
Ask HN: How would you invest $500K? - bsvalley
If you had $500K to invest, which would be your entire equity, cash money, how would you invest it?<p>It&#x27;s your equity so a low risk would definitely be considered. Looking for creative advices, not boring banking stuff...
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garethsprice
1\. Pay off any debts I had.

2\. Keep 6 months reserves in cash (maybe 12 depending on my view of the
current political outlook)

2\. If I had plans to staying put for at least 3-5 years, a down payment for a
modest home in a good neighborhood, possibly a fixer, something I could rent
out in a few years if I moved. I am young(ish) and have good earning potential
so am confident that taking out a mortgage at current historically low rates
and investing the rest in the stock market will provide higher returns in the
long run than paying a house off immediately.

4\. Put the rest in low-fee index funds.

If you don't already have a burning passion to pursue something that this
money enables you to do and you have other sources of income already, don't go
looking for a hole to throw your money down.

Unless it's money you can afford to lose, your investments _should_ be "boring
banking stuff".

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auganov
I hate to be dismissive but if it's your entire equity and you want low-risk
just settle for the "boring" stuff. And get on with your life. You don't want
to keep thinking about that money. You won't beat the market. If you can beat
the market then go do that professionally (and still invest in the boring
stuff personally!!).

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ThrustVectoring
Honestly, you should probably ask what you want to accomplish with the
invested money before deciding how to invest it. Are you planning on
mitigating variance in income/employment? Then you're much more adverse to
variance and illiquidity. Are you planning on setting yourself up for
financial independence? Then you can probably handle risk much better and
something like an equity index fund would work well. Want to make sure your
child can go to college? Something like
[https://en.wikipedia.org/wiki/Guaranteed_Education_Tuition_P...](https://en.wikipedia.org/wiki/Guaranteed_Education_Tuition_Program)
would be an excellent choice. Want to generally make the world a better place?
Investing may have superior alternatives, such as donating to an anti-malaria
charity.

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sfrailsdev
I'd start with 10k inflation adjusted personal Series I savings bonds from the
US treasury, which pay quote a bit more then any available CD in terms of APY,
and have a 3 months interest penalty for 5 years after purchase. I'd probably
wait until after april 30th, since the fixed rate interest rate on them is
currently zero but will hopefully go up. You don't pay state or local taxes
but you do pay federal taxes.

That leaves 490k. I'd put 100k into wealthfront, so they will use individual
stocks instead of etfs for tax loss harvesting.

I'd take 90k and invest it in AA or A rated municipal bonds, if you are in a
state where gains are tax free, creating the beginnings of a bond ladder. We
expect the fed to raise interests rates 3 times next year so I'd probably
split this 15k for the first raise, 25k for the second raise and 50k for the
third raise.

if I have a 401k I'd invest the maximum 18k in 2016 and contribute the 18k in
2016, making purchases immediately after interest rates go up in dividend
stock etfs, reit etfs, broad market etfs, and a small cap etf. Likewise 5500
each ear for an ira, or possibly a roth IRA, depending on current income
levels.

I'd save 153k in a savings account like synchrony bank with 1.04 apy interest.
Part of that should be a year's expenses, the rest used to purchase stock in
solid companies if the market crashes. I'd want to adjust this after a market
crash year.

Then I'd split 300k into 100k for a broad based index etf, 50k in a small cap
etf, 25k in a midcap etf, 75k in a large cap etf, 25 k in a bond etf. I'd
spend 5k on individual stocks using a robinhood account, so I could get a feel
for the market. The remaining 20k would be for taxes on any dividends, idly
playing the market so I wouldn't touch the bigger investments, and an
emergency fund, again placed in a synchrony or equivalent savings account.

~~~
lastofus
What's the theory behind these investment choices? They sound reasonable, and
I'm curious to learn how you arrived at them.

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davismwfl
Honestly, I'd leverage it to purchase real estate split between some rentals
and rehabs when the right opportunity came up. For me the passive income of
rentals and being able to leverage the $500k into far more is just to
attractive. If you just put $500k into the market or business ideas, your
level of risk varies more and the payoff is far into the future if ever.
People are scared of real estate still some because of the last bust, but the
reality is it is the single greatest generator of sustained wealth. Even
people that make their money in other places like a startup, eventually find
out that leveraging liquidity to enter the real estate market pays back in
huge ways.

Real estate isn't risk free, but even in down cycles you don't lose all your
value, e.g. a $200k house doesn't become worth $0. The key wealth generator
(not get rich quick scheme) in the history of the US and most Countries is
real estate (land/property etc). This means finding and buying in the right
areas and not being afraid to cross state lines etc. Leveraging the $500k in
California won't get you really far, but doing it most other places will let
you really do quite well and you can have passive income coming in within a
few months.

Also, done right, you'll still have a significant amount of the money to
invest into other things like the stock market to diversify yourself.

