# Investing, I know that I should, but how? **URL:** \ **Category:** In My Humble Opinion\ **Created:** [December 18, 2018, 1:04am UTC](https://boards.straightdope.com/t/investing-i-know-that-i-should-but-how/826298 "2018-12-18T01:04:02Z")\ **Posts on this page:** 20\ **Page:** 3
**Author:** ![jasg](https://avatars.discourse-cdn.com/v4/letter/j/f0a364/32.png) [@jasg](https://boards.straightdope.com/u/jasg)\ **Post date:** [December 29, 2018, 3:01am UTC](https://boards.straightdope.com/t/investing-i-know-that-i-should-but-how/826298/42 "2018-12-29T03:01:32Z")
> [@The\_Man\_In\_Black](#): > > Again, thank you for all the advice. I have a question on taxes. If I were to invest with Vanguard in an individual account, at the end of the year do they tell me what my taxable income earned through them was? As noted, they will but you only get a 1099 for a regular investment account - not for a Traditional or Roth IRA. If you are investing for retirement, the general advice is invest in this order, as long as you have the cash to do so : - first, take advantage of your corporate plan to maximize the employer match, if offered. IOW, if they match the first 3%, put in 3% - bingo you just got a return of 50%! - second, open a Roth IRA and put in the max of $6000 in 2019. (Before Apr 15 you can do $5500 for 2018) - third, go back to your corporate plan and put as much as you can there - up to the limit. - fourth, open a regular account for excess, if you are lucky enough to still have money to save. This is the account where you have to pay taxes but not the others. On the Roth, you never pay. ---
**Author:** ![TimeWinder](https://avatars.discourse-cdn.com/v4/letter/t/bcef8e/32.png) [@TimeWinder](https://boards.straightdope.com/u/TimeWinder)\ **Post date:** [December 29, 2018, 8:17am UTC](https://boards.straightdope.com/t/investing-i-know-that-i-should-but-how/826298/43 "2018-12-29T08:17:32Z")
> [@zombywoof](#): > > Do they have an “emergency fund” of ~6 months worth of expenses on hand in something like a high yield savings account? And assuming the answer to that is “yes,” what do you feed your unicorns? ---
**Author:** ![Try2B\_Comprehensive](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/try2b_comprehensive/32/65_2.png) [@Try2B\_Comprehensive](https://boards.straightdope.com/u/Try2B_Comprehensive)\ **Post date:** [December 30, 2018, 8:48pm UTC](https://boards.straightdope.com/t/investing-i-know-that-i-should-but-how/826298/44 "2018-12-30T20:48:08Z")
What I mainly popped in to say is: don’t invest all your money at once. Invest in 10-20% increments and keep your eye on things. It is always possible we are on the cusp of some big change, in which case not being “all in” can be advantageous. If it were me, I would put $10k into the S&P500 index fund, in increments, and keep the other $10k on hand, maybe in a money market account. I feel like the bull market is going to wrap up and that there very well may be a recession looming. If that happens, having some cash on hand will put you in a good position. As they say, “The time to buy is when there is blood running in the streets.” You can’t do that without some cash on hand. I also transferred about 3/4 of my 401k into bonds and other safe assets, just last month. I think there is going to be a crash (worse than what we’ve already seen) in the next couple of years, and want to retain that value to get back in after things go south. I could be wrong, but even if I am I have a nice chunk of low-yield dough safely set aside. I continue to buy into the S&P 500 with most of my 401k contributions, and don’t see that changing (I’ll increase contributions if there really is a crash). ---
**Author:** ![Surreal](https://avatars.discourse-cdn.com/v4/letter/s/eada6e/32.png) [@Surreal](https://boards.straightdope.com/u/Surreal)\ **Post date:** [December 31, 2018, 8:01pm UTC](https://boards.straightdope.com/t/investing-i-know-that-i-should-but-how/826298/45 "2018-12-31T20:01:31Z")
> [@Riemann](#): > > For a U.S. investor, here’s a slightly more sophisticated (but still simple) model portfolio using 6 ETFs for the equity portion, based on the following principles: > > Passive indexed, long term buy-and-hold (time horizon = decades); > Huge low-cost liquid funds - Vanguard and Blackrock; > Global diversification, 30% outside the U.S.; > Overweighting for small-cap value stocks that have significantly outperformed in the long run (see **Surreal** ’s post above). Note that this has worked historically only in the developed markets. > > 50% VTI - entire U.S. market > 10% VBR - U.S. small cap value > 10% IJS - U.S. small cap value > > 15% IEFA - international developed markets > 5% SCZ - international developed markets small cap > 10% IEMG - emerging markets > > Some notes on these choices: > > Small-cap value is a discretionary (albeit disciplined algorithmic) strategy, so some care is warranted - not all indices/funds are equal or equally well managed. Blackrock