/biz/ - Business & Finance

>>945401
>i'm young and willing to take the risk. i can afford it.
Sigh. That's not the way risk works.

Having a large risk tolerance doesn't make it optimal to jump into every risky strategy. Take the time to learn about risk premiums.

Besides which, options and futures aren't even inherently risky vehicles. They can actually be substantially less risky than equities alone, depending on how you deploy them. It's just that they way most people use them -- and the way you're thinking about them -- is by definition suboptimal.

I guess my bottom line is that I don't really give financial advice to people who think that "losing it all" is a sound or acceptable strategy. If you care so little for your wealth, then you're not likely to have much of it anyway, desu.

>>945327
I only give advice from the perspective of a retail investor, so don't take my response out of context.

Futures have no place in a retail investors portfolio. They're too volatile, and there's no evidence that the added risk is paid off in alpha. Therefore, on a risk-adjusted basis, futures are suboptimal.

Options pretty much fall into the same basket. Now in the interests of full disclosure I'll admit that I used to trade a significant portion of my portfolio in options. This was back in 1998-2000, and I was trading long in tech options. If you know anything about market history, you know that I made a lot of money. Not because I was smart or followed intelligent strategies, but because the tech market was insane and irrational.

I also lost a decent chuck on the downside of the bubble. Indeed, it was these losses, coupled with the market timing scandal in 2002-2003, that turned me off of individual equities and active trading altogether. I've followed Boglehead investing principles ever since.

I'm not risk adverse, and my dislike of futures and options has nothing to do with risk. It has to do with risk-reward. I'm happy to take risk when the risk premium makes it a prudent bet. Futures and options just don't meet that criteria.

I'm aware that futures and options can be used in complex hedging strategies, and I acknowledge that these structures can, sometimes, provide appropriate risk-reward metrics. However, I've yet to meet the retail investor who couldn't achieve similar granularity in the risk profile by simply making changes in their core asset allocations (and at lower transaction costs).

Consequently, although I'm hesitant to make an unconditional dismissal of futures and options, the current academic research on investing does not convince me that they should play a role in a retail investor's portfolio.

>>945307
You're kidding right?

Dude, I'm happy to help people, but if you can't even be bothered to read the thread then you're just wasting my time.

>>945252
>I will have 20k loan and 6k car loan to pay off so that will be first. Once I finsh those off I will start my 6 month emergency fund. Once I'm done with that I will start investing in index funds.
Sounds like you've got a solid plan. Stick with it, and focus on maximizing your career earnings. Your portfolio will take care of itself if you set it up right, add to it whenever possible, and leave it alone.

>>945041
>what does tax-managed fund mean?
A tax-managed fund is an actively managed mutual fund that seeks to minimize the taxable income and gains realized by investors. A tax-managed fund will typically trade less frequently, avoid excessive dividends, hold well-performing stocks longer, and attempt to offset capital gains whenever possible.

Taxes can be real drag on a portfolio's performance, especially when you're in the upper tax brackets. So while a tax-managed fund will usually underperform a comparable fund by 1-2%, that difference can be more than made up by the tax savings.

(And, sometimes, a tax-managed fund will even outperform a comparable fund because the tax-managed fund tends to adhere more closely to a strict buy-and-hold philosophy without second-guessing by the fund's advisor.)

>>945017
Do you have a full-time job with a steady wage or salary? Have you established a cash emergency fund of 3-6 months months normal living expenses? Will you have any need for the money in the next five years? Unless you answered "yes" "yes" "no" then you're not situated to invest quite yet.

>>944874
You should never put a tax-managed fund inside a tax-advantaged account like an IRA or a 401k (which is what OP is asking about). Tax-managed funds sacrifice some gains in favor of tax savings. But inside a tax-advantaged account, you don't have tax consequences so all you're doing is giving up gain without getting anything in return.

In a taxable account, it's a perfectly fine fund. I have $400K invested in it myself.

>>944721
In an IRA, go with (90%) VFFVX and (10%) VGSIX (VGSLX if you're investing enough).

If you're willing to add a little more risk, later add VISVX (or VSIAX) up to 10%. Strategic over-weighting into small-cap value has been proven accretive to long-term portfolios.

