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Are there any Bogleheads here? I figure there is a sizable population here that are working and managing finances, but I've never seen a thread here that dealt with investing for the average person. By average, I don't necessarily mean "of average intelligence." I just mean a person with an average amount of time and energy to devote to their financial management. I am not an expert by any means; even having to make that clear puts a sheepish smile on my face. I just want to encourage some discussion on the topic because too many people don't think about retirement until it's too late. Dissent is welcome.
A lot of the Boglehead investing philosophy is intuitive and common sense. Plenty of people are already investing this way without having put a name to it. All of this information is taken and regurgitated, without much shame, from various books and online sources, especially the Boglehead’s Guide to Investing and the Boglehead wiki.
The Basics of Creating Wealth
In the immortal words of Nate Dogg, hold up. First off, what is wealth? Wealth is your net worth. It is NOT your net income. A partner in a big law firm could be raking in $1 million a year. If he spends $1 million a year, then his net worth is theoretically zero. A teacher who makes $40k a year but puts away 20% of every paycheck (we will get to where to put it later), he will be accumulating true wealth. It’s not how much you make, it’s how much you keep and where you put the money you keep. To calculate your net worth, add up the dollar value of everything you own. This includes your bank accounts, stocks, bonds, mutual funds, retirement plans, valuables, cars, home, etc. Then add up how much you owe, including mortgage and credit/car/educational/business/etc loans. Subtract what you owe from what you own. If you were to retire today, that is the number you’re working with to keep you from dying poor.
Now that we got that out of the way…
- Eliminate credit card and other high-interest debt. You will never get a guaranteed return on your investment that will exceed credit card interest rates. Paying your debt off is risk-free and tax-free. Just having any significant credit card debt in the first place is an indication that you are living with a paycheck-to-paycheck mentality. You cannot accumulate wealth if you live this way. But you can start to pay it off NOW.
- Live wisely. There is a certain competitive fire in most of us to have the biggest house we can buy or the nicest car we can afford. After all, we worked hard for the money. Why can’t we enjoy using all of it? This mentality is something you have to fight. Save in any way you can. Getting a big house you cannot really afford will cripple you financially. Buying new cars can be a huge money sink. Everyone knows that a new car depreciates faster than a porn star. Consider getting a 2-3 year-old car and keeping it for a long time. If you absolute must get a new car, at least try to make it practical and gas-efficient. Always consider cheaper alternatives to what you’re buying.
- Establish an emergency fund. This should be in a liquid, readily available money source, such as a bank savings account or money market account. It is to respond to accidents, disasters, and other unforeseen events. Conventional wisdom is that 3-6 months worth of your income is adequate to put aside.
- Save early and often. Pay yourself first. Start now. Before paying your bills or taxes, take out at least 20% of your income to invest in your future financial independence. Why do you need to start now? “The magic is in the compounding.” Time is on your side when you are young. A dollar you invest today will be worth much more than that by the time you retire. To illustrate: Suppose you invest a one-time sum of money at an 8% annual rate of return. How much money would you need to invest at various ages to have $1 million by age 65? If you start at age 25, you need to invest around $46000. If you start at age 55, you’ll need to invest around $460000, or ten times more. And we’re talking about a one-time investment. If you invest consistently, the results will be compounded even further.
- Allocate assets according to your age and risk aversion. A basic portfolio will contain stocks and bonds. Stocks offer a higher return but with significantly higher volatility. This is something anyone should know after the past couple of years. Poker players will understand the concept well. Bonds offer a lower return but more stability. To achieve good returns while minimizing risks, you diversify your portfolio in include both classes of assets. The simple Boglehead formula to calculate how much of your investments to put in each: You should own your age in bonds. If you are 25 years old, you should put around 25% of your investment in bonds, and 75% in stocks. The idea is that when you are young, time is in your favor and you have a long time to realize the higher rate of return on stocks. You also have the advantage of human capital. Your income-earning years are in front of you. When you are 55 and close to retiring, you will want more security and thus around 55% bonds. This is just a general starting point. If you are young but have never lived through a prolonged bear market, you may want to allocate a higher percentage to bonds.
