What would you do with $150,000 and unlimited free trades?

[Dillydally]

Just wondering what you would do with $150,000 in a pre tax retirement account that is going to sit around for at least 12-15 years. Free trades. If I act on your advice and it turns out well, I'll be buying you a fancy dinner in about 12 years.

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[hodor]

One third into VAS (Vanguard Australian Shares)
One third into VGS (Vanguard Global Shares)
One third between 3 low cost LICs (MER ~0.15%) available in Australia

Set all to DRPs (dividend reinvestment plans) and forget about it.

I am Australian so happy to have increased weight in Australian stocks.

If you wanted to be more active and since you have free brokerage you could not automatically reinvest the Dividends and instead use them to re-balance once a year. Consider adding Vanguard bonds to the selection too, especially nearing the end of the term. I am open to volatility so happy to be heavily weighted to stocks. Having re-balancing with say 20-25% bonds will help smooth out any market crashes, those less willing to accept volatility would probably ramp things up to nearing 50% bonds in the last 3-5 years. 

[MustacheAndaHalf]

People generally feel more comfortable with their own country's stock market - goes for both posters, above.  And since there's no currency exchange rate issue, maybe that takes away some uncertainty.  So to original poster, what country are you in?

Also, be interested to know the type of retirement account.  In the U.S., there's "Traditional" or 401k accounts that are pre-tax.  There's also after-tax "Roth" accounts, so it would help to know what type of retirement account you have.

[2Birds1Stone]

80% into VTSAX
20% into VBTLX

[nereo]

80% into VTSAX
20% into VBTLX

Mine would be pretty similar: 
80% into VOO (Vanguard's SP500 ETF) = $120,000
20% into VXUS (Vanguard's total international ETF) = $30,000

I'd buy it lump sum and just leave untouched for 12 years.

Never confuse simplicity with below average.

ETA: You should do exactly what your Investor Policy STatement says about your AA.  If you don't have an ISP and an AA - make one.
This is only what *I* would do. YMMV

[Mr.GrowingMustache]

80% into VTSAX
20% into VBTLX

Mine would be pretty similar: 
80% into VOO (Vanguard's SP500 ETF) = $120,000
20% into VXUS (Vanguard's total international ETF) = $30,000

I would do almost exactly the same 80% US and 20% international. Except that I would buy VTI instead of VOO, and VEA instead of VXUS. The ETF's are very similar.

[Proud Foot]

With unlimited free trades I would essentially create my own index fund.  I would spend about 140k to purchase shares of the majority of the companies in the S&P500 and use the final 10k to purchase some other companies who are solid companies but are not large enough to make the S&P500.

[nereo]

With unlimited free trades I would essentially create my own index fund.  I would spend about 140k to purchase shares of the majority of the companies in the S&P500 and use the final 10k to purchase some other companies who are solid companies but are not large enough to make the S&P500.

Curious - what would be the motivation behind doing it this way?  Would you change the asset allocation of the SP500 to be more to your liking?  Or would you drop certain stocks (you said "the majority of the companies" - not "all the companies")?  Or would you do it because you want an even lower expense ratio than 0.05%?

[KBecks]

OK, you are asking advice of The Internet, and so you get what ya pay for.

I would suggest getting a subscription to Motley Fool Pro, buying their recs, and learning to hedge and trade options.
www.fool.com

You will get a portfolio of solid, high quality, reasonably valued companies, and you will get an investing education.  The Pro approach is to invest for growth but also to do so while avoiding loss of capital, through careful use of options, shorts, and hedging. The team there is great.  There is a 30 day free trial period.

www.fool.com   Motley Fool Pro

[Seppia]

Lol

[Seppia]

Jokes aside, I'm in Europe and I would invest the amount:

2/3 Europe total stock
1/3 rest of the world

I don't really think there is a "right" answer to this question (at least not that we know NOW), but I believe

1- bonds in today's world are providing you with "return-free risk" as Buffett says

2- it is ok to tilt the asset allocation towards your home, provided "your home" is a solid and well diversified economy.
Many reasons for this, currency being one of them.

3- Europe is supposed to provide better long term returns than the USA at today's valuations.

[expatartist]

Only replying to note that when skimming this topic, I thought it said, "What would you do with $150,000 and unlimited tacos?" and got really hungry.

Alas any good tacos are a couple thousand miles from here.

[Proud Foot]

With unlimited free trades I would essentially create my own index fund.  I would spend about 140k to purchase shares of the majority of the companies in the S&P500 and use the final 10k to purchase some other companies who are solid companies but are not large enough to make the S&P500.

Curious - what would be the motivation behind doing it this way?  Would you change the asset allocation of the SP500 to be more to your liking?  Or would you drop certain stocks (you said "the majority of the companies" - not "all the companies")?  Or would you do it because you want an even lower expense ratio than 0.05%?

