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Ask HN: I have $450K cash, what should I do to maximize my return?
191–200 of 509 posts
Re: Ask HN: I have $450K cash, what should I do to maximize my return?
#192Earlier quoted context omitted.
If it’s all in the market, most wisdom says you can take out 4% a year and never run dry. Is 4% of your stash enough to live on? Congratulations you are financially independent. You can read through mr money mustache if you want more depth..
The current risk free rate is absurdly low, which would suggest a much lower sustainable draw down than 4% for the next 10-30 years, probably only around .5 to 1.5% at most.
That's rubbish that you think you can predict a 1% return in the market over the next couple decades. It would be extremely unprecedented, and you'd need a very solid argument to have any confidence at all in that prediction.
Re: Ask HN: I have $450K cash, what should I do to maximize my return?
#193Earlier quoted context omitted.
If it’s all in the market, most wisdom says you can take out 4% a year and never run dry. Is 4% of your stash enough to live on? Congratulations you are financially independent. You can read through mr money mustache if you want more depth..
The current risk free rate is absurdly low, which would suggest a much lower sustainable draw down than 4% for the next 10-30 years, probably only around .5 to 1.5% at most.
Well, inflation is also absurdly low. The direct return on equity, globally, is around 5% for a pure stock portfolio.
What is your basis for believing that the safe withdrawal rate will be less than half this, at less than 1.5%? That sounds excessively pessimistic to me.
Re: Ask HN: I have $450K cash, what should I do to maximize my return?
#194Earlier quoted context omitted.
I agree with the (downvoted) guy who said, I'm an index fund skeptic. Something is true with index funds that was less true historically, which is the concentration of a few large companies in the largest indexes - as in, the amount of percentage of capital they have. Fact, FAANG make up 10% of the s&p 500 index, tech makes up 20+ %. It's NOT at all averaged out in the way the Bogleheads might think it is. Is it a "b…
You're conflating index funds with S&P 500 Index funds, though. You can buy an index fund with _zero_ tech stocks. You can buy something like VINIX which has considerably less weight on the BigN tech firms.
Guy above sounds confused about a lot of stuff.
Re: Ask HN: I have $450K cash, what should I do to maximize my return?
#195Earlier quoted context omitted.
> The key, of course, is "on a long enough time frame". If you think there's a reasonable chance you might need the cash in two or five years, then you should either significantly reduce your exposure to equities like the S&P 500 or eliminate it entirely. The shorter the timeframe that the money is needed, the higher the allocation to bonds. Vanguard has (in Canada) a bunch of 'all-in-one' ETFs that have as their hol…
We are in unprecedented times (Lowest bond yields, highest debt, Crazy P/Es). Back-testing is only so useful. And only 20 years even less. We just had a GDP drop which is the largest since WW2 for some, or since 1929 for the U.S. Look at Japan's stock market index e.g. for what the future could look like. Historically low bond yields: The room for rates to go lower is low. I would suggest to be careful with investing…
> And only 20 years even less.
I'm guessing you're in the US. I'm sure you can find papers and articles doing back-testing to the 1920s, which would include the Great Depression. If you can wait long enough, things have always recovered and earned a return.
> Did you adjust your calculations for inflation? For the S&P 500, the absolute worst-case is 58 years of not being up, I believe. 1929 - 1987.
Not my calculations. That's also assuming that one has zero bonds: for most people, who are saving for retirement, the component of the portfolio that goes into fixed income rises as age approaches 65. What were bonds during that time?
Most average people don't have the stomach for 'raw' 100% equity holdings, and so bonds are often present; bonds also allow for having 'dry powder' available for rebalancing. Scenarios like these are why portfolio theory can be complicated:
* https://www.investopedia.com/managing-wealth/modern-portfoli...
* https://en.wikipedia.org/wiki/Modern_portfolio_theory
For good layman treatments on the subject I recommend the works of William J. Bernstein, The Intelligent Asset Allocator, The Four Pillars of Investing, and Rational Expectations:
* https://en.wikipedia.org/wiki/William_J._Bernstein
Recent interviews:
* https://rationalreminder.ca/podcast/108 (podcast)
* https://www.youtube.com/watch?v=haLGx8KlFvk (same, but video)
* https://www.youtube.com/watch?v=3GzkxkOEcWc
> Historically low bond yields: The room for rates to go lower is low.
One does not necessarily buy bonds for returns, but also (perhaps) to manage volatility (which is often used as a proxy to measure risk). And low bonds are not anything new:
* https://awealthofcommonsense.com/2020/05/low-bond-returns-ar...
And one has to look at the real return of bonds over the decades: yes nominal numbers are low now and were high in the past, but inflation was high in the past as well (e.g., 1980s).
Re: Ask HN: I have $450K cash, what should I do to maximize my return?
#196> 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…
I agree with the (downvoted) guy who said, I'm an index fund skeptic. Something is true with index funds that was less true historically, which is the concentration of a few large companies in the largest indexes - as in, the amount of percentage of capital they have. Fact, FAANG make up 10% of the s&p 500 index, tech makes up 20+ %. It's NOT at all averaged out in the way the Bogleheads might think it is. Is it a "b…
Why do you think an index that is 20% tech stocks "isn't diversified"? The S&P 500 has had more than 20% in several different sectors over its history, from transport to energy to communications. With indexing, you have whatever investments are worth making in the current economy. You don't have to predict the trends or decide what's overinvested in.
