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What's the "smartest" way to invest one million dollars?
- Thread starter beerbelly
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DreamMachine
Member
This thread was a waste of time, it sounded like he just wanted to gloat about being a millionare and gave a lame reason to start a thread with out actually saying it.
then after he takes our advice, he says this place sucks and says he'll never return...
WOW.. the OP is lame.
then after he takes our advice, he says this place sucks and says he'll never return...
WOW.. the OP is lame.
Agent Ghost
aka MAJIKdR46oN
QFT
mashoutposse
Ante Up
Park the money in a high yield savings account while you do your research and look for opportunities.
speculawyer
Member
John Dunbar said:
ItAintEasyBeinCheesy
it's 4th of July in my asshole
Hookers, Blow and a night in Vegas, you only live once.
Or you could just deposit it into an account with high interest on it, if you lived smart you could probly live off the interest you earn of the money.......... or hookers.
Or you could just deposit it into an account with high interest on it, if you lived smart you could probly live off the interest you earn of the money.......... or hookers.
Morgenstern
Member
Yeah, a mutual fund is a pretty safe bet.
Morgenstern
Member
Blargle.
VeritasVierge
Member
Does it really matter though? You think a guy with an SN of "beerbelly" and his retarded attitude (he should be banned) is seriously going to properly invest in that money? It's likely he won it in a lotto ticket and will end up like many a lotto winner in the end; broke.DreamMachine said:
MaximumCarnage
Member
Make an Indie movie.
Hellsing321
Member
Fixed.MaximumCarnage said:
TAJ
Darkness cannot drive out darkness; only light can do that. Hate cannot drive out hate; only love can do that.
bjork said:But the guy on Coast to Coast AM says it has never gone down in value...?
I have no idea. I said gold because I heard that commercial. Like I have any money to invest in anything beyond food.
Check out the bloodbath in the early-'80s.
http://www.lenntech.com/prices/gold.htm
That graph would look a lot worse if they used the adjusted-for-inflation numbers. (EDIT: Oops, the blue line on the graph almost does that. It's pretty scary) There's one stretch where gold lost like 80% of its inflation-adjusted value.
Ether_Snake
å®å®å®å®å®å®å®å®å®å®å®å®å®å®å®
beerbelly said:Thanks for all the replies guys.
It was fun visiting GAF the past few years. It has become too hostile in the past few months though so I'm gone for good.
Good luck everyone!!!
P.S. I'm a millionaire
You'll be back.
JoshuaJSlone
Member
Yeah, but then what's he going to do with a million dollars covered in black sludge?B.K. said:
ComputerNerd
Banned
He won't stop posting here. Once you go GAF, you never go back.
AlteredBeast
Fork 'em, Sparky!
ComputerNerd said:
True, thousands have come, no one has gone, though. Even banned posters still lurk.
WickedAngel
Banned
If your first impulse was to ask GAF about financial advice instead of going to an actual financial planner, you might as well just go ahead and blow the million on whatever tickles your fancy.
beerbelly said:
Fixed income is not a safe investment in a general sense. Only in a very short term sense.
No systematic risk = no return
If the investment is more than 5 years, diversify with index funds and rebalance to the original allocation annually. It'll get you 12% average annualized interest with minimal risk.
WickedAngel said:
While this isn't the best place for financial advice, I'm baffled at how so many of you have recommended financial "professionals." The few good and honest people in the field either become rich and retire, or get swept up into fund management.
It takes less than a high school education to employ Markowitz's Modern Portfolio Theory.
AMUSIX said:
This is like saying a good stock is one that is undervalued and that will grow. How do you know? The market is less predictable than you think. If it were really this easy at determining value, how have you not beaten Warren Buffet's average 24% annualized interest?
Diversified real estates is NOT a good investment. Housing has never been close to performing with even large cap stocks in the long run. Only recently have people called it an investment because of the massive bubble being created.
REITs are a good investment now like tulip bulbs were in 1636, or the British South Sea Company in 1719, or Nortel in 1998, or Japanese Real-estate in 1986.
bjork said:
My "off the cuff" answer is a combination of the dollar dropping in value, and people jumping out of the stock market and into the gold market. Personally I wouldn't touch gold investments with a 10 foot golden stick since it looks like a bubble that could burst at any time. I think as soon as the market starts to recover, gold is going to plummet QUICK. At the very least if the market doesn't recover quickly, there'll probably be a surge in gold extraction due to the higher prices/demand that'll stabilize the price soon.
