[shubik22]

If I were you, I’d go with Vanguard index funds, which have the lowest fees in the industry.

I would pick a fund/funds that matches my risk target/preferences (e.g. equity funds riskier than bonds, small cap riskier than large cap/overall market, foreign riskier than domestic). If I had a very large risk tolerance, I might also allocate a small percentage of your portfolio to single name stocks.

Lastly, I’d just keep in mind the risk you’re taking with your investments. A five year time horizon doesn’t strike me as particularly long or compatible with having a high risk tolerance. Investing in equities can give you high returns over a long time horizon, but their volatility means that you can have large negative returns over a short time period (e.g. the S&P had a max decline from its peak of almost 60% during the 2008-9 financial crisis).

(Standard disclaimer about investing being risky, please do your own research as well.) Good luck!

[KerryJones]

Fund manager here -- I _also_ recommend going with Vanguard index funds, but a five year horizon is _very_ short. Many of the top investors world-wide think there is going to be a relatively imminent crash, an index fund (if it were me I would do S&P500) and you'll be fine in the long run but the short term (5 years is short) is very up in the air.

If you're interested in seeing market cycles and where some of the top investors think it's going, check out this interview: https://www.youtube.com/watch?v=IOLrX_BrQiA

[bgroat]

I'm also a fund manager, and I also agree with it.

That said, "Fund managers/economists have successfully predicted 9 out of the last 4 crashes!"

[jsqu99]

I'm curious why one wouldn't just move 100% into cash if you are expecting a crash. The S&P500 index fund would go down for a while in the case of a crash, right? I'm struggling with this now so any insight would be helpful.

[medvezhenok]

> I'm curious why one wouldn't just move 100% into cash if you are expecting a crash. The S&P500 index fund would go down for a while in the case of a crash, right? I'm struggling with this now so any

If you knew exactly when the crash was going to happen, yes, that's what you should do. It's very hard to predict though, since you have to be accurate multiple times:

(1) When the crash starts (2) How long it's going to last (3) Whether it's inflationary or deflationary

You could for example have a crash in real terms (inflationary), for example, where cash is worse than the market - let's say the market goes up 5%, but inflation runs at 15%: that's actually a drop of 10% in real value, but cash actually drops 15% in real value, so stocks are still "the better loser" in that case.

In a nominal (deflationary) crash, it is better to go to cash, but you still have problems (1) and (2) to deal with that make timing things very difficult. You could, for example have said in April 1998 that "there was going to be a crash in tech soon" - and you'd be right, but only after sitting on your hands through 2 more years of craziness and missing out on 150% more gains before the crash actually came. Most people wouldn't be able to handle that.

[throw0101a]

Putting away a little every month will get you better returns than having cash on the sidelines waiting for the dip, even if you know when the dip will happen ahead of time:

* https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-co...

Of course you don't know when the dip is going to come. So you have to pull out some time before (close to) the exact day that things start tanking. And then you have to get in on the exact day of the bottom, because the 'best days' for returns are often soon after the 'worst' days. And if you miss just a handful of the best days, your returns tank:

* https://theirrelevantinvestor.com/2019/02/08/miss-the-worst-...

* https://www.fool.com/investing/2019/04/11/what-happens-when-...

* https://www.cnbc.com/2021/03/24/this-chart-shows-why-investo...

Of course once people are (usually completely) out of the market, they have a hard time jumping back in psychologically, and there's an opportunity cost to sitting on the sidelines:

* https://ofdollarsanddata.com/risking-fast-and-slow/

At the end of the day, even if you only invest at the worst possible moment, you'll still probably do just fine if you stick with things:

* https://awealthofcommonsense.com/2014/02/worlds-worst-market...

[KerryJones]

I don't believe anyone can time the market continually well. The book "Anti-Fragile" by Nicholas Taleb does a good job of illustrating the idea that you want a portfolio that will _increase_ by randomness. I do have a large percentage of the portfolio in anti-fragile areas (a type of hedging).

While I'm certain a crash will happen, it might be another year, which could have a ton of gains in it, or it could be tomorrow.

[Afforess]

Time in the market > Timing the market.

