id=34

I don't time the market. Studies are really clear that people suck at it. You may be convinced you're the exception. I'm convinced that I'm not :)

That's certainly a reasonable position.

I'm going to start responding to people who disagree like this :)

I invest using mutual funds through Vanguard. Some percentage US stock fund, some percentage US bond fund, some percentage international stock, and some percentage international bond. This is by far the simplest and easiest approach. I currently invest using VTTSX which is a Vanguard fund that does this splitting for me.

You can read more about this investment philosophy here: https://www.bogleheads.org/wiki/Three-fund_portfolio

I'm not convinced there's any passive investment that will beat a Vanguard S&P 500 index in the long-run. 99% of people would be best-served to just dump 100% in that.

I've made some pretty incredible returns researching and investing, but in retrospect even though I did very well I would have been better off spending that time earning more money rather than investing it. My net worth isn't big enough that an extra percentage gain moves the needle that much.

I'd be more inclined to take this approach, but to diversify geographically and to also include some fixed income in there, too. The US market may pause someday, but there is a much slimmer chance that the entire world's equities and their fixed income will get nailed at once.

S&P is too US-scoped. One bad president pick and it will be all gone. It's better to diversify 20-30% worldwide and a little into assets with different source of value like gold, real estate, crypto, oil, whatever. Just S&P is not going to cut it forever. I know central banks are buying it now too, so it may find itself being very political soon.

> S&P is too US-scoped. One bad president pick and it will be all gone

Respectfully, if that were true it would all have been long gone a long time ago :)

what's a fund that "bets against" S&P?

SPXS?

If you want a single index fund that you can buy and hold, and never worry about again, SPY is one of the best. Even Warren Buffet has endorsed this approach many times.

If you're willing to spend 15-30 minutes per month managing finances, then buy the Bogleheads' Guide to Investing and read it cover to cover.

Once you've done that, head over to the Bogleheads forum [http://www.bogleheads.org] and you can learn as much or as little as you want. Taylor Larimore, one of the authors of the book (and former Band of Brothers WW2 paratrooper), is still active on the forum at the age of 93.

Warren Buffet has endorsed holding an S&P500 index fund many times. He has not endorsed SPY as a vehicle for that. SPY is more than twice as expensive as Vanguard's or iShare's S&P500 funds, and has lagged them since inception. It is also the case that SPY is organized as a unit investment trust so it cannot lend shares for securities lending revenue, as other S&P500 index funds can and do. For all these reasons, I expect SPY to underperform VOO.

In fact Warren Buffett picked Vanguard's S&P500 fund for his long bet (http://longbets.org/362/)

Agree with the rest of your post. Taylor Larimore is a mensch.

There's a tension between "invest in what you know" and avoiding correlation between your financial investments and your job.

Most HNers know the tech sector better than other sectors. But investing (long) in tech would not be a great idea from a diversification perspective. If the tech market tanks, your job prospects will suffer (you could get fired/furloughed, your startup could stagnate) and your portfolio will drop simultaneously.

One way to resolve this tension is to take short positions on tech trackers and long positions on particular stocks that you think will outperform the sector. On days when everything goes up, you won't win as big. But on days where everything goes down, you'll be glad you have the hedge.

I remember explaining to my mother in the mid 2000s that Qualcomm owned the vast majority of the technology powering CDMA, which would power billions of smart phones in the future. So she bought QCOM. I was right about smartphones, yet the stock did nothing... What you know about tech and what Wall Street thinks about a company is entirely two different things.

Read /r/financialindependence (better than personalfinance, and more appropriate for this subject), and also the Bogleheads forum [1] and wiki [2]

[1]: https://www.bogleheads.org/forum/index.php

[2]: https://www.bogleheads.org/wiki/Main_Page

I read /r/financialindependence and daydream haha, that's where I learned about all this stuff.

Here's Warren Buffett's advice for people with this question from the BRK Letter to Investors:

"My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard's.) I believe the trust's long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers."

Advice like just buy Vanguard or US treasuries is not really all that great of advice.

One of the biggest mistakes people make in investing is country concentration. Telling people to "dump 100%" into Vanguards S&P 500 is just, well I'll use misguided but I should use stronger language.

Telling someone to invest just in the US equity market if you live and work in the US there is just an broader way of telling someone to invest everything in the company they work for.

You still have risk like 2008 where you can have the double whammy of both your company and your investments both getting beat up at the same time.

