Ask HN: What kind of personal financial investment do you do?

[shelvy]

I realize the general consensus around here may be that the best investment would be in yourself (have 25k? start a business!), but surely some people have "normal" investments, too. How do you hack it?

I don't think it'd be very beneficial to discuss specific stocks, funds, etc; but other than that it's a very open ended question.

Some thoughts (but post whatever),

* Do you have a 401k? IRA? Roth or not? Do you max them? Why or why not?

* Do you have an investment account that isn't a retirement account? Why or why not?

* Do you pick individual stocks? Do you have someone else? Do you use a managed mutual fund or ETF? Why or why not?

* Do you use passive index mutual funds? Bonds? CDs? Why or why not?

* And whatever else comes to mind...

[patio11]

A Roth IRA, maxed every year, is my main form of "real" investment. I try to put about 75% into index funds and 25% into handpicked stocks, which are my concession to desire to gamble.

I don't buy bonds or CDs -- I'm young enough that short-term loss is a non-event, since nothing short of "my children are starving on the street" will induce me to touch the Roth ahead of schedule. Wild volatility doesn't matter because I only check the account about once a year anyhow -- the only concern is maximizing expected 40-ish year returns.

I generally try to keep a few thousand in cash to cover unexpected expenses, although my discipline with that has left something to be desired as of late. (I'll say this for being a salaryman: I never had to deal with wild swings in my paycheck, and haven't quite mastered the trick of doing so yet.)

[sachinag]

You should absolutely max your Roth first every year, as you can use the account for a first home purchase and qualified education expenses in addition to retirement. (We'll have a lot of this sort of stuff on Blueleaf as we get closer to launch. If there are specific questions, we can write answers/articles for them.)

[bradshaw1965]

...I don't buy bonds

A lot of people would argue that even for a young person a portfolio with a small bond allocation is actually less risky with higher returns then a 100% allocation to stocks.

[gordonbowman]

I prefer to invest in individual stocks and not a fund. Funds do give you some protection, but they will also limit your upside. I prefer the risk/reward trade-off of investing in individual stocks and options.

I am still relatively young so my risk profile is more on the risk seeking side right now. I'll seek out more of the funds when I'm 35+, married with children, and have more to lose.

[pragmatic]

1. Get an decent amount in _cash_ savings ($10K)

2. Payoff all debts (including house and student loans)

3. Only invest in stock market through IRA's where there is a tax advantage.

3.1 Only invest in company 401(k) to get the match.

3.2 Invest the max in Roths (if you qualify)

3.3 Find an index fund and forget it. You've got better things to do then worry about stock picking. (I suggest Vanguard, it's investor owned).

4. Fund your war chest you started in step one. This is cash you can use for starting your company, investing in real estate, etc.

5. Find something you know about and stick to it. Whether it's real estate, starting software companies, etc.

6. Only buy things you can par for with cash. That includes cars/computers/TVs.

7. Beware the mortgage tax deduction. (Not everyone can deduct the interest/the standard deduction is pretty high already). You need a _lot_ of expenses to itemize. That means you have a lot of mortgage interest || medical bills || etc. This is not a good place to be in financially.

You'll be amazed how much money you can accumulate (even if you are a "wage slave").

[jalada]

I know your comment was all in dollars and this is probably generally an American topic. But regarding number 2, in England a student loan is the lowest interest loan you will likely ever get, so it's naive to pay it off in bulk; you might need to take out a real loan one day so keep the money, and even in today's climate you can probably put that money to good use.

[georgieporgie]

> 3.1 Only invest in company 401(k) to get the match.

Why? The advice I've read is, "invest at least the amount that your employer will match." (i.e. free money) But I've never heard anyone recommend not investing more than that in a 401k.

[thushan]

A good person to read up on is Vanguard's founder John Bogle. He's the champion of low-cost/low-fee index funds. I'm pulling this straight from his wikipedia page:

"Bogle argues for an approach to investing defined by simplicity and common sense. Below are his eight basic rules for investors:

- Select low-cost index funds

- Consider carefully the added costs of advice

- Do not overrate past fund performance

- Use past performance to determine consistency and risk

- Beware of stars (as in, star mutual fund managers)

- Beware of asset size

- Don’t own too many funds

- Buy your fund portfolio – and hold it"

And might I add one more: Take advantage of your company's 401k match immediately! That's free money on the table.