- Use low-cost index funds for the stock portion of your portfolio. Index funds follow entire markets, like the S&P 500 or the Wilshire 5000. They instantly diversify your portfolio and massively reduce the risk from owning stocks in only a few companies. They also outperform 60 to 80% of actively managed mutual funds (where an expert picks a lot of stocks for you to own). Actively managed funds have fund managers that will deduct 1-2% of your balance to pay themselves and for expenses. Passively managed funds have expense ratios between 0.2 to 0.5%. Remember the power of compounding. That difference can become quite sizable after applying decades of exponential math. And once again, the majority of fund managers do not beat the market. Passively-managed index funds incur no sales commissions, have very minimal operating expenses, and are easy to track. Vanguard (company founded by John Bogle, hero of the Bogleheads) and several other companies offers very low-cost index funds.
I’m pretty much going to just copy a few quotes from the Boglehead’s Guide to illustrate what some big names in finance think about index funds:
Frank Armstrong, author of The Informed Investor: “Do the right thing: In every asset class where they are available, index!—Four of five funds will fail to meet or beat an appropriate index.”
William Bernstein, Ph.D., M.D., author of The Four Pillars of Investing,frequent guest columnist for Morningstar and often quoted inThe Wall Street Journal: “An index fund dooms you to mediocrity? Absolutely not: It virtually guarantees you superior performance.
Warren Buffett, chairman of Berkshire Hathaway and investor of legendary repute: “Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals.”
Jonathan Clements, author and writer of the popular Wall Street Journal column “Getting Going”: “I am a huge, huge, huge fan of index funds. They are the investor’s best friend and Wall Street’s worst nightmare.”
Arthur Levitt, former chairman of the Securities Exchange Commission and author of Take on the Street: “The fund industry’s dirty little secret: Most actively managed funds never do as well as their benchmark.”
Paul Samuelson, first American to win the Nobel Prize in Economic Science: “The most efficient way to diversify a stock portfolio is with a low fee index fund. Statistically, a broadly based stock index fund will outperform most actively managed equity portfolios.”
Charles Schwab, founder and chairman of the board of The Charles Schwab Corporation: “Only about one out of every four equity funds outperforms the stock market. That’s why I’m a firm believer in the power of indexing.”
- Keeping it simple is perfectly fine. Some specifics. Most Bogleheads prefer the Vanguard Total US stock market index fund to form the core of their portfolio. A good number like to diversify their stocks between domestic and international markets. A common allocation for stocks is 70% domestic and 30% international, using the Total Market index and the Total International index. This simple formula will be all most people need. More experienced Bogleheads like to separate out the markets for more control over certain classes of stocks. You might want to consider that when your portfolio grows large enough to meet the fund minimums for those classes. For bonds, there is a Total Bond Market index fund also. Bogleheads generally use this or short-term, high quality bonds. Bottom line: With just two stock funds and one bond fund in your portfolio, you will outperform the majority of investors.
- Be tax-efficient. Take full advantage of tax-advantaged accounts like IRAs and 401(k)s. These allow your money to grow without giving up a portion every year to taxes. Max these out whenever possible, especially if your employer provides some sort of match for the 401(k). That’s free money! If your income is too high to put all of your portfolio in these accounts, then you want to put the tax-inefficient parts of your portfolio in the tax-advantaged accounts. For the average investor, bonds are inefficient because they produce interest every year that is taxed. Index funds are tax-efficient because they produce low dividends and capital gains. So if you have to split up the portfolio, put as much of the bond portion into the IRAs and 401(k)s.
- Stay the course. Investing is all about the long term. What happens tomorrow, next month, or even over the next few years is inconsequential compared to the total time during which you will be investing. In the long run, stocks and bonds make money, and at a very decent rate. Saying this and actually living through it is obviously very different, but young investors should be jumping at the opportunity to invest even more during a bear market because of dollar-cost averaging.
