Need 2nd opinion on asset allocation

Quote from Hydroblunt:

What exactly are you learning by receiving a gift like that?

I'm not making an attack at you, I just find your whole post quite funny. Oh yeah I'm jealous, who would not be if they had to help mom with the rent at the age of 14. Yeah there are po' folk out in the world.

My point is that it sounds like you have very little to worry about at your age, probably less so in the future. Your parents seem to take of it. You said you plan on working at a I-bank or financial institution. So focus on that, you will not be able to trade in a scottrade account on the side while you work there, for legal reasons. Your investing & trading will be quite restricted.

Take the whole 40k and start swing trading & speculative investing. Or start a business with it, get creative. Your downside is limited. Most people do not get a chance like that.
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Ok first of all...I never said I was "learning" anything by accepting a gift. I realize there are poor people out there, I grew up in a middle class family...my mom is a school teacher and my dad is a manager for an airline, so don't think I'm coming from some wealthy background. My parents happen to be very good with their sub-6 figure combined income. My parents are simply giving me a better head start than I would have recieved if I took out thousands of dollars in student loans, and had to worry about making rent every month while being a full time student. Any good parent that has the means to provide a college education for their son/daughter would do the same by covering living expenses.
second, I said I plan to work at a Bank while studying for a masters...such as Bank of America or what not.
I realize most people don't have the same oppurtunities and I'm more grateful than I could ever explain. However I don't think theres an unlimited downside...you can't honestly think that it's a wise decision to risk 40k when I'm new to trading. I didn't mean to portray my parents as being willing to bail their baby boy out if he wants to try his luck and risk everything he has at trading stocks. I'm on my own after this....just with a bit of a head start regarding my finances.
 
Quote from Drew07:

Ok first of all...I never said I was "learning" anything by accepting a gift. I realize there are poor people out there, I grew up in a middle class family...my mom is a school teacher and my dad is a manager for an airline, so don't think I'm coming from some wealthy background. My parents happen to be very good with their sub-6 figure combined income. My parents are simply giving me a better head start than I would have recieved if I took out thousands of dollars in student loans, and had to worry about making rent every month while being a full time student. Any good parent that has the means to provide a college education for their son/daughter would do the same by covering living expenses.
second, I said I plan to work at a Bank while studying for a masters...such as Bank of America or what not.
I realize most people don't have the same oppurtunities and I'm more grateful than I could ever explain. However I don't think theres an unlimited downside...you can't honestly think that it's a wise decision to risk 40k when I'm new to trading. I didn't mean to portray my parents as being willing to bail their baby boy out if he wants to try his luck and risk everything he has at trading stocks. I'm on my own after this....just with a bit of a head start regarding my finances.
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Ok ok, I'm sorry for having some fun with you.

You're gonna get a range from advice, cause there is no correct answer for your question, for obvious reasons. But most importantly, it sounds like you are not even clear on what you want to do. Are you trying to become a self-trader? Then you have your answer, go start paying the Market for your education. Are you aiming for a MBA and then corporate world? Then put most of it away.

There is no reason to get an MBA if you plan on trading for yourself. None whatsoever.

BTW, Bank of America has an investment banking side. There is no law separating the two anymore. So saying you wanna go work for a Bank, is not clear. You wanna go be a teller? Or you want to work on the trading desk? Or accounting? Or commercial banking side and work loans?

Start from there. My personal advice, if I had that kind of financial situation at 21, I would invest it in a hot happening bar. Liquor always sells and the perks are unbeatable.
 
Quote from Hydroblunt:

Ok ok, I'm sorry for having some fun with you.

You're gonna get a range from advice, cause there is no correct answer for your question, for obvious reasons. But most importantly, it sounds like you are not even clear on what you want to do. Are you trying to become a self-trader? Then you have your answer, go start paying the Market for your education. Are you aiming for a MBA and then corporate world? Then put most of it away.

There is no reason to get an MBA if you plan on trading for yourself. None whatsoever.

BTW, Bank of America has an investment banking side. There is no law separating the two anymore. So saying you wanna go work for a Bank, is not clear. You wanna go be a teller? Or you want to work on the trading desk? Or accounting? Or commercial banking side and work loans?

Start from there. My personal advice, if I had that kind of financial situation at 21, I would invest it in a hot happening bar. Liquor always sells and the perks are unbeatable.
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I don't take it personally hydro....I knew I would come off sounding like a punk no matter how I worded it. You're right about me not being exactly clear about what I want to do....but if I have the oppurtunity to have a masters degree paid for...why the hell not...it can't hurt me...I think it's important to leave your options open at a young age. "No matter what happens, no one can ever take a degree away from you"-my mom. My aspirations to trade is somewhat of a short-term goal while I'm still in school...I expect to lose money...but if I can somehow learn to be consitently profitable then I think I'd have a good chance of making a career out of it...either prop or with a hedge fund..plus I have an MBA. If not....then shit, I'll have a degree in economics and a masters in business.
I know you were just having some fun, and I see all of the arrogant young newbies who think they're going to be hot shots and you older guys tear them apart. I'm just an average guy who is fascinated by financial markets and wants to do anything I can to make it.
 
