patrick.net

I have a much easier portfolio. It didn't need re-balance or anything. It is also easy to do a back test.

1 Apple Stock - 100%

If you go to China, everyone is talking about buying an iphone.
You don't hear them talk about buying gold or oil :)

xenogear3 says

If you go to China, everyone is talking about buying an iphone.
You don’t hear them talk about buying gold or oil

Whew! I almost posted a serious reply to you until I re-read this part. Chinese people not talking about gold or oil...hahaha!

To answer the forum question, however:

Any paper assets are likely to be very unsafe for the near future. We are probably going to experience a second leg of depression, and that means losses in stocks and defaults on loans. Since governments are going bankrupt, that means an additional risk for paper currency as well. I expect flight of capital to go something like this: Derivatives -> stocks -> bonds -> cash -> gold & silver -> commodities & real estate.

Short term - gold & silver, energy, agriculture. Basically, hard money plus commodities with relatively inelastic demand. Once stocks have crashed, moving some more money into the domestic markets makes some sense. Don't bother with bonds until interest rates are high and governments are solvent again. (Right now, the opposite is true, which means bond values can only go one direction: down.) But because we are entering an era of resource scarcity (declining production and increasing demand) it would be wise to avoid significant %age of either until the scarcity issues are resolved. Because of this, I recommend you also consider self-sufficiency: own rental real-estate, run a farm, own a business, get solar panels, get out of debt.

In short, investing is going to change from brokered, convenient, fee-based instruments to unwieldy, real ones.

A mixture of stocks with consistent histories of dividend payments under the different economic situations of the past, then reinvested as shares. The currency is the shares, not the fiat of the moment that they may be denominated in. Weimar Germans who did this ahead of their Great Inflation lost equity during their Great Inflation, but not nearly as much as Weimar Germans who retained their marks.

But the positions should be built up gradually over time, not all-in-now nor all-in at any time, because there's no telling when the best "time" to buy is. There will also be opportunities for tax-loss liquidations, be mindful of the rules though.

So it sounds like its better to wait a bit before I move money into this type of portfolio for the long term.

But gold and REIT is the place to be during the next 2-3 years?

dcllee says

But gold and REIT is the place to be during the next 2-3 years?

Only if you are already there, AND IF you can stomach some jarring asset price fluctuations during inevitable liquidity crunches in the coming Great Inflation.

Although we know that emerging market economies will be growing, I dislike emerging market stock funds or ETFs. I would instead have an international fund which cherry pick some emerging market stocks within them. Large successful companies like Apple will be selling their stuff in emerging markets, so will Caterpillar, Monsanto, Nestle, etc. There are often irregularities in the accounting of emerging market businesses.
The first question I'd ask you is what is the purpose of your money, i.e. is this money you need in the far future, near future, etc.
A rule of thumb is as you are older, you need mostly 1. income 2. capital preservation 3. some stocks to keep the total growing against inflation. Individual tastes vary as to percentages. Gold is what I would put under 2.
I think that stocks will perform decently in the next decade, but not without a frightening fluctuation, which comes with the territory. If stocks didn't make you piss your pants from time to time, then they would not reward risk either.
The bond funds provide income, their Nav ups and downs over time even out and your return is interest. But, the return of a steady few percent over time is not bad either.
You could get a plain vanilla stock fund, an international fund, a gold etf and a bond fund.
A great place for funds and a simple bunch of choices is Dodge&Cox since they do not have a huge number of funds which can be overwhelming.
People focus on things happening to the index, or "the market". But, there are stocks paying dividends and they are like a glacier that cannot be slowed down or stopped. Think Exxon is going to stop making dough this month? Think Verizon is going to lose 100 million customers? Think Apple suddenly won't sell more of their stuff worldwide?
If your time horizon for needing the money is SOON, then bonds and gold and cash are less risky than stocks.
I have this discussion with my father who is 89 and asks me my opinion, and I say at his age he can do whatever he wants to, but the logical use of his dough is more income or capital preservation, not capital appreciation (whichentails more risk).
T.Rowe Price, Dodge&Cox and Vanguard have some conservative funds and they are inexpensive to own. I also like Fidelity Contrafund.