To quote the Boglehead wiki: “Bogleheads do our best not to be distracted, and not to waiver. We create an asset allocation with a large ownership of bonds in order to reduce the volatility of our portfolios and help us stay the course. Once you set up a Bogleheads portfolio, the only real course correction needed is to rebalance once per year (on your birthday, if you want), to bring your stock/bond allocations back to your pre-set levels. (You generally want to increase your bond holdings slightly every year, such as by setting your percentage of bonds to your age.) Although making only that one change every year takes discipline, it is also an enormous relief to be able to tune out the endless chatter of when and what to buy and sell.”
That’s the Boglehead philosophy in a nutshell. Who’s with me?
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Commit suicide by the age of 60* - retirement thoughts fixed,
I can live a life 20 percent better while i live, while i am capable of living
I dont have to suffer living with a body that cant do shit
I dont have to take medicine for the last 30 years of my life to cope with the pains
independency, freedom and liberty, you dont find that if you search among old people
I wont put any unnesesary strain on the ressources of the earth
The possibility to do one last blow against those you dont like
*or go deep into the jungle and see where that leaves me
User was temp banned for this post.
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Korea (South)1897 Posts
nice posting,
i don't invest at all, unless it is in an actual business, just my thing,
but i'm sure this will be a very helpful post to a lot of people looking into it.
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Definitely a bogglehead here! Vanguard FTW!!!!!!! I use the target 2040 index retirement fund. Does the stock/bond balancing and changes for me. Low expense ratios are also FTW!
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bleh. I'm not much of an investor. I'd rather just live my life. I'm naturally careful with my money and I don't buy stupid shit.
I'm not worried about retirement, I'm gonna be a writer so there's no such thing. I'm so financially screwed that I'm not concerned about investing money that I will probably never have (parents are debt-people that have no clue about money, i have student loans plus I might need to spend 50k to become a commercial pilot).
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“That’s a little bit like these rules I have. The first rule is don’t lose, and the second rule is never forget the first rule. It isn’t so much having a lot of brilliant decisions, it’s just not having some terrible ones.” - Warren Buffett
I wish Warren Buffett could manage my money. Then I don't have to think.
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Worst advice you can ever give to these people OP. Investing in real estate for passive income is the best choice to attain wealth, and in a shorter time frame. But no one listens~
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On October 07 2010 02:36 Never.Die wrote:
Worst advice you can ever give to these people OP. Investing in real estate for passive income is the best choice to attain wealth, and in a shorter time frame. But no one listens~
couldn't be more wrong.
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The most success I've heard in regards to investments come from both the stock market and CDs (in regards to banking, not music)
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... Real Estate values aren't a way to get rich, unless you want to speculate and hope you hit the bubble, because... on average they don't gain much value.
A note on the index funds: In nudge, Thaler and Sunstein find that funds with the lowests costs brought the greatest overall returns to investors. This was based of data from the privatized "social security" system in a Scandanavian state.
Cute fact: The net return on stocks for the past 10 years is 0 or slightly negative. The past 10 years though haven't been all that "normal" though so just look at the standard example of buying stocks at teh great depression and invest in something with returns rather than wasting your time (if you're young) with low yield bonds.
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On October 07 2010 02:36 Never.Die wrote:
Worst advice you can ever give to these people OP. Investing in real estate for passive income is the best choice to attain wealth, and in a shorter time frame. But no one listens~
>.>
worst advice you can ever give to these people. real-estate CAN do that, but you have to be on a whole different level to get it
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16987 Posts
On October 07 2010 02:36 Never.Die wrote:
Worst advice you can ever give to these people OP. Investing in real estate for passive income is the best choice to attain wealth, and in a shorter time frame. But no one listens~
This is so wrong I don't even know where to begin.
Investing in real estate is capital-intensive, cash flow dependent, and in comparison to other forms of investment, very limited in liquidity. Investing in real estate also carries an innately greater amount of transactional risk, especially since there is no well-defined set of criteria with which to appraise value.