Everyone should have exposure outside of their own country, especially American's. Or Put another way, if your whole investment portfolio is based in one country that's better than investing in a single company but not too much better in that you're still making the same investment mistake of significant portfolio concentration

isn't that the point of having a three headed fund? 50% spy, 25% bonds, 25% international?

Not sure what a "three headed fund" is, but the sample you gave would diversify out of the US, assuming the 25% bond fund doesn't just hold US debt.

You really shouldn't care about the number of funds you hold, assuming you don't take it to extreme levels, just that you don't hold only exposure to one country.

I use Betterment. While I agree that for the upside market periods it won't be any better than a Vanguard ETF, but for volatile or downturn periods I was able to save quite a lot on their automated tax loss harvesting feature. Also automatically using slightly different portfolios between regular and Roth accounts to get yet another tax advantage is a nice touch.

* Bogleheads investing philosophy -- http://bogleheads.org -- the single best financial forum on the internet (and praised as such by none other than John Bogle)

* Vanguard index ETFs, mostly.

* International investing in proportion to market capitalization -- i.e. the market portfolio. The truly passive choice.

* Buy and hold, low-cost tax-efficient strategy.

As for where my ETFs are actually located: Merrill Edge. They have commission-free trades on all ETFs/equity with a sufficient balance. And the credit card rewards with Bank of America are tough to beat.

> Vanguard index ETFs, mostly.

Is it safe to have most of your money in funds handled by one company? Are there scenarios that are at least remotely plausible where one could lose most of one's money in a Vanguard index fund where a similar fund at, say, Fidelity would be fine, or vice versa?

That is safe to say.

Such a scenario is not remotely plausible, in my opinion. The commonly claimed scenario is fraud at Vanguard, but I'm highly skeptical that this is possible given that Vanguard doesn't hold the stocks in the funds; they are held in trust at (last time I checked) JP Morgan.

The bigger concern is massive sustained outflows (for some reason) from Vanguard, triggering capital gains distributions which would hurt me tax-wise. I have thought about switching to pure ETFs rather than the dual share structure that Vanguard has with their mutual funds, for this reason.

  house       8.1%
  US stocks   36.6%
  Intl stocks 12.8%
  bonds	      16.0%
  real estate 4.6%
  P2P lending 3.5%
  vc          6.4%
  college 529 6.7%
  cash        5.4%

Passive equity ETFs across all major regions, weighted by contribution to world GDP. A minor portion in various cryptocurrencies, so I can do some active 'trading' (really just losing money), but on a smaller scale, without getting anywhere near the ETFs (studies found that people who buy ETFs often fare poorly in practice because they start to actively trade them).

I max out my 401k, and then once I have over $X in my bank account I transfer more into my Vanguard account, buying enough to rebalance based on my asset allocation spreadsheet (US Stock, International Stock, US Bond).

I limit myself to investing a max of 10% in individual stocks.

I'm a federal employee so I put it into the Thrift Savings Plan (think 401k). The tax advantages are huge.

Taxes, taxes. Taxes will eat you alive. Find the best tax reduction vehicle you can, and then get into it and keep your costs low.

After all, if you had to read something on /r/personalfinance, then "Actively searching for stock on the rise/timing the market?" is not something you have the expertise to do; "Real estate purchasing then renting those out?" is not something you have the passion or expertise to do. As for wealthfront/betterment, I have no idea what those are, but if you have a tax advantaged vehicle available like IRA or 401k, use that first. Taxes taxes taxes.

What vehicle you use and what you invest it in are different questions. You could put your whole 401k in JNUG (a 3x-leveraged gold miners ETF that will regularly have 20% up/down days).

So 401k is very good advice, but then you have to determine what your 401k is invested in.

  Vanguard index funds & Berkshire Hathaway 
  LP real estate investing
  AngelList and VC

If you are new I'd recommend Arcten's Three-fund approach and don't forget to rebalance annually.

I suggest you do some reading before getting started with investing for retirement.

Bogleheads wiki and forum has good information and knowledgeable forum participants. https://www.bogleheads.org https://www.bogleheads.org/wiki/Main_Page

In addition, following books will give you good fundamental understanding of why and what.

Your Money or Your Life, Vicki Robbins ...

Millionaire Next Door, Thomas Stanley

A Random Walk Down Wall Street, Burton Malkiel

How you invest depends on many factors: e.g. your age, your family status, income, locale, tolerance for risk, and above all your investment goals.

I live in Vancouver, so real estate investment would be crazy for me. Since I don't like to dedicate time and energy to investing money, I'm just going with broad ETFs. More info: http://www.pesfandiar.com/blog/2015/05/01/how-i-invest-my-sa...