Drew,

This is your parents money and NOT your money that you earned. Due to the fact that it is your parents cash and a gift, then you have to treat it with respect. As you have read on EliteTrader many times people do lose cash.

You are inexperienced with the market. Trading with this money (with the potential for great loss) is disrespecting your parents.

Bank accounts offer very little return on your cash. In fact, you just barely keep up with inflation keeping it there. By keeping your cash in a bank account, you are disrespecting your parents as well.

So here is my advice. Mutual funds offer a slightly better picture then a savings account. You dont have to monitor them from day to day or week to week. As you have seen in the news, the sectors oftentimes rotate with little notice. Therefore, if you go the mutual fund route, then your cash should be diversified. Index funds are better the mutual funds and offer lower costs (in my opinion).

Here is a sample asset mix that I would recommend...
Foreign index fund- 20%
Small cap index fund- 25%
Mid-Cap index fund- 25%
Large cap index fund- 30%

So if one sector underperforms, you have another sector that overperforms. You rebalance at the end of the year.

However, I would not go the mutual fund route. I would do the following and I have posted this several times before.

Go to www.dividendachievers.com. This is a list of companies that have increased their dividends over the last ten years. Pick companies from their index. In the case of 40,000 dollars, find 40-80 different companies off of that list. Then go to each company's website and find out how you can buy the stock directly from the company. Each company usually has a dividend reinvestment plan. As the company pays out dividends, it will be used to buy more stock. You can hold the stock in their investment plan without paying any fees.

Then leave that cash in there for the next 20 years and ignore it. Yep. Dont touch it. Think of yourself at age 40. How do you think a 40 year old clone of yourself will give you direction in this regard? I think he would have said to invest it into these dividend producing companies.

I hope this gives you some direction and I hope Im simply not replying to a joke post.

Whatever you do, dont use it for trading.
 
<i>"Then leave that cash in there for the next 20 years and ignore it. Yep. Dont touch it. Think of yourself at age 40. How do you think a 40 year old clone of yourself will give you direction in this regard? I think he would have said to invest it into these dividend producing companies."</i>

I'll be 42 in just a little bit. That advice (followed) 20 years ago would be most appreciated today by me. Plan for the future with care... it will too soon be upon you :>)
 
Quote from Drew07:

Thanks for the advice riskarb, I'm going to save your post. And as for being attacked, I expected it so I tried my best not to come off like some spoiled little prick whos parents throw tons of money at (because they don't, theyre not rich). I honestly just wanted some reasurement/advice from someone like yourself.
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You could put the entire balance into an IB trading account, where the amount above the first $10,000 will earn interest at the current rate minus half a percentage point. Then you could take 15% of your income and invest it in the account on a monthly basis. Rather than risking a single penny of your principal ($40,000 + monthly investments), you would use only the amount of your interest earnings to trade or invest until you have mastered your strategy.

While you were waiting for some interest to accumulate, you could start the education process if you have not done so already:

Trading and Exchanges
Larry Harris

Paul Wilmott Introduces Quantitative Finance
Paul Wilmott

Option Volatility and Pricing
Sheldon Natenburg

Dynamic Hedging
Nassim Nicholas Taleb

Option Market Making
Allen Jan Baird

Since you intend to continue your education, you might take a look at the programs at the Stuart School of Business at IIT:

http://www.grad.iit.edu/bulletin/programs/business.html

If you have excellent academic standing:

http://www.haas.berkeley.edu/MFE/

-segv
 
You could put the entire balance into an IB trading account, where the amount above the first $10,000 will earn interest at the current rate minus half a percentage point. Then you could take 15% of your income and invest it in the account on a monthly basis. Rather than risking a single penny of your principal ($40,000 + monthly investments), you would use only the amount of your interest earnings to trade or invest until you have mastered your strategy.


So what rate could I earn interest rate with IB? The current risk free rate - half a percentage point? And if I understand you correctly only touch the interest and contributed portion of my income to trade aggresively with? Thanks.
 
Quote from Drew07:

So what rate could I earn interest rate with IB? The current risk free rate - half a percentage point?
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That is correct. See this page for details:

http://www.interactivebrokers.com/en/accounts/fees/interest.php?ib_entity=llc#credit


And if I understand you correctly only touch the interest and contributed portion of my income to trade aggresively with? Thanks.
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The idea is that you would risk interest and trading earnings only. You would not put your initial balance of $40,000, nor your monthly contributions to the account at risk. If you fail ultimately, you will still have your principal and monthly savings at the end of the process. If you succeed over an extended period, having necessary experience and confidence, you can start slowly risking some of your principal. The point is to treat your money like the precious resource it is, to preserve the generous gift your parents have given you, and to learn to take small risks with a positive expectancy.

But this is not the only path you can take. The markets will always be there when you are ready for them. It seems like you have a very stable position, and one that can enable you to continue your education comfortably. Maybe you should not give that up so freely. That real estate is real, think about owning it over the long-term. Have you considered the fact that you could keep the real estate and rent it? You could risk the net profits from your real estate in the markets, if that is what you desired. You could extract the equity in the property, buy an investment property, rent them both, and then risk money in the markets after you finish grad school with a quantitative finance degree.

-segv
 
Im going to post two pictures and tell me which situation you would like to be put into.

Would you like to be at a monitor in the early morning looking at this. . .
 

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