and Vanguard are the two best. IJS and VBR track different indices. IJS has higher fees, but the average market cap of its indexed stocks is half the size. I think diversifying across the two indices/funds is warranted. > > SCZ is the most expensive fund here at 0.40%. But choices for international small cap exposure for a U.S. investor are limited, and this is the best. It gives exposure to international small cap in exactly the places where small cap has historically outperformed - i.e. excluding emerging markets and excluding Canada. For this reason, it has consistently outperformed the cheaper Vanguard fund (VSS) by far more than the difference in management fees. > > IEFA and IEMG have corresponding Vanguard funds (VEA, VWO) that are almost indistinguishable in fees, size, performance. The Blackrock funds seem to do a better job of identifying Qualifying Dividends in their international funds (better tax treatment for your dividend income). And other things being equal, better to diversify assets across two equally good fund managers than have everything with Vanguard. Good post. I agree that it makes sense for some investors to hold multiple funds/ETFs for small cap value exposure. Here’s one comparison of the various funds that are available today for this particular asset class: > **[Domestic Small-Cap Value Funds](http://altruistfa.com/USsmallcapvaluefunds.htm)** > > Altruist's mission is to provide Superior > Objective Financial Advice to the Public in a Highly Ethical Fashion at the > Lowest Feasible Price. Altruist is a fee-only financial advisor. We > have a money-back guarantee, which is almost unheard of in... For foreign small cap value there does not appear to be many options for those of us who don’t have access to DFA. But I’d prefer to use a foreign large cap value ETF over a foreign small cap ETF, since historically the value premium has been both larger and more stable than the small cap premium, at least domestically we know this has been the case. That having been said, for the 92.5 year period ending June 30, 2018, $1 invested in the largest decile of stocks in the CRSP database would be worth $4,169 (9.43% average annualized return), whereas $1 invested in the smallest decile of stocks would be worth $110,800 (13.38% average annualized return), or 26X as much. ---
**Author:** ![Riemann](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/riemann/32/3133_2.png) [@Riemann](https://boards.straightdope.com/u/Riemann)\ **Post date:** [December 31, 2018, 8:50pm UTC](https://boards.straightdope.com/t/investing-i-know-that-i-should-but-how/826298/46 "2018-12-31T20:50:15Z")
> [@Surreal](#): > > …I’d prefer to use a foreign large cap value ETF over a foreign small cap ETF, since historically the value premium has been both larger and more stable than the small cap premium, at least domestically we know this has been the case… What’s your data source for this? It hasn’t been the case for the last 2 decades in the U.S. based on the CRSP data I’m looking at. Large cap value has _underperformed_ large caps overall, and been the worst performing of any size- or growth/value- based sector. Since 2002: 7.2% - Mega 6.7% - Mega Value 9.1% - Mid 9.2% - Mid Value 9.9% - Small 10.4% - Small Value I always thought the theory was that an algorithmic value-based strategy only works for small companies, since there’s just too much information in so many small companies for active investors to process, so price discovery is less efficient. Whereas if large well-researched companies are trading at (say) a superficially attractive P/E, it’s usually for a good reason. ---
**Author:** ![HMS\_Irruncible](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/hms_irruncible/32/7394_2.png) [@HMS\_Irruncible](https://boards.straightdope.com/u/HMS_Irruncible)\ **Post date:** [December 31, 2018, 9:05pm UTC](https://boards.straightdope.com/t/investing-i-know-that-i-should-but-how/826298/47 "2018-12-31T21:05:39Z")
> [@Dewey\_Finn](#): > > Also, many (most?) of those who claim to have “gotten out just in time” almost certainly missed the bounce-back. Because usually after a big drop, there is a big jump. I will happily admit that I miss out on the end of every bubble, and the beginning of every recovery. But… you’re wrong about the big jump, I’m sure we all remember 2008 and 2000 when people caught falling knives by the fistful just from pure optimism. Knife collecting has likewise become popular in recent months. I don’t claim to time every small downturn, but if you couldn’t see 2000 and 2008 crashes coming, it’s because you tried very hard to ignore all the warnings that were out there. ---
