I got $15K where do i put it

[KriptiK]

i'm 23 working full-time...i have about 30k saved up in my ING account collecting weak ass interest and i'd like to play around with 15K of it...i'm not a risk taker and i'm pretty lazy...what should i do with around 15K that'll do better than 1% interest?

[shawn99]

my hedge fund, i'll give you a nice 20% return

[LondonTown]

It is clear that you're pretty lazy as you didn't even begin to give us close to enough information to where we can actually provide productive responses.

[KriptiK]

It is clear that you're pretty lazy as you didn't even begin to give us close to enough information to where we can actually provide productive responses.

i don't get it...you can provide productive responses in this thread ie. hit reply and respond away..

[someguy91]

Casino: Red.

[gq_fuzion]

i don't get it...you can provide productive responses in this thread ie. hit reply and respond away..

biggest piece of info missing... timeline
when do you need the funds?

[LondonTown]

biggest piece of info missing... timeline
when do you need the funds?

Also, your goals.

[icedtee]

Sink the 30k into a down payment for a rental property. Maybe a 1 bedroom apartment. give it 2 or 3 years when the housing market comes back and sell.

[albatman]

give it 2 or 3 years when the housing market comes back and sell.

Have you been reading the news lately?

[KriptiK]

sorry i'm not use to this whole investing thing.

biggest piece of info missing... timeline
when do you need the funds?

around 5 years.

Also, your goals.

i wanna buy a condo at around 28


also i have a steady savings of about 1200-1500 a month and i invest 350 into rrsp's monthly...that's about it

[asdfvcx]

If as you state you have a low tolerance for risk, and your time frame is only 5 years, your best investments are either going to be a GIC or a high interest savings account.

The combination of the time frame and your risk tolerance rules about everything else out.

[KriptiK]

If as you state you have a low tolerance for risk, and your time frame is only 5 years, your best investments are either going to be a GIC or a high interest savings account.

The combination of the time frame and your risk tolerance rules about everything else out.

that's what i was thinking. 3.25% 5 years for ING...i guess that's decent? but i'm thinking in 2-3 years it'll be at like 5%?

[LondonTown]

If as you state you have a low tolerance for risk, and your time frame is only 5 years, your best investments are either going to be a GIC or a high interest savings account.

The combination of the time frame and your risk tolerance rules about everything else out.

This is correct.

GIC's have terrible rates right now. Find the best interest rate at a savings account, Alley or ING or something, there's a long thread on it here.

[rfdrfd]

You may try putting some in an ETF. In a sector that almost all analysts/experts agree is on the rise.

eg. Financials, gold (went up a lot, but they say still got lots of room up)


That will definitely be >GIC rates in 1-3 yrs.

[LondonTown]

You may try putting some in an ETF. In a sector that almost all analysts/experts agree is on the rise.

eg. Financials, gold (went up a lot, but they say still got lots of room up)


That will definitely be >GIC rates in 1-3 yrs.

There's a real chance that ETF's can have negative returns over 1-3 years.

[asdfvcx]

You may try putting some in an ETF. In a sector that almost all analysts/experts agree is on the rise.

eg. Financials, gold (went up a lot, but they say still got lots of room up)


That will definitely be >GIC rates in 1-3 yrs.


On June 2, 2007, rfdrfd said (http://www.redflagdeals.com/forums/ing-direct-gic-rates-449100/#post5166346):
Or even better I think is go use that money to purchase stocks in banks. TD, Novascotia, National Bank, CIBC, etc. Just look at their charts in any year, it is ALWAYS up. And more than 1% for sure.
On June 2, 2007 the price of TD stock was $74.25
Two years later, on June 2, 2009 the price of TD stock was $57.62


There is absolutely no guarantee that particular stocks will be higher in 1-3 years. (As your quote from two years ago clearly shows). Someone who has a low risk tolerance and short time frame, shouldn't be investing in stocks.

[charliebrown]

Prime based preferred shares

As prime goes up, your dividend goes up (prime basically cannot go below 2.25%)

Added benefit:
These shares pay dividend based on a face value of $25; but trade at $12-18 depending on which company you buy into.

Even with prime being 2.25% right now, the highest yielding floating rate preferred is about 4.5%

2.25% x 25 = 0.5625

Price: $12.50

Yield = 4.5%

[q0192837465]

I'm in the same boat. So what if I have a longer time frame. Say 10 years, wuts a good option. BTW, where abouts would u go & buy preferred shares. I learn about all of these in class but i dunno how to actually go about doing all these investing stuff.

All help would be appreciated.

