"Fun Money" Allocation

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OriolesFan89
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"Fun Money" Allocation

Post by OriolesFan89 » Wed Oct 26, 2016 6:51 am

I own shares of VGPMX (Vanguard Precious Metals and Mining) and a handful of other stocks that I call "fun money' investments. I like to keep that at under 10% or my entire portfolio which is just shy of $500k. I generally buy $3-5k of each stock simply because I like the company and hope for the best (gulp!). Foolish, I know. I don't factor these as stocks when rebalancing.

I'm sure folks can draw on past experience here - Do you think that as my portfolio keeps growing, I'll want these fun money investments to be a smaller percentage of my portfolio? What was your attitude towards this stuff when you had $100k versus $1M in your portfolio?

Thanks!

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nisiprius
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Re: "Fun Money" Allocation

Post by nisiprius » Wed Oct 26, 2016 7:48 am

OriolesFan89 wrote:...Foolish, I know...
I think you answered your own question.

I can't believe there aren't ways of getting more fun for less money than by making speculative bets in the stock market.

(How do people with spouses handle the "fun" equitably? Do they say, "OK, I'm allowing each of us 10% in 'fun money.' I'm going to use my 10% to speculate on the stock market. Here's your own 10% to have your own fun with... any way you think best... tickets to Hamilton for yourself, new car for yourself, speculate on the stock market for yourself?")

Here's my personal answer. I bought an individual stock in 1966 for $1,000. It went to $10,000. I sold all but $1,000. It went to $4,000. I then sold it all. I didn't do anything more until the 1970s. I bought stocks in two individual companies. Nothing much happened; to the very best of my recollection I sold with small losses. I bought stock in the same company that had done so well for me in 1966. I sold with a small loss. I read "A Random Walk Down Wall Street" and got a job that had a 401(k) plan and started using index funds and broad-based mutual funds.

I bought QQQ on 11/17/1999 for $3428, and my diary entry says "Gambling money. Let’s have at least a small bet on the table for the great technology bonanza. Plan: follow impulses." It soared to over $5,000, then collapsed, but I managed to sell at a profit for $4,247 on 4/13/2000. I bought stock in a Fortune 500 company as a sentimental gesture toward a family member who had just landed a job at that company, sold it at a small loss a few years later. I bought a mutual fund from a fund company with sales loads, high expenses, and no index funds as another sentimental gesture toward another family member who worked at the company. The fund dropped, then rose, and I wisely or foolishly managed to hang in long enough to get back to even (including earning back the sales load). By this time I was in my fifties and retirement was approaching and I decided to quit fooling around, just stop altogether. Nothing to do with percentage allocation, just, this is dumb, I won't do it any more.

I don't think people who talk about "fun money" are making a positive recommendation, it is a strategy for trying to limit the risk for those people who, like Burton Malkiel, can call themselves "one who has been smitten with the gambling urge since birth."

The big problem with "fun money" is that it is always described as if you were sure to win. The possibility of losing all of it is never seriously explored. I really think there's a built-in assumption that it just... doesn't... ever... happen.

That's why it's called "fun money" and not "self-loathing money."

I can't imagine explaining to my wife that I'd lost two years' worth of our 401(k) savings, but that I'd really had a lot of fun doing it.

I've set to see any advocate state clearly what you are supposed to do after you lose. The idea is that if you have a written-down plan that says you have no more than 10% in "fun money" (5% is the number I've seen most frequently), then you will not lose more than 10% and, sure, arguably you can afford that.

But what happens after you lose all your fun money? Logically, the plan is that if you lose all your fun money, then you never ever again put any more money into "fun money" investments. The problem is that is that you are saying that you can live the rest of your life without ever making any speculative investments. But if you are capable of living happily without speculative investments, then why not just do it from the beginning?

If you lose your 10%, wait a while for the pain to subside, and then put another 10% in, then you did not really limit your risk to 10%. It's even worse if you allow yourself to put in a little more in hope of recouping your losses.
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Re: "Fun Money" Allocation

Post by Jack FFR1846 » Wed Oct 26, 2016 7:58 am

Go ahead and buy your mining or gold or silver gambling chips. Sit on them. I predict that they'll naturally become a smaller and smaller percentage of your total allocation as the rest of your portfolio grows and this bet dwindles. 10% is an awful lot of one's portfolio, in my opinion. Can you live with just doing 1%? We tend to say anything less than 5% in an allocation doesn't make much difference. 10% certainly could.

