Opinions on current investment landscape?

[PhotoJ89]

Hi folks,

A little background info should help with the context of this post. I'm in my late 20's and live in the SF bay area. I don't have a college degree but was extremely lucky to land a job that pays well. I've been there close to 3 years now. First year salary 70k, second year 75k, third year 85k. I still live with my parents. My monthly rent comes out to about $500. Car payment is $210. I rarely eat out/spend much on anything else. I've managed to save $110k in the last 3 years. I will be getting married later this year, and presumably will move out (monthly expenses will go way up).

The thing is, I have no investment plan. I haven't been able to bring myself to put money into index funds. I'd be happy to move 50+% of my NW into index funds after we see a ~50% crash in stocks. My belief is that any gains made between now and the next crash would be wiped out and then some. The very real prospect of being down 30% after 5 years does not sound like fun. I know conventional "wisdom" is to not try to time the markets. Yes... historically this has been a fine strategy, so long as you have a multi-decade horizon. This time it kind of is different, as most of you know, with NIRP/ZIRP, etc. Bottom line, I want to be invested in the general stock market, but the downside risk is scaring me off and things seem too crazy right now.

I've spent countless hours researching real estate as a possible investment. I found a great suburb outside a city with great metrics for buy and hold investing. Prices haven't run up like crazy, best schools in the area. Only problem is it's not convenient to get to. No direct flights from my airport. I was set on going out there to look at properties, but that's kind of been put on the back burner. Just seems like a lot of work and potential headache for a marginal return.

I also continue to spend countless hours researching junior mining stocks. In December 2016 I bought 12 different junior miner stocks (I put $1500 into each company, a mix of gold/zinc/uranium). I'm up roughly 25% on these and have already taken a few chips off the table. I don't plan to hold or trade these things long term, this was "play money" and I do this type of thing when I get bored.

I also buy/sell concert tickets. Last year (my first year) I made 15% profit on 24k invested.

Basically, I have these little speculation/gambling hobbies when I get bored. I realize they're just that and are not long term investment strategies. I don't know what to do with my money. My net worth is at the point where it feels irresponsible to have it sitting in cash. On the other hand, the alternatives aren't exactly calling my name.

-General stock market
-Real estate buy and hold single family home out of state
-CDs

Just wanted to throw this out there. I've looked at several different online communities related to finances/investing, and you folks here seem to be the most grounded in reality. I'd really appreciate any thoughts or opinions. Thanks for reading.

[ThisDinosaur]

I agree its hard to find obvious deals. If you want to preserve your capital until some obvious asset sales happen, the permanent portfolio is popular around here. Similarly, just holding a combination of cash and real assets or gold until you find an investment you like is another approach.

http://oyc.yale.edu/economics/econ-252- ... transcript

Here's an open lecture from Yale from 2011 where the Yale Endowment investment manager, David Swensen, talks about how markets aren't *fundamentally* efficient, but sometimes become efficient temporarily. He says you can measure the efficiency of different markets by comparing the difference in performance of the best and worst performing fund managers.

So, the most efficient market is the bond market and large caps ( the best managers barely make more money than the worst ones.) The least efficient is Real Estate, Leveraged Buyouts, and Venture Capital.

If you're looking for underpriced assets, that's where you'd look.

[IlliniDave]

For the most part the "easy money" opportunities aren't known until after they pay off. Seeking investment returns is a deliberate assumption of risk.

I'd say future returns in the medium-term are likely to be lower than historical returns for US financial markets, a widely held opinion right now. The devil is in the details of the future which unfortunately are unknown.

For my part I'm just riding it out, Invested mostly in US stocks, US Bonds, and some overseas equity. For reasons that aren't related to current conditions/return forecasts, I'm buying mostly bonds and a little bit of EM stocks with my new money.

It's not as easy to jump into a market that's just fallen 50% as thinking about it during a bull market makes it appear.

[Stahlmann]

...
I also buy/sell concert tickets. Last year (my first year) I made 15% profit on 24k invested.
...

In what countries is it legal?
Describe your method

(Sorry for derail. 15% for lumps sums seem quite good for poor student.)

[Dragline]

Have you checked out the sample portfolios at www.portfoliocharts.com and the thread about it? There is something there for almost everyone.

You should not think of this as a binary decision -- i.e., "all in or all out". It would be better to move some portion into various assets over a period of time. But you do need to have a plan in place first.

OTOH, it is actually a reasonable plan to keep most assets in cash and use a small portion for highly speculative trading. This is a type of "barbell portfolio" and is what professional gamblers do. But you have to be really good at it for it to be a sensible choice . . . And the draw-downs can be ugly.