[nunez]

yup; that's the entire point of index funds: to make a healthy return over a long-enough time horizon

the bogleheads love talking about a four-headed fund to better diversify against risk: 50% index, 25% bonds, 12.5% international indices, 12.5% REITs. that's how I have my IRA and 401(k) set up, and it's worked well over the last few years. (My IRA is a little more speculative (some shares in TSLA, some in LCID), but most of the funds are split up this way.

[dannyw]

No one knows when the market is going to crash; that's the point of indexing.

[KerryJones]

Agreed to a degree

Indexing does not remove systematic risk as another commenter mentioned, but there are things one can do to help deal with timing, such as dollar-cost-averaging.

[huhtenberg]

Point of indexing is to remove unsystematic risk.

[300bps]

Agreed. Set your asset allocation. Buy a small number of diversified funds with low fees. Rebalance once per year to match your asset allocation in response to market fluctuations.

Vanguard funds are excellent at this. Fidelity are good too.

For Vanguard, Total Stock Market, Total Bond Market, Total International Equity. Those three funds based on a mix catering to your own risk tolerance and circumstances and you’re done.

Or you can go with an investment management company that will charge you 1-2% of assets under management, put you in 15 high fee funds that they rebalance you in monthly to generate not only buy/sell fees but also they mark up the price of your buys and mark down the price of your sells. So many horrible companies out there.

[JoshTriplett]

Seconding the recommendation for Vanguard funds. And yes, five years is not long enough to amortize away a crash or substantial downturn, so if by "large risk" you mean "I don't mind not getting my original investment back" you might be fine, but if by "large risk" you just mean "I'm not going to panic at a little volatility" then you probably want something safer on a five-year timeline.

[lexapro]

A lot of people get this one wrong, risk is not volatility, risk is losing a portion (or in some cases all) of your money.

[JoshTriplett]

Over a sufficiently long term timeline for certain types of investments, the latter often turns into the former. Total-market stock funds on a 30-year timeline are volatile, but are unlikely to lose your money in any scenario in which money continues to have value. Total-market stock funds on a 5-year timeline have a substantial risk of getting out less than you put in, just from an ordinary downturn, let alone a major crash.

(I agree that the term "risk" often conflates a variety of things, and in this context should primarily mean "risk of losing your investment" rather than "day-to-day volatility".)

[carnitine]

Risk is uncertainty, it’s not about loss or gain. If I lever my portfolio 2x, I’m taking on twice the risk but if I’m in the money I’ll make twice as much.

[fwilliams]

I want to echo the other comments here that low expense ratio (<0.25%) funds from Vanguard, Fidelity, Schwab, etc... are all great stable investments.

My time horizon is longer than 5 years, and I buy broad market index funds split up as follows: 55% US large cap (e.g. VIIIX, VTSAX, SWTSX), 15% US mid cap (e.g. VMCPX), 10% US small cap (e.g. VSCPX), and 20% international (e.g. VTSNX, SWISX, VXUS).

I also highly recommend dollar cost averaging. i.e. buying a fixed amount of your portfolio at fixed periods. I have my bank do this automatically every 2 weeks. The benefit of dollar cost averaging is (1) it takes the emotion out of investing, and (2) over a long time window, more of your assets will be purchased at a low prices than high prices (because you're buying a fixed dollar amount of assets every N days, fewer you will buy fewer assets when prices are high and more assets when prices are low).

[qez]

I have most of my money invested with Vanguard, but I will say that they don't actually have the lowest fees in the industry.

[jareklupinski]

since we're all here, what's the 2021 take on dividend funds? it seems nice to get a little paycheck every quarter in addition to your investment going up...

[ddorian43]

Dividends are taxed. At the end of the day, you have to calculate your total return. And with dividends it's lower. Not worth it.

[mettamage]

And for the countries in which they aren't differently taxed than stock appreciation gains?

[ddorian43]

What's your exact tax rate for dividends and stock gain?

[mettamage]

1% flat tax on all of our money or anything that's worth money (more or less).

15% dividend pre-tax, but we get that back in the form of reduced wage tax.

[ddorian43]

Seems like NL. Do you need the income from dividends? If not, the "growth" sectors have more total growth compared to dividend stocks/etfs.

Note that dividends are also taxed at the company level. So Apple pays USA 15% and then you also get taxed your 15% pre-tax. This doesn't happen when not distributing the dividend.