Ask HN: I've saved up $80k USD. What should I do with it?
It's been on my account for at least 3 years. Nothing ever seemed worthy of investing it. How does one find the confidence to invest large sums? Do you start small? How to get rid of the pressure knowing that money is just collecting dust?
111 comments
[ 5.4 ms ] story [ 172 ms ] threadJust invest in a broadly diversified index fund.
Start here if you're a total beginner: https://www.bogleheads.org/wiki/Getting_started
For one, those stocks include weapons manufacturers and other poisonous companies that maybe you wouldn’t want to support.
Second, it detached you from your underlying investment. In my opinion the ability to evaluate businesses is itself worth investing in.
Go pick a sector you are interested in. Compile a list of small - mid cap companies (I.e. companies worth hundreds of millions to a few billions). Read up as much as you can on them. What’s their business model? Who leads them? What’s their current state? Invest in the ones that stand out!
Not many people will tell you this because “investing in the index fund will give you amazing returns after 30 years and Warren Buffet said some!!”.
[1] https://www.bogleheads.org/wiki/Main_Page
One other thing would be an extended travel / sabbatical. As soon as this is an option again, of course. Regarding the startup thing, this is what I did after two years. Less money (keep some funds for rainy days!), but with a house and family.
Obviously we are in a really crazy market right now, and while that might be disconcerting it is the case that s&p 500 has existed through 2 world wars and a Great Depression and still delivered returns.
Or - in the current climate shares in the airline industry.
As I understand it, gold reliably appreciates in times of economic distress. Whether now is a good time to buy, seems like a question worth taking seriously.
If I decide the housing market isn't for me or I need to raise cash quickly, I could be forced to wait anywhere from 8 weeks to 18 months, or longer to get any of my investment back (even longer if I don't want to lose money through desperation to sell).
If I need to raise money from stocks or index funds I can get market value for those investments instantly during business hours.
Alternately, wait for the housing market freefall that is scheduled to hit about 180 days from now, and buy a foreclosure or two.
EDIT: Cosigning the above recommendation about maxing out a Roth IRA each and every year as well, and of course maxxing out any company-matched 401(k) options.
Lots of large companies are going to do big layoffs to survive. Many others are going to dump their entire workforces when they go under entirely. Large industries like travel and tourism and entertainment and gambling and the related services for same are going to get scaled back for years. Money for the non-wealthy (and by wealthy I include pretty much everyone who knows pointer math or web programming, as even having $-20k in assets if you're able to make $100k+ puts you far better off than most) is going to become harder and harder to come by. I expect this to result in a lot of evictions when the courts reopen, and lots of foreclosures about 3-6 months after the layoffs peak in 3-4 months. All of the figures I am guessing at here are +/- ~10 weeks and are sketchy guessing at best, because who the fuck knows what's going to happen the rest of the year with any potential second or third waves of disease, or governmental closure orders, or even the outbreak of another world war.
It sounds like you have savings and income. Personally, with all of this uncertainty, I'd guard both as carefully as you can. Millionaires can afford to take bigger risks right now, normal people with nest eggs generally cannot, as it's not certain that the jobs will be as plentiful or high-paying in the next ten years as they were the last.
If in doubt, stick with the index fund, and just "set it and forget it". If you want to get more actively involved (or if you don't plan to change cities much and don't already own a home), real estate is almost always a good long term investment as well.
My advice would be markedly different if you were asking about $8M or $800k and not $80k, but $80k isn't a ton of money these days (I'm guessing it's less than a year of your gross income) so I personally would go lower-risk for the first few hundred k before ramping up the potential for higher returns.
Foreclosure is a slow, slow, slow process even at the best of times. People can avoid paying their mortgages and still be living in a property for many years. If you're imagining something that covers a significant amount of property that will take even longer.
Mass unemployment will cause problems for many, but at the same time lots of countries are essentially forbidding evictions and that has to have a somewhat balancing action for the short-term. How well that will hold up is an open question, and nobody knows the answer.
BTW I just lost out on buying a house, the market is still there but it is much lower.
no one should just buy a foreclosed home without thorough preparation
When you are buying a typical real estate the cost of title search and title insurance are usually part of the settlement process and are included automatically, you don't have to do anything, all gets done for you.
The problem is that with foreclosures that they often are sold via auctions where you don't get to inspect the home, you have to pay cash upfront, getting title insurance is not so given either. Plus you have to do it all yourself. All serious issues.
Your second answer goes completely the other direction. The answer suggests to time an investment in real estate, the least liquid investment with the highest transaction costs a typical investor could buy.
No one knows what housing market will be like 180 days from now, no matter how many times they're interviewed on CNBC.
I like your first answer better.
Microsoft Corp Apple Inc Amazon.com Inc Facebook Inc A Berkshire Hathaway Inc B Alphabet Inc Class C Alphabet Inc A Johnson & Johnson Visa Inc Class A Procter & Gamble Co
It has always blown my mind that the answer for "retirement" now is to put your money in the online casino.
As a father of two young kids, the last thing I want to do is contribute to the erosion of any sense of privacy my kids may have in the future. Using Facebook as a tool for retirement is just as dumb to me as using Facebook for anything else.
