Author Topic: Beginners Q: What to do with $100K? reading material and stocks v's real estate  (Read 4068 times)

peace99

  • 5 O'Clock Shadow
  • *
  • Posts: 13
Hi all,

A bit about me. 37 years old. Spent years getting into debt and then paying down debt (and getting a good education and building a solid career). Finally saved enough to buy a house (a year ago). Made a wise job move 6 months ago (doubled income). Just set up (and maxing out): 401K, Roth IRA and HSA.
Looking forward I’ll have approx $100K a year to invest (post 401K, Roth IRA and HSA)

A few beginners Q…

1. Stocks vs housing: My original plan was to buy a rental property ASAP but in the North East (where I live) I can get nowhere near the 1% rule. Am I better going the stock market route? (at least to get my investing ball rolling?)

2. What is a good beginner’s book on investing? I have a MBA and understand the basic principle of the stock market and company valuations. But how do I put this into practice?

3. What is the best way to invest the $100K?
         Investing in stocks: Reading about the stock market makes me nervous that we are at a high and it will crash shortly. Do I want to  lose a chuck of that $100K?

Thanks

matchewed

  • Magnum Stache
  • ******
  • Posts: 4376
  • Location: CT
I'll actually answer this backwards as that is what seems to make sense.

You should lay down a solid foundation if you plan on going the stock market investment route. That foundation would be primarily in index funds as you research and learn more about investing.

Investing in stocks: Reading about the stock market makes me nervous that we are at a high and it will crash shortly. Do I want to  lose a chuck of that $100K?

Oh you know when the crashes will happen? Then you're now the most perfect investor ever. :) Read http://jlcollinsnh.com/stock-series/ and start there. What the market is doing today isn't the concern when you're investing. It is what the market will do for the next 50 years that should be your concern. Unless you want to be a trader but at this point given the level of information you're asking you should stay the hell away from trading.

After that feel free to start looking at these threads for investing books. And these threads for real estate books.

As for real estate feel free to post some of your numbers or analysis in the real estate forum section. Remember you don't necessarily have to have a rental in your immediate area.

ioseftavi

  • Bristles
  • ***
  • Posts: 401
  • Location: NYC
Hi all,

Finally saved enough to buy a house (a year ago). Made a wise job move 6 months ago (doubled income). Just set up (and maxing out): 401K, Roth IRA and HSA.

Congrats!

Looking forward I’ll have approx $100K a year to invest (post 401K, Roth IRA and HSA)

A few beginners Q…

1. Stocks vs housing: My original plan was to buy a rental property ASAP but in the North East (where I live) I can get nowhere near the 1% rule. Am I better going the stock market route? (at least to get my investing ball rolling?)

Obviously people will have differing opinions on this, and NO rule is applicable to every property in every region of the country.  But I've been reading on real estate for a few years now and I'm fairly certain that for most of the metro areas in the Northeast (I'm in NYC, but I've looked in the surrounding regions), the 1% rule doesn't work - you won't find property meeting that criteria in highly populated places in the northeast.  Furthermore, your risk is magnified because the cost of the average property in the northeast is higher; to get on the property ladder costs you $150k and up, usually, at a minimum.  Oftentimes - more!

Your choices are:
  • go the real estate route route and pursue a different strategy other than "buy houses that roughly meet the 1-2% rule of thumb".  John T. Reed is a pretty good source on some of these alternative strategies, but be advised that none are as simple as the 1-2% rule.  Ignore how bad his site looks or his doomsday streak - he's got solid info on real estate investing.
  • Invest long-distance in properties that meet that 1-2% rule
  • Stick to the stock market until you've got more capital.

2. What is a good beginner’s book on investing? I have a MBA and understand the basic principle of the stock market and company valuations. But how do I put this into practice?

If you mean on overall portfolio management from a "what consistently works and is simple" perspective, I'd recommend the Bogleheads forum.  They'll stress asset allocation, diversification, low costs, asset location, and tax efficiency.  They will explain these concepts really well.  Importantly, you will not fuck yourself following this path.  You'll do average for your risk profile, which will NOT put you in the 50th percentile of investors.  It will put you in the upper quartile of the investing public, I would guess, because most investors don't earn the risk-adjusted return they deserve - they screw up some key concept (low fees, proper asset allocation, they try to market time, etc).

If you mean "I want to try my hand at actively managing my stock portfolio", then I'd say: go for it.  But there's a right and a wrong way to do this.  I'd say carve out a piece of your equity portfolio (say, 10%) and try your hand at it.  I would add a bunch of caveats and "how do to this without blowing yourself up" type guidelines, but I'm not even sure that this is what you meant?  If you mean "I want to try and actively manage some of my equities because I think I can do better / think it would be interesting / think it would be a lot of fun", then tell me that and I'll recommend some guidelines for how to attempt this in a way where any screwups will be minimized, and you can actually track if you're doing a good job or not over the long-haul.
3. What is the best way to invest the $100K?
         Investing in stocks: Reading about the stock market makes me nervous that we are at a high and it will crash shortly. Do I want to  lose a chuck of that $100K?