I've followed that style for my retirement 401k.

When it comes to play money and individual investments, I invest in what I know and what I believe in. The opinion is that one can't know all the information about every company out there so at least you can invest in the companies that you do know confidently about...

I follow Apple - and hence I made a big bet on them since the mid-2000s and it's paid off nicely... I feel Netflix is another company in its class - all my friends have accounts with them and have nothing but good things to say about them. Passionate customers can lead to profitability. I guess that's my individual stock picking strategy.

[jessriedel]

Could you explain "Don’t own too many funds"? Is that just because of fixed per-fund costs?

[mrkurt]

Most of my money goes into a high yield savings account to survive with no income for a while (trying to get 18 months in there!). I do fund an IRA, my employer 401k (to get the most matching), and two Roth IRAs though. The investments in those are relatively conservative, I consider investing in my own products to be my "high risk, high gain" strategy.

Roth IRAs are great, you can take the principle out at any time (since it's post tax money). It's only gains that are off limits until retirement. Not only that, you can roll normal IRAs and 401Ks into a Roth IRA and get that money out after something like 3 years. It's thing #1 I'm going to do when I quit receiving a paycheck and have a year of very low income to report. I largely consider the Roth IRA principle as part of my savings fund.

If I started working harder to manage those investments, I'd head over to the Bogleheads forum and spend a week or two reading. For now, I have a friend who knows his shit that just tells me where to stick the money to keep it reasonably safe. It's mostly no-load mutual funds with a pretty big chunk of bonds in them.

[encoderer]

I do the same with my Roth principle. But it's worth mentioning that, when you roll a 401k into a Roth you owe taxes on it. And if you have to take a portion of that 401k principle to pay the taxes, you'd almost certainly be better off keeping it int he 401k.

Also, if you imagine you'll have the same tax rate now as you will at retirement, there's no advantage to a roth. Whether you prepay taxes or defer them, it's all the same, the cash available at retirement will be the same.

The real advantage to a Roth is if you think you're paying a lower tax rate now than you will be when you retire.

[Femur]

>I'd head over to the Bogleheads forum and spend a week or two reading.

The bogleheads forum is a fantastic resource with many published authors and other smart folks. I have been an avid reader (and occasional participant) for over 2 years.

[illumin8]

This is great advice. You can read a ton about passive investing over at Bogleheads, how to maximize the returns on your index funds, the proper bond allocations, etc.

It's actually quite amazing to me that a lot of geeks who would spend literally hundreds of hours researching esoteric technical knowledge on the Internet, won't spend at least a few hours researching how to setup their retirement accounts. With life expectancies on the increase, we can reasonably expect to live 1/3rd or more of our life in retirement. Wouldn't you want to make sure you had enough money to do this?

Also, for someone with an entrepreneurial streak, wouldn't it be nice to "retire early" in your 50s and have the luxury of a steady income while starting a new business? This is ideal - imagine being a founder and not having to worry about paying for food or housing.

[danteembermage]

I put all my investment funds into a risk free account that pays just about 30% APR with no front end loads, no commissions, and I can make withdrawals whenever I want at no cost. There's a good chance you can to, it's called "paying down the balance on visa credit card"

i.e. fyi it's generally silly to invest when you have a credit card balance outstanding.

[StudyAnimal]

1. Education. Biggest investment, also bringing biggest returns in terms of increased earnings, in both me and my wife.

2. Shares. Me and my wife both take turns picking individual stocks. We tend to look at the news, look at what is cheap, a little bit of technical analysis. Mostly we just look at things that are cheap, try and find out why they are cheap, and if we think they will go up we buy. The goal is basically diversification, with a slight preference to smaller, riskier companies. As we age we will probably skew that towards larger, less risky companies, or perhaps indexes.

