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Abu The Monkey:
Curious to hear about how everyone here manages their money? I personally index majority of my capital and pick stocks occasionally.

General financial planning advice (I'm a CFP and managed money before bschool) for when you're young is this:

If you're in a steady, low income growth job than you should be invested more aggressively - i.e. heavily weighted towards stocks. Passive is fine, if you want to take some of your portfolio (say 30-40%) and make some concentrated educated investments too that's fine, but make sure you do your research first.

If you're in a job with high income and big earnings volatility (i.e. banking), you should be investing less aggressively while young (i.e. less in stocks, more passive).

The modern philosophy is that your financial capital (earned wealth) and human capital (future wealth) should be taken into account. If you're a 22 year old banker, you have huge volatility and a big potential upside to your future wealth, but the gravy train can stop at any point. So you should balance that with lower risk in your earned wealth. If the economy tanks and you lose your job, your future track and also see your portfolio crushed at once it could have big ramifications. If you're in a stable role, for contrast, your financial portfolio will take a hit but your earnings potential won't be as affected, so you're better able to weather the tide.

As move from early to mid career, it's fine to ratchet up the risk as your earned wealth grows (i.e. volatility of future earnings is decreasing and current wealth is growing). At some point (10-15 years before retirement) you want to start ratcheting back risk. As you ratcheted up risk in your financial portfolio, you were considering more stability in human capital. With retirement on the horizon, human capital is diminishing at a faster rate.

I'm in my early 30's. For me, I'd target 30% active, 70% passive, and roughly 10% in case (emergency fund) and fixed income investments (targeting corporates in tax deferred accounts). If rates rise to an acceptable level I'd increase my fixed income moderately.

 

Just started out and have been investing in REITs and BDCs for high dividends and some price appreciation. Once I get to a reasonable amount I'll start with options.

 

What is your thesis for focusing on dividends? Are these in taxable accounts? If so, you're only subjecting yourself to a higher % of taxable returns each year by picking investments for dividends.

Be wary of your fee structures too. There are some beautiful disguised fees in these types of investments. I.e. read the fund docs carefully to determine who gets transaction fees when things are bought and sold, who is their third party administrator, etc. You might find that the funds are taking a bigger rake than their advertised %. I'm not saying you won't make money on this stuff, but I wouldn't put more than 10-20% of my early 20's money into stuff like this that can turn into 3%+ in fees.

Also, these investments tend to rely on a pretty high illiquidity premium. This can show hefty returns in rising tide markets but in a market collapse, liquidity is impacted across the board and the effect on funds with high illiquidity premiums could be multiples of what you see in public securities.

 

So many options so many factors to consider.

How old are you? What sort of time horizon? How much time can you devote to managing investments?

Rarely will any of my posts have enough forethought/structure to be taken seriously.
 
Johnson:

Is liquidity an issue? Will you be needing the 10k for any upcoming purchases? Maybe put half into an ETF and keep another half in a liquid short duration portfolio

Thanks guys for the input..

I am young so taking risk is no issue. I have no liquidity issue.

I am looking to put my money away for a couple like maybe 3-4 months to see if it grows.

Could you expand on the liquid short duration portfolio.

 

Do you have any high interest debt? if yes pay that off first. Assuming you have no debt, are you maxing out your retirement accounts? if not, put it in a low cost mutual fund or index fund within a Roth IRA (max contribution per year is $5,500).

Until you have those two steps knocked out, I wouldn't bother with any short term investments.

 
Industry84:

Do you have any high interest debt? if yes pay that off first. Assuming you have no debt, are you maxing out your retirement accounts? if not, put it in a low cost mutual fund or index fund within a Roth IRA (max contribution per year is $5,500).

Until you have those two steps knocked out, I wouldn't bother with any short term investments.

I do have student loans at $28k with 4.875 interest rate.

I already maxed out my ROTH IRA. Do you suggest I use the extra cash to pay off my student loans?

Asatar:
50% in best interest rate account going OR premium bonds (UK only), 40% in reasonably safe stocks / funds, 10% in penny stocks.

your fucking with us right?

