Newbie question:- Where do I put my $s?

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tihornn
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Newbie question:- Where do I put my $s?

Post by tihornn »

A little about me:-
I work in IT and mostly invested all my pre-tax $ via 401K and HSA. I am risk averse and almost exclusively do index funds.

My questions is:-
I sold some property and ended up with around $300K in my bank account. I am looking for pointers on how to invest this money given the current situation in USA.
Are there alternatives to indexing that I should explore? For indexing, should I follow a dollar cost averaging strategy by investing a fixed amoutn of $$ over next several months?

Scott 2
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Re: Newbie question:- Where do I put my $s?

Post by Scott 2 »

Do you already have a general asset allocation strategy? I like this site for starting to think about it:

https://portfoliocharts.com/

tihornn
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Re: Newbie question:- Where do I put my $s?

Post by tihornn »

Thanks for sharing the link Scott; I shall look into it.
Overall I have no specific strategy as such. I was thinking of 3 fund Bogleheads portfolio of index funds for starters

Flurry
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Re: Newbie question:- Where do I put my $s?

Post by Flurry »

With the current CAPE ratio I wouldn't rush, no need for FOMO. Take your time, read some books and find a strategy you are really comfortable with.
(For some reason US investors invest tend to invest almost all of their money in US stocks/bonds and because I don't know why that is, it's hard for me to suggest something other than that :) )

Hristo Botev
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Re: Newbie question:- Where do I put my $s?

Post by Hristo Botev »

Flurry wrote:
Wed Nov 18, 2020 6:35 am
(For some reason US investors invest tend to invest almost all of their money in US stocks/bonds and because I don't know why that is, it's hard for me to suggest something other than that :) )
Because that's what Warren Buffett tells us to do (https://www.fool.com/investing/2019/09/ ... y-why.aspx); and surely he wouldn't have ulterior motives in pushing that advice.

tihornn
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Re: Newbie question:- Where do I put my $s?

Post by tihornn »

On a related note:-
How do folks here feel about index funds? I read information about possibility of a bubble vs. advice from stalwarts like Malkiel, Ellis , Bogle etc. to the contrary.

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Lemur
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Re: Newbie question:- Where do I put my $s?

Post by Lemur »

Indexing is fine but expect average returns. I feel one could just simply do better (with discipline cannot have high turnover and bounce in and out too much) by having a concentrated portfolio of 8-12 stocks...diversified by sectors...and tilt the portfolio heavier towards the stocks you're feeling particularly bullish about.

Least that is what I'm doing + messing around with options. The rest (meaning knowledge further gained by studying finance, economics, the federal reserve, all that jazz) really is just noise on a long enough time horizon...but useful for birds eye view perspectives.

nomadscientist
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Re: Newbie question:- Where do I put my $s?

Post by nomadscientist »

Two good arguments for US-only investing are:

1. US-only index funds are usually the cheapest (lowest expense ratios) because the US market is the largest and most liquid

2. it simplifies and possibly reduces tax liability for US-based investors (this may not be visible to you as taxes are also handled inside the fund)

given that the US is a large proportion of the developed world market capitalisation anyway (currently ~60%).

The good counterargument is that however large and diversified the US economy may be (approximately the same as the entire world) it's still a single point of geopolitical failure. Some people think geopolitical failure of the USA is very improbable, or at least predictable while values remain high.

Scott 2
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Re: Newbie question:- Where do I put my $s?

Post by Scott 2 »

Also think about - do you have a time horizon for your draw down phase. What might that phase look like? Are you going to be managing income (ie roth conversions or realizing capital gains) to qualify for health insurance subsidies? Or will you be holding income low to qualify for expanded Medicaid?

All of this will impact your risk tolerance, as well as holdings by account. You may want highly volatile assets in your pre-tax accounts, or dividend producing assets in your post tax accounts, etc.

I'm about 25% cash myself right now. Since the crash in March, I have been dollar cost averaging towards my desired asset allocation. I've kept this up despite current valuations, because it works for me mentally. I don't need to be as rich as possible. I just need enough confidence in my returns to be financially secure.

jacob
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Re: Newbie question:- Where do I put my $s?

