Actually getting started investing (and some analysis paralysis)

Ask your investment, budget, and other money related questions here
FrugalPatat
Posts: 35
Joined: Sun Dec 03, 2017 6:22 am
Location: Belgium (Europe)

Actually getting started investing (and some analysis paralysis)

Post by FrugalPatat » Sun Apr 29, 2018 2:51 pm

Situation:
I am 30, she is 27
-very recently paid back most of my mortage
-our savings cover about 2 years of expenses (when no significant financial surprises occur), but they are being eaten by inflation
-we save about 80% of our income (also when there are no significant financial surprises)
-we both use the tax-advantaged pension fund
-I read a bunch of books on investing; and some forums/blogs. I think I read enough in order not to do anything obviously stupid. However I feel like I could keep reading forever before actually starting to invest. But at the same time it doesn't feel like reading more will result in better investing.

Like most here I will probably go the index-way but I can’t get past these elementary doubts:

1) I live in Europe and most people are not directly involved with investing at all, so going for 80% equities (or even 50%) feels nuts to a conservative European like me (or for another example: nobody in their right mind in my environment would invest heavily into equity when they still have a mortage to pay, regardless of how low the interest rate is). Are you not all terrified about bear markets at the wrong time or japan-scenarios? Why don’t more people invest with the primary purpose of protecting their money from inflation?

2) Why are most people heavily investing in the US (and Europe)? Our continents contain only a fraction of the global population. And with the increasing standards of living in other countries, shouldn’t one diversify a lot more in ‘emerging economies’?

3) The stock market has been going up since the 2008 crash. I look at the charts and read a few too many zerohedge articles and can’t help but ‘markettime’ and postpone any investing in equities until there is a new crash. How do you deal with this? It doesn't feel rational to completely ignore the news.

wolf
Posts: 683
Joined: Fri Jan 06, 2017 5:09 pm
Location: Germany

Re: Actually getting started investing (and some analysis paralysis)

Post by wolf » Sun Apr 29, 2018 3:05 pm

regarding 2: my equity allocation therefore is 50% developed markets and 50% emerging markets.

slowtraveler
Posts: 672
Joined: Sun Jan 11, 2015 10:06 pm

Re: Actually getting started investing (and some analysis paralysis)

Post by slowtraveler » Sun Apr 29, 2018 3:08 pm

1) Do what feels right for you. Mostly equities is not the only way to invest.
Count your pension as a fixed income investment replacing X cash flow.
Buying and having a negative in the return rate sucks. Badly. Especially when what you just shifted out of is now outperforming what you changed to.
Inflation? Look into TIPS, I Bonds, permanent portfolio.
Here's a few portfolios: https://portfoliocharts.com/portfolios/
Equity is ownership in a company, you're buying something tangible, so when prices go down, reinvested dividends drag down your cost basis.

2) That's where most of the market weighted, float-adjusted capital is. There's no reason to ignore those sections of the world. Even a boglehead portfolio covers it.

3) I had the same feeling up till 3 years ago. Happy I invested. Was stressing since before 2008 to invest and never did since I thought the crash would keep getting deeper. But saving is more important than when saving 75%+ until your principle starts approaching 10-20x annual expenses and investment returns can matter more then.

Using a more conservative portfolio if you're scared.

You could look into a quality balanced fund like Wellesley, Wellington, Dodge and Cox, etc.

You could also invest in real estate.

Start by opening a brokerage and put a few grand in there to start learning. It'll pay much more later.

