Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Ask HN: Does an index fund count as diversifying?

news.ycombinator.com

Post reply on HN
Print view View original

11–20 of 21 posts

Re: Ask HN: Does an index fund count as diversifying?

#11

Post by natrius »

brk wrote: post #2

Most online places charge about $10 per trade. So even if you're putting $200/mo in, you're losing 5% immediately. Best choice would be to save up for several months and do fewer trades. You really need to do better research, your statement that you don't want to learn about the stock market is a good way to guarantee that you never really make the kinds of returns you should. If there was a reliable, easy no-knowled…

Honest question: What's the logic behind keeping hundreds of thousands of dollars in a money market account? Is there a larger chunk of money sitting in places that earn a better return? If I had that kind of money sitting around that I wanted to use in the next couple of years, I can't imagine putting it in anything with less of a return than the low-risk Vanguard core funds. I don't know much about these things, so if I'm wrong, I'd like to know before I have money to lose.

Re: Ask HN: Does an index fund count as diversifying?

#13

Post by iamelgringo »

Someone double check my information on this, but I believe that you can take a 10,000 withdrawl penatly free for a first time home purchase. The distribution will still be taxed, but there is no penalty.

ConsumerReports.org usually has a pretty good list of low load, no load index and mutual funds that they suggest. They are a non profit, and I'd been consistently pleased with their advice over the years.

Re: Ask HN: Does an index fund count as diversifying?

#14

Post by bryanalves »

Thanks for the resources guys. It sounds like I need at least a couple of index funds to be adequately diversified, and the books that have been mentioned here have been mentioned in numerous other places that I've seen; time to give them a look and spend at least a little time learning.

As for the people talking about not taking the time to learn, I understand that I'm not going to have crazy returns or anything like that. I just want an investment vehicle that will outperform basic savings accounts and such, and, hopefully, beat inflation.

Also, as for people saying "don't put money in the stock market if you need it in 3-6 years." I certainly won't need it; I was more emphasizing that I want something sooner than 401k, and potentially would like to have it available that soon. T

he more realistic scenario is I use it as a gap retirement fund. I'm 26 now, and would be happy to retire in 25-30 years. This means I need 10-15 years of gap money before 401k becomes viable.

Vanguard has been mentioned multiple times in this thread. I used to have a 401k with them, with a previous employer, but I didn't pay much attention to their offerings. For passively dumping small amounts of money into a small set of ETFs monthly, do they offer a superior service to some of the other online brokers that I mentioned?

Re: Ask HN: Does an index fund count as diversifying?

#15

Post by RobGR »

I don't think it is a good idea for a individual to put money in the stock market, whether as you are doing now (via your 401k) or through some other method.

In theory, the stock market should be a place where companies can raise money to carry out enterprises that return more money to the stock holders. In order to be able to raise money from more people, rules are applied that make sure the powerful and rich don't rip off the weak; this is how the original stock markets, certain coffee houses in London and Amsterdam, fell upon the idea of only admitting members who agreed to record all of their transactions upon a chalk board on the wall, open for all to see.

In the current reality, companies don't pay dividends, when you buy the stock the money you pay is not going to go to the company to fund any enterprise, and well connected people at Goldman Sachs employ "high frequency trading" which is essentially shill bidding in an open-outcry auction.

The people who thought "high frequency trading" was OK are still in charge of the stock market; I'm not sure if they currently claim that is stopped or not, but it doesn't matter, the people who failed the test of allowing it in the first place are still in charge. Had they been selling cattle as a licensed auctioneer, and allowed that sort of thing to go on, they could go to jail.

Other places to put your money could include government bonds; you might look at the inflation protected series of bonds. You could simply keep your money in an FDIC insured savings account. As long as you are thinking you might need the money in 3 to 6 years, anything else seems foolish.

Re: Ask HN: Does an index fund count as diversifying?

#16

Post by brk »

natrius wrote: post #11
brk wrote: post #2

Most online places charge about $10 per trade. So even if you're putting $200/mo in, you're losing 5% immediately. Best choice would be to save up for several months and do fewer trades. You really need to do better research, your statement that you don't want to learn about the stock market is a good way to guarantee that you never really make the kinds of returns you should. If there was a reliable, easy no-knowled…

Honest question: What's the logic behind keeping hundreds of thousands of dollars in a money market account? Is there a larger chunk of money sitting in places that earn a better return? If I had that kind of money sitting around that I wanted to use in the next couple of years, I can't imagine putting it in anything with less of a return than the low-risk Vanguard core funds. I don't know much about these things, so…

When I said low 6 figures, I meant very low. We don't usually keep more than $150,000 (and it varies between $60K and $150K as things cycle) in "accessible cash". This is, for us, funds used to purchase a new vehicle, or deal with some around the house issues, or move to a new investment opportunity.

This is just an amount that, for our purposes, is enough to cover most random unanticipated issues without keeping too much money uninvested.

Re: Ask HN: Does an index fund count as diversifying?

#17

Post by natrius »

brk wrote: post #16
natrius wrote: post #11

Earlier quoted context omitted.

Honest question: What's the logic behind keeping hundreds of thousands of dollars in a money market account? Is there a larger chunk of money sitting in places that earn a better return? If I had that kind of money sitting around that I wanted to use in the next couple of years, I can't imagine putting it in anything with less of a return than the low-risk Vanguard core funds. I don't know much about these things, so…

When I said low 6 figures, I meant very low. We don't usually keep more than $150,000 (and it varies between $60K and $150K as things cycle) in "accessible cash". This is, for us, funds used to purchase a new vehicle, or deal with some around the house issues, or move to a new investment opportunity. This is just an amount that, for our purposes, is enough to cover most random unanticipated issues without keeping too…

Sounds reasonable. Thanks for the information.

Re: Ask HN: Does an index fund count as diversifying?

#18

Post by ww520 »

Max your Roth IRA for now. Judging from your current contribution level, you are still qualified.

Check out Permanent Portfolio if you have more money.

Get into real estate if you can. I participated in the last great real estate run-up and benefited greatly.

Re: Ask HN: Does an index fund count as diversifying?

#20

Post by CraigBuchek »

natrius wrote: post #8

If your employer isn't matching that entire $10k, you should look into other retirement options. http://www.iwillteachyoutoberich.com/blog/the-worlds-easiest... "First, I would max out any 401(k) match that my company provides. Second, I’d max out the $5,000 for my Roth IRA. Third, I’d max out the rest of my 401(k), up to $15,000. Finally–if your employer doesn’t offer a 401(k), you’re not employed yet, or you still…

This is the advice I've seen from just about every financial adviser, for anyone not near retirement age.

Another nice thing about a Roth IRA is that you can withdraw all the principal (the part you already paid taxes on) early with no penalty. (Actually, you can withdraw the interest from individual accounts -- you just can't withdraw more than you put into ALL your Roth IRAs.) Although my bank seems to not understand this very well, and the government forms aren't very clear on it either.

Post reply on HN