Matt and I had a short chat about his goals and situation, which he agreed to open up to outside advice as he has some specific investment ideas and leanings that he’d like to explore. I believe he is single in his late 20s or early 30s, and he also has an MBA so he’s not starting from scratch.
MMB: So roughly how much money are we talking about here? How is it currently invested and in what types of accounts (bank, IRA, brokerage, etc)?
Matt: I have a small five figure sum invested in a SEP IRA.
MMB: What is your timeline and goals for this money? Are you looking to save for retirement, a house, or something else? Would you want access part of it if needed? If retirement, are we talking at age 40 or 65?
Matt: It’s in an IRA, so retirement. I just want it to grow. I wouldn’t need to before 65.
MMB: Approximately how much additional money are you going to be able to contribute in the future?
Matt: I’ll be able to add between 15-20,000 per year into the IRA.
MMB: What do you consider to be your risk tolerance in general? What is the maximum tolerable loss that you could endure in a year? (Ex. $50,000 going to $30,000 would be a 40% loss.)
Matt: I’m pretty tolerant of risk. I would rather take more risk then less.
MMB: What is your general investment viewpoint right now? Are you looking to make big bets for big money? Slow, steady growth? Have you considered whether you want passively-managed index funds, or pay extra for an actively-managed mutual fund?
Matt: I see commodities, tech, and energy doing well. I’m bearish on the rest. I’d like to have a few specific stocks but mostly passive index funds and ETFs.
MMB: What other areas are you especially interested in investing in?
Matt: Currencies, commodities, water, tech
Boring Advice from My Money Blog
I warned Matt that my advice would be rather dull, in addition to the usual disclaimer that I am not an investment professional. First, I’ve put a good amount of effort into writing the investing section of my Rough Guide to Money, please check it out and there are some book recommendations in there as well for those long flights. I believe that it’s always best to understand why you’re investing in something beyond someone just telling you to do it. Hopefully, you’ll see why I like low-cost, passive mutual fund investments. In terms of actual things to buy, you could keep things simple with a single Target Retirement Fund at Vanguard, or create a 3-fund portfolio with even parts broad US index fund, broad international index fund, and broad US Bond index fund. You can build this at any major brokerage firm using ETFs. If you’ll be traveling a lot, having most of your money in low-maintenance mode may be a good thing.
Since you have other areas of interest, you should split things into a passive and actively-managed portion (Core and Explore). With the 5-20% of your portfolio set aside for speculation, go for it, use all your travel experiences, and see where you end up. Just know that the odds are against you, and honestly judge your results. If you lose money, just consider that the cost of a valuable lesson.
I got the feeling my advice above might not be fully satisfying, so I thought it might be more fun to open this up to reader advice. What do you think he should do, given his lifestyle and desire to investing in some specific sectors? I really don’t know much about currencies, commodities, water, or tech. For example, if you wanted to bet on water, what would the be the best vehicle? Please share in the comments, and Nomadic Matt will read and respond if he’s not busy hiking up a secluded mountain or something.