My investing advice if you have $10K to $100K
Posted by Frugal on October 9th, 2006
If you have this amount of liquid networth for investing, you should congratulate yourself on your saving efforts. At this time, if you have not learned about investing when you had less money, you should definitely make yourself to learn the in & out about investing right now. Understanding how to invest is important for your whole life even if you’re not doing the investing yourself. Otherwise, you won’t be able to know how to select your money managers, or tell whether your money manager is lying to you.
As I have said previously, I will not advise anyone to have an all-stock portfolio unless he or she has more than $60K simply for the reason of trading commissions. Even at $100K, an all-stock portfolio is reserved for the knowledgeable investors, and definitely not for amateurs. My own criteria for being an amateur is the following:
- Someone who cannot read a financial reports (cashflow, income statement, and balance sheet) at all
- Someone who invest/trade less than 2 trades per month.
- Someone who invested/traded less than 50 trades in total.
- Someone who has not invested/traded in at least 3 different sectors such as pharmaceutical, high-tech, consumer-staple, or any other sectors.
If you’re not an amateur, you could reserve 5% to 15% of your money, depending on the level of your experience, to “play” in the market, watch the stock moves, and keep tab on the stock market. I have some tips on Learning How to Invest.
Alright, so how would you invest given some money $10K to $100K assuming that you are an amateur, and is not prepared to be an all-stock portfolio? Besides the money that you set aside to learn investing and play the stock market, for the rest of money, I highly suggest using ETF and low-fee mutual funds (such as Vanguard) to do your asset allocation. You can find out the fee for a mutual fund by checking the “total expense ratio” under the profile of each mutual fund using Yahoo finance. In general, anything less than 0.20% is super-outstanding. I suggest only buying anything less than 0.60% (except for specialty funds). If the fund has a fee closer to 1%, it’s TOO MUCH.
ETFs almost always have a pretty low fee. So you probably don’t need to worry too much about those. But low-fee mutual funds occasionally can beat the fee charged by ETF. ETFs are for slightly more active and experienced investors, while mutual funds are for more passive and less experienced investors. You can use a combination of both, and (learn to) trade the part of ETF only, while hold your core holdings in the mutual funds. You should asset allocate all of these money, and dynamically adjust your holdings by use of ETF if you choose to. How to asset allocate is beyond the scope of this post. My partner ML has a series of asset allocation. Tomorrow, he will go over on some basics on making up your portfolio composition. I will probably elaborate on the same topic to present my own view later.
If you want to go this route, it is extremely important that you keep an eye on your asset allocation. For every stock that you buy and keep in the portfolio, you should classifiy it accordingly based on its sector and capitalization. It’s less likely that you will under-perform due to capitalization. Most people only know about big cap stocks. If you simply make some effort in adding a few mid cap and small cap stocks, it should suffice. But if you don’t pay attention to sectors, most likely your portfolio will be quite out-of-balance or too concentrated (unless it’s intentional like mine, although I have other components to balance my concentration). A concentrated portfolio simply means that you are betting lots of money in a single basket (in respect to the sector). So you’d better be right. If you are wrong, then be prepared to get hit.
In summary, at this stage, you should pay attention to your asset allocation, and learn as much as you can in investing. A balanced portfolio with some tilt or preference to a couple of sectors is a healthy approach. The amount of tilt depends on individual’s tolerance and taste. Keep a habit of investing regularly, and rebalance your portfolio occasionally.
Here are the entire series of My Investing Advice:
- My investing advice if you only have $10
- My investing advice if you only have $100
- My investing advice if you have $1000 to $10K
- My investing advice if you have $10K to $100K
- My investing advice if you have $100K to $1M (not available yet)
More related posts:
Digg it Del.icio.us Reddit Furl BlinkList Newsvine Yahoo MyWeb
October 9th, 2006 at 8:21 am
Definitely looking forward to your investing advice regarding $10k to $100k in available funds (since this is our current situation).
Currently my wife and I are 100% debt free (mortgage paid off, no credit card debt, no student loans, and 2 2005 vehicles paid off). We invest 34% of our gross income into 401(k)s, 529(b)s for our two kids age 10 and 7, Roth IRAs.
We’ve generated some extra cash flow and are not sure where to place the money. Right now it’s tucked away in MM account at 4.75%. We have thought about speaking with a CFA, but I’m not sure what they can offer for the price I would pay for them.
October 10th, 2006 at 2:20 am
You seem to be doing pretty well. I think investing in index fund may be the better way to go, instead of talking to CFA or money managers.
October 10th, 2006 at 7:23 am
Great post, I specifically like your opinion/analysis of what makes someone a newbie to stock investing. I for one haven’t done any online trading as yet, however, once I start, I’ll have some barriers to prevent myself from becoming overconfident
Frugal, ML, what are your positions on investing in real estate? Currently my real estate holdings are generating positive cash flow, as well as building equity. Any thoughts?
October 11th, 2006 at 2:08 am
Frugal – great post. You are right about the ability to read financial statements, but are transactions and frequency really the measure of amateur vs. “professional”?
I make relatively few trades because I select stocks carefully, and spend lots of time reviewing financial statements, which is a time-consuming process. I still focus my portfolio, and at times am 100% invested. What do you think?
October 11th, 2006 at 8:16 am
NLG,
Cashflow positive is not necessarily earning positive. If your earning is positive, then your real estate investment is SOLID.
October 11th, 2006 at 8:21 am
Doug,
Those are just my criteria. Don’t take them too seriously.
A professional always spends quite a lot of time watching over stocks and markets constantly, not just the stocks that he/she owns. If you cannot afford to do that, mutual funds are still advisable.
Again, just my two cents. I just try my best to give my advice.
July 9th, 2010 at 7:23 pm
Why an Index fund? Why not just buy a basket of blue chip dividend payers if your wanting to be conservative? I am slightly more aggressive about half my portfolio is in small/midcaps. However if you don’t know how to read financial statements then yes an index fund is probably best.