Vanguard.

Whatever the question is, the answer is vanguard, as long as you are American.

To be honest, insider trading.

Because I don't have serious money to invest, I invest in building my network, "buying" time and then... relaxing.

I worry about passive investing. Does it turn into winner take all?

If most everyone puts there money in a index tracker it would go up or down based on contribution and withdraw rates versus actual results of the market.

So, while there is more contributing than withdrawing it continues to go up which would attract more money to it.

Index funds are therefore the next bubble?

or maybe public investable assets? Too much money chasing too small a pool of assets? There are also a lot of private assets that could be superior investments, but average folks do not have access to.

Assumptions:

* index funds are larger and larger share of investing

* Median Baby boomer about 63

* 1/2 Americans in stock market

* In 2017, over 62 million Americans receive SS benefits

* US Adult Population 247,773,709 = 123M in stock market

* Only 25 M generation X

* Millennials don't invest in stocks http://www.businessinsider.com/why-so-few-millennials-invest...

Conclusion Drain of stock market as sellers begin to out number buyers

This ignores just how skewed towards the rich stock ownership is. The liquidation of stocks owned by the middle class will not move the needles much. And the very rich don't need to liquidate their stocks to maintain their lifestyle.

Passive investing is nice, but I have seen few good articles about drawing down when retirement actually hits.

I don't worry about that at all.

The risk is that there is so much in index funds that the valuations of companies will become distanced form what they're actually worth.

The likelihood of that happening given how much money there is to be made in finding the inefficiencies in the stock market are, in my opinion, very small.

Just a piece of advice here. Buying stocks on the rise is no better than momentum chasing in stocks and you end up with stocks which are not worth it. It is advisable to find good businesses to invest in if you have time and inclination to do so. If not passive index investing is great.

Conversely.. I wait for a wait for a stock to rise - it's another signal that others have come to the same conclusion, and I'm ok with leaving some money on the table as a payment for that information.

In my USA job's 401K, I pick the closest thing to low fee index fund that captures tracks the stock market. In my personal retirement, I use Wealthfront. I do not like actively investing, and so these approaches work well for me.

is maxing 401k for someone who won't stay in the US longer than 4 years wise or dumb?

Does your employer offer free matching? If yes, you're turning down free money if you don't make contributions. Also, might be worth looking into rolling 401K over into your home country's equivalent, which may or may not be something you can do.

There is no investment. There is only speculation!

Question should be how do you speculate with your money?

- stocks - Real estate - bonds

I wonder how different these answers are from the answers Back in 2007?

We are almost 10 years into this bull run. Nothing lasts forever...

I go for bluechips in sectors I understand. Yields 6-7% YOY

Index funds.

https://intelligent.schwab.com/

The best robo offering available atm imo.

How does it compare to Wealthfront/Betterment?

or just invest in Schwab Target Index Funds which acomplish the same thing at 0.13%, without the overly complex "customized for you" coat of paint, and have only $100 minimum.

https://www.schwabfunds.com/secure/file/P-9430864

Buy SWXKX. Done.

They've lowered the ER on their target retirement mutual funds to 0.08%, SWYNX would be the equivalent.

thats an institutional share. requires employer funded account or 10 million investment. said rate you cite is laid out in the link I provided.

It's not really the same. Schwab robo uses "Fundamental" funds which add value tilt which I like. Also, robo adds tax loss harvesting (for taxable accounts).

Vanguard and the non-market etf ~ Berkshire Hathaway.

Does anybody know the equivalent to Vanguard but for Europe (not UK)? Or, can I buy Vanguard from Europe?

You can. Some mutual funds are available depending on countries.

But in any case you can just buy the ETFs, either in the US stock exchanges (same as you would buy your FB or AAPL shares), or they also have some UCITS version trading in european stock markets.

The UCITS version may have some advantages depending on your country of residence (since they are EU based, and follow EU mutual fund regulations). There are also some downsides (e.g. you might be losing a bit of US tax that might be recovered otherwise depending on dual taxation treaty). Also US stock would be subjected to potential estate tax in case of death (detail will also depend on dual taxation treaty).

Overall the largest difference between the various options is going to be tax, and since it can be significant, it is worth spending some time.

As to the original question, there are also a lot of other similar ETF to the Vanguard ones (e.g. from BlackRock/iShares/UBS/etc.). The fees will be different, but as mentioned before, the tax implication might make a bigger difference.

