Ok, real question, not an interview question: if you had a million bucks what would you invest in? Especially if you were a Canadian in the US.
In Canada, I would have put into my TFSA and RRSP to provide some tax relief and then eventually drawn down on my RRSP for the Home Buyer Plan (HBP) in order to contribute to the down payment of a primary residence.
Getting USD bonus soon and am actually saving some coin in the US now, but have no idea what to do with it. Started contributing to a 401(k) (which I understand to be similar to an RRSP).
Also, because of trading restrictions, I believe I have limited options for how to deploy the savings.
SB's for good suggestions or recommendations for resources where I can learn more.
401K if you don't need the money since it will be taxed at lower rate at retirement. Opening a roth IRA and maximizing your contributino ($5,500) is also a good idea as an analyst since it will be tax free when you retire (and chances are your tax bracket will be higher when you are 63 than when you are in your 20s).
As far as investing....buy broad ETFs...you can still invest in them as banker and frankly you aren't going to beat the market. It's hard enough to do so when you have time to analyze companies, much harder than when you do not....plus you won't be able to invest in many anyway, as you stated. Look for funes with low expense ratios....those charges can significantly hurt your returns and you don't necessarily get what you pay for with fund managers.
Hey thanks. This is helpful. Is there an earnings cap on who can use a Roth IRA? Trying to find a reputable source to find more info.
Agreed on the ETF point. Impossible to trade anything.
yeah, you gotta make less than $116k per year to contribute to a roth IRA.
Like was already mentioned, there is an earnings cap that you are over. However, there is a "backdoor" to contributing to a Roth IRA. You are allowed to contribute to a traditional IRA and then rollover directly into a Roth IRA. Since you are contributing after-tax dollars to the traditional IRA (and not deducting it from your income on a tax return) you can do this without any penalties, etc. It is actually pretty straightforward. If you look online you will see it is a regular thing, though the IRS / Congress could close that loophole in the future and you would no longer be able to rollover your IRA.
Very good advice.
Do you plan on returning to Canada eventually? If so, it might be wise to take advantage of the strength of the USD in relation to CAD
If your bonus is sizable(you're a vp i'm going to assume it is) you could probably invest it in a rental property. You will have to pay taxes on capital gains upon disposal as it won't be your primary residence but it still should yield decent returns while being a relatively safe option for your first major investment.
Investing Your Bonus? (Originally Posted: 08/10/2011)
I find it ironic how so many monkeys that supposedly know finance don't know how to manage their money, and keep the majority in cash. After receiving my year-end bonus and saving up a good amount of a year's salary, I have a sizable chunk (>$75k) to manage and would like some advice / opinions.
I have been investing with decent performance in equities for about 2 years. Not afraid to take risks, so planning the following portfolio:
60% Equities 15% Fixed Income 15% Precious Metals 10% Cash
Of the equities, I have a few names but plan to purchase more blue chip stocks across a few sectors with solid dividends and earnings growth, and a few value plays. Fixed income - not quite sure, but perhaps some mutual funds or ETFs? Advice would be welcome here. Precious metals to protect against fiat currency debasement (own SLV now, tips welcome). Cash to buy bottles when the rest of my portfolio goes to shit.
Also I don't contribute to my 401k and don't have a savings account cause they don't pay anything anyway. How do you guys manage your money?
I don't know about returning to Canada, but yeah, Canadian money is more "monopoly" than usual at 1.4x to 1 USD. This thought has crossed my mind.
Problem is that I have decent CAD assets (RRSP, no TFSA for tax reason) from my Canadian IBD earnings, so I actually have enough funds to buy rental property etc. with that, but trying to find a good home for my USD. Expecting to have USD exposure in the future (probably staying here for a while).
I am still only in school, however I was under the impression that most bonuses in finance were rewarded with mostly shares of your own firm's stock? And stiphened over say 3 years as to commit you for at least that amount of time to receive your full bonus?
Use the search function, there are a bunch of posts about how to invest "x" amount of dollars.
You should definitely have 3-6 months living expenses in cash. You should definitely invest in your 401-k if your company matches (free money) to take advantage of the tax benefits and long term compounding. I have ~5% in FI because anything more it is too conservative for my investment profile and the rest in equities, commodities, real estate and cash.
Mortgage REITs that have a high mix of fixed-rate assets and are trading close to book value (many of them right now). Given that we're going to have low short-term rates through mid-2013 at least, it's a very attractive environment for these guys who manage largely fixed-rate portfolios.
They will be good income stocks for the next year or two, yielding mid-teens per year in dividends.
Didn't all of these go bust in 2007?
IlliniProgrammer's (conservative) recommendations:
1.) Get 100% of company 401k match.
2.) 8 months living expenses- 2 months in a current account, the other 6 can be in CDs with easy early withdrawal terms. Redeemable savings bonds count as CDs; non-redeemable savings bonds (in their first 11 months) only count towards up to 1 month of the eight months of emergency savings.
3.) Roth or Traditional non-deductable->Roth
4.) Max-out 401k.
