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Ask HN: What kind of personal financial investment do you do?
125 points by shelvy on Feb 9, 2011 | hide | past | web | favorite | 168 comments
I realize the general consensus around here may be that the best investment would be in yourself (have 25k? start a business!), but surely some people have "normal" investments, too. How do you hack it?

I don't think it'd be very beneficial to discuss specific stocks, funds, etc; but other than that it's a very open ended question.

Some thoughts (but post whatever),

* Do you have a 401k? IRA? Roth or not? Do you max them? Why or why not?

* Do you have an investment account that isn't a retirement account? Why or why not?

* Do you pick individual stocks? Do you have someone else? Do you use a managed mutual fund or ETF? Why or why not?

* Do you use passive index mutual funds? Bonds? CDs? Why or why not?

* And whatever else comes to mind...

A Roth IRA, maxed every year, is my main form of "real" investment. I try to put about 75% into index funds and 25% into handpicked stocks, which are my concession to desire to gamble.

I don't buy bonds or CDs -- I'm young enough that short-term loss is a non-event, since nothing short of "my children are starving on the street" will induce me to touch the Roth ahead of schedule. Wild volatility doesn't matter because I only check the account about once a year anyhow -- the only concern is maximizing expected 40-ish year returns.

I generally try to keep a few thousand in cash to cover unexpected expenses, although my discipline with that has left something to be desired as of late. (I'll say this for being a salaryman: I never had to deal with wild swings in my paycheck, and haven't quite mastered the trick of doing so yet.)

You should absolutely max your Roth first every year, as you can use the account for a first home purchase and qualified education expenses in addition to retirement. (We'll have a lot of this sort of stuff on Blueleaf as we get closer to launch. If there are specific questions, we can write answers/articles for them.)

You can pull money out of a Roth investment (IRA or 401(k)) at any time without penalty because the tax is not deferred. You pay normal income tax on all the contributions you make in the year you earn the money.

Only up to contributions, not gains. But for most young people, you're right: contributions > accumulated gains.

...I don't buy bonds

A lot of people would argue that even for a young person a portfolio with a small bond allocation is actually less risky with higher returns then a 100% allocation to stocks.

Actually, expected returns will be slightly lower but well worth it as the reduction in risk from the diversication away from 100% equities is huge. E.g. 20% in bonds will barely diminish expected returns whilst significantly reducing your overall risk.

Not always true, According to WSJ http://blogs.wsj.com/marketbeat/2011/02/07/depressing-chart-... "Through the close of trading Monday, the investors in 7-10 year Treasurys would have seen a return of 76% percent over the last 10 years, versus a return of 17.4% for stocks. So you could have socked your money in supersafe U.S. Treasurys and reaped a risk-free 80% gain. "

1. a lot of people argue for things without backing it up.

2. it depends what you mean by "risk". arguments claiming bond allocation in your portfolio are less "risky" describe risk as "volatility of returns", which in finance are measured over shorter intervals than 40 years.

patrick is specifically accepting short term volatility in return for the higher EV of returns.

the marketplace prices debt instruments (especially US treasury issued) over the long term with cheaper expectations for returns specifically because it has lower variance of returns.

So why not move even further up the risk chain to all Emerging Markets or invest at greater then 100% equity by using leverage? Fact is, adding a small amount of fixed income investments smooths investment returns and has very little effect on total return whether you accept standard deviation variance as a measure of "risk" or not.

For young people financial theory advises against investing excess capital in bonds and for investing in stocks[1]. The idea is that in the long run stocks have a higher return then bonds and the volatility doesn't matter much (agian this applies only to excess capital). If your portfolio does go south, you've plenty of time to earn some extra income and if things go up you can hit a home run.

In practice people tend to increase their relative holdings in stocks, this is highly risky since it's much harder to make up losses and the end of your working life.

For me: Where I live a special accounts for retirment do not exist so I don't have an opinion on those.

The excess cash I'm now started earn will be invested in simple ETF's. They provide good diversification for a small price.

[1] So good for you!

I prefer to invest in individual stocks and not a fund. Funds do give you some protection, but they will also limit your upside. I prefer the risk/reward trade-off of investing in individual stocks and options.

I am still relatively young so my risk profile is more on the risk seeking side right now. I'll seek out more of the funds when I'm 35+, married with children, and have more to lose.

1. Get an decent amount in _cash_ savings ($10K)

2. Payoff all debts (including house and student loans)

3. Only invest in stock market through IRA's where there is a tax advantage.

3.1 Only invest in company 401(k) to get the match.

3.2 Invest the max in Roths (if you qualify)

3.3 Find an index fund and forget it. You've got better things to do then worry about stock picking. (I suggest Vanguard, it's investor owned).

4. Fund your war chest you started in step one. This is cash you can use for starting your company, investing in real estate, etc.

5. Find something you know about and stick to it. Whether it's real estate, starting software companies, etc.

6. Only buy things you can par for with cash. That includes cars/computers/TVs.

7. Beware the mortgage tax deduction. (Not everyone can deduct the interest/the standard deduction is pretty high already). You need a _lot_ of expenses to itemize. That means you have a lot of mortgage interest || medical bills || etc. This is not a good place to be in financially.

You'll be amazed how much money you can accumulate (even if you are a "wage slave").

I know your comment was all in dollars and this is probably generally an American topic. But regarding number 2, in England a student loan is the lowest interest loan you will likely ever get, so it's naive to pay it off in bulk; you might need to take out a real loan one day so keep the money, and even in today's climate you can probably put that money to good use.

That goes likewise for his "pay off your mortgage" advice. If your note is 4.5% and here in the US mortgage interest is tax deductable making your nominal interest rate even lower.

So the calculation becomes... paying off that mortgage is like getting a guaranteed 4% return on your money. But there are many low-risk vehicles that can eclipse that.

It's possible that you'd want to take that guaranteed 4%, but it's not the type of thing that, IMO, is just a given.

I just want to add that in my opinion there is nothing less risky than owning your own home. When I look at what I pay in interest each month for a mortgage and think about how much cash I would need in safe government backed bonds to generate that much income it is a no brainer for me. I know it is unlikely but the government could default, or more likely inflation erodes the real gains over time.

After maxing out a 401K the rest of my money is going towards my mortgage.

same here. the great advice above (or below) re: accounting for the standard deduction when calculating nominal tax savings for mortgage interest and the fact I received the tax form from my mortgage company yesterday showing how much I paid in 2010 (ouch!) I can't imagine any low risk vehicle out there that can compete with quickly paying off your house.

The discount to your mortgage is often quite small since you shouldn't count the entire mortgage interest write-off as a discount, only the amount above the standard deduction. Also, this discount will shrink over time as your interest payments shrink and the standard deduction rises.

You mean only the amount past (standard deduction - state taxes), right?

Even a low 6-figure income for a single person will get you pretty close to the standard deduction in a number of states (California, say) for just the state taxes.

Now if you're married, you have a lot more standard deduction headroom. But you might also have two incomes.

A very large number of people -- those with kids -- have no trouble getting past the standard deduction

Are there really any zero risk vehicles that guarantee more than a 4.85% return?

In other words, show me a zero risk 5% vehicle and I'll stop trying to pay off my mortgage immediately.

edited for a dumb mistake....

No of course not. But that's not the question. The question is, suppose you've got a lump sum. Would you rather take a risk free 4.x% return by paying off your house, or take on some level of risk -- still far from high risk -- to earn quite a bit more than that.

The OP made the "risk-free 4%" one of his top must-do's. My point is, that's not always the case. Paying off debt is not always the best choice in the current times of very cheap borrowing.

YOU have no appetite for risk (judging only by this comment). That's not true of everybody.

> 3.1 Only invest in company 401(k) to get the match.

Why? The advice I've read is, "invest at least the amount that your employer will match." (i.e. free money) But I've never heard anyone recommend not investing more than that in a 401k.

A good person to read up on is Vanguard's founder John Bogle. He's the champion of low-cost/low-fee index funds. I'm pulling this straight from his wikipedia page:

"Bogle argues for an approach to investing defined by simplicity and common sense. Below are his eight basic rules for investors:

- Select low-cost index funds

- Consider carefully the added costs of advice

- Do not overrate past fund performance

- Use past performance to determine consistency and risk

- Beware of stars (as in, star mutual fund managers)

- Beware of asset size

- Don’t own too many funds

- Buy your fund portfolio – and hold it"

And might I add one more: Take advantage of your company's 401k match immediately! That's free money on the table.

I've followed that style for my retirement 401k.

When it comes to play money and individual investments, I invest in what I know and what I believe in. The opinion is that one can't know all the information about every company out there so at least you can invest in the companies that you do know confidently about...

I follow Apple - and hence I made a big bet on them since the mid-2000s and it's paid off nicely... I feel Netflix is another company in its class - all my friends have accounts with them and have nothing but good things to say about them. Passionate customers can lead to profitability. I guess that's my individual stock picking strategy.