Oh the government forces us to put a lot of money into some retirement thing, but I think it is unsound, and do not consider it an investment. (The whole thing is based on todays workers funding todays retirees, and relies on an increasing population, whereas the population here is decreasing). I consider it money down the drain / tax.

[jblow]

I am kind of shocked by the uniformity of answers here, so I will add a dissenting voice.

In the current economic climate, it is pretty much a waste "investing" in anything until you have, say, an 8-figure sum in cash laying around doing nothing. I don't have that, so I am not bothering with "investing". I put "investing" in quotes because I feel the word tends to be perversely used; people really mean speculation, that is, gambling with negligible effects in terms of real-world wealth creation, but the gambling happens on such a huge scale that it distorts market prices hugely. Real investing is when you put money directly into something in order to enable the creation of something that wouldn't have been possible without your capital (as the YC folks do).

Stocks are terrible. If you look at market histories, corrected for inflation (actual inflation, not government-reported inflation, which is always understated, as the government benefits by understating it -- so normalize against something like an alternative inflation index or else straight-up commodities) then the S&P, DJIA, etc have actually not grown in 15 years. 15 years!! I know all of the "just buy an index fund" seems like good advice -- and it did used to be -- but in modern conditions that is no longer true. On top of this fact, pile on the risk of another market crash due to the USA's still-precarious economic situation, and stocks are clearly just not worth being in. (People are starting to realize this; there have been net outflows from equities most of the time for the past 40 weeks, and insider-selling-to-buying ratios are consistently huge.)

You can put money in bonds, but then it is locked up and you have a lot of inflation risk, so then you'd be aiming at short-term bonds, which are going to yield less.

Really what has happened is that US economic policy has become very hostile toward people who are responsible and save money, as an incidental effect of the desire to stimulate consumption (which mainly means taking on more debt and keeping rates tremendously low because if they ever become not-low now, debt burden is going to crush the economy.)

The upshot is that you are better off taking the mental energy you would have expended on "investing" and subsequently worrying about your money, and instead funneling it into your creative endeavors. You will make more money that way, especially when you take a long-term view. (Think about Einstein and the story about him having a closet of identical suits; except what I am talking about here is way less extreme and way more obvious.)

I have a rant about how peoples' "investing" according to the modern American model is actively making the world a much worse place than it ought to be, but this post is already long enough.

[illumin8]

Your long rant basically says don't invest money at all, just keep cash in your mattress?

Who in their right mind would follow this advice? Let's say we don't worry at all about saving money, and just funnel our energy into "creative endeavors." If those creative endeavors are profitable, what are you going to do with the money?

It doesn't take a lot of energy to setup a 401k or Roth IRA. It doesn't take a lot of energy to pick an asset allocation that protects you from most risks. For example, a bond allocation will protect your money during a period of deflation, while a gold allocation will protect your money during periods of inflation. A stock allocation will grow your money during periods of prosperity. Just pick a good allocation and rebalance yearly. It should only take you a couple hours a year to worry about it, and you'll be exponentially better off at retirement than someone who stuck all their cash in a mattress.

[Femur]

>In the current economic climate, it is pretty much a waste "investing" in anything until you have, say, an 8-figure sum in cash laying around doing nothing.

Why do you say that? It is clear that money can be made investing with less than an 8-figure sum. For instance, the Vanguard S&P500 index fund returned 22% last year and 10.66% since its introduction in 1976. The fund minimum is $3,000.

[krschultz]

Rants like this come from two kinds of people

A) People who don't invest

B) People who bailed at the bottom of a downswing

Everyone who rode out the recession without panicking has made their money back. I've made a good deal of money over the last 5 years with nothing more than 2 ETFs and automatic contributions each week (dollar cost averaging), and percent based rebalacing. So I do maybe 2 or 3 things a year above and beyond the automatic deductions.

It's really not difficult, and its not all that risky. Check out the Truth About Money by Ric Edelman, or just listen to some of his free podcasts.

[jsm386]

Looking below the consensus here is on index funds. I think, historically that was the right strategy, but the notion of buy-and-hold an index fund, broad basket of stocks, etc is being looked at in a new light. From the early 80s to the peak of the dot.com bubble you saw a long bull market. Buying and holding a low cost index fund would have served you well. Since 2000, not so much.