**Author:** ![Riemann](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/riemann/32/3133_2.png) [@Riemann](https://boards.straightdope.com/u/Riemann)\ **Post date:** [December 31, 2018, 9:10pm UTC](https://boards.straightdope.com/t/investing-i-know-that-i-should-but-how/826298/48 "2018-12-31T21:10:24Z")
> [@HMS\_Irruncible](#): > > I don’t claim to time every small downturn, but if you couldn’t see 2000 and 2008 crashes coming, it’s because you tried very hard to ignore all the warnings that were out there. The problem is not that it was hard to see the 2000 and 2008 crashes coming. It’s that the same people predicted the great crashes of 2002, 2005, 2006, 2007, 2010, 2011, 2013, 2014, 2015, the five crashes of 2016 and the seven in 2017. ---
**Author:** ![Surreal](https://avatars.discourse-cdn.com/v4/letter/s/eada6e/32.png) [@Surreal](https://boards.straightdope.com/u/Surreal)\ **Post date:** [December 31, 2018, 9:31pm UTC](https://boards.straightdope.com/t/investing-i-know-that-i-should-but-how/826298/49 "2018-12-31T21:31:22Z")
> [@Riemann](#): > > What’s your data source for this? It hasn’t been the case for the last 2 decades in the U.S. based on the CRSP data I’m looking at. Large cap value has _underperformed_ large caps overall, and been the worst performing of any size- or growth/value- based sector. You can download the data directly from Ken French’s website ([Kenneth R. French - Data Library](http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html)), but here’s a summary: [https://www.etf.com/sections/index-investor-corner/swedroe-value-premium-lives?nopaging=1](https://www.etf.com/sections/index-investor-corner/swedroe-value-premium-lives?nopaging=1) ---
**Author:** ![Riemann](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/riemann/32/3133_2.png) [@Riemann](https://boards.straightdope.com/u/Riemann)\ **Post date:** [December 31, 2018, 9:48pm UTC](https://boards.straightdope.com/t/investing-i-know-that-i-should-but-how/826298/50 "2018-12-31T21:48:18Z")
Thanks. Fortunately for the U.S. part, there’s no need to be too concerned about whether anything has structurally changed, since we have good cheap small cap value funds. Small cap value has work in the very long run and _also_ for more recent decades. ---
**Author:** ![HMS\_Irruncible](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/hms_irruncible/32/7394_2.png) [@HMS\_Irruncible](https://boards.straightdope.com/u/HMS_Irruncible)\ **Post date:** [December 31, 2018, 11:11pm UTC](https://boards.straightdope.com/t/investing-i-know-that-i-should-but-how/826298/51 "2018-12-31T23:11:04Z")
> [@Riemann](#): > > It’s that the same people predicted the great crashes of 2002, 2005, 2006, 2007, 2010, 2011, 2013, 2014, 2015, the five crashes of 2016 and the seven in 2017. This is actually not true, it’s a thing people tell each other to feel OK about not monitoring their investments or economic conditions. I am not knocking that decision… much is at stake, it seems overwhelming, a mechanistic approach is a totally valid way to maximize your comfort. But just because you’re uncomfortable with a more active approach doesn’t mean it’s impossible. ---
**Author:** ![Riemann](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/riemann/32/3133_2.png) [@Riemann](https://boards.straightdope.com/u/Riemann)\ **Post date:** [December 31, 2018, 11:56pm UTC](https://boards.straightdope.com/t/investing-i-know-that-i-should-but-how/826298/52 "2018-12-31T23:56:02Z")
> [@HMS\_Irruncible](#): > > This is actually not true, it’s a thing people tell each other to feel OK about not monitoring their investments or economic conditions. What is true is that markets sometimes crash, but sometimes also go _up_ very quickly. And that often those times are points of greatest negative sentiment when it _appears_ that a crash is about to happen. It’s not rational or objective to focus on how much money you could have saved in 2000 and 2008 by exiting the market, because of all the times you would have lost far more by exiting the market at the _wrong_ time. > [@HMS\_Irruncible](#): > > I am not knocking that decision… much is at stake, it seems overwhelming, a mechanistic approach is a totally valid way to maximize your comfort. But just because you’re uncomfortable with a more active approach doesn’t mean it’s impossible. It’s not a question of comfort, it’s a question of taking the optimal and most rational approach to maximize your returns. Are you really suggesting that for a retail investor, the rational approach is to assume that you can beat a passive index? The great majority of _professional_ managers do not. All empirical evidence, not to mention basic common sense, argues against your recommendation to manage your investments actively. ---
**Author:** ![Ruken](https://avatars.discourse-cdn.com/v4/letter/r/f475e1/32.png) [@Ruken](https://boards.straightdope.com/u/Ruken)\ **Post date:** [January 1, 2019, 12:26am UTC](https://boards.straightdope.com/t/investing-i-know-that-i-should-but-how/826298/53 "2019-01-01T00:26:56Z")
> [@HMS\_Irruncible](#): > > This is actually not true, it’s a thing people tell each other to feel OK about not monitoring their investments or economic conditions. > > I am not knocking that decision… much is at stake, it seems overwhelming, a mechanistic approach is a totally valid way to maximize your comfort. But just because you’re uncomfortable with a more active approach doesn’t mean it’s impossible. If you didn’t post in my “predict the next recession” thread, it’s not too late to show us how good your “more active approach” is. [https://boards.straightdope.com/sdmb/showthread.php?t=860952](https://boards.straightdope.com/sdmb/showthread.php?t=860952) ---