5.) Cash portfolio. Ideal for safe, boring dividend stocks that can provide a cashflow cushion.
Outside of emergency savings, about 80% of your portfolio should be equities, 20% should be in cash, treasuries, foreign currencies, and precious metals, assuming you are under 30.
OP - It's pretty easy to make decent returns over the last 2 years with such good overall market performance.
Don't confuse a bull market for genius. Don't get too fancy with your investments, especially right now.
Banker,
I think we're in similar boats. You have more disposable income, but I've had a few more years to save.
My wife is very conservative and likes to have a lot of cash available. I was with a boutique IB that closed when we were dating and it scared the hell out of her. So we have a good amount (well over 6 months)sitting in different forms of savings accounts.
Because of that I keep my retirement fund pretty aggressive.
I allocate about 3/4 of my retirement to different funds. This is about 10-15% fixed income and the rest a few different equity funds.
In the other 1/4 I pick individual investments. For the past few months I've had at least part of this in cash, but I usually try to pick 4-7 equities to buy and hold. I held SLV here for a while, but sold a few months ago. Right now I'm in equities with good dividends and/or that I like their long-term potential - AINV, AGNC and TEVA.
I also have some company stock and a small personal trading account. My PA is mostly for play. I bought SLV calls in it yesterday. I'll probably aggressively trade options and leveraged etfs in this account. This is definitely my high risk - hopefully high rewards account.
Ultimately, do what makes you comfortable, but DEFINITELY DON'T PASS ON ANY EMPLOYER 401K MATCH. That's free money in this whole equation.
No. Not all. The ones that were highly levered couldn't meet margin calls (Carlyle's REIT for example, ~30x leverage). The managers who were smart survived.
The sector is in a much better position today than before.
It depends on the industry you are in, if you are an I-banker , in S&T or in role highly correlated with the broader market I would reverse your allocation between stock and bonds and focus more so on bonds as a hedge to an income stream which otherwise is correlated to the broader market, so in case things go to shit you still have something*. Also if you do go into bonds, what might be worth looking into would be TIPS so you can preserve your wealth (inflation adjusted) should shit really hit the fan; beyond that if you really like risk the other class of bonds that might be worth while are High Yield's I think Barclay's has an ETF that tracks their HY index and spins off some pretty decent income.One I think I used to do when I managed my own money was to split the portfolio 80%/20% with 80% allocated to a pretty conservative portfolio and 20% as risk capital.
Not sure if I understand what you're saying here. Are you suggesting that because I'm in IBD, my job is risky and therefore my portfolio should be less risky (i.e. less equities and more fixed income)? First time I've heard such an opinion.
fuckloads upon fuckloads of SLV and GLD options
and a bit of cash
1) contribute maximum that your employer matches into your 401k (6% for me) 2) $5k into roth IRA (max annual contribution if salary asset allocation model based off ray dalio's Bridgewater all-weather fund (if you're interested, google "risk parity") my 401k looks like:
18.0% us large cap 16.0% us mid/smallcap 14.0% international developed 12.0% international emerging 10.0% reit 30.0% fixed income
401k should be 60-30-10 in equity/fixed income, preferably in low-expense index funds rebalance quarterly roth IRA, you can be more adventurous, i have quite a lot of compliance restrictions, so i use an intermediate-term momentum-based ETF strategy (http://www.vectorgrader.com and http://scottsinvestments.blogspot.com), with a couple of specific long-term value/growth stock bets on the side i find that this gives me a good balance between the passive and active ends of investing, so i only have to check my portfolio a few times a month
1) How are you in NY and have over 75k first year? That's like 110k after tax isn't it? I thought those high bonus IB days were over... 2) Why blue chip stocks? With the amount you are investing, I would go for small cap.
have some balls and give me 5k to invest for you
he probably have some amount saved up before because with rent etc, 75k isn't feasible unless he works at cv or qatalyst
but back to OP
i would personally invest in a bunch of undervalue stable stocks right now
energy is a good buy as it got crushed the past couple months and you know oil price is gonna go up
financial is good IF you want some big returns and arent afraid
some tech stocks got hammered that might be good. intel and msft have a bunch of cash and apple might be good given it trended down a bit and with the release of iphone5...you never know what people will do
if you feel like hedging, getting the index for premium metal might be good
i would probably save 20% for cash (your 1 year rent) and invest the rest in equities. Fixed income in my opinion is a waste of time if you only have 75000 to play with since you can get a lot more return with equities
100% AAPL
in Japan, we go 100% SFTBF
If I had that much cash lying around, I would personally invest it all in a basket of global banking stocks
In China, we go 100% AAPL, oh wait no... 100% HON HAI PRECISION.
You got most of the good advice--I'll reiterate. Sounds like you can take on a bit of risk, so you should. But do it smart, and minimize correlations.
(1) Max out 401(k). You don't care now, but you will later when you're getting tax free compounding.
(2) Get matching from the company, it is free money. You don't care now, but you will later.