Thanks

[PrinceV]

i'm 23 working full-time...i have about 30k saved up in my ING account collecting weak ass interest and i'd like to play around with 15K of it...i'm not a risk taker and i'm pretty lazy...what should i do with around 15K that'll do better than 1% interest?


I'd buy gold or silver. I bought gold a month ago for $1000, and it's up to $1100. Just imagine if you bought 15k worth of gold, that's a nice profit. More than any savings can give you right now.

Gold is the currency of the future.

[charliebrown]

I'm in the same boat. So what if I have a longer time frame. Say 10 years, wuts a good option. BTW, where abouts would u go & buy preferred shares. I learn about all of these in class but i dunno how to actually go about doing all these investing stuff.

All help would be appreciated.

Thanks

You open an trading account w/ TD, scotia, disnat, etc. and buy/sell shares

Typically, preferred shares have tickers that end in "pr.__"

i.e.
TD - TD bank common shrs
TD.pr.a
TD.pr.b
etc = TD bank preferred shrs (different series = different dividends, rights/previliges)

[longitude]

http://img691.imageshack.us/img691/7985/moneyv.jpg

[PrinceMS]

http://img691.imageshack.us/img691/7985/moneyv.jpg

we need a iLIKE button, like on facebook

P.s: My lame advice is to keep it where it is. Watch n learn the market for next year or so and then u will have a better idea.

[Sanchez]

If as you state you have a low tolerance for risk, and your time frame is only 5 years, your best investments are either going to be a GIC or a high interest savings account.

The combination of the time frame and your risk tolerance rules about everything else out.

Why would a different time frame make riskier investments appropriate?

[asdfvcx]

Why would a different time frame make riskier investments appropriate?
If you had a longer time frame, you could begin to consider something along the line of 80% fixed income and 20% equity, even for very conservative investors.

There's a fairly good body of evidence that over a reasonably long time period this will perform better than 100% fixed income with the same, or even less risk. But it doesn't hold true over short time periods.

[Sanchez]

If you had a longer time frame, you could begin to consider something along the line of 80% fixed income and 20% equity, even for very conservative investors.

There's a fairly good body of evidence that over a reasonably long time period this will perform better than 100% fixed income with the same, or even less risk. But it doesn't hold true over short time periods.

Care to share the evidence?

If an investment is risky (i.e., risky in the traditional sense: meaning a large dispersion of possible returns) over a short period of time, then it only becomes absolutely more risky with a longer time period.

Sure, the probability of out-performing a less risky investment increases with the length of the period, but there is a corresponding increase in the likelihood of a huge loss, as well.

For example, the worst stock market decline in one day is much smaller than the worst decline in one month, which is smaller than the worst decline over a year, which is smaller than the worst decline over three years, and so on. Here it is clear that longer periods have exhibited absolutely more risk. If you go for a long enough period, the maximum decline may reverse - but the sample size is very small since there are very few independent periods of this size.

[asdfvcx]

To clarify, this assumes annual rebalancing to the stated allocation.

I'm not positive, but I believe in was Bernstein in Intelligent Asset Allocation and/or The Four Pillars who showed that historical this is true (obviously with no guarantee it will hold in the future, but it seems likely). Or possible Ferri in All About Asset Allocation.

[Sanchez]

To clarify, this assumes annual rebalancing to the stated allocation.


Yup, even if you re-balance, the same problem holds - and in fact the bad outcomes will be even more common, since during a protracted decline in the volatile asset class, you will constantly be pouring more money into it.

There is mild evidence in favor of "reversion to the mean" in US markets over the past hundred or so years, but many other markets have not shown this behavior. Should we assume the US behavior will be normal going forward? Note that believing in reversion to the mean is necessarily incompatible with EMH.

[asdfvcx]

Yup, even if you re-balance, the same problem holds - and in fact the bad outcomes will be even more common, since during a protracted decline in the volatile asset class, you will constantly be pouring more money into it.

If you assume that stocks and bonds don't have a perfect 1.0 correlation, then there should be a rebalancing bonus. Not guaranteed, but likely.

I don't see why expecting stocks and bonds to not be perfectly correlated should violate EMH.

[Sanchez]

If you assume that stocks and bonds don't have a perfect 1.0 correlation, then there should be a rebalancing bonus. Not guaranteed, but likely.

I don't see why expecting stocks and bonds to not be perfectly correlated should violate EMH.

Certainly stocks and bonds are not perfectly correlated.

Whether a re-balancing bonus exists is a bit OT compared to the original discussion (whether having a longer time-frame implies that you should hold riskier, higher return assets) - but is interesting nonetheless as a separate question!

