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

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

#21

Post by jonp »

A small proportion in cash (enough to survive for a year or two if I want to stop being employed). The rest in equity index funds, spread between UK, US, Europe, Japan/Pacific. Some of those equities are in retirement funds for the tax advantages, and for the discipline of not being able to spend them any time soon.

That seems reasonable for me now, as someone who's young and employed. My future earnings ("human capital") are likely to be bigger than my current financial assets (because I'm young) and fairly steady and bond-like. As I get older, or if I become self-employed, I would move more of my financial wealth into safer assets (eg long-dated index-linked bonds).

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

#22

Post by misterbwong »

For most of my retirement money, I follow the "Lazy Portfolio" method. Some examples and results are tracked here:

http://www.marketwatch.com/news/story/lazy-portfolios-annual...

Basically, you buy indexes across asset classes so you have diversification within each asset class as well as asset diversification.

It's easy, cheap, and works. It's just not "sexy"

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

#23

Post by Prrometheus »

I can think of two very important principles to keep in mind:

-Diversification: Commodities, property, and bonds often do well when stocks fall. Economic shocks can happen that are localized to a single country or region. It makes sense to put your eggs in several different baskets, both by asset type and by geography.

-Long-term inexorable trends: The world's population is getting older. Well-run but less-developed economies will tend to grow faster than well-established ones. Invest in "iceberg" trends, those that are slow-moving, easy to predict, and hard to stop. I recommend medical ETFs and emerging market ETFs

Of course, throw in some traditional investments while you're at it. Don't get cocky or daring and don't let short term variations spook you. Trading too much can knock a significant percentage off of your returns.

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

#24

Post by nikiscevak »

One point about the index funds (besides from being very hard to beat the market even working full time on it) is that the huge fees compounding on hedge and mutual funds also take away most of your gains. 2% compounded over 30 years wipes out a lot of the alpha.

This podcast is an excellent intro to index funds and how fees decimate returns (also a fantastic entrepreneurial story): http://www.venturevoice.com/2006/02/vv_show_28_john_bogle_of...

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

#28

Post by Retric »

raju wrote: post #4
mullr wrote: post #2

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 who…

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…

I would avoid buying a single index fund though. I go with small cap growth funds 50% US, 25% Europe, 25% Asia and rebalance them every 6 months.

PS: Outside of a Roth IRA / 401k rebalancing stocks has some negative tax consequences so it's better to change what your buying than sell off existing stock.

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

#29

Post by Retric »

epi0Bauqu wrote: post #6

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…

That looks insanely conservative. I would basically drop Large Cap, Cash, and bond from any long term investment strategy. I would bump Emerging Mark's and US Small cap stocks to 25% each and spread the rest over Mid Cap, Commodities, Real Estate, and International Equities.

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

#30

Post by petercooper »

Some great answers here, and mine is not going to be an answer to you specifically, but might open some minds nonetheless.

I try to invest in "myself." Rather than supporting those producing, innovating, and providing value to the economy, I try to be a producer, innovator, and value provider myself.

This attitude works well in your 20s, at least, but might not seem so alluring when closer to retirement.

It is not uncommon, however, to see or hear about situations where someone has started a business with a reasonably small amount of money (<$50k) and even if they're not worth mega-millions, their business can grow to the point where it provides the owner with a high income and can effectively manage itself (if you get the right people). This technique makes you a producer rather than an investor in the long run.

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