Ask YC: How do you invest your money for long term growth?

I looked into this awhile back and quickly came to the conclusion, based on the several books I read, that it's silly to try to beat the market long term. "The Intelligent Investor" is the one that laid it out clearly to me. The main point is: the performance of narrow investments (specific stocks) can't be reliably predicted, but the market as a whole tends to grow over time. Therefore, invest in the market as a whole. (== S&P index fund)

Index funds are the way to go. They are a passive instrument, so you cannot (should not) be actively trading them. When you put money in an index fund, you essentially buy shares of that fund (along with several others). There is a fee attached to every trade, and that fee is consumed by all share holders equally. So most index funds will penalize you for trading those shares actively.

The way I look at it, an index fund (like S&P index fund) is merely a layer of abstraction over trading stocks. But instead of putting all your money in one stock, the index fund divies up your money across many different companies and sectors in the same ratio as the target index. This protects you from major fluctuations in the market, so in the long term you essentially grow at the same rate as the index. On the flip side, if one of those companies sees astronomical growth, you won't see the same growth.

[All: This is my understanding of index funds, so if I am wrong, please, do correct me]

There are several good books in the market if you want to go down this route, including the aforementioned "The Intelligent Investor" [must read] and "A random walk down wall street"

Another book that I surprisingly found to be very good was "Mutual funds for dummies" [http://tinyurl.com/5ulpvw][The other book "Personal finance for dummies" by the same author is a good book too. There is another one [http://tinyurl.com/5wso5z] that is short and sweet to read.

Good luck!

The comments so far are espousing passive investment strategy and good asset allocation, which I agree with, but I was looking for something a little more concrete.

So in effort to engender some discussion with hard %s, the following is where I am right now (excluding equity in primary residence). The accuracy (beyond decimal point) is certainly irrelevant, but it came right off a spreadsheet and I left it in because it sums to 100.

US Large Cap: 21.87%

US Mid Cap: 8.35%

US Small Cap: 3.03%

Commodities: 8.47%

Real Estate: 6.26%

International Equities: 7.55%

Emerging Market Equities: 4.63%

Cash: 12.71%

Bonds: 27.13%

The Bonds are in a 10 year ladder. The Cash is in FDIC insured money market accounts. All the rest is in index vehicles.

I'm very interested in any feedback and also what your numbers are.

I know its cheesy, but I really would rather invest in myself (Education, Business suit etc)

The benefits of diversification are vastly overstated. Especially over long time periods, the benefits of buying e.g. your 5 best ideas rather than your 10 best ideas vastly outweigh the benefits of having less volatility. If you have time to do the research, do this: find companies that are either the low-cost provider, the most-loved brand, or have special government-protected status in their industry. Examples would be Coca-Cola, Wal Mart, Kraft, etc. Possibly, rule out companies whose managers make irresponsible financial decisions (like over-leveraging at a bank, or buying back stock at high prices like Coca-Cola). When these stocks are cheaper than the broader market, buy them. If one of them rises enough that, after capital gains taxes, you're getting more annual earnings per dollar invested in another company of similar or better business characteristics, sell the expensive one and buy the cheap one.

Basically, your goal should be to have a portfolio you don't have to follow, of companies that will tend to grow their earnings faster than their capital and thus throw off free cash for shareholders. If you can get these at a fair price, your net worth should grow nicely.

However, this is difficult to articulate and extremely hard advice to follow. Perhaps it would be better to put most of your money in an index fund, and do this with the rest of your money long enough to see if it works for you. Sadly, this kind of strategy should be judged over a longer time period (like five years). So, index fund or take your chances.