Ask HN: How do you invest?

[dsutoyo]

We invest a lot of time in learning new skills and building new things. But what do hackers do for financial investments?

I know we all want our next product to make it big. How do we stay financially responsible in the long run?

Do you seek out a financial advisor? Stash cash in savings accounts? Buy GOOG and AMZN stocks? Save money for a house? Eat ramen?

[DerekH]

Personally, I invest in individual stocks like Starbucks (companies you think won't be going away anytime soon). I've tried to think like Warren Buffet. If you're investing in a company like Gillette, you're asking yourself, "Are men going to stop shaving?"

That being said, I also put money in more conservative investments like mutual funds. You can usually set it and forget it. With the markets doing pretty good the last two years, I think I was able to grow at 10-15%.

I also try not to spend too much of my time reading up on this myself. I pay Motley Fool for investment advice and follow their thesis. They have a pretty good track record and they've gained my trust.

It's also important to have no fear. I've known people who lost out on the recent market gains because they were too scared to buy in at the low point. Now, they put themselves in the market when it's booming.

I've also played around with Bitcoin, but that was more for fun and I definitely wasn't planning for the long-term there.

[dsutoyo]

Thank you for your insights. I also subscribe to Motley Fool as well and benefited from it. I tried reading in the past, and you are absolutely correct, it just either became too consuming and the financial jargons just became less interesting.

[DerekH]

No problem. It's important to take your time and build it up slowly. After awhile, you'll realize you've put away good money and have made some substantial gains. If you're lucky, you'll collect a few 10 baggers and maybe even a 100 bagger in your lifetime. Couple that with a good product and/or a good job and you'll be pretty secure.

[wikwocket]

I believe in the 80% solution. Put your money to work rather than stuffing it in a mattress, but favor the 80%-of-optimal solution that's easy to set and forget, instead of the 100%-optimal solution that requires micromanagement, expertise, and luck.

To that end, keep only a little in savings (emergency fund), and put the rest in a 401k or IRA, invested in index funds. Index funds are a great 80% approach, because:

- They track an index (e.g. S&P 500) which is likely to go up and up in the long term

- They are very low cost since they are not actively managed

- You can watch them every day, or forget about them for two years

- Warren Buffet recommends them, and he seems to be doing okay

[DerekH]

Great advice. I get antsy when I start to have too much in savings.

Saving is tough to master. I wish more people would embrace the emergency fund. It's so nice to have. You don't really need to worry about any catastrophes and if you want to splurge, you've got the money to take care of it.

But, anything above your emergency amount, put that money to work. Funds that pay dividends are also nice to haves.

[ffumarola]

Would also suggest putting some money into a taxable account with investments on top of the 401k/IRA since they can't be touched until you're ~60 (without penalty, at least).

[schoash]

what is a good amount for the emergency fund? Is it lie 4 times the monthly income or even more?

[petervandijck]

Depends on your situation. If you have kids and fixed costs, 6-12 times monthly spend (not income). If you're alone and have more flexibility, 3 times monthly spend.

[dsutoyo]

like your breakdown of the 80% solution vs 100%-optimal. Makes a lot of sense!

[nicholas73]

I actively traded stocks for a period. I can say that any gains you make represent work like any other, except you can lose all your money. If you do not want to focus on trading, do not trade. It can be a horrible way to live.

Warren Buffett's #1 rule is: Do not lose money. #2: Never forget rule number one.

What you really learn is that the amount of risk you should take on actually is a lot less than you think it is. Too much volatility will kill your returns (Kelly Criterion).

Second is that you shouldn't make an investment unless you just about have domain level knowledge. You need an edge. Over-trading increases volatility, which is bad because you lose more than you gain just by laws of percentages.

If I could tell my younger self what to do, I'd tell him to just sit tight. Hold the money and don't worry. You don't need to invest it all. At some point there will be a market crash and it will be a no-brainer to buy. Buy then and hold for long term. And you can hold because you have a cash cushion, and a price that makes financial sense no matter what (like a good dividend or rent percentage to invested capital).

[ffumarola]

I would agree for the most part with the exception of "At some point there will be a market crash and it will be a no-brainer to buy."

Timing the market is incredibly difficult. I'd just suggest setting up an automatic dollar cost averaging scheme into a fund mix of your choice and ignoring it from that point on. As long as you have a decent enough time horizon, you'll wind up well ahead.

[nicholas73]

I agree and disagree. I think legging into positions is a great way to ensure lower volatility and is a good for psychological discipline. However market timing works in the Buffett sense, when you make a purchase that immediately makes sense no matter (almost) what the asset price does after that. If you could hold forever, you'd simply make money off the dividends. Like buying a house - you can't lose due to price fluctuation (barring a ghost town event) if you planned to make money from rent. But if you bought hoping for capital appreciation, you could get really hurt.

[dsutoyo]

Good advice and thanks! When I was a lot younger, I definitely overtraded and didn't really do enough homework.

[jwheeler79]

If you're interested in actively managing your own portfolio, for some reason this isn't mentioned much places, but you need to have a deep understanding of financial accounting. That will allow you to read and make sense of financial statements. There is no other way, if you're an active, vs. passive, investor. Then one easy strategy is to do what Charlie Munger calls, "sit on your ass investing". That's where you wait for bargains in strong companies to come along and you swing real big. Diversification is not as important if you know what you're doing. And you don't have to sit around if the market is fairly priced, just when it's high. During that time, when you're not doing much investing, you should be reading, studying, and aspire to get into more special situations (arbitrage) and look for Ben Graham style net nets with micro to small cap companies that aren't as popular. Even OTC market value investing with your own scuttlebutt. There aren't much of those so you have to see what ratios people substitute for those nowadays. For example, you're not going to find decent insurance companies selling at less than their working capital minus total debt. Those used to exist after the Great Depression. Now you have to find companies say, selling at some higher ratio than what would have made a decent margin of safety in those days. It can take a long time and a lot of watching the market, looking at different stats to know what you should be looking for.