When I want to spend fun money, I'm taking my kids to slot car racing or out to the indoor go kart track, not throwing it at random, low payback bets. I'm also not a gambler at all.
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Re: "Fun Money" Allocation

Post by livesoft » Wed Oct 26, 2016 8:01 am

I don't do a separate fun money allocation. All my money is fun. I think things like VTI, VEU, VBR, VSS, and BND are seriously fun, seriously.
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OriolesFan89
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Re: "Fun Money" Allocation

Post by OriolesFan89 » Wed Oct 26, 2016 2:05 pm

nisipirus - Outstanding answer! I appreciate the thoughts from an older guy with experience. I'm 27 for what it's worth. I actually have "lost it all" on a couple of investments... penny stock type things. But I've also made 500%+ on Apple and Amazon. I would be okay with losing the entire 10% bucket. It'd sting for a little but I wouldn't cry myself to sleep. I'm a bit of a gambler with a limit of $1000/year for the blackjack table, fantasy sports, any silly stuff like that. I'm never disheartened when I lose because it is all part of the budget.

Jack FFR1846 - I do have separate money for "fun" activities of course. I don't know that I'd care to invest 1% at this point. That's so small that the brokerage fees would eat into the profits a non-trivial amount. I could live with 5%, for sure.

livesoft - Haha... I own all of those but BND. Plus some VWO and and VNQ. You are right; it has been "fun" for the 5 years I've invested.

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Re: "Fun Money" Allocation

Post by grettman » Wed Oct 26, 2016 2:10 pm

I tried what you are doing and regret it.

Every dollar is precious because I exchanged my finite time on this Earth to earn each of them. So "fun" money would go towards having fun -- not speculation.

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Re: "Fun Money" Allocation

Post by nisiprius » Wed Oct 26, 2016 2:13 pm

OriolesFan89 wrote:nisipirus - Outstanding answer! I appreciate the thoughts from an older guy with experience. I'm 27 for what it's worth. I actually have "lost it all" on a couple of investments... penny stock type things. But I've also made 500%+ on Apple and Amazon. I would be okay with losing the entire 10% bucket. It'd sting for a little but I wouldn't cry myself to sleep....
Yes, but after the sting faded, would you call it quits for life? Or would you take another 10% and try again?
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Taylor Larimore
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Serious Business.

Post by Taylor Larimore » Wed Oct 26, 2016 2:38 pm

OriolesFan89 wrote: - I'm a bit of a gambler with a limit of $1000/year for the blackjack table, fantasy sports, any silly stuff like that.
Orioles:

Gamble your "fun money" at the casino and fantasy sports where it is a lot more fun.

Investing for retirement and other important goals is serious business and should not involve speculation with a high risk of loss.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

dave_k
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Re: "Fun Money" Allocation

Post by dave_k » Wed Oct 26, 2016 5:26 pm

I think what some people including the OP mean by "fun money" in this context is a small fraction of their portfolio that they invest in a non-boglehead-ish manner, realizing that it's riskier but still investing it with the potential for a return as opposed to just spending it, and doing it in a way they find interesting. I don't see anything wrong with that as long as your financial well being isn't put in jeopardy, and it's not the same as spending money on fun things or activities. For someone with tens of millions or more (not me) it could be quite a bit larger than 10%, but for someone nearing/in retirement with under a million it should probably be a few percent at most. It has to do with the ability to take risk. Some people don't have the desire even if they have the ability, and for them it doesn't seem fun at all, but that doesn't mean nobody else should do it.

To answer the OP's question, I think how much "fun money" you can afford has to do with how far beyond the target your portfolio is. If a $1M portfolio puts you on track but you actually have $2M, you could afford to have some fun money. If you're under your target maybe you shouldn't have any. Over time you may want to shift it one way or the other depending on the performance of the overall portfolio, and based on ability to take risk. If the fun money does well enough that it's allocation increases you may want to reallocate to "lock in" some of those gains, but don't keep reallocating into it if it does poorly because it could siphon off the rest.