Seppia
Posts: 637
Joined: Tue Aug 30, 2016 9:34 am
Location: Italy

Re: Actually getting started investing (and some analysis paralysis)

Post by Seppia » Sun Apr 29, 2018 5:27 pm

There are many asset classes that you can invest into
1- yourself
2- stock market
3- bond market
4- real estate
Etc

I feel like, up to a certain point, the best investment is always in #1
If you are in Europe and only consider the duality stocks/bonds, I would say stocks are the only logical choice.
Euro bonds have negative rates, or zero rates for 10 years.
That is a guaranteed shitty investment.
If you are afraid, just go slowly, step by step and keep lots of cash on hand

IlliniDave
Posts: 2203
Joined: Wed Apr 02, 2014 7:46 pm

Re: Actually getting started investing (and some analysis paralysis)

Post by IlliniDave » Sun Apr 29, 2018 6:09 pm

1)Regarding equities, only invest in stocks to the extent you are comfortable. You could start at some modest level, maybe 20%, and see how it goes. Increase or decrease in the future depending on what seems right to you. In the meantime continue reading. I have been through multiple bear markets. They are no fun but I've not found them something to be terrified of. Most investors want to grow their wealth (or generate income from it) rather than just preserve it in the face of inflation. So many people invest in ways where getting returns that are higher than inflation are a reasonable expectation. In other words they want to protect against inflation and more.

2) People invest more in developed markets (US, Europe, Canada, Australia, parts of Asia) because the markets/economies are more developed. Undeveloped markets tend to be more volatile/risky, but they have the potential for higher rewards. I think it is a good idea to diversify across the globe, but I don't think there anything inherently bad about sticking to developed markets.

3) Is a difficult one. I'd say start slowly (small amounts) and have modest expectations. Even if you hit a crash right away, if you can ride it out, you'll still have very good odds of being up in the long run. If you look for them you can always find reasons not to invest.

If possible, and if you are convinced you want to, try to set up a very small automatic investment every week or month in some sort of mutual fund, then do your best not to pay attention to it more than once a quarter. Since the investment is small, it going up or down isn't going to materially effect you, so hopefully won't cause you stress. See what it does for a year or two or three and then decide if you want to continue, and how. You can continue buying shares in funds or picking your own stocks if you really want to get hands on. Or you may decide investing in stocks isn't right for you.

Dream of Freedom
Posts: 218
Joined: Wed Aug 29, 2012 5:58 pm
Location: Nebraska, US

Re: Actually getting started investing (and some analysis paralysis)

Post by Dream of Freedom » Sun Apr 29, 2018 7:55 pm

2 a. It Is more about how large the economy is than population.
b. Most large companies in the U.S. and Europe sell all around the world
c. Emerging markets often have structural problems with how companies are dealt with in their societies. For example many Chinese stocks are
owned 50% or more by the Chinese government with little protection for us minority shareholders.

3 "I look at the charts and read a few too many zerohedge articles and can’t help but ‘markettime’ and postpone any investing in equities until there is a new crash. How do you deal with this?"
a. The trend is your friend. The long term trend is bullish. So I'm bullish. If the trend changes I change my mind.
b. I am overweight secular growth companies like utilities and healthcare companies to help protect against downside risk.

DutchGirl
Posts: 1162
Joined: Tue Sep 06, 2011 1:49 pm
Location: The Netherlands

Re: Actually getting started investing (and some analysis paralysis)

Post by DutchGirl » Mon Apr 30, 2018 1:55 am

Looking at your total assets, I'd say you're not going to do 100% stocks anyway. Because in the mix you also have a paid-off house (what does it cost? 150k euros? More?), 2 years of savings (20,000 or 30,000 euros in a savings account?), and a pension fund (here you are probably already investing in stocks and bonds). So from the 80% of your salary that you're saving, I would put at least half of that in stocks. And it will still be only a very small percentage (at least for the time being) compared to your investments in real estate and in cash.

And yes, it's true, the stock market will crash at some point in the future. But it's impossible to predict, when. And in the long run, the trend is up. So start now, and try to accept that you sometimes will see the value of your stocks go down.

It could also be good to remember that perfect is the enemy of good. Yes, you can indeed try to find the perfect investment, but you can also go for a (very) good one and actually start investing.

