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Can you offer investment advice? I'm debt-free, about to start earning $2k more per month than I need to survive. Please offer any suggestions for optimal investment method(s). (lemm.ee)

submitted 1 year ago* (last edited 1 year ago) by [email protected] to c/[email protected]

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48 years old, currently have no investments. My net worth is my car and the clothes on my back, and I don't ever want to be in this situation again.

(Edit: I don't need to buy a house or anything whatsoever related to a house, so please don't mention the "h" word in your response, it's triggering me for tangential reasons. Let me be clear, I will NEVER care about real estate whatsoever, mmmkay? Just trust me when I say I have a roof over my head and it's completely paid off, no property taxes, and No, I will never sell it, so the whole h-word" aspect of life is not a concern for me, k?)

Just looking for guidance where to invest this relatively small amount of money every month so in a few years when I'm older & frailer I'll have enough for retirement. I don't want it to just sit in my bank account, I want it to grow.

For reference, I've been living on approx $1500 per month for as long as I've noticed, so I don't need much per month, and the sooner I die, the less retirement fund I'll need, but we can never predict when anyone's death will happen, so let's assume I'll live to 100 because I'm ridiculously healthy & an exceptionally good driver, never been in an accident, one speeding ticket in my entire life, no social life so I never get into risky situations, so let's just plan for the possibility I'm going to live another 50 years.

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[–] Frozengyro 4 points 1 year ago (1 children)

You should look at the funds once or twice a year to rebalance your funds back to the ratios you planned originally.

Eg, your plan is to be 30% bonds 70% stocks. You check every January 1st and see if you still have that balance. If it's 25% bonds 75% stocks, move 5% stocks into bonds to return to your planned ratio.

[–] [email protected] 1 points 1 year ago* (last edited 1 year ago) (1 children)

Yeah, annual rebalancing is a thing if you're going that way. You'll need less rebalancing if you invest in a total world index fund (auto-rebalances domestic+foreign stocks) or a Target Date Fund (auto-rebalances everything for you). I'll also note that ideally you shouldn't sell any positions while rebalancing, just start buying more of the other thing. If your plan is 30% bonds/70% stocks and you're at 25%/75%, pump your next paychecks into bonds until you reach the right ratio again.

[–] Frozengyro 1 points 1 year ago (1 children)

I disagree with this. Since bonds and stocks average the same over time, if one is over or under performing, a rebalance will sort of time the market. Plus it's way easier than changing things multiple times. Also, let's say that 5% difference is 20k. How long will you invest to rebalance that ratio?

[–] [email protected] 1 points 1 year ago

I'm not sure if you meant it in the way that it reads but stocks and bonds absolutely do not return the same amount of money over time - why would anyone ever buy risky stocks if bonds returned the same? Also, if your 5% difference becomes that wild then you can try rebalancing every paycheck instead. There's no downside to this other than needing to calculate more frequently. When you're retired and no longer earning, you can sell from your portfolio's overweighted portions to rebalance instead.

If one section of your portfolio has gotten smaller that means that part is doing bad or other parts are doing well. Buying portions that are doing bad means you're buying them "on sale". Buying portions that are doing well means you're "paying extra". The end result is similar to selling high and buying low, just like a sell+buy rebalance would, except that you're only ever "buying low". This changes to "selling high" in retirement.

To be more clear, you can sell and rebalance if you want but make sure you're not causing taxable events by doing so - avoiding these taxable events is the primary reason to 'only buy' to rebalance (or 'only sell' in retirement).