For my wife and I, investments in a few private equity real estate deals could be counted as "fun money". It's about 10% of our overall invested portfolio (not counting our primary home or vacation home/rental), not likely to go over 15%, and may decrease with time once we are in retirement or if we can't find suitable new deals after they sell. That is not equivalent to just spending the money - they are generating income. If we had many millions I would allocate some for much riskier things like angel investing, because I could afford to and would find it interesting. To me that would be more fun than gambling at a casino, and better use of money in my opinion. Thank goodness some people feel that way, or my company wouldn't have gotten off the ground years ago.

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Re: "Fun Money" Allocation

Post by itstoomuch » Wed Oct 26, 2016 5:57 pm

I got too much respect for the stuff.
It's Discretionary. About 50-60% cash presently and will hold there until we get back from a China tour; Which will Nov 9. :mrgreen: :oops: :twisted:

I got another 6 hrs n this plane and just 30% battery life :mrgreen:
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oldzey
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Re: "Fun Money" Allocation

Post by oldzey » Wed Oct 26, 2016 7:32 pm

0% fun money.

“Investing should be more like watching paint dry or grass grow. If you want excitement, take $800 and go to Las Vegas.” – Paul Samuelson
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patrick013
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Re: "Fun Money" Allocation

Post by patrick013 » Wed Oct 26, 2016 8:24 pm

OriolesFan89 wrote: I generally buy $3-5k of each stock simply because I like the company and hope for the best (gulp!).
Same here eventually. Could shoot myself for not buying NVidia
and could shoot myself for buying SeaDrill. Neither of which I
did when they came up.

But bought some great companies with funny money.
age in bonds, buy-and-hold, 10 year business cycle

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Re: "Fun Money" Allocation

Post by Dave55 » Wed Oct 26, 2016 8:34 pm

OriolesFan89 wrote:I own shares of VGPMX (Vanguard Precious Metals and Mining) and a handful of other stocks that I call "fun money' investments. I like to keep that at under 10% or my entire portfolio which is just shy of $500k. I generally buy $3-5k of each stock simply because I like the company and hope for the best (gulp!). Foolish, I know. I don't factor these as stocks when rebalancing.

I'm sure folks can draw on past experience here - Do you think that as my portfolio keeps growing, I'll want these fun money investments to be a smaller percentage of my portfolio? What was your attitude towards this stuff when you had $100k versus $1M in your portfolio?

Thanks!
From first hand experience, you will be better off not playing with fun money. I just woke up 3 years ago to the indexing approach. I wish I had started indexing 30 years ago.

Dave

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Re: "Fun Money" Allocation

Post by fundseeker » Wed Oct 26, 2016 9:07 pm

So, have your fun with whatever amount you are totally comfortable losing, and you might want to consider a fixed amount going forward as your net worth increases.

For me, I have since they late 90s had some fun money (now less than 1% of our seven figure investments) at an online broker that has provided me a lot of entertainment. Sometimes it has been fun and sometimes not so much. If I had to take a serious look back, the bad decisions I made (selling too soon or too late) did probably cause me more stress than they should have. Right now I am ahead, so it's all good. But again, I am doing this with an amount of money that really doesn't amount to much for us.

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reriodan
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Re: "Fun Money" Allocation

Post by reriodan » Wed Oct 26, 2016 9:21 pm

Sounds like the worst way to have fun with 50k that I have ever heard of.

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Re: Serious Business.

Post by cheese_breath » Wed Oct 26, 2016 10:40 pm

Taylor Larimore wrote: Orioles:

Gamble your "fun money" at the casino and fantasy sports where it is a lot more fun.
And if you're bringing $50K to the table you should be getting free room, meals, and drinks too.
The surest way to know the future is when it becomes the past.

Bradiator
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Re: "Fun Money" Allocation

Post by Bradiator » Wed Oct 26, 2016 10:59 pm

Others have shared some great stories from long experience.

When I first wrote my IPS, I included permission for myself to have a 5% of my portfolio in "fun money." Then one day a thought occurred to me: If I wouldn't do this with the other 95% of my portfolio, why would I do it with this 5%? I deleted that item from my IPS.

