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Investment Thread - For all your money needs

Mutual funds are not, I repeat, are not a terrible idea for someone who is young and willing to take on significant risk in their portfolio by virtue of not having any major expenditures or life changing events planned for the near future. I would actually argue that if you don't know what you're doing when it comes to analyzing a stock (not just the company) then mutual funds are the way to go for someone who doesn't have the formal training or time to learn it themselves.

The second part of the above is, use an open-platform like Schwab, Td Ameritrade, Fidelity, etc... and get whatever you want. Don't open an account at Vanguard or T. Rowe Price and limit your selections; just open a brokerage account and get it there instead.

Also, FWIW, we've been hedging for the past month and just bought another large block of put options on the S&P 500 ending in September. Don't expect this rally to continue for much longer...

Perhaps I was just put in the wrong funds by the broker I initially had. It was supposed to be a higher risk fund, but it was constantly being outperformed. I also had little interest in following the market or learning anything as it was being taken care of by a "professional". I now use Tradeking and have begun learning a lot more about the market as I'm more actively involved.
 
Anyone know anyone that is receiving student loan forgiveness for working in the public sector (IBR/PSLF)? From what I'm reading, you can wipe out all SL debt if you work in the public sector for at least 10 years (120 on-time, full monthly payments).
 
Pretty bullish on oil. I have 34 full barrels currently sitting in my spare garage, and 2 empty barrels as I self refined the oil they held to help ease the gas burden of my commute. Thinking of buying physical gold from a local jeweler and storing that in my main garage. Luckily I own a German Shepard kennel and have multiple attack dogs ready to defend my holdings. Down the road, I hope to buy some land in Montana so that I can make some of that fracking money that is going around.
 
I agree with SkyDiving... I hold index and mutual funds in my largest account (my Roth IRA). I am fairly aggressive as far as asset allocation because I'm 26 and I have a long investment horizon, but my thinking is that I am not going to pick stocks better than investment professionals who are researching companies and trends full time so funds with low expense ratios are the way to go for me. I have a smaller, taxable investment account where I trade stocks but it is much smaller than my retirement accounts so I feel like I get any stock picking out of my system there, with low risk because it's not a huge amount of money.

Here is a question for SkyDiving and others: I just saw a CFP yesterday for the first time ever to make sure I'm headed in the right direction and have a good plan. He said my Schwab (IRA) account is more aggressive than he'd recommend, even if I am (hopefully) not going to need the money for a long time. He usually manages much larger accounts than what I have, but he said he recommends a 70/30 equity/FI mix. I was surprised at that and I figured I should be more aggressive than that since I'm young...

My current mix is 77% equity, 10% FI, and 13% cash (cash balance is not on purpose, it's basically waiting to be used). I was probably going to use the cash for more equities before I spoke to this guy.

Here's a more detailed allocation:
Large Cap Equity 43.7%
Small Cap Equity 14.2%
International Equity 18.7%
Fixed Income 10.3%
Cash Investments 13.1%

I was going to increase the large cap and small cap portions by about 5% each. What do you guys think about that... does it seem overly risky? I have/am building a cash emergency fund outside of this retirement account, so I don't really think I need to keep much of this account in cash. Thanks for any input... I was pretty surprised at the CFP's reaction so I'm interested to hear what others think.

My humble opinion/thought is that everybody's situation can be very unique, so it all depends on some of the other things that you have going on. For example, I spoke with a Cardiologist yesterday who's making close to $275K/yr. and has a stay-at-home wife/mom and three kids. He's 34, has a gigantic mortgage, had about $3K in his savings account and was maxing out his employer provided retirement plan and putting $1,000K/month into a taxable brokerage account with someone that was putting it all into American Funds C-shares.

He works for a State University and has a pretty shitty DI policy that isn't own-occupation, which had a cap of $3K/month of fully taxable benefits for 180 days and then a long term policy for 60% of his base earnings after 180 days which was also fully taxable. No Life policy outside of employer-provided 3X earnings, no will or guardianship provisions, no emergency cash savings, no health-care POA, no umbrella policy, etc...