Nereo,  part of the reason would be to get a lower expense ratio than the 0.05%. It may be small but if I do not have transaction costs I can eliminate it.  For the other part, I would vary my asset allocation from the S&P500 so it is more of an even distribution rather than based upon market cap.  And I would not include some stocks.  One example would be Chesapeake Energy (CHK).  I do not see them as a sound investment due to their high debt load and the low prices of oil and natural gas.

[nereo]

With unlimited free trades I would essentially create my own index fund.  I would spend about 140k to purchase shares of the majority of the companies in the S&P500 and use the final 10k to purchase some other companies who are solid companies but are not large enough to make the S&P500.

Curious - what would be the motivation behind doing it this way?  Would you change the asset allocation of the SP500 to be more to your liking?  Or would you drop certain stocks (you said "the majority of the companies" - not "all the companies")?  Or would you do it because you want an even lower expense ratio than 0.05%?

Nereo,  part of the reason would be to get a lower expense ratio than the 0.05%. It may be small but if I do not have transaction costs I can eliminate it.  For the other part, I would vary my asset allocation from the S&P500 so it is more of an even distribution rather than based upon market cap.  And I would not include some stocks.  One example would be Chesapeake Energy (CHK).  I'm familiar with them because I live in OKC and I do not see them as a sound investment due to their high debt load and the low prices of oil and natural gas.

Interesting.  I've often thought that it would be easier to pick the stocks that will under-preform than stocks that will beat the market. Classically people do this by shorting individual stocks. Problem is that shorting stocks is expensive and risks margin calls.
So - I, too,  have thought about building my own "SP450": essentially the SP500 minus ~50 stocks that really seem to have little chance of outperforming.  As long as those stocks on average had sub-par performance I'd beat the index.  In theory I think some filters could a good job of screening for such stocks - look for high debt load, stagnant or declining profits, frequent changes in management, and industries with a very low barrier of entry (no "moat").

Problems with this scenario: 1) no "unlimited free trades" 2) too much time and energy necessary. Basically it goes against my "KISS" investment strategy.

[forummm]

With unlimited free trades I would essentially create my own index fund.  I would spend about 140k to purchase shares of the majority of the companies in the S&P500 and use the final 10k to purchase some other companies who are solid companies but are not large enough to make the S&P500.

Curious - what would be the motivation behind doing it this way?  Would you change the asset allocation of the SP500 to be more to your liking?  Or would you drop certain stocks (you said "the majority of the companies" - not "all the companies")?  Or would you do it because you want an even lower expense ratio than 0.05%?

Nereo,  part of the reason would be to get a lower expense ratio than the 0.05%. It may be small but if I do not have transaction costs I can eliminate it.  For the other part, I would vary my asset allocation from the S&P500 so it is more of an even distribution rather than based upon market cap.  And I would not include some stocks.  One example would be Chesapeake Energy (CHK).  I'm familiar with them because I live in OKC and I do not see them as a sound investment due to their high debt load and the low prices of oil and natural gas.

Interesting.  I've often thought that it would be easier to pick the stocks that will under-preform than stocks that will beat the market. Classically people do this by shorting individual stocks. Problem is that shorting stocks is expensive and risks margin calls.
So - I, too,  have thought about building my own "SP450": essentially the SP500 minus ~50 stocks that really seem to have little chance of outperforming.  As long as those stocks on average had sub-par performance I'd beat the index.  In theory I think some filters could a good job of screening for such stocks - look for high debt load, stagnant or declining profits, frequent changes in management, and industries with a very low barrier of entry (no "moat").

Problems with this scenario: 1) no "unlimited free trades" 2) too much time and energy necessary. Basically it goes against my "KISS" investment strategy.

I think you also can't short stocks or otherwise use margin in a pre-tax account. You would need to short using options that you bought.

I think $150k isn't enough money to make your own index fund. You'd really want at least $500k. And even then, it's probably not worth it. Just buy a cheap index fund like VTSAX and it will cost you a whopping $75/year in ER for the privilege of having ownership of almost 4000 stocks and not needing to spend anytime figuring out which stocks to buy and not needing to worry about which new stocks are being added to the index, and which are being removed, etc. And then when you went to liquidate, even just 10%, you'd have to do hundreds or thousands of transactions to keep some sort of asset allocation. What a pain.

[Aphalite]

At today's prices, I would put 10% into each of the below:

DIS - Disney
XOM - Exxon
RDS - Shell
HSY - Hershey's
NSRGY - Nestle SA (you could also buy it straight from the Swiss exchange)
NVO - Novo Nordisk
OHI - Omega Healthcare (skip this if in a taxable account and just spread it amongst the rest)
RAI - Reynolds American
JNJ - Johnson & Johnson
GOOG - Alphabet/Google

This gives you some good exposure to the best sectors for investor returns - consumer staples and healthcare. Energy exposure is okay at today's prices. Also gives you a little exposure to discretionary and tech, which should do better in bull markets. 9/10 companies are large caps, so you don't have to worry about security (OHI is small but a growing REIT that I like, taxes make it not worth it if not in a retirement account). The later half of this list is a little overpriced, but prospects over the long term should be good enough to cancel out the overvaluation over the 12-15 years. Some great businesses like Brown Forman, Kimberly Clark, Colgate Palmolive, Starbucks, Home Depot, etc. miss this list because of valuation

[Telecaster]

Nereo,  part of the reason would be to get a lower expense ratio than the 0.05%. It may be small but if I do not have transaction costs I can eliminate it. 