Furthermore, to even begin investing in real estate with any sort of competence, you need to be familiar with all sorts of Byzantine regulations regarding acquisitions, contingencies, as well as concepts such as leverage and equity. Not only that, but real estate investing also requires you to be familiar with legal concepts such as titles, ownership, adverse possession, etc.
The OP is looking for ways for the average person to make money investing. The only way to do that is simply to maximize the time value of money by investing early and taking advantage of tax-advantaged accounts (e.g. Roth IRAs, in which there are no capital gains taxes, provided you follow all requirements), and investing in safe, simple instruments such as popular index funds (and I suppose bonds, although I'd still prefer index funds to bonds - especially if you're young).
Even if you did have the technical knowledge and monetary capacity to invest in real estate, it's still much riskier. I'd even go as far as calling it speculation :/
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On October 07 2010 02:56 Sabu113 wrote:
... Real Estate values aren't a way to get rich, unless you want to speculate and hope you hit the bubble, because... on average they don't gain much value.
A note on the index funds: In nudge, Thaler and Sunstein find that funds with the lowests costs brought the greatest overall returns to investors. This was based of data from the privatized "social security" system in a Scandanavian state.
Cute fact: The net return on stocks for the past 10 years is 0 or slightly negative. The past 10 years though haven't been all that "normal" though so just look at the standard example of buying stocks at teh great depression and invest in something with returns rather than wasting your time (if you're young) with low yield bonds.
You and most of the population always associate investing in real estate just for capital gains. Secondly, there's more tax loops in investing in real estate than any other form of investing vehicle in America. But this is why the poor stay poor, they never listen~
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On October 07 2010 02:56 Sabu113 wrote:
... Real Estate values aren't a way to get rich, unless you want to speculate and hope you hit the bubble, because... on average they don't gain much value.
A note on the index funds: In nudge, Thaler and Sunstein find that funds with the lowests costs brought the greatest overall returns to investors. This was based of data from the privatized "social security" system in a Scandanavian state.
Cute fact: The net return on stocks for the past 10 years is 0 or slightly negative. The past 10 years though haven't been all that "normal" though so just look at the standard example of buying stocks at teh great depression and invest in something with returns rather than wasting your time (if you're young) with low yield bonds.
With real estate you can leverage your money unlike like stocks or bonds. Use your brain sir.
User was temp banned for this post.
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Austin10831 Posts
Never.Die how do we know your advice is worthwhile? What sort of credentials do you have?
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On October 07 2010 05:09 Never.Die wrote:Show nested quote +On October 07 2010 02:56 Sabu113 wrote:
... Real Estate values aren't a way to get rich, unless you want to speculate and hope you hit the bubble, because... on average they don't gain much value.
A note on the index funds: In nudge, Thaler and Sunstein find that funds with the lowests costs brought the greatest overall returns to investors. This was based of data from the privatized "social security" system in a Scandanavian state.
Cute fact: The net return on stocks for the past 10 years is 0 or slightly negative. The past 10 years though haven't been all that "normal" though so just look at the standard example of buying stocks at teh great depression and invest in something with returns rather than wasting your time (if you're young) with low yield bonds. With real estate you can leverage your money unlike like stocks or bonds. Use your brain sir.
What do you think margin accounts are for.
If you have insight by all means share it, but from here it looks like you're just another moron who thinks he's droppin knowledge with 1 liners when you have absolutely no actual investment knowledge.
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Very interesting, I'm a Finance major myself, I hoping to get into investment
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Osaka27149 Posts
Really great thread, thanks a lot. As someone in their early 30's who is just banking money and not doing anything with it, this is the kind of simple advice that is valuable.
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Never.Die is not completely wrong guys... there's a book called Rich Dad Poor Dad by Kiyosaki, who also wrote other good Real Estate investing books, that shows how lucrative real estate investing actually is compared to other forms of investing.
