Now I have all of this income flowing in and I'm not sure what to do with it. What are some good resources to learn how to best take advantage of this situation?
If you want to take a very brief look, start at: https://www.bogleheads.org/wiki/Lazy_portfolios
Also, I would recommend subscribing to this: http://www.capitalminded.com
It's a weekly email newsletter that reminds me of Matt Levine's Money Stuff but with more a Boglehead-type focus. Kind of like a weekly reminder to stay-the-course backed up with some pretty interesting references from history and academic papers.
Also, don't fall into the trap of checking CNBC, Yahoo Finance, etc. every day. The reason most retail investors fail to match the performance of the same funds they invest in is because of behavioral errors and getting drawn into the emotional drama of markets.
Jack Bogle also has great books (including audiobooks) to learn from, albeit dense.
`Common Sense on Mutual Funds` is an excellent treatise to the mantra of `time in the market is always superior to timing the market.` Vanguard continues to rocket to the top in every fund market it enters because people are sick and tired of slick salesmen masquerading as financial advisors.
Find the best index fund you can, and let your money grow with the market.
If you want to get into things like individual stocks, or even angel investing, do it for the fun and the experience, but don't do it for the wealth. "Get rich slowly" is the best advice I've ever been given.
Number zero advice is to earn more and spend less. The former is at the mercy of your career but the latter almost entirely in your control.
Getting in the habit of saving 50+% of your net income leads to a very happy life as you'll quickly accumulate a true nest egg.
I've been "getting rich slowly" for 8 years, and boy let me tell you, it sure is slow. Definitely doesn't feel like my wealth is growing in index funds fast enough to retire within this life time.
If the market hasn't been going up enough for you to feel good about your investments over the past 8 years, you are probably not saving enough to meet your goals.
Ha ha, I feel the same. But don't discount the fact that small percentage returns are actually exponential growth. (For example, 2% returns actually doubles your money every 10 years.) Just because it 'feels' like your investments are stalled doesn't mean that they are.
I wish! More like 35 years.
7% returns will double initial investment every 10 years.
Higher risk, higher upside, but perhaps the upside is disproportionately higher than the downside or the additional risk you are taking on, so you could be willing to invest in said company / asset / etc.
As a counterexample, I've done great on individual stocks when I really understood the company well. You generally get 2 to 3 good investment ideas per year, so you could go overweight into those ideas.
Stan Druckenmiller (who is an interesting person in itself with unconventional views) uses a similar strategy: https://www.youtube.com/watch?v=c6LgojkA6bo
And I'll add that the "best" index fund is pretty much the broadest fund with the lowest fees. For example, Dow Jones only has 30 constituents while S&P 500 has 500, so S&P is broader
I have been disregarding this very prominent advice since 2015. I am up over 200% since then, and up 40% YTD.
This is the same lame advice every financial advisor gives. It is even the advice Warren Buffett would tell you. However, Warren Buffett didn't get where he is today investing in ETF's and mutual funds, he invested in individual stocks.
I completely reject this notion that investing in individual stocks is some extremely difficult thing to do well. That you need to spend countless hours doing high level analysis of a companies financials, that is just plain false.
IOW, you've never known a down market.
This is the same lame advice every financial advisor gives. It is even the advice Warren Buffett would tell you.
It's all a conspiracy of the professionals, I tell ya! They wouldn't want you making the same returns they do, now would they?
he invested in individual stocks
Buffet bought/buys entire companies, or at least a large part of them.
I completely reject this notion that investing in individual stocks is some extremely difficult thing to do well.
Not that you'll believe me, but you might very well get your comeuppance. I mean, I hope not as I wish financial ill on few people. But you've had great returns only in a bull market, ignore the advice of professionals who have been doing this for decades, and you seem to think stock picking isn't all that hard. I, who has ridden the ups and downs of the market since the 80s, have seen this time and again where a sudden downturn or recession turns those "models" upside-down. The last one that stands prominently in my mind was the dot com bust. Everyone was "up over 200%"...until they weren't.