There's no overwhelming reason to add more funds after that, but down the road you might consider VDADX, VGHCX, or VWELX, which are some of Vanguard's best specialized and active funds. Also, keep an eye open in case either of the PRIMECAP funds open.

>daily reminder that the wealthiest person on /biz/ was an English major

>>944647
>>944649
Dividend funds are usually a bad idea for young investors unless you're putting them inside an IRA or 401k. They're tax inefficient, much more so than a growth fund or value fund. This will eat into your compounding, and your accumulated balance at the end of the day will be significantly less.

Stick with balanced funds like the Target Retirement or the Total Market funds.

>>944642
No. Stop being stupid.

>>943685
Yes. If your contributions are made automatically, then you'll decide how to make the split when you setup the contributions (and you can change it at any time). If you make a "manual" deposit to your account, you specify your allocations at the time of the deposit (pic related)

>>943675
Your IRA account (or 401k or any other type of account) can hold as many or as few mutual funds as you wish. You're not limited to putting one fund in the account.

Vanguard's target retirement funds are the best in the industry if you're looking for a simple, one-fund approach. There are advantages and disadvantages of using an all-in-one fund, but often its the best approach for many investors.

If you want to take more control over your specific allocations, look into a "Four Fund Portfolio" which replicates the same constitute investments as the target retirement fund, but allows you to set your own allocations.

Either way, you may also wish to consider adding a REIT index fund at some point. Real estate can be a nice compliment to a starting portfolio of equities and fixed income. You can do this from the start, or add it later depending on your account balances.

>>939453
>Gonna need a citation on that one
Here you go, sport:

https://pressroom.vanguard.com/content/nonindexed/7.23.2012_Dollar-cost_Averaging.pdf

Let me know if you need anything explained to you.

>>939172
>You keep bringing up market timing and acting like I said anything about predicting it. I've repeatedly pointed out I've said nothing of the sort.
Your posts tell a different story.

>>939089
>Even if you invest intelligently market crashes happen every few decades like clockwork
market timing
>>939089
>unless you have something to fall back on you aren't going to be able to recover those losses
market timing
>>939107
>one day the market will do something that bites you in the ass
market timing
>>939107
>If an investor puts 100% of their savings into the market and then it suddenly crashes severely in 2016 they lose basically everything
market timing
>>939107
>don't have any fall back assets to re-invest in the market as it's swinging back
market timing>>939107
>Keeping a reserve for such a day makes sense
market timing
>>939107
>makes sense when they are virtually guaranteed to happen at some point every few decades
market timing
>>939172
>if you have a reserve outside the market it enables you to re-invest a sizable sum at the now drastically reduced prices
market timing
>>939172
>Keeping a reserve let's you make moves when everyone else is just trying to hold on until the next bubble
market timing

I do see that you're back-tracking quickly on some of more outlandish assertions (safe 10% return; 50% bond positions). I still don't have the sense that you understand the topic well enough to give any advice at all, but I'm honor bound to acknowledge that you seem to be admitting some of your earlier mistakes.

>>939148
>Who said anything about sitting out? I said keep a reserve that makes safe residuals.
WTF? Sitting out means not being invested in equities, which is by definition what you're advising. If you're not in stocks, you can't realize the gains from stocks. >>939135 is 100% correct in pointing out the opportunity cost of sitting on "dry powder." Not only does it not work (statistically speaking) but it comes with a price.

>You act like 50% of your total savings is a pittance, it might be for you but 50% of total assets in stocks is a lot of money for most.
50% is 50% for everyone. And making suboptimal investment decisions on half your portfolio is going to put you significantly behind your peers who follow sound investment practices. All wealth is relative. Your advice will cause people to fall behind, and that's almost as bad as losing it outright.

>>939107
>Keeping a reserve for such a day makes sense when they are virtually guaranteed to happen at some point every few decades.
Sounds reasonable in theory, but the science proves otherwise. Even if you adopt the most benign form of market timing -- dollar cost averaging -- the studies show that lump sum investing outperforms DCA 66% of the time. Why? Because time in market is one of the biggest factors that will determine your long-term performance in the markets. And since the markets go up a lot more often than they go down, you want to get your money in and leave it in for as long as possible. Holding "dry powder" will lose you money 2/3rds of the time. That's awful odds.