(you can research the ETFs on sites like justetf.com)

Edit: and depending on your country, some special retirement account might have much much better tax treatment, compared to simple ETFs, also worth researching.

Thank you very much for your answer.

I'm more inclined to index funds than to ETFs, though. What you have said about ETFs also apply to their index funds?

In case there is a misunderstanding: There are a lot of ETFs that are exactly the same as another mutual fund, especially among index funds.

The only difference is that one is traded in an exchange, while for the other you buy shares from the fund provider, other than that they behave the same.

(I would assume that in Europe, there is a lot less access to mutual index funds, than to index ETFs)

Main portfolio:

70% - VTSAX (total US stocks)

20% - VTIAX (total international stocks)

10% - VBTLX (bonds)

Taxable:

Wealthfront

I buy twinkies and freeze them, just in case they go bankrupt again, laugh now.

RSP Guggenheim S&P 500 Equal Weight ETF

Stocks, XIV, selling covered calls

TheBaseCode.com

Everyone is going to have their own opinion and 2 cents about what you should do, so I'll add mine to the mix.

First of all, most importantly, you'll never find a better investment than yourself, up to a point. Whether it's education, new skillsets, saving time, starting a new business, etc, you're likely the best investment vehicle you have. Don't read this too literally, it's not a science, but I'd add it to your thinking. Ask yourself regularly how you can invest in yourself and grow your earnings.

Second, related to the above, I think it makes sense to spend a bit of time optimizing and automating your finances (I'm a fan of "I Will Teach You to Be Rich" by Ramit Sethi, despite the scammy title), but from then on, spend 20% of your energy on keeping expenses low, and 80% on growing your income. You can only cut expenses so far, but income is essentially unbounded.

Third, I would spend a lot of time educating yourself on finance and investing. As has already been mentioned here, the /r/financialindependence subreddit and the Bogleheads forums are both great places to go from here. Read lots of books (both of those places will have recommendations), blogs, listen to podcasts, etc.

Fourth, in terms of the stock / bond market, I'd recommend just doing index funds with Vanguard. I could go on and on about the reasons, but basically it comes down to it likely being the best way for you to get the highest returns in the public markets. You can't beat the markets in the long run, and almost all the non-index-funds out there can't either. Vanguard popularized index funds, they're owned by their investors, and they have the lowest cost funds available.

Fifth, if you're likely to get overwhelmed by options, just do a lifecycle fund to start with. It'll handle all your asset allocation and rebalancing for whatever your time horizon is. If you're really likely to get bogged down, consider Betterment or Wealthfront. You'll pay a bit more in fees, but in return for convenience and a fancy dashboard that makes you feel good :) Better than never getting started!

Sixth, I'm bullish on real estate in good cities with long-term growth, but I'd recommend you have a decent pile of cash, start slow, and invest for cashflow. Keep in mind that buying investment real estate is just buying a small business. It just so happens that for a bunch of reasons, you can borrow 75% of the purchase at pretty favorable rates, and it's lower risk than buying many other types of businesses. It is not passive :) Biggerpockets.com is a great community for learning more about real estate investment.

Seventh, going back to the first point, beyond public stocks / bond and real estate, you could also look to invest in private companies, either your own, as an angel investor, etc. There are some crowdfunding sites that have popped up recently for doing angel investing in startups, investing in real estate, etc. You can also look at things like Prosper or LendingClub, where you're lending money on a marketplace to other individuals. Lots of options.

My advice would be to focus your energy on the big three that people have almost always used to build significant wealth: public stocks, real estate investments, and your own business. The others are exciting and interesting and can work, but generally carry a lot more risk.

My own (unscientific) approach is to keep them all below 10% of my networth. Same with picking individual stocks, if you're into that.

Hope that's helpful!

1. Maxing my 401K

2. Buying a home

3. Dumping everything else in index funds

Not only do I share the same investment strategy, but my phone is named the same as your HN handle.

Hahaha awesome!

In my hobbies

buy bitcoins

that is all

That is terrible advice.

"Divide your fortune into seven, or even to eight, for you do not know what misfortune may occur on the earth." - Ecclesiastes 11:2

Not worse advice than buying index funds which is strongly correlated to the globally connected over-leveraged bond market.

I'm not against diversification, but cryotocurrencies are a good non-correlating asset class

Bet on your beliefs, you either get wiser or richer.

I personally have

- Precious metals (physical / stored / miners)

- defense values (stocks)

- crypto currencies

- cash

Guess I'm not an optimist

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