Where to put 65k cash

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CantPassAgain
Posts: 577
Joined: Fri Mar 15, 2013 8:49 pm

Re: Where to put 65k cash

Post by CantPassAgain » Wed Jul 12, 2017 1:49 pm

amateurnovice wrote:
zuma wrote:
amateurnovice wrote:
MoonOrb wrote:What if you were to accomplish that diversification by buying a fund like Total Stock Market? Sounds like a solid plan to me.
Sounds like putting all the eggs in one basket, which isn't a great idea if you've ever bought any eggs.
Could you elaborate? How would you describe the risks of the TSM basket?
First off, I'm not going sway anyone's thinking here so I'm not going to open myself up for ad hominems. I'll give my brief assessment which is easily eviscerated by boglehead "stay the course" logic because, honestly, there isn't much to that argument and every deviation from it is flat out wrong, that's indisputable. "Staying the course" is simple, elegant, and not risky. That's just it though - the stock market (the whole market not just large caps or energy companies) is actually very risky - something that is sorta forgotten when you have a very easy methodology that has been rewritten as many times as the King James version of the Bible. It's watered down and eggheady and doesn't apply to everyone's needs.

Without getting too specific into OP's profile, I think he said $30,000 and knows he can't throw it all at once in an IRA, but the money is for retirement so he wants it to grow, am I right? I'm not going to go screen capture the cost of VTSMX but it's pricier than it's ever been. That's indisputable, but it may go higher right, endlessly higher? That's what everyone here seems to be trying to suggest as a counterpoint. I guess it could keep going up from there, or it could drastically turn down, could that happen? $65,000 isn't life changing money, but who knows, he may have more, but $30,000 a year isn't usually considered life changing. VTSMX may not go down much if any and could hover around the same cost, but what does $65,000 do in one fund if that fund doesn't grow any more from where it's at or worse, loses value considerably due to cyclical economic effects. I guess he's just SOL, but hey, stay the course with whatever you've got left, that'll show 'em.

I don't want to get into all the worldly effects that are driving this bull and signaling the prospect of a potential bear because the thread will be locked, but to me, VTSMX is high right now, just as the overall market is. You can think it isn't all you want and so can everybody else. But I think that won't hold up outside of an internet forum thread.
Ok, so lets tell a 24 year old who obviously has no clue what he's doing to go out and start picking individual stocks. Great idea.

amateurnovice
Posts: 167
Joined: Wed Mar 11, 2015 1:56 pm

Re: Where to put 65k cash

Post by amateurnovice » Wed Jul 12, 2017 2:04 pm

CantPassAgain wrote:
amateurnovice wrote:
zuma wrote:
amateurnovice wrote:
MoonOrb wrote:What if you were to accomplish that diversification by buying a fund like Total Stock Market? Sounds like a solid plan to me.
Sounds like putting all the eggs in one basket, which isn't a great idea if you've ever bought any eggs.
Could you elaborate? How would you describe the risks of the TSM basket?
First off, I'm not going sway anyone's thinking here so I'm not going to open myself up for ad hominems. I'll give my brief assessment which is easily eviscerated by boglehead "stay the course" logic because, honestly, there isn't much to that argument and every deviation from it is flat out wrong, that's indisputable. "Staying the course" is simple, elegant, and not risky. That's just it though - the stock market (the whole market not just large caps or energy companies) is actually very risky - something that is sorta forgotten when you have a very easy methodology that has been rewritten as many times as the King James version of the Bible. It's watered down and eggheady and doesn't apply to everyone's needs.

Without getting too specific into OP's profile, I think he said $30,000 and knows he can't throw it all at once in an IRA, but the money is for retirement so he wants it to grow, am I right? I'm not going to go screen capture the cost of VTSMX but it's pricier than it's ever been. That's indisputable, but it may go higher right, endlessly higher? That's what everyone here seems to be trying to suggest as a counterpoint. I guess it could keep going up from there, or it could drastically turn down, could that happen? $65,000 isn't life changing money, but who knows, he may have more, but $30,000 a year isn't usually considered life changing. VTSMX may not go down much if any and could hover around the same cost, but what does $65,000 do in one fund if that fund doesn't grow any more from where it's at or worse, loses value considerably due to cyclical economic effects. I guess he's just SOL, but hey, stay the course with whatever you've got left, that'll show 'em.

