I agree that it's an excellent choice though -- easy diversification, very low expenses, low turnover. VT (which includes foreign stocks) is also worth considering for extra diversification.
https://en.m.wikipedia.org/wiki/D._E._Shaw_%26_Co.
https://en.m.wikipedia.org/wiki/Renaissance_Technologies
Aren't we all reading HN to learn?
https://www.ted.com/talks/jim_simons_a_rare_interview_with_t...
http://www.forbes.com/sites/jaysomaney/2015/08/24/is-our-sto...
The math people (Merton, Scholes) saw the craziness, pulled enough of their money out in time, and didn't lose it. The finance people (first and foremost Merriwether) were those who believed they are smarted than everyone and went bankrupt.
They did not use math at the time they lost money. They were were essentially gambling (doing "risk arbitrage", which is all risk and no arbitrage).
The crazy thing about LTCM, and the thing that everybody overlooks is that LTCM didn't die by bankruptcy...they died because of the systemic risk of their portfolio size and the subsequent intervention from the federal reserve. They had $100B under management, but only lost $5B in 4 months. It was a major catastrophe, sure, but it was only major because of the implications from its absolute size. A 5% drop in 4 months is something that can be recovered from on a personal portfolio level or even a small hedge fund level...but at LTCM's size it was endangering the financial system as a whole because it was threatening to bankrupt overleveraged institutional investors.
Jane Street Capital, while very opaque about what they do, has given me enough room to believe that LTCM has inspired a lot of their strategy. This always makes others perceive me as a quack that doesn't like history, but if another LTCM came around that was using the same strategy but on a much smaller scale and with a well spelled-out liquidation strategy, I would invest. In fact, I would probably bet big on it (>50% of my portfolio).
Nobody is gonna touch it though, because everybody is so conservative in finance. "We're gonna follow LTCM's strategy" isn't a sales pitch, it's a punch line. But outside of finance, there is a ton of precedent for monumental successes with an idea that has failed before. And I think LTCM is one of those ideas.
These guys are trained professionals who've dedicated literally decades to graduate level pure & applied mathematics, and are simply of another a caliber. I can read JAMA all I want, quite fun indeed, but if I practice surgery, I'm certainly going to slice an artery. You have a better chance of going to Atlantic City and putting 100k on black than successfully making money in trading any set of securities, whether its Asian fixed-income, blue chip Wall Street equities, or CME pork belly futures. Just because you back-tested something successfully doesn't mean you should throw your hat into the ring, the sharks will bite till there's nothing left.
I also can't figure out why I get all kinds of "it's really hard" and "be very afraid" comments on HN.
With finance, high voltage electronics, and explosive chemistry, you can have very high cost consequences if you screw up. And people often delude themselves in finance.
There is a also a return aspect in finance. You need a large amount of starting capital until 80hrs/wk of work will outpace what you make 80hrs/wk in your job.
For example, lets say you make $250k/yr as a smart engineer. We assume best case scenarios and say you make %10/APR (very generous) over the index fund return. You would need $2.5million in starting capital before you can start matching your working self in returns. Most people don't have $2.5 million lying around. You would get better returns starting a business or investing in yourself and leaving your savings into index funds.
Maybe I don't want to invest but simply want to understand how math is used to make trades without human decision making involved once the algorithms are written.
Whenever it comes to investing advice, I understand how my family must feel when their computers break.
Don't worry, it's perfectly fine to not know what these things are.
Maybe you haven't been working for long enough (or at the right companies) but I think people usually pick up an interest for this kind of stuff when they want to know what to do with RSU (Restricted Stock Units) or Options that they've gotten from a job. Some also get interested by the idea of having your money work for you (to make more money), instead of just spending money on things that don't bring return.
Generally a mutual fund's value (called it's Net Asset Value or NAV) is calculated once at the end of each trading day. When you put money into a mutual fund, you buy at that price. An ETF[3] is a special type of mutual fund that is itself listed on a stock exchange. When you buy an ETF you're still buying a share of the underlying mutual fund, but the price changes throughout the trading day. The difference between the price you pay and the NAV of the underlying fund is called the premium (if you pay more than NAV) or discount (if you pay less).
You don't have to call Vanguard if you want to open an individual, joint, or retirement account in the United States. You just go to their Open An Account page[4] and select which account you want to start.
[1]: a company organized to aggregate many people's money and invest it in a particular way
[2]: a list of companies that share some quality. For example, the "S&P 500" is a list of the 500 biggest publicly-traded companies in the United States.
[3]: Exchange Traded Fund
How so?
If you're only in a US market ETF there's some non-neglible chance you'll be flat or down in 10 years esp. if you're unlucky enough to buy close to a bubble top. So long term in this context should read as > ~20 years.