FrugalPatat
Posts: 35
Joined: Sun Dec 03, 2017 6:22 am
Location: Belgium (Europe)

Re: Actually getting started investing (and some analysis paralysis)

Post by FrugalPatat » Mon Apr 30, 2018 1:58 am

Seppia wrote:
Sun Apr 29, 2018 5:27 pm
If you are afraid, just go slowly, step by step and keep lots of cash on hand
IlliniDave wrote:
Sun Apr 29, 2018 6:09 pm
1)Regarding equities, only invest in stocks to the extent you are comfortable. You could start at some modest level, maybe 20%, and see how it goes. Increase or decrease in the future depending on what seems right to you. In the meantime continue reading.
I have thought about this, but I don't see how my feelings are relevant. I can easily see myself starting out slow, get to feel familiar with having an account with a broker etc. After a while everything would be going fine (the market keeps going up), then I start to feel more at ease and put some more money etc ....

But it seems to me this is just gaming my feelings. It's not because the situation feels more familiar that it is less risky. But then one could also argue that my current feelings are wrong and that I am too afraid.

FrugalPatat
Posts: 35
Joined: Sun Dec 03, 2017 6:22 am
Location: Belgium (Europe)

Re: Actually getting started investing (and some analysis paralysis)

Post by FrugalPatat » Mon Apr 30, 2018 2:24 am

DutchGirl wrote:
Mon Apr 30, 2018 1:55 am
in the mix you also have a paid-off house (what does it cost? 150k euros? More?), 2 years of savings (20,000 or 30,000 euros in a savings account?), and a pension fund (here you are probably already investing in stocks and bonds).
I ignore the house (appartment) which I paid about 220k because I don't see it as in investment. Should I?

Seppia
Posts: 637
Joined: Tue Aug 30, 2016 9:34 am
Location: Italy

Re: Actually getting started investing (and some analysis paralysis)

Post by Seppia » Mon Apr 30, 2018 2:32 am

FrugalPatat wrote:
Mon Apr 30, 2018 1:58 am
But it seems to me this is just gaming my feelings. It's not because the situation feels more familiar that it is less risky.
Experience will not change the risk level, but it will change the way you cope with it.
A 15% drop felt huge when I was a “young” investor, while now I do not blink when I see something down that much (actually, I tend to get excited).

As with scuba diving, panic is the number one cause of fatal mistakes in the market: a more experienced investor doesn’t panic as easily as an inexperienced one

IlliniDave
Posts: 2203
Joined: Wed Apr 02, 2014 7:46 pm

Re: Actually getting started investing (and some analysis paralysis)

Post by IlliniDave » Mon Apr 30, 2018 3:20 am

FrugalPatat wrote:
Mon Apr 30, 2018 1:58 am
I have thought about this, but I don't see how my feelings are relevant. I can easily see myself starting out slow, get to feel familiar with having an account with a broker etc. After a while everything would be going fine (the market keeps going up), then I start to feel more at ease and put some more money etc ....

But it seems to me this is just gaming my feelings. It's not because the situation feels more familiar that it is less risky. But then one could also argue that my current feelings are wrong and that I am too afraid.
It is more about testing/learning your emotional temperament than it is about gaming it. Your emotions and the risk will both always be part of the equation. Learning to balance the two (i.e., limiting the amount of risk you take to what you can emotionally handle) is an important part of investing. Some would say it is the most important part. We're all different in that regard and I don't know of a way to discover the balance point short of getting in and testing the water. The safer way to do it is wade in a little ways where the water is shallow. If your fear is so great you recoil from doing even that, then investing in stocks is probably not a good strategy for you.

oldbeyond
Posts: 171
Joined: Thu Nov 29, 2012 10:43 pm

Re: Actually getting started investing (and some analysis paralysis)

Post by oldbeyond » Mon Apr 30, 2018 7:39 am

I guess it is always a bit scary to enter the market for the first time. You might be in a bull market, and be concerned that recent advances are not sustainable, or a bear market and see no light at the end of the tunnel, or just coming out of a bear market and fearing that the green shoots are false signals and that doom will return. Either you find some sort of system to guide you when to be in or out(be it valuations, momentum, macro data, astrology etc) or you choose your exposure and stay the course. Right now I'd agree that valuations are high, but you have to be confident in your timing if you want to adjust your exposure with valuation, a lot of smart people have been warning of the imminent crash for years now.

