Ask HN: How do you find funds to invest in?
How do you find funds to invest in? There are more funds than stocks out there. I have a 5 year investment horizon, and are willing to take on a large risk.
I would pick a fund/funds that matches my risk target/preferences (e.g. equity funds riskier than bonds, small cap riskier than large cap/overall market, foreign riskier than domestic). If I had a very large risk tolerance, I might also allocate a small percentage of your portfolio to single name stocks.
Lastly, I’d just keep in mind the risk you’re taking with your investments. A five year time horizon doesn’t strike me as particularly long or compatible with having a high risk tolerance. Investing in equities can give you high returns over a long time horizon, but their volatility means that you can have large negative returns over a short time period (e.g. the S&P had a max decline from its peak of almost 60% during the 2008-9 financial crisis).
(Standard disclaimer about investing being risky, please do your own research as well.) Good luck!
If you're interested in seeing market cycles and where some of the top investors think it's going, check out this interview: https://www.youtube.com/watch?v=IOLrX_BrQiA
That said, "Fund managers/economists have successfully predicted 9 out of the last 4 crashes!"
If you knew exactly when the crash was going to happen, yes, that's what you should do. It's very hard to predict though, since you have to be accurate multiple times:
(1) When the crash starts (2) How long it's going to last (3) Whether it's inflationary or deflationary
You could for example have a crash in real terms (inflationary), for example, where cash is worse than the market - let's say the market goes up 5%, but inflation runs at 15%: that's actually a drop of 10% in real value, but cash actually drops 15% in real value, so stocks are still "the better loser" in that case.
In a nominal (deflationary) crash, it is better to go to cash, but you still have problems (1) and (2) to deal with that make timing things very difficult. You could, for example have said in April 1998 that "there was going to be a crash in tech soon" - and you'd be right, but only after sitting on your hands through 2 more years of craziness and missing out on 150% more gains before the crash actually came. Most people wouldn't be able to handle that.
* https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-co...
Of course you don't know when the dip is going to come. So you have to pull out some time before (close to) the exact day that things start tanking. And then you have to get in on the exact day of the bottom, because the 'best days' for returns are often soon after the 'worst' days. And if you miss just a handful of the best days, your returns tank:
* https://theirrelevantinvestor.com/2019/02/08/miss-the-worst-...
* https://www.fool.com/investing/2019/04/11/what-happens-when-...
* https://www.cnbc.com/2021/03/24/this-chart-shows-why-investo...
Of course once people are (usually completely) out of the market, they have a hard time jumping back in psychologically, and there's an opportunity cost to sitting on the sidelines:
* https://ofdollarsanddata.com/risking-fast-and-slow/
At the end of the day, even if you only invest at the worst possible moment, you'll still probably do just fine if you stick with things:
* https://awealthofcommonsense.com/2014/02/worlds-worst-market...
While I'm certain a crash will happen, it might be another year, which could have a ton of gains in it, or it could be tomorrow.
the bogleheads love talking about a four-headed fund to better diversify against risk: 50% index, 25% bonds, 12.5% international indices, 12.5% REITs. that's how I have my IRA and 401(k) set up, and it's worked well over the last few years. (My IRA is a little more speculative (some shares in TSLA, some in LCID), but most of the funds are split up this way.
Indexing does not remove systematic risk as another commenter mentioned, but there are things one can do to help deal with timing, such as dollar-cost-averaging.
Vanguard funds are excellent at this. Fidelity are good too.
For Vanguard, Total Stock Market, Total Bond Market, Total International Equity. Those three funds based on a mix catering to your own risk tolerance and circumstances and you’re done.
Or you can go with an investment management company that will charge you 1-2% of assets under management, put you in 15 high fee funds that they rebalance you in monthly to generate not only buy/sell fees but also they mark up the price of your buys and mark down the price of your sells. So many horrible companies out there.
(I agree that the term "risk" often conflates a variety of things, and in this context should primarily mean "risk of losing your investment" rather than "day-to-day volatility".)
My time horizon is longer than 5 years, and I buy broad market index funds split up as follows: 55% US large cap (e.g. VIIIX, VTSAX, SWTSX), 15% US mid cap (e.g. VMCPX), 10% US small cap (e.g. VSCPX), and 20% international (e.g. VTSNX, SWISX, VXUS).
I also highly recommend dollar cost averaging. i.e. buying a fixed amount of your portfolio at fixed periods. I have my bank do this automatically every 2 weeks. The benefit of dollar cost averaging is (1) it takes the emotion out of investing, and (2) over a long time window, more of your assets will be purchased at a low prices than high prices (because you're buying a fixed dollar amount of assets every N days, fewer you will buy fewer assets when prices are high and more assets when prices are low).
15% dividend pre-tax, but we get that back in the form of reduced wage tax.
Note that dividends are also taxed at the company level. So Apple pays USA 15% and then you also get taxed your 15% pre-tax. This doesn't happen when not distributing the dividend.
