Invest where you think you might end up. Or just invest everywhere; as a youngish American my (very small) future retirement stash is 50% broad-market US and 50% international (Vanguard VXUS). I think this is a reasonably prudent allocation for someone who isn't totally sure where they'll end up, which describes me.
The obvious answer is to save more than that if at all possible, and if you're not in your twenties then diversify across asset classes instead of throwing it all into US stocks.
The young or old might need the money short term (buying a first home or retiring) so should perhaps keep risk lower than the middle aged. For long term savings I’d just go for a diverse portfolio. Stocks and broad/index low/zero cost funds. That might sound boring but it’s that simple. Keep it global to avoid regional downturns. An often overlooked part of diversity in investment is to look at what industries thrive in a poor climate vs a good one, and keep some of both. (For example defense).
First, no matter what you do, construct an asset mix (even if it's wrong) to start, then do research on what is most appropriate for you, stick to it, and just keep investing to each of those buckets.
I think I sit generally along the lines of:
- 60% real estate property
- 10% retirement investments (401k, IRA, etc)
- 10% Vanguard Index funds (diversified across 5 indices, large cap, SP500, small cap, REIT, etc)
- 5% direct stock investments (moderate risk, high reward)
- 8% high risk, high reward investments (e.g. seed investments)
- ~2% cash (mix of checking account and HYS account @ 1.7% APY)
- 20% of my overall portfolio is basically liquid in case of an emergency
NOTE - do not strictly follow this asset mix, it's just illustrative based on what my wife and I have decided to do.
Without knowing more about you - age, health, goals, risk tolerance, other obligations, etc - it's all just random suggestions from the internet.
My random suggestion here is diversify in to a few different equities areas. US, international, etc. I mostly have a few 'general market' funds, but a couple that are focused on tech companies, and they've outpaced the general market over the last several years.
Keep some in cash - ally and others have around 1% return on cash. not great, but it's something. keep maybe $80k or so in there.
put some in general 'broad market' index funds - total market or S&P or something - maybe $150k in that.
find some international funds - put $80k in that.
pick a precious metals fund - put $40k in that. Alternative, take some of that and put in to crypto if you've got an interest in that.
This would leave you with around $150k. Consider some more real estate - perhaps just land and let it appreciate, or a small house you can use as a rental, or more industrial. Or just hold that in cash for a bit longer while you wait and see what happens. You already have $200k in industrial real estate. If you're comfortable with that, and you're getting a return that from area, increase your exposure there.
Watch the investments - readjust portions to your comfort level - perhaps every 3-6 months - as things change. Keeping cash will give you some cushion if there's a downturn, either to weather a storm, or give you some ability to throw a bit more in to a specific market.
There's no rule that says you have to put it all in one index fund right now. You're in a fortunate position, and can afford to take this slowly, and spend time learning more about these various instruments before blindly throwing in hundreds of thousands of dollars.
Part of that learning can (and probably should) be meeting with a fee-only advisor who can review your situation in more detail and give you a more comprehensive set of recommendations more suited to those aspects we can't tell from your post (risk tolerance, life goals, etc).
Great! Now you have your retirement stash. You'll have to protect it for decades to come. How? Which brings you to the beginning: how do you invest your money?
Good advice, I think. Last year I put a year's worth of salary in a good emerging market fund and felt better having diversified. I think for us small investors, diversification for some tiny shred of possible safety is more important right now than maximizing yields. No investment is really safe though - best bet is in producing income in diversified ways.
A good rule of thumb is 100 minus your age is your % of stocks to hold. Those stocks should be diversified index funds, so if you're 40 years old 60% in S&P500 ETF is pretty decent.
The exact index funds to hold is a constant matter of debate (including whether to hold international). Doesn't matter as much as having that equity exposure and keeping the fund fees low.
If you live in the US, your real estate is in the US, your salary is in US dollars, and your pension is in US stocks, you are already pretty deep in long US dollar. Might as well diversify your egg basket a bit, just from financial risk management perspective.