If I had a million to invest, I would pay off all debt, put 50k in a high interest money market (good liquidity for emergencies) and invest the rest in a mix of domestic and international, large and small cap mutual funds. I'm thinking that now would be an awesome time to throw a bunch of money in the market since everything is on sale. :lol
Historically index funds have averaged about 10%-12% over many years. Since that also takes into account the major downmarkets like the .com bust and other recessions, the market will probably grow far more then the 10%-12% once people stop being scared and start putting money back into the stock market. If I leave the gains alone it'll be worth around $10,000,000 in 25 years assuming a 10% after tax return. Imagine retiring at 57 with an income of over $1,000,000 every year without even touching the priciple!
I really wish I had sat down with a compounding calculator when I was younger. If any of you guys reading this are under 18, you could easily become a millionare by the time you retire just by making some minor sacrifices at an early age. From 19-60 if you save $166 a month and it averages 10% in a tax deffered account like a 401k you'll have over a million by the time you retire. Obviously with inflation it won't be worth as much, but really there's no reason to live on ramon noodles and in a shack in your later years. Compounding interest is HUGE.
That said, the OP is acting rather douchy.
The people here who have said that it is so easy to buy "diversified index funds and achieve 10-12% per year" are probably fooling themselves. You seem to think that by diversifying across everything, that you will achieve 10% after-tax. This can only be true if the earnings and projected earnings are growing at a rate greater than 10%. And if things were truly this easy, there would be no systemic risk.
I believe that those assumptions will not hold true going into the future. As someone who also is worth about a million, mostly due to investments over 8 years or so, I will say that the demographic changes in our society were large, one-time events that will not be repeated in the future. It is highly unlikely in the next few years (say 2 to 5) that we will achieve positive returns in the general market. And if you look at the past 10 years of returns from the S&P500, you will see that the market return is very close to zero and most likely less than zero after fees in a mutual fund.
What large one-time events am I talking about? The acceptance of women joining the workforce, the incorporation of the baby boomers into their prime working years, the access to cheap energy and to cheap labor.
What is in the future? Higher energy costs, a decrease in cheap labor due to currency arbitrage, large amounts of retiring boomers, and a maxima in the amount of productive people in the workforce.
Sounds points to consider: the fraction of the GDP that is made up of corporate earnings has never been higher in history. If you believe in mean reversion (and indexers by nature must), this has to fall. And in so doing, will royally screw with the valuation of stocks. We are in a recession, which will become global in nature, and during a recession, stocks fall on average 28%. However, this recession will be a doozy, so I will be surprised if it is only 28%. Stocks have only fallen 12% so far (so much for your "sale").
There are many other things I could mention, but I just wanted to dispel this illusion that "you can simply invest in the indexes and you will make 10-12% per year without any risk since that is what happened for periods 1956 to 1994." Didn't any one teach you that past performance is no guarantee of future returns?
I believe that those assumptions will not hold true going into the future. As someone who also is worth about a million, mostly due to investments over 8 years or so, I will say that the demographic changes in our society were large, one-time events that will not be repeated in the future. It is highly unlikely in the next few years (say 2 to 5) that we will achieve positive returns in the general market. And if you look at the past 10 years of returns from the S&P500, you will see that the market return is very close to zero and most likely less than zero after fees in a mutual fund.
What large one-time events am I talking about? The acceptance of women joining the workforce, the incorporation of the baby boomers into their prime working years, the access to cheap energy and to cheap labor.
What is in the future? Higher energy costs, a decrease in cheap labor due to currency arbitrage, large amounts of retiring boomers, and a maxima in the amount of productive people in the workforce.
Sounds points to consider: the fraction of the GDP that is made up of corporate earnings has never been higher in history. If you believe in mean reversion (and indexers by nature must), this has to fall. And in so doing, will royally screw with the valuation of stocks. We are in a recession, which will become global in nature, and during a recession, stocks fall on average 28%. However, this recession will be a doozy, so I will be surprised if it is only 28%. Stocks have only fallen 12% so far (so much for your "sale").
There are many other things I could mention, but I just wanted to dispel this illusion that "you can simply invest in the indexes and you will make 10-12% per year without any risk since that is what happened for periods 1956 to 1994." Didn't any one teach you that past performance is no guarantee of future returns?
kahni said:
While the OP can't use tax shelters, I can.
