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Comment by oldspiceman | Hacker News Reader

tldr If you're suddenly rich, pay $10 and buy $1 Million of Vanguard Total Stock Market Index. Giving your money to anybody else over the last 10 years would have yielded same or worse performance at a higher cost.

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You may need to pay that $10 if you are investing through some other brokerage account. However, do yourself a favor, open an account with Vanguard directly and you can make that purchase without any fees.

Additionally, I'd recommend se percentage be invested in the Vanguard total bond market fund as well. Holding se percentage there will reduce overall portfolio volatility, and can actually increase returns slightly.

Asset diversification is more complicated than that. To a first order, yes stocks and bonds are inversely correlated. But it is not enough to hold just stocks and bonds.

In order to maximize return over your preferred time frame (while minimizing risk), you have to examine the whole universe of investable assets, examine their volatility as well as correlations amongst themselves.

From there, your goal is to assemble an ideal basket of assets maximizes your return for your personal level of risk. Running these filters and choosing when to rerun/rebalance is the basis of modern portfolio theory.

Managing your money using MPT is the service that many investment houses sell. Rolling your own is absolutely possible, but it is not as simple as stocks vs bonds.

Stocks and bonds being inversely correlated is an old rule that hasn't held as true since the 2008 crisis. Stocks, most bonds, and most other asset classes have been moving up and down together although with different degrees of volatility. Long term US treasuries are a standout as one of the only investments that has a clear inverse correlation to the general pattern.

Having run a lot of simulations in determining my own portfolio I came to the conclusion that these things affected my returns, in decreasing order:

1. annual maintenance costs 2. tax effects 3. choice of index 4. diversifying beyond stocks/bonds

I imagine most people who aren't using a passive strategy can chop 1 - 1.5% off their costs just by switching to indexes, and the remaining optimizations will pale in comparison. But as the size of the portfolio increases the additional effort becomes worthwhile.

It's possible that over the long term the market will decouple again but keep in mind that most investment advice about "universal truths" about the "long term" are based on a little over 100 years of market data. Given that I started investing at age 20 and will hopefully live to old age, that's not a lot of training data in comparison to the amount of prediction it's generating.

True, but for most people without 25M (ie most of us), is the arginal improvement in return on a 500k investment worth the extra complexity over a straight stock/bond mix?

Unrelatedly, what are you thoughts on the permanent portfolio (if you've heard of it).

Not sure if this was directed at jhulla (and actually I was about to ask it to svachalek).

25% in physical PMs is hard to justify but generally speaking I think Browne's Permanent Portfolio is a good base. Perhaps 20% each of domestic equities, international equities, PMs, cash and long term bonds would be more realistic, with rebalance bands at 17/23.

To get the diversification benefit from holding the bond fund, you'd need to rebalance (every few months to every few years).

If you are lazy you can just put your money into one of the 10+ Vanguard Target Retirement funds [1] which are just varying mixes of their stock/bond funds + automatic rebalancing. It goes from 90%/10% stock/bond mix (VTTSX) at the high end to 30%/70% at the low end (VTINX).

1: https://investor.vanguard.com/mutual-funds/target-retirement...

If you are investing new money every month and attempting to maintain the same allocation over time, you are in a sense automatically rebalancing. Of course, this assumes your total investment over a given time period is roughly in line with the relative delta in performance.

You can only open an account with Vanguard directly if you are in the US.

Why Vanguard Total Stock Market? Why not SPDR S&P 500 ETF? Why not include international stocks, or bonds, or real estate? Choice of index is a hugely important decision, and can't be waved away so easily...

If want to invest $1M you can get managed tax loss harvesting that will pay for itself. Also you should probably have more asset classes than just US equities. Having said that, you could do a lot worse.

You need to buy at least two funds to harvest those tax losses.

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