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$20,000 to invest: What to do?

Discussion in 'General Chat' started by Lord-Barrington, Sep 4, 2011.

  1. Lord-Barrington

    Lord-Barrington Senior member

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    Mid twenties, good job with decent salary and few bills to pay at the moment.

    First, some basics:


    1) Of the 20K, at least 5K I'm keeping in a low interest, easily accessible spot as an emergency fund, so the investable amount is actually around 15K.

    2) Since I am relatively young, I'm interested in growing my money at a healthy clip and am not against some risk in my (still non-existant) portfolio. But I will admit that seeing the indexes take beatings over the month of August has given me pause. Am I better to trow the money into bonds and wait this things out?

    3) What's a good ratio of bonds/stock/cash to have in my portfolio for someone like me looking for a 8-10% return and not totally risk averse?

    4) Would anyone of you recommend sticking most of my cash in a variety of ETFs and cutting out the middle man?



    Thanks for the help everyone! It's much appreciated.
     
  2. akatsuki

    akatsuki Senior member

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    Buy when blood is on the streets - so if indexes are down, now is the time to buy.
     
  3. lasbar

    lasbar Senior member

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    Set up a brothel...

    The index is always up in that line of business.
     
  4. Amelorn

    Amelorn Senior member

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    Buy corporate bonds. I can't tell you where the stock market will be in a year, especially given this volatility eerily reminiscent of the early days of the credit crisis, but I doubt names like GE or Bank of America will go bankrupt in a year.
     
  5. Jr Mouse

    Jr Mouse Senior member Dubiously Honored

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    Wire me the money. I'll take care of it for you and get you some big returns, I promise.
     
    Last edited: Sep 6, 2011
  6. mr.orange

    mr.orange Senior member

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  7. lasbar

    lasbar Senior member

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    I have a friend in Nigeria who needs to take his money outside the country very quickly...

    He only needs your bank account , pin number and 20000 US$ to set up the transfert...

    You will get a billion Zimbabwean $ for helping him.......
     
  8. Swag22

    Swag22 Senior member

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    I would invest in equities now since the market is down...big blue chip companies with good prospects for future profitability. Speculation is going to pound these securities just like it has, and when they're down you should get in and wait out all this economic turmoil.

    As for bonds, I would skip them for now because there is a good chance the fed will introduce some more inflation, thus devaluing the purchasing power of your dividend.

    Go long bargain-priced large caps!
     
  9. mr.orange

    mr.orange Senior member

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    Use your money to feed hungry children in El Salvador.
     
  10. Lord-Barrington

    Lord-Barrington Senior member

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    I am leaning towards this but I want to diversify a bit. I wouldn't want to put 15K into large cap stocks even if I agree many of them are probably undervalued.
     
  11. tradernick

    tradernick Senior member

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    A complete answer to your questions is hard to provide here. A few things to think about

    You need to take on more risk today to have a shot at 8-10% than you did at any time in the past 50 years. If by cash you mean the U.S. dollar, it's a commodity that doesn't provide a very good risk/return potential. If by stocks you mean the US equities markets, you have only to look at their performance over the past 10 years to know that 10% a year is a dream at this point. I do not see the US equities markets providing anywhere near 10% on an inflation adjusted basis going forward, and please remember that your real return must always be thought of in inflation adjusted terms. I do not and will not hold any U.S. dollars as I feel that even without another round of QE, the currency will not perform very well.

    The idea of throwing your money into bonds and 'waiting this thing out' is appealing, but obviously you are not going to achieve your returns and the fact is that we do not know how long 'this thing' is going to last. What Swag22 said has some merit, but you don't have to hold US Treasuries, you can hold other government bonds.

    Someone else said 'buy when blood is running in the streets'. This is a very good idea. However, blood is not running in the streets yet, not by a long shot. See below - I'm not saying that you shouldn't buy selected equities, just that blood is not running in the streets.

    If you do not have the time and inclination to do a lot of research, there is not much you can do except to limit your stock market exposure to established stocks which throw off dividends. The value of dividends is vastly underestimated by people whose knowledge of the markets is incomplete. By all means, open a self-directed account and do not pay a 'professional' to do what you can do yourself.

    The best thing for you to do is to start the process of educating yourself about the markets. If you are in your mid-twenties, this process will yield a way bigger return than your 15K. One of the best ways to achieve decent risk adjusted returns is to do what Warren Buffet did (in part). Yes, it still works. Look for small-mid cap companies with room to grow and invest in them for the long term. If you ask 'how do I do this' it's too big a question. You have to get out there and learn.

    Someone said buy gold to get your returns. I can tell you this. Gold will trade at $1500/oz in the future. Anyone with the cajones to short it is going to make a hell of a lot of money. I wanted to short it at $1600 but one look at the chart showed me that it would be a bad idea. I am not telling you to short gold, I am just saying that anyone who shorts it here will eventually make a nice return. There are big risks associated with this type of position, including the risk that you could be right and still lose more than your investment.