Re: Ask HN: I have $450K cash, what should I do to maximize my return?
#197Never take financial advice from internet
Never take financial advice from WSB
Re: Ask HN: I have $450K cash, what should I do to maximize my return?
#198Cash out refi everything you can. At 3%, 30 year fixed, with fed target inflation rates of 2-3%, you’ll need a If you can’t get that with passive investments over the next 30 years, the banks will have bigger problems than your loan. Despite your risk aversion, consider putting some in a robo advisor (mix of bonds, index, foreign index, etc), to hedge against a spike in inflation, or a crash of just the US economy. T…
You are trying to time the market. If your goal isn’t to cash out within a year, don’t look at the prices, just buy S&P index fund like VTI and a bonds fund in some proportion. Rule of thumb is 100 - your age is the percentage that goes into stock fund, your age is percentage that goes into bonds.
The strategy I described is sometimes called “time cost averaging”
It is a form of timing the market. The idea is to buy at about the average price over some time period to avoid getting bitten by volatility.
For reasons not involving investments, I had to have a large cash position until we were well into the recovery from the last crash.
Buying index funds at all time highs during the biggest economic downturn of our lifetimes is a bit much to stomach, so I’m spreading the purchase out over time.
Re: Ask HN: I have $450K cash, what should I do to maximize my return?
#199If you're against a broad market index fund right now (which I think is fair, not so much because of the socio-political climate, but because of the high implied valuations of the companies within it), I'd recommend putting about all of it in Berkshire Hathaway as a set-it-and-forget-it type thing. It's effectively a cheaper index fund with better-than-average companies.
Why in the world would I recommend a single stock? For one, Berkshire is a "financial fortress" with virtually no debt, $100B+ in cash, and about a collection of dozens of wholly owned subsidiaries: GEICO, See's Candy, BH Energy, BNSF Railway, etc. Berkshire's so conservative that, although Buffett and Munger have acknowledged leverage could boost their returns, they refuse to take on obligations that would even create a 1 out of 100 year risk of failure. More importantly, I believe it's cheap at current prices (a little under $200 for each class B share). When you buy Berkshire, which has a market cap of ~$500B, you're getting $175B worth of stock $125B in cash, and the all the subsidiaries for $200B. And I'd bet the intrinsic value of those subsidiaries exceeds $200B by a substantial factor.
Risks: (1) The biggest problem is that Berkshire is already quite big. That makes it difficult to compound capital at large rates. But compared to the S&P 500 or the even-bigger tech companies, I'd rather be buying Berkshire, at least at today's prices. (2) Buffett and Munger's advanced age. This to me is not as huge of a problem as people make it out to be. Todd Combs (GEICO), Ted Weschler (investment manager), Greg Abel (non-insurance ops), and Ajit Jain (insurance ops) are extraordinarily talented... to say nothing about the leadership in the subsidiaries. And Berkshire's built such that it would be a great business even without these top-notch managers. (3) Time. This isn't a problem if you're happy to hold Berkshire for 20+ years. But markets are emotional beasts and stock prices can decline rapidly and unpredictably. Berkshire isn't a bond nor does it pay a dividend. So don't buy Berkshire if there's a risk that, 5 years from now, you'll need to sell or if you're the kind of person who can't deal emotionally with large short-term declines in stock prices.
Disclaimer: NOT investment advice. Just my personal opinion. I've been buying up more and more Berkshire in the past few weeks.
Re: Ask HN: I have $450K cash, what should I do to maximize my return?
#200Earlier quoted context omitted.
> The key, of course, is "on a long enough time frame". If you think there's a reasonable chance you might need the cash in two or five years, then you should either significantly reduce your exposure to equities like the S&P 500 or eliminate it entirely. The shorter the timeframe that the money is needed, the higher the allocation to bonds. Vanguard has (in Canada) a bunch of 'all-in-one' ETFs that have as their hol…
We are in unprecedented times (Lowest bond yields, highest debt, Crazy P/Es). Back-testing is only so useful. And only 20 years even less. We just had a GDP drop which is the largest since WW2 for some, or since 1929 for the U.S. Look at Japan's stock market index e.g. for what the future could look like. Historically low bond yields: The room for rates to go lower is low. I would suggest to be careful with investing…
I've seen that gap mentioned a few times in this thread. I checked out the visual in the thread [1] and I have a question since time makes everything complicated. This is definitely an example of a worst case scenario, exactly as you mentioned.
How do we calculate that in the total risk assessment? For this outcome to be true, you would have had to invest all of your money in a 6 month period and then tried to exit in a 3 month period during those referenced years.
It would also assume that you are not investing at any other period in between, which is typically advice that goes hand in hand with index funds and tracking the market. In theory and all things being equal, it sounds like that is neutralized if we try to get out in the periods I mentioned above, right? This also assumes no dividends have been paid out.
It seems like the maximum risk is high since the return could be 0% in theory but it also seems like the chance of that happening being _very_ low.
Genuinely curious how you think about it and what else is missing. It definitely makes me want to learn more about how we've stabilized the economy after The Great Depression.
1: https://www.macrotrends.net/2324/sp-500-historical-chart-dat...