So, in a nutshell, I didn't even bother focusing much on his investments without covering some other things first. I say all of that because I think there needs to be an efficient allocation of monies/capital to solve short, mid and long-term goals and issues while mitigating risks. All of that could be related to tax planning, estate planning, retirement, risk management, whatever... but I think a bird's eye view and careful analysis is required before you make any recommendations whatsoever.

However, if we're just talking about investments here, and without knowing much about your personal situation (for example, you could very well be thinking about buying a home at some point soon and not have enough cash to do it, but you could potentially look at taking up to $10K penalty free out of your IRA to solve that goal, so we would then need to re-allocate $10K to some pretty safe investments...) I think being 26 and having an 80%/85% and even 90% allocation to equities is just fine. I'll have that argument with most anyone, even though I know there are different camps out there that have legitimate reasons to think differently.

The big question then becomes, though, how do those 'equities' relate to one another? Also, funds and ETF's will have varying exposures to different areas even though it may still be considered to be an equity. For example, Schlumberger (a company, and stock that I love by the way) has a great deal of exposure to energy, oil, gas, materials, etc... but has a very low correlation to say, Verizon. Both are equities, though, right? But one very well may go up and the other may very well go down given varying economic circumstances.

So the key is having a low correlated portfolio of different types of equities, fixed income, commodities, other alternatives, cash, etc... and still have a 'risky enough' portfolio, but with enough diversification through non-correlation to mitigate systemic and non-systemic risks while still coming out in front of a 'very risky' or 100% allocation to pure equities, or 'very safe' or 100% allocation to fixed income and cash.

So yeah, finding a correlation coefficient of say .5-.6 and a Standard Deviation of say 10-12% and an upside capture ratio that's roughly 30%-50% (50% is pretty damn good) higher than the downside capture ratio, I'd say you're off and running. This is all based on the premise of long-term money, though. If I were making tactical decisions, I would have trailing sell stops on virtually every closed-end or intra-day traded position I had. Then I'd use the cash you had sitting on the sidelines and go long on VIX and buy some put options with the rest on a few very obvious equities or indices.

One fault of a CFP is playing everything by the book. I do not buy into the 70/30 equity/fixed income pie distribution at all. I think it all depends on the assets you're using that represent each class of investment:noidea::geek:
 
Perhaps I was just put in the wrong funds by the broker I initially had. It was supposed to be a higher risk fund, but it was constantly being outperformed. I also had little interest in following the market or learning anything as it was being taken care of by a "professional". I now use Tradeking and have begun learning a lot more about the market as I'm more actively involved.

Sure. I also didn't mean to sound argumentative if I did. I think mutual funds occasionally get a bad reputation because some of the most recognizable ones are sold and implemented by some people that honestly don't know any more than their client does. It's a terrible thing.

But yeah, read a quick synopsis about Harry Browne and his 'Permanent Portfolio' for a quick glance at asset allocation and to get a good look into how portfolio construction is actually performed. I don't necessarily agree with all of it, but the basis of his argument is spot on.
 
SkyDiving, thanks for the detailed response. Your point about cash flow is actually what caused me to seek professional advice, because I feel like I have my cash in checking/savings and my retirement funds, but nothing in between. Buying a house is definitely going to be on my mind in a few years, but not necessarily at this time...

To your point about investment mix and correlation, I invest in all index and mutual funds in my Schwab Roth IRA, so I'm not sure how I'd really be able to go about assessing the correlation since I can't control what stocks are in it. It seems like you like to focus on specific stocks (and presumably your client accounts are much larger than my IRA). I'll post the actual funds I'm in a bit later when I get a chance to give you an idea.

Even though it wasn't intended for me, thanks for the Permanent Portfolio reference also... I'm going to check it out.
 
SkyDiving, thanks for the detailed response. Your point about cash flow is actually what caused me to seek professional advice, because I feel like I have my cash in checking/savings and my retirement funds, but nothing in between. Buying a house is definitely going to be on my mind in a few years, but not necessarily at this time...