See: http://www.ritholtz.com/blog/2010/03/vanguards-broken-buy-ho... & http://www.ritholtz.com/blog/2010/12/buy-hold-vs-trend/ - Yes both sources are the same author but I really respect Barry Ritholtz's views and he's hardly the only one making this argument.

Trying to pick individual stocks can be a foolish endeavor, but buying trends, whether it is index funds over certain periods, various sector/commodity ETFs, and yes, companies with great stories is what I try to do. I'm young (27), and the advice I've gotten consistently is at your age take some risks. So right now I have a managed portfolio, some bonds/MLP/MLP funds for income, and some short term positions in individual stocks and commodities. Oh, and a short on a particular content farm :)

[rmrm]

After a failed startup where I went without salary for nearly a year, I found myself 30 years old, with 2 car payments, 15K in credit card debt, and $0 in the bank. This forced me to reevaluate my relationship with money : )

Step 1 was digging myself out of the hole, which didn't take too long -- paid off the cars and the CC debt.

I use EmigrantDirect for a Savings Account, they pay 0.9% on balances currently, generally they are very competitive. Transfer are easy.

I use an EmigrantDirect Mastercard for all my purchases. If you maintain a greater than $10,000 balance in your savings you get a 1.4% cash back on all purchases. Doing this is a nice way to handle things, all your bills are consolidated, and you get cash back. Of course pay it off in full each month, treat it like a charge card, not a CC.

I do not currently get a match on my 401K, and I do not like the investment options much, therefore I do not use it -- I instead max out a Roth IRA, and put money into a taxable account.

I tried very hard during the downturn to push as much money as I possibly could into stocks, ignoring whatever fear I felt. As things have rebounded I am sitting on a portfolio with very nice paper returns. I favor companies with high ROE and what appear to be sustainable cash flows. I favor international exposure. And I like dividends.

I am however finding it difficult to find that much to invest in currently, my money has been going into cash for some time.

I'm not really sure what comes next...I still consider houses overpriced relative to rents, tho depending on what inflation may do, it might make sense to purchase one. Still pondering that one.

[spinlock]

I agree with just about everything you're doing. I am still invested in the market but I know what you're saying about expecting a correction. I actually used the dip the market took last week to put some more money to work.

I totally agree on housing. Mortgage rates aren't going to get any cheaper ever again (although I said the same thing in 2003) so it is a good time to lock in a low rate. But, I live in the SF Bay Area and rents are so cheap compared to housing prices (still) that it would be really hard to up our housing costs by 50% (at least) and move into a worse place. Unfortunately, the wife has her heart set on home ownership so we might wind up going that way.

[tricky]

we (married) drive shitty cars.

our 401k's are maxed out.

I shop around for the best savings account rate. I wind up changing banks every year or two.

I pick stocks and hold for the LOL's. Currently getting a 12% APY on about $5000 invested. No real plan and not interested in dumping a ton of money there. It's just more interesting than the casino.

We bought the house we're going to die in. paying it off asap.

After the house is paid off we'll probably buy something else. I REALLY want to build a self-storage building on some cheap land. She wants a condo on a beach. We'll see.

[jessriedel]

What saving account rates have you been able to find lately? My bank in CA offered a checking account with 5% interest back in 2007, and it's only down now to 3.5%. Most people I talk to say these are very high rates. Can I do better?

[abyssknight]

Its funny, but I think the richest people I know have all paid off their real estate. They don't pay rent, and they stayed in their homes til they could pay them off. It sounds simple, but it really takes a tremendous amount of resolve.

[tocomment]

self storage building? What's that?

[dan_sim]

I'm building a company and investing in it.

I may be crazy but I rather invest in myself that in a company I have no control over. When the time will come, I'll sell it and get most of my money out of it. Maybe reinvesting in another and make more out of a better initial investment.

I already created thousands of dollars from an initial 500$ investment and time.

Does someone else here thinks like that?

