Ask HN: Aside from the stock market, where would you invest excess cash?

[uptown]

I've decided that the stock market, as a long-term investment strategy, isn't something appealing to me. While I'm not adverse to risk, I feel that trading in a marketplace controlled by professional investors with access to research and high-frequency trading tools is a losing proposition.

With that said, leaving excess income sitting in cash will just result in dipping below the rate of inflation. How else do you apply your savings if you're unwilling to invest in the stock market?

[lutusp]

> I've decided that the stock market, as a long-term investment strategy, isn't something appealing to me ...

Why? It's one of the few sound long-term investments.

> While I'm not adverse to risk, I feel that trading in a marketplace controlled by professional investors with access to research and high-frequency trading tools is a losing proposition.

If that were true, businesses would refuse to raise capital using equities -- businessmen aren't fools, but they regard the equities market as a legitimate source of operating capital. There's a reason for that trust.

> How else do you apply your savings if you're unwilling to invest in the stock market?

My advice to you is to abandon your present thinking process, reconsider the value of equities, but don't hire a broker or invest in individual stocks, instead establish a long-term buy and hold position in an index fund -- a fund that tracks a market indicator like the DJIA. No stockbroker, no one selling you useless investment advice, no portfolio churning, just long-term growth.

More here: http://arachnoid.com/equities_myths

[murtza]

The best advice I can give you is to ignore everything in this thread, and talk to a financial advisor that you trust who understands your goals and risk profile.

To answer your question: Besides the stock market, some other asset classes that you can invest your cash include collectibles (art, coins, stamps), commodities (metals, agriculture), currency (EUR, RMB), bond market, and real estate. A newer asset class is peer to peer lending platforms like Lending Club and Prosper. Like with any type of investing, study the risks associated with the asset class before investing.

For anybody interested in alternative asset classes, I recommended reading up on Modern Portfolio Theory.

http://en.wikipedia.org/wiki/Modern_portfolio_theory

[vladimirralev → murtza]

Finding a financial advisor you can trust is about as hard as doing the portfolio research yourself. It always helps to have more and more sources of data about opportunities. Even if many are outdated, too new or outright scams, it's better to know about them rather than "ignore everything in this thread".

[wikwocket → vladimirralev]

Start by avoiding anyone who gets a commission on anything they sell you, or a flat percent off the top of your investments. Find someone you pay by the hour.

[ameister14 → wikwocket]

Why is a percentage bad? If it doesn't take from the principal, wouldn't a percentage of profit be the best incentive for performance?

[lutusp → ameister14]

> Why is a percentage bad?

Because undesirable investments are frequently offered with enticing deals, and good investments aren't. It seems consumers aren't aware of this, only investment counselors.

[ameister14 → lutusp]

How does that make a difference? If I give a financial advisor 10% of all profit I make, and make no profit, he gets nothing. So, he has an incentive to make me money.

Why would a deal on the investment make a difference there, and how would paying him by the hour solve this?

[lutusp → ameister14]

> If I give a financial advisor 10% of all profit I make, and make no profit, he gets nothing. So, he has an incentive to make me money.

You're missing the point. Your financial situation is not the same as that of your advisor. If you make 8% per annum on a very safe investment, and your advisor makes 1% of your 8%, that might be a good deal for you. If you make 8% on a very unsafe investment and your advisor gets 1% of your 8% plus 10% of the transaction fees under the table, then you and he are no longer on the same page.

> Why would a deal on the investment make a difference there, and how would paying him by the hour solve this?

See above. And:

http://www.marketwatch.com/story/new-credit-card-pitchman-yo...

Quote: "The strategy, known on Wall Street as “cross-selling,” helps boost profits by steering customers from a firm’s brokerage operations to its retail and investment banks, and vice versa. Financial advisers benefit by earning bonuses for marketing loan products."