Anyone else reading can ignore this. Unless you want to make a hobby out of it, go buy S&P 500 index funds, like everyone tells you to do. Oh, sure, splurge $10K on some TSLA or AAPL once in a while if you're feeling lucky, but keep most of it in the general market. If you do wish to make a hobby of it, know that myself and everyone I've personally know who trades regularly has learned some hard and expensive lessons along the way. It's a good education, and you'll likely be a better investor for it, but it's not free.
(Disclaimer: I trade the hell out of individual stocks. Do as I say, not as I do. <g>)
Doing well over 3 years in a bull market is not very impressive. If you can beat the market over 30 years and through bear markets then you're a force to be reckoned with.
>Warren Buffett didn't get where he is today investing in ETF's and mutual funds
None of us here are Warren Buffett. Most of us here are working full time jobs as software engineers, not investors.
It is a hell a lot better returns than simply investing in the S&P 500 for the past 3 years.
Show me a 30 year period where the market wasn't bullish. Bear markets are short lived, they key is just to stay in and not be stupid and sell.
edit to reply to your edit:
>Show me a 30 year period where the market wasn't bullish. Bear markets are short lived, they key is just to stay in and not be stupid and sell.
That's the argument for investing in an index. Individual stocks will come and go through these market cycles, but the index will average out ahead. If one is capable of predicting these individual stocks, power to them. You clearly think that you are one of these investing powerhouses and will not be convinced otherwise. Best of luck.
What is the basis of this prediction ? That index fund are more diversified that individual stock picks?
Seeing as how you don't know my strategy I don't know how on earth you could claim that.
>It also performs the same for everyone who participates
Maybe that is fine for you....it isn't for me. I want to perform much better than everyone else who is participating.
As for what to invest in, just go with boring index funds with the lowest expense ratio possible. There is no reason to get cute with investments. Upping your savings rate will do more to build wealth than anything. Let compound interest do the rest.
Finance and wealth building is mostly psychological. Thinking you're smarter than the market is a fools errand because you can't control it. Work on the things you can control like your income and savings rate. Increasing your sweat equity is something you have direct control over as well as how much you spend. Optimizing those will have huge effects on your long term wealth path.
However I've seen some pretty bad advice thrown around when it comes to investing.
Bogleheads is a much better resource for that.
Both written for the simplest of readers but great advice clearly told.
(Summaries are probably good enough)
Assets are things that give you money. Liabilities are things that cost you money. Therefore your house is a liability until it is sold, at which point it MIGHT be a net asset. Try to maximize your assets and minimize your liabilities.
It sounds simple, and it is, but that's the primary lesson in the book IMO. It's eye-opening the first time you see things that way.
every month invest $1000 into that fund (you can always invest rest of the savings in other investments)
S&P long term annual return is 12% (Assuming it remains that)
After 10 years: ~250K
After 20 years: ~1M
After 30 years: ~3.25M
So if you are in your 30s, when you retire you should have approx 3M from this investment alone (other mutual funds, stocks, real estate, 401K aside)
Now each year you can withdraw 100K for next 30 years (65 - 95)
1. max your 401k
2. buy a low cost mutual/index fund (e.g. VFINX)
3. never buy individual stocks/bonds
4. save 20% of your money
5. pay off your credit card balance in full every month
6. maximize tax-advantaged savings accounts (e.g. SEP, IRA)
7. pay attention to fees (i.e. avoid actively-managed mutual funds)
8. only use financial advisors who adhere to a fiduciary standard
9. promote social insurance programs to help people when things go wrong
This gives a good intro to why index funds are probably your best bet. If you are willing to put in a lot of additional time and research, you may be able to do better picking individual stocks, but probably not.
The Simple Path to Wealth
The rationale is that uncorrelated assets result in average returns (across the set of assets) but decreased risk.