It also depends what you mean by "re-balancing bonus". If you mean that the expected final amount of $$ you end up with is expected to increase if you re-balance, then this is almost certainly not true if one asset has a higher expected return than the other, unless there is strong reversion to the mean (incompatible with EMH).

If you meant that the realized annualized return will be higher than than the weighted average of the annualized returns of each individual asset, then this is mathematically true and simply a consequence of how annualized returns are calculated. You can't eat it, though, and I'm not sure what all that has to do with the recommendation to hold riskier assets if your time frame is longer.

[asdfvcx]

Bernstein seems to believe the bonus is real and not a mathematical trick.

http://www.efficientfrontier.com/ef/996/rebal.htm


I'll fully admit he doesn't discuss whether his theory violates EMH. But I'm not seeing where the theory requires reversion to the mean. It does require volatility, but I don't see how stating that investments are volatile necessarily leads to reversion to the mean.

Of course, my statistical theory is more than a little weak.

[Sanchez]

Bernstein seems to believe the bonus is real and not a mathematical trick.

http://www.efficientfrontier.com/ef/996/rebal.htm


I'll fully admit he doesn't discuss whether his theory violates EMH. But I'm not seeing where the theory requires reversion to the mean. It does require volatility, but I don't see how stating that investments are volatile necessarily leads to reversion to the mean.

Of course, my statistical theory is more than a little weak.

Yup, I was quite disappointed when I read that page some time ago. Bernstein either just doesn't get it, or is simply being intellectually dishonest in focusing on expected annualized returns rather than expected total returns.

Take a look at his examples starting at "ESTIMATING THE REBALANCING BONUS".

He gives an example of two securities, A and B, which each return +30% or -10% with equal probability.

You might think that the average return here is 10% ((-10+30)/2) - but the average geometric return, which will accurately reflect the expected annualized return you'll get in the long run with this security, is 8.17%, calculated as ((1+0.3)*(1-0.1))^(1/2).

The distinction between arithmetic mean (10%) and geometric mean (8.17%) is often a confusing one. For a security with 0 variance/volatility, they will be the same. For any security some variance or volatility, the geometric mean will always be less than the arithmetic - and the difference is greater with greater volatility.

Which rate is important? Well, it depends on what you want. If you are interested in the annualized expected return (AER), then you'll find that the arithmetic mean gives you this answer. Bernstein doesn't cover it - but you can see in CASE 1 that the possible returns after one year for a single security are {30,-10} = 10% average. After two years, you have {69,17,17,-19} = 21% average, or 10% annualized. Increasing the number of years continues the pattern - you the expected value of the security, expressed as an annualized growth rate, is always 10%. The same holds true if you use a split between A and B, with or without re-balancing.

On the other hand, you might care about the expected annualized return (EAR - note, I just swapped the position of 'expected' and 'annualized'). In this case, the dispersion of the distribution matters - large numbers are "affected more" by the Nth root operation used to calculate the mean, and the effect is to bring the return down to the geometric mean over time (but not immediately). After the first year, the expected annualized return is 10%, same as the case above. After two years, it drops to 9.08%, then to 8.78%, and so, approaching the geometric mean of 8.17% as time wears on.

Neither answer is necessarily incorrect - they are both equivalent ways of describing the same distribution. The AER doesn't vary with volatility, and the EAR does. By themselves, the AER and EAR need additional information in order to property qualify the distribution - if you give 'enough' - then the descriptions will be identical.

The problem with Bernstein is that in his formulation he is simply "rediscovering" the volatility reducing property of uncorrelated assets. This is will understood and Bernstein mentions it several times in that discussion. He goes on to claim that there is also a "rebalancing" bonus, but his analysis is fatally flawed because all he really did is rediscover the volatility reducing quality of diversification - because A and B have a correlation of 0, their volatility is lower, and so the gap between arithmetic mean and geometric mean is less. You begin to "capture" this difference just by splitting between A and B. Re-balancing is needed to maintain the optimal split. In his example, the optimal split was 50/50, and so any returns tend to move the portfolio away from the optimal split and increase volatility, so frequent re-balancing will decrease volatility, and EAR, but not AER - but the increase in EAR, which is a side-effect of less volatility, is already captured as a "good thing" by Markowitz and MPT.

Let me give you a more practical example or AER vs EAR. Lets say you have three portfolio managers, and you decide to split your money up evenly among them. At the end of 10 years, each reports how much is in your account. Assume you gave $100 to each, and they (amazingly) all report the same final value - $500.

Now you are interested in coming up with a metric which describes your total financial performance over the last 10 years. One way is to average the returns of each manager. Well, 100 to 500 over 10 years is (500/100)^(1/10)-1 = 17.46% annualized. They each performed identically, so the average is 17.46%. If you consider each portfolio like one of the possible portfolios after some sequence of returns of the hypothetical portfolios discuss above, this is the EAR approach - the expected annualized return, because the return is annualized before it is averaged.