EDIT: If you look at buying a 10 year bond right now you get ~2.2% interest per year guaranteed today. If you buy the total US stock index it's hard to tell with any degree of certainty given today's high P/E ratios that the stock market will beat that. It might. But it's more risky. Hence there's a premium you're paying for risk. It's true that yields are likely (but not certain) to go up and so over time your new investments + rebalancing will buy you into those higher yields. Otherwise you're just trying to time the bond and stock markets which isn't simple, you can play a little of timing game (e.g. saying you think stocks are cheap and bonds are expensive today) but you can't usually predict better than the market already does.
EDIT: And while we're talking about this it helps to recall that there's a continuum that goes beyond 100% stocks. If you're so sure interest rates are going up and stocks are going up then you can borrow money at today's rates and invest it in stocks. I.e. use leverage. If you're right your returns will be much higher...
Will I make more or less than I would under your strategy? I don't know, but averaged over all possible universes it's unlikely to be significantly less, and this way I at least get the fun of being in control, and deciding where to put each new chunk of money.
Speaking of your portfolio, if you're investing in "a few" companies, your volatility and risk are going to be enormous. Especially if you're not balancing your portfolio between industries, company sizes, and less risky investments. Automatic rebalancing is a fantastic way to obey "buy low, sell high", as you intrinsically buy more of cheaper instruments and less of expensive ones to maintain that balancing.
By "a few" I mean more like a dozen.
https://en.wikipedia.org/wiki/The_Superinvestors_of_Graham-a...
- Remember that the money that you make on this is taxed as income, which stinks for high income individuals
- The alternative is to set up a lendingclub IRA and put money in there, but now you're somewhat limited as to how much you can invest, as well as being ineligible if you've got an employer retirement vehicle like a 401k
- The return is very high at the beginning, and then tends to drop as more and more people default (or pay off early, which can be almost as bad from an investment perspective)
- It takes work - it's interesting if you have the time and inclination to pick out the notes you want, or they have an automated system - I did a bit of both
In the end, I'm making about 6.5% a year on it - not terrible, but at tax time every year it sucks when I'm getting charged state and federal income taxes on that 6.5%.
I think it makes a lot of sense for folks who are not concerned about reducing their taxable income and want a more active investment option than just vanguard ETFs, or who want an IRA option with higher returns. But it's not as awesome as it seems at first glance.
There is always an aspect of market timing, even with ETFs. Looking at the massive bull run in the last 5 years, it certainly makes me nervous to enter the market right now, especially with the recent volatility.
It's nice in theory, however this ETF strategy is extremely overcrowded, hence the 2008 meltdown. Hence, the August meltdown. Anything that works will eventually, come to an end... Let's not forget the people that make the guaranteed money in the ETF are the one's selling you them. (Might want to check your ETF fees as well)
In the meantime... I created this http://www.strategic-options.com/trade/
>> In the meantime... I created this http://www.strategic-options.com/trade/
Sorry if this sounds rude, but this comment comes across as disingenuous to me.
http://www.investmentnews.com/article/20150911/FREE/15091997...
You also have tulips to blame in 1637. https://en.wikipedia.org/wiki/Tulip_mania
(This is a genuine question, not a snarky one. I've always wondered would write a "how to get rich quick" book in my early teenage years, only to realize their methodology to get rich was to write that get rich book.)
ETFs are just a way of buying equity, not a market that can be overcrowded.
The 2008 meltdown happened because of subprime mortgages, the approximate opposite of conservative index fund investments.
ETFs are (in this context) just a convenient way of buying modest amounts of an index fund.
Index fund companies like Vanguard charge a very low, extremely reasonable commission for both direct purchases and ETFs.
Best of luck!
That's a hell of a thing. If you can make those kinds of returns why do you even need to play in the $50/mo market? Seems like the kind of thing you can sell for millions, or not sell and make billions.
Someone hears that Warren Buffet speak on CNBC, that you should invest in an index strategy. So let it be written, so let be bought. This keeps people warm at night, because Uncle Warren said something that you can understand.
Anybody that is critical of your buy an ETF strategy, is the enemy. But yet you reference a one line strategy and now you are genius! Where was your ETF strategy in 2008? Negative -36% return? How about early 2000? It would still be in the crapper hadn't Uncle Ben started printing money in 2009. But hey, you don't need to understand anything about interest rates, money supply, high frequency trading and or federal reserve, because at the end of the day you saw something on CNBC!
I'm more than happy to encourage buy more of your investment philosophy. Keep buying, buy the dip, buy when it goes up, buy when it goes down. Because the market is up ~250% since 2009 and it can only go up. Economic cycles those are a thing of the past, the market is only going to trend up, no inflation or deflation in sight. It's now clear you know what you doing! Your incredibly intelligent, successful, profitable, secret strategy. Remember not tell anyone, well because they might overcrowd the trade and reduce profitability.
Let us never forget "Ignorance is Strength"