Ask HN: What kind of personal financial investment do you do?
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...
171 comments
[ 3.4 ms ] story [ 221 ms ] thread* 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.
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.
You can open your own tax-advantaged 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).
http://www.irs.gov/retirement/article/0,,id=202510,00.html:
"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:
http://www.irs.gov/retirement/participant/article/0,,id=2025...
This is for 2011, but my recollection is that 2010 had identical wording.
Ideally, having both accounts would give you 23K of tax-advantaged savings.
Any last remaining dollars go into building equity and creating value for my shareholders (me and co founders).
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.
Index funds is slightly better than mutual funds by-itself but not much better.
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.
"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.
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.
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.
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.
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.
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.
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.
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 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).
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...
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.
Although, there's definitely value in getting help from specialists in certain areas (estate planning, taxes).
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.
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.
If the renter defaults, the storage company typically (through contract) owns the material inside and can sell it off at auction.
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.
http://www.thisamericanlife.org/radio-archives/episode/399/c...
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.
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.
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
http://www.communitywestbank.com/personal/checking/GreatRate...
Since I last checked they have dropped the rates to 3%.
I'm 100% sure that is a promotional rate.
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.
http://www.communitywestbank.com/personal/checking/GreatRate...
* 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).
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 :)
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 :)
http://crawlingroad.com/blog/2008/12/22/permanent-portfolio-...
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 :)
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?
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)
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 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.
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.