[ThisDinosaur]

This gets glossed over a lot, but it's worth asking what you're investing for. What do you need your savings to do for you? You're getting married and you're interested in real estate, and you know your expenses are about to go up. If you buy a distressed house in cash you can probably get a way better deal than most people. Then your monthly expenses may actually go down. Alternatively, put 20% down on five 110k properties and start a small leveraged RE portfolio.

If you can keep saving 40k a year, sooner or later the market will get cheap again. And you won't be on the sidelines sitting on your hands in the meantime.

[George the original one]

I'd be happy to move 50+% of my NW into index funds after we see a ~50% crash in stocks.

Disabuse yourself of this notion. Even the 2007-08 crash, the biggest one since 1929, was only 35% and it took a year or more to play out. Most people who had cash to play with were too scared to buy.

[Scott 2]

In the last year, I paid off my house, replaced some furniture, and am about to replace the furnace. Some other ailing appliances and possibly the car, are likely replacement candidates.

While I've continued tax advantage indexing in my 401k and Roth IRA, I haven't had the heart to start rolling post tax dollars into this market. I see building up personal possessions that lower long term cost of living, as a decent hedge.

I too am sitting on more cash than I'd like
I simply don't have time to be a "smart" investor and find deals in this environment.

[slowtraveler]

I also live in the Bay. Real estate here seems particularly risky with the leverage and chance of wipe out but if you understand it that's another story. It seems you've done well with your side businesses.

I've done well with indexing most of my wealth-around 13-14% compounded annually due to luck on timing at Brexit and the Emerging Markets slow down scare. Asset allocation (ie-keeping bonds, gold, cash) as a percent of portfolio protects you from crashes. I should've started investing as soon as I had cash 10 years ago but I missed out on huge gains because I always thought the market was overvalued. I was scared to enter, even at the bottom because I never knew how low it'd go. PE at the bottom of the market was actually negative. I didn't start putting money on the line till late 2014-trying to time the market cost me tens of thousands, at least.

I second looking into the permanent portfolio, other conservative allocations, or the Wellesley fund.

My family has tried getting into real estate multiple times in multiple countries and states. They lost money every single time. Their economic engine is their restaurant and they rock at it. But leaving their circle of competence has cost them huge amounts of time, stress, diversion from their real cash generator.

Understanding what you're invested in is the best method of protecting yourself. It'll help you keep course when the going gets rough and know where to put your money vs not. ie-John Bogle took his equity allocation to 25% in the early 2000's when he realized treasury bonds were yielding over 5% and the stock market was yielding near 1%. Even if you hadn't done this, you'd be okay with some asset allocation protecting you.

That said, I don't think the market is grossly overvalued right now, dollar cost averaging (which is what we do when we invest money as we get it) in over 10 years is likely to increase purchasing power over the coming decades. I'm planning to get to dividends in taxable accounts being greater than expenses before pulling the plug.

[Tyler9000]

Hi PhotoJ89. Welcome! Here are my first impressions:

The thing is, I have no investment plan. I haven't been able to bring myself to put money into index funds. I'd be happy to move 50+% of my NW into index funds after we see a ~50% crash in stocks. My belief is that any gains made between now and the next crash would be wiped out and then some. The very real prospect of being down 30% after 5 years does not sound like fun.

Here's the thing -- asset allocation is about a lot more than stocks, and not every portfolio is exposed to a 50% loss. I can name a few that have never been down at all 5 years later. Understanding your risk tolerance is an important first step, and the next step is to explore the many options that meet your financial and emotional needs. As Dragline suggested, I'd recommend starting here: https://portfoliocharts.com/portfolios/

I've spent countless hours researching real estate as a possible investment. ... Just seems like a lot of work and potential headache for a marginal return. ... I also continue to spend countless hours researching junior mining stocks.

You're onto something with thinking about the marginal utility of your time. You've done a wonderful job saving $100k in only three years at your age, and your salary growth is impressive. Think of it this way -- your earnings and savings are totally dwarfing even the best theoretical portfolio returns right now. Rather than spending so much energy trying to squeeze every last dime out of your investments, I'd recommend picking a simple "good enough" strategy and focusing your efforts on your career and new financial partnership. That's where the greatest gains are to be found right now.

[ThisDinosaur]

http://www.schwab.com/public/schwab/nn/ ... iming-Work

Relevant article. Sitting on cash worked out worse than only investing at stock market peaks even during the last two consecutive crises. And perfect market timing had a miniscule positive effect after 20yrs.
If you're concerned (as I am) that assets are overvalued, then you can either pick investments that seem *relatively* undervalued or you can pick a diversified asset allocation and stick to it (as Tyler suggested.)