~~~
bsvalley
That's the closest answer to where I'm at now... real estate is the best
candidate at the moment, rental properties or flipping houses.

Besides California, where would you be looking to buy?

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tom_b
Just anecdotally, I have friends who have been very successful with buying and
renting condos/apartments in a college town. Demand for rental units stays
high (well-known, reputable public university).

Oddly enough, they have generally negative experiences renting to parents of
students instead of directly to students.

I will say that my friend works full time as the property manager for their
units. It's not a passive investment.

Several years ago, I talked with an accountant who had clients who owned
rental property about the ROI. The feedback was that if you had to hire a
property manager and outsource all repairs/maintenance, the value proposition
of rental property was greatly reduced and closer to neutral than many owners
initially assumed.

It looks like it is working out well for my friends though - they were able to
leverage their financing as they acquired new units because interest rates
have been so low. They have been cash-flow positive for many years. But they
also capped themselves at about 20 units under management.

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aproductguy
How you invest depends on what your goals are. You need to define the "why"
before you can move on to the "how".

~~~
bsvalley
The goal is to double equity in max 5 years. Long term vision is to retire in
my 40's

~~~
tmoullet
In finance, there is a rule-of-thumb called the rule of 72. Basically, 72/X =
# of years to double, where X is the compounded rate of return.

Solving for your request, 72/X = 5, X = 14.4%.

So to double your investment in 5 years, you need to find something that will
give you 14.4% return for 5 years in a row. That high of rate (in this
climate) would require a fairly risky investment.

~~~
davismwfl
A 14% return on properly selected and executed rehabs is very easy to do, in
fact I'd be really disappointed if that is all that came back. Do this 2-3
times a year and it is easy to grow the money. But to get 14% consistently
annually out of the stock market IMO is tougher without some high risk, which
depending on age may not be a big deal.

But you have to study the local market some and talk to realtors about what is
selling where, and why it is selling over other properties. Then ideally team
up with another investor/rehab person for 1-2 and get a feel for how to be
successful. I say that cause doing it wrong can be a recipe to losing money
quickly too.

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stevewilhelm
> A 14% return on properly selected and executed rehabs is very easy to do.

This is unrealistic in the SF bay area. First time home buyers are paying top
dollar for "fixer uppers" and in many cases just tearing down the existing
home and replacing them with a new ones.

Good contractors have several month lead times and are being paid in excess of
$300 per square foot for doing renovations.

Real estate agent commissions are three to six percent of sales price.

~~~
davismwfl
My suggestion to the OP is to look outside of CA in general, not because it
isn't possible to make these returns but because in CA the rehab & rental
market are a lot tougher in many ways, taxes, fees, a heap full of regulations
(good and bad) etc. And it isn't that you can't make these returns in the SF
Bay area, it is just that the cost to enter the market is significantly higher
both in terms of dollars and knowledge, plus the proper type of inventory is
constrained. The risk right now with the Bay area market is also far from
ideal, and should stop any small investor from entering. Hence why you have to
find markets, and neighborhoods within markets that are better to work in.

Real estate commissions are basically the same across the US, and 6% is
common, 3% to buyers agent, 3% to sellers, with lower fees in some markets or
if you negotiate them down (careful what you negotiate here though it can
backfire fast). These are always a factor you add to your deals to see if they
are good or not, e.g. taxes (both while holding and at sale), costs of
materials & labor, interest costs, loan fees (if any) etc.