>Young investors do have decades on the horizon, so why risk all their money instead of risking half and adding to the amount they're risking each year steadily while they learn?
What's there to learn? A smart young investor will open a 4-fund portfolio, or buy an all-in-one fund and hold it until retirement. What they shouldn't do is sit on large chunks of cash or bonds hoping to time a big score, which is what you're suggesting.

>a lot more in the bank
Proven false. See above.

>jumping from speculation to speculation
Classic strawman. No one's arguing here for penny stocks, day trading, FOREX, or options. Those would all be bad advice.

What we're arguing is whether a young investor should have an equity allocation of less than 50%, as you contend. I've refuted every reason you've suggested so far for that advice. Also, I'm not alone in my position, as you'd see from any respected investment advice out there. Even the venerable "100-Your Age in Bonds" (which is quite conservative these days) doesn't support your crackpot advice.

(cont.)

>>939107
>one day the market will do something that bites you in the ass
Yup, but most days it will reward you. Unfortunately you don't which days will be which. Fortunately, you do know that the good days substantially outnumber the bad days, in number and magnitude. So the winning play is to be in the markets for as long as possible.

You make it sound like timing the markets is as easily as looking at a stock chart. This is a common mistake of newb investors. In fact, its the second most common mistake made by investors, according to the Dalbar studies (the first being paying too much in investment fees).

The reason is pretty simple. In order to successfully time the market, you have to guess right _twice_ because you have to be correct on both your entry and exit points. Get one wrong, and you'll underperform the markets. On top of that, you have to overcome the transaction costs of your trading activity, and the tax consequences of your trades. All these factors weigh against the likelihood that any one attempt at market timing will be correct. Now try repeating that time and time again. The odds are so heavily stacked against you that its worse than playing the lottery.

>If an investor puts 100% of their savings into the market and then it suddenly crashes severely in 2016 they lose basically everything
What? If (big if) the markets fall in 2016, an investor will still own the same number of shares that they did before the market moved. They didn't lose anything. The current value has dropped, in the short term, but no losses exist.

You can't let emotion drive your investment decisions. Short term movements, even large drops, are temporarily in the big picture. The odds say your investments will not only pop back up, but will increase (as expected) over the length of your investment horizon. The only dumb thing you can do it lose your cool and sell, which is what you're suggesting.

(cont.)

>>939107
There's a awful lot wrong in this post, so let's jump right in.

>Which is why you retain 50% of your assets in other securities. You can easily still get a clean 10% return off those.
I'd like to know, specifically, what investments you consider a safe alternative to equities that return 10% per annum.

Not bonds. Bonds historically return about 5.5% on average, and while they're generally safer than equities, even bonds lose value year-over-year 16% of the time. Bonds have their place in a well-diversified portfolio, but in today's interest rate environment its hard to see any young investor putting more than 10% into fixed income. Frankly, I don't blame young investors for passing on bonds altogether, at least for now.

Not real estate. Real estate is just as volatile as equities, and is highly correlated to the equity markets in any event. Hard real estate requires large capital investment (plus time and expertise) and soft real estate offers no greater expected rate of return than stocks.

So what does that leave? Private equity? Alternative investing? Mezz financing? All good choices, but simply not available to the vast majority of young investors on this site. They neither have the capital requirements nor the qualifications to get into these investments in the first place.

So I'll anxiously await your advice on the investment that's safer than equities and that returns 10% per year.

>you have no way to come back from that hit
Of course you do. Time. All you have to do is not sell when the market drops, which is just basic knowledge. Long term investing means you ride out the ups and downs of the markets, and you don't make changes in your plan based on short term market swings.

(cont.)

>>939089
There's been some short-term volatility, but no excuse for making wholesale changes from the standard asset diversification model. Young investors have decades of investing horizon. What happens in the Fall of 2015 means less than nothing in the long-term (especially since what has happened is hardly noteworthy).