    Most important thing for you is this - don't be one of the sheep. Learn how the game is played and play it for yourself. Most guys think that their 'investment advisor' is a guy who has some sort of special ability to make good picks or grow money. This is usually a load of crap. Not always, but usually. Most investment advisors, especially those working for the bigger firms, are working from a fixed playbook and are not making any creative decisions at all. You can get the playbook and do what they are doing without paying them their edge.
     
    Last edited: Sep 9, 2011
    1 person likes this.
  12. Lord-Barrington

    Lord-Barrington Senior member

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    Tradernick,

    Thank you very much for the thoughtful response. Your advice is appreciated and I look forward to educating myself further about investments in the coming months and years.
     
  13. MarkI

    MarkI Senior member

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    Gold and silver, what are you waiting for?
     
  14. Amelorn

    Amelorn Senior member

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    8-10% is a significant risk. One asinine publication I read suggested that for someone under 35, they could pile 85% of their retirement savings into stocks and expect 8.61% returns. However, I was looking at Fidelity's corporate bond inventory (my broker) and found solid corporations like Goldman Sachs and GE with bonds at 4.5-6.5%. If one holds the bonds to maturity and collects the principle at the end, they are a fine and relatively safe place for a young person to begin putting their money into and forgetting about it. A caveat however. If interest rates rise, the value of the bond will sink on the secondary market. If one holds the bond to maturity, this is a non-issue. Selling the bond may result in a small capital gains loss. Of course, pocketing X% over several years will result in an overall gain even after selling the bond for 96% of face when you bought it for 100% at issuance. On the other hand, if you buy an A rated corp @ 5% and the interest rate remains static, yet the company gets upgraded to AA, you are now carrying a more valuable bond. With an AA rating, said corp might issue bonds at 4.25%. The old 5% will become a hot commodity. And I haven't even scratched the surface...
     
    Last edited: Feb 29, 2012
  15. bwonger06

    bwonger06 Senior member

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    As you said, inflation will take a bite out of your investments.

    If you are in a true buy and hold strategy, a 40 year investment will return close to 10% annually. Even in a down year like 2008/2009, if you had bought 40 years prior, you would still earn over 10% annually on your investments. (see *)

    *http://www.moneychimp.com/features/market_cagr.htm
     
  16. tradernick

    tradernick Senior member

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    Well, let's try to be as accurate as possible. If you're talking about an indexed buy and hold strat for the U.S. equities markets, you would have to amend that statement to read "a 40 year investment may return close to 10% annually"
     
  17. Giacometti

    Giacometti New Member

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    TraderNik gave the best advice IMHO. I don't think buy and hold or any other traditional/conventional strategy is applicable in todays markets. The markets are much different than they were twenty years ago and require a much different approach. I would learn to trade the market. This requires both long/short strategies as well as being dedicated to doing in depth research and analysis. If you learn this skillset at your age and are disciplined with how you risk your capital you will set yourself up to live long and prosper.
     
  18. Reevolving

    Reevolving Senior member

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    What makes you so sure?
     
  19. tradernick

    tradernick Senior member

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    Trading is the ultimate test of individual judgement. Decisions are evaluated by measuring one thing - equity. There is no one or no thing responsible for my equity, except me and my decisions. There's nothing 'sure' in trading, except that bulls make money, bears make money and pigs get slaughtered. I used to think this was a corny bit of rhetoric, but I've learned over the years just how true it is. I didn't say I was sure. My statement reflects my belief, a strongly held belief.

    I'm going to short gold if and when I see the type of trading that characterizes the top of a bubble. This may or may not occur. One look at the last gold bubble shows that there were plenty of good short entries available after the last blowoff. The risk/reward has to be skewed very high in my favour for me to enter this trade. If my conditions are met, I will short it and place protective stops. If I get stopped out I may look for a new entry, or may not.

    There's nothing new in the markets. They've been acting the same way since the first rice futures were traded, a very long time ago.

    Do you know who Stanley Druckenmiller is? If not, and if you're interested in trading, I strongly suggest you get some information on him and read his story. It might give you some insight into my statement about gold. Please remember that you can short gold here and lose not only the capital in your account, but be liable for theoretically unlimited losses on top of that.
     
    Last edited: Sep 9, 2011
  20. Reevolving

    Reevolving Senior member

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    I have successfully shorted several bubbles myself, so I know the timeless psychological aspects quite well.
    As you implied, gold can go to $5000 before it hits $1500 and we've seen nothing remotely resembling a exponential blow-off top yet.
    You just seemed very confident about the $1500 mark, which is what made me comment.
     
    Last edited: Sep 10, 2011

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