How do you find funds to invest in? There are more funds than stocks out there. I have a 5 year investment horizon, and are willing to take on a large risk.
If I were you, I’d go with Vanguard index funds, which have the lowest fees in the industry.
I would pick a fund/funds that matches my risk target/preferences (e.g. equity funds riskier than bonds, small cap riskier than large cap/overall market, foreign riskier than domestic). If I had a very large risk tolerance, I might also allocate a small percentage of your portfolio to single name stocks.
Lastly, I’d just keep in mind the risk you’re taking with your investments. A five year time horizon doesn’t strike me as particularly long or compatible with having a high risk tolerance. Investing in equities can give you high returns over a long time horizon, but their volatility means that you can have large negative returns over a short time period (e.g. the S&P had a max decline from its peak of almost 60% during the 2008-9 financial crisis).
(Standard disclaimer about investing being risky, please do your own research as well.) Good luck!
Fund manager here -- I _also_ recommend going with Vanguard index funds, but a five year horizon is _very_ short. Many of the top investors world-wide think there is going to be a relatively imminent crash, an index fund (if it were me I would do S&P500) and you'll be fine in the long run but the short term (5 years is short) is very up in the air.
I'm curious why one wouldn't just move 100% into cash if you are expecting a crash. The S&P500 index fund would go down for a while in the case of a crash, right? I'm struggling with this now so any insight would be helpful.
> I'm curious why one wouldn't just move 100% into cash if you are expecting a crash. The S&P500 index fund would go down for a while in the case of a crash, right? I'm struggling with this now so any
If you knew exactly when the crash was going to happen, yes, that's what you should do. It's very hard to predict though, since you have to be accurate multiple times:
(1) When the crash starts
(2) How long it's going to last
(3) Whether it's inflationary or deflationary
You could for example have a crash in real terms (inflationary), for example, where cash is worse than the market - let's say the market goes up 5%, but inflation runs at 15%: that's actually a drop of 10% in real value, but cash actually drops 15% in real value, so stocks are still "the better loser" in that case.
In a nominal (deflationary) crash, it is better to go to cash, but you still have problems (1) and (2) to deal with that make timing things very difficult. You could, for example have said in April 1998 that "there was going to be a crash in tech soon" - and you'd be right, but only after sitting on your hands through 2 more years of craziness and missing out on 150% more gains before the crash actually came. Most people wouldn't be able to handle that.
Putting away a little every month will get you better returns than having cash on the sidelines waiting for the dip, even if you know when the dip will happen ahead of time:
Of course you don't know when the dip is going to come. So you have to pull out some time before (close to) the exact day that things start tanking. And then you have to get in on the exact day of the bottom, because the 'best days' for returns are often soon after the 'worst' days. And if you miss just a handful of the best days, your returns tank:
Of course once people are (usually completely) out of the market, they have a hard time jumping back in psychologically, and there's an opportunity cost to sitting on the sidelines:
I don't believe anyone can time the market continually well. The book "Anti-Fragile" by Nicholas Taleb does a good job of illustrating the idea that you want a portfolio that will _increase_ by randomness. I do have a large percentage of the portfolio in anti-fragile areas (a type of hedging).
While I'm certain a crash will happen, it might be another year, which could have a ton of gains in it, or it could be tomorrow.
yup; that's the entire point of index funds: to make a healthy return over a long-enough time horizon
the bogleheads love talking about a four-headed fund to better diversify against risk: 50% index, 25% bonds, 12.5% international indices, 12.5% REITs. that's how I have my IRA and 401(k) set up, and it's worked well over the last few years. (My IRA is a little more speculative (some shares in TSLA, some in LCID), but most of the funds are split up this way.
Indexing does not remove systematic risk as another commenter mentioned, but there are things one can do to help deal with timing, such as dollar-cost-averaging.
Agreed. Set your asset allocation. Buy a small number of diversified funds with low fees. Rebalance once per year to match your asset allocation in response to market fluctuations.
Vanguard funds are excellent at this. Fidelity are good too.
For Vanguard, Total Stock Market, Total Bond Market, Total International Equity. Those three funds based on a mix catering to your own risk tolerance and circumstances and you’re done.
Or you can go with an investment management company that will charge you 1-2% of assets under management, put you in 15 high fee funds that they rebalance you in monthly to generate not only buy/sell fees but also they mark up the price of your buys and mark down the price of your sells. So many horrible companies out there.