I don't want to get into all the worldly effects that are driving this bull and signaling the prospect of a potential bear because the thread will be locked, but to me, VTSMX is high right now, just as the overall market is. You can think it isn't all you want and so can everybody else. But I think that won't hold up outside of an internet forum thread.
Ok, so lets tell a 24 year old who obviously has no clue what he's doing to go out and start picking individual stocks. Great idea.
Ok, so let's tell a 24 year old who obviously has no clue what he's doing to go out and start buying funds that contain all those stocks. Great idea.

zuma
Posts: 382
Joined: Thu Dec 29, 2016 12:15 pm

Re: Where to put 65k cash

Post by zuma » Wed Jul 12, 2017 2:07 pm

amateurnovice wrote: First off, I'm not going sway anyone's thinking here so I'm not going to open myself up for ad hominems. I'll give my brief assessment which is easily eviscerated by boglehead "stay the course" logic because, honestly, there isn't much to that argument and every deviation from it is flat out wrong, that's indisputable. "Staying the course" is simple, elegant, and not risky. That's just it though - the stock market (the whole market not just large caps or energy companies) is actually very risky - something that is sorta forgotten when you have a very easy methodology that has been rewritten as many times as the King James version of the Bible. It's watered down and eggheady and doesn't apply to everyone's needs.
We can all agree that stocks are risky investments. Again, the issue is diversification. A TSM fund which contains roughly 3,500 stocks is more diversified and thus less risky than a few handpicked stocks. Do you agree?

amateurnovice
Posts: 167
Joined: Wed Mar 11, 2015 1:56 pm

Re: Where to put 65k cash

Post by amateurnovice » Wed Jul 12, 2017 2:10 pm

zuma wrote:
amateurnovice wrote: First off, I'm not going sway anyone's thinking here so I'm not going to open myself up for ad hominems. I'll give my brief assessment which is easily eviscerated by boglehead "stay the course" logic because, honestly, there isn't much to that argument and every deviation from it is flat out wrong, that's indisputable. "Staying the course" is simple, elegant, and not risky. That's just it though - the stock market (the whole market not just large caps or energy companies) is actually very risky - something that is sorta forgotten when you have a very easy methodology that has been rewritten as many times as the King James version of the Bible. It's watered down and eggheady and doesn't apply to everyone's needs.
We can all agree that stocks are risky investments. Again, the issue is diversification. A TSM fund which contains roughly 3,500 stocks is more diversified and thus less risky than a few handpicked stocks. Do you agree?
On the more diversified part, that's obvious. Not necessarily the risky part. "The investment seeks to track the performance of a benchmark index that measures the investment return of the overall stock market." Stock market drops significantly, say a few heavily weighted stocks take a huge beating, what happens to the stock market and TSM? Not to mention, it's per share price is higher than it's ever been. Is that not something investors look at when buying a fund?

zuma
Posts: 382
Joined: Thu Dec 29, 2016 12:15 pm

Re: Where to put 65k cash

Post by zuma » Wed Jul 12, 2017 2:21 pm

amateurnovice, I suggest you read up on the topic of unsystematic risk.

https://www.bogleheads.org/wiki/Risk_an ... sification
Diversification

Risk can be reduced through diversification.

The risk of investing in a single risky security, such as a stock or corporate bond, is very high due to the company-specific risks. Any number of unfortunate events could impact the rate of return. In the worst possible case, the company could go bankrupt, and the investor could lose the entire value of the investment. Company-specific risk is generally referred to as unsystematic risk or nonsystematic risk. Other names are unique-risk, firm-specific risk, or diversifiable risk.

Unsystematic risk can be eliminated by holding a broad portfolio of risky assets; e.g., many different securities in many different industries. This is easy to accomplish by owning a total market stock or bond index fund. Unsystematic risk is risk that can be "diversified away."

The risk that remains after diversifying away unsystematic risk is systematic risk. Other names are market risk or non-diversifiable risk. A total stock or bond market fund has systematic risk. This is risk impacting an entire asset class, such as when rising real interest rates impact the entire bond market.