What's unclear to me is the performance of e.g. the S&P 500 once the percentage of investments that are just index funds passes a certain threshold. Presumably if all investors were index fund investors the market would be super stupid, so is there a point before 100% where there will be significantly aberrant behavior? If so, what is that percentage and what is the behavior?
If you seek financial advisory help, go with a "Fee Only" FA, and be ok spending thousands of dollars for impartial advice. IMO, if you have over about $500k saved, it is probably time to talk to someone.
Make sure you have the right insurance, disability, and life. Disability should cover you in case you can no longer do YOUR job, not just any job. Life should cover your dependents/wife etc.
Avoid timing the market. Evidence has shown that this doesn't work for anyone but the extremely lucky.
*diversification gets hard, and you may need to pay for advice once you reach a certain level of assets (probably around $500k).
These give a good intro on equities.
If you don't already, open an IRA (Roth or traditional). Also, consider reaching out to a certified financial professional for guidance.
Which appears to be true, at least for the stats I've seen on money managers.
But for the smaller investor, where liquidity is less of an issue (we're not dumping tens of millions at a time), could there be an advantage there?
Or someone privy to industry information - e.g. I knew that New Relic was really popular, because I consult with startups, long before they went public. No surprise on their stock growth.
Just thinking out loud here... I'll probably just stick with our Vanguard Target Date Fund. :)
You can start here with Bernstein: https://www.amazon.com/Investors-Manifesto-Prosperity-Armage...
Or here with Bogle: https://www.amazon.com/Little-Book-Common-Sense-Investing/dp...
That is the best you can do without specialized knowledge or effort (and, depending on how strong a view you have of the efficient market hypothesis, even then this might be the best you can do).
In this case you should put the bulk of your money in a robo-advisor like wealthfront or betterment. (I am not related to them in any way).
If you do have insight into something -- maybe you are keyed into local real estate development or you feel you know your industry -- you could get a higher return. Take some small percent of your wealth (say 5%-20%) and put it into this thing you may be good at.
This is my favorite overview:
Thats an insane amount of money to pay someone just to put money into Vanguard index funds. Also, being a DIY investor forces you to actually learn how these things work, so you'll have a better chance of not making a stupid behavioral mistake when the market drops next time.
By ignoring the whole "learning" portion of investing and just throwing your money at Wealthfront you'll be liable to pull your money out or stop contributing at exactly the worst time.
Firstly, if you believe that you should hold your money through a crash, then you are free to do so whether or not you invest through Wealthfront.
Secondly, that is a huge amount of money. Congratulations on making so much. Yes you can save that money by learning yourself but do value your time. If you are going to rebalance, tax harvest etc it can add up time wise.
Thirdly, learning yourself may not be about saving in the areas that the robo-advisor is good. You don't want to learn about tax harvesting because it is better to leave that automated. You might want to learn about a particular stock, but even that is better left to analysts and you can rent the research. I had a friend who worked at Goldman. He analyzed three stocks total. He worked 16 hour days. He knew more about any of those stocks than I ever could.
Also, the value of the TLH services provided by Roboadvisors have been grossly over-stated and they have since backed off form their initial claims. Read this for more info:
If you believe in rebalancing, let the robo-advisors do it.
(I don't rebalance personally).
If you really have tons of money and don't know what to do with it and also have your own business, I'd talk to a CPA about maximizing your tax benefits (if you haven't already) and also to a financial advisor for the rest. CPAs are one of those ROI multiplier type things, where you give them a little money and they save you a whole lot, especially if your tax situation is complicated.
The courses walk you through investment principles, investment assets, and portfolio implementation. Simple overview... Get the market return, get it for lowest cost possible, enhance returns by investing where the market historically outperforms, rebalance annually.
If you run a business the best investment you can make is in you own business. By all means, max out your 401k contribution. But if there is money left over to invest, conciser investing in your own business.
Here is a podcast I listened to just the other day about this:
But, if you want to invest some more time and take additional risk (and maybe better returns) try reading some books. Peter Lynch's - One Up on Wall Street and Benjamin Graham's - The intelligent Investor are two good ones to start with. These will give you a solid platform on stock selection.