Said another way, if I believe the best way to live my life is to eat healthy ... then I won't then take up competitive doughnut eating with the other 5% of my time.

So, when I am looking for some fun, I share a bottle of good wine with a few friends. Works better for me.

Nothing wrong with Vanguard Precious Metals and Mining though, or doughnuts for that matter.

OriolesFan89
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Re: "Fun Money" Allocation

Post by OriolesFan89 » Thu Oct 27, 2016 6:16 am

Thanks everyone for the insight. A lot of different opinions out there and I hope others are soaking those up.

Taylor - Thanks for the response. I respect your work tremendously! My ROI for buying an individual company is higher than the blackjack table (even with 3:2 blackjack, dealer stands on soft 17, double after split allowed...) and it doesn't cause me extra stress. I only track that 10% when I go to rebalance and invest every 2 months to see that I'm not over that 10% threshold. You don't think that's a sustainable and worthwhile thing? Part of me is happy about the bigger losses because I think I am more likely to weather the recessions whenever they hit in my investing lifetime since I haven't had any yet.

dave_k Thanks for the story. I think you hit the nail on the head in that it's more of an interest thing than a gambling thing. Although I don't intend on making a dime from the stocks, it is perfectly plausible that they out-perform the rest of my portfolio which is a hard pillow to swallow for some.

Bradiator - Hah! I have to disagree. I wouldn't be able to handle the stress of being 100% perfect all the time. I'm a pretty competitive runner with a 5:30/mile marathons and actually do partake in competitive eating contests occasionally and enjoy my time at the bar. Maybe counter intuitive for endurance athletics but hey, gotta keep my sanity.

For what it's worth, the rest of my investments are in VG index funds.

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Re: "Fun Money" Allocation

Post by Engineer250 » Thu Oct 27, 2016 8:54 am

For those of you that came to your senses, did you just sell everything and switch over to total market indices right away? Or wait until your "bets" were at least above water? I'm thinking of a few sector concentrations in my case, not individual stock.
Where the tides of fortune take us, no man can know.

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Re: "Fun Money" Allocation

Post by sergio » Thu Oct 27, 2016 9:24 am

Compared to some of the crap I've seen people buy with their "fun money", you could certainly do much worse than VGPMX.

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Re: "Fun Money" Allocation

Post by DaftInvestor » Thu Oct 27, 2016 9:34 am

Engineer250 wrote:For those of you that came to your senses, did you just sell everything and switch over to total market indices right away? Or wait until your "bets" were at least above water? I'm thinking of a few sector concentrations in my case, not individual stock.
When I came to my senses I sold everything (moving it all into index funds). To me it was no longer "fun" - it became a second job. Like the OP talking about 500% gains with Amazon and Apple I could tell some stories about huge gains but had a number of stories of huge losses as well (most people only tell you about their gain stories). Apple and Amazon can come crashing down anytime.
You will get various opinions:
1) Wait until your bets are above water (as you ask): But what if they never become above water? Would you buy these individual stocks today? If not - sell them.
2) Spread the sales of your winners out to avoid Capital Gains: But what if they come crashing down? I guess then you won't have any capital gains to worry about so your tax problems will be solved.

When I decided to get out I did it in 1 fell swoop and accepted the tax consequences. I was happy I did as several of my big winners turned into big losers shortly thereafter and some of my losers became bigger losers shortly thereafter. (although the best thing to do is probably NOT to look back at what you sell)

Engineer250
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Re: "Fun Money" Allocation

Post by Engineer250 » Thu Oct 27, 2016 10:14 am

DaftInvestor wrote:
Engineer250 wrote:For those of you that came to your senses, did you just sell everything and switch over to total market indices right away? Or wait until your "bets" were at least above water? I'm thinking of a few sector concentrations in my case, not individual stock.
When I came to my senses I sold everything (moving it all into index funds). To me it was no longer "fun" - it became a second job. Like the OP talking about 500% gains with Amazon and Apple I could tell some stories about huge gains but had a number of stories of huge losses as well (most people only tell you about their gain stories). Apple and Amazon can come crashing down anytime.
You will get various opinions:
1) Wait until your bets are above water (as you ask): But what if they never become above water? Would you buy these individual stocks today? If not - sell them.
2) Spread the sales of your winners out to avoid Capital Gains: But what if they come crashing down? I guess then you won't have any capital gains to worry about so your tax problems will be solved.