Follow a basic 70/30 or 60/40 portfolio model and adjust your risk as such. If you want to get more sophisticated throw in some different asset classes i.e. commodities or alternatives. Spread your equities across multiple sectors and decide if you want appreciation (growth stocks) or income (high dv yields) as an investment goal. I sound like a fucking textbook regurgitating this crap but given the parameters you gave me, your retirement account shouldn't be too sexy.

Here's the thing. If you can't spot the sucker in the first half hour at the table, you are the sucker.
 

I use a 70/30 portfolio. 70% in European corporate bonds, 20% in blue chip stocks and 10% in high volatility stocks. I re-balance my stock portfolio every year (corporate policy, I must own a stock for atleast 1year before selling it or compliance is on my neck) and dividend is invested in the 10% bracket.

CNBC sucks "This financial crisis is worse than a divorce. I've lost all my money, but the wife is still here." - Client after getting blown up
 
Working9-5:
I use a 70/30 portfolio. 70% in European corporate bonds, 20% in blue chip stocks and 10% in high volatility stocks. I re-balance my stock portfolio every year (corporate policy, I must own a stock for atleast 1year before selling it or compliance is on my neck) and dividend is invested in the 10% bracket.

Why Euro corp bonds and not US? Just interested in the reason

 

Do any of you take advantage of stock option type stuff? (Discounted rate for your firms stock). If so what percentage?

If I had asked people what they wanted, they would have said faster horses - Henry Ford
 

Let's put the question a different way. Say you are willing to take on a lot of risk. You will split the 50K among 4-5 stocks. You expect these stocks to do very well over the long run (5-10 years). What stocks would you pick?

Personally, I'd go with well established large cap companies selling at a big discount. These are names that I expect to be around in 5-10 years, and assuming the economy turns around by then, these names should be much higher. Small cap names are too risky, with only 5 stocks in a portfolio.

HAL, JCI, PG, EMC, BA

Any other ideas?

 
shorttheworld:
You guys have really boring portfolios I hope none of you are traders because your risk aversion is intense :p

If I blow up at work, I might get fired. If I blow up in my personal account, I could go bankrupt. Plus, based on the research that I've read a boring, low turnover portfolio is by far the best way to invest personal funds.

 

i wasnt saying to actively trade in and out of it but im pretty sure you should be able to identify some macro trends and take advantage of them with something that isnt so stale

diversify yo BONDZ so ur not so much as intertwined with the market. get into funds that are actively managed and high ratings that are shown to have upside outperformance and downside proection to them

 
shorttheworld:
i wasnt saying to actively trade in and out of it but im pretty sure you should be able to identify some macro trends and take advantage of them with something that isnt so stale

diversify yo BONDZ so ur not so much as intertwined with the market. get into funds that are actively managed and high ratings that are shown to have upside outperformance and downside proection to them

I'm not convinced that such funds exist that are identifiable looking forward - only in retrospect. I do employ risk management and diversification in my portfolio, though. Read the paper I linked to.

 

I wouldn't say I have long term money. I have around $25k and investment in small-cap stocks or stocks with high growth and/or are likely to be a bought out.

I don't hold bonds at all. Not even cash in my brokerage account. Just hold cash from pay checks in the bank. Once I hit the $150-200K point I might start investing in large-cap high div stocks for retirement. Don't think I would ever buy bonds unless I was still kicking at age 75.

 
suchislife:
If said investment is a rental property as mentioned, first build up a cash reserve in case your tenant vacates, then save up and don't rush to reinvest your cash in the fist thing that pops up, instead just keep an eye out for additional opportunities and they will eventually come around.

Thanks ;)

 

First, Determine how much you can contribute to an investment account and how frequently. This is important because some plans carry requirements for minimum investments. Additionally, it is a good way to establish discipline by building a specific contribution amount into your weekly or monthly budget. Do not try to contribute too much. You do not want to make commitments that are not sustainable over the long term or leave you unable to pay your normal expenses.

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As mentioned above, in energy you can consider any of the supermajors as well as service (think $CVX $XOM $SLB $HAL etc.). Look into some emerging markets, notably India but others to consider as well. Best option to consider for that exposure is some type of structured product like an ETF that has a bundle of exposure. If you can find anything based in Europe that will be sensitive (in a positive way) to QE that hasn't shot through the roof yet that could be a decent pick, quite a few still out there.

 

We're charged £15 for entering/exiting a position and required to hold the position for at least 30 days. We also have to authorise every trade with a manager but we're relatively unrestricted with regards to what we can invest in.