[PhotoJ89]

[quote="Stahlmann

Sorry, my memory was way off. I pulled up my spreadsheet and to my surprise I actually made 28% profit on 14k invested. Keep in mind this was not a single transaction. This was roughly 100 sales throughout the course of a year. Method: identify concerts where demand has a good chance to outpace supply. Buy on ticketmaster, sell on stubhub. Stubhub fees are a pain but the ease of transaction and large audience well worth it IMO. Most profitable events were up and coming artists playing at smaller venues. Know the best seats in the house and try to get those tickets. There are two venues (~500 capacity in SF and ~2,000 capacity in Oakland that I bought the most). Bought a few shows in different markets, but mostly stayed local. I have a good friend who has his thumb on the pulse of "what's popular", he gave tips for a few big winners. 23/100 transactions were negative. The vast majority of these events did not sell out instantly, so if you were a real fan, you had every chance to pay attention and buy them at retail when they were released... that's my justification anyway.

[PhotoJ89]

@Dragline

Months back I had a look at the site and found it very helpful. I plan to take a closer look this weekend. Thanks!

[PhotoJ89]

[quote="George the original one

I put 10k into junior gold miner stocks in December, which were 65% off their August highs at the time. Everyone was calling for gold to retest it's 2015 low or even go below $1,000. Sentiment was overwhelmingly negative on every front. Also put money into Uranium miners at the depths of the most brutal bear market in the history of the sector.

[PhotoJ89]

Hi Tyler, thanks for the recommendation. I will take another look for sure. Seems like there is something to suit all sorts of different needs there.

I think you hit the nail on the head on the second point. Well said.

[PhotoJ89]

[quote="ThisDinosaur

Thanks for the link. I've read a few similar things before. The problem (in my opinion) is they're all looking in the rear view mirror. The underlying assumption is the future will at least somewhat resemble the past. I think that's a pretty bold claim to make at this point in history. I'm basically on the verge of being a prepper. I think there's a very real possibility that the next one will be "the greatest depression" and we won't reach these levels again for decades, if ever. Technological unemployment is going to accelerate rapidly in the coming years and broadly speaking there's no new industry to absorb displaced workers. Debt/money printing issues aside, this will be the final nail in the coffin of the modern world economy. Unless we have worldwide debt jubilee and adopt some sort of universal basic income, it's only a matter of time before the system eats itself alive in this fashion. I hope I'm dead wrong.

[PhotoJ89]

Thanks to everyone for the responses. I appreciate the input from everyone.

[steveo73]

The problem (in my opinion) is they're all looking in the rear view mirror. The underlying assumption is the future will at least somewhat resemble the past. I think that's a pretty bold claim to make at this point in history. I'm basically on the verge of being a prepper. I think there's a very real possibility that the next one will be "the greatest depression" and we won't reach these levels again for decades, if ever. Technological unemployment is going to accelerate rapidly in the coming years and broadly speaking there's no new industry to absorb displaced workers. Debt/money printing issues aside, this will be the final nail in the coffin of the modern world economy. Unless we have worldwide debt jubilee and adopt some sort of universal basic income, it's only a matter of time before the system eats itself alive in this fashion. I hope I'm dead wrong.

Geez - we are all fucked then aren't we.

Personally I think that you are dead wrong. We are living in an age of spending beyond your means as the default approach to life. I think it'd be pretty hard to stop people spending and therefore we will continue to make money. The markets will go through the sky.

[PhotoJ89]

A huge percentage of service sector jobs could be automated, right now. There will come a point when the cost savings/gains in productive output of doing so will be so obvious, compared to having a human employee, employers basically won't have a choice. When this same scenario unfolded in the agriculture and manufacturing sectors, the displaced workers were by and large absorbed by the service sector. There is no new sector to absorb the hordes of current service sector workers who are about to be displaced by robots/automation.

We're not necessarily fucked. We could recognize the trend and say, "hey, look, we have the ability to produce an abundance of the necessities of life, without that much human labor involved. The idea of labor for income for survival isn't really working anymore. Let's rethink this." and go down that road, or we could continue on the "consolidation of wealth into the hands of very few" road we're currently going down.

Ah, yes, the whole world living/spending beyond its means ad infinitum... that's sustainable and going to end well...

[slowtraveler]

"A huge percentage of service sector jobs could be automated, right now. There will come a point when the cost savings/gains in productive output of doing so will be so obvious, compared to having a human employee, employers basically won't have a choice."

Sounds like higher profit margins for the companies we own, lower expenses, more consistency. People have to acquire goods for surviving in one way or another, there will still be some form of value to produce/consume and businesses will likely have some part of creating this value. If not, and we reach a post-capitalist, eco-technological economy, I'll be happy as well. Sounds like a win-win in the long run either way.