One of the big components of Markowitz's Nobel Prize winning MPT and Efficient Market is that global diversification reduces the systematic risk of a portfolio, and increases return.
You're using past performance of a specific index to predict it's return in the future? I'm not a chartist or technical analysist. I think they're similar in profession to astrology.
This is called unsystematic risk!!!! It is irrelevant through diversification because mathematical models have shown that diversification destroy it.
http://www.investorwords.com/5183/unsystematic_risk.html
I'm not buying solely American Funds. My 401k is 40% USA because there isn't enough funds to choose from. If there were, my 401k would be 75% international, like my IRA is.
Over the past several centuries, large cap has returned about 8-9%, and small-cap has returned 10%. Using this historical data, investors have made 12% AVERAGE annualized interest. Sure there are certain periods where it has been smaller, and those that have been larger.
It may be true that diversification will no longer increase returns as much as it has because funds are becoming much more correlated. Right now there are still a few good ways to get uncorrelated stocks: Diversified emerging market funds, mid-cap growth versus a value stock. Specific sectors, like financials mixed in can boost returns. But it may be true that as the economy becomes more global, we'll see only 11 or 10% from diversification.
But the only time an investor loses much of their money is when they get all emotional and sell during bad times.
Fixed income and housing gets you nothing or just barely better than nothing. Inflation eats away at both at too high of a rate for it to really be considered an investment.
I think you should re-read our posts. I made a prediction based hundreds of years of data on small-cap and large-cap stocks. Domestic, or international.
You are making very cynical predictions about domestic indexes based as little as a decade of data. While I share a bit of your cynicism in domestics, anyone that diversifies should be only investing about 25% in the USA because that's about how big it's weight is globally.
While a US crash would hurt international markets, in the long term they can do just fine without us. Many of them were in rubble 60 years ago, and yet are about to fly past us in the next decade.
Your points are valid, with the following assumptions:
- that MPT is actually valid. Personally, I think that Modern Portfolio Theory needs some work. Some of the basic assumptions are pretty silly, such as the uncorrelated nature of markets and the efficient market hypothesis basis.
- that the systemic risk that you are diversifying from can be diversified from. What if some of the basic underpinnings of the markets that we have been used to are changing... systemically?
- that "hundreds" of years of data have relevance and that the standard deviation of those returns are of no relevance.
Let's examine these assumptions. I would agree that in times past, markets were fairly uncorrelated, but in the past few years, this has changed in a systemic way due to a huge amount of players entering the market (i.e. hedge funds) and the huge amount of arbitrage-like based bets in virtually all markets and subsequent bets on each other. Have you looked at the notional amount of CDSes in the world lately? The figure is about 5x the amount of stock market capitalization in the world.
I am of the opinion that the work of Thaler and Schlecter et al. is enough to dismiss the strong form of the EMT. And I am not much of a believer in the weak form even. I like the premise, but the thought that arbitrage plays are limitless is incorrect. There are limits to arbitrage due to the risk they pose to each player. If EMT was perfectly correct even in the weak form, how could bubbles form?
There are some basic systemic problems our society (read: the world) faces now that it has never had before. Peak Oil (Flow), global agricultural disruption, and systemic financial breakdown possibilities. These are important issues and have (will) occur in the near future. Some of the underlying assumptions of how society goes forward will need to change. If those changes do not allow for infinite growth in profits and earnings... well, hey, I am a fundamental type of guy. You explain to my DCF model what happens then.
Lastly, while I agree that historically the market (read, the S&P500) has returned about 10% (although, with a survivorship bias), there are certain times in history where you could have lived, worked, saved, invested and been worse off for most of your working career (i.e. 1929 to 1956). To dismiss this and say that you will most likely get 10% ignores the so-called beta to the market returns you are getting.
If you think this is simply a commentary on the US, well... I would advise you to do some research on the relative scale of economies in the world and the consumption per capita in each one. You might find out some interesting things about consumption and this might lead you to believe that your emerging markets bet might be a poor one for the near future. You could say that this doesn't matter in the long run, but in my opinion, the long run is made up of a lot of short runs. If you make a lot of short run "errors", it might lead to some distinctly sub-par results.
Like I said, these are my opinions based on my experience, research and studies in the area. I would link everything that I have stated, but that would take a long while to finish. Best of luck.
- that MPT is actually valid. Personally, I think that Modern Portfolio Theory needs some work. Some of the basic assumptions are pretty silly, such as the uncorrelated nature of markets and the efficient market hypothesis basis.