Post by jacob »

As always, I suggest spending a few hundred hours becoming well-informed given the intention to making a living making money on money. After all, way more time was spent training to make money on labor. If not, following the herd is probably your best shot. However, definitely check in every few years just to make sure that the herd is still going where you think it is.

http://earlyretirementextreme.com/start ... sting.html --- first book for the short course is Bodie. Otherwise see comments.

Lucky C
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Re: Newbie question:- Where do I put my $s?

Post by Lucky C »

Some smart people argue that as passive indexing gets more popular it shouldn't be seen as a stable way to get average returns. Big passive fund flows can create feedback loops that can boost the momentum in the market - which can go both ways - potentially bigger melt-ups and bigger crashes than in past decades. When the majority of investors are holding the same basket of stocks that have to buy and sell based on the same rules (market-cap weighted funds), then when funds are flowing in there aren't enough sellers and the price goes up "too fast"... in a crash, funds can be forced to sell based on their rules rather than ride it out or otherwise make human decisions, and there are not enough buyers even if the stocks are crashing below reasonable prices.

One claim/prediction I've seen is that basically passive indexers can expect to do well when there are a low but rising percent of passive indexers - like what we've seen in the past few decades. You get the benefit of increased passive fund flows boosting momentum in your favor in most cases - the big keep getting bigger. However after a certain percent of passive investors, which we may be reaching or exceeding now, markets could get too volatile since there aren't enough active investors helping to keep prices in check. Even if average returns are positive, the volatility could kill you in retirement or at least make it psychologically challenging. Furthermore, if the trend ever reverses with active becoming more popular relative to passive in the future, staying passive could hurt you with negative fund flows / momentum working against you.

Those ideas seem reasonable to me, but also predictions and models can also be very wrong. Seems like something to keep an eye on, and a reason to not be 100% passive/indexing when that's by far the most popular strategy around.

Lucky C
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Re: Newbie question:- Where do I put my $s?

Post by Lucky C »

On the other hand, for almost any asset or strategy you can find "smart people" making arguments along the lines of "sure this has worked fine in the past, but it's going to fail spectacularly because of X, Y, Z." Sometimes this turns out not to be the case. Or what they predict may take much too long to unfold to worry about in your career/lifetime. So what would make sense to me is to study and monitor the potential problems with passive/index investing, but not necessarily make any bold decisions yet. If passive investing is causing too much volatility or fund flows start causing headwinds for passive, there will probably be plenty of time to observe the evidence and adapt. Though some may say the performance of the stock market just from this year is plenty of evidence that the markets are broken.

tihornn
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Re: Newbie question:- Where do I put my $s?

Post by tihornn »

Thank you for your responses here folks. They were very helpful

Flurry
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Re: Newbie question:- Where do I put my $s?

Post by Flurry »

nomadscientist wrote:
Wed Nov 18, 2020 2:14 pm
Two good arguments for US-only investing are:

1. US-only index funds are usually the cheapest (lowest expense ratios) because the US market is the largest and most liquid

2. it simplifies and possibly reduces tax liability for US-based investors (this may not be visible to you as taxes are also handled inside the fund)

given that the US is a large proportion of the developed world market capitalisation anyway (currently ~60%).

The good counterargument is that however large and diversified the US economy may be (approximately the same as the entire world) it's still a single point of geopolitical failure. Some people think geopolitical failure of the USA is very improbable, or at least predictable while values remain high.
Yeah, I fully understand that there are reasons to do that. It's just that most mainstream investing science in Europe is heavily influenced by Markowitz' portfolio theory and they idea of maximum usage of different asset classes / currencies / regions / ... and a "home bias" is frowned upon.
Japan's history might be a good example why weighting all assets by market cap without further diversification rules might not be the best idea.

But well, in the past a focussed US-Investment was the best thing you could do. In the future? I don't know. I overweight China in my portfolio because I think China has the potential to become the global superpower in every aspect. I underweight Europe because 1. I live in Europe and for example my salary is already influenced by Europe's economic development and 2. I don't really trust the EU. But on the other hand valuations for European stocks are much lower than for comparable US stocks.

What about precious metals, commodities, real estate, bonds? Are they worth it to be included in the portfolio? I don't know.

Many things are probably much easier with the "mainstream" US method of 2 index funds, one for US government bonds, one for US large caps, I have to admit.

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