Quote:
Originally Posted by mersenneary
USA
Amount to be invested: $125k.
Risk Tolerance: Moderate/Low. The chance of losing 25% of the investment should be 10% at the most (but I'm OK with 10% and understand variance well), the chance of losing half should be 3% or less.
Timeframe: Not really sure, something like 2-10 years, so I'd like flexibility there. I feel much more comfortable if investments are reasonably liquid and if it's not super stupid to have the money in for a short time, even though I plan on having it in for longer...I will likely be buying a home at some point in the next decade and I suspect a good portion of this money will go to that, but it's really hard to say because I'm still young and not sure how far poker will go or what my life situation will be.
As for the basics, what do I do? Open a Vanguard account, or is there somewhere else? What do I need to know about that process and any portfolio management?
Thanks for all help, really appreciated. Learned a lot from this subforum/places it's linked to tonight.
Its nearly impossible to confidently say "no, X will not lose y%" and even if it does, it has potential to recover without you doing anything. Unlike Poker where once the money is gone the only way to get it back is to actually win, you don't have to do anything with investments for it to recover.
You can never guarantee investments won't lose 12% one week but then recover it all in the next four weeks. RoR formulas really apply most aptly to traders who generally are utilizing leverage. Additionally there might be a Black Swan event that occurs and everything drops 25-30%. There would be simply no way to forecast that or predict it or prevent it, hence the name given to such an event. Al Qaeda might explode a nuke in Baghdad and markets would turnover. Or a big bank might go bellyup, sending countless CDS writers scrambling and trading desks into a selling flurry to cover margins causing markets to free-fall.
Many (most?) stock investments lost 40-60% from Oct 2007 to March 2009. Most, if not all are back to 5-10% down from an investment made in October 2007.
Having home ownership in your sights coupled with a short timeframe tilts your selections towards a strong bias of intermediate term type bonds, but not ignoring stocks entirely.
I think something along the lines of a 55/45 Stock/Bond mix would work well for you to consider until a more concrete plan on home ownership is determined - or until your cash flow and savings otherwise dictates that this lump sum isn't as critical anymore. You've expressed a low risk tolerance and people almost universally overstate their actual tolerance because you most often have no idea how you will actually react until something happens. Money is funny like that.
I would consider the following:
Vanguard Balanced - Admiral Class Shares - VBINX at 65%
Vanguard Total Bond Market - Admiral Class - VBTLX at 20%
Vanguard Total Int. Stock Market - Admiral Class - VTIAX at 10%
Vanguard Emerging Markets Stock - Investor Class - VEIEX at 5%
This allocation also splits the stock into a ~70/30 of US/World. Something to consider if you want to break apart the US balanced fund to separate bonds and stocks entirely would be to go with VITSX (Vanguard Total US Stock Admiral) at 40% and VBTLX at 45%. Some investors choose a balanced/mixed fund as the core holding and add tilt to it to move in the direction they favor.
Extreme short term (1-3 years) should see a shift out of both bonds and stocks and into straight cash in order to preserve principal in that short term. I'd consider 25-30% cash (Vanguard Prime Money Market VMMXX) if there is any chance of an extreme short term need for the money. Maybe look at some short term Certificate of Deposits if you don't want the money earning practically zero. These days large sums in CDs can still pull 1-3% APR