EAFE? Russell 2000? S&P TSX? S&P 500? DEX Canadian Corporate? Saloman BIG? JP EM Bonds?
Oh wise one, what is the best index for me to throw 100% of my capital into?
What a nonsense statement. You can diversify cheaply with an index, but you’re still making an active allocation decision.
@Geo, I will inpart my wisdom to you. IMO, Canadian indexes are not diversified broadly enough. For example, 58% of the equities on S&P/TSX composite are composed of Energy, Industrials, & Materials. S&P 500 by contrast is about 25% energy, Industrials, & Materials. I could go on and on…
If I was the OP I would go with VOO; it is a S&P 500 index fund and it’s the lowest cost fund I’ve seen, expense ratio is 0.05%.
So everyone should run 100% US equity and let it roll?
Also, for many people, investing on the side is an enjoyable hobby, even if they bring “negligeable alpha on a time cost adjusted basis”.
@geo, my answer was directed to OP not “everyone”. And yes, if OP has an extra $1,000, I would recommend throwing it into 100% US equity and let it roll.
Add banking, and we’re at 70% of the index.
My point was arguing the S&P 500 is the proper sector allocation is still not a purely passive strategy, you’re still choosing an allocation. Who says EAFE isn’t more ideal? Or a MSCI World index? Or whatever.
Saying just pick S&P 500, set, forget is overly simplified, IMO. Irresponsibly so. Now if it’s only $1000, then who gives a poop. But if this is a guy trying to build his personal portfolio, I don’t think just buy 100% US equity is a one size fits all.
^ There was a study in one of Bogle’s books that over a 30 year period, the major indexes all returned the same thing after taking into account currency fluctuations. He was comparing Japan, Europe and the US. Japan overperformed in the 80s, the US in the 90s and I believe Europe in the 00s. He went all the way back to the 1950s. His point was choosing which index to invest in is irrelavant because in the long run they will give a similar result.
^ That performance record would argue for an allocation among many indices, rather than just assuming the one you pick will perform equally over the long run. Owning all three would produce the same return with less variance, which is a more optimal allocation, all else equal.
Then there is a fixed income/equity/alternatives debate that needs to be in there too.
It’s an interesting question because it does depend on other stuff.
For a long-term investor, then 100% stocks in an index is likely to give you the best long-term growth on a risk-adjusted basis than investing in any single stock. It may not be the optimal in terms of risk/reward, though because fixed income and other asset classes can reduce the volatility of your portfolio.
Putting bonds in a portfolio will generally reduce the average return, simply because bonds tend to have lower returns than stocks, but they tend to be less correlated to the stock index, and so can reduce the portfolio’s volatility by more than they reduce the return. Even aggressive investors will probably want to have some fixed income, and possibly REITS, Commodities, and alternative investments in there.
However, if the more diversified portfolio can’t deliver sufficent return for your long-term needs, and you can’t lever up (modestly) to get there, then all-stocks may be the best alternative after all.
Finally, there’s the question about the current bond environment. People keep saying, “Bond yields are so low, they can only go up, so bonds are going to lose money.” If your expected return is less than the risk free rate (in this case, cash), then something is no longer helpful even as a diversifier. So the real question is whether bonds can deliver returns in an environment like today’s. If people are counting on mean reversion, it looks like you are stuck with the YTM, which is higher than the Cash rate for now, but maybe not in the future, and that has people wondering if there is a point to having bonds at all.
The most likely thing is that bonds should be a smaller part of the portfolio (or rather, duration should be smaller) and that allocation - rather than be transferred to equities - should be substituted with cash, to be deployed at such time that either 1) bond yields are better (inflationary scenario), or 2) there is a major stock crash and equity prices are better (deflationary scenario).
just buy a bunch of FNMA let it sit for 5 years then cash out
60/40 portfolio
Or if you want something fancier with less volatility, Permanent Portfolio.
Google those.
Set up your 2-4 ETF portfolio and call it a day… maybe check back once a year.
Even as a L3 candidate, my personal investments are this simple.
u rebalance once a year?
I actually rebalance once a month by using some of my free cash flow (after getting my paycheck and paying the bills) to add more to the most underweight asset in my portfolio… rarely do I need to even sell this way.
But i dont want to put money on index funds or some 6-7 growth stocks and sit for 1-2 years. Its boring and leans towards providing the investor a sense of " safety ". Before i start investing, i would like to be more of an active day to day trader who does intra day once in a while. Im willing to take higher risks for higher returns. However im planning to start with a small amount of money and play around a bit before significantly increasing the portfolio size. As i told i have lot of time in hand i would like to do research on my own.
Well that’s not investing, that’s trading, and you probably lack scale to do that successfully. You’re not going to be researching fundamentals and stuff like that, more patterns and technicals and other stuff. If you don’t have $100k+ ready to deploy, I doubt you’ll see much success intraday or even day-to-day type stuff. It’s tough to overcome commission costs without scale for any reasonable gains.
How about i want to start as a trader first, doing short term investing, learning stuff, and than transitioning into an investor. As my thread title says a beginner in stock " trading". And i do have the resources ready to deploy for a sizable portfolio. But don’t want to commit all the money instantly. So im starting with doing some technicals. However i would like to delve into extensive fundamentals before i start to pick stock for “investing”.
Reminds me of this classic (a little bit of NSFW language):
There was a guy at my last work who was convinced that he was going to make some extra income by putting $500 into a scottrade account and doing “a couple of trades a day when it’s slow”.
TS, it looks like you’re almost guaranteed to lose money and are relatively clueless about what you are doing.
But if it is a learning experience for you and you are aware of that fact, then by all means do it, with money you can afford to lose.
I am just concerned that it will be a relatively expensive learning experience for the benefits.