It sounds like you are looking for something a little more aggressive though. Wisdomtree and State Street offer ETFs tracking a variety of indexes. Keep an eye on expense ratio though. Anything over 0.75% is rather high.
Also, as a side note ETFs can provide tax-advantages over mutual funds when you sell.
The main advantage is the tax benefit while you're holding them (no phantom gains, usually).
Vanguard's most popular mutual funds manage to use a hack to replicate this tax advantage.
https://www.bloomberg.com/graphics/2019-vanguard-mutual-fund...
I was more thinking that you can sell ETFs by tax lots, but generally cannot do that with mutual funds. I suppose it depends on who you bank with though.
If you want something more than index funds - buy stocks yourself. Managed funds seem kind of pointless to me.
In terms of picking equity Vs bond ratio, if you're aggressive go 75% equity. I think (might be wrong) returns actually go down over 75%. For geography just match the world economy.
The Intelligent Investor (By Benjamin Graham) covers the whole thing with sources and statistical backing. I've been following this for 2 decades and made about 7% per annum so I'm happy. It's low stress, low touch, low risk, decent return and compatible with various tax wrappers (pensions etc). What's not to like.
- etfdb, an outstanding repository of information about individual exchange-traded funds. https://etfdb.com/
- morningstar x-ray, a platform for evaluating the balance of an entire portfolio. Good for seeing where your exposure is given different hypotheticals. https://www.tdameritrade.com/education/tools-and-calculators...
- fossilfreefunds.org, an engine for evaluating the carbon exposure for funds. There's a staggering amount of oil/gas/coal currently on the books as value for companies that ultimately will need to stay in the ground. You and me likely aren't running in the circles capable of picking the winners in this carbon bubble, so I generally try to avoid my exposure (I don't want to left holding that bag). https://fossilfreefunds.org/
These two statements would be considered contradictory by common financial standards. 5 year horizon means you need the money in 5 years. However, high risk means that in 5 years (a short amount of time compared to normal equity volatility) there's a sizeable probability that you will have negative returns.
I recommend the questionnaire here as a starting point:
https://retirementplans.vanguard.com/VGApp/pe/PubQuizActivit...
The answer to your question is "it depends". Mainly on your level of involvement in your portfolio and what your goals are in life. Also is your account qualified or non-qualified (taxable vs non-taxable). So there's no one-size-fits-all.
Personally, I am a "set it and forget it" kind of person. You can buy a low-cost target date mutual fund that takes care of all the portfolio management under the hood. If this is in a taxable account - you may have the benefit of tax free portfolio management (Youll have to check if the fund has paid or could pay out capital gains that would be taxable).
Ultimately on a long timescale I wouldn't get distracted by the side shows (highly focused thematic funds). Bet on broad diversification with low management fees and dividend reinvestment and you'll be golden.
Caveat: I dont want to sound overly prescriptive. Again, theres no one-size-fits-all solution.
Once you do that, find equivalent funds across the various companies, and pick the one which has the lowest fees.
For increased risk, put heavy allocation into a single sector. For reduced risk, pick multiple asset classes (e.g. bonds and international). For the most conventional options, look at the composition of target date funds, which balance risk geographically and temporally.
Once you have a picture for what funds you want, use a screener to explore from there. Iterate on the thesis as needed
"What to expect from funds after they gain 100% or more in a year? Trouble, mostly." - Jeff Ptak (Morningstar)
https://www.morningstar.com/articles/1066496/ark-innovation-...
Risk has a time-dimension. If you want to invest in triple leveraged funds, do so on a very short time-scale. ie a few days.
On a longer time-frame, months, years, these funds trend towards zero.
There are a lot of articles and whitepapers on the math behind leveraged funds. I would recommend reading them before investing.
These are not "investments" btw. These are tactical trading tools.
Over the past 10 years, TQQQ is up ~150x and UPRO ~50x.
Same could be said for tech workers. I think a lot of them will have a rude awakening in the next few years when they realize that their great jobs were not because of their own brilliance but because they were lucky to ride a huge bubble.
Note to OP: 5 years is very short. Change it to 20 years.
My four kids would be happy though.
https://www.bogleheads.org/wiki/Three-fund_portfolio
For finding the funds - I look for passively managed funds with low expenses ratios. I use Fidelity and Merrell Lynch as my brokerages and I largely prefer ETFs over index funds.
This seems… short. Can you put more context on why it is five years and not more?
* https://www.kitces.com/blog/managing-portfolio-size-effect-w...
Part of savings is with Vanguard as well. 40% emerging markets VFEM, 35% FTSE developed world VEVE and 25% in global small cap index fund.
My horizon is longer than yours though. 10+ years.
In general though when searching for a fund you want to look for low cost index funds. The lower cost the better.
Disclaimer: not affiliated, but I hold Vanguard index funds.
[0] www.morningstar.com
Index funds are often a better bet on a net basis.