As for the contractor availability, 60-90 days of lead time is not uncommon
right now for decent contractors most places. But here is the key, if you do
things legally, i.e. with permits, it takes 30-60 days to get all the permits
in line usually and most contractors will come aboard if you hire them, get
all the paperwork started through the system and be ready to go the minute
they can. At the same time not all rehabs require a GC or permits, so you can
hire day labor or handy people to knock a ton of stuff out.

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maxander
There's really only two dominant choices here; "boring banking stuff," e.g. a
well-diversified hedge fund, or cutting-edge financial engineering that you'll
have to earn (or hire) a specialized PhD to implement. Anything in between and
you're just playing out of your league; your cleverness won't win against the
army of brilliant quants that have devoted their lives to this sort of junk.

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nodesocket
I've never tried it, but take a look at the investment strategy called the
trident portfolio. It claims a consistent 11% CAGR (compound annual growth
rate) for the last 40 years. Trident consists of the following:

    
    
        1/3 VBR
        1/3 GLD
        1/3 TLT
    

You'll have to rebalance to keep the ratios all 1/3 approximately once a year.
There is a great response on Quora by Milos Baljozovic that I highly recommend
related to the trident strategy.

[https://www.quora.com/I-won-the-lottery-and-
have-5-million-i...](https://www.quora.com/I-won-the-lottery-and-
have-5-million-in-the-bank-now-How-should-I-invest-to-live-off-the-interest)

Honestly, you'll probably be ok just buying a standard ETF such as SPY or QQQ
(more volatile), waiting 5 to 10 years without doing anything and cash it in.

~~~
cylinder
Forty years is such a small window. I'm not convinced at all.

~~~
nodesocket
Forty years is actually a decent timeframe in terms of capturing the market's
cyclical nature.

Do you have investing experience?

~~~
cylinder
Not for the larger cycle IMO. Last forty years almost perfectly covers the
working (productive and consumptive) lives of the baby boomers and all that
went with that. It also is the first and only 40 year period after Bretton
Woods, so we can't conclude much about how gold will behave in the next forty
year period. And then there's the very unique 8 years and counting of ZIRP and
QE which affects Treasuries. Not just ZIRP but rates generally have declined
immensely since the 70s, 80s and 90s overall which favors Treasures as well as
the rest of the portfolio. I'm not sure US small caps will be as competitive
going forward either -- are we getting the high growth companies on the stock
exchange as small caps anymore? Maybe they're all being bought by large caps,
staying private until they're large caps themselves, or just not competitive
in a US economy that seems to be dominated by large multinationals with all
sorts of advantages. There was also a tremendous amount of deficit spending
throughout this period which has contributed much of the growth and it's
arguable whether that can continue in kind.

Also, maybe I missed this but I didn't see any mention of dividends in that
post. Is the 11% CAGR including dividends paid out and reinvested?

Unfortunately due to the lack of floating gold price before this 40-year
period (conveniently) we can't compare to the prior forty years before that.

I don't want to be too critical; it's interesting. I do believe small caps are
better for a young person to invest in as they have higher risk tolerance, but
I'm concerned about the quality of small caps we're seeing on US public
markets these days.

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greydius
I'd buy as much property as I could in the middle of nowhere and build a
cabin.

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cdevs
Take my aviato money and start my own incubator.

~~~
_jdams
Making the world a better place through constructing elegant hierarchies for
maximum code reuse and extensibility

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jetti
I would start by investing in myself. I would put 100K away so I could do
whatever I wanted for a year if things go south (aka invest in my free time),
I'd pay off my debt (around 100k) and I'd get a top of the line computer
system (desktop/laptop,etc) so that I would be able to be the most productive
I could be when writing code. I'd invest in the community by taking time off
to contribute to the open source community. With the extra money I have stowed
away I could live off that and not have to worry about any income, which would
free me to focus solely on learning the larger OSS projects and contributing
to them. I would probably put 100K to 200K in a REIT that I'm invested in that
gives 13% dividends. After that, I would try some P2P lending since I would
have extra income that I could afford to lose since the 500K wouldn't get me
to accredited investor status.

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mozumder
The answer depends on whether this is "play money" or "my entire life's
savings"....

