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Old 12-06-2012, 08:25 AM   #20
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Originally Posted by nyc View Post
Key is diversification and build smartly. Sounds like the lesson you should have learned in 2000 is not to bet on a single horse.

If you get 5k/month that's all you ever get. I assume your needs will change, family kids, schools to pay for. 5k might seem plenty now, but in 20 years this will get you zilch.
Yep, just because OP got burned doesn't mean that he invested correctly. Most people don't handle risk management well. It's easy to say this looking back into the past, though. Like I said before, your money value of a 5K "salary" per month will decrease as time goes on.

Originally Posted by Fearsome Forehand View Post
Keep some portion in cash/liquid. Invest the balance is low risk items. Your goal should be to outpace inflation and earn a decent return. The amount of risk you should be willing to assume is also a function of your age.

If you are willing to live humbly, you should be able to live off the investment income and preserve most of the principal. If you earn a mere 3 points/year that is 150K pre tax. If you have clue, you should be able to do better than that in the present environment. When inflation kicks in again (inevitable), returns will be bigger nominally but not in terms of purchasing power.

If you don't own a house, buy a decent (not an overpriced one) in an area in which you wish to live. Eventually, housing will recover and you will make money on the house if you chose one wisely and don't overpay. I am not a fan of US currency long term. Current fiscal policy will not end well IMHO. While I would keep some portion liquid, I would not keep the whole amount in cash.

Depending how you acquired the windfall, you will probably be faced with a hefty tax bill.

If it was me, I would buy a nice piece of property on the outskirts on an area that I liked and wait for "progress" to move out that way at which point I would sell and repeat the dance. Just don't overpay to begin with. My big extravagance would be to build a tennis court.

Most of the people who lose fortunes invest in businesses they know nothing about, buy huge houses at huge prices, invest in crazy, volatile things, get married and divorced multiple times, make bad loans, etc. Should be easy enough to avoid if one is somewhat cautious.
I agree with the idea of most of the above, but I probably wouldn't use real estate as an investment unless you're looking extremely long term, or flipping real estate, which isn't as easy to do currently. Although interest rates are so low, it's probably causing artificially inflated asking prices...

Originally Posted by jmnk View Post
sure, but you do realize that the stock market is essentially a ponzi schema, right? realistically the only reason why one buys stocks is the hope that he will be able to sell it at higher price in the future. I mean this is literally no different than buying baseball cards - the stock/cards themselves have no real value whatsoever. It's not like stocks represent any meaningful 'percentage' of the company assets - it's all made up. Hardly any company pays meaningful dividends, your whole and only hope is that someone will buy those stocks from you in the future. Just like with baseball cards. Or vintage tennis rackets.
Sure, the market is largely arbitrary, but historical returns are ~8% over time following only index funds. I'm only saying that it is going to give you bigger returns in the long run as compared to a traditional savings/money market account. I acknowledged it's higher risk (due to above). "It is what it is," and there's nothing you or I can do about it. Doesn't mean you shouldn't invest. If you're risk adverse there's still better options than holding money (strictly) liquid or put it in a bank. With current interest rates, you're losing (real) money on an YOY basis. IMHO it'd actually be pretty unwise to toss the money into a savings account and call it good.
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