In an efficient market, assets with known systematic risks will be priced lower and thereby compensate investors through higher expected returns. This expected relationship only applies to systematic risks. There is no reward for incurring unsystematic risk, and investors may therefore seek broad diversification without reducing the expected return of their portfolio.

dbr
Posts: 27207
Joined: Sun Mar 04, 2007 9:50 am

Re: Where to put 65k cash

Post by dbr » Wed Jul 12, 2017 2:34 pm

amateurnovice wrote:
zuma wrote:
amateurnovice wrote: First off, I'm not going sway anyone's thinking here so I'm not going to open myself up for ad hominems. I'll give my brief assessment which is easily eviscerated by boglehead "stay the course" logic because, honestly, there isn't much to that argument and every deviation from it is flat out wrong, that's indisputable. "Staying the course" is simple, elegant, and not risky. That's just it though - the stock market (the whole market not just large caps or energy companies) is actually very risky - something that is sorta forgotten when you have a very easy methodology that has been rewritten as many times as the King James version of the Bible. It's watered down and eggheady and doesn't apply to everyone's needs.
We can all agree that stocks are risky investments. Again, the issue is diversification. A TSM fund which contains roughly 3,500 stocks is more diversified and thus less risky than a few handpicked stocks. Do you agree?
On the more diversified part, that's obvious. Not necessarily the risky part. "The investment seeks to track the performance of a benchmark index that measures the investment return of the overall stock market." Stock market drops significantly, say a few heavily weighted stocks take a huge beating, what happens to the stock market and TSM? Not to mention, it's per share price is higher than it's ever been. Is that not something investors look at when buying a fund?
The basic concept is here: https://en.wikipedia.org/wiki/Diversification_(finance) The discussion is about diversifiable risk that can be eliminated at no loss of expected return by holding more than a minimum number of individual stocks.

Whether or not the share price being "higher than it has ever been" being a reason to avoid investing or delay investing can be discussed. In doing to one should note that historically in the United States the stock market at any point in time is usually higher that it has ever been without giving a signal ex ante that one should not invest. But you can research the topic for yourself. https://en.wikipedia.org/wiki/Tactical_asset_allocation

All of these things are not new and have been contemplated in detail by a lot of people.

CantPassAgain
Posts: 577
Joined: Fri Mar 15, 2013 8:49 pm

Re: Where to put 65k cash

Post by CantPassAgain » Wed Jul 12, 2017 2:43 pm

amateurnovice wrote:
CantPassAgain wrote:Ok, so lets tell a 24 year old who obviously has no clue what he's doing to go out and start picking individual stocks. Great idea.
Ok, so let's tell a 24 year old who obviously has no clue what he's doing to go out and start buying funds that contain all those stocks. Great idea.
Amateurnovice, what happened between the post below and now that changed your thinking?
amateurnovice wrote:
AlohaJoe wrote:
peter1a wrote:Is it a good idea to do stocks picking with a small part of your portfolio?
If it works with a small part of your portfolio why wouldn't you do it with all of your portfolio?

Rational self-interest. If you're looking at this blog asking for advice on stock picking, you don't pack the gear to risk it all.
Do you think the op "packs the gear to risk it all?"

amateurnovice
Posts: 167
Joined: Wed Mar 11, 2015 1:56 pm

Re: Where to put 65k cash

Post by amateurnovice » Wed Jul 12, 2017 2:55 pm

zuma wrote:amateurnovice, I suggest you read up on the topic of unsystematic risk.

https://www.bogleheads.org/wiki/Risk_an ... sification
Diversification

Risk can be reduced through diversification.

The risk of investing in a single risky security, such as a stock or corporate bond, is very high due to the company-specific risks. Any number of unfortunate events could impact the rate of return. In the worst possible case, the company could go bankrupt, and the investor could lose the entire value of the investment. Company-specific risk is generally referred to as unsystematic risk or nonsystematic risk. Other names are unique-risk, firm-specific risk, or diversifiable risk.

Unsystematic risk can be eliminated by holding a broad portfolio of risky assets; e.g., many different securities in many different industries. This is easy to accomplish by owning a total market stock or bond index fund. Unsystematic risk is risk that can be "diversified away."

The risk that remains after diversifying away unsystematic risk is systematic risk. Other names are market risk or non-diversifiable risk. A total stock or bond market fund has systematic risk. This is risk impacting an entire asset class, such as when rising real interest rates impact the entire bond market.

In an efficient market, assets with known systematic risks will be priced lower and thereby compensate investors through higher expected returns. This expected relationship only applies to systematic risks. There is no reward for incurring unsystematic risk, and investors may therefore seek broad diversification without reducing the expected return of their portfolio.
Is OP looking to minimize risk? Or maximize gain?

amateurnovice
Posts: 167
Joined: Wed Mar 11, 2015 1:56 pm

Re: Where to put 65k cash

Post by amateurnovice » Wed Jul 12, 2017 2:58 pm

CantPassAgain wrote:
amateurnovice wrote:
CantPassAgain wrote:Ok, so lets tell a 24 year old who obviously has no clue what he's doing to go out and start picking individual stocks. Great idea.
Ok, so let's tell a 24 year old who obviously has no clue what he's doing to go out and start buying funds that contain all those stocks. Great idea.
Amateurnovice, what happened between the post below and now that changed your thinking?
amateurnovice wrote:
AlohaJoe wrote:
peter1a wrote:Is it a good idea to do stocks picking with a small part of your portfolio?
If it works with a small part of your portfolio why wouldn't you do it with all of your portfolio?