If you're really nervous about investing "at current levels", your best choices are:
1)  Pick a more conservative asset allocation for now for this $100,000, and get investing.  You can always up your equity exposure later.
2)  Dollar cost average into the asset allocation you want.  For example, if you think you're a 60% stock / 40% bond investor, you could buy $20,000 of Vanguard LifeStrategy Moderate Growth (60/40 allocation) every quarter from now until your long-term moneys is all invested.

Hopefully that helps.  Lemme know if you were serious about the "I want to try my hand at actively managing my portfolio" question and I'll recommend some books and guidelines so you don't blow yourself up, hopefully.
« Last Edit: August 18, 2014, 03:38:39 PM by ioseftavi »

Dodge

  • Pencil Stache
  • ****
  • Posts: 790
1.  I've heard some here say rental housing is like a second job. Others here have claimed it's almost as passive as stocks. Personally, I'm more comfortable with stocks/bonds, and am simply not interested in the headache a rental property can become.

Considering you are "nowhere near the 1% rule", and my own personal bias, I'd recommend ignoring the housing market for now.

2. You put this into practice, by ignoring everything you know about picking individual stocks, and evaluating companies:

http://www.bogleheads.org/forum/viewtopic.php?f=10&t=88005

There are lots of books and reading material you'll find in that link, but that's really all you need to know.

3. Start by creating your IPS, determining the amount of risk you're willing to take, then using that to determine your asset allocation (stock/bond ratio).

http://www.bogleheads.org/wiki/Bogleheads®_investing_start-up_kit

You have a long time horizon, more than a few year anyway I presume. With $100k a year in savings, you should HOPE you lose a BIG chunk of that first $100k in the first year. That means the next $100k will be buying stocks ON SALE! :-)
« Last Edit: August 18, 2014, 05:10:27 PM by Dodge »

Cheddar Stacker

  • Magnum Stache
  • ******
  • Posts: 3719
  • Age: 42
  • Location: USA
Welcome to the forum.

For now stick with low cost index funds until you learn more and wait on real estate. You can always sell those funds to purchase real estate and it's harder to go the other direction due to liquidation risk and selling costs. Read the stock series if you haven't already, then circle back and re-evaluate what to invest in.

As far as real estate goes, if you are in an area where meeting the 1% rule will be hard, either invest in stocks exclusively or invest in out of town real estate. I haven't done it, but others here have. You don't have to live where you own your rentals.

And yeah, as far as timing the market, you won't get too much sympathy for that kind of sentiment around here. Buy and hold, try to buy low if you can, but don't stay out simply because the general consensus is "the market is overvalued". We try to ignore the general consensus around here as much as possible, and not just when it comes to investing.

Dodge

  • Pencil Stache
  • ****
  • Posts: 790
If you mean on overall portfolio management from a "what consistently works and is simple" perspective, I'd recommend the Bogleheads forum.  They'll stress asset allocation, diversification, low costs, asset location, and tax efficiency.  They will explain these concepts really well.  Importantly, you will not fuck yourself following this pathYou'll do average for your risk profile, which will NOT put you in the 50th percentile of investors.  It will put you in the upper quartile of the investing public, I would guess, because most investors don't earn the risk-adjusted return they deserve - they screw up some key concept (low fees, proper asset allocation, they try to market time, etc).



You're right about the percentile.  You won't be in the 50th percentile, you'll be much higher :)

Quotes:

Bill Bernstein, author of The Four Pillars of Investing: "Does this (three fund) portfolio seem overly simplistic, even amateurish? Get over it. Over the next few decades, the overwhelming majority of all professional investors will not be able to beat it."

"Only about one out of every four equity funds outperforms the stock market. That's why I'm a firm believer in the power of indexing." Charles Schwab

"The fund industry's dirty little secret: most actively managed funds never do as well as their benchmark." Arthur Levitt, Chairman, SEC

"Over the long-term the superiority of indexing is a mathematical certainty." Jason Zweig, senior writer for "Money"

"Indexing virtually guarantees you superior performance. Bill Bernstein, author, financial adviser

"With the market beating 91% of surviving managers since the beginning of 1982, it looks pretty efficient to me." Bill Miller, portfolio manager

Sources:

http://www.bogleheads.org/forum/viewtopic.php?t=173#p20484
http://www.bogleheads.org/forum/viewtopic.php?f=10&t=88005
« Last Edit: August 18, 2014, 05:14:52 PM by Dodge »

peace99

  • 5 O'Clock Shadow
  • *
  • Posts: 13
Thanks all for the great info.  I've just spent the last 2 days reading (much of the info posted above) and learnt lots. Decided to go the low cost index fund route to get the ball rolling. Post which I can look at other options.

Alex321

  • Stubble
  • **
  • Posts: 156
Btdt, VTCLX.

That's the shortest possible answer. (Vtclx is a ticker for one of Vanguard's tax-managed stock index funds.)

With your income and time frame, realize that you may never actually sell these stocks, so not much reason to worry about the current price. You're buying the claim to future earnings.