>market crashes happen every few decades like clockwork
>if you put it all in stocks you're going to take a huge hit
Citation fucking missing. You're advocating some form of market-timing here, and that's even worse than your asset allocation advice. You don't know what the markets are going to do next week, next month, or next year. Neither do I, and neither does anyone else. So stop pretending to have some special insight, because all academic research to date says that market timing does nothing but impair your returns.

>>939095
I worked in Biglaw for about 15 years, and opened my own law firm after that.

>>939049
>If you worked at a bank, or as a actuary or accountant, couldn't you just pull that from one of the files and pretend that it was yours?
Sure. Also, I could steal it from my neighbors mailbox. Or I could print fake statements, three-hole punch them, and pass them off as legit.

You're new here, and I can't expect everyone to know my post history on /biz/. This is especially true since we lost our permanent archive and my older posts are lost forever. So at the end of the day, you're free to believe or disbelieve as you choose.

>>939050
>Nice trust fund.
No, I earned my wealth. I did inherit $250K a few years back, for which I'm grateful, but I was already a multi-millionaire at that point.

>>939065
As I told the other newfriend, you're free to believe or not believe whatever you wish. I'll never be able to provide 100% definitive evidence of my wealth without giving up personal details, which will never happen.

But thinking that I work at Vanguard is about the dumbest suggestion possible. Someone posting a client's personal financial statement would face not only immediate termination, but also civil and likely criminal charges. Seems like a pretty stupid thing to do for someone otherwise gainfully employed at a solid company.

Look, I get that you're never going to admit you're wrong. Its an anonymous message board, so other that the humiliation you're suffering in this thread, there's no reason for you to admit your errors. Eventually this thread will fade away, and no one will ever know what an idiot you are (at least not from this thread). So that's fine.

But the fact remains that you recommended <50% allocation of equities to an audience primarily comprised of 18-26 year olds (>>937741). That's objectively bad advice, and I called you on it. My critique is valid regardless of my net worth, because dumb advice is still dumb advice regardless of who points it out. And that's what really matters here.

>>938926
>Because some tripfag posted a bank receipt
I don't post bank receipts. I post account statements.

I get that you're a newfag, and I don't blame you for being skeptical, but that doesn't excuse the fact that you're acting like a giant faggot.

>>938219
All mutual funds pay dividends if the stocks they own pay dividends (or if the bonds they own pay interest). Vanguard is no different.

If you look closely at the fund disclosures (often labelled the fund prospectus) you will find information on the historical (past) dividends of the fund. This is not a guarantee of the exact amount of future payments, of course, but should give you some idea of what you can expect from the fund going forward.

ETFs are meant to be long-term investments. I don't even know what "ETF trading" is supposed to mean.

I don't recommend options or individual stock buying to new investors. There's reams of academic evidence that these are losing strategies for the vast majority of those who try them. I won't be a hypocrite and say these are always a bad idea, but I can't imagine a scenario where these make sense for someone just starting to build their portfolio.

>>937358
>How did you arrive at $14/mo dividend?
The monthly dividend is quoted on a per/share basis. So 9.2 cents for every share you own. 153 shares x $0.092 = $14 and change.

The dividend yield is quoted as a percentage of your total investment on an annual basis. So with a $10K investment, you'd receive about $162 each year, or about $13 and change monthly.

The numbers are different because they are merely estimates, based off prior year results and current holdings. Holdings in the ETF will change from day to day as the fund engages in trading activity, so it's impossible to precisely predict the dividends.

Vanguard, and most other funds, pay bond dividends monthly.

Law is a rough game. The rewards can be great, but not everyone makes it into the payoff tier. Lots of lawyers scratch and scrape their whole career, and more than half give up practicing altogether in the first five years.

On the other hand, at the top of the top, the pay and benefits are ridiculous, and the work is incredibly engaging and sophisticated.

Law made me set for life, but I've never been happier than since I quit practising.

>>938193
>Depends on connections
Naw. Sure, connections don't hurt ... but in truth, law is one of the most merit-based careers possible. Brutally so. Dead weight gets culled, quickly, no matter who you know.