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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?

#411

Post by koolba »

alex_sikora wrote: post #246
nemild wrote: post #146

Earlier quoted context omitted.

One more to add is Reddit's Personal Finance, where this question gets asked a lot. The wiki (second link, search for Windfall) esp has a number of great articles on topics like this. https://www.reddit.com/r/personalfinance/ https://www.reddit.com/r/personalfinance/wiki/index

I'd probably recommend https://old.reddit.com/r/FatFIRE over /r/pf as it's more likely to have people that have experienced getting a large lump sum like this.

I really appreciate linking directly to old reddit rather than the crap default.

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

#413

Post by rayuela »

arcticbull wrote: post #390
kristopolous wrote: post #384

Earlier quoted context omitted.

The right advice is "don't use a leveraged fund unless you want to be involved and look at the market every day" I've made good money on them as well, but I shuffle money in and out frequently. It's not a good strategy unless you really want to study things.

That’s true in general, but this strategy is basically set it and forget it (rebalance quarterly for best results), and it works because it’s been carefully balanced to offset decay.

how do you offset the decay?

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

#414

Post by ldng »

stu2b50 wrote: post #147
mancerayder wrote: post #111

Earlier 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.

Interesting that no one talked about green or socially responsible index yet.

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

#415

Post by ndesaulniers »

nknealk wrote: post #123

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 str…

Perfect! I was going to say, without any consideration of risk, buy far OTM options. For maximizing your Sharpe or Sortino ratios, which is more likely what OP was curious about, well that is quite literally a trillion dollar question.

That said, modern portfolio theory and portfolio optimization is pretty easy.

Whatever you do OP, please don't put it all under your mattress.

https://youtu.be/sHSaUqoKjkA

My chips are mostly off the table right now, in bond ETFs, but we'll see if the market tanks or not. I'm quite surprised that Q2 earnings this past week was not a bloodbath.

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

#416

Post by triceratops »

gfodor wrote: post #331
triceratops wrote: post #220

Earlier quoted context omitted.

The best thing about average advice is that the results are pretty much guaranteed. Someone who's asking a question like this lacks the skill to differentiate between better-than-average and worse-than-average advice. So giving them average advice with nearly-guaranteed average results is doing them a great service.

Not if average results means they will lose their money, which is what usually happens to people who invest money without understanding enough to manage it themselves. If you want advice about money listen to rich people not middle class people who read investing forums and get rattled when the stock market drops.

I think we have different ideas of what "average" advice is. People on Bogleheads don't get rattled when the market drops - they buy more aggressively.

Listening to people who got rich starting their own business, or making shrewd investments isn't useful for most people. That approach is hard to replicate and has far more risk. Someone who ground their way to financial independence with disciplined, diligent, and patient investing is a more approachable and realistic role model for a middle-class person.

Once they have a solid financial base, they can always try starting a business or making some other bet to try and launch themselves into the ranks of the truly rich.

Outsized wealth is a combination of hard work, good decisions and good fortune. But people (understandably) tend to minimize that last factor. So even if a middle-class person takes a rich mentor's advice to heart and does everything right, they may not see the same results. Whereas index-based investing is a time and numbers game; luck doesn't come into it.

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

#417

Post by gfodor »

triceratops wrote: post #416
gfodor wrote: post #331

Earlier quoted context omitted.

Not if average results means they will lose their money, which is what usually happens to people who invest money without understanding enough to manage it themselves. If you want advice about money listen to rich people not middle class people who read investing forums and get rattled when the stock market drops.

I think we have different ideas of what "average" advice is. People on Bogleheads don't get rattled when the market drops - they buy more aggressively. Listening to people who got rich starting their own business, or making shrewd investments isn't useful for most people. That approach is hard to replicate and has far more risk. Someone who ground their way to financial independence with disciplined, diligent, and pa…

Saying that index based investing doesn’t involve luck is exactly what I was getting at by the usual advice. Unfortunately, buying index funds, particularly US stock market index funds, is a matter of investing based upon selection bias. On the long timelines demanded by index investing, staking your claim on the US equities market is hugely risky, particularly when you are doing so without an investment thesis that can guide you if your assumptions change. Ask yourself if there is any condition where you would deallocate from stocks. If the answer is no, you shouldn’t be investing - you are just parking money somewhere based upon hope, not an investment thesis. It’s just high class gambling. The real adjusted return of the US equities indexes is far from certain, and trusting your financial future to them is at best a gamble, at worst a reckless decision.

