The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: happymuzh on November 30, 2018, 10:22:37 PM
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I'm curious if anyone has knowledge of a decent way to earn a reasonable return on an investment with a roundabout 12 month maturity. Let's leave out the obvious, well-known ones such as CDs, etc. What would you do if you could borrow money for a year to invest it?
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Why “one year”? And why do you say “borrow”?
Equities are a no for short term. T bills. CDs. High yield savings. Money market funds. Very short term bonds. Anticipate no more than about 2% return if you can’t accept some risk.
Equities could lose 50% in one year.
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The obvious reason I say that is because it is possible to borrow money for a year to invest it at little or no interest. I am simply asking for ideas, equities or otherwise - there are many, many ways to earn a return in the short term, including equities. Do you have any suggestions that would fit the criteria I specified?
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Investing without a guaranteed safe return on margin (borrowed money) is a good way to get in a lot of trouble fast. The only investments with a guaranteed safe return are well known (treasuries and CDs).
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if you're talking about trading ideas - you are likely not going to find what you're looking for here, and for good reason...1 year is too short for equities.
CD's or treasuries are probably your best best. Treasuries are exempt from state income tax so slight edge there but rates will be competitive between them and online CDs
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Borrowing to invest for one year is a dumb idea.
If it were easy or guaranteed, interest rates wouldn’t be low.
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Investing without a guaranteed safe return on margin (borrowed money) is a good way to get in a lot of trouble fast. The only investments with a guaranteed safe return are well known (treasuries and CDs).
Thanks for the cautionary note. I always take care to avoid getting into trouble fast, and I try to pass that along to my sons as well.
I'm mostly interested in ideas for investments that are not so well known. They are out there, and can be very lucrative if you know how to find them and how to manage them.
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if you're talking about trading ideas - you are likely not going to find what you're looking for here, and for good reason...1 year is too short for equities.
CD's or treasuries are probably your best best. Treasuries are exempt from state income tax so slight edge there but rates will be competitive between them and online CDs
No, I'm not asking for trading ideas; if I want to speculate on issues I can come up with ideas of my own. Whether or not a year is too short for equities depends entirely on one's strategy. I prefer to think out of the box.
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Borrowing to invest for one year is a dumb idea.
Now, see.. That's what's so great about these online communities! Where else can you ask a simple question and be insulted by a total stranger?
Ah, the joys of the internet age ;D
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I didn’t insult you. I said the idea was dumb. If you want to feel personally insulted by a stranger’s opinion of an idea, that’s on you.
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There are ways to hedge your bets. If you can get a guaranteed 2% return with CDs or similar, and could borrow a hundred thousand dollar at 0% interest for one year, then you could invest 980,040 of it and be guaranteed of getting your 100k back. That would leave $1,960 of "free" money that you could invest in a leveraged equity fund that could either go down 75% or up 75% really easily.
That's what hedge funds do. It's why they are called "hedge" funds in the first place. They use combinatorial investment strategies with differing risk/return profiles to try to minimize their losses on big chunks of money while taking outsized risks with a minority portion of their money. They also tend to play different sectors against each other, which is of course what all of us are doing by holding a minority bond position.
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Borrowing to invest for one year is a dumb idea.
Now, see.. That's what's so great about these online communities! Where else can you ask a simple question and be insulted by a total stranger?
Ah, the joys of the internet age ;D
Yes I thought jacoavluha could have said it was a "terrible" or "atrocious" or "horrendous' idea (which it really is) instead of saying dumb, but the point stands that it really is an idea based on a lack of understanding that return and risk are inextricably linked, and the only way to get a higher return is with risk which you can not afford with a 1 year horizon.
There are ways to hedge your bets. If you can get a guaranteed 2% return with CDs or similar, and could borrow a hundred thousand dollar at 0% interest for one year, then you could invest 980,040 of it and be guaranteed of getting your 100k back. That would leave $1,960 of "free" money that you could invest in a leveraged equity fund that could either go down 75% or up 75% really easily.
That's what hedge funds do. It's why they are called "hedge" funds in the first place. They use combinatorial investment strategies with differing risk/return profiles to try to minimize their losses on big chunks of money while taking outsized risks with a minority portion of their money. They also tend to play different sectors against each other, which is of course what all of us are doing by holding a minority bond position.
Wait, so after 1 year, they get their money back which is worth less due to inflation, and with the money that would have been added to account for inflation loss, you essentially take that and put it all on black?
Firstly it is gambling, and secondly it is gambling with money that is taken out of the real (ie inflation adjusted) end amount, so it is not fee money that they are gambling with.
I agree that this limits OP's losses, but so what? It's like saying a knife is better to carry around with you than a machine gun because you have less chance of killing a whole lot of people. That doesn't make it a good idea to carry a knife.
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Wait, so after 1 year, they get their money back which is worth less due to inflation, and with the money that would have been added to account for inflation loss, you essentially take that and put it all on black?
Firstly it is gambling, and secondly it is gambling with money that is taken out of the real (ie inflation adjusted) end amount, so it is not fee money that they are gambling with.
Don't forget that they also charge you between 1.8 and 2.4 percent per year for the privilege.