Good point, this PDF is very U.S. specific. As long as the taxation is progressive, it would seem to make sense to put your money in a tax sheltered account during your peak earning years. And also to get any company match. Other than that, I don't know.
As for home country vs foreign investment, from bogleheads:
"The relative percentage of domestic and international stocks is a subject of intense discussion in the forum. One sensible option is to hold domestic and international stocks in the same proportions as they represent in the total world economy. As of October 2014, that would be about 50% U. S. and 50% international. ... Other authorities suggest holding less than that."
From the Bible: "Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth" (Ecclesiastes 11:2).
That is: diversify. You don't want your entire 401k in one stock. An S&P 500 index fund is better, but you might want to put a bit of money in an international stock fund, and a bit in a bond fund. (You probably still want to be mostly in stocks at your age, but note well: I am not an investment advisor.)
Advice like just buy Vanguard or US treasuries is not really all that great of advice.
One of the biggest mistakes people make in investing is country concentration. Telling people to "dump 100%" into Vanguards S&P 500 is just, well I'll use misguided but I should use stronger language.
Telling someone to invest just in the US equity market if you live and work in the US there is just an broader way of telling someone to invest everything in the company they work for.
You still have risk like 2008 where you can have the double whammy of both your company and your investments both getting beat up at the same time.
Everyone should have exposure outside of their own country, especially American's. Or Put another way, if your whole investment portfolio is based in one country that's better than investing in a single company but not too much better in that you're still making the same investment mistake of significant portfolio concentration
Agreed - a well diversified portfolio of stocks and bonds across sectors and geographies is the right approach to maximise return versus risk.
I'd keep a little aside for investing where you have an unfair advantage versus Wall St. That might be getting into a tech stock early, or investing in an early stage company through friends. For the latter don't expect to get your money back soon, if ever.
Because you’re young, the “right” way to invest is to automatically put a portion of your monthly paycheck into an stock market index fund such as VTSAX and ignore it for 25 years. Over time, you can expect an average return of at least 7.5% per year, which will double your money every 10 years. Some years will see big gains; some years will see big losses; but it will average out. You need to have the discipline to ignore the ups and downs.
Start by going to vanguard.com and opening a brokerage account. Use the website to set up automatic investments into VTSAX.
Then you can investigate @robcohen’s advice at your leisure. The important thing is to just get started.
(I’m not sure if you can use Vanguard from Europe. It’s a good place to start, at any rate.)
How, and why, to invest in a simple portfolio of index funds. Split between equity and fixed income based on your risk tolerance, and diversify equities globally. This will give you a low-cost, set-and-forget investment portfolio that you can add to over time without ever having to worry about what you should buy or what the market might do. Just add to it regularly over time, and end up with solid retirement savings. The market and your portfolio will certainly fluctuate, but there is no need to react to these fluctuations—simply rebalance based on your investment plan (say, annually).
You can do better if you add bonds and perhaps international stocks and rebalance your portfolio yearly. Maybe 50% US market ETF, 20% world, 30% bonds. Bonds aren't very appealing right now though but as a general rule.
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.
If you find stock trading interesting, you could also allocate a portion of your money as "play money", then leave the rest in funds.
Also, you'd probably want to go with a more broad-based index than DJIA or S&P500. Many fund companies have a "total stock market" funds where they attempt to literally buy a piece of every US stock, weighted by market cap, so you'd effectively be owning "the US stock market", rather than just large companies. There are also total international funds which do the same thing for all non-US stocks.
Also also, you should include bonds if you aren't already. Like with stocks, there are total bond market index funds for this.
In fact, if you just picked an allocation across "total stock", "total international" and "total bond" you'd pretty much be set. This is what Vanguard does for their target retirement funds: https://personal.vanguard.com/us/funds/vanguard/TargetRetire...
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