Now the other approach is to add/average your portfolios first, then find the rate of annualized return of the total. In this case, you had 300, ended with 1500. 300->1500 over 10 years is (1500/300)^(1/10)-1=17.46% annualized. OK, exactly the same answer. This is the AER approach - the annualized expected return, because the return averaged before it is annualized. The answer is the same as the AER case because there is no volatility.

So far, both methods give the same result, so there isn't much to choose between them. Lets imagine though that now one portfolio manager transferred some of your assets to another, in the amount of $300, so that the final values are now {200,500,800}. Alternately, imagine that one manager was simply better and made $300 more, and one was worse and made $300 less. Alternately, imagine that you simply transferred money from one account to another, yourself.

Your net financial situation is the same here ($1500 bucks in your pocket) - lets see what the numbers do. First, the AER calculation is the same, since you add first, and nothing has changed with the sums: 500 + 500 + 500 = 200 + 500 + 800. So you get the same result.

With EAR, however, you get annualized retuns of 7.18%, 17.46% and 23.11%. The average is only 15.92% - less than 17.46%. What happened? You only shifted some money around... Looking at the number, you can see that the middle return is still 17.46%, as expected, since this account didn't change. The "low" account, which had $300 less, has dropped by over 10%, while the "high" account, which gained $300, has increased by less than 6%. These are simple outcomes of the fact that the "annualization" function (the 10th root) is a concave function, so that that an increase from a given value has a lesser absolute effect than a decrease of the same amount from the same value.

So Berstein is really confusing geometric averages, arithmetic averages, distributions, volatility and only re-discovering the effect of less-than-perfectly correlated assets having smoother (but not not absolutely greater) returns, which manifests itself in higher geometric averages. The real issue is that he doesn't mention utility at all - the whole point of reducing volatility is that people have decreasing marginal utility of wealth, which is just another way of saying they are risk adverse, which is exactly why risk-adjusted return is important, and why risky assets generally return more. Optimizing this risk-adjusted return is the purpose of MPT, and why re-balancing is important. It is absurd to think that the pioneers missed something as trivial as the 're-balancing bonus' that Bernstein "demonstrates"!

[EdLeafs]

Wow Sanchez! Are you like some kind of Finance teacher or professionally related to that area?

[Sanchez]

Wow Sanchez! Are you like some kind of Finance teacher or professionally related to that area?

Nope, just casually interested!

[wesboag]

Wow Sanchez! Are you like some kind of Finance teacher or professionally related to that area?

or a little copy and paste. keep feeding his ego

[CSR]

Yup, I was quite disappointed when I read that page some time ago. Bernstein either just doesn't get it, or is simply being intellectually dishonest in focusing on expected annualized returns rather than expected total returns.
.....

So Berstein is really confusing geometric averages, arithmetic averages, distributions, volatility and only re-discovering the effect of less-than-perfectly correlated assets having smoother (but not not absolutely greater) returns, which manifests itself in higher geometric averages. The real issue is that he doesn't mention utility at all - the whole point of reducing volatility is that people have decreasing marginal utility of wealth, which is just another way of saying they are risk adverse, which is exactly why risk-adjusted return is important, and why risky assets generally return more. Optimizing this risk-adjusted return is the purpose of MPT, and why re-balancing is important. It is absurd to think that the pioneers missed something as trivial as the 're-balancing bonus' that Bernstein "demonstrates"!

Now that is a QUALITY post. :!::idea::idea::idea:

I don't think I have 1 of those out my 18,000+ posts ... *goes hides in a corner*

[Sanchez]

or a little copy and paste. keep feeding his ego

Give me a break. I typed that myself (look Ma, no hands!) after reading the Berstein page and several other resources (none of them about the specific problem there, however). Care to post evidence of a copy paste job?

This from a guy whose main purpose seems to be defending the egregiously high fees charged by "advisors" and fund managers.

[HumDunno]

or a little copy and paste. keep feeding his ego

Since you are a financial planner, I'm sure you would have absolutely no problem explaining these concepts in layman's terms to an investing noob, right? Go ahead, I'm listening :evil:

[KriptiK]

http://img691.imageshack.us/img691/7985/moneyv.jpg

LOL


other than giving it to the person who's in debt 11k...anyone got a simpler suggestion (i can't understand half the things on this thread)? should i max out my rrsp's next year in 1 lump sum next year (i'm almost maxed for this year) to take advantage of the low market?