[arthurdent]

yep. i like betting on myself better than betting on most other people.

its sort of an "all your eggs in one basket" strategy, but if you're going to put all your eggs in any particular basket and you're good at what you do, you're as good a bet as any (and you can make sure your investment manager isn't slacking)

[gersh]

You want to diversify. So, if you have a significant portion of your money invested in a startup, I think you would want to be a lot more conservative with the rest of your money. You can real safe with bonds or cds. I also look for old, boring mutual funds, that have been around a long time, and get good performance.

Although, I haven't gotten around to implementing it, I think there could be a powerful concept, which I'll personal hedging. The idea is to think of your investment as a hedge against the costs of things you want to buy in the future. So, suppose you are investing to retire. 1) Track your expenses 2) Figure out what your expenses will be when you retire. 3) Buy proportional share of the value chain for all the companies you will buy stuff from. Presumably, you want it waited to cover all your expenses. Now, this can get tricky because you may spend a lot of money with companies that aren't public, and some industries may be in a bubble. Further, you will have to shift your investments to reflect industry shakeups. For example, if you change your mind about what products you like, you would also change your portfolio. Industry changes would also affect, who in the value chain gets the profits, and conglomerates or weird capital structures can make this a bit tricky, but I think it is a powerful concept.

[riemannzeta]

Still chuckling about Bucheit's suggestion of spreading cash out into a huge number of FDIC-insured savings accounts -- "Think of it as RAID for your cash" he says, as I recall.

[synacksynack]

CDARS is a simplified way to do that with CDs, essentially distributing amounts past the FDIC limits into different banks behind the scenes, so that you only have to deal with one account, but get insurance on the entire amount.

http://www.cdars.com/

[Femur]

Given the abundance of academic research on the subject of the efficient-market hypothesis, I think it is futile and foolish to try to "beat the market" by trying to pick individual stocks that are mispriced. Therefore, I own low-cost index funds and try to own the market as a whole.

I do try to shelter as much of my portfolio as possible since taxes reduce returns. I have a 401k, 403b, Roth IRA, Traditional IRA, 457(b)... (I've had a lot of jobs).

[beoba]

You may want to roll some of that into a single account, keeping track of that isn't going to get any easier...

[math]

I make additional contributions above those required to the retirement scheme in Australia similar to 401k. Obviously, this is because the compounded savings in tax are large.

I have share trading accounts for savings I intend to use before retirement. One is for US shares the other for Australian shares.

The main use of this money would be to buy a house (in australia), if and when this ever makes any sense based on NPV calculations. I independently value any investment I make to the best of my ability.

I do not buy and sell assets frequently as I believe the market is probably very efficient on a short term basis (I know I don't know how to beat it). I tend to focus on longer timescale macro trends which I spend an enormous amount of time thinking about (for enjoyment, regardless of investment purpose). I would like to think (at least some) markets are not efficient on longer timescales (but short compared to my lifespan). I do not know if this is true, but I believe it probably is. This timescale is at least 5 years.

I rarely buy individual stocks, but there are some exceptions such as BHP as a proxy for commodities. I tend to buy targeted aggregate securities (ETFs are great) to get exposure to the trends I'm interested in. The less fees the better, so index tracking funds are preferred. I don't trust a random "expert" to be able to beat the market above fees. I know enough people in finance to know the way you get places is ability wear a suit nicely and talk confident (i.e. sell), independent of actual ability.

I rarely make large trades. If I'm moving from one asset (or cash) into another, I'll do so using a number of trades over a number of months.

I'm always diversified on a global basis. I always have some exposure to assets in the currency where my future expenses are likely to be incurred, even when I have a negative outlook on that currency (as is the case currently).

[brk]

Here is a short answer...

My wife and I both contribute maximum contributions to our 401K's (no employer match). This is ~$16.5K/year, and we pick the funds the 401k allocation is invested in. Like any 401k plan, the options are relatively limited anyway.

Our larger savings and retirement funds, and some other assets, are managed by a professional. We both have a higher-than-average amount of investment knowledge and experience, but it is really a full-time job. We don't have the time to obsessively watch market trends, do research, and then move investments around to maximize our gains.