If you have wealth and choose to hold on to it, you have to invest in something. Even cash is an investment, with its own risks and returns. Of course it helps to know your goals, if you're only aiming to maintain your purchasing power, you might be able to hold a lot of cash with a bit of other assets sprinkled in, but it will not be possible to retire early on a pile of assets with a real return of zero. Investing before paying off your mortgage does increase risk, but nothing is stopping you from paying it off before buying any other assets.

Augustus
Posts: 520
Joined: Sat Apr 02, 2016 10:15 am

Re: Actually getting started investing (and some analysis paralysis)

Post by Augustus » Mon Apr 30, 2018 9:47 am

Did you get a good deal on the apartment? Why not pay it off? I try to figure about a 5% ROI on real estate. If you paid it off, would the return you get out of it be about 5% from imputed rent savings or possible future rents if you moved? If so, seems like a good spot to park the money while you wait for the equities markets to cool off. Factor in maintenance and stuff like that too. I don't know anything about European real estate, but work it out by the numbers, how much cash you put in, how much profit/rent savings you'd get out of it. If that's 5% ROI or above, seems like an investment to me... Make sure there aren't any regulations that would prevent you from renting it out either, if there were some reason you couldn't make 5% ROI by renting it out if you moved, then I probably wouldn't put more money in.

But if you can make that much, that's probably the best return you're going to be able to get for certain in the near future, since you think the markets are overvalued (I agree with you).

Laura Ingalls
Posts: 244
Joined: Mon Jun 25, 2012 3:13 am

Re: Actually getting started investing (and some analysis paralysis)

Post by Laura Ingalls » Mon Apr 30, 2018 9:57 am

I also think you need to think about the risk of being heavy in cash. Cash is better for less volatility and capital preservation. Stocks are superior for growth over the long haul. Both are good but since you might live 60 (70?) more years stocks are IMO pretty important.

FrugalPatat
Posts: 35
Joined: Sun Dec 03, 2017 6:22 am
Location: Belgium (Europe)

Re: Actually getting started investing (and some analysis paralysis)

Post by FrugalPatat » Mon Apr 30, 2018 11:25 am

Augustus wrote:
Mon Apr 30, 2018 9:47 am
Did you get a good deal on the apartment? Why not pay it off?
The apartment is nearly paid off, and I think it's increasing substantially in value (because of the neighborhood that is being upgraded). What remains of my mortage is about 30k (capital + interests) and half of this will be paid back by the government via a tax reduction (yes, my government also pays capital and not just interest) so I want to keep it because it makes me money (paying back those 30k will actually cost me more in the end). But I'm not sure why you talk about renting it out? It's my place to live?

Augustus
Posts: 520
Joined: Sat Apr 02, 2016 10:15 am

Re: Actually getting started investing (and some analysis paralysis)

Post by Augustus » Mon Apr 30, 2018 11:35 am

FrugalPatat wrote:
Mon Apr 30, 2018 11:25 am
But I'm not sure why you talk about renting it out? It's my place to live?
Things happen, you may want to move somewhere else, there are many reasons: jobs, cutting expenses by downsizing, etc. If you can't rent it out then you have to sell it, and selling real estate is expensive due to transaction costs such as taxes, real estate agent commission, etc. Real estate that can't be rented would be a bad investment in my book, so I wouldn't put a bunch of money into a property if it could not be rented out.

So your government is paying the mortgage? It's paying more than you are paying out in interest and taxes every month? If so, then sure, by all means don't pay it off.

It all comes down to numbers, if paying off the mortgage gives you a higher ROI than you can get elsewhere, then pay it off. If it doesn't, then don't.

wood
Posts: 349
Joined: Wed Sep 16, 2015 5:53 am

Re: Actually getting started investing (and some analysis paralysis)

Post by wood » Mon Apr 30, 2018 4:20 pm

Reading, learning and planning about your future investing activities is one thing. Getting your hands dirty is another. It wasn't until I actually started buying and selling stocks that I discovered I have quite the risk tolerance and prefer to week/month-trade rather than just staying long in "boring stocks". I seem to be (emotionally) drawn towards taking more risk and able to handle big losses/gains better than I had assumed before I started. For someone else the opposite could be true. I won't be surprised if I change with time.