The bottom line is consistent profits that can compound over the years, while saving tons of your income on tax shelters
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On October 07 2010 08:08 fwaaahh wrote:
Never.Die is not completely wrong guys... there's a book called Rich Dad Poor Dad by Kiyosaki, who also wrote other good Real Estate investing books, that shows how lucrative real estate investing actually is compared to other forms of investing.
The bottom line is consistent profits that can compound over the years, while saving tons of your income on tax shelters
there's also a book on cooking by some author who also wrote other good Cooking books that shows how lucrative the flavor in fancier foods actually is compared to other forms of food.
its especially important in things like investing to understand the concept of "baby steps"
OP's information is great. signed - 4th year finance student
and i agree with like ~~~~~~~~~~75?? percent of what empyrean said. but I think i'm more headstrong that he is irl anyway so our personalities influence our opinions ^_^
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For many people, even those who save diligently, their home will be their most profitable long term investment, not even taking into consideration that many countries have tax benefits or no taxation at all for the sale of your primary residence.
But I don't know what he was trying to hint at with his cryptic messages about real estate investments that don't trigger capital gains. My guess if he had the opportunity to continue posting he'd be talking about something like house flipping which is closer to a full time job than an investment strategy and not really relevant to this thread which is clearly about passive investment and money management tips for people who already have jobs. He didn't really say anything so it's hard for him to be right or wrong
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People like to shy away from stocks because they call it "gambling." I call them ignorant. A lot of friends kept trying to convince me not to invest, but finally I invested $3000 1 year ago (I'm 21 years old) and made about 25% profit. All I did was invest in blue chip stocks and a S&P500 ETF. I barely even looked at the financials of the companies. Instead, I banked on the volatility of the economy to make me some big money. Basically my logic was "the economy is recovering, therefore stock prices will go up," and they did.
The investment institute at my school (which I was in for 1 semester), does all sorts of financial comparisons, and even research into what consumers think about the company. The result? They did worse than the S&P 500. I think it was proven before that you could hang up the ticker symbols of all the stocks, throw darts at random stocks, and you would do better than most "stock gurus." Basically what I'm trying to say is, unless you're the next Warren Buffet, don't spend too much time picking stocks. Instead, pick industries.
My current policy is "If the economy is shitty, invest, because eventually you'll make money." And here's a message to all those in college who have saved up money over the course of their life: If you are shying away from investing because of money, just do it. Your first paycheck from your first job out of graduation (assuming you're in a math, science, engineering, finance, or any non-joke major), is going to be at least 5 times greater than your life savings. Who cares if you lose your life savings now if you're going to make it back and 4x more when you graduate? You have very little to lose and so much to gain, so gogogogogo!
Here's another overused Buffet quote:
"Be fearful when others are greedy, and greedy when others are fearful" - Warren Buffet
Qualifications: I'm an engineer with very little background in finance, the above is simply my opinion and could be wrong.
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the biggest risk in life is not taking any.
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Dark that sounds like great advice. I am an economics student who has been looking into finance so I have an inkling of what's probably good. Your logic sounds good. Put some skin into the game and force yourself to learn some so you can know what to do later on. (Though roth iras and index funds are the tldr answer.)
Wasn't there a thread awhile ago which just savaged that kiyoshi book?
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The "philosophy" in the OP has good general principles to follow. However, I don’t recommend blindly following any simple guides concerning your wealth. This isn’t some StarCraft build order; it’s your well-being.
With that said, it depends on your life situation. As darkponcho said, if you're young you can usually afford to try things out and take on more risk. If you're older, there are still safe alternatives to a savings account. For example, T-bills, bonds, money markets, and many other certified investments depending on where you live.
I suggest that if you want to start investing, learn a reasonable amount yourself or get professional advice. Investing is like any other complex trade: you spend the time to become proficient or you hire someone else. Is it worth your time and nerves to do your own legal work? Do you want to risk messing up something that important? That depends on your situation.
