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Comment by grosskur | Hacker News Reader

For me, the most interesting part was: "Back in the day, I would just empty out my bank account after each paycheck and distribute it into my investments of choice: Vanguard's S&P 500 index fund, their small-cap value index fund, a bit went into paying off my mortgage early as well."

While he could have diversified further by including international stocks, this simple investment strategy was surprisingly sound. This is the real takeaway---not his philosophy of extreme frugality. If you follow a low-cost, diversified index investment strategy, you'll likely end up much further ahead than if you put it all in the bank.

And once you get past all the bad advice out there, sound investing is actually quite straightforward:

http://www.longtermreturns.com/2012/03/selecting-investment-...

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If you are not going through a tax free retirement account, I'd advise against mutual funds, since the profit is taxed every year. Instead, I'd recommend using a stock newsletter.

There is a rating service that independently tracks the profits of 180 stock newsletters and has done so since 1980. It's called the Hulbert's Financial Digest. From this you can pick one with a good track record, and then invest directly in stocks.

This allows you to plan your taxes much better (sell the losers for a similar company in the same industry and keep the winners). I'm up over 70% in unrealized, and therefore untaxable, gains this way.

I agree mutual funds are less tax efficient. However, they have an advantage of trading at NAV, which means you don't pay a bid-ask spread when buying or selling.

According to The Bogleheads' Guide to Investing, the January 2001 issue of The Hulbert Financial Digest stated: "Among the 160 or so newsletters the HFD monitors, the market-timing recommendations of only 10 have beaten the stock market over the last decade on a risk-adjusted basis."

So statistically there are very few newsletters with a good track record. And assuming you pick one of the few that beat the market over the past decade, you have no guarantee it will continue to do so. Past performance is not an indicator of future returns.

I'd much sooner use ETFs than individual stocks to achieve tax efficiency. VT holds 4871 stocks worldwide in capitalization-weighted proportions. It would be too unwieldy to get this same diversification by holding individual stocks. And I'd argue that you really do want this much diversification. See The 15-Stock Diversification Myth:

http://www.efficientfrontier.com/ef/900/15st.htm

What you describe with selling the losers and buying similar stocks to replace them is known as tax-loss harvesting and is possible to achieve with ETFs as well. For example, you can hold VTI+VEA+VWO instead of VT, and tax-loss harvest into SCHB+SCHF+IEMG. It may not be as effective as with individual stocks. But I'd argue you it's hard to find a direct substitute for an individual company, so you take on more risk that way, whereas it's easy to find a nearly-perfect substitute for a broad ETF.

Overall, your strategy of holding individual stocks may work out very well for you. I just think you're taking on disproportionately more risk for the amount of gain you hope to get compared to an ETF-based indexing strategy. Also, I'm not sure how long you've held your portfolio, but we've had a strong bull market for the past four years and even VT has gained ~45% in that time:

http://ycharts.com/companies/VT/performance

Thanks, I didn't know ETF's were treated like stocks for tax purposes.

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