Could you explain "Don’t own too many funds"? Is that just because of fixed per-fund costs?

It hurts your ability to rebalance efficiently, and makes things more complicated than is necessary.

Additionally, if you're at a fund company with different share classes based on balance, you also get higher expenses by dividing things up too much. Eg Vanguard's Admiral shares reward you with a lower expense ratio for having more money in a given fund, since it lowers their own overhead.

Most of my money goes into a high yield savings account to survive with no income for a while (trying to get 18 months in there!). I do fund an IRA, my employer 401k (to get the most matching), and two Roth IRAs though. The investments in those are relatively conservative, I consider investing in my own products to be my "high risk, high gain" strategy.

Roth IRAs are great, you can take the principle out at any time (since it's post tax money). It's only gains that are off limits until retirement. Not only that, you can roll normal IRAs and 401Ks into a Roth IRA and get that money out after something like 3 years. It's thing #1 I'm going to do when I quit receiving a paycheck and have a year of very low income to report. I largely consider the Roth IRA principle as part of my savings fund.

If I started working harder to manage those investments, I'd head over to the Bogleheads forum and spend a week or two reading. For now, I have a friend who knows his shit that just tells me where to stick the money to keep it reasonably safe. It's mostly no-load mutual funds with a pretty big chunk of bonds in them.

I do the same with my Roth principle. But it's worth mentioning that, when you roll a 401k into a Roth you owe taxes on it. And if you have to take a portion of that 401k principle to pay the taxes, you'd almost certainly be better off keeping it int he 401k.

Also, if you imagine you'll have the same tax rate now as you will at retirement, there's no advantage to a roth. Whether you prepay taxes or defer them, it's all the same, the cash available at retirement will be the same.

The real advantage to a Roth is if you think you're paying a lower tax rate now than you will be when you retire.

Oh right. When you rollover, you pay normal income taxes on it. My big point was that if I have a year where I have minimal income, normal income taxes are going to be so low that rolling it over makes a ton of sense. I doubt I'll ever have a lower tax rate than in a year with very little income.

Yeah mostly I was expanding for the benefit of readers. I like your plan.

>I'd head over to the Bogleheads forum and spend a week or two reading.

The bogleheads forum is a fantastic resource with many published authors and other smart folks. I have been an avid reader (and occasional participant) for over 2 years.

That reminds me! Anyone who cares should read the Bogleheads Guide to Investing: http://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Lari...

It's a quick read and probably tells you a lot of what you already know, but it's well written and explains the basics of the various investment vehicles well.

This is great advice. You can read a ton about passive investing over at Bogleheads, how to maximize the returns on your index funds, the proper bond allocations, etc.

It's actually quite amazing to me that a lot of geeks who would spend literally hundreds of hours researching esoteric technical knowledge on the Internet, won't spend at least a few hours researching how to setup their retirement accounts. With life expectancies on the increase, we can reasonably expect to live 1/3rd or more of our life in retirement. Wouldn't you want to make sure you had enough money to do this?

Also, for someone with an entrepreneurial streak, wouldn't it be nice to "retire early" in your 50s and have the luxury of a steady income while starting a new business? This is ideal - imagine being a founder and not having to worry about paying for food or housing.

I put all my investment funds into a risk free account that pays just about 30% APR with no front end loads, no commissions, and I can make withdrawals whenever I want at no cost. There's a good chance you can to, it's called "paying down the balance on visa credit card"

i.e. fyi it's generally silly to invest when you have a credit card balance outstanding.

1. Education. Biggest investment, also bringing biggest returns in terms of increased earnings, in both me and my wife.

2. Shares. Me and my wife both take turns picking individual stocks. We tend to look at the news, look at what is cheap, a little bit of technical analysis. Mostly we just look at things that are cheap, try and find out why they are cheap, and if we think they will go up we buy. The goal is basically diversification, with a slight preference to smaller, riskier companies. As we age we will probably skew that towards larger, less risky companies, or perhaps indexes.

Oh the government forces us to put a lot of money into some retirement thing, but I think it is unsound, and do not consider it an investment. (The whole thing is based on todays workers funding todays retirees, and relies on an increasing population, whereas the population here is decreasing). I consider it money down the drain / tax.

I am kind of shocked by the uniformity of answers here, so I will add a dissenting voice.

In the current economic climate, it is pretty much a waste "investing" in anything until you have, say, an 8-figure sum in cash laying around doing nothing. I don't have that, so I am not bothering with "investing". I put "investing" in quotes because I feel the word tends to be perversely used; people really mean speculation, that is, gambling with negligible effects in terms of real-world wealth creation, but the gambling happens on such a huge scale that it distorts market prices hugely. Real investing is when you put money directly into something in order to enable the creation of something that wouldn't have been possible without your capital (as the YC folks do).

Stocks are terrible. If you look at market histories, corrected for inflation (actual inflation, not government-reported inflation, which is always understated, as the government benefits by understating it -- so normalize against something like an alternative inflation index or else straight-up commodities) then the S&P, DJIA, etc have actually not grown in 15 years. 15 years!! I know all of the "just buy an index fund" seems like good advice -- and it did used to be -- but in modern conditions that is no longer true. On top of this fact, pile on the risk of another market crash due to the USA's still-precarious economic situation, and stocks are clearly just not worth being in. (People are starting to realize this; there have been net outflows from equities most of the time for the past 40 weeks, and insider-selling-to-buying ratios are consistently huge.)

You can put money in bonds, but then it is locked up and you have a lot of inflation risk, so then you'd be aiming at short-term bonds, which are going to yield less.

Really what has happened is that US economic policy has become very hostile toward people who are responsible and save money, as an incidental effect of the desire to stimulate consumption (which mainly means taking on more debt and keeping rates tremendously low because if they ever become not-low now, debt burden is going to crush the economy.)

The upshot is that you are better off taking the mental energy you would have expended on "investing" and subsequently worrying about your money, and instead funneling it into your creative endeavors. You will make more money that way, especially when you take a long-term view. (Think about Einstein and the story about him having a closet of identical suits; except what I am talking about here is way less extreme and way more obvious.)

I have a rant about how peoples' "investing" according to the modern American model is actively making the world a much worse place than it ought to be, but this post is already long enough.

Your long rant basically says don't invest money at all, just keep cash in your mattress?

Who in their right mind would follow this advice? Let's say we don't worry at all about saving money, and just funnel our energy into "creative endeavors." If those creative endeavors are profitable, what are you going to do with the money?

It doesn't take a lot of energy to setup a 401k or Roth IRA. It doesn't take a lot of energy to pick an asset allocation that protects you from most risks. For example, a bond allocation will protect your money during a period of deflation, while a gold allocation will protect your money during periods of inflation. A stock allocation will grow your money during periods of prosperity. Just pick a good allocation and rebalance yearly. It should only take you a couple hours a year to worry about it, and you'll be exponentially better off at retirement than someone who stuck all their cash in a mattress.

I actually do have a 401k (as well as an additional retirement fund), but I only have those things because I have surplus money sitting around. The problem with something like a 401k is that there is a heavy opportunity cost: you don't get to use that money, ever, until you retire. If there were something productive you could have done with the money instead, that were still relatively safe, maybe you should have done that! (Especially in the current climate of seemingly-perpetually-low interest rates).

If creative endeavors are profitable, you can use the resulting money to fuel more creative endeavors, thus making the world a better place. Keeping money in a bank account or publicly-traded stock does not particularly make the world a better place.

Once I got approximately into the f-you money level of income, it became crystal clear how fictitious money is in the first place. I wake up one morning, and bam, I am wealthy! Why? Because someone said so and typed a number into a computer. Okay... that's kind of weird.

Given that money is so fictitious and somewhat meaningless, it is a shame to give into primal hoarding impulses, just so one can see the number in one's bank account go up like a high score in a video game. It's much better to make like Elon Musk and use your money for what it is: a way to wield influence to make the world more like you would like it to be.

> you don't get to use that money, ever, until you retire

You can typically loan to yourself, especially for things like first home ownership (considering the average age here, most of us are probably in that bucket).

Your long rant basically says don't invest money at all, just keep cash in your mattress?

That's pretty clearly not what was said.

The upshot is that you are better off taking the mental energy you would have expended on "investing" and subsequently worrying about your money, and instead funneling it into your creative endeavors

>In the current economic climate, it is pretty much a waste "investing" in anything until you have, say, an 8-figure sum in cash laying around doing nothing.

Why do you say that? It is clear that money can be made investing with less than an 8-figure sum. For instance, the Vanguard S&P500 index fund returned 22% last year and 10.66% since its introduction in 1976. The fund minimum is $3,000.

Those are two very-selective samples. How much did the S&P return from 2000 to 2011? If you look at a chart of an index fund dating back to the 1970s, they certainly look like things that were following an upward trend, which got goosed steeper a couple of times, until everything blew up in 1998 and now there is chaos and unpredictability. 1998-2011 is over 1/3 of the period from 1971 to 2011 so one can't really regard this as a blip!