All in all, the Boglehead philosophy is fine for new investors. Here are a few specific caveats I have with the advice:
+ Show Spoiler +A partner in a big law firm could be raking in $1 million a year. If he spends $1 million a year, then his net worth is theoretically zero. No it isn't. His net worth would consider all of his assets and liabilities. For this example, you don't have enough information to know what his net worth would be. It would be highly unlikely for anyone to have a net worth of zero, even bankrupts. This section illustrates the concept of worth but it's not as simple or accurate as it could be. [*]Live wisely. There is a certain competitive fire in most of us to have the biggest house we can buy or the nicest car we can afford. After all, we worked hard for the money. Why can’t we enjoy using all of it? This mentality is something you have to fight. Save in any way you can. Getting a big house you cannot really afford will cripple you financially. Buying new cars can be a huge money sink. Everyone knows that a new car depreciates faster than a porn star. Consider getting a 2-3 year-old car and keeping it for a long time. If you absolute must get a new car, at least try to make it practical and gas-efficient. Always consider cheaper alternatives to what you’re buying. The title "live wisely" and the tone of the passage is misleading. Investing has nothing to do with how you should live your life. It is your own choice when you want the cash flows. Borrowing is absolutely fine and is essential in our lifestyles and market. This philosophy shouldn't tell me what I should consume and what I shouldn't. [*]Save early and often....A dollar you invest today will be worth much more than that by the time you retire.... Not necessarily; based on assumptions. I suggest you calculate your real rate of return rather than your nominal rate. Your purchasing power might actually decrease due to inflation. Stocks offer a higher return but with significantly higher volatility. Not necessarily. Still, a reasonable assumption. [*]Stay the course.In the long run, stocks and bonds make money, and at a very decent rate. Not necessarily. This is such a dangerous assumption, especially for unknowing investors. See 2008 where even the bluest companies lost all of their value.
Edit: formatting
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To respond to Durak's post:
Net worth: You're right that the way I wrote it is vague. What I should write is something like, "if he blew $1 million a year on hookers and blow, then his work income is not increasing his net worth."
Live wisely: Investing, as YOU define it, may have nothing to do with how you live your life. The Boglehead philosophy is to save whenever possible and try to be frugal in all endeavors. That is simply the ideal with regards to attaining financial freedom. Now, does everyone who believes in these principles follow everything to the letter? Probably not. That does not mean it is not worth considering with every purchase. Debt is fine if it is necessary and useful debt, such as a reasonable mortgage or student loans. Credit card debt, for example, is never useful. It is negative wealth.
The long run: 2008 is a blip in the context of your entire investing timeline. THAT is what I mean when I say "long run." Since 1973 there have been five bear markets: 1973-4, 1987, 1990, 2000-2002, and the recent one. Staying the course during those tough times is absolutely essential. Of course, this is easier said than done, which is why you need to assess your own risk-adversity and assign an appropriate percentage of your portfolio to bonds.
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On October 07 2010 11:04 radar14 wrote:
Live wisely: Investing, as YOU define it, may have nothing to do with how you live your life. The Boglehead philosophy is to save whenever possible and try to be frugal in all endeavors. That is simply the ideal with regards to attaining financial freedom. Now, does everyone who believes in these principles follow everything to the letter? Probably not. That does not mean it is not worth considering with every purchase. Debt is fine if it is necessary and useful debt, such as a reasonable mortgage or student loans. Credit card debt, for example, is never useful. It is negative wealth.
The choice is between consuming now or saving for consumption later. Choosing if and how to invest my savings are different. The money that I choose to save should be invested optimally.
My point is that "save whenever possible and try to be frugal" is a lifestyle recommendation. Sure, if I never consume anything, I'll have tons of money to invest (unless I die from hunger). However, these aren't investing guidelines. They are tips for finding more money to save.