[booop]

I was very interested in trading stocks for a while, and would read up a lot about the markets. I then met a stock broker and he told me that it wouldn't be very different from gambling if I were to invest based on the news without much understanding of how the markets work.

One thing he told me really struck a chord: I spend 8 hours a day at work, and read about the markets in the night or on weekends. But he lives/breathes/eats the stock markets all day and it's been his full time job for the past several years. So my money would be safer if he invested it for me instead of doing myself (unless I had : http://en.wikipedia.org/wiki/Dunning%E2%80%93Kruger_effect)

So now every month or so he calls me to recommend a stock and explains why I should invest in it. This let's me use my spare time to develop my skills (since I'm somewhat early in my career) and I've gotten good returns on my investments in exchange for a small commission.

[ffumarola]

Overall, this is pretty bad advice IMO. Investing in individual stocks, even at the recommendation of a "professional" is a fools game. You will be hard pressed to find a "professional" who can routinely and repeatedly beat an index fund.

Also, "professionals" charge high expense ratios when compared to funds through Vanguard, Fidelity, etc. A lot of financial advisors stress the importance of expense ratio as one of the most important facets of your portfolio.

For the record, I invest in index funds through Vanguard with expense ratios ranging from .05% to .22%.

[man_bear_pig]

most stock brokers don't know wtf they're talking about. that's because most can't even beat the snp. most hedge fund managers (intellectually the smartest of the smartest bunch) also can't beat the snp.

you are correct in that you should stick to your core competency. as far as investing, on the side you can invest for shts and giggles but if you think that the market is somehow not that efficient when there's 100,000 ivy league grads who spend 18 hours a day researching in the same markets then, i'm not sure what else i can tell you. trust me, i know a ton of people from wall street. for example, most people who work in private wealth management (people with 10m+) get the stupid bunch out of the entire stack of investment bank. the smartest trade for the company and institutional money/ engage in billion dollar transactions.

now an interesting thing is to study about 1000 hours on the stock market and valuation principles and then invest in a sector you have domain expertise. then you may have an edge. even then you will realize that there's not much of an edge b/c in my old job, i would just expense $10,000 bucks and call you and your bosses and your competitors' bosses up and get the insight into the industry and info i needed to know to make my decision to pull the trigger. so combining commercial due diligence mixed with my investing acumen and access to 100 institutional stock brokers (not the plebeian wealth managers) would ensure that i have an edge.

hope this helps. don't want anyone to lose money.

[sparkpluglabs]

I had tried few different ways to invest and found the "coffeehouse investor" book to be pretty good guide on how to invest by spending really little time.

Book is really short. But you don't need to buy the book. The website lists the index funds, the returns over last 20 years and portfolio %. I am mostly invested in Vangaurd index funds and it has worked out well for me.

http://www.coffeehouseinvestor.com/coffeehouse-beans/coffeeh...

[boot]

This is probably, like, a horrible way to do things. But I try to find a company (1-10 billion market cap) that I personally believe in, but saw-tooths a lot. I usually check-in once a day and watch it go up and down. I then guess if I think it is sort of on a crest up or down, then buy or sell accordingly. And never accept a loss on a trade. Instead just sit on the shares until they are in the black. And example would be CAVM. I figure it's sort of like gambling. I don't really know what I'm doing, but it works (so far).

[dsutoyo]

I did that before too! Honestly, it did feel like gambling a bit. It worked until the company one day went bankrupt.

After that I started looking at newsletter service like Motley Fool, but curious to see if there are other services that people recommend. I have looked at Personal Capital (iPhone app), but haven't booked a session with them yet.

Personally, I have been a turned off by financial advisors.

[boot]

Bankrupt, ouch.

Yeah, most people don't seem to think very much of this strategy (I'm even down-voted?), and no one talks about it. But I'm not sure why. I hear about the crappy 5% a year or whatever returns people get, which just never seems very good to me. But, idk, maybe I'll lose all my money one day. That's a real possibility as I spurn most advice I get.

Anyway, Good luck!

[blooberr]

The bulk of my money is in index funds. Given my age, it's mostly in equities.

I started off with advice from this article by transferring a bit of my savings weekly into a target date retirement fund.

http://www.iwillteachyoutoberich.com/blog/asset-allocation-i...

Today I have other index funds in other sectors, but the asset allocation is pretty much the same ratio. Hope that helps!

[7402]

1/3 in a domestic (U.S.) index fund, 1/3 in an international index fund, 1/3 in CDs, money market funds, savings bonds, or T-notes. Rebalance once a year. Spend no additional time thinking about any of this.

[ffumarola]

This advice should be adjusted given your age / risk tolerance. 1/3 in cash equivalents is a bit conservative for a 20 or 30 something, for example.

[creativeone]

Buy rental properties across the nation, try to earn 10-15% annual return on rents after expenses, plus appreciation in the long run.

[a3voices]

The bulk of my money is in Bitcoin.

[meowface]

In case you're not joking: This is a bad idea.

Though I admit it might work out well. If you're lucky.

[man_bear_pig]

hahaha. love it. if you long usd at the same time you're technically hedged. you should just figure out the ratio and maybe you can stat arb that across various currencies.

otherwise, probably not the best idea.