Seconding the recommendation for Vanguard funds. And yes, five years is not long enough to amortize away a crash or substantial downturn, so if by "large risk" you mean "I don't mind not getting my original investment back" you might be fine, but if by "large risk" you just mean "I'm not going to panic at a little volatility" then you probably want something safer on a five-year timeline.
Over a sufficiently long term timeline for certain types of investments, the latter often turns into the former. Total-market stock funds on a 30-year timeline are volatile, but are unlikely to lose your money in any scenario in which money continues to have value. Total-market stock funds on a 5-year timeline have a substantial risk of getting out less than you put in, just from an ordinary downturn, let alone a major crash.
(I agree that the term "risk" often conflates a variety of things, and in this context should primarily mean "risk of losing your investment" rather than "day-to-day volatility".)
Risk is uncertainty, it’s not about loss or gain. If I lever my portfolio 2x, I’m taking on twice the risk but if I’m in the money I’ll make twice as much.
I want to echo the other comments here that low expense ratio (<0.25%) funds from Vanguard, Fidelity, Schwab, etc... are all great stable investments.
My time horizon is longer than 5 years, and I buy broad market index funds split up as follows: 55% US large cap (e.g. VIIIX, VTSAX, SWTSX), 15% US mid cap (e.g. VMCPX), 10% US small cap (e.g. VSCPX), and 20% international (e.g. VTSNX, SWISX, VXUS).
I also highly recommend dollar cost averaging. i.e. buying a fixed amount of your portfolio at fixed periods. I have my bank do this automatically every 2 weeks. The benefit of dollar cost averaging is (1) it takes the emotion out of investing, and (2) over a long time window, more of your assets will be purchased at a low prices than high prices (because you're buying a fixed dollar amount of assets every N days, fewer you will buy fewer assets when prices are high and more assets when prices are low).
since we're all here, what's the 2021 take on dividend funds? it seems nice to get a little paycheck every quarter in addition to your investment going up...
Seems like NL. Do you need the income from dividends? If not, the "growth" sectors have more total growth compared to dividend stocks/etfs.
Note that dividends are also taxed at the company level. So Apple pays USA 15% and then you also get taxed your 15% pre-tax. This doesn't happen when not distributing the dividend.
It sounds like you are looking for something a little more aggressive though. Wisdomtree and State Street offer ETFs tracking a variety of indexes. Keep an eye on expense ratio though. Anything over 0.75% is rather high.
Also, as a side note ETFs can provide tax-advantages over mutual funds when you sell.
I was more thinking that you can sell ETFs by tax lots, but generally cannot do that with mutual funds. I suppose it depends on who you bank with though.
Don't touch managed funds, the fees are too high to be worth it. Don't touch index funds with high fees either. In fact once you've picked a mix of geography and stock/bond ratio find whatever index fund has the lowest fees.
In terms of picking equity Vs bond ratio, if you're aggressive go 75% equity. I think (might be wrong) returns actually go down over 75%. For geography just match the world economy.
The Intelligent Investor (By Benjamin Graham) covers the whole thing with sources and statistical backing. I've been following this for 2 decades and made about 7% per annum so I'm happy. It's low stress, low touch, low risk, decent return and compatible with various tax wrappers (pensions etc). What's not to like.
In addition to all the common-sense advice (get diverse [probably index] funds, balance them appropriate to your situation, avoid high fees etc), here are some tools I use:
- etfdb, an outstanding repository of information about individual exchange-traded funds. https://etfdb.com/
- fossilfreefunds.org, an engine for evaluating the carbon exposure for funds. There's a staggering amount of oil/gas/coal currently on the books as value for companies that ultimately will need to stay in the ground. You and me likely aren't running in the circles capable of picking the winners in this carbon bubble, so I generally try to avoid my exposure (I don't want to left holding that bag). https://fossilfreefunds.org/
Frankly, if comfortable with large risk, I would be looking at crypto, specifically ETH, SOL, ADA and maybe some meme-coins. I don't think any public stock market funds offer that kind of risk/reward at the moment for the speculative investor.
I understand that HN hates cryptocurrencies for all the right (moral, environmental, ponzi etc) reasons but OP asked for a high risk, short (5 years is short) investment that yields. Crypto is that. So answering the question with; crypto is very high risk, can disappear any moment, is bad for the environment, has no fundamentals etc etc However, the past 10 years show it is pretty good for high yields in short periods. Is better than just downvoting everyone who mentions it to hell imho.