 
I know the most likely solution is "mutual fund only" or non brokerage accounts held at a mutual fund co. But which ones are people using? I am only investing 000's at a time and have no interest in paying loads each month.

1) Open Vanguard account 2) Invest in broad based, low cost mutual funds 3) ??? 4) Profit

Seriously, that is what I do. While our restrictions aren't anywhere near as bad (or high cost) as yours, there is no reason to complicate your life or risk a compliance violation. You have enough riding on your stick picking skills as it is.

 

With a similar amount of money I did just a handful of equal weight positions in what I thought were 4 year value plays during my college year. I wound up buying at a market bottom and it really worked out, ~47% return. Was good for resume and a little extra cash, but nothing too serious. I'm not personally invested in single name equities anymore because of work restrictions. Use your expected time horizon or exit for assumption, what else would you use?

 

I think it's all about how risk-hungry / averse you are. If you don't have time, I would argue for index investing. S&P 500, some ETFs to get some foreign diversification and maybe a few muni bonds sprinkled in if you think that equities are overvalued.

While I think the recent run up will continue, the volatility in the market has been crazy lately. i'm no trader, but i'm a long-term investor and so i'm heavily weighted in stocks. i'm not trying to hit homeruns with my stock picks, just get a steady return over the long hall = blue chips.

 

Pesonally favor Unit Investment Trusts. Think of them as a "cousin" to the mutual fund. There are many out there that focus on specific industries or index, e.g. Tech, Pharma, S&P 500, International etc. You only have to stay invested for 1-2 years. I find the short-term commitment very attractive. John Hancock, Van Kampen and Nuveen offer some of the best UITs. Check them out!

Note, if you go with mutual funds, pick the Class "B" shares because it rewards you the longer you stay in the fund. B share are not loaded upfront, they're loaded at the back end and are contingent deferred so that it's declining fee the longer you stay in the fund and if you stay at least 5 years, no fee.

 

Way too young!

If you have $$ you want to sock away and invest for less than a year and want a more attractive rate than a CD... then look for a "muni preferred" which are usually offered in lots of $25K and some in $10k. You can "roll" a muni preferred for 2 weeks, 1 month etc. Good if you are using bonus money for grad school and want a safe short-term investment.

 

Try Forex. Its the most liquid market out there. Yeah you won't be making as much since you are investing only in 1000's (I'd presume if you are an analyst). But you won't loose too much either in the worst case scenario.

 

My current strategy is a straight up S&P 500 index fund, dollar-cost averaging all the way. That is, in addition to the common stocks I've bought (and held) so far.

I'm 95% playing devil's advocate here, but I've considered most of your ideas plenty of times before. My thoughts are thus:

Mutual funds - The fees and taxes incurred are real drags to total performance. Fund managers have to beat the market by at least a few percentage points every year to make up the delta (less than 5% of active managers can even match the market--and that's before fees, expenses, and taxes). I do own shares in one mutual fund, but it's in my 401k--in which there are few available options.

Munis/bonds/fixed income in general - Since I wouldn't actually be trading these things, but holding them for income--they don't present a desirable option. In my opinion, the young and gainfully employed have zero business holding fixed income instruments--stocks have trounced them over time. I keep dry powder in a money market fund--with the intention of rolling out my index strategy every month.

I sympathize (and empathize) with the desire for a safe investment during the interim period between college and grad school, but the risk/reward profile of common stocks (at least right now, versus the late 1990s, for instance) is simply a better fit for my risk tolerance.

Forex - out of my realm, man. And I suspect that you have to be pretty active to make any headway here--which has implications for both taxes and whether or not you can sleep at night.

You'll have to forgive my seemingly jingoist attitude towards common stocks (i.e. little international diversification)--but that's a surface-level response. I maintain that practically every major U.S. corporation has some sort of international aspect to its operations--thereby allowing an investor to benefit from growing productivity in foreign countries (namely China and India), yet preserving the legal infrastructure and transparency of markets that we have in the U.S. So I am comfortable that I'm achieving that with the S&P.

Responses?

 

I have no idea what you mean by that expression. What $$ amt is considered dry powder?