The millionaire next door.
This question keeps coming up by the way.
You could go the low risk, low-cost, near-zero time method of using index funds. For full disclosure, this is the area of the industry I am involved with. You can either choose the funds yourself or you can get someone to provide you some suggestions. There are advisors out there who specialize in tactical weighting of a defined set of index funds (i.e. the funds you have available in your 401k for example). They vary the weights usually on a quarterly basis on a set of criteria that is proprietary to them. This tactical weighting can outperform the market if they know what they are doing. They will, however, charge the standard advisory fee for this.
You could just hand over the reigns to an advisor after speaking to one your are comfortable with. they'll charge their standard rate and if they are halfway decent they will match your investments to your risk profile/tolerance. Be wary, though, as many may just shovel you into a default set of index funds. If you pay an advisor you need to be sure they actually add some sort of value and that they adhere to fiduciary standards (not "suitability" standards)
if you actually want to focus on individual stocks, please please please at least learn the absolute basics about fundamental ratios and how to look at a balance sheet or cash flow statement. Or actually know the company you are investing in. There are many books out there. The gold standard about value investing is Ben Graham's famous Intelligent Investor.
real estate is a fairly tried and true method. investment properties produce reliable cash flow. there are property management companies out there that will charge usually around 10% of the rent to keep your place rented and handle the landlord duties.
you could also focus on a stock market strategy geared toward passive income. something like a covered call strategy. that is a strategy commonly used in a sideways market or a market not strongly trending in either direction to produce cash flow by owning the stock and issuing/writing a call against it where you collect the premium. A few books I have read that offer some good intro to the basics of options strategies (and a few slightly more advanced methods) are the followings ASINs on Amazon - B014C59R9S, B01EPJC2T8, B0165YDUSS, and B00YBIK9P8. They're short and very straightforward to help understand the basics and also generate some ideas for yourself. They're only like $3 a piece, too.
moving up the ladder of education and effort - you could pay for training courses for a site like WallStreet Mojo. I happen to have purchased all their stuff in a recent sale they had (like 85%+ off), which they have from time to time. They also have some free stuff for you to check out. It looks like they are running a special right now on the premium courses. Not sure how long that is in force. https://www.wallstreetmojo.com/courses/ They have courses targeted for investment banking, CFA, financial modeling, etc. Their courses include videos and downloadable Excel templates/examples to learn with. It's time consuming, but if you are actually interested in how the financial analysts and investment bankers perform valuations then it's a pretty solid tool/resource. Their CFA courses are obviously geared toward the CFA exam, but the knowledge is the same and can be applied in any way you choose. You would be able to skip the compliance and ethics portions and just focus on the rest. this information combines to form a much more in depth valuation toolbox and you could theoretically choose stocks with success using careful analysis, or perhaps create fund-style strategy to spread out the risk of your personal portfolio.
you could also purchase an existing business that is for sale. they are plenty of sites dedicated to these sales. if you find something you like, get an attorney who knows about these transactions. this basically is a sort of turn-key solution that provides relatively predictable cash flow. but it's not quite turn-key as businesses require work and you already own/run one. if you decide to go this route, i would suggest making sure the cash flow has enough wiggle room to hire someone to replace your own involvement, as you likely won't have the time to run it yourself.
"The Intelligent Investor" wasn't helpful to me at all, and I could actually understand what he is talking about, having a heavy background in finance.
P.S. a college degree or being a CFA won't help, from personal experience, though every other finance grad claims it will. The moment I started doing fundamental analysis is the moment my portfolio went to shit.
Helpful tl;dr: "index funds".
I assuming op wants something creative and new advice. Not index fund advice.
The best way to lose money fast -- chasing what's creative and new in the fund industry.
To scratch that itch you should devote no more than 5% of your investment portfolio, otherwise you are willfully shooting yourself in the foot. The rest should be kept in a passively managed portfolio.
I admit to feeding the troll here.