Hypothetical: If someone with no current investments, no investment experience, and a long investment horizon suddenly had a substantial amount of money to invest, what would you advise them to do? (IE what asset classes or sectors - not talking about individual securities)
My thinking: with equities near all-time highs, I would be hesitant to tell them index funds. But, bonds will not do well in a rising interest rate environment either, no? So my answer would be, put most of it into defensive mutual funds (diversifying accordingly) until equities come down a bit. What are you all’s thoughts
Well the level 3 curriculum goes through this in detail. I think the most important things to work out are the person’s risk tolerance and liquidity requirements. Are they really happy to lock all of their money up for the long-term (as in 10 years +) for example? How would they react if the portfolio fell by 20%? etc
Edupristine says - “You should invest in assets that are commensurate with your risk tolerance, given your time horizon. 30% to 100% CAGR is not impossible. Check the literature.”
I would suggest them to take that money and buy the following books, and internalize as much as they could:
The Intelligent Investor
Margin of Safety
One Up on Wall Street
Competitive Strategy
Common Stocks and Uncommon Profits
Reminiscences of a Stock Operator
I would not recommend anyone to invest a single dime as an active investor without educating themselves first. The aforementioned books cover the main styles of investing and I think it’s important to develop your own style, and also realize what other types of investors you could be up against. If you don’t have time to educate yourself as an active investor, might as well just buy some ETF’s or index funds and read up on John Bogle’s forums.
Conclusion: Buy the books before the stocks. Oh, and read my articles on Mergers & Inquisitions (see link in my signature) - that’s “free wisdom” I’m talking about here.