**Author:** ![jasg](https://avatars.discourse-cdn.com/v4/letter/j/f0a364/32.png) [@jasg](https://boards.straightdope.com/u/jasg)\ **Post date:** [January 1, 2019, 6:51pm UTC](https://boards.straightdope.com/t/investing-i-know-that-i-should-but-how/826298/54 "2019-01-01T18:51:21Z")
FWIW, here is a [chart](https://imgur.com/a/qLicXHF) of my retirement account from ages 40-70. The first 20 years represent 15-20% of pay as annual 401k savings (includes 6% company match). The last ten years had no contributions because I retired. I will start regular withdrawals this year. My strategy though most of this was ‘buy and hold’, 90% or more low fee stock funds. I never sold in a down market. The last five years have been a shift to all index & stable value funds and a gradual decrease to only 60% stocks. ---
**Author:** ![Riemann](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/riemann/32/3133_2.png) [@Riemann](https://boards.straightdope.com/u/Riemann)\ **Post date:** [January 1, 2019, 7:16pm UTC](https://boards.straightdope.com/t/investing-i-know-that-i-should-but-how/826298/55 "2019-01-01T19:16:38Z")
> [@Ruken](#): > > If you didn’t post in my “predict the next recession” thread, it’s not too late to show us how good your “more active approach” is. And to clarify exactly what’s necessary to prove that you can beat a passive buy-and-hold strategy. You need a consistent track record of picking entry points to sell the market short, and exit points to cover your short profitably. ---
**Author:** ![HMS\_Irruncible](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/hms_irruncible/32/7394_2.png) [@HMS\_Irruncible](https://boards.straightdope.com/u/HMS_Irruncible)\ **Post date:** [January 1, 2019, 10:10pm UTC](https://boards.straightdope.com/t/investing-i-know-that-i-should-but-how/826298/56 "2019-01-01T22:10:48Z")
> [@Riemann](#): > > And to clarify exactly what’s necessary to prove that you can beat a passive buy-and-hold strategy. You need a consistent track record of picking entry points to sell the market short, and exit points to cover your short profitably. You are describing an extremely active management strategy (including short selling). That’s not what I do or advocate. Actually I’m mostly in passive instruments and I trade very, very infrequently. I am only active to the extent that I believe it’s possible to make qualitative judgments about when major corrections are due, within a 1-2 year timeframe, and respond accordingly. For example I started shifting to a more bond-heavy portfolio in April 2018, and stopped around August 2018. This was mostly from the obvious observation that 10-year bull markets don’t continue forever, and the US does not have the most steady hand at the wheel right now. I didn’t know the correction would begin in October, but the expert consensus seemed to be that it was due, and I agreed. Right now I have no sense at all what’s going to happen in 2019, so I’m not making any changes for the next 2-3 quarters at least. Yes, I missed a few points of gain in the summer, yes, I’ll likely miss some on the rebound, but I missed the 20% haircut that the SP500 took in that timeframe. I don’t claim to be perfect or precise. That’s just one data point, so it won’t satisfy the rigor you want, but I just wanted to be clear about my thinking. ---
**Author:** ![Riemann](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/riemann/32/3133_2.png) [@Riemann](https://boards.straightdope.com/u/Riemann)\ **Post date:** [January 1, 2019, 11:31pm UTC](https://boards.straightdope.com/t/investing-i-know-that-i-should-but-how/826298/57 "2019-01-01T23:31:28Z")
> [@HMS\_Irruncible](#): > > You are describing an extremely active management strategy (including short selling)… You claim that you can see major declines coming, and that your strategy is to exit the market at those times and re-buy after the decline. So _relative to a passive strategy that is always invested in stocks_ that’s obviously logically exactly equivalent to claiming that you can make money consistently over time by shorting the stock market when you anticipate a decline is imminent, and covering your short some time later. > [@HMS\_Irruncible](#): > > That’s just one data point, so it won’t satisfy the rigor you want, but I just wanted to be clear about my thinking. I understand your thinking. The issue is whether you can _consistently_ make money from this vague strategy of selling the market short when you think it looks like it will go down. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [January 2, 2019, 12:21am UTC](https://boards.straightdope.com/t/investing-i-know-that-i-should-but-how/826298/58 "2019-01-02T00:21:16Z")