When I decided to get out I did it in 1 fell swoop and accepted the tax consequences. I was happy I did as several of my big winners turned into big losers shortly thereafter and some of my losers became bigger losers shortly thereafter. (although the best thing to do is probably NOT to look back at what you sell)
Thanks these are sector ETFs (not stock) in a traditional IRA. So no tax consequences. The difference in price between when I bought them and now is probably less than 1%. I originally thought "no big deal" to make a couple bets that were small parts of my portfolio. But now I'm thinking, why bother? It would certainly clean up my asset allocation if I got rid of them.
Where the tides of fortune take us, no man can know.

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Re: "Fun Money" Allocation

Post by sunnywindy » Thu Oct 27, 2016 11:53 am

In general, I think 'fun money' is a good thing because you learn more about the market and investing. But 10% for a fun money account????!!!! That's a crazy amount to me.

I had a 'fun money' account at Motif.com that was 0.04% of my net worth or about one days work. At the time I was interested in Frontier Markets and I assembled my own Frontier Market 'Motif' and monitored that for about a year. I think I sold it for a 10% loss. My big takeaway was a clear understanding of how the MSCI Frontier Market Index works (or doesn't) as it moved two of the listed countries up to the Emerging Market Index and incurred substantial capital gains taxes. I'm glad I didn't have any real money invested in that index and I now I know I probably won't in the future...all because of 'fun money'.
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David Jay
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Re: "Fun Money" Allocation

Post by David Jay » Thu Oct 27, 2016 12:59 pm

dave_k wrote:I think what some people including the OP mean by "fun money" in this context is a small fraction of their portfolio that they invest in a non-boglehead-ish manner, realizing that it's riskier but still investing it with the potential for a return as opposed to just spending it, and doing it in a way they find interesting.
This is pretty close to my definition. I am getting down to about 6% as I sell companies that I do not wish to continue holding (what I sell goes into VG Total Stock). But I am much more knowledgeable about financial markets as a result of investing these individual companies over the past few years.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

OriolesFan89
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Re: "Fun Money" Allocation

Post by OriolesFan89 » Thu Dec 29, 2016 1:34 pm

OP here... Following through 2016 resolutions here by following up on things I started researching/doing. So here I am, playing catch up!

I appreciate all of the advice and have decided to move down to 5% of "fun money". I'm down to 7.2% now and will TLH the individual stocks until I'm down to 5%. I'm also only adding money to my index funds only so 5% should be within reach by end of 2016... unless of course the valuation of some of those individual stocks multiply! Hah.

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3wood
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Re: "Fun Money" Allocation

Post by 3wood » Thu Dec 29, 2016 10:15 pm

What about not calling it fun money and calling it highly speculative investing. Take a small % of the portfolio, even 1 or 2%, and try to hit a home run. Any stories of success doing this? Is this so ridiculous it is not worth trying? I have recently thought about doing this and have even had some daydreams of catching the next rising star. 8-)
I will admit, aside from a penny stock I bought many years ago that went to 0 I never owned an individual stock.

Sailor36
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Re: "Fun Money" Allocation

Post by Sailor36 » Thu Dec 29, 2016 11:08 pm

Of course you could also make a "fun" portfolio on Morningstar, which wouldn't cost you anything, except maybe the M* subscription fee.

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Re: "Fun Money" Allocation

Post by whodidntante » Fri Dec 30, 2016 12:16 am

Sailor36 wrote:Of course you could also make a "fun" portfolio on Morningstar, which wouldn't cost you anything, except maybe the M* subscription fee.
TDA allows paper trading of forex, futures, stocks, etc. They even provide fake margin. But it's not poker unless money is at risk.

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Re: "Fun Money" Allocation

Post by badbreath » Fri Dec 30, 2016 1:21 am

I have some fun money and put it in health care. It wound up the last in all categories
“While money can’t buy happiness, it certainly lets you choose your own form of misery.” Groucho Marx

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