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User currently offlineIFACN From Italy, joined Nov 2005, 153 posts, RR: 0
Posted (8 years 1 month 4 days 19 hours ago) and read 895 times:

Suppose that you get a big amount of money (say, EUR 500,000 or a similar amount in your domestic currency) as a deposit on your bank account.
Of course I'm supposing that you got this money in a legal way (you won a lottery or had a rich uncle, etc.).

What will be your strategies to use this money?

I mean, will you spend it all as fast as possibile or will you plan some investments (houses, financial investments, etc.) ?

If you put some or all of this money on financial instruments, will you ask for advice to your bank or do you have enough knowledge to work out your own asset management?

AP.

8 replies: All unread, jump to last
 
User currently offlineSimo82 From Italy, joined Feb 2005, 181 posts, RR: 0
Reply 1, posted (8 years 1 month 4 days 18 hours ago) and read 887 times:

If I had that amount of money I think I'd invest a good part, let's say 400,000€. Obviosly I'd ask my bank which form they consider best, but at the end the final decision will be mine! (don't think that bank's really help you!....I'm sure that if I say Parmalat you'll understand what I mean!).

I would invest no more than 100,000€ in the stocks market (only in well knowen companies, like big bank gruops, insurance, energy companies etc...) with the rest I'd buy small apartments in developing areas.

CIAO
Simo


User currently offlineCfalk From , joined Dec 1969, posts, RR:
Reply 2, posted (8 years 1 month 4 days 17 hours ago) and read 885 times:

Quoting IFACN (Thread starter):
What will be your strategies to use this money?

I mean, will you spend it all as fast as possibile or will you plan some investments (houses, financial investments, etc.) ?

I do quite a bit of investing (in fact, about 80% of my income comes from investments), so I feel qualified to reply.

First of all, 500K Euros is a quite decent amount of money. Not quite enough to live on alone (sorry, but you'll have to keep working), but enough to set up for a very nice retirement, especially at your age.

The most important thing is education. If you know something about valuation of securities (stocks and bonds) you can make a hell of a lot more money trading than you can by simply giving it to a bank. Last year, I made about 45% return on my portfolio. I did it by setting up an account with a discount broker and setting up a balanced portfolio which I watch on a daily basis. I spend my weekends and some of my evenings examining the market and finding new opportunities.

Giving your money to the bank to manage will end up costing you a lot in fees, and in order to minimize the fees you will be largely restricted to funds, which incur their own fees and will never match the agressiveness of managing your own portfolio, which is just professionalism, as they will never go for the big-risk/high-return possibilities that pop up when managing other people's money. If I were managing other people's money, I would do the same.

And of course your bank will try to sell you its own funds, which might not be as good as other options.

As far as buying or paying off a home, that requires a bit more calculation. If you are now renting, or if you have a mortgage, can you afford to keep up with your payments without dipping into your capital? Also, if you manage your own portfolio, you can make a lot more money by continuing to pay a mortgage (which costs you 4% or so) and making a bigger return on your investments. In other words, paying down your mortgage will allow you to save 4%, but you can no longer make 10-20% on that money (a return that almost anyone can do).

If you don't know much about the securities market, but would like to learn, here is what I would suggest. For now, park your money at your bank, and buy a few funds - at least 5 of them. Spread them around the world. Make sure you have an Indian fund - that country is just exploding. Morgan Stanley and Fidelity have a couple of good Indian funds.

Then, start learning about the markets. Take courses and read books. Sign up with a virtual stock exchange, like this one.

http://game.marketwatch.com/Home/default.asp

This gives you a fictional sum of money to invest, and you can cut your teeth on that and make your mistakes here before venturing out with your real money.

After a year or two, open an account with Internaxx, a discount broker based in Luxembourg. They deal in all the major markets, and their fees are far, far less than a bank's. They are the ones I use.

I'd go further, but I have to run. I'll check back later if you have questions.


User currently offlineIFACN From Italy, joined Nov 2005, 153 posts, RR: 0
Reply 3, posted (8 years 1 month 4 days 15 hours ago) and read 873 times:

Quoting Simo82 (Reply 1):
Obviosly I'd ask my bank which form they consider best

Well... of course the best form is the one on which the bank has the highest fees/revenue  Wink
Mostly are those compound instruments that offer a structured bond (bond+option or similar derivative) and a life insurance.

Quoting Simo82 (Reply 1):
...I'm sure that if I say Parmalat you'll understand what I mean!).

Yes, I do. Hopefully I never lost a cent in Parmalat or Argentina bonds, even if in my portfolio I always keep a small amount of high yield/emerging mkts bonds.

Quoting Simo82 (Reply 1):
I would invest no more than 100,000€ in the stocks market

No mutual funds/accumulation plans?

AP.


User currently offlineCfalk From , joined Dec 1969, posts, RR:
Reply 4, posted (8 years 1 month 4 days 14 hours ago) and read 855 times:

Quoting Simo82 (Reply 1):
I would invest no more than 100,000€ in the stocks market (only in well knowen companies, like big bank gruops, insurance, energy companies etc...) with the rest I'd buy small apartments in developing areas.

I would disagree with this. If IFACN's age in his profile is correct, he has at least 30 years until retirement age. That means that he can afford to take risks. I would put nearly everything in growth stocks, although in the next six months or so I'd start switching to a corporate bond-heavy portfolio. The time to play it conservative is when you are less than 10-15 years from retirement.


User currently offlineAeroWesty From United States of America, joined Oct 2004, 20322 posts, RR: 63
Reply 5, posted (8 years 1 month 4 days 13 hours ago) and read 850 times:

All the above is good advice. When it comes down to it, there are two schools of thought. One is "buy what you know", industries you're familiar enough with to follow trends, etc., and the "dartboard theory" where it's been proven that you can tack the pages of the Wall Street Journal to the wall, throw some darts at it, and the stocks will do better on average than the stock indexes.