Facebook is Facebook because they have an app that people love to use, and that gives them the power to sell and control placement in the communication between friends and acquaintances back to those same communities. They're not powerful because of their share price.
Index invest away. I have Facebook blocked at my router but I still own them via index funds.
Money isn't everything.
You're also not obligated to buy an ETF -- you can create your own "index" without much effort. The OP's $80k would let them do that, were they so inclined. Maybe not all 500 in the S&P, but a lot.
Even if OP splits it into smaller, dollar-cost-averaging purchases they'll still be able to get VFIAX without a problem.
If it's true, then they shouldn't listen to you. But then they can follow advice of anyone, including yours.
[1] https://en.wikipedia.org/wiki/Liar_paradox
"This sentence" = "This sentence is false."
[This sentence is false] is false.
"This sentence" = "This sentence is false is false."
[This sentence is false is false] is false.
"This sentence" = "This sentence is false is false is false."
[This sentence is false is false is false] is false.
...
"I can survive for 5 years on $80k but will I miss ($x) where x could be $200,000-$2,000,000 when it comes time to retire" is a relevant question.
- an investor would on risks money
- another team members risk only time
you would do both
- Do you have high interest debts? Paying off debt is a guaranteed return.
- Can the money be invested, or is it earmarked for e.g. downpayment for a house, new car, education, or other short to mid-term purchases ? Consider your investment horizon. If it's less than 3-5 years, consider leaving it where it is.
- Can you spend it on yourself, e.g. improve your earning potential or start a business ?
- If you want to invest it in the stock market, I would not try and pick stocks, but spread it across a number of well diversified funds. I also would not spend all the money at once but e.g. aim to invest a chunk of it every month over 6-8 months
Think within the context of broader personal finance considerations, there's already a few good links in the answers.
I used a similar amount to buy a very small house in cash, but this would be considered a poor move in many ways (mortgages are pretty cheap debt). It works for me, though.
Especially the last one opened my eyes a lot about how to approach investing. I have the revised edition from 2006, though the original publication was in 1949. The 2006 edition has a section after each chapter discussing how the original chapter fared in the decades after publication. Without exception, the lessons discussed in the book from the 1929 recession and earlier turned out to have been very applicable in the dotcom crash of 2000, the "black monday" crash of 1987, etc. It really shows how most things are nothing new and gives a lot of perspective on the markets.
Reading up and understanding how the stock markets work can take away some of the pressure. Finally, there is no rule about having to start big or small. If it makes you feel better, start with $500 and see how it goes. The sister comment by "ForHackernews" about starting with a diversified index fund is good advice (and probably what you'd conclude anyway after reading the books).
It doesn't feel like learning about investing for a beginner but rather an autobiography on his portfolio. What did you like about it?
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Keep it in cash, pretend you don't have it (create a separate account that is just this sitting there), continue earning and saving. Anything extra you earn after this 80k base you can invest (simple things like index funds, dollar cost average in slowly).
The nice thing about borrowing against stock is not having to sell the stock while its down, unless you borrowed so much to hit a margin call. If it's allowed, you could borrow against treasury inflation-protected securities to protect you against runaway inflation. TIPS are up 8% on the year. I'd take 8% gain for 2% cost and peace of mind that my cash isnt losing value.
80K is a lot to have in an emergency fund. Borrowing even a quarter of it should be no problem, without risk of short term margin calls.
I believe pure dollar cost averaging to be a worse choice than picking and filling an allocation with low start date sensitivity and high baseline long term returns. Even averaging in over a year isnt enough time to tackle start date sensitivity, you are better off with an array of stable equivalents, and contributing into just stock allocation over time, as you make more, than holding just cash and waiting to buy stock. Cash by itself is a sure fire way to lose money over time. https://portfoliocharts.com/portfolio/portfolio-matrix/
Some combination of total world stock market, small cap value, reits and bonds/tips, gold, cash, bitcoin. Rebalance quarterly. You'll be much more diversified than holding cash, or holding a cash plus a mutual fund with 90% stock, and cash will still be instantly accessible. It's really not that different in concept than a HELOC, except your collateral is much more diversified than your house.
Great fundamental wisdom is that you can't (consistently) time the market but you should try to Buy Low, Sell High. That said, we experience a massive COVID crash. It's a great time to buy, but we don't know how long it will last or whether it will be long recession afterwards.
Index investing through ETFs is a great way to get diversity in a single financial instrument such as the S&P (large companies), NASDAQ (tech), or the Russell (small companies.) The NASDAQ has largely recovered but the Russell still has a long way to go back to February prices.
I have an old friend whose parents sold their home recently and gave him a sum. He's putting in 10% per month for the next 10 months, all in the S&P.
I would assume to be more flexible and be able to change strategy if something goes wrong?
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20% Total Stock Market
20% Small Cap Value
20% Long Term Bonds
20% Short Term Bonds
20% Gold
You could replace short term bonds with Cash, TIPS, CDs, Bitcoin.
https://portfoliocharts.com/2019/05/27/high-profits-at-low-r...
Only then can you decide the best way to invest it.