[-=phelan=-]

put at least 5k into your tfsa if you haven't already. another 10k can go towards RRSP if needed. the left overs i'd invest it and play around on the market as whatever you have left over isn't going to be a huge hit at your age.

[KriptiK]

put at least 5k into your tfsa if you haven't already. another 10k can go towards RRSP if needed. the left overs i'd invest it and play around on the market as whatever you have left over isn't going to be a huge hit at your age.

oh i forgot to say i have 5k in my tfsa...

what do you guys think about putting 15k into an ING GIC at 3.25%?

[G-Yo]

oh i forgot to say i have 5k in my tfsa...

what do you guys think about putting 15k into an ING GIC at 3.25%?

What type of GIC is it ? How many years do you have to lock in your money for; 2,3,4 or 5 to earn that rate ? What if you need your money early, any penalties/additional terms ? The devil is in the details.

Depending on your risk aversion, GICs are probably not the best investment right now. Interest rates are at historical lows, and it is expected that interest rates will rise in the near future. If you lock into a 5 year GIC at 3.25 % right now, theres is a strong possibility that interest rates will go up within the next 1-2 years (dont know by how much) and you will not benefit from the increased interest rates because you will already have locked your money in. If you get one of those "accelerator GICs" that offer something like 1.0 % the first year, 1.25 % the second, 1.50 % the third 2.0 % the fourth and then 3.25 % the last year, that is an even worse investment IMO.

[WalnutCrunch]

What type of GIC is it ? How many years do you have to lock in your money for; 2,3,4 or 5 to earn that rate ? What if you need your money early, any penalties/additional terms ? The devil is in the details.

Depending on your risk aversion, GICs are probably not the best investment right now. Interest rates are at historical lows, and it is expected that interest rates will rise in the near future. If you lock into a 5 year GIC at 3.25 % right now, theres is a strong possibility that interest rates will go up within the next 1-2 years (dont know by how much) and you will not benefit from the increased interest rates because you will already have locked your money in. If you get one of those "accelerator GICs" that offer something like 1.0 % the first year, 1.25 % the second, 1.50 % the third 2.0 % the fourth and then 3.25 % the last year, that is an even worse investment IMO.

3.25% is the 5 year rate from ING. It's a bit better than the average going rate right now. Their GIC's are cashable at any time but I don't know off-hand what their early redemption rate is. I think it's something tiny like 0.5%. But at least it's something, many banks don't even offer early redemption.

Rates are going to go up but if the OP lets his money sit in a 1% account for a couple of years and then buy a 3-year GIC at that point for, say, 4%, I think he'd be better off with the 3.25% at ING today.

[KriptiK]

Rates are going to go up but if the OP lets his money sit in a 1% account for a couple of years and then buy a 3-year GIC at that point for, say, 4%, I think he'd be better off with the 3.25% at ING today.

that's what i'm thinking.


i got this from the ing GIC info: "no fees, no services charges, and an early redemption interest rate of 0.5% just in case you need it sooner"


what does early redemption interest rate of 0.5% mean? if i take it out early i gota pay back 0.5%?

[WalnutCrunch]

that's what i'm thinking.


i got this from the ing GIC info: "no fees, no services charges, and an early redemption interest rate of 0.5% just in case you need it sooner"


what does early redemption interest rate of 0.5% mean? if i take it out early i gota pay back 0.5%?

I think it means that if you take it out early, you only get 0.5% interest. I don't know the specifics, you'll need to call about that.

[Sanchez]

What type of GIC is it ? How many years do you have to lock in your money for; 2,3,4 or 5 to earn that rate ? What if you need your money early, any penalties/additional terms ? The devil is in the details.

Depending on your risk aversion, GICs are probably not the best investment right now. Interest rates are at historical lows, and it is expected that interest rates will rise in the near future. If you lock into a 5 year GIC at 3.25 % right now, theres is a strong possibility that interest rates will go up within the next 1-2 years (dont know by how much) and you will not benefit from the increased interest rates because you will already have locked your money in. If you get one of those "accelerator GICs" that offer something like 1.0 % the first year, 1.25 % the second, 1.50 % the third 2.0 % the fourth and then 3.25 % the last year, that is an even worse investment IMO.

Yeah, but the expected probabilities of future rate hikes are baked into the GIC pricing (and the yield curve in general). So by waiting, you are trying to outsmart the market - saying that can predict the interest rates better than the aggregate estimate of the experts. Is that really the case?

The after tax, real return on risk free investments is pretty reasonable right now - with deflation around 1%, you can get close to 3% real, better than the long term after tax average.

[harryt]

Invest in my business and make double that within 1 yr. :)