- that the systemic risk that you are diversifying from can be diversified from. What if some of the basic underpinnings of the markets that we have been used to are changing... systemically?
- that "hundreds" of years of data have relevance and that the standard deviation of those returns are of no relevance.
Let's examine these assumptions. I would agree that in times past, markets were fairly uncorrelated, but in the past few years, this has changed in a systemic way due to a huge amount of players entering the market (i.e. hedge funds) and the huge amount of arbitrage-like based bets in virtually all markets and subsequent bets on each other. Have you looked at the notional amount of CDSes in the world lately? The figure is about 5x the amount of stock market capitalization in the world.
I am of the opinion that the work of Thaler and Schlecter et al. is enough to dismiss the strong form of the EMT. And I am not much of a believer in the weak form even. I like the premise, but the thought that arbitrage plays are limitless is incorrect. There are limits to arbitrage due to the risk they pose to each player. If EMT was perfectly correct even in the weak form, how could bubbles form?
There are some basic systemic problems our society (read: the world) faces now that it has never had before. Peak Oil (Flow), global agricultural disruption, and systemic financial breakdown possibilities. These are important issues and have (will) occur in the near future. Some of the underlying assumptions of how society goes forward will need to change. If those changes do not allow for infinite growth in profits and earnings... well, hey, I am a fundamental type of guy. You explain to my DCF model what happens then.
Lastly, while I agree that historically the market (read, the S&P500) has returned about 10% (although, with a survivorship bias), there are certain times in history where you could have lived, worked, saved, invested and been worse off for most of your working career (i.e. 1929 to 1956). To dismiss this and say that you will most likely get 10% ignores the so-called beta to the market returns you are getting.
If you think this is simply a commentary on the US, well... I would advise you to do some research on the relative scale of economies in the world and the consumption per capita in each one. You might find out some interesting things about consumption and this might lead you to believe that your emerging markets bet might be a poor one for the near future. You could say that this doesn't matter in the long run, but in my opinion, the long run is made up of a lot of short runs. If you make a lot of short run "errors", it might lead to some distinctly sub-par results.
Like I said, these are my opinions based on my experience, research and studies in the area. I would link everything that I have stated, but that would take a long while to finish. Best of luck.
GallonOMilk
Member
750,000 in a CD.
Then, 250,000 to be risky with. That way you really make the money. You have a few choices:
1. Foreign stocks
2. Gambling? Maybe not the smartest plan, but there's a chance you can win big. Regardless, 10k is the most you should try your luck on at first.
3. 20+ chicks at the same time. It really is worth it.
Then, 250,000 to be risky with. That way you really make the money. You have a few choices:
1. Foreign stocks
2. Gambling? Maybe not the smartest plan, but there's a chance you can win big. Regardless, 10k is the most you should try your luck on at first.
3. 20+ chicks at the same time. It really is worth it.
Cyan said:
True, it is slightly disingenuous if you are talking about peak to peak, but I was talking about the run up to the peak back in the last bubble. We are already lower than this. And if you assume that the dividend rate is about 2% (I don't have the figures in front of me to know what the average dividend rate through this time period was), the average fee for a mutual fund is slightly higher than 1%, you can see that I was merely using this as an illustrative point that it is quite possible to invest "for the long term" and achieve far less than the "guaranteed" 10 to 12% returns.
And as I said in my initial post, I believe that we are in another bubble and that we are in another recession. As Nouriel Roubini has shown, the typical peak to trough performance of the markets during recessions is about 28%. I believe that this recession will far worse than average, so I believe that the decline will be correspondingly worse.
Again, this was to show that you could "invest for the long term" and just have crap returns for many many years. Far from the 10 to 12% bandied about as a given.
Kahni,
If you're going to attack the idea of Modern Portfolio Theory, you aren't going to be successful by showing that a single index gives 0 return over a very specific time frame. You'd have to show me a diversified portfolio that fails for a long period of time.
Also, if your argument is that if one were to dump one large investment before the crash of 1929, that it would take a long time to recover, that it would fail, and that people out of fear should not invest by themselves...then to paraphrase Warren Buffet, those people shouldn't be investing in stocks.
To counter your point, I crafted an extremely basic portfolio, consisting of:
VIMSX Vanguard Mid-Cap Index Fund Investor Shares
NAESX Vanguard Small-Cap Index Fund Investor Shares
VEURX Vanguard European Stock Index Fund Investor Shares
VEIEX Vanguard Emerging Markets Stock Index Fund Investor Shares
VWELX Vanguard Wellington Fund Investor Shares
In equal percentage.