Forex is out of my league too. I know that whatever the volume on NYSE in a year is equivalent to the volume on forex market in a week! It may be the most liquid market, but I just always perceived foreign exchange market to be more volatile and also I don't understand/follow it as much as I do equities or bonds.

 

Mean by what expression? Dry powder?

First of all, have plenty of cash for about 6 months' living expenses, and don't put 100% of your investable funds (i.e. what remains after your rainy day buildup) into the market. To quote Graham, be fearful when others are greedy and greedy when others are fearful.

So "dry powder" in that sense means making sure you have ample investable funds available for when the market turns your way (in my case, when it falls). You can't really express that as a % amount, because it all depends on how greedy/fearful the people are around you at any given time.

Time-honored clich

 

Yes, I was referring to "dry powder". Thanks for the explanation :-)

On the subject of cliches or expressions... what the heck does this mean:

"You can't make a silk purse out of a sow's ear"

This banker tosses that expression around ALL THE TIME! I would just smile, nod in agreement but in fact have no clue what that means.

 

I have thought about this as well. I've been working for about 3 years now. What I've done is set some money aside for future education (b-school, etc...), rainy day (approx 6 months living expenses), made a couple of payments to my parents and other relatives and am now thinking about investing.

I've had the option to co-invest (leveraged) with my firm on a deal, but I skipped it, which was quite the slap in the face for the MD involved. It wasn't a deal that I had worked on and I wasn't happy with the economics. That was a few months ago and it seems like it won't be a home run (I was vindicated).

I am saving some money up now, but the real decision will come when bonus time roles around. I'm thinking that I will apply a portfolio strategy from the start. Here are my thoughts: - Passive index linked equity investments (US & major international, i.e. developed markets EU & Japan). Weight: approx 50% (33/33/33 between markets)

  • Fixed income: Need to find a low cost, passive FI exposure (corporates - maybe some sub investment grade). Med term outlook (3-5 years) US/EU. Weight: 25% (63/33 investment grade/sub investment grade)

  • Speculative: whatever idea I think is worth a bet, i.e. it would give me the opportunity to flex my analytical skills and take a view. Anything goes. Weight: 25% overall (each individual bet to be less than 25-33% of total spec. exposure.

This all depends on what my bonus is like this year.

 

I only have real knowledge of my firm. For us it is on a deal by deal basis and the deal that I mentioned was a bit odd. Not the kind of thing we usually get into and there were some ethical considerations so the preasure wasn't great. Also, it wasn't a deal that I had worked on.

People understand if you are an associate/analyst and don't have the means to make a big bet or the capacity for risk. At the same time, they like to see that you want to have a stake in your work. Some firms have a pool for co-investment so that it is less risky.

Word of advice. Don't make a bet you can't afford to lose, ever.

 

If you don't want to invest, don't bad mouth the deal/fund/investment. If you are put on the spot an need to defend yourself, relate it to your portfolio, personal situation, other investments, e.g. I'm a bit too exposed to widgets at the moment, or I'm buying a condo, etc...

Another tip: don't drink your own kool-aid, or your colleagues for that matter. [have seen it happen]

 

What are the restrictions on personal investing when you are an analyst with an IBank? I'm assuming you can't bet on any deals that you have knowledge of or are working on. Any other restrictions?

 

Answer to livintoolive:

What restrictions are there? Tons.

It varies from bank to bank, but I'm certain the standards are similar.

At my firm, we can't trade any stocks of companies that the bank currently does IB business with (across all industry and product groups, not just your own), and we can't trade any companies whom we've pitched or done business with during the past 12 months. Also can't trade any companies on whom our research analysts are about to publish.

If you DO buy a stock, you have to hold it for 90 days before selling; you're allowed to sell before then only if it drops by more than 10%.

Those are the biggies. Either way, you have to fill out a form, send it to Compliance, and wait for their yay or nay. They are the gatekeepers.

 

Also keep in mind that the bank has access to all of your bank/investing accounts basically from Day One.

You technically can trade whatever and however you want (that is, nobody can stop you from executing a trade), but if Compliance catches wind of anything unauthorized (and they do monitor your accounts), they can force you to undo the trade--at whatever penalty it happens to cost at the time.

Mutual funds/index funds are fine at any time (no restrictions), so that seems to be the prudent choice.

 

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------------ I'm making it up as I go along.
 

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