On October 07 2010 11:04 radar14 wrote:
The long run: 2008 is a blip in the context of your entire investing timeline. THAT is what I mean when I say "long run." Since 1973 there have been five bear markets: 1973-4, 1987, 1990, 2000-2002, and the recent one. Staying the course during those tough times is absolutely essential. Of course, this is easier said than done, which is why you need to assess your own risk-adversity and assign an appropriate percentage of your portfolio to bonds.
It is a common misconception that markets always go up in the long term. Financial markets aren't magical money makers for anyone who wants to buy an index fund. There aren't just a few market-wide events you need to worry about when investing. I won't try to change your opinion if this is one of your beliefs though.
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If you want to learn a bit of hedging strategies check out Options, Futures, and Other Derivatives by John Hull. It's a bit mathematical in some parts but anyone should be able to learn the basics.
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16987 Posts
On October 07 2010 08:08 fwaaahh wrote:
Never.Die is not completely wrong guys... there's a book called Rich Dad Poor Dad by Kiyosaki, who also wrote other good Real Estate investing books, that shows how lucrative real estate investing actually is compared to other forms of investing.
The bottom line is consistent profits that can compound over the years, while saving tons of your income on tax shelters
http://en.wikipedia.org/wiki/Rich_Dad,_Poor_Dad#Criticism
Also @mOnion, how are we so different? :<
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thedeadhaji
39489 Posts
The single most important thing is to never take "advice" without actually doing your own studying/research.
What's stated in OP is sound advice but may not be good to follow "to the dot" depending on the person. For instance, a 25 year old who has 100million to his name probably shouldn't be putting 75% of his portfolio into equity. Look at your situation and figure out what's best for your unique situation.
FWIW, the bond market is doing terribly now b/c interest rates are so low. It's "risky" so to speak, to buy bonds right now because being stuck with a 10 year note once interests increase (and thus the yields increase), your bonds aren't going to be worth face value.
Also, California Municipal bonds (tax free) are pretty scary right now because the State is in serious danger of defaulting.
On another note, I don't know why you guys like the Vanguard ETF's for the S&P500 index. Their expense ratios aren't competitive with the SPDR's ETF.
Lastly, be careful when considering "international" equity. WTF is international? It's anything non-us based, so it doesn't necessarily even mean "emerging markets" which some people will surely confuse "international" with. Also, "emerging markets" includes Brazil, Russia, and Eastern European countries that some of you may not want exposure to. In this case you'd want to choose something along the lines of "Asia excluding Japan".
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On October 07 2010 13:35 jalstar wrote:
If you want to learn a bit of hedging strategies check out Options, Futures, and Other Derivatives by John Hull. It's a bit mathematical in some parts but anyone should be able to learn the basics.
If you don't actually work in finance, I'd advise against investing in derivatives. One of the earliest things you learn about derivatives is that you only trade them as a way of investing in asset classes (i.e. volatility), which is probably beyond what "average" people have time to worry about.
If you're looking at derivatives to hedge your positions, most brokerage accounts will allow you to place limit and stop-loss orders, which serve pretty much the same purpose from a hedging standpoint and also save you the trouble of making a big mistake when constructing spreads.
If you want to learn about hedging just for fun, Sheldon Natenberg's book is probably a better resource. It's a lot less academic and makes you think about what you're actually doing a lot more.
On October 07 2010 08:44 darkponcho wrote:
People like to shy away from stocks because they call it "gambling." I call them ignorant. A lot of friends kept trying to convince me not to invest, but finally I invested $3000 1 year ago (I'm 21 years old) and made about 25% profit. All I did was invest in blue chip stocks and a S&P500 ETF. I barely even looked at the financials of the companies. Instead, I banked on the volatility of the economy to make me some big money. Basically my logic was "the economy is recovering, therefore stock prices will go up," and they did.
Qualifications: I'm an engineer with very little background in finance, the above is simply my opinion and could be wrong.
Having made money doesn't change the nature of what you're doing. Phil Ivey wins the World Series of Poker and makes money more often than he loses it. He's still gambling isn't he?
All you're doing is potentially improving your odds. The risk is always still there.
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EPT