According to Morningstar -- between April 2nd 1999, and today, the average annualized interest is 6% even though in encompasses both the .COM bust and the recent Credit Crunch. If I were to apply the effect of rebalancing, the return would be higher. I also don't think Morningstar properly considers dividends because I have my ROTH IRA being tracked on there, and it's lower than my actual.
That took no formal education in economics, and I beat the "market" (S&P500) by choosing diversified index funds.
If you want to see a very basic example of how long term results are highly predictable, look at VWELX.
Wellington was founded 3 months before the crash of 1929, and it has somehow managed to rake in 8.4% average annualized interest. A little lower than large cap value's average, but that's because it also has a little bit of bonds.
If you're going to attack the idea of Modern Portfolio Theory, you aren't going to be successful by showing that a single index gives 0 return over a very specific time frame. You'd have to show me a diversified portfolio that fails for a long period of time.
Also, if your argument is that if one were to dump one large investment before the crash of 1929, that it would take a long time to recover, that it would fail, and that people out of fear should not invest by themselves...then to paraphrase Warren Buffet, those people shouldn't be investing in stocks.
To counter your point, I crafted an extremely basic portfolio, consisting of:
VIMSX Vanguard Mid-Cap Index Fund Investor Shares
NAESX Vanguard Small-Cap Index Fund Investor Shares
VEURX Vanguard European Stock Index Fund Investor Shares
VEIEX Vanguard Emerging Markets Stock Index Fund Investor Shares
VWELX Vanguard Wellington Fund Investor Shares
In equal percentage.
According to Morningstar -- between April 2nd 1999, and today, the average annualized interest is 6% even though in encompasses both the .COM bust and the recent Credit Crunch. If I were to apply the effect of rebalancing, the return would be higher. I also don't think Morningstar properly considers dividends because I have my ROTH IRA being tracked on there, and it's lower than my actual.
That took no formal education in economics, and I beat the "market" (S&P500) by choosing diversified index funds.
If you want to see a very basic example of how long term results are highly predictable, look at VWELX.
Wellington was founded 3 months before the crash of 1929, and it has somehow managed to rake in 8.4% average annualized interest. A little lower than large cap value's average, but that's because it also has a little bit of bonds.
beerbelly said:Thanks for all the replies guys.
It was fun visiting GAF the past few years. It has become too hostile in the past few months though so I'm gone for good.
Good luck everyone!!!
P.S. I'm a millionaire
Can I has your stuff plx ?
ps. good luck, but you can live without air better than you can live without NeoGAF.
teh_pwn said:
the_pwn,
I have no problem with people investing by themselves, I invest on my own and I do not fear the markets. If people want to believe in MPT, by all means. I have said my piece on it. If you believe the assumptions of MPT and that those assumptions hold true over time (at least, for your investing time frame), the MPT would remove non-systemic risk and minimize the amount of beta to achieve a specific return.
Like I said, I don't necessarily agree with MPT's assumptions in general. As an engineer by training, consultant by experience, and investor by interest, that means I cannot simply use MPT without reservation.
Also, I am curious as to this Vanguard Wellington Fund. Did Vanguard buy the fund? I ask, since John Bogle started Vanguard in 1975 and there are returns all the way to 1929.
As to your theoretical portfolio, that is great that you managed to beat the S&P500. I notice you did so by not including a very high amount (almost none) exposure to US large cap. I suspect that this is probably not a typical allocation for an American investor. I have seen data regarding the amount of weighting that American's give US large cap before and it was quite a high percentage.
Having said all this, I am a pragmatist. If your strategy is making you money in sufficient degree to offset inflation, that is good enough. If your strategy is doing better than that, great. Everyone has to do what works for them. My experiences and research leads me to believe that MPT does not suit my temperament and style of investing. C'est la vie.
frankthurk
Member
Use a small portion of that money to pay for advice from a professional who knows a hell of a lot more about how best to invest your money than random people on the internets?
kahni said:
Yeah, that's cool. We all have our strategies.
Wellington Management Company manages various vanguard funds. They founded the wellington fund prior to Vanguard's existance.
I try to diversify as much as possible, but I do tend to lean towards value and small cap. The reason is because very long periods of time, value indexes tend to outperform growth by 0.5-1.0%, and small cap tends to outperform large by 1-2%.
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