Yes, money "can" clearly be made investing, if you time the market and are lucky. I am disputing the idea that stocks will always generally go up. I think this used to be true but may have changed. Much like "housing prices always go up", which was shown to be absurd.

Rants like this come from two kinds of people

A) People who don't invest

B) People who bailed at the bottom of a downswing

Everyone who rode out the recession without panicking has made their money back. I've made a good deal of money over the last 5 years with nothing more than 2 ETFs and automatic contributions each week (dollar cost averaging), and percent based rebalacing. So I do maybe 2 or 3 things a year above and beyond the automatic deductions.

It's really not difficult, and its not all that risky. Check out the Truth About Money by Ric Edelman, or just listen to some of his free podcasts.

Looking below the consensus here is on index funds. I think, historically that was the right strategy, but the notion of buy-and-hold an index fund, broad basket of stocks, etc is being looked at in a new light. From the early 80s to the peak of the dot.com bubble you saw a long bull market. Buying and holding a low cost index fund would have served you well. Since 2000, not so much.

See: http://www.ritholtz.com/blog/2010/03/vanguards-broken-buy-ho... & http://www.ritholtz.com/blog/2010/12/buy-hold-vs-trend/ - Yes both sources are the same author but I really respect Barry Ritholtz's views and he's hardly the only one making this argument.

Trying to pick individual stocks can be a foolish endeavor, but buying trends, whether it is index funds over certain periods, various sector/commodity ETFs, and yes, companies with great stories is what I try to do. I'm young (27), and the advice I've gotten consistently is at your age take some risks. So right now I have a managed portfolio, some bonds/MLP/MLP funds for income, and some short term positions in individual stocks and commodities. Oh, and a short on a particular content farm :)

After a failed startup where I went without salary for nearly a year, I found myself 30 years old, with 2 car payments, 15K in credit card debt, and $0 in the bank. This forced me to reevaluate my relationship with money : )

Step 1 was digging myself out of the hole, which didn't take too long -- paid off the cars and the CC debt.

I use EmigrantDirect for a Savings Account, they pay 0.9% on balances currently, generally they are very competitive. Transfer are easy.

I use an EmigrantDirect Mastercard for all my purchases. If you maintain a greater than $10,000 balance in your savings you get a 1.4% cash back on all purchases. Doing this is a nice way to handle things, all your bills are consolidated, and you get cash back. Of course pay it off in full each month, treat it like a charge card, not a CC.

I do not currently get a match on my 401K, and I do not like the investment options much, therefore I do not use it -- I instead max out a Roth IRA, and put money into a taxable account.

I tried very hard during the downturn to push as much money as I possibly could into stocks, ignoring whatever fear I felt. As things have rebounded I am sitting on a portfolio with very nice paper returns. I favor companies with high ROE and what appear to be sustainable cash flows. I favor international exposure. And I like dividends.

I am however finding it difficult to find that much to invest in currently, my money has been going into cash for some time.

I'm not really sure what comes next...I still consider houses overpriced relative to rents, tho depending on what inflation may do, it might make sense to purchase one. Still pondering that one.

I agree with just about everything you're doing. I am still invested in the market but I know what you're saying about expecting a correction. I actually used the dip the market took last week to put some more money to work.

I totally agree on housing. Mortgage rates aren't going to get any cheaper ever again (although I said the same thing in 2003) so it is a good time to lock in a low rate. But, I live in the SF Bay Area and rents are so cheap compared to housing prices (still) that it would be really hard to up our housing costs by 50% (at least) and move into a worse place. Unfortunately, the wife has her heart set on home ownership so we might wind up going that way.

we (married) drive shitty cars.

our 401k's are maxed out.

I shop around for the best savings account rate. I wind up changing banks every year or two.

I pick stocks and hold for the LOL's. Currently getting a 12% APY on about $5000 invested. No real plan and not interested in dumping a ton of money there. It's just more interesting than the casino.

We bought the house we're going to die in. paying it off asap.

After the house is paid off we'll probably buy something else. I REALLY want to build a self-storage building on some cheap land. She wants a condo on a beach. We'll see.

What saving account rates have you been able to find lately? My bank in CA offered a checking account with 5% interest back in 2007, and it's only down now to 3.5%. Most people I talk to say these are very high rates. Can I do better?

That is amazing. What bank is it? Right now the best I can find is a 1.1% money market savings account.

Another thing to consider is the banks that offer cash to open an account. I put $2500 in a new ING Direct account for 6 months and they gave me $50

Community West "Great Rates" checking.


Since I last checked they have dropped the rates to 3%.

Check your local credit unions. The competition between them and banks has been amazing.

3.5% is insanely high right now.

I'm 100% sure that is a promotional rate.

Whoops, since I've last checked they dropped the rate to 3%.

It does come with minor strings attached. You only get the high interest up to 15k, you have to use the debit card attached to the checking account 10 times per month (which is simple for me) and you have to get your statement electronically, not by mail.


Its funny, but I think the richest people I know have all paid off their real estate. They don't pay rent, and they stayed in their homes til they could pay them off. It sounds simple, but it really takes a tremendous amount of resolve.

self storage building? What's that?

Self-storage might be a US phenomenon. It's basically someone building a bunch of windowless locked garages of varying sizes (some the size of a small closet, some bigger than a car) for people to store their excess stuff. The price per square foot is pretty high, and a lot of people will rent for years - never even interacting with the stuff.

If the renter defaults, the storage company typically (through contract) owns the material inside and can sell it off at auction.

Self storage is the epitome of American excess. We bought so much crap at the big box retailers that we ran out of space in our McMansions to keep it all. So, we put some of it in storage. This excess stuff that we obviously don't need, since we haven't used it in years, will stay there in storage, being air conditioned in the summer, heated in the winter, and having rent paid for it, until we eventually run out of space and need a bigger storage unit.

There should be an episode of Hoarders where they find crazy people that have been storing junk in self-storage facilities for decades and look at what exactly they have that is so important that they need to lock it up for years and never see it or touch it.

This American Life did a segment on the auctions for abandoned self-storage units in "Contents Unknown".


That said, self-storage isn't just for people who can't stop accumulating stuff. In cities like San Francisco and especially Manhattan, it often makes sense to put rarely-used or not-yet-used items in storage, like camping gear, or heirloom furniture that you don't have the space for at the moment.

I've found self-storage useful when moving between cities -- it's hard to predict exactly when you'll find the right place, so it's a reasonably cheap way to buffer the transfer.

A high school friend of mine's dad made an entire career out of buying the crap from those storage contract defaults and re-selling it. Has his own furniture business and everything now.

One time he got a corvette. Dissassembled, inside a storage shed.

Apparently the way it works is they open the door and let you look in, but you can't actually go inside and see what's in the boxes or whatever. So it's kind of like gambling, bid on a room and hope you find something good to resell.

I'm guessing another perk of actually owning the building is you can have a look at the storage shed before you decide to hold an auction. Sounds like the owners of that particular facility probably only keep the assembled cars...

I'm building a company and investing in it.

I may be crazy but I rather invest in myself that in a company I have no control over. When the time will come, I'll sell it and get most of my money out of it. Maybe reinvesting in another and make more out of a better initial investment.

I already created thousands of dollars from an initial 500$ investment and time.

Does someone else here thinks like that?

yep. i like betting on myself better than betting on most other people.

its sort of an "all your eggs in one basket" strategy, but if you're going to put all your eggs in any particular basket and you're good at what you do, you're as good a bet as any (and you can make sure your investment manager isn't slacking)

You want to diversify. So, if you have a significant portion of your money invested in a startup, I think you would want to be a lot more conservative with the rest of your money. You can real safe with bonds or cds. I also look for old, boring mutual funds, that have been around a long time, and get good performance.

Although, I haven't gotten around to implementing it, I think there could be a powerful concept, which I'll personal hedging. The idea is to think of your investment as a hedge against the costs of things you want to buy in the future. So, suppose you are investing to retire. 1) Track your expenses 2) Figure out what your expenses will be when you retire. 3) Buy proportional share of the value chain for all the companies you will buy stuff from. Presumably, you want it waited to cover all your expenses. Now, this can get tricky because you may spend a lot of money with companies that aren't public, and some industries may be in a bubble. Further, you will have to shift your investments to reflect industry shakeups. For example, if you change your mind about what products you like, you would also change your portfolio. Industry changes would also affect, who in the value chain gets the profits, and conglomerates or weird capital structures can make this a bit tricky, but I think it is a powerful concept.

Still chuckling about Bucheit's suggestion of spreading cash out into a huge number of FDIC-insured savings accounts -- "Think of it as RAID for your cash" he says, as I recall.

CDARS is a simplified way to do that with CDs, essentially distributing amounts past the FDIC limits into different banks behind the scenes, so that you only have to deal with one account, but get insurance on the entire amount.


Very interesting. Thanks.