That being said, little investment advice centers on when to sell, which is the most important part of investing. The best way to look at an investment is as each one a separate business you own. If you owned a few businesses that were doing well and bringing you in a boatload of money, obviously you'd let them run and not hover over them too much. Any businesses you owned that were doing poorly, you'd look at what you could do to fix the situation. Would you invest more capital (i.e. average down your cost per share of the stock), or cut it loose?

The thing that's fairly misunderstood in investing is that dead capital costs you more than you realize. If you wait for a stock to recover after it's down 50%, you're missing other opportunities for that capital to work and grow.

If something ends up being a real dog, cut it loose, but never get in the way of a running horse. Those are the two most important pieces of investment advice. Set realistic limits for how far down an investment should go before you sell and look for other opportunities, while at the same time how high up one should go before you begin feeling uncomfortable that you'll begin losing what you gained, because all running horses eventually run out of steam.



International Homo of Mystery
User currently offlineCfalk From , joined Dec 1969, posts, RR:
Reply 6, posted (8 years 1 month 4 days 12 hours ago) and read 846 times:

Quoting AeroWesty (Reply 5):
When it comes down to it, there are two schools of thought. One is "buy what you know", industries you're familiar enough with to follow trends, etc., and the "dartboard theory" where it's been proven that you can tack the pages of the Wall Street Journal to the wall, throw some darts at it, and the stocks will do better on average than the stock indexes.

There is one more school of thought, which is the "fundementals". This is the technical method, where you invest according to the numbers and ratios. That is essentially the Warren Buffet method (which he modifies to say that he will only buy into a company where he understands the business model), and is basically the system I use, combined with Century Management's system and a few kinks of my own worked in. But of course this is the method the demands the most technical knowledge.

Quoting AeroWesty (Reply 5):
The thing that's fairly misunderstood in investing is that dead capital costs you more than you realize. If you wait for a stock to recover after it's down 50%, you're missing other opportunities for that capital to work and grow.

Absolutely right. In the early days, I used to hang on with a dropping stock, confident that it would eventually come back, assuming that I had picked it wisely in the first place. Now, As soon as I buy a stock, I immediately put a stop-loss order to sell it if it drops 5%. a month later, if it has increased its value, I'll reset the stop-loss again at 5% under the new price. I also sell any stock which has done increased more than 30% in less than a year, except in cases where it is a steadily growing company where I am confident that "there's more where that came from", and where volatility is fairly low. Otherwise, better not to be greedy.


User currently offlineAeroWesty From United States of America, joined Oct 2004, 20322 posts, RR: 63
Reply 7, posted (8 years 1 month 4 days 12 hours ago) and read 802 times:

Quoting Cfalk (Reply 6):
This is the technical method, where you invest according to the numbers and ratios.

You're quite correct in that, but to me that falls under the buy what you know column. If you know how to invest by way of the technical method, you essentially take the position that you know that, not especially the industries you invest in. For instance, when I used to arbitrage stock against convertible bonds, it didn't matter to me what companies issued the securities, as long as the technical aspect worked.

Quoting Cfalk (Reply 6):
Otherwise, better not to be greedy.

Bulls and bears walk away rich, hogs and pigs are always led to slaughter.  Wink



International Homo of Mystery
User currently offlineIFACN From Italy, joined Nov 2005, 153 posts, RR: 0
Reply 8, posted (8 years 1 month 3 days 19 hours ago) and read 719 times:

Quoting Cfalk (Reply 4):
If IFACN's age in his profile is correct, he has at least 30 years until retirement age. That means that he can afford to take risks. I would put nearly everything in growth stocks, although in the next six months or so I'd start switching to a corporate bond-heavy portfolio. The time to play it conservative is when you are less than 10-15 years from retirement.

Advice from Cfalk is indeed correct.

Sorry for my late reply, but I got involved in a big amount of work.

As far as education is concerned, Cfalk is quite right; having little financial education makes one totally dependent from banks and financial advisors . When I had to manage my family's portfolio I studied not only financial instruments but also laws and regulations for the Italian mkt. Actually in 2003 I passed exams as a financial consultant for the Italian Stock Exchange Authority (CONSOB); I don't work as such, but I gained a lot of experience and unvaluable knowledge.

Most of what I do with my own portfolio (and my family's assets) is based on strategies learned from the book "Investments" by Bode and Markus.

Nowadays my personal portfolio is risk-oriented, being the big bucks allocated on stocks and equities (and funds indexed on stock mkts), with an estimated duration of about 10 yrs. Funds are managed through accumulation plans (this strategy allowed me a net return of 30% on some Italian Stock Funds in the last year).
Sometimes I also do some speculative investments (like trading Parmalat bonds on grey mkts in the days following their default).

Quoting Cfalk (Reply 6):
As soon as I buy a stock, I immediately put a stop-loss order to sell it if it drops 5%. a month later, if it has increased its value, I'll reset the stop-loss again at 5% under the new price. I also sell any stock which has done increased more than 30% in less than a year, except in cases where it is a steadily growing company where I am confident that "there's more where that came from", and where volatility is fairly low. Otherwise, better not to be greedy.

Indeed. Most do-it-myself, uneducated investors act on greediness instead of being systematic. Most of Italian investors, in the late '90s, lost fortunes by "betting" on a stock exchange at its maximum peak, thinking that if the mkt rises, the rises will go on forever (on the opposite, many opportunities are lost by not realizing that if the mkts are falling, they won't be falling forever).

Back to work...

Regards,
A.


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