The financial advisor gets the bonus, not the investor. The reason the bonus is offered is because the touted transactions are unattractive to anyone who understands the markets, so there has to be an added incentive. In this way, a financial advisor feathers his own nest at your risk and expense.

The idea that a financial advisor has only your interests in mind is a myth.

[coryl → wikwocket]

Why is commission a bad thing?

[wikwocket → coryl]

People who get paid a commission to sell you X are motivated to sell you X. Preferably the biggest X possible. As opposed to determining whether X is best for you or even remotely applicable for your situation.

For example, there's a saying about whole life insurance policies, that they are not bought, but sold. Meaning that no one goes looking to buy them (because they often perform poorly compared to traditional investments), but agents will often push them on people (due to high commissions). Note that the high commission rate is not unrelated to poor performance as an investment!

[coryl → wikwocket]

That would simply depend on how sleazy the individual or business in question then, right? I don't see commission as the biggest factor of importance when deciding investment vehicles.

Your family doctor may get commission on prescription drugs prescribed to you, but that doesn't necessarily mean your doctor is unethical or only self-motivated.

[kalid → coryl]

Incentives drive behavior (not 100%, but hugely influenced). When real estate agents are incented to sell,your house quickly (vs. at the highest price possible)... they sell your house quickly, and not the highest price possible. For their own houses, they of course go for the highest price.

http://freakonomics.com/2008/02/26/real-estate-agents-revisi...

[lutusp → murtza]

> The best advice I can give you is to ignore everything in this thread, and talk to a financial advisor that you trust who understands your goals and risk profile.

The Wall Street Journal Dartboard Contest proved over and over again, to the point of exhaustion, that investment counselors aren't worth the money.

Link: http://online.wsj.com/article/SB1000142412788732450470457841...

Title: "Darts Top Readers in Final Print Contest"

Quote: " The darts have beaten the readers with 30 wins out of 49 contests."

Any questions?

More here: http://arachnoid.com/equities_myths

[Terretta]

I see a comment here about MPT, modern portfolio theory, with the idea you can balance risk and reward with math. Yes, but if you don't want to have to learn stocks, perhaps you also don't want to learn asset classes.

If you're willing to park your money, check out the efficient market hypothesis ("EMH") which tries to explain why in the long run, most financial advisers and stock pickers and even hedge fund managers have their asses handed to them by a straight up stock index:

http://en.wikipedia.org/wiki/Efficient-market_hypothesis

Think of EMH as "how I learned to stop worrying and just buy an index". What you can use an advisor for is learning which indexes may reflect any appetite for risk you have, or perhaps altruistic or diversification goals you have. (For example, I'm working in growth technologies, so over the past decade I've liked to diversify by storing value in timber land.)

[100k0s → Terretta]

"Think of EMH as 'how I learned to stop worrying and just buy an index.'"

Benjamin Graham and Warren Buffett both advocate this method for the majority of people. In Graham's day it was Mutual Funds -- these days it's Index Funds/ETF's. If you're interested in some grounding, humbling, & timeless reading on it, read stuff by the aforementioned, such as http://www.amazon.com/The-Intelligent-Investor-Rev-ebook/dp/... (no referral).

It sounds like the only reason OP doesn't want to invest is because of high-speed trading and tricky professional investors. But, Graham and Buffett both suggest, with a long enough runway, you aren't even playing the same game as them. It doesn't matter whether you saved a couple bucks on a stock today and if some day trader profited off your millisecond slowness -- if you trust your own decision making skills, you'll own the stock for years and will save gray hairs with their mantra "I don't know and I don't care" (as a response to the question, "What happened in the stock market today?").

