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Comment by Ididntdothis | Hacker News Reader

“Now consider if you invest that money over 30 years in some low to medium risk areas and average 10 - 15% per year”

How do you do that?

> How do you do that?

For the last decade, 10-15% average annual return would have required keeping 70-90% of the funds invested in Nasdaq-100[1].

Also, Vanguard 500 Index Fund (VFIAX) currently has a 10-year average of 13.52%[2].

The general advice is not to keep more than (110 - your_age)% of your retirement portfolio in these high risk / high rewards funds.

Therefore, it's entirely possible to receive 10-15% annual returns until you turn 40, but as the period of time until retirement shorters, it becomes too risky.

In other words, what is a "medium-risk" at 35, can be a "high-risk" at 55, because one might not have enough time to recover from an economic crisis at an older age.

[1] https://www.nasdaq.com/articles/when-performance-matters%3A-...

[2] https://investor.vanguard.com/mutual-funds/profile/overview/...

Small caveat - Looking at 10 yr average right now is not a good measurement for future returns. 10 years ago stocks were just coming out of a recession. Right now they are at all time highs.

That's a good point, but Nasdaq-100 had an average annual return of 13% even when counting from December 31, 2007 – which is before the beginning of the last recession.

You can’t take the absolute low point as your starting point and call it low risk.

The absolute low point was in 2008, when Nasdaq-100 went down by -40.54%.

The last 15 years:

2019 35.23% 2018 -3.88% 2017 28.24% 2016 7.50% 2015 5.73% 2014 13.40% 2013 38.32% 2012 15.91% 2011 -1.80% 2010 16.91% 2009 43.89% 2008 -40.54% 2007 9.81% 2006 9.52% 2005 1.37% 2004 8.59%

At no point I called it low risk. It's high risk / high return. The risk of high financial exposure to such funds can only be taken until 40, because one needs to be able to not sell during the entire economic downturn.

> At no point I called it low risk.

The person who originally mentioned those percentages and started this comment thread (and since edited it down) said low/medium risk.

Most index-fund based retirement investment packages focus on 80/20, 60/40, and 40/60 stock-to-bond split, depending on your current age.

Nasdaq-100 or SP-500 can be a part of a medium-risk investment portfolio as long as the exposure to them is adjusted based on the period of time left until retirement.

It's a medium-risk strategy to keep up to 80% of your retirement portfolio invested in Nasdaq-100 or SP-500 in your 20s, up to 60% in your 40s, and up to 40% in your 60s. As long as the rest of the portfolio is invested in low-risk government bonds.

Agreed. You can’t assume that the current upswing will go on forever. People learned this in 2000 and 2008.

Nasdaq-100 dropped by -41.89% in 2008, and then went up by +53.54% in 2009. That's it. The only other negative performance since 2002 was in 2018 (-1.04%). If you are a kind of investor who starts selling off in the middle of an economic downturn, of course you will lose.

How about 2000?

The 2000-2002 were an anomaly in the entire 35 years history of Nasdaq-100:

https://en.wikipedia.org/wiki/NASDAQ-100#Annual_Returns

Wow. On the way up and down. What a time.

Just worth noting: 3/5 * 3/2 = 9/10. i.e., dropping 40% then going up 50% doesn't get you back up to 100%. Not saying you implied that it does. Just making this fact explicit.

Please do remember that a 10 year average today, is 10 years from the financial crisis. That is not a very objective measure of future success.

Additionally, the trick is to diversify away the idiosyncratic risk so that all that is left is systematic risk (risk common to all stocks that is unavoidable). One does this by picking stocks that are oppositely correlated so that volatility (aka risk which is measured through variance/ st. dev) is canceled out. The more stocks added to a portfolio, the more the idiosyncratic risk is diversified away; this is called holding the market portfolio. You can learn more my looking up the Capital Asset Pricing Model. Here are additional resources: https://drive.google.com/drive/folders/1l9TfhvUjCasEMPgWzJtn...

I agree that 10-15% is a little optimistic, but even with a more realistic 4-7% you'd still have $300,000-500,000 at the end of 30 years, which is nothing to sneeze at.

I just get annoyed when people throw around unrealistic numbers recklessly. Between 4-7 and 10-15 percent there is a huge difference.

There is already enough bullshit and delusion going around in investing advice so let’s not add to it.

This source has average historical S&P 500 returns, including dividends, at over 12%:

https://www.slickcharts.com/sp500/returns

vanguard funds, but the good ones I have know of require a $500k initial investment.

Why is the initial investment so high? Is there a reasoning behind it?

He's talking about a specific class of funds that are sold generally to institutions. Think buying funds in "wholesale"; they have low fees, high minimums. Those same funds can be bought "retail" though, with normal fees and typical minimums ($3k-$10k).

which funds require this?

He's talking about the "Admiral" class of funds which have lower fees but higher minimums. (And most are $50k min, not 500k). Most of these funds can be bought at lower minimums too, they just have higher fees.

I'm invested in Vanguard 500 Index Fund Admiral Shares, and the minimum investment is $3000, with fees of 0.04%. Those are pretty low minimums, and seem to me to be exceptionally low fees, and the average annual return is 13.94% over the last 10 years (before taxes).

I think OP is referring to the "Institutional" class of funds. They have much higher minimums because their target market is pension funds and large 401(k) plans that invest using pooled accounts.

Most Vanguard funds, even the Admiral ones, only require $3,000 USD minimum these days. The expense ratio is often 0.15% or less. Index funds are as low as 0.04%.

https://investor.vanguard.com/mutual-funds/share-classes

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