To your point about investment mix and correlation, I invest in all index and mutual funds in my Schwab Roth IRA, so I'm not sure how I'd really be able to go about assessing the correlation since I can't control what stocks are in it. It seems like you like to focus on specific stocks (and presumably your client accounts are much larger than my IRA). I'll post the actual funds I'm in a bit later when I get a chance to give you an idea.

Even though it wasn't intended for me, thanks for the Permanent Portfolio reference also... I'm going to check it out.

Sounds good. And no, I don't focus on individual equities at all. I have about 20-25% of most client portfolios in individual equities and closed-end funds, about 20-25% in Institutional mutual funds and a few ETF's that track a broad based index, and then 10-15% in some alternative investments (MLP's, Trusts, commodities, etc...). The rest right now is actually allocated long on the VIX with a ton of put options that expire in September and are close to being in the money after yesterday and today. YTD avg. client portfolio net of fees is around 22% with about 65% of their assets and gains hedged. Not bad. People are happy
 
I think a sell off in equities is inevitable.

Just out of curiousity, what is your plan to hedge against that risk? I've seen a lot of different ways to go about doing it, and I think there's a good amount of overlap with some of them. Any ETF's or Specialty type funds that might be of use that you know of?
 
Just out of curiousity, what is your plan to hedge against that risk? I've seen a lot of different ways to go about doing it, and I think there's a good amount of overlap with some of them. Any ETF's or Specialty type funds that might be of use that you know of?

I wish I had answers, there are storm clouds brewing and it's about to get bad. OVIX is an option, if demand tanks it's going to take it's toll on the oil markets and if the tinderbox in the middle east explodes oil's going to spike. I think that, barring a shootout with Iran, prices will peak around Memorial day.

The equity market is so overbought right now it's ridiculous. You show me data on homes, home pricing, durable goods, oil and unemployment and ask me to guess where the major indices are and I couldn't come within 30%.

I'm focused on currency trading, as I always have been, USD/CAD is at near record lows. The yen run up has been significant as a "risk off" trade. I expect to pare some gains on the yen trade while the AUD/USD is off 3.34% in the last month (huge in the leveraged forex market.) AUD/USD has long been a proxy for Chinese growth.

I've been able to wade myself through some difficult waters
 
I wish I had answers, there are storm clouds brewing and it's about to get bad. OVIX is an option, if demand tanks it's going to take it's toll on the oil markets and if the tinderbox in the middle east explodes oil's going to spike. I think that, barring a shootout with Iran, prices will peak around Memorial day.

The equity market is so overbought right now it's ridiculous. You show me data on homes, home pricing, durable goods, oil and unemployment and ask me to guess where the major indices are and I couldn't come within 30%.

I'm focused on currency trading, as I always have been, USD/CAD is at near record lows. The yen run up has been significant as a "risk off" trade. I expect to pare some gains on the yen trade while the AUD/USD is off 3.34% in the last month (huge in the leveraged forex market.) AUD/USD has long been a proxy for Chinese growth.

I've been able to wade myself through some difficult waters

What is OVIX?

And I have to admit, one thing I wish I knew more about was currencies. I mean, I read reports and have an understanding of how they function, but being able to benefit from that is where I come up short.

I have a somewhat expensive allocation to a hedge fund that only deals in currencies. It's like 4% of about 25% of my client accounts and the expense ratio is 180 bps so I've thought about just ditching it, but I like currency exposure. I've really just gotten into a few ADR equities that are headquartered in Switzerland, but it seems like that's not very efficient. I've been watching JGT and GCF (Both sub-advised by Nuveen) but wondering if you know of any other means to have a basket of currencies that trades intra-day. Haven't seen too many funds that are any good at managing currencies so I'd rather just track a broad-basket of them
 
OVX sorry I get the symbol mixed up it's a play on oil volatility. Yea I spent about 8000 hours of my life staring at currency charts. It's fascinating and addictive.
 