Given the abundance of academic research on the subject of the efficient-market hypothesis, I think it is futile and foolish to try to "beat the market" by trying to pick individual stocks that are mispriced. Therefore, I own low-cost index funds and try to own the market as a whole.

I do try to shelter as much of my portfolio as possible since taxes reduce returns. I have a 401k, 403b, Roth IRA, Traditional IRA, 457(b)... (I've had a lot of jobs).

You may want to roll some of that into a single account, keeping track of that isn't going to get any easier...

I just consolidated everything into an IRA, Roth IRA and a separate account this year (I put them together at the same custodian). It's made my life so much easier and I actually understand my portfolio now (before it was just a bunch of assets). The only thing that's left to do is dig a few stock certificates out of the safety deposit box and have them converted to electronic shares so that everything really is in one place.

I make additional contributions above those required to the retirement scheme in Australia similar to 401k. Obviously, this is because the compounded savings in tax are large.

I have share trading accounts for savings I intend to use before retirement. One is for US shares the other for Australian shares.

The main use of this money would be to buy a house (in australia), if and when this ever makes any sense based on NPV calculations. I independently value any investment I make to the best of my ability.

I do not buy and sell assets frequently as I believe the market is probably very efficient on a short term basis (I know I don't know how to beat it). I tend to focus on longer timescale macro trends which I spend an enormous amount of time thinking about (for enjoyment, regardless of investment purpose). I would like to think (at least some) markets are not efficient on longer timescales (but short compared to my lifespan). I do not know if this is true, but I believe it probably is. This timescale is at least 5 years.

I rarely buy individual stocks, but there are some exceptions such as BHP as a proxy for commodities. I tend to buy targeted aggregate securities (ETFs are great) to get exposure to the trends I'm interested in. The less fees the better, so index tracking funds are preferred. I don't trust a random "expert" to be able to beat the market above fees. I know enough people in finance to know the way you get places is ability wear a suit nicely and talk confident (i.e. sell), independent of actual ability.

I rarely make large trades. If I'm moving from one asset (or cash) into another, I'll do so using a number of trades over a number of months.

I'm always diversified on a global basis. I always have some exposure to assets in the currency where my future expenses are likely to be incurred, even when I have a negative outlook on that currency (as is the case currently).

Here is a short answer...

My wife and I both contribute maximum contributions to our 401K's (no employer match). This is ~$16.5K/year, and we pick the funds the 401k allocation is invested in. Like any 401k plan, the options are relatively limited anyway.

Our larger savings and retirement funds, and some other assets, are managed by a professional. We both have a higher-than-average amount of investment knowledge and experience, but it is really a full-time job. We don't have the time to obsessively watch market trends, do research, and then move investments around to maximize our gains.

We also keep (depending on various other factors) ~$70-$120K liquid at any given time. This is money in a decent interest-bearing money market account, short-term CDs (3-6 months), that sort of thing. It's basically our funds for emergency stuff, cover a job-loss (we both work in startup type businesses), buy a car, or things like that.

If there's no match, it's generally advisable to not do this simply BEACAUSE the usually crappy fund selection.

You can open your own tax-advantaged IRA.

Actually, this year she switched hers to an IRA.

The other issue we've run into is that there is some law that says (and I forget the exact details) 401k contributions from the highly-paid employees can't be more than x% greater than the average employee contribution in the company. So if you work someplace where several other people are not doing 401K allocations, you get a "refund" at the end of the year (has happened to both of us).

Which is limited to $5,000 per year at best (if not old enough for accelerated contributions), isn't it? Or am I missing something?

Only Roth IRA is limited to $5k a year.

This doesn't agree with my understanding of the tax code as reported on IRS.gov. For example:


"The maximum contribution that can be made to a traditional or Roth IRA is the smaller of $5,000 or the amount of your taxable compensation for 2011. This limit can be split between a traditional IRA and a Roth IRA but the combined limit is $5,000.The maximum deductible contribution to a traditional IRA and the maximum contribution to a Roth IRA may be reduced depending on your modified adjusted gross income."

Also, this table seems to agree:


This is for 2011, but my recollection is that 2010 had identical wording.

Yes, but a 401k has an annual contribution limit of 16.5K while an IRA allows only 5.5K in annual contributions.

Ideally, having both accounts would give you 23K of tax-advantaged savings.

I have a 401k, Rollover IRA and Roth IRA. I don't max them because for a while, my returns were lower than my student loan interest rates and I felt it be a better use of my money at the time.

Until my loans are paid off, I will be sticking with just those 3 retirement accounts.

I pick my own ETFs because I'm super type A, but it's based on crowd appeal. So if I find 5 experts recommend an ETF, and it has a low management fee, I'm likely to purchase it.

I stick strickly to ETFs (but in all asset classes, such as bonds) because the rate of return generally exceeds CDs and Bonds, and I don't need the money at the moment. Plus, Bonds and CDs pay out so low that I'd rather just have my money in a high interest (hah) savings account.

What else do YOU have in mind? Feel free to find me on any of the networks listed in my profile if you'd like more feedback :)

Why ETFs over mutual funds (such as those with the same holdings)?

I got out of employer 401k. Yes they are tax advantaged, but your money is hostage and you will be harshly penalized if you ever need it for some unapproved use. I find that these penalties cause me to be much more conservative with the amount of money that I am willing to invest.

Since I got out of tax advantaged accounts I now use an online broker to buy exclusively index funds. In the past I was only comfortable investing say 15% of my money (after living expenses), but now I feel comfortable investing 40-50%. I don't need to simultaneously keep a huge amount of cash savings because at any time I can sell my index funds and have the money in less than a month.

You also pay extremely low fees with index funds whereas 401k plans can have pretty high fees depending on the provider.

Sorry, but this is terrible advice. You could be sheltering $16,500 per year from all taxes until retirement, not to mention possible employer matches.

Right now, you probably have to earn about $23,000 (assuming 30% tax rate) just to invest the same $16,500. Then, you have to pay capital gains taxes or regular income tax every time you receive dividends, yields, or sell a stock at a profit. These taxes can eat anywhere from 20% to 38.5% of your profit on every single transaction.

If you sat down with a calculator and figured out the difference between saving $16,500 in a 401k and saving that much in a non tax advantaged account, you are literally throwing away over $1 million throughout the course of your career.

Not to mention, you can take a loan against your 401k if you really need the money.

It does leave money on the table. I wasn't necessarily giving advice, just telling what I do.

Also, I find the concept of taking a loan on my own money detestable.

I've seen it mentioned here a few times, but if you haven't heard of the permanent portfolio, check it out here:


Warren Buffet's rules of investing: 1) Never lose money. 2) See rule #1.

I use municipal bonds to immunize my expenses (http://en.wikipedia.org/wiki/Immunization_%28finance%29). Municipal bonds (affectionately called "munis") are not subject to federal income tax because of a Supreme Court decision in the 1890s. Most states also exempt the interest on their own municipal bonds from their own income tax (of course, if you're in a state with no income tax like TX, then that's not really a problem). Furthermore, some states (like California) are constitutionally obligated to pay the interest on bonds before they allocate money to the the state's general funds.

My immunization strategy is simple: for every $10,000 I put into munis, I get anywhere between $40-50/month (average return on capital is in the 5-6% range these days) in passive income. Keep in mind that since this is not taxed, this translates to a pre-tax rate of return that's closer to 6.94%-8.33%, assuming a federal tax bracket of 28%; in reality it's a lot more because of FICA and state income taxes.

For long term growth and in tax-advantaged accounts, I use zero-coupon munis. Yes, being in a tax-advantaged account diminishes the allure of munis, but some of those bonds are now paying in the 7.5%-8.5% range.

Aren't municipal bonds paying better these days because of fear (justified or otherwise) that lots of them--especially in California--are going to start defaulting?

Quick SEC disclaimer... I'm not an investment professional; I'm just sharing my personal experience.

It depends. Munis come in all flavors and sizes; the best ones IMHO are state-level "general obligation" (i.e. backed by state taxpayers) that do NOT fund revenue projects (this will make them taxable anyways). The second best ones, again in my IMHO, are classified as UTX ("Unlimited Taxation"), which gives the local government the power to raise local taxes in order to pay bonds. The ones I would be most worried about defaulting are the ones classified as LTX ("Limited Taxation") that fund revenue projects like local stadiums or toll roads; these bonds are paid back by the money collected by the underlying asset. Obviously, these would be the easiest to issue, as they do not require a referendum vote like UTX bonds, or state legislature approval like GO bonds.

Some states like California are constitutionally required to pay bondholders before any state-funded programs. Some states (like California) are also legally required to maintain a sinking fund, i.e. they can't make interest-only payments, but must also set aside money to pay back the principle owed to bondholders ever year. The "budget crisis" in California is because after paying back the 2 constitutionally mandated budget items, the state doesn't have enough money to keep the same level of spending as before.

In California, The interest on bond payments is an automatically budgeted line item every year; lawmakers can not change this without making changes to the state constitution.