[eigenvalue]

I've worked in the hedge fund business for 5 years. My single best piece of advice if you are serious about investing and willing to spend a decent amount of time learning how to do it properly is to apply for membership to the Value Investors Club website (http://www.valueinvestorsclub.com/). This is a free website that requires you to submit a compelling write-up describing an actionable investment opportunity on the long or short side. It was founded years ago by a hedge fund legend (Joel Greenblatt) and is populated by some of the most sophisticated investors in the world. You can still read all the write-ups without being a member, but there is a significant time delay if you are a guest. The message boards on the site are also at an extremely high level, and people spouting nonsense are challenged pretty quickly. Best of all, if the site admins pick your idea as the best of the month, you get a $5,000 check! (I've won two of them in the past year, so I can vouch that it's real). In any case, stick to uncontroversial ideas (i.e., don't short TSLA) that have a high rating on the site and that have a reasonably active message board, and you will generally do very well. You can even go back and look at all of the submitter's past ideas and see how well they would have worked out if you want to be more careful.

[sharemywin]

Safest,Best investment bets: 1. College 2. Stock Market(index fund)(10 investment horizon) 3. Home(w/home loan) ---- Everything else is hands on and will consume your life(already mentioned): 4. Real estate,your own business, angel invester, collectibles, commodities, currency,bonds,junk(think ebay craigslist) etc.

[TheCoelacanth]

> I feel that trading in a marketplace controlled by professional investors with access to research and high-frequency trading tools is a losing proposition.

That is probably true, but you shouldn't let that keep you out of the stock market. You just shouldn't try to beat the professionals at their own game.

Instead of picking individual stocks and trying to beat the market, invest in an index fund that will buy stocks to approximate the whole market. This means that your gain will be roughly equal to the average gain across the whole market. This means that you won't get the huge gains that you could have if you had chosen the right individual stocks, but you also will avoid the huge losses that would have happened if you chose the wrong stocks.

You may lose money in some years where the whole market does poorly, but over the long term, you should see consistent gains.

[mixmastamyk]

Diversify, depending on your age. Put a percentage into stock index funds, bonds, reits, metals, etc.

I've had a great experience with Schwab... they are dependable, customer-focused, and always helpful. They have a number of no-load mutual funds which you can take advantage of and a zero-pressure atmosphere.

[throwaway344]

To me one of the best things about this sort of investing is a report from Credit Suisse over long term equity return as opposed to bonds and cash.

https://www.credit-suisse.com/investment_banking/doc/cs_glob...

It really gets interesting on page 37, if you want a read.

It is of course, backwards looking, over the last hundred years, so it's (as with most macroeconomic stuff) not really scientific, but it at least gives a explanation of the relative power of long-term economic growth over short-term speculation.

tldr; I think stocks are more powerful than you think.

[OWaz]

You should check out http://www.bogleheads.org/ and post a question to the crowd over there. Review the forum and you'll find quite a bit of general information.

[DrJones1098]

I feel the same way as you OP. It feels like it's something that there's too many big players and too many external forces.

I always thought real estate seems more my style. You have control over your investment. But it's more work.

[badman_ting → DrJones1098]

Me too, and I work for a damn financial-services company!

It just feels like a mug's game. There are players in the market way bigger than you, way faster than you, way smarter than you (in this sense), and with more powerful friends than you. I understand index funds, and if I were to invest in the stock market that is probably how I would do it. But still, it just feels like a way to get fucked that looks super-responsible on its face.

[ericgoldberg]

Municipal bonds can be good. They have a historical track record of being pretty low-risk. Detroit being a glaring exception, however. If you want something more high-risk, high-potential upside, might not be for you. But if you want something with a greater return than a savings account, might be worth investigating.

[dangrossman]

If you had invested in the Vanguard Total Stock Market Index fund in January, you'd already have seen a 13.5% return so far this year.

[lsiebert]

Good Art and classic cars do way way better than the stock market, long term.

[lutusp → lsiebert]

> Good Art and classic cars do way way better than the stock market, long term.

Hindsight. You don't want to rely on hindsight to guide your investment choices. Also, if the claim was actually true and exploitable, everyone would get into art and classic cars, and these niche markets would collapse.