> [@jasg](#): > > FWIW, here is a [chart](https://imgur.com/a/qLicXHF) of my retirement account from ages 40-70. > > The first 20 years represent 15-20% of pay as annual 401k savings (includes 6% company match). The last ten years had no contributions because I retired. I will start regular withdrawals this year. > > My strategy though most of this was ‘buy and hold’, 90% or more low fee stock funds. I never sold in a down market. The last five years have been a shift to all index & stable value funds and a gradual decrease to only 60% stocks. Do your stable value funds focus on returns? The ones I’ve moved into do, and they have been generating good income. I’ve moved into them expecting a recession. They have gone up, not as much as a more aggressive portfolio, but that is what I expected. If they generate enough cash for me to live on, I don’t have to sell them even if their price decreases. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [January 2, 2019, 12:24am UTC](https://boards.straightdope.com/t/investing-i-know-that-i-should-but-how/826298/59 "2019-01-02T00:24:11Z")
> [@HMS\_Irruncible](#): > > For example I started shifting to a more bond-heavy portfolio in April 2018, and stopped around August 2018. This was mostly from the obvious observation that 10-year bull markets don’t continue forever, and the US does not have the most steady hand at the wheel right now. I didn’t know the correction would begin in October, but the expert consensus seemed to be that it was due, and I agreed. Right now I have no sense at all what’s going to happen in 2019, so I’m not making any changes for the next 2-3 quarters at least. Is your shift to more bonds a result of rebalancing as the result of equity prices climbing, or independent of this? ---
**Author:** ![justanothermike](https://avatars.discourse-cdn.com/v4/letter/j/c2a13f/32.png) [@justanothermike](https://boards.straightdope.com/u/justanothermike)\ **Post date:** [January 2, 2019, 2:06am UTC](https://boards.straightdope.com/t/investing-i-know-that-i-should-but-how/826298/60 "2019-01-02T02:06:12Z")
I invested for the first time ever this year at 40 years of age. Nobody in my family ever invested, or had anything to invest. I grew up in a cult that told me the world would end any day now and that basically preparing for the future was somewhat useless. Anyway, I left the cult and see the need to have something in retirement. I did a lot of research and so far I managed to turn $6,000 into under $5500 in my first year of investing in index funds (Vanguard SP 500 and Total Stock). I have to say that, coming from where I come from, the scarcity mindset is pinging my brain and telling me to just keep my money under a mattress, but I know that’s not a good long term strategy. My wife and I can afford to put in about $6,000 annually (we’re self-employed) so I think I’m going to hold off on investing now for last year and just wait to see how 2019 goes. Seems many think it will go down more. If it does maybe I can spend the $6,000 I would have spent in 2018 plus the $6,000 I’ll spend in 2019 all in 2019 and get more bang for the buck by buying low. I know that timing the market is a fool’s bet, but I’ve already watched my money go the wrong way and it seems like most are predicting that it will continue so it just seems dumb to dump my $6,000 that I have saved in now. We can do up to $12k+ annually anyway so if we do two years in one I don’t see that it will hurt anything. I am working this year on trying to squeeze more savings out of our budget and trying to get that working even better. If anyone sees a fatal flaw in what I wrote above please let me know. I’m trying to do my best to make the wisest decisions I can for my wife and I, save on fees, and make every dollar that I can stretch because I’m starting late and somewhat limited. ---
**Author:** ![Dewey\_Finn](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dewey_finn/32/4222_2.png) [@Dewey\_Finn](https://boards.straightdope.com/u/Dewey_Finn)\ **Post date:** [January 2, 2019, 2:27am UTC](https://boards.straightdope.com/t/investing-i-know-that-i-should-but-how/826298/61 "2019-01-02T02:27:41Z")
It’s good that you invested. And I understand that it may scare you that the $6,000 you already invested is down to $5,500. But you don’t need that money now. If you’re 40 now, you shouldn’t need the money for 25 years. During that time, there will be up years and down years (as this one was). And keep in mind that the lower market means that the next $6,000 you invest will buy more shares. So keep at it. [Previous page](https://boards.straightdope.com/t/investing-i-know-that-i-should-but-how/826298.md?page=2) [Next page](https://boards.straightdope.com/t/investing-i-know-that-i-should-but-how/826298.md?page=4)