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Ask HN: I have $450K cash, what should I do to maximize my return?

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Re: Ask HN: I have $450K cash, what should I do to maximize my return?

#121

Post by latchkey »

tzury wrote: post #82

Use it as down payment for three condos in Austin TX and rent them.

I thought about doing rental properties and then came to the conclusion that the amount of work to make that happen, just isn't worth it for the average person. You're either stuck hiring some management firm or doing it yourself. It isn't easy to get the capital back and will take years to see any sort of returns.

Never mind the fact that we're in a pandemic where ~1.4M people a week are losing their job. Who are you going to rent to?

Re: Ask HN: I have $450K cash, what should I do to maximize my return?

#122

Post by mancerayder »

bryananderson wrote: post #102
quotemstr wrote: post #81

Earlier quoted context omitted.

I'm an index fund skeptic. What would happen in a world where everyone invested in index funds? Capital allocation would go haywire. You can't create value out of nothing. ISTM that the more people push on index funds, the more overvalued equities in the index become relative to those outside the index. I'm not sure that retrospective analysis saying index funds are the best applies going forward in a world where ind…

Obviously not “everyone” will ever invest in index funds. HFT firms, leveraged buyout folks, and prop traders at investment banks aren’t going to stop betting on individual securities. The people who have more information, quicker ability to act on information, or superior ability to analyze information shouldn’t buy index funds (they’re also the people who contribute meaningfully to price discovery). A smart individ…

I hear this over and over again. Beating the HFT firms, insiders, big money shops and so forth.

It's not a zero sum game necessarily. A stock picker approach that you have as a retail investor that many trading shops do not have is this: time. You can make your bet, and if it fails in the short term you can hold onto the stock long term, unless the company is going bankrupt (which hasn't been a common occurrence up to now, given the overall number of stock symbols). Traders are individuals and groups with books, quarterly numbers to meet and yearly returns to care about. They'll beat you if you're a day trader, sure, but I think it's a false dichotomy to say, you're either a) a day trader or b) a boglehead.

Re: Ask HN: I have $450K cash, what should I do to maximize my return?

#123

Post by nknealk »

Surprised not to see this mentioned anywhere. In finance, we don’t look at maximizing total return but rather risk adjusted return. Buying a lotto ticket has amazing total return if you hit the jackpot but really bad risk adjusted return.

The thing you should spend some time doing is deciding what your risk tolerance is and how much variance in your portfolio you can stomach. Then you can start talking investment strategies.

Re: Ask HN: I have $450K cash, what should I do to maximize my return?

#124

Post by emit_time »

> I'm not comfortable investing the entirety into an index fund, given the current socio-political climate.

The government is printing an awful lot of money right now.

Keeping your money in cash isn’t a guaranteed return if inflation goes up significantly. You’re much better having it in assets with intrinsic value. (Stocks, real estate, etc)

I would suggest investing the money over the course of a couple years into an index fund, probably S&P 500 or total market.

Even if you invest at the worst possible times (right before crashes) you’ll come out way far ahead of leaving it in cash.

https://awealthofcommonsense.com/2014/02/worlds-worst-market...

Re: Ask HN: I have $450K cash, what should I do to maximize my return?

#125

Post by mancerayder »

quotemstr wrote: post #92
branweb wrote: post #85

Earlier quoted context omitted.

Not the op but I wish downvoters would comment giving their reasons. I remember seeing something about this in the atlantic a while back, and it would be good to know if/why it's a bad argument.

There's this weird social energy surrounding index funds that's very aggressive about preaching that they're the only viable option and that everything else is ridiculous. To be honest, this energy is another input that increases my skepticism of the whole thing. These days, whenever you see an argument downvoted instead of rebutted, there's likely something to it.

I think voting can mean different things to different people.

Some people upvote or downvote because they agree or disagree. They view it as a "vote" for the opinion.

Others upvote or downvote because they thing the argument is strong or weak, or maybe because someone said something nice and positive to another person or someone said something mean or hostile to another person.

I strongly favor the second approach.

Re: Ask HN: I have $450K cash, what should I do to maximize my return?

#127

Post by throw0101a »

mancerayder wrote: post #122
bryananderson wrote: post #102

Earlier quoted context omitted.

Obviously not “everyone” will ever invest in index funds. HFT firms, leveraged buyout folks, and prop traders at investment banks aren’t going to stop betting on individual securities. The people who have more information, quicker ability to act on information, or superior ability to analyze information shouldn’t buy index funds (they’re also the people who contribute meaningfully to price discovery). A smart individ…

I hear this over and over again. Beating the HFT firms, insiders, big money shops and so forth. It's not a zero sum game necessarily. A stock picker approach that you have as a retail investor that many trading shops do not have is this: time. You can make your bet, and if it fails in the short term you can hold onto the stock long term, unless the company is going bankrupt (which hasn't been a common occurrence up t…

> It's not a zero sum game necessarily.

It is, actually. William F. Sharpe laid it out in the 1991 paper "The Arithmetic of Active Management":

* https://web.stanford.edu/~wfsharpe/art/active/active.htm

* https://www.jstor.org/stable/4479386?seq=1

Sharpe won the 1990 Economics Nobel for other work:

* https://en.wikipedia.org/wiki/William_F._Sharpe

The more active a trader is, over a longer time frame, the more likely they are to underperform the market. This has been shown through SPIVA over 15+ years, at least in the US and Canada:

* https://www.tma-invest.com/spiva-data-reveals-15-years-of-ac...

* https://www.ifa.com/articles/despite_brief_reprieve_2018_spi...

As of the end of 2019, internationally active managers didn't do too well either:

* https://dividendstrategy.ca/what-is-spiva/

This has been known to varying degrees since at least the 1970s:

* https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street

Re: Ask HN: I have $450K cash, what should I do to maximize my return?

#128

Post by dpweb »

throw0101a wrote: post #29

> I'm not comfortable investing the entirety into an index fund, given the current socio-political climate. Over the the long term there is not really anything better to do with it than equities: the Great Depression, World War 2, gold standard retirement, 1980s inflation, etc. Even if you only invested in the peaks, you'd still do quite well over the decades: * https://awealthofcommonsense.com/2014/02/worlds-worst-m…

Stock indexes over the long term are a function of Corporate profits of the large companies and the inflationary nature of the economy, especially over the last 30 years, the willingness of the Federal reserve to print money (create debt). Without restraint nowadays.

For instance, in 2020, the massive stimulus by the Fed almost certainly will create a rising stock market. It deviates of course in the short term 6-18 months, few years etc.. In short, if you go that route, buy on the 1-2 year dips.

Invest would certainly be the way to go, although if you have a certain talent.. For instance, house flipping or starting a business. You can get better than the 5% or whatever you get after inflation in stocks. If you're really good at what you do, your odds of getting a better return go up.

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