> I have a 5 year investment horizon, and are willing to take on a large risk.
These two statements would be considered contradictory by common financial standards. 5 year horizon means you need the money in 5 years. However, high risk means that in 5 years (a short amount of time compared to normal equity volatility) there's a sizeable probability that you will have negative returns.
I recommend the questionnaire here as a starting point:
Shameless plug: You can sign up for the LOGICLY platform. We have a screener with about 100k funds including all US ETFs and mutual funds.
The answer to your question is "it depends". Mainly on your level of involvement in your portfolio and what your goals are in life. Also is your account qualified or non-qualified (taxable vs non-taxable). So there's no one-size-fits-all.
Personally, I am a "set it and forget it" kind of person. You can buy a low-cost target date mutual fund that takes care of all the portfolio management under the hood. If this is in a taxable account - you may have the benefit of tax free portfolio management (Youll have to check if the fund has paid or could pay out capital gains that would be taxable).
Ultimately on a long timescale I wouldn't get distracted by the side shows (highly focused thematic funds). Bet on broad diversification with low management fees and dividend reinvestment and you'll be golden.
Caveat: I dont want to sound overly prescriptive. Again, theres no one-size-fits-all solution.
Thanks for the tip! The biggest selling point for investing in funds, is being able to set it and forget it. Never the less, it is probably a good idea to make adjustments to the fund portfolio a few times a year.
Pick a reputable company like Vanguard and sift through their categories of funds (index, sector, bonds, REITs, etc). Each will come with its own risk profile and past returns, so from there filter down into an investment thesis. Think Silicon Valley will keep doing well? Then consider a tech-heavy fund. Want to cash in on real estate plays? Then look into the holdings of their REITs.
Once you do that, find equivalent funds across the various companies, and pick the one which has the lowest fees.
For increased risk, put heavy allocation into a single sector. For reduced risk, pick multiple asset classes (e.g. bonds and international). For the most conventional options, look at the composition of target date funds, which balance risk geographically and temporally.
Once you have a picture for what funds you want, use a screener to explore from there. Iterate on the thesis as needed
It seems to be a bad idea to pick funds based on last months market performance. The ARKK fund used to be a hotshot. After Tesla went down today, they are now in trouble.
"What to expect from funds after they gain 100% or more in a year? Trouble, mostly." - Jeff Ptak (Morningstar)
If you are willing to take on a large risk put it in crypto. It may outperform the best fund by several orders of magnitude. Or it may go to zero (they say).
The last decade has seen a massive effort to prop up all asset classes including stocks at any cost. This can't go on forever and won't. I have seen the 2000 .COM crash and the 2008 crash and at the moment it feels the same as when it was leading up to the crashes. There are plenty of people whose only experience is always rising markets so they think this will keep going on (it will until it doesn't).
Same could be said for tech workers. I think a lot of them will have a rude awakening in the next few years when they realize that their great jobs were not because of their own brilliance but because they were lucky to ride a huge bubble.
For finding the funds - I look for passively managed funds with low expenses ratios. I use Fidelity and Merrell Lynch as my brokerages and I largely prefer ETFs over index funds.
Can't go wrong with Vanguard index funds. But educate yourself first. Knowing about the stock market and how it works earns you more dividends than actual stocks.
Disclaimer: not affiliated, but I hold Vanguard index funds.
I've used it only a little bit, but Morningstar[0] has detailed writeups about funds. Some of their stuff you have to pay for, but I find that their free content is enough.
My contrarian view is to NOT trust any company/fund. Take the time to learn how to invest. Then, buy your own individual stocks with your own research. You'll reap huge benefits.
I would pick a fund/funds that matches my risk target/preferences (e.g. equity funds riskier than bonds, small cap riskier than large cap/overall market, foreign riskier than domestic). If I had a very large risk tolerance, I might also allocate a small percentage of your portfolio to single name stocks.
Lastly, I’d just keep in mind the risk you’re taking with your investments. A five year time horizon doesn’t strike me as particularly long or compatible with having a high risk tolerance. Investing in equities can give you high returns over a long time horizon, but their volatility means that you can have large negative returns over a short time period (e.g. the S&P had a max decline from its peak of almost 60% during the 2008-9 financial crisis).
(Standard disclaimer about investing being risky, please do your own research as well.) Good luck!