Interesting, thanks. If I move to a state with income tax, or enter a tax bracket that warrants it, I'll definitely take a closer look at municipal bonds.

Risk of default on these bonds has never been higher -- hence the yield. The market has plummeted in the past few months, but don't try to catch a falling knife.

Quick SEC disclaimer... I'm not an investment professional; I'm just sharing my personal experience.

"Default" doesn't always mean that the principal won't get paid back. In almost all cases, it means that timely interest payments won't be made. Even in the most recent bond crisis in Puerto Rico, the "risk of default" was somewhat mitigated by the threat of shutting down the government offices (i.e. put the employees on unpaid furlough) just so the Puerto Rico could make their bond payments.

IMHO, it would be political suicide for a municipality or state to let bonds default. Here's an interesting article on this subject:


The default in the 1975 New York case was for revenue bonds. I don't know the exact details, but they sounded like LTX bonds.

I put exactly what my employer matches into a 401k (which for me is 6% of my pre-tax income, including bonus). In that account I'm 50% in a S&P500 index and 50% in a small cap index. I only have a few other options (cash, the company stock, 3 crappy mutal funds, a bond fund) that I don't like so I skip them.

Anything beyond that I go for a regular IRA, although previously I had gone with a Roth IRA when I had a lower salary. The Roth has the advantage of being more flexible (use it on a house, education, medical expenses), but now that I'm in a higher tax bracket I just use the IRA and hope when I'm retired my tax bracket is lower.

I would NOT convert between an IRA and a Roth. In doing so you are betting that you will be paying higher tax rates in retirement than you are today employed.

This may on the surface look like a good bet considering the deficit, but it probably isn't. Nobody seems to have the stomach to lower taxes on the lower/middle class, and that's where you will be in retirement. Right now a couple options being floated are to eliminate all deductions and lower rates or to add more brackets at the top end and soak the rich, either way you are just as likely to be paying lower taxes in retirement as you are to paying hgiher. But one thing is sure, if you convert, you pay a lot of taxes now.

I keep a Roth at max contribution. It is my preferred retirement vehicle as you can withdrawal your contributions without penalty. I'm still young and naive enough to believe that I won't actually need to have a retirement plan because I'll get rich before then, so a Roth was a good compromise of maintaining control over my money versus not having a backup plan at all.

A significant portion of my personal wealth is tied up in my tech company's stock (>50%). Since this is a large position and completely unreasonable in any money management strategy, I attempt to balance it by being extremely conservative elsewhere (note: you can never truly manage such a high-risk exposure). This has led me to invest in gold, treasuries, and/or funds composed mostly of these components.

Having a major in economics and actively trading equities and options for some years, I personally believe it is foolish to try to trade these individually for all but the professionals. Actually, I believe even if you are a professional, you probably don't know how to trade these either, but that's another story. Bottom line: don't play a game when your the sucker.

Some people suggest paying off all debt before investing, if X% interest on the debt is greater than %Y expected return on investments. In theory, that's fine; however, if you apply that to Roth/Traditional IRA contributions you have to be aware that they have an annual cap ($5000 for a Roth), and you can only make contributions for a given tax year until April 15 of the following year.

I turned 30 this year, so it's time for me to start re-evaluating this question myself.

Currently, I plow all my money back in to my company; I mean, at the moment I seem to be in a slow spot at the moment, but we doubled from 2009 through 2010, so while it's high risk, perhaps, it's likely I'm going to get better returns than I'd get from other investments without putting as much effort into being an investor as I put into being a business guy and sysadmin.

When I was young, this was certainly the right thing to do; When I make business decisions, I think as much about the long-term effect on my reputation as I do about the more short-term consequences for the business. (I'm the only shareholder, so there's no conflict of interest here. Either way, I'm "increasing shareholder value" as it were.) And in part because of that, I'm worth more as a worker than I otherwise would be.

The only real question now is "what point should I start becoming conservative?" if ever? I mean, I think I need to focus on getting myself more of a nest egg to cover unforeseen events, but I don't really have a lot of desire to 'retire idle'

Looking at my grandparents, the happiest of them seem to have an attitude of "I'll work till I drop" - I mean, they have assets that help, but they still work. One of my grandfathers, who is pushing 80 at this point, owns some small apartment complexes out in Illinois. He mows the lawns himself; I've even seen him do plumbing and even roofing himself.

To me, that's what I want out of retirement. Still work, but do so on my own terms. I mean, I don't know if I want that work to be maintaining old buildings, but you know, something combining my skills and my capital.

When it comes down to it, I guess that's what I have now. It would be nice to make a little more money than I'm making now, though.

It boils down to the relationship you have with your money.

  For me, bigger bankroll = higher score.
  For my wife, a bigger bankroll = more shopping.
The trick is to break your money up into several purpose-driven accounts and automate that.

2 Roth IRAs: maxed out (Vanguard S&P500 Index. 1 more year and it'll be 70/30 split with bonds).

1 brokerage: for fun, for research, for programming. Unfunded, no continuing additions. Go big or go home.

3 checking accounts: mine, wife's, joint - the paychecks

2 MMAs: mine, wife's - excess money must go somewhere. One of which is sub-divided into: health, gifts, emergency.

2 savings accounts: tiny siphons ($300/mo) that corrupt my sense of reality. It's money-out that looks like normal transactions.

Hacks: By having a high-deducible health insurance plan, I'm able to put 3k/yr that would have been my insurance premium into a health-related emergency fund. As long as I don't get injured in an at-fault car accident twice in one year, I'm saving tons of money

Edit: formatting.

From Andy Rachleff, Vice Chairman, University of Pennsylvania endowment investment committee President & CEO, Wealthfront Inc.:

Financially sophisticated individuals start with an asset allocation. For someone under 40 you should probably allocate around 30% of your assets to fixed income securities (probably half in treasuries and half in TIPS) and the remainder in securities that have more appreciation opportunity (10% in real estate, 35% in US equities, 20% in foreign equities and 5% in emerging market stocks). it's very hard to outperform the market in fixed income so i recommend buying treasury and TIPS ETFs. For your US, foreign and emerging market equity allocation you might want to try wealthfront.com to identify money managers who have outstanding track records (I am a co-founder of wealthfront). Wealthfront currently doesn't offer any real estate managers so a REIT ETF is probably the best bet.

By the way, when buying TIPS (or any kind of Treasurys), you are basically saying "Yes, I like the fact that the USA is deep in debt and I want it to go more into debt rather than balancing its budget!" That is what Treasury bonds are -- the USA borrowing money from you and promising to pay it back. This is where the debt comes from!

Somehow I do not think many people realize this...

There is zero default risk in US Treasuries because the government has the capability of printing more money. Can you name any other type of bond or fixed income that has zero default risk?

Okay, but I never said anything about default, so I don't know what this has to do with anything! As you know, when the government prints more money, it dilutes the value of the existing money. So then, when you buy Treasurys and they get paid back, you made your money by silently leaching it out of the pockets of all other Americans, with the government as intermediary. What a great financial model!

Investing is one of those things that can take a lot of additional time for rapidly diminishing returns. You could spend 40 hours a week trying to pick stocks and come out under the performance of a good index fund that you can set and forget. Even if I could do slightly better, my time has value associated with it. I'd liken it to real estate. Go ahead and buy the house you plan to live in, but once you own multiple properties you become a landlord. Whatever other profession you have quickly becomes secondary.

So for me it's a basic auto-deduction 401k split equally into five low fee index and mutual funds. They rebalance annually. It's a dead simple dollar cost averaging approach that does well enough and I don't have to think about it.

Oh and FYI, both my parents are/were bankers. One is investment licensed, and I've worked as a banker in the past. So even with training in this area I choose the simple approach.

Any large cash positions are vulnerable to the high rate of inflation that is an inevitable result of Fed policy in the last few years. Best bet in this economy if you want safety is large cap equity issues from companies with highest quality brands, which will permit them to raise prices with their increasing costs. Another good bet is real estate, but diligence in that market requires too much time for my taste.

An excellent risk-return optimized investment is an ETF short on the bond market, such as TBT. Because it's traded as an ETF, your loss is limited to whatever you pay. Because it's a short on the bond market, whose yields are at multi-decade lows, it's got pretty decent appreciation-potential.

Plus you get the satisfaction of seeing all those financial services insiders (most of whom want a frothy bond market) suffer as you make money.

I have an IRA, Roth IRA, private account, and a large investment in my business. I just hired a portfolio manager to handle the private account this summer. That has been great because it is now invested in individual equities (which is great for tax purposes) except for an emerging markets ETF. The IRA and Roth IRA are managed individually by me and I've decided to put them into an S&P index fund and forget it. I'd actually like to manage the 3 accounts in tandem to avoid paying taxes. The idea would be to load up the non-taxable accounts with the higher risk/return investments - which should outperform over time - so that I'm selling them without taking a tax penalty when it comes time to rebalance. The problem is, my portfolio manager won't touch them because they don't meet his minimum.