About the markets having peaked, my plan is simply to not be all-in and to be able to double up should the markets crash. That way you get some of the market gains while you practice and learn, but avoid full exposure.

Farm_or
Posts: 412
Joined: Thu Nov 10, 2016 8:57 am
Contact:

Re: Actually getting started investing (and some analysis paralysis)

Post by Farm_or » Mon Apr 30, 2018 6:52 pm

Nothing ventured, nothing gained. I think it is good to be thoughtful, research and plan. If you still are uncomfortable, keep learning. You will know when the time is right to invest. Over confidence and bold plays don't end well.

Like many others, I have made mistakes with investing. I might have some mistakes going on now? But every move has been thought and pondered on until I was fairly confident in the chances of success. When you have done that diligence, then you can see negative events constructively.

It's like a hockey game; you keep taking good shots on goal. Not every shot is a good shot. You play the game to win, not not to lose. And as the game goes on, you learn and play better. And you start to know more about what shots to take and when it might be better to hold the puck. Nobody ever won a game only playing defense.

User avatar
Michael_00005
Posts: 89
Joined: Thu May 04, 2017 12:26 pm
Location: East coast USA

Re: Actually getting started investing (and some analysis paralysis)

Post by Michael_00005 » Tue May 01, 2018 5:14 pm

Dream of Freedom wrote:
Sun Apr 29, 2018 7:55 pm
a. The trend is your friend.
It feels like we are in the same boat with this over-priced market. What to do? I really don't like where the USA market is at, and feel the trend has potentially already (February 2018) shifted. This quarter (Q1) the US is having record type earnings and the market is flat. That could be a sign right there. I'm thinking ups and downs in a sideways market, and then a big correction at some point, maybe several. It will be interesting to see what happens when the trade war talk blows over.

Ideas:
  • Buy hold, long term ETF (if this is your strategy, will you stick with it if the market tanks 20%, 30%)? This is a big indicator to see if you should be in the market. People who sell when the market crashes might want to consider ultra conservative investments, or seek out advice
  • I've done very well finding a dip and buying 2-6 weeks prior to quarterly earnings on individual stocks. Especially with stocks that have a trend to beat estimates like FB. Then sell and wait for the next Q earnings.
  • Look for companies with insider buying ( it seems people rarely mention this strategy, but according to a college professor it's the best predictor for a company's stock)
  • A safe, very slow moving 5% dividend stock is starting to look more and more attractive right now


Some of the biggest mistakes I've made in the past is buying, just to be buying. Then a month later a correction happens and you see deals everywhere; this is in regards to individual stocks. With a long term index fund strategy they generally tell you to ignore any attempts to time the market, and simply buy at regular intervals.
Last edited by Michael_00005 on Sat May 12, 2018 2:02 pm, edited 4 times in total.

Farm_or
Posts: 412
Joined: Thu Nov 10, 2016 8:57 am
Contact:

Re: Actually getting started investing (and some analysis paralysis)

Post by Farm_or » Wed May 02, 2018 7:50 am

@michael 005- thanks for sharing some of the nuts and bolts of your strategy.

Buying dips. I have had a lot of success with that as well. The key for me has been a careful evaluation of the reason behind the change. In those situations that you conclude nothing more than market reaction and sound fundamentals remain it's usually a good play.

Insider following. I've done quite a bit of independent research on this idea. I found out the hard way that it doesn't work so well short term, but what does? I think it is a valid consideration when including other fundamentals.

Value investing. Another sound principle. It's what the adage of "buy low and sell high" is in direct reference to. Be careful how the value is determined.

Buy and hold? I would put additional effort into the idea of rebalancing along with that. It works better if it periodically or event driven takes profits and reinvests in slower gainers.

Post Reply