Comments (17)

Aug 18, 2014

What is your risk tolerance? If $100 K is your entire nest egg and you're 50 years old, then mostly bonds with some stocks. If you're 25 and $100 K is a big dividend from a relative, then the answer will be quite different. $100K is a pretty large lump sum. Is this planning for retirement money or is it fun money?

Aug 18, 2014

My risk tolerance is mid to high. I'm 26 and received $100k (after taxes) in inheritance. I thought it would be a good idea to just save it for retirement.

Aug 18, 2014

equal parts: a) gold, b) defensive stocks (pharma, consumer staples etc), c) emerging markets ETFs or mutual funds, d) U.S. growth stocks.

I'd probably go 50% gold but that's just cause I have crazy conviction...

Aug 18, 2014

Would you mind explaining the different parts of your recommendation? I'm curious to hear how someone in Asset Management would approach investing $100K for retirement starting at age 26.

I was going to recommend 100% in an S&P index just to keep it simple. Over a long investment horizon like retirement planning, being 100% in equities at 26 and adjusting to more bonds as you age makes sense to me, but my background is not in AM.

Aug 20, 2014

Who are you asking? I can't tell on mobile.

Aug 18, 2014

I work in equity research on the buyside, so technically I'm not all that qualified to opine on asset allocations, and I'm sure I've got an 'equity bias' vs. most financial planners. Probably someone with a CFP or @"thebrofessor" would be much more able to help structure this. Caveats aside...

There's two things I think young people should be concerned about; growth in principal and inflation protection. Young people in finance have a tremendous earnings curve over their first 10-20 years, so I think aggressive positioning is the right approach. If you're wrong, you should be earning enough in your 40s and 50s that it wont be all that relevant, and if you're right, you've got the potential to push up your retirement date by several years or pay for your kids college with the small savings you socked away in your 20s.

So given that, I think you want heavy emerging markets and U.S. aggressive growth exposure. There are some tremendous bargain companies to be found in India, China, SE Asia, Latam, etc. and if you could build a mini-portfolio of 5-10 of these (or just buy an ETF) you are likely to significantly outperform developed mkts over 20-30 year horizons. This half of your portfolio gives you the principal upside...

The other half is more about inflation protection. Gold (and other PMs) obviously do well in inflationary environments, and defensive businesses actually hold up relatively well also. When you're facing rising inflation and stagnating wages (which I think is likely for the U.S.), it is tough for consumers to cut things like pharmaceuticals, diapers/soap, waste collection, and electric power from their consumption routines. Good solid defensive businesses should hold on to margin and continue to pay you reasonable dividends even in a stagflationary economy. On the other hand, it is easy for people to cut the Netflix, newest iPhones, BMW leases, mobile games, etc. when they are facing a tight budget, so these kinds of stocks will get hit.

I've written about this in a bunch of threads, but the reason I am expecting rising inflation in a nutshell is:
-- Fed has $3T in excess reserves on balance sheet
-- Banks are currently not lending (much), and certainly not to less creditworthy borrowers
-- We are likely to enter a rising rate cycle ==> becomes profitable for banks to lend/move out the risk curve
-- $3T translates to $30 trillion in lending capacity given reserve requirements
-- Lots of new $$$ sloshing around economy will be inflationary
-- ==> Buy gold, buy lots of it, and hold it.

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Aug 20, 2014

$30K SPY
$10k IWM
$30K EFA
$10k EEM
$10K a handful of MLPs (not a mutual fund or ETF)
$10K RWR

Aug 21, 2014

Checkout Vanguard and BlackRock Ishares for starters. On their website you can answer questions about your investment needs and go from there. Goodluck

Aug 18, 2014

Thanks to @jankynoname and @thebrofessor for the insights and opinions. And @dickfuld of course I would have relished your input as well. Hell, I was the one who bought your iconic sign and consider it an investment in my art portfolio.

http://www.bloomberg.com/news/2013-09-17/lehman-si...

Aug 20, 2014
Window View:

Thanks to @jankynoname and @thebrofessor for the insights and opinions. And @DickFuld of course I would have relished your input as well. Hell, I was the one who bought your iconic sign and consider it an investment in my art portfolio.

http://www.bloomberg.com/news/2013-09-17/lehman-si...

You 'would have relished my input'? I gave you the most specific recommendation here. That was my input.

You should just buy that portfolio I recommended.

Aug 24, 2014

While most are aware you cannot time the market, myself included, I would not throw 100% into equities at once.

One strategy that I do to build wealth is dollar cost averaging- allocate the same amount for everything month. You can do drip plans on individual stocks, which compound nicely, or mutual funds. Over a long investment horizon this should suit your investment requirements.

I often place qualitative factors to a higher regard relative to valuations, as I increase allocations as opportunities arise.

Aug 24, 2014

I am biased towards real estate, but achieving 8% returns is easy on a cash on cash basis. Put your money with a fund focused on multifamily or something. Plenty out there with 100k minimums and that provide distributions quarterly, sometimes monthly. You'll have no management responsibilities and will get paid out of cash flow that is consistent where as bonds, stocks, have no guarantees of increasing 8% annually.

Aug 26, 2014

The contributions are amazing in this thread, I'm just adding things for the sake of variety.

I thought to point out that not only is there the markowitz approach to portfolio construction, but also the kelly criterion approach (http://en.wikipedia.org/wiki/Kelly_criterion).

In terms of asset classes - since your horizon is 15 years you need to assess your inflation expectations and construct a thesis you are happy with. I.E. argument for inflation has already been made, whilst there are arguments for deflation as well.

The issue you have is that in a rising rate environment, a lot of investments look bad (though arguably equity will be boosted due to ERP), things that require leverage to generate returns (such as real assets/property/infrastructure etc) will suffer.

I guess I'd favour an equity bias as the above people have. Though I'd say look into some form of protection on the investment for a downturn.

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Aug 26, 2014

+1 for kelly criterion reference, this is easier said than done though.

Aug 29, 2014

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