I just moved from Germany to the US and my US visa expires after one year. Having no idea in what country I will end up next, things like a 401k or any other country-specific investment form makes no sense to me.

As such I have already given up on establishing a state-sanctioned retirement fund any time soon. Instead, I live frugally and save more than 50% of my post-tax income. Some of that is invested in funds because I can easily keep those wherever I will move to in the future.

Right now I am investing some of that in managed funds but I am not very happy with this and will probably move to index funds soon. I don't have enough confidence that my actively managed funds will beat the average market.

I'm an Australian, so my goals are slightly different.

* I get 9% into my Superannuation account from every employer, period. I add to this an amount to make the government co-contribute (Up to $1500), but I'm no longer doing this as my income is now over the threshold where they will co-contribute. Although in some ways this is "Money in the bank", I'm not doing it ATM as I want to:

* Pay off my debt. I have a credit card and a car loan that I want to nuke. Once they're gone, I'll invest the money I'm using to pay them down.

* Then I'll save up 6 months worth of expenses, and keep that around.

* Then my plan is to invest Warren Buffet style: Pick an industry, learn voraciously, and invest in stocks for their dividend return.

* Trading 'high risk - high reward' in a taxable account with margin (ex: put in 10k and they give me $30k extra). About 15-20 trades per month, 30% day trades and the rest 5-10 day hold periods. I use stop losses to minimize risk. I have no losses YTD. I use Twitter to find stocks in play and trade based on technicals.

* Max Roth IRA in long term trades.

* 401k up to employer match

* No mortgage, no car, no kids, paying under 10k school loan off

* I rent in the city, walk to work (no public transit costs) and each year I can upgrade or downgrade my monthly rent based on my income changes.

I'm thinking about buying a detached property (minor HOA fees) in Miami or Las Vegas in cash to move and dedicate full time working on my startup and trading.

I use mint.com to get a high-level overview of all my finances. I have a couple different credit cards (I got them to get different frequent-flyer mileage awards and other rewards), and it's very useful to see a snapshot of all of them at once in mint than to check them each individually. For investing, I've given up on picking individual stocks and just buy index-tracking funds. I like zecco.com as a broker because they are total no-frills and if you maintain a high-enough balance (25k?) you get 30 free trades a month. But I also have a smaller amount of money at covestor.com (I think USV invests in it and that's how I found out about it).

I do and have all the things you listed

* 401k maxed out to IRS limit every year primarily for tax benefit and retirement saving. Don't qualify for Roth and IRA.

* Two non-retirement investment accounts. Our expenses are lot less than income so all savings go to one investment account.

* One investment account has managed and index mutual funds and ETFs. Another smallish one is a 'play' account primarily with individual stocks, typically use quantitative trading strategies and macroeconomic trends.

* A saving account with emergency funds (six months net pay)

* No debt other than a smallish mortgage.

* We drive 10 year old cars. May buy a new one in late 2011.

I'm in college, I have a Roth IRA that I set up using the money from my internship last summer. I use Sharebuilder, you can get trades for $4 a share. When I get a job I'm gonna max my 401k and Roth IRA each year, no question.

My investment philosophy comes more or less from this interview: http://www.kirkreport.info/2009/03/qa-with-less-antman.html

I only own 3 ETF's - 50% VT, 20% RWO and 30% PCRDX. I'm investing for the super long run and think of stock downturns as a great time to buy more shares.

Income: Run start-up and consulting income

Investments: Purchasing rental property in the UK

99% of my net worth is in my business which I started 10 years ago. I am still young therefore I trade personal diversification against business independence. Eventually I will have to change that.

I'm definitely not an investor, nor do I know what I'm doing but...

* 401k, maxed to what my employer will match

* Stocks just for fun

* Bought a house when the market was extremely low

* Invested in myself; getting a Master's degree through my employer's gracious reimbursement plan

My father always told me to start young; max out the 401k and put even more away just in case. I wish I'd done more of that, as the longer I waited, the harder it became. Thankfully I started the 401k very early and never knew what I was missing. It helps to not see the money at all; checking on it every once in awhile instead.

Starting young is great. You're hinting at one of the other keys that has helped me, which is to make it automatic. This is often more important than the vehicle you choose for investment. If I automatically invest a certain amount each month it's just like you say - I never miss it because I never see it. Make saving as easy as possible (and what's easier than automatic?) and spending as hard as possible and that will drive your savings rate way up.

Whenever I'm working somewhere with a 401K, I always max it out, especially if there's some sort of match. I'm currently a 1099 contractor, so I'm doing the IRA thing. And yeah, I max that out too. It's advantageous to current and future taxes, so no reason not to.

In addition, I do have an investment account with Vanguard. My primary investments there are weekly contributions to one of their index funds. I also have some minor investments in various stocks. I've been buying Apple pretty consistently for the past two years.

My saving/investing strategy is governed by a few guidelines and realities:

1. I have a family (meaning I have more costs and more immediate investments I need to make, for example in the education of my children)

2. I believe that investing in my own company where I control the money and the effort involved has a vastly superior return than investing in a company that already had an IPO. There's no way those companies do the return on my funds, like my company does, if for no other reason than that they are already through their major growth phase (they already IPO'd). Add to that the level of control I have in my own thing, and it's clearly advantageous to invest there.

3. I believe stock purchases are akin to gambling. This expands my universe of possibly investments to other forms of gambling. It turns out that with some knowledge and practice it's possible to tilt the odds in your favor.

Given these rules and considerations I have a threefold investment strategy:

Cash is king. I keep large cash deposits available at all times, both in actual cash and in the bank. I invest a regular amount of my earnings from my job into my side business and my side business provides excellent returns and I've developed a way to scale those returns that I'll be testing this month (the ability to use in a leveraged way the money I invest into my side business, but with a higher maximum cap than I could reasonably put into the business). For my high risk, high reward "investment" I cut out the stock market altogether and literally go to a casino.

I suppose the final part of my portfolio might be the most surprising to HN. I can report that I've had excellent results in the casino. Sustainable advantage playing is possible. In 2009, I bought a vehicle outright with the proceeds from this portion of my portfolio.

If I didn't have a family, I'd be doing a more aggressive version of this where I'd have larger cash holdings (no family = way more money left over every month), I'd invest more in my side business, and I'd risk more at the casino.

Your goal should be to produce a machine that makes you money without your involvement, normally this is called a business, but if you have enough money, then the money itself can be this machine (through interest). To have that amount of money where it is sustainable requires roughly $4 million in cash (I've seen this number other places, the fabled "FU" money). It my belief that it's much easier to build a business that produces say $100k a year with minimal involvement on your part than it is to produce $4 million in cash (though it should be noted that if you produce a business that produces that much profit you're on your way to being able to trade it for $4 million in cash).

I paid off bad debt (no income from loan's purpose), stashed some in precious metals (hedge against fiat currency), and am now learning to acquire real estate income properties (rentals) for another revenue source for my excess cash.

My personal opinion is that most stocks are over-valued, and my confidence is low in most of our current central banks. But hey, that's just based on my value system, your mileage may vary.

Re: Roth IRA vs. Traditional IRA, I did a lot of research on it. I chose Roth because you can withdraw up to the amount you deposited without penalty at any time - this was big for me in case I needed the cash later for other things.

I'd recommend Roth to anyone who might want the cash for other investments later, especially entrepreneurs, unless you're in a top income bracket with literally no other tax writeoffs.

Google "Investment pyramid". It basically says have mostly safe investments; I use long term income real estate. Have some mildly risky, medium yield investments; I use a mix of stocks, bonds, and mutual funds (this includes my 401k). Then have a small amount of high risk high yield investment; I have some speculative stock. This would be the place for your start-up investment.

I gave a talk at Ignite Chicago about this. Though I have a 401k, I don't pay much attention to it. I keep it on autopilot, as most people do. The difference is I'm not relying on that for retirement. To do so is foolish I think. I put most of my money into rental property and my own business - two things I have (almost) complete control over.

Roth IRAs maxed, stocks, company-matched retirement. Got a short-sold house which we are paying off ASAP. Drive used cars.

* 401(k) through employer, maxed out (or close to) every year.

* Additional $200/month into a (taxable) mutual fund

* Whole life insurance through a solid insurer (Northwestern Mutual in my case).

* Rolled over all old 401(k)'s into a rollover IRA through my financial advisor.

Plan is to not have to work past 55.

max out Roth IRA every year. max out 401k every year. I have a savings account from ING with an emergency fund that should last us about 4-5 months if we both lost our jobs. I also have an individual stock account.

I mostly invest in the s&p500 ETF (IVV) and high dividend yielding stocks. I also have AAPL and GOOG from long ago that I'm still invested in. Unfortunately I didn't buy very many shares of those. I have other individual stocks. I'm not a trader, I hold onto those stocks for a while.