(3) Do not buy stock of the company where you work. If they match in stock, sell it. The point about employment risk is valid. All your income is tied to the risk of your company, don't make the mistake I made at Lehman, and let your savings sit in company stock.
(4) Don't think that picking stocks or mutual funds works. If you must, set aside 10% of your portfolio and pick stocks. Be prepared to lose.
(5) Use low cost ETFs or Vanguard. 60% equities is aggressive but fine, buy small cap and value because those are academically shown to outperform over long periods of time. Grab an emerging market equities ETF as well. The other 40% should be split between cash (liquidity), fixed income (AGG, TIPS, Vanguard tax-free munis), and some flavor (I'd do REITs, Commodities, maybe Gold).
(6) High turnover in your tax free accounts, low turnover in your taxable accounts. Don't put your munis in your retirement account.
Over time, costs and a balanced strategy without selling low are better than trading around.
This is clearly an obvious question to most of you, but without an investing background I must ask: why invest tin bonds at all? Assuming most of us (I know, not all) are in our early 20s and saving for retirement in 40+ years, why not just go entirely in equities? I keep cash separate in my mind - 3-6 months expenses seems reasonable. But beyond that need for liquidity, why should I put 10-20% in FI if equities are a better investment over very long periods of time?
Put another way, if I'm putting 80% of my investments in equities, clearly I'm prepared to lose almost all of my portfolio - so why not put 100% in?
^^ Not sure about individually, but investors (institutions) to my knowledge make money off of bonds by selling them and not actually holding on to them for their yields. I understand what you're saying about losing it all (I'm only invested in equities) but maybe just a precautionary measure and a way to have them in your portfolio to build upon. I'm not sure, not very knowledgeable about actually trading bonds or any funds that deal with bonds.
Wisely investing a "bonus"? (Originally Posted: 06/20/2011)
Last night I had a dream that I used a nice chunk of cash and shorted oil. I woke up to discover today that A: oil went down, and B: I have a 3k credit on my school's bursar account. I think my dreams are sending me a message. Any how my question is what to do with it.
A lot of people argue to invest now, then pay the low interest rated loan off later. But what about paying off the non subsidized loan issued and then investing the rest? What about using the money as collateral for a larger secured loan and then invest that amount? I wouldn't mind putting the money in a bond, but returns are crappy. And as young as I am, I'm actually pretty risk averse (except when sleeping).
I don't currently have any positions in the market although I do read extensively. I have also picked a few stocks to watch because I liked the company models only to discover (after months of tracking) that had I invested money in those stocks, I would have been handed a new one. So, I don't want to use this money as what could be potentially a very cruel lesson.
Should I just find someone else to invest for me? Any constructive advice would be helpful.
Believe the Roth limit is 183k if married. Still probably way below you, but worth noting.
Haha quite the dreams you have, trading commodity futures!
For serious though, i actually had an almost identical dream, but i woke up sweating and angry as fuck - i had instead SHORTED oil. This dream was a few months back and if youd recall it was rocketing towards $110 (WTI) and was reading up tons on the WTI-Brent arb possible, thus probably why my brain was so focused on that topic at hand.
Anyway, going forward, i didnt put my money where my mouth was (i thought at $110 oil was definitely not sustainable, at least not without a confirmation of QE3 coming).
As for your loan with a loan idea - is that even possible? Sure youll have cash from your 1st loan as collateral, but unless you can explain to the 2nd bank where those funds are from, they can just give you a bigger loan than your posted collateral unless its land, RE or some other tangible asset you possess. But best of luck if you do the more cash with cash thing, though IMO its like getting levered up, and if you lose it, then youll be double f cked.
Agree on bonds, no possible way to get long in the next year as rates are going to rise so being long duration will get you screwed. I guess my only real suggestion is to look into an advantageous way of shorting the Euro (futures or equity) or EURUSD - spot EURUSD FX might actually be more interesting for you as you can just get one loan for that matter and you can take advantage of the 50:1 leverage. Again, assuming thats what you want based on your loan within a loan context. Last thing about companies youve found had a good model - last month or so is pretty rough in all equities based on non-confirmation of QE3 from the Bernank. Id wait a bit and see if end of Q3, beg Q4 brings in a nice green finish to the year.
Why are you lonely banker chick? I can fix that for you hahaha
misread....
This is how your money should flow:
The last two are fungible (other than maxing out your 401ks to get employer match and IRA to get tax benefits. However, if you follow this hierarchy you will get the most bang for your buck. Remember, its better to have a system to allocate your cash easily than one dependent on the next market movement. One is a strategy the other is a tactic. Big difference.
Good point on the limit.
One point on that though....if you started in 2015 you almost certainly made less than the limit. You may not be able to invest for the 2016 tax year but you can invest retroactive for 2015 until April 15 (you just need to specify this when you open the account).
I did this my first year, since you basically only get about 6 months of base salary (my signing bonus was paid the year before).
Much thanks everyone for the answers. I pretty novice when it comes to personal finance, so this is very helpful. The backdoor Roth sounds great and is definitely something I will further investigate
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