For bonds, Vanguard Total Bond Market Index is one I own. Another I have some in is Vanguard High Yield Tax Free, but only about 20% the size of the Total Bond Index.
I think small cap value over the very long term may outperform other types of stocks, but I don't really know. I own T.Rowe Price Small Cap Value and it did well I believe.

Do you know the tax treatment of "collectibles"?

clambo says

The first question I’d ask you is what is the purpose of your money, i.e. is this money you need in the far future, near future, etc.

Very good point - actually you make a bunch of other good points. It's important to look at the big picture for yourself and not just the markets and what they're doing.

One thing I'd say about stocks in general is this: If you are going to do anything besides use low-cost index funds, you need to do a lot more research than you think. One rule of thumb from Motley Fool, for instance, is that you need to spend about 40 hours researching any single stock. Probably a similar rule of thumb would suffice for managers of active-trading mutual funds.

The reason for this is that paper markets that have been digitized are quant-ed and nanosecond-ed to the limit by the big guys. You don't have a chance of beating these people on technicals, in my opinion. You probably will just follow the market and be a little late to every party. BUT what you can excel at is understanding fundamentals better, because the big guys usually trade to make money daily, and frankly aren't interested in making smart long-term trades for their clients. Medium-term, sure, but best returns? They just collect their fees and go home.

So yeah, totally true that there will be stocks and stock sectors that will weather the volatility in the short-term with long-term gains and dividends. Just a question of how much effort you want to put into it. What seems easier to me, if you have a long-term horizon, is to learn the market fundamentals and buy years ahead of everyone else. The conventional wisdom is always wrong, and at heart we all know this. If you do enough research on the markets, I believe you can make good, reasonable decisions.

You can't time the markets exactly, I would never suggest it. But you can do things like...take advantage of a huge run-up in home prices by shorting REITs. Many, many people saw the housing crash coming and did this. Historic play...but what is hard about it is that it took quite a while after the market top to realize the gain on a play like this. So in a way, your initial approach is actually a great idea if you 1) include asset classes you've missed (e.g., real estate, cash, etc.), 2) start off your percentages with a solid assessment of where the market is and where it's going and 3) shift your percentages on a yearly basis, iff the allocations have moved significantly, like 20% or more, and based on continuing research. Yearly helps by lowering capital gains, if this isn't an IRA or something like that, but also keeps you from spending too much.

But I think my main point is - drive the car with both a roadmap and a compass. Percentage allocation and discipline is like you're only looking at the compass...you can cheat by looking at the map if you are not in a race and you can pull over to the side of the road to find best path around obstacles.

Picking individual stocks is tricky of course. One trick is knowing when to sell them. I really do not do it, except some Apple I bought once and won't sell until they stop selling kidneys to buy Apple products. My Apple is under 1% of my financial assets.
When you pick a stock, you are hoping you see a quality that others did not notice. You hope the stock goes up because they begin to notice. You are predicting the future, e.g. "Apple will sell MORE stuff", which may or not happen. Then, to make a profit on your stock, people must have changed their opinion to share your opinion that "gee, it really is insanely great". So, this auction can be difficult and few managers ever match the index.
Vanguard Total Stock Market Index fund is a good deal. This was my first stock fund, it's worked out.
Buffet owns GEICO. He recently bought a railroad. He knows that some products or services will continue in the USA regardless of how many guys are roaming the streets bumming for change "my house was foreclosed, spare change?"

Re: collectibles. Long term capital gain is pretty high, I think 28%? Short term varies.
But as a practical matter, who knows you have sold it?

I'm in my late 20s and I have a long horizon. No debt and a good amount of money in tax advantage accounts sitting in cash at the moment. I also have cash ready for a down payment for a place when prices in my area becomes better to buy than rent.

So if you were me, would you go all in with my portfolio or dollar cost average or wait a year or two. I've been on the sidelines since mid 2010. bought bunch in 2009 and took profit.