I have a 30year mortgage for my house. I'm not in a big hurry to pay it off, even though we pre-pay a little. I rather use the money to put it into my savings or investment accounts.

Those of us trying to start companies have so much risk tied up in our income; it makes sense to me to be more conservative than the average person of the same age with assets that have been invested in public markets.

Right now, 403(b) with investments in index funds. Pension plan from the hospital I moonlight at 3 nights a week.

Any last remaining dollars go into building equity and creating value for my shareholders (me and co founders).

Stocks in Bovespa ( Brazil )

See a financial advisor and figure out what plan is right for you. Not only is this question open ended, but answers are and should be tailored to the individuals needs, plans, and long-term goals.

To "hack" investing, just focus on figuring out what type of long-term goals you have. 5, 10, 15 years, and retirement, what do you want to have achieved or saved by then. When do you want to retire?

Are you wanting to manage your money, or pay fees to have experts do it for you?

Do you have a family? Who do you support financially. All these factor in what type of personal investing you should do.

Once you have figure out all these, the main goal in investing is diversity of your portfolio. Diversity in the risk versus payoff, but also in type of investment, region, and industry.

Your local Credit Union Bank, will offer free financial advise, if you have an account with them. Our credit union advisor, was really patient in answering pretty much all our questions..

well.. he will try to sell some of the bank services, but finally he was able to convice us to roll over IRA to our bank's IRA.

The problem with asking a financial advisor is finding a good one. By the time you've learned enough to know the good from the bad, you may as well DIY and save the fees.

Although, there's definitely value in getting help from specialists in certain areas (estate planning, taxes).

Individual stocks, although I'm thinking of switching to just index funds (e.g. if dow jones index go up I earn money.) since constantly researching on companies become quite time consuming.

If you find stock trading interesting, you could also allocate a portion of your money as "play money", then leave the rest in funds.

Also, you'd probably want to go with a more broad-based index than DJIA or S&P500. Many fund companies have a "total stock market" funds where they attempt to literally buy a piece of every US stock, weighted by market cap, so you'd effectively be owning "the US stock market", rather than just large companies. There are also total international funds which do the same thing for all non-US stocks.

Also also, you should include bonds if you aren't already. Like with stocks, there are total bond market index funds for this.

In fact, if you just picked an allocation across "total stock", "total international" and "total bond" you'd pretty much be set. This is what Vanguard does for their target retirement funds: https://personal.vanguard.com/us/funds/vanguard/TargetRetire...

I'm curious to hear from those of you who deal with investment real estate, either self-managed or handled by a property management company.

I've worked as a professional real estate manager for 15+ years, mostly in California but with also in a couple of places

The expected cap rate (annual rent / purchase price) in on both the East Coast and West Coast is roughly 5-7%. In places like Texas and Ohio, the cap rate is roughly 10% Since a "competent" property manager (like myself =P) usually charges about 10-15% of gross rent, this means your expected cap rate will drop to about 4.5%-6.3%.

Expense rates are roughly mortgage (7-10%) + taxes (1-2%) + maintenance (1-2%). Most commercial properties also don't have a high expense ratio because tenants typically like to keep their places of business up and running. However, keep in mind that commercial properties are usually paid back a faster schedule (usually 10-20 years) than residential mortgages (usually 15 or 30 years), so there are much larger monthly payments.

People usually do real estate for the tax benefits; there are many common, legal and IRS sanctioned ways to create tax-free income streams. However, to get to that stage requires starting with a significant amount of equity.

Quick disclaimer: I am not a tax professional; please always consult your own professional help.

I don't want to sound like I'm lying, so I'll provide a very benign example of the "common, legal, and IRS sanctioned" income streams,

Let's suppose that I have a house that's paid off. Instead of selling it and incurring all sorts of taxes, why don't I: 1) take out a mortgage against it 2) rent it out

The mortgage is not really income, according to the IRS, but a valid business expense. By renting it out, I get the tenants to pay back the mortgage for me.

Some of my earning is saved in a cryptocurrency called bitcoin. It's high risk but potentially extremely high reward.

I went all in on my startup. Jury's still out, but it felt like the right thing to do.

Roth IRA, maxed every year. I'm buying individual stocks with that account.

Anybody do any investing in Foreign Markets? Would love to hear about that.

I am heavily invested in Australia - huge natural resources and located close to the growing asian markets.

"A Random Walk Down WallStreet" is still an excellent read.

What I'm about to say might be controversial. It goes against the grain of the 'Look at me I'm so frugal' meme/arms race here on HN.

The financial crash of 08/09 left such a bad taste in my mouth (as in I lost many tens of thousands of dollars) that I have completely lost faith in the stock market and anything associated with it such as ETFs, mutual funds, 401k, etc.

Getting a 'real' job and putting money into my retirement accounts lost me tens of thousands of dollars in savings (so think about how much lost time that is) and the job that paid for it all. Yes, it absolutely sucked. I was furious, with myself, with others, with my parents (who advised me), etc. It was a terrible time. I drank.

I was forced into doing a startup in Dec. of 08. It's been profitable since the first month. You would be surprised at how well you can focus when you lose your job and half of the money in your bank accounts in the course of one business quarter.

I now keep large cash savings, put a small amount into my retirement funds, invest the majority of my 'extra' money back into my startup.

I bought myself an expensive Porsche, an expensive condo, and started spending WAY more on luxury goods / eating out because losing $XX,000 after being 'responsible' makes you realize how TOTALLY unpredictable this life is, especially when it comes to financial matters.

After working about 3x as hard on a day-to-day basis and changing my spending habits to purchasing much more expensive things, I now have way more money than I ever did (in cash and cash equivalents as well as equity in a business). Go figure.

This post isn't advice, it's just an honest recollection of the financial transformation I went through in the past 2.5 years.

Your time horizon is too short. If you had left your money where it was instead of taking it out at the first sign of danger then it's likely you would have made it all back by now. There's a lot of volatility in the stock market (that's why the returns are higher than savings, money markets, etc), but the spikes and dips average out if you're thinking in terms of decades and not months.

That's not to say that your startup isn't a better investment, though.

I go into more detail on this in my post below, but I think that this is actually not true any more, because the basic nature of the economy has changed. If you adjust for honest estimates of inflation, stocks have been down consistently for 15 years. That starts to look a lot like a "new normal". Then you start adding in survivorship bias, selection bias, etc; the picture is not pretty.

Maybe it's not the new normal, and maybe stock markets will start rising again as they have historically, but when you see a lull this long, it at least suggests the strong possibility of a pattern break.

There is a chart at http://www.nytimes.com/interactive/2011/01/02/business/20110... that shows the average annual return for an investment in the stock market broken down by year of the start and end points. The returns are high if you invest early in a bull market and sell before the next crash, otherwise the returns are rather low. The conventional wisdom that holding stocks for several decades and getting annual returns of 7% or more seems wrong.

Thanks, means I didn't have to dig it out.

It really makes me wonder about investing my savings into my tracker fund when I saw that. I'm in the UK, and my guess is, due to very tight correlation between the markets we did the same sort of performance.

So long term, market beating, savings beating growth, is not assured. Especially not in "developed" countries. If you think the GDPs of Western countries is going to start increasing (significantly) any time soon, please explain why!

So if it isn't assured, I've been looking into index tracked funds in other markets, particularly APAC. Not sure if it's a great idea, but probably better than a UK indexed fund. I figure it's probably worth a try.

It's totally about when you put in. My parents are still down on a couple of their funds from 1999 ish. Break even happened just recently for them. They'd have been better off with that cash in a long term cash bond.

Why are there so many angel investors right now? Because only high-tech is offering any appreciable growth in the USA.

Having just scanned the rest of this thread. My future plans:

* max out the company pension scheme in terms of contributions.

* continue to max out the UK tax free savings & investment schemes. It's only £10k ish a year but it starts adding up pretty quick.

* Currently almost half my cash savings are not in the UK, as interest rates here now are poor. I am considering an additional offshore savings account in an interesting APAC country. Maybe Singapore, as many rich people in APAC do their banking there.

* property - I expect I will look into forming a Ltd company as a holding company, where any income is heavily re-invested. This will probably be seeded with a small inheritance, or my cash savings if I don't burn through them when I get my business off the ground

* Yes, I will be investing in myself. One month in to 2011, progress is slow, but I will have a spare time business running by the end of the year.

>Your time horizon is too short.

Didn't John Keynes say:

"The long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again."

Though apparently, he was talking about inflation in this case... but the point is, the nature of risk is such that while it works out on average, you still end up with an individual outcome at a fixed point in time which may vary a lot from the expected payoff. Not that I do completely agree with tastybites, but I see the logic.

> Your time horizon is too short

That's not really the point, I think the point is that I shouldn't have been investing in something that could evaporate on paper in 3 months.

Either way, yes, the point is I'm a terrible equities/retirement investor and a better small business person. Everyone here has excellent reading comprehension, as I would expect on HN.

> That's not to say that your startup isn't a better investment, though.