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sharemywin
I have my 401k in a "cash option" right now. pretty worried trump gets us into
a trade war and huge global market crash. just not sure on timing. of course
if he gets a tax decrease through congress it could back fire on me.

~~~
toomuchtodo
I'm borrowing most of my 401k to finance a home purchase. I trust me paying it
back at 4.5% then the market over the next 2 years.

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zw123456
Another option to consider is something like Betterment.com or Wealthfront.
These are automated investment services and allow you to tune your investments
based on your goals. I use one of them and it has worked out well for me.

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keefe
I would probably buy a house in the outskirts of seattle or denver for maybe
250K - tons of houses around 3beds, minimum 1500 square feet, if you expand
the search. Then, start a private repo doing an MVP based on my open source
project, then try to find a product manager type to bootstrap a startup,
somebody hungry who would live in the 3rd bedroom and go full throttle for
half a year or so, then if that fails when I'm down to say 100-150K, I put
that money into TBills and get a job if I can't find revenue or funding.

~~~
fred_is_fred
You're talking serious "outskirts" of Denver for that price.

~~~
keefe
653 on Zillow all throughout the metro area, for 3 bedroom houses over 1500 sq
feet. SF really distorts our perception of reasonable prices.

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id122015
I think you'd rather want an answer that you'd be able to follow. If someone
told you about their experience with stocks or with business and you didn't
have that experience how much useful would that be to you ?

I'd invest it by buying some books about investing first.

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AznHisoka
I would write a crawler that crawls amazon and stores number of reviews for
major consumer brands like Fitbit and GoPro. then go long on those that have a
spike in reviews before earnings. and go short on those that have declined

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atsaloli
I would invest in my business. Quit consulting (which pays bills day to day)
and focus on expanding our training catalog (I love training and we are really
good at it). Expand Sales and Marketing activities.

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sharemywin
Some depends on age and planned retirement age. 55 or greater. I'd pay off
house. pull out 25-50k each year I got closer to retirement and let the rest
ride in stock market.

under 55, I'd keep 400k in stock market.

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sharemywin
here's a neat article on playing a stock market dip with options.

[https://www.thefelderreport.com/2016/08/15/worried-about-
a-s...](https://www.thefelderreport.com/2016/08/15/worried-about-a-stock-
market-crash-heres-how-you-can-tail-hedge-your-portfolio/)

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tmnvix
I would buy myself a lot of time and then give some serious thought as to how
to spend that time productively.

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johnsmith21006
Or Domain Names

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wcummings
Index funds

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jotato
Pay off my house, and put the remaining ~200K into buying a rental

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mars4rp
that gives you a sense of security but you are losing the most important
reason of owning your own house, Tax Deduction!

~~~
jotato
My mortgage payment would be redirected into other investments. I would take
an additional ~1900/mo going into that than a tax deduction any day

~~~
mars4rp
you can invest your whole money and easily get an %5 return ( more than your
interest rate) on that. and invest that money instead and you will get the tax
benefit of the deduction as well. double dipping ;)

~~~
jotato
With much more risk. Don't forget to take that into account

~~~
mars4rp
if the end goal is investing anyway the risk should be the same, your house is
not completely risk free investments considering the crashes. and getting %5
out of rental is not that risky! not much more than your home.

~~~
jotato
I think we just have different opinions on risk and investing

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bbcbasic
Probably chuck it at real estate.

Maybe bet a bit on raising interest rates as a hedge.

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Raed667
1- Find a 3rd world paradise beach

2- Buy a place there

3- Spend it for the rest of your life

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fiftyacorn
Some in cash , then a Vanguard LifeStrategy fund matched to your age

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steve1011
Gold and silver.

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crispytx
Dividend paying stocks.

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sayelt
Buy Bitcoin and HODL.

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johnsmith21006
Google

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droid12
I would personally invest a small portion of the money(about 5k) in Bitcoin.
Bitcoin value has been rising recently. If the trend continues,the value will
double mid next year, and triple by the end of next year, so you would have
made 10K with your initial investment. But keep in mind that Bitcoin is
volatile and such investment is considered high risk investment.

~~~
bookmarkacc
When will it quadruple? Quintuple?

