I'm 28, and I don't want to end up like Liz Lemon ("well I have $12,000 in checking"). What's a good primer on investing? I don't have a ton of money but I'd like to get into it.
The best investment advice you'll never get
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Re: The best investment advice you'll never get
#72Interesting comment on that article: Index investing (applied to extremely wide market indexes) makes an assumption that there will be a continuous and infinite increase in the total market capitalization of that index. As time marches forward I beleive we will experience a deceleration of worldwide market cap increase. Anyone have thoughts on this?
This doesn't take dividends into account.
Look at the DAX index, it includes re-invested dividends, and thus mirrors the actual performance of a passive-investment strategy better than a pure-stock price index.
Re: The best investment advice you'll never get
#73I'm 28, and I don't want to end up like Liz Lemon ("well I have $12,000 in checking"). What's a good primer on investing? I don't have a ton of money but I'd like to get into it.
Depends on what country you (or your money) live in.
In the US has some low fee index funds. In Germany I used an ETF of max-blue.
Just find a low fee diversified index fund, and then get back to your normal work. (Unless you enjoy playing the stock market, than there's nothing wrong with active investment. Just as some people enjoy playing the lottery (only the expected value of active investment isn't as dismal as playing the lottery).) Benjamin Graham's "Security Analysis" is a good primer, if you really want to get into stock or bond trading, or are just interested on an intellectual level. It's a hard book.
Make sure you use a tax efficient way to invest. If you can invest with pre-tax money, do so.
Re: The best investment advice you'll never get
#74Interesting comment on that article: Index investing (applied to extremely wide market indexes) makes an assumption that there will be a continuous and infinite increase in the total market capitalization of that index. As time marches forward I beleive we will experience a deceleration of worldwide market cap increase. Anyone have thoughts on this?
I think this has to do with the age distribution in Western countries. As the baby boomers retire, they no longer are adding but start removing funds from the system. A friend and I talked about this 20 years ago when 401(k)'s became the rage, lamenting that we were on the wrong side of the boom.
When those old people take capital out of the system, shouldn't your remaining capital become more valuable for its scarcity?
Re: The best investment advice you'll never get
#75Earlier quoted context omitted.
I have several concerns with index fund/ETF investing: 1. How much of the underlying stocks, that make up the Index, are really owned by the Index fund/ETF? I doubt that such funds/ETF actually own 100% of the required underlying stocks, may be using some sort of option/hedge strategy. 2. In what scenario, not owning the actual underlying stocks can be detrimental to index fund/ETF? I am looking for what may cause fa…
For European ETF: 1.) Depends on the ETF. There is a) Full Replication. All stocks are 1 to 1 in the ETF. b) Swap based. EU swap ETFs can have up to 10% (but not more) in swap (what you mean by option/hedge), the rest is stocks. Oftentimes ETF issuers have an insurance on those swaps. If the swap counterparty goes bankrupt you loose that 10%. c) optimized sampling. You have different stocks (or not all of that index)…
About 4: Active investor could get a better performance than passive investors, if that situation would arise.
Re: The best investment advice you'll never get
#76Earlier quoted context omitted.
Think of the index fund as reducing the risk of depending on any one stock for your gains. I don't know what the distribution of gains is like on an index fund but an answer to your question would likely come from an examination of one.
My theoretical fund would have a wide range of stocks. It does not seem to be related to spreading gains or risks. I have not seen any comparative table of stock churn rates for different funds, but my guess is that index funds do well because they reduce the sell-buy transaction costs, partly by eliminating the cost of human stock pickers, but primarily by reducing the percentage of stocks in the fund that are sold…
Balancing portfolios is basically a universally recommended practice. If you manage your own portfolio, won't you have a similar "churn rate" to the index fund?
Re: The best investment advice you'll never get
#77One way to beat index funds is through piggyback investing on those who can beat them. Check out http://alphaclone.com/ You have to pay for a membership but the site is top notch. They parse investment fund's sec filings and allow you to backtest strategies to see how well they would have performed over a given time frame. You will find strategies that crush any index fund. I am not affiliated with alphaclone.com.
In retrospect there will always be strategies that will beat any index fund. But can you identify such a strategy beforehand?
Re: The best investment advice you'll never get
#78Interesting comment on that article: Index investing (applied to extremely wide market indexes) makes an assumption that there will be a continuous and infinite increase in the total market capitalization of that index. As time marches forward I beleive we will experience a deceleration of worldwide market cap increase. Anyone have thoughts on this?
Warren Buffet said sort of the same thing in one of his annual shareholder letters a few years ago. That exponential economic growth has natural limits, and that if we extrapolate the stock market's 20th century returns to the 21st century, you end up with a mind bogglingly (and unrealistically) large market cap in 2099. I forgot what year he wrote that, but it was sometime between 2006 and now. I don't have time to…
I'm not the person to refute Warren Buffet, but I will point out that the Dow Jones had abysmal performance from 1970-1979. One decade isn't enough to judge the economy for the next century.
Do I think DJIA will hit 2 million in 100 years? No. But I don't think it's unreasonable to expect hundreds of thousands.
Re: The best investment advice you'll never get
#792 words: Renaissance Technologies http://en.wikipedia.org/wiki/Renaissance_Technologies
You can't just invest in a hedge fund, there are some crazy requirements. As an individual investor you have to make $200,000 for at least two years straight.
Re: The best investment advice you'll never get
#802 words: Renaissance Technologies http://en.wikipedia.org/wiki/Renaissance_Technologies
In some alternate HN that existed 10 years ago someone posted "4 letters: LTCM" :)