Value averaging

What Hacker News says

1. bushidoMar 2014
   First things first: we don't have enough information to make suggestions as investing is a lot more about risk management than returns. There have been a few suggestions that could be great in other circumstances, but without knowing the OPs risk thresholds are most likely ill-advised.

   1. the OP states that "I don't want to risk too much"

   2. risk is a very subjective/relative concept - the only thing the OP has stated that risk can be related to is "checking and savings just aren't cutting it"

   3. based on that alone the safest assumption is that the OP's risk capacity is relative to dismal returns from savings and checking returns - that barely keeps up with inflation

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   To OP:

   1. Nothing wrong with a lower risk capacity - maybe you need to work your way to managing higher risk

   2. For short term goals (< 3yrs)- choose very safe investments as you cannot afford fluctuations

   3. For long term goals and retirement - taxation is just as or more important than returns - interest income, capital gains and qualified dividends are taxed differently. With that in mind, looks like most if not all your current savings and investments are 100% taxable.

   4. There are a number of ways to deal with taxation, best to find a good investment adviser who has a good understanding of risk management, taxation etc.

   5. If you want to self manage - and don't know your tolerance - look into doing a funnel - i.e. keep 10% in highly liquid investments (Cash, Money Market etc), 20% in government/high quality corporate bonds(short-medium term), 70% in investments with additional risk (ex: 30% in managed high yield bonds, 40% in equity index funds -- if you're risk tolerance changes you could increase your equity). [change ratios to match your needs, risk etc. note: try and maintain at least 3 levels]

   6. Research re-balancing strategies.

   7. Read some books:

   a. The richest man in Babylon(fiction) - read first, no particular order after this

   b. The Ivy Portfolio

   c. The intelligent asset allocator

   d. The permanent portfolio

   e. The Investor's Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between

   f. Value Averaging

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2. bushidoJan 2014
   After rewriting my response 3 times I decided to lay out some basics.

   basics

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   a. The most common fallacy in investing is that higher risk equates to higher returns.

   b. Any half decent investment strategy should have a solid risk management strategy, should account for (and discount) inflation and should have a strategy in place to emulate dollar cost averaging (most commonly by scaling into investments from a cash position or using a re-balancing strategy). Risk management (and discipline to follow it, being the most important).

   c. Different sources of returns are taxed very differently, for example: most non-govt interest income is taxed at the marginal tax rate, so if you're at 30% tax rate, 5% interest is actually 3.5%.

   Then to be safe deduct the inflation, if the inflation is 2%, the real rate of return is 1.5%.

   d. The next thing to consider is the goal of return. Is it geared towards income or growth(compounding).

   e. If you are looking at percentage return it implies that you want growth. But that may not be the case. If you instead want an income of $50000 the whole situation changes, even though the value is the same. Simply because, if your investment loses 10% value now your 900k requires a 5.555% return to net the same $50000. I have seen and know a lot of people who went bankrupt for not understanding this, the bigger problem is I know more financial professionals who don't understand the distinction.

   example scenarios

   --------------------------------

   1. If the goal is income, the strategy should be funneled to account for recessionary periods, market corrections etc. I can explain a funnel in more details on request.

   2. If its for growth and you want to get a higher return with lesser risk a leveraged risk reduction strategy can be employed. Can explain further on request.

   3. For people older than 45 (preferably older that 55) an Insured Annuity is also an nice option when Income is the goal. Even better if they are not healthy (higher mortality risk, higher return).

   Before doing anything a good amount of reading(books) would be ideal, start of with:

   a. The richest man in Babylon(fiction) - read first, no particular order after this

   b. The Ivy Portfolio

   c. The intelligent asset allocator

   d. The permanent portfolio

   e. The Investor's Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between

   f. Value Averaging

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3. jacques_chesterNov 2013
   If I am reading you right, the strategy you're describing is known as Value Averaging.
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4. richardwSep 2010
   Seriously, stocks. Over the long term it'll do fine. The last 10 years has been a joke but it won't last forever. Focus on companies that pay an solid and increasing dividend, and don't sell them. That will force you to buy companies that you think will last. Some might not, so diversify. Read the book "Rule #1" - not a bad place to start. Except do what Buffett does - buy stocks that you won't sell (in general).

   If you're worried about going all-in (which you should be) use value averaging, in which you put some money in each month, but more as the market drops.

   http://en.wikipedia.org/wiki/Value_averaging

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