We also keep (depending on various other factors) ~$70-$120K liquid at any given time. This is money in a decent interest-bearing money market account, short-term CDs (3-6 months), that sort of thing. It's basically our funds for emergency stuff, cover a job-loss (we both work in startup type businesses), buy a car, or things like that.

[encoderer]

If there's no match, it's generally advisable to not do this simply BEACAUSE the usually crappy fund selection.

You can open your own tax-advantaged IRA.

[acconrad]

I have a 401k, Rollover IRA and Roth IRA. I don't max them because for a while, my returns were lower than my student loan interest rates and I felt it be a better use of my money at the time.

Until my loans are paid off, I will be sticking with just those 3 retirement accounts.

I pick my own ETFs because I'm super type A, but it's based on crowd appeal. So if I find 5 experts recommend an ETF, and it has a low management fee, I'm likely to purchase it.

I stick strickly to ETFs (but in all asset classes, such as bonds) because the rate of return generally exceeds CDs and Bonds, and I don't need the money at the moment. Plus, Bonds and CDs pay out so low that I'd rather just have my money in a high interest (hah) savings account.

What else do YOU have in mind? Feel free to find me on any of the networks listed in my profile if you'd like more feedback :)

[bretthoerner]

Why ETFs over mutual funds (such as those with the same holdings)?

[mberning]

I got out of employer 401k. Yes they are tax advantaged, but your money is hostage and you will be harshly penalized if you ever need it for some unapproved use. I find that these penalties cause me to be much more conservative with the amount of money that I am willing to invest.

Since I got out of tax advantaged accounts I now use an online broker to buy exclusively index funds. In the past I was only comfortable investing say 15% of my money (after living expenses), but now I feel comfortable investing 40-50%. I don't need to simultaneously keep a huge amount of cash savings because at any time I can sell my index funds and have the money in less than a month.

You also pay extremely low fees with index funds whereas 401k plans can have pretty high fees depending on the provider.

[illumin8]

Sorry, but this is terrible advice. You could be sheltering $16,500 per year from all taxes until retirement, not to mention possible employer matches.

Right now, you probably have to earn about $23,000 (assuming 30% tax rate) just to invest the same $16,500. Then, you have to pay capital gains taxes or regular income tax every time you receive dividends, yields, or sell a stock at a profit. These taxes can eat anywhere from 20% to 38.5% of your profit on every single transaction.

If you sat down with a calculator and figured out the difference between saving $16,500 in a 401k and saving that much in a non tax advantaged account, you are literally throwing away over $1 million throughout the course of your career.

Not to mention, you can take a loan against your 401k if you really need the money.

[bmr]

I've seen it mentioned here a few times, but if you haven't heard of the permanent portfolio, check it out here:

http://crawlingroad.com/blog/2008/12/22/permanent-portfolio-...

[tachibana]

Warren Buffet's rules of investing: 1) Never lose money. 2) See rule #1.

I use municipal bonds to immunize my expenses (http://en.wikipedia.org/wiki/Immunization_%28finance%29). Municipal bonds (affectionately called "munis") are not subject to federal income tax because of a Supreme Court decision in the 1890s. Most states also exempt the interest on their own municipal bonds from their own income tax (of course, if you're in a state with no income tax like TX, then that's not really a problem). Furthermore, some states (like California) are constitutionally obligated to pay the interest on bonds before they allocate money to the the state's general funds.

My immunization strategy is simple: for every $10,000 I put into munis, I get anywhere between $40-50/month (average return on capital is in the 5-6% range these days) in passive income. Keep in mind that since this is not taxed, this translates to a pre-tax rate of return that's closer to 6.94%-8.33%, assuming a federal tax bracket of 28%; in reality it's a lot more because of FICA and state income taxes.

For long term growth and in tax-advantaged accounts, I use zero-coupon munis. Yes, being in a tax-advantaged account diminishes the allure of munis, but some of those bonds are now paying in the 7.5%-8.5% range.

[khafra]

Aren't municipal bonds paying better these days because of fear (justified or otherwise) that lots of them--especially in California--are going to start defaulting?

[riemannzeta]

Risk of default on these bonds has never been higher -- hence the yield. The market has plummeted in the past few months, but don't try to catch a falling knife.