# Long term investment advice



## monkey0804 (22 Apr 2010)

I need to invest a sum of money for my 2 kids that we have accumulated over some years. It will be for their 3rd level education in 10/15 years times. It needs to be as risk free as is possible. What are my options? I really don't know where to start looking and what to look for - any basic research I've done leaves me more confused. I know that stocks are too risky for my needs, apart from that, I know nothing about what to avoid and what to look out for. Are there general website that might help me compare offers from different banks/bonds etc?

Thanks for any advise.


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## Daithi7 (11 May 2010)

50% in Index tracking ETF say S&P 500 or FTSE 100
50% in ETF tracking AA corporate bonds of say S&P 500, FTSE ,etc

rebalance the portfolio on the same date each year for 10-15 years to 50:50

Result: you should attain about a 6% gross return p.a. invested less the TER of the ETF say (.5%). Less CGT when you opt to cash in.

This is basically the Defensive Investor strategy recommended by Ben Graham.


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## PeterBrennan (11 May 2010)

6% return - Oh my God. 

Daithi - if you had bought an S&P ETF 10 years ago, tell me how much you would have made in percentage terms.


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## PMU (11 May 2010)

Firstly, you should make a guesstimate of how much you will need for your kids’ education in 10 years time. As the ECB has an inflation target of 2%, it would be reasonable to guesstimate that college fees in 10 years time will be at a minimum today’s fees inflated by 2% per annum. This is the minimum you will need. But you should allow for more as education services may well have a higher inflation rate. 
  As you want an investment as risk free as possible you should initially consider the Government’s 10 year solidarity bond.    For every €1,000 you invest now you will get your money back and €475 net in profit in 10 years time (and it’s Government guaranteed).  So, if you put your cash now in the bond will it pay the college fees in 10 years time? If yes, it’s a no-brainer.  
  If it won’t or if you think you will need more cash you need either to (a) save the difference over the next 10 years or (b) take on more risk, e.g. by investing some of your cash in an EFT or index tracking fund that tracks a broad based euro-denominated equity index (i.e. no currency risk).


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## Daithi7 (11 May 2010)

Peter,

If you had bought an S&P ETF 20 years ago you would have made 6.6% p.a compounded.


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## PeterBrennan (11 May 2010)

Where are you getting that number from?

The S&P peaked out around 1760 in 2000, plunged to 642 in 2009 and is now around 1150 and heading south. Anybody buying an S&P ETF in the last 10 yrs prior to 2009 would have lost a huge portion of their money especially after fees which grind the ETF down even without the big swings.


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## tiger (11 May 2010)

*20* years ago, yes the S&P was about 350 so you made approx 6% compounded
*10 *years ago, it was over 1400, so you've lost 20%


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## Daithi7 (11 May 2010)

S&P Nov 1990 322
S&P May 2010 1150

Which I make out to be 6.6% compunded return over 20 years. (before fees of say .5% p.a.)

The point being that investing in a low cost index tracking fund is a fairly accepted way for a novice investor to make reasonable returns over the medium to long term.

PMU is right above, he should probably start firstly with the final figure he wants to attain and if it is achieveable investing in bonds, or government backed securities then that is clearly a better more secure way to making the target.

What they should not do IMHO is day trade their kids future education away after some crazy half baked trading notion. We all know where that leads.


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## PeterBrennan (11 May 2010)

You are practising selection bias. A classic investment mistake. Picking a low point to start from. How many people can pick the exact low over a 20 yr timeframe. Plus forgetting about inflation and the fact that fees add up quickly. 

All I am seeing here with these arguments is naivety.


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## Daithi7 (11 May 2010)

Peter,

S&P Nov 1980 114
S&P May 2010 1150

Which I make out to be 8% compunded return over 30 years. (before fees of say .5% p.a.). So while performance over past 10 years looks skewed as 2000 was height of dot com era, 20 year returns of 6.6% compounded and 30 year returns of 8% compounded look pretty convincing.


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## strmin (11 May 2010)

Daithi7 said:


> Peter,
> 
> S&P Nov 1980 114
> S&P May 2010 1150
> ...



Don't forget ~2% dividend. Every little counts. Personally I like selling far out of the money calls. It adds another few %


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## Slim (13 May 2010)

strmin said:


> Personally I like selling far out of the money calls. It adds another few %


 
Could you explain that please?

Slim


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## Slim (13 May 2010)

Daithi7 said:


> 50% in Index tracking ETF say S&P 500 or FTSE 100
> 50% in ETF tracking AA corporate bonds of say S&P 500, FTSE ,etc


 
May I ask where one can buy these ETFs?

Slim


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## Complainer (13 May 2010)

monkey0804 said:


> I need to invest a sum of money for my 2 kids that we have accumulated over some years. It will be for their 3rd level education in 10/15 years times. It needs to be as risk free as is possible. .


Be aware that by choosing 'risk free', you are significantly lowering the likely return you will achieve. In fact, you will opening yourself up to the risk of having the investment growth eaten away by inflation.

How many years ahead are you planning?


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## strmin (13 May 2010)

Re: Slim

I own SPY and sell covered call options which are as far out of money as possible.
Example: 
SPY now trades for 117.06
I'd sell JUN 19 call with strike price 122 and I would get $94 premium.
This way it is possible to add some extra % on your investment with condition what shares will not go over strike price.

You can buy SPY anywhere. Its one of the most traded stocks.


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## Rory Gillen (13 May 2010)

monkey0804 said:


> I need to invest a sum of money for my 2 kids that we have accumulated over some years. It will be for their 3rd level education in 10/15 years times. It needs to be as risk free as is possible. What are my options? I really don't know where to start looking and what to look for - any basic research I've done leaves me more confused. I know that stocks are too risky for my needs, apart from that, I know nothing about what to avoid and what to look out for. Are there general website that might help me compare offers from different banks/bonds etc?
> 
> Thanks for any advise.


 
Consistently selling 'out of the money covered calls' is an excellent long term strategy (Strmin) if implemented consistently but as the original question was posed by a self-proclaimed novice then Daithi7 probably has the optimum solution. Looking at equity market performance the past ten years is not a good guide to the future - values are 0- and if Mr brennan is not willing to incorporate values into his logic then possibly he should refrain from giving any logic at all.


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