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PaperclipPerfector  9mo ago (text post)   2191 thread views

Wellness Wednesday for July 19, 2023

The Wednesday Wellness threads are meant to encourage users to ask for and provide advice and motivation to improve their lives. It isn't intended as a 'containment thread' and any content which could go here could instead be posted in its own thread. You could post:

  • Requests for advice and / or encouragement. On basically any topic and for any scale of problem.

  • Updates to let us know how you are doing. This provides valuable feedback on past advice / encouragement and will hopefully make people feel a little more motivated to follow through. If you want to be reminded to post your update, see the post titled 'update reminders', below.

  • Advice. This can be in response to a request for advice or just something that you think could be generally useful for many people here.

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Financial wellness:

What should I read or watch in order to become informed enough to make somewhat prudent and wise investment decisions?

I want to stop my savings from getting eaten by inflation and make some profit each year (or at least some likely profit over a 3 year or 5 year period). I can tolerate low to moderate risk.

Feel free to give straight up specific investment advice too.

Advice for people in europe: There's a number of brokers in europe available, such as scalable capital or trade republic.

Also as others have mentioned if you have no idea about investing and no interests in having to move your money around regularly, I strongly advice to just park your money in an index ETF. As an example, I currently have 75% MSCI World and 25% MSCI Emerging Markets on scalable capital. Since US companies are dominating the stock market, the MSCI World is strongly biased towards US companies. At least for me that is a positive, since a recession in Germany may already hit me hard without also ruining my savings, and vice versa. Investing somewhere that you're not living is imo also a good way to diversify. If you see it differently, there is enough different index funds to allocate your savings differently. But the details even of this will depend on your country. For example here in Germany, there is the "vermögenswirksame leistung", which means that the employer will pay money for you into savings, and some plans may be usable for this while others are not. I don't think you'll be able to inform yourself well without country-dependent information.

I have the same question, but for Europe. A lot of online advise is very tailored to US tax quirks

it's because europeans have lower disposable income and less wealth in general. a fraction of europeans invest in stocks compared to americans. high taxes (including wealth taxes) to fund their social safety nets.

Yeah, I noticed. I'm also in Europe (Norway). Everyone just assumed I was American, including you! :P

R/bogleheads. 3 fund portfolio. Doesn’t get any easier for retirement prep.

3-5 year time horizon is a much different animal. If you’re looking for something guaranteed, a high yield savings account, CD, or money market fund are where you want to be. Anything invested in equities is going to be too risky for such a short period of time.

I don't aim to withdraw everything after 3-5 years. I meant to say I want something that'll go up over moderate amounts of time, even if it doesn't go up over just 1 year. I know there are swings. For instance, if there's another pandemic, I'd want my investments to come good after it, if not during.

Again, nothing is necessarily safe in a 3-5 year time horizon with the exception of a savings account, CD, federal bonds, or a money market account (others may quibble with the last one, but it’s generally true). So I think you need to have a better idea of what you’re saving for. If you think you may buy a house in 3-5 years, you can certainly invest your money in the stock market, but there is a risk that you will lose money. Now if you just have an amorphous idea of I want to have more money in 5 years but there’s nothing I really plan to buy, then going for an overall index fund may be the move.

Think I'll go for a fund that has beaten the index over the last 5 year period.

You do you, everyone has a different risk tolerance.

Past performance does not guarantee future results.

Clearly not, but it is generally the case that past behavior is a predictor of future behavior. So if I have the choice between funds that have regularly failed to match the index and funds that have regularly surpassed the index, I'm picking the latter.

low risk:

  • I bonds from treasury direct. pays a fixed rate + inflation rate calculated twice a year, compounds semiannually. if you cash it before 5 years, you give up 3 months of interest. $10k limit per person per year. rates were ~10% last year, now it's 4.3%. inflation pegged means it's better than cash.
  • CDs. these are paying 3-5% right now depending on the term, and lock-in vs no penalty withdrawals. shop around for the best rates, it's usually marcus (goldman) or synchrony.
  • target date funds. these are commonly available in 401k plans. they have a 'target date' for when you expect to retire (2045, 2060, etc) and automatically adjust the allocations of stocks and bonds. usually highly diversified

moderate risk:

  • VOO, or QQQ. these are index funds tracking the S&P 500 (SPX) and and Nasdaq 100 (NDX) respectively. NDX is more heavily weighted towards big tech (so much so that they are doing a special rebalancing for the first time soon). Over the long term (decades) just investing in these ETFs will beat almost every active investing strategy. but over the short term (like last year) you could be down 30%. so maybe not a place to park your downpayment for a house.
  • for more diversification, VTI (total US market) or VXUS (total international market). more diversification means potentially less downside - also potentially less upside.
  • sector specific etfs like XSD (semiconductors), XLE (energy), REITS like O. beware of high expense ratios

someone below mentioned leverage. if VOO/QQQ and chill just works why not just apply a ton of leverage and eat that carry? well, because of leverage decay. there are levered ETFs like TQQQ (3x levered QQQ), and the catch is that it's 3x daily. so say you put $100 hundred into TQQQ day 1. on day 2 QQQ is up 10%, so you're up 30%, hooray you have $130! Then day 3 QQQ is down 10%, and you are down 30% of $130. You have $91. And you're paying a higher expense ratio. levered etfs haven't been around that long so there isn't a consensus on how much sense they make to hold long term - there's been some respectable attempts to be empirical about it.

other points:

  • always max out your 401k if you have one. if you get an employer match, it's literally free money.
  • roth ira too, if you're below the income limit
  • megabackdoor roth. this is a little complicated, and only works for some employers' plans, but basically you may be able to contribute post-tax dollars to your 401k and roll it into a roth
  • evidence suggests lump sum investigating beats dollar cost averaging, but it's marginal

Sorry, I really should have mentioned that I'm from Norway and that I have no previous exposure to finance terms. Much of your post is Greek to me. :)

ah, i shouldn't have assumed. non-US residents can invest in US securities but of course there will be tax implications both in the US and your country. probably too complicated unless you have a high net worth.

the general principles apply - most countries have some sort of tax-deferred retirement savings vehicle. also index funds instead of single stocks. savings accounts / CDs tell you the rate of return up front and are the lowest risk.

to some extent your government does this for you. norway has an absolutely massive sovereign wealth fund managing something like $250k per citizen

That Boglehead thread is a nice throwback. I remember reading it for hours and still not getting a conclusive answer.

The standard argument around here presented in enjoyable (to me) book form: A Random Walk Down Wall Street.

The standard argument around here presented in video form: Ben Felix on YouTube.

And if you can tolerate more risk you can always lever the index funds to get more swings.

Will try to read that book. Cheers.

When you say lever the index funds, you mean leveraging using derivatives or debt to e.g. double the return on the index funds' increase in value? While also basically doubling the risk?

broadly speaking 'leverage' means borrowing money to buy an asset. as long as the rate of interest you are paying on the borrowed money is lower than the rate of return on your asset, the difference between those rates is pure profit.

the risk is that your rate of return is not guaranteed to be higher. without leverage, the most you can lose is the money you put in. with leverage, you could lose your money + be on the hook for the money you borrowed.

I see.

Seconding the FIRE reddit. There is also the UK personal finance flowchart and their wiki which I generally endorse.

Assuming you have your bases covered, I would just buy index funds. Pick a diversified fund, stick your money in it and then ignore it for the next five years.

FIRE Reddit has good content.

Standard advice is just going to be index funds. Add automatic rebalancing via places like Betterment for an easy path to slightly better optimization.

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