Might be hard to do.  Even though you don't have commissions, you still have spreads.    FWIW, the tracking error on many Vanguard funds can be positive, that is the fund does better than the underlying index, and often times the positive error is larger than the expense ration.

https://www.bogleheads.org/wiki/Vanguard_small_cap_index_funds_tracking_error

In other words, it is hard to do it yourself

[Curbside Prophet]

VTSMX.  See you in 12 years. 

Big corporations have large exposure to international markets so there's a lot of redundancy in picking a US index and an International index.  It can potentially overweight you in foreign exposure.  As an example, S&P 500 companies derive roughly half their revenues from overseas.

[Seppia]

Big corporations have large exposure to international markets so there's a lot of redundancy in picking a US index and an International index.  It can potentially overweight you in foreign exposure.  As an example, S&P 500 companies derive roughly half their revenues from overseas.

This is the same argument Bogle makes, and it's just plain BS in my opinion.
The whole point of indexing is to diversify as much as possible.
Adding international exposure (which you can do today at very low cost) goes in that direction.
Are you sure the next Apple will still come out from the USA and not, say, from China? Or Germany? Finland?
Why not?

[nereo]

Big corporations have large exposure to international markets so there's a lot of redundancy in picking a US index and an International index.  It can potentially overweight you in foreign exposure.  As an example, S&P 500 companies derive roughly half their revenues from overseas.

This is the same argument Bogle makes, and it's just plain BS in my opinion.
The whole point of indexing is to diversify as much as possible.
Adding international exposure (which you can do today at very low cost) goes in that direction.
Are you sure the next Apple will still come out from the USA and not, say, from China? Or Germany? Finland?
Why not?

Wrong question.  What you are really asking is whether US companies collectively will do better than companies outside the US.

[Seppia]

How do you know for sure what will happen in the future?
Did anybody see China coming 30 years ago?
Otherwise why not own just a subset of USA companies?
Airlines for example seem to clearly be dogs collectively.

[Curbside Prophet]

Big corporations have large exposure to international markets so there's a lot of redundancy in picking a US index and an International index.  It can potentially overweight you in foreign exposure.  As an example, S&P 500 companies derive roughly half their revenues from overseas.

This is the same argument Bogle makes, and it's just plain BS in my opinion.
The whole point of indexing is to diversify as much as possible.
Adding international exposure (which you can do today at very low cost) goes in that direction.
Are you sure the next Apple will still come out from the USA and not, say, from China? Or Germany? Finland?
Why not?

I said potentially.  What this means is you need to be cognizant that there's overlap.  If you put, for example, 80% in the S&P 500 index and 20% in an international index, you are going to have overlapping exposure.  You may actually be 30-35% weighted in international either directly or indirectly.  I'm not saying invest only in the US, but you do need to take into account globalization when you make your asset allocations.

[Seppia]

I'm sorry but no.
Samsung also sells in the USA.
So does Siemens or BMW.
It goes both ways

[Terrestrial]

Assuming unlimited free trades also applies to options I would start selling rolling puts on 10-15 different positions.

[Curbside Prophet]

I'm sorry but no.
Samsung also sells in the USA.
So does Siemens or BMW.
It goes both ways

Not in the same proportion.  Our economy is substantially larger than Korea or Germany.  Believe what you want, the FACTS support my claim that S&P 500 companies derive a significant amount of their revenues internationally. 

[Seppia]

I'm sorry but no.
Samsung also sells in the USA.
So does Siemens or BMW.
It goes both ways

Not in the same proportion.  Our economy is substantially larger than Korea or Germany.  Believe what you want, the FACTS support my claim that S&P 500 companies derive a significant amount of their revenues internationally.

I never said it was not the case.
I just said that being exposed internationally increases diversification, which is a good thing.
Samsung, bmw and others do not only sell in their home countries (I'm willing to bet they derive a much bigger % of their revenues from foreign markets) so I really do not see your point.
Again: Ford selling in Germany and the USA is not equal to owning Ford and BMW.
For the same reason you do not only own ConocoPhillips, but you own all energy companies.

It's so weird that some arguments that are always used by indexers (diversify as much as possible, you cannot pick winners and losers)  become invalid when talking about internationalization (American companies are enough as they sell abroad, American economy has and will forever continue to provide better returns).

[Curbside Prophet]

I never said any of that.  In fact, I said the exact opposite in the last sentence.