Rational self-interest. If you're looking at this blog asking for advice on stock picking, you don't pack the gear to risk it all.
Do you think the op "packs the gear to risk it all?"
I'm not thinking in black and white, and that other post has nothing to do with this one. "Stock picking" is a pretty vague term, basically signaling that they're willing to gamble without doing much research. I'm concerned with what indicators I see as concerning in the overall market and only offering a different perspective on THROW ALL YOUR EGGS IN ONE BASKET which is all the opposite side seems to offer. If OP wants to chunk the whole $65k down in one fund, by all means, it's his money.


dbr
Posts: 27207
Joined: Sun Mar 04, 2007 9:50 am

Re: Where to put 65k cash

Post by dbr » Wed Jul 12, 2017 3:07 pm

amateurnovice wrote:
I'm not thinking in black and white, and that other post has nothing to do with this one. "Stock picking" is a pretty vague term, basically signaling that they're willing to gamble without doing much research. I'm concerned with what indicators I see as concerning in the overall market and only offering a different perspective on THROW ALL YOUR EGGS IN ONE BASKET which is all the opposite side seems to offer. If OP wants to chunk the whole $65k down in one fund, by all means, it's his money.
Characterizing owning a few thousand stocks rather than a few stocks as "throwing all the eggs in one basket" is certainly an odd concept.

It is fine to ask if there is a risk peculiar to owning a single particular fund. Of course there is some risk. Fund managers could do something really weird at just the wrong time. By some means a crook could figure out a way to steal all the assets of the fund leaving no recourse. It might happen that a security or IT glitch could freeze a person out of a specific investment for some time. Most of those issues could equally affect a person holding a selection of a few stocks at broker.

What is your idea of what is so risky about that one basket that exceeds the risk of holding a few selected stocks?

zuma
Posts: 382
Joined: Thu Dec 29, 2016 12:15 pm

Re: Where to put 65k cash

Post by zuma » Wed Jul 12, 2017 3:10 pm

amateurnovice wrote: Is OP looking to minimize risk? Or maximize gain?
In either case OP can eliminate diversifiable risk by holding a broad TSM fund without reducing expected return, as already noted several times. This is not a controversial view.

CantPassAgain
Posts: 577
Joined: Fri Mar 15, 2013 8:49 pm

Re: Where to put 65k cash

Post by CantPassAgain » Wed Jul 12, 2017 3:33 pm

I look at the S&P500 chart (.inx) on Google every day (along with VTI, VXUS, BND, etc etc) so I am well aware of what the market looks like. That one goes all the way back to 1977 and looks way scarier. And it's just a price chart...a total return chart would look way, way, way scarier! But check it out:

It never went to zero like some stocks do.

It's actually "higher than it's ever been" most of the time.

OP is not investing his entire anticipated life savings all at once. He has decades of future earnings to dollar cost average into the market.

Telling a young person with no prior investing experience to buy a bunch of "beaten down" stocks is reckless advice. If the person invests poorly, he loses money. If he invests well, he thinks he's a genius instead of just lucky and starts to take even more ill-advised risks.

carguy1993
Posts: 66
Joined: Fri May 26, 2017 11:24 am

Re: Where to put 65k cash

Post by carguy1993 » Sat Jul 15, 2017 8:43 am

I appreciate the advice guys. Looking to minimize risk but still get a decent return of about 5% before taxes. Looking either an index or a safer mutual fund. Something that will produce decently but hold its own in a bear market. Ie. Wellington or Weselley.

uberational44
Posts: 73
Joined: Thu Jul 20, 2017 4:18 am
Contact:

Re: Where to put 65k cash

Post by uberational44 » Thu Jul 20, 2017 4:29 am

I found recently if your looking for an extremely safe cash haven...

https://www.ishares.com/us/products/239 ... y-bond-etf

Its a t-bills etf which invests in a wide range of treasury bills
Marketeer investing as a hobby. Interested in modern takes on value investing, passive investing and general contrarianism.

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