I didn't sell at the first sign of danger (first of all - selling at the first sign of danger would have been a GOOD idea, but my father, the successful older investor, told me to hold on as it crashed.). I sold after the market had come back by around 60-70% from the lows. That was good enough for me, especially since another 'double dip' was a very real possibility in the beginning of 2010.

If I had sold at the bottom I would have lost nearly everything. But I finally liquidated after my startup was consistently making money and I actually wanted the cash to put back into the business / spend.

Keep in mind I was never broke - I just had a large proportion disappear for a while. That drove me to do 'smarter' things with it after some of it came back.

Having said all that, "You should have held on to it" is standard 20/20 hindsight that makes a market crash sound so predictable. I think I had pretty good forward-sight given the situation.

Everything can evaporate in 3 months. The world is a risky place, tomorrow someone could come out with something to make your startup irrelevant. Houses prices dropped, used car values drop with the GM and Ford bail out, we mine more gold every year. You show me an investment that is always going to beat inflation and I'll show you a scam.

The only way to real be secure is diversification and never stop innovating and hustling. If you do you'll get burnt no matter what you have your wealth in.

You sold because you were afraid of another "double dip" that didn't happen, and now you think you had "pretty good forward-sight"?

"You should have held on to it" is not hindsight, that's typically stock market investment advice. Unless a company's stats have changed to the point where it's now a bad investment, you should hold it and ride out the storm.

Yes, the entire point of my original post is that I am a terrible stock market/retirement investor and a much better small business person.

You must have missed the part where I didn't sell at the bottom, started a profitable company, liquidated the equities to invest into myself at +60% off lows, and then came out ahead 2.5 years later.

'Oh you should have held' is hindsight advice, it's not real advice. It isn't even really saying anything at all. It's just something you say after you hear someone's story about how they lost money.

  > 'Oh you should have held' is hindsight advice, it's not real advice.
I think Warren Buffett would disagree with you.

I'm not sure how many posts it's going to take to tell you I did hold on, and that's why I didn't go broke and had the money to investment into my own biz.

I think at this point you're just trolling me now, so I'll end it with one more point:

If you know anything about Warren Buffett, you'd know his main thesis is to invest in only the things you understand. That's the advice I ultimately followed to end up in a better place.

Holding onto investments that you don't understand is not his advice at all - that's just a shitty platitude.

This is one thing that William Bernstein (I recommend his books) points out. You need to be able to calmly watch your portfolio halve in value and sit it out if you're going to be a buy and hold investor (or any investor, really). I have several friends who took their money out near the bottom of the latest crash and put it it cash or cash equivalents. It's the absolute wrong choice investment-wise, but it's understandable.

Selling before the bottom and buying before the climb is the right thing to do, but if you can do that, you're not spending time reading HN, you're either working hard as a trader or relaxing on your desert island.

This isn't controversial at all. This is pretty much the typical HN answer. But, the OP wasn't looking for this...

"I realize the general consensus around here may be that the best investment would be in yourself (have 25k? start a business!), but surely some people have "normal" investments, too. How do you hack it?"

Congrats on making this decision to do a startup, but that's not what he is looking for.

For what it's worth, I think that the way "big money" wins and "little guy" loses is exactly because of this. When people lose a ton of money, they lose confidence in the market and don't get to make much of it back in the subsequent rebound. To answer the OP's point, I invest in tech stocks/ETFs that I understand. I cut my losses very quickly, but buy more shares on my way up if it's going up. That's how after taking only a 10% loss in the market collapse I grew my portfolio about 80% the past 2 years in the recovery. Good luck! If you want more thoughts/ideas definitely email me- in profile. I'd be happy to discuss.

If I were to translate the grandparent post into advice for OP it would be "go with deposits".

Oh come on, give me a little credit - here, I'll rewrite the facts of my original post, which you might find adheres to your expected response format (while presenting the same, and no new information information versus the original):

I put a small amount into my retirement accounts while spending or investing mostly on my startup business, real estate, sports cars, and keeping cash.

Which post was more interesting to read?

Sorry if it was a bit harsh. You definitely wrote a more entertaining post. I was just pointing out that he was specifically requesting information that wasn't related to doing a startup.

Retirement savings is the longest-term of all long-term investments.

My 401K got torn to pieces during this recession. My first reaction was "How can I buy more?". That's when I started maxing out the 401K and buying additional stock in the form of index funds. Those actions have made my personal recovery from the market plummet much quicker with the upside that I now own stock with a lower dollar-cost-average.

If I didn't lose my job things would have been different - I possibly would have bought more.

But remove that cashflow and the options start to dwindle.

Even without a job, I contributed what I could to an IRA. The $1500 I contributed in 2009 was roughly equivalent to $3000 contributed in 2007...

I don't think it's controversial.

For one thing, I generally advise people to try to be prepared for future financial catastrophic events (job loss), but also enjoy the fruits of your labor in the short-term.

Also, most of history has proven out that the most reliable path to wealth is self-employment/entrepreneurship. However this also has very high risks, so if you're not ready to FULLY commit, your best option might be a 9-to-5 and a slightly less spendy lifestyle.

* 401k (from an old job) and an IRA (maxed out). I also trade for my wife's IRA.

* I have a Zecco trading account (it used to be nice, cheap trades)

* I pick individual stocks only, doing my own research. Mutual funds and ETFs are OK for long term investment. I've looked at at stock recommendation sites like covestor.com, kaching.com and collective2.com, and they do have some amazing traders, so you can just mirror them (I'm kind of hesitant to do that, not sure why).

>they do have some amazing traders, so you can just mirror them (I'm kind of hesitant to do that, not sure why).

I'd be hesitant to do that because even a broken clock is right twice a day. I haven't looked at covestor in a while but, IIRC, you couldn't see what the other guy was invested in until you committed capital. If I can't see his investments or perform other due diligence, I have no idea what kind of risks he's taking to generate those returns. I'm much happier with my portfolio - which is designed to track the MSCI World Index and reduce risk - than I would be with some crazy trader gambling with my money. I beat the MSCI by 3 points last year which is an acceptable return and I sleep like a baby :)

I own a lot of physical gold and I bet a lot on sports. On reflection, that's not as "normal" an investment strategy as I was thinking.

To chime in, sports odds arbitrage is a great investment vehicle for smaller funds. One can also kick-start the process with some bonus bagging...

Here's what I do, and hence my advice:

* Maximum contribution percentage to a 401k, whenever possible.

* Maximum contribution to a Roth IRA. The 401k reduces your AGI, allowing this until you reach quite a nice income level. Even during unemployment, I contribute to my Roth IRA.

* Reduce fees! 0.25% interest is wiped out by a single $9.95 fee. I've moved to Charles Schwab for personal money, since they have no balance fees, decent investment options, and they fully refund all ATM fees around the world. I've rolled over old 401k's into a Vanguard IRA, since Vanguard has the lowest fund management fees in the industry.

* Don't be jumpy. If you're like me, you're actually horrible at individual stock investment. So, stick to mutual funds, and only look at them and reinvest once or twice per year. I suggest looking at targeted retirement funds (like the Vanguard 2040 that I use), and index funds.

* Keep 1 - 2 years of cash on hand. Everyone used to laugh at this figure, since who would be unemployed that long? That cash means that, instead of sitting at home, waiting for the market to improve, I was able to sell my stuff and spend extended periods traveling.

Most of you on HN are quite young. The younger you are, the more valuable it is to begin investing right now. Hell, if you're 17, do everything you can to throw $500 into an IRA. Even if you're working at McDonald's and dreaming of a startup, you can use an IRA contribution to cut your taxes.

1-2 years cash on hand sounds excessive, though I understand your point. FWIW, I keep approximately 6 months cash on hand and another year's worth in something slightly less liquid but still liquid enough I could get to it in <6 months time. Like a CD ladder.

My short answer is individual stock investing is fools path to being poor as you are betting against a full deck stacked against you.

Index funds is slightly better than mutual funds by-itself but not much better.

If you wouldn't recommend individual stock picking, mutuals, or ETFs, what investment vehicle would you recommend? I want to invest but feel like I really just know enough to get myself burned.

I'm not that other guy, but my advice:

There's no substitute for doing your own reading and research. Some good authors to start with are John Bogle, Larry Swedroe, Rick Ferri, Peter Bernstein, Nassim Taleb, William Bernstein, Burton Malkiel, Harry Browne. Don't invest in anything you don't understand, and don't trust any investing concept that can't be explained to you in 5-10 minutes.

The learning process should take you at least 6 months. Whenever you think you've got it figured out (most financial authors present their ideas in a very convincing, absolutist way), keep reading, because the next book might change your mind. In the meantime, put your money in a safe place -- bank CDs or short-term Treasurys -- and don't touch it.

I do the same thing as tastybites, sans expensive car.

I might buy rental properties later or something.

I'd rather die sitting on a motorcycle than on a bunch of equity that won't help me in the grave. I'm not an Egyptian Pharaoh.

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