I agree with SkyDiving... I hold index and mutual funds in my largest account (my Roth IRA). I am fairly aggressive as far as asset allocation because I'm 26 and I have a long investment horizon, but my thinking is that I am not going to pick stocks better than investment professionals who are researching companies and trends full time so funds with low expense ratios are the way to go for me. I have a smaller, taxable investment account where I trade stocks but it is much smaller than my retirement accounts so I feel like I get any stock picking out of my system there, with low risk because it's not a huge amount of money.

Here is a question for SkyDiving and others: I just saw a CFP yesterday for the first time ever to make sure I'm headed in the right direction and have a good plan. He said my Schwab (IRA) account is more aggressive than he'd recommend, even if I am (hopefully) not going to need the money for a long time. He usually manages much larger accounts than what I have, but he said he recommends a 70/30 equity/FI mix. I was surprised at that and I figured I should be more aggressive than that since I'm young...

My current mix is 77% equity, 10% FI, and 13% cash (cash balance is not on purpose, it's basically waiting to be used). I was probably going to use the cash for more equities before I spoke to this guy.

Here's a more detailed allocation:
Large Cap Equity 43.7%
Small Cap Equity 14.2%
International Equity 18.7%
Fixed Income 10.3%
Cash Investments 13.1%

I was going to increase the large cap and small cap portions by about 5% each. What do you guys think about that... does it seem overly risky? I have/am building a cash emergency fund outside of this retirement account, so I don't really think I need to keep much of this account in cash. Thanks for any input... I was pretty surprised at the CFP's reaction so I'm interested to hear what others think.

I pretty much subscribe to Age = % of Cash & Equivalents. I'm 30 so normally I would keep about 30% of my net worth in cash and fixed income and I count equity in my house and car, whether that's wise or not. I'm fairly risk averse though and found I could sleep better at a 40% "saftey net". Even at that ratio I was getting pretty uncomfortable three years ago. So basically I think it depends on how much risk you can tolerate. If you can stomach 90% at risk, more power to you. Also I try to keep my investments diversified in some spec stocks, domestic and international ETFs, commodities, gold, mortgage reits, etc. but I haven't spent a lot of time on how to best diversify my investments. Seems to me that most investments boil down to either "risk on" or "risk off" at the end of the day. PRep to SkyDiving as he obviously knows what he's talking about.
 
OVX sorry I get the symbol mixed up it's a play on oil volatility. Yea I spent about 8000 hours of my life staring at currency charts. It's fascinating and addictive.

Yeah, I put this in another thread (maybe on the politics board) but I have been straddling DIG and DUG for over two years now. It's been a great way to reduce volatility and to take advantage of a great deal of volatility.

In my limited knowledge, I have found that if you can understand impeccably how options work, you can do a lot with that information. Large banks, trust companies, Insurance groups, etc... don't deal in stocks and bonds and 'Traditional' stuff like that (outside of what they have to if risk-based capital rules apply) and that's where the smart money is. Speaking of, these same writers are requiring a great deal more in premium to cover their contracts over the next 90-120 days. I think the storm clouds have been seen by most everybody that happens to be looking up. We're ready for it
 
It's interesting you say that. In my first summer internship I was on a variable annuities desk. Second summer-derivative products namely currency hedging. I went and talked to the annuity guys during the 2nd summer and they went on about how much their industry had changed so much in the last year in particular more premium to cover contracts. I had this great book, I'll look for it again later, which really went into depth about currency, commodity and option hedging. If I can find it I'll send it to you, it was from class I was mandated to take.
 
It's interesting you say that. In my first summer internship I was on a variable annuities desk. Second summer-derivative products namely currency hedging. I went and talked to the annuity guys during the 2nd summer and they went on about how much their industry had changed so much in the last year in particular more premium to cover contracts. I had this great book, I'll look for it again later, which really went into depth about currency, commodity and option hedging. If I can find it I'll send it to you, it was from class I was mandated to take.

I've read something that sounds very similar to that. The CFA also goes in depth on derivatives once you get to Level II. Level 1, not so much, but Level II is a brand new ballgame
 
USD rallying pretty hard right now on the back of Friday's session and faith in the EU.
 
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