Money for retirement should be invested, because your goal between today and your retirement is *accumulate capital*. This means, your goal is to have a lot of something worth a lot of money.
For most people, mutual funds is a good way to start. Stocks can accumulate capital, bonds create income, gold preserves capital. Starting your own business can accumulate capital.
My little old lady neighbor is richer than god. She is 93 and has done this with mutual funds and her own stocks but she picked giant companies like GE which is almost like buying Berkshire Hathaway, the stock is almost a mutual fund itself. I do not recommend buying individual stocks myself. Others may like the "action".
If you are eligible, the best is have a Roth. You can later decide to spend it ona downpayment, the rules allow this with no pre-retirement penalty, which 401ks have.
If I had a retirement account, I would personally never put cash it it, since there is no tax advantage and cash can NEVER accumulate capital or grow.
If I were a person in my twenties I would not wait a couple of years to get into stocks and other investments via mutual funds.
Look at a fund like T.Rowe Price Capital Appreciation. See the "mountain chart" and see how that looks to you. This for example is a very conservative fund.
If you are very concerned about the stock market, in your retirement accounts AT LEAST put them into bond mutual funds, the interest is not taxed in that account. Not Muni bonds in the retirement account of course.
I do not believe in trading in and out, even the professionals get this wrong very often. It tends to be self-defeating.
If you have new money coming in, a portion of this can go into your retirment funds and this is by definition your dollar cost averaging.
The economic conditions are a little bit scary these days. The song "fools rush in" is one point of view. The other is "a faint heart never won a fair maiden."
My personal feeling is I am more afraid to retire poor than see my portfolio fluctuate down once in a while. Fuck it, I don't care.
My example is Mexico, where Iived a couple of years. I saw extreme poverty, then in 81 the peso went through the floor. The country was basically fuct for decades.
And yet, if you owned Cemex (concrete) and some other stocks you would have made a bundle in Mexico. Pfizer sells a TON of Viagra in Mexico and makes a fortune there, so does Bayer, Nestle, Walmart, Apple, Abercrombie, etc.
I would give my right arm to be in my 20s and have money for stock investment. I would go balls to the wall.
Gold will probably continue to go up but it doesn't really attract my interest because I am not so rich as I need to protect my capital. I suggested to my father that he did because he has some dough.

to be frank, you can throw back-testing out the window. the markets are so different than they were 10 yrs ago than they were 5 yrs ago than they were 1 yr ago.

it changes at a rapid pace. ideas that used to be able to be exploited over long periods of time will evaporate before your eyes. too many smart people with access to better information than most.

the key to making money in this environment is to own concentrated positions and be very particular about your exit strategy- whether that be a specific price, % gain or holding period.

you can be 100% right about a strategy and get killed because smart money that agreed with you bailed out early and left you holding the bag.

know the companies you want to own like you know "insert something you love". then, based on a risk/reward, opportunity cost type of model, buy only those that you really really like - even if it's only 2 or three.

then, pare down / get out when you believe they are approaching their intrinsic value.

going at this thing with the antiquated buy/hold mutual mentality will leave your portfolio with the sort of growth akin to the distance one may travel on their treadmill.

I have seen the rampant consumerism all over the world, except for some places like Switzerland. Shopping malls in the USA, in Beijing, Hong Kong, Manhattan stores, Walmarts in Mexico, Soriana in Mexico, etc. etc. People around the worldwant to consume.
Decades ago, there was no satellite or cable TV so people in Thailand, China, Vietnam could not see how much stuff the west has. They all want it and they won't stop buying.
Governments won't stop building infrastructure, so Caterpillar won't stop selling. They won't stop growing food, so Monsanto, DuPont, Deere. They won't stop swilling coke and other stuff. They won't stop eating Nestle, Danone, etc. They won't stop taking Viagra (I see it for sale in China, Mexico, etc).
They want cars, energy, healthcare, entertainment, gadgets, Apple, Abercrombie, BMW, Toyota, Ford, Honda.
This is never going to stop. If you want a little piece of this action, you get into stock mutual funds. A share in stock is a share of the profits of the company.
Ask yourself, how else will you own a piece of profits by Apple without working for them?
Downward fluctuations are your friend not your enemy until you absolutely need the money. By then, you'll be older and much richer.

I would rec this post if I could!