Instead of buying dumb index funds, at the very least one ought to learn about the well studied areas of return drivers and diversify against those. The bogleheads who invest based upon simplistic ideas like low fees, asset (not return driver) diversification, and buy and hold in order to drive compound returns are giving advice (imo) akin to giving “common sense” advice from 50 years ago because it feels right. The reality is half or more of that common sense advice was proven idiotic 50 years later, and those who followed it without the ability to adapt to the changing world ended up paying a worse price than being wrong in the first place.

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

#418

Post by SaintGhurka »

Go out and get a copy of "The Only Investment Guide You'll Ever Need" by Andrew Tobias. It's entertaining enough to keep you interested, fairly short and it's stood the test of time - first published in 1978 and updated a few times. You can read it easily in a weekend.

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

#419

Post by chrismarlow9 »

devcpp wrote: post #410
chrismarlow9 wrote: post #389

Earlier quoted context omitted.

I'm not sure of hify_hn's reasons why, but I've exited index funds recently due to: - the overweight holdings in tech in many of them. - those same tech companies are responsible for most of the growth in the past decade. - retail investors are chasing the tail of growth which is pumping the price out of realistic prices. many more have entered the arena with robinhood, etc. - there's too much cash being printed, fee…

Overall, your post is more a critic on investment in this period rather than against index funds. Except for the presence of tech, which I'm not sure is this bad for people willing to take measured risk. >there's too much cash being printed Agreed, but then why hold on to cash until the election rather than buy gold or similar?

Sure, I totally plan to return to the index when it seems to make sense so you're right, it's only a bad investment (imo) right now.

I have other investments in web entities (think reddit style aggregation sites) in niches that tend to do well in downturns. They're pretty much a very small fixed cost for me every month (spot instances on AWS ftw) and can be cut off at any time. I feel safe holding cash (and its deflation) because the profit from those is no longer seeding indexes but being stacked on my cash pile. Ideally keeping my overall cash from deflating.

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

#420

Post by arcticbull »

rayuela wrote: post #413
arcticbull wrote: post #390

Earlier quoted context omitted.

That’s true in general, but this strategy is basically set it and forget it (rebalance quarterly for best results), and it works because it’s been carefully balanced to offset decay.

how do you offset the decay?

It's all in the post ("Don't you know that leveraged ETFs are only intended to be held for one day?" section) but there's something we need to clear up before we start.

(1) What people refer to as "decay" is just the way the the daily exposure works on these ETFs. To quote the article:

"Let's say over five days the daily returns of the index are +1%, -2%, +3%, -4%, +5%, and you start with $100."

"At the end of the five days your $100.00 becomes $102.76."

"Now let's use a 3X leveraged ETF. Ignoring ER and other costs, the daily returns are +3%, -6%, +9%, -12%, +15%."

"At the end of the five days your $100.00 becomes $106.80."

6.80 is not 3X 2.76, and it's because down days leave you with less exposure the following day, so you need a bigger up day than the preceding down day to make up for it. However, as the article points out, this dynamic works for you in ETFs that exhibit positive momentum. Since "stocks always go up" -- at least the S&P always goes up over time, so far -- this dynamic works to your favor and the total return of UPRO to date has been 5X the return of SPY.

(2) UPRO and TMF are uncorrelated, and so the positive momentum of SPY causes UPRO performance to exceed 3X, and offset some of the lower-than-3X performance of TMF over time. For the record since 2017, the performance of TMF is 2X that of TLT, give or take.

(3) Further, the way this makes money is actually when the S&P drops 10%, UPRO drops 30%. As people flee assets, they buy treasuries, pushing TLT up 6-7%, which causes TMF to go up 20%. Then at rebalancing time, you sell TMF and use it to buy UPRO, so you sell the 3X winner, and buy the 3X loser at a deflated price. When prices normalize, the extra shares on the losing end in conjunction with positive momentum (and the fact you've reduced the size of your winner before it falls) put you much further ahead than if you weren't using leveraged ETFs.

This strategy makes money on volatility, and should be agnostic to market performance. It actually held up really well during March.

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