Long-term savings and investment

[Angelina]

The house does not have to be in your home country, as long as it is a place where you would not mind starting a family. For example, even if buying a house/apartment in China would make sense when it comes to investing (hypothetically speaking- reality is much different), I personally would not buy a house here because I am not planning to send my children to a Chinese school. It's your choice and depends on your preferences.

BTW there is nothing wrong in investing in digital currencies. At least one part of your savings has to be in a modern payment system. At least 支付宝. There are many alternative forms of payment, you can try, no one knows which one will take off. My guess is that paper money won't be used much in the future. Bitcoin mining in Iceland? Clean, free. Although Iceland is having the same problems China has with restrictions on capital leaving the country. I would rather invest there than other places.

I can't wait to see what will happen in Macedonia. Will we finally be part of the EU and adopt the Euro? Or the Euro will no longer exist?

[gato]

rent depreciating ones (e.g. cars, boats, motorbikes) whenever possible.

It'd be better to buy moderately used depreciating assets. The heaviest depreciation happen in the first few years.

[Angelina]

Some things, such as property, might appreciate or they might depreciate. Then there are others that can only depreciate. A used laptop will never appreciate (unless it belonged to someone famous and is used as memorabilia). Don't invest in things that can only depreciate. To rent or to buy second hand depends on the specific context. It's not easy to buy a used car in China.

[abcdefg]

BTW there is nothing wrong in investing in digital currencies.

 

I can see suggesting this to someone who has already made his first million, has a paid-off home, and wants to play around with 5% or so of his risk capital in an "alternate" investment.

 

But it does not seem like sound advice for the Original Poster, who is 25 and says he isn't very savvy in financial matters.

[Angelina]

Age ain't nothing but a number.

No one will be using paper money in 50 years. I am 26 and would like to invest in Bitcoin mining because cash is dying out. Not sure which digital currencies are a good idea to invest in, but it is important to have them in mind when thinking about diversification.

[abcdefg]

Maybe you are right about types of currency and currency equivalents. I'm sure not qualified to give anyone financial advice.

 

 Age ain't nothing but a number.

 

But this slogan sure leaves a lot unsaid. It's a very important number when talking about investments.

[Johnny20270]

Maybe you are right. I'm sure not qualified to give anyone financial advice.

 

 

 

I did this for a living for 15 years with the major investment banks and am regulated by UK government in interest rates, equity, commodities and derivatives. I used to teach finance internally to companies and theory of investing / diversification etc  so lot of experience. Most portfolios I dealt with were minimum GBP10m+ many into the 100'sm

 

Really watch out for things like bitcoins, yes you may make money but so can you putting money on a table in Vegas. Not advising against it (as a speculative gamble), but professionally I would have been out of a job if I suggested that. I specialized in leveraged derivatives and the underlying message was the same. We are creating a market out of nothing, its a lot of smoke and mirrors. i was right in the center of it.   Credit derivatives were a perfect example. Average Joe A, B, C all owe each other $100million. A, B and C only have $100 in their account, No problem as it all nest off, .... until someone disappears. Then its a collapse

 

A regulated scheme could not invest in these things and rightly so should the investor want to well its a gamble like any other. Every asset has risk and no matter what no-one can give guarantees to make money, (its the fundamental theory of finance) but some involve a lot more risk than others

 

A famous case we often quote is the Dutch tulip mania,. when in the 17th century the price of 1 tulip rose to 10 times an annual craftsman income. Its an example of the madness of crowds. 

 

No one will be using paper money in 50 years. I am 26 and would like to invest in Bitcoin mining because cash is dying out. 

 

 

 

Paper money is irrelevant, It has no real value, we can just print more should we wish (Germans did it in the 30's when people were buying things in wheelbarrows). Banks internally never deal in physical money. Its just used for the public consumption. Yes the physical use of money is dying out as you say, but this has zero correlation to digital currencies. 

 

Printing more money is essentially called by the fancy name being banded around in the last few years as "Quantitative Easing"

 

The OP suggested a pension and therefore investments should mostly lie with trackers, tax free schemes, property etc. Its the probability of payment that is the key driver in these decisions. As you get older pension schemes shift investments from higher risk/high yield into low risk/low yield, well they should anyway

 

But its very smart to start young due to compounding effect, inflation and time value of money

[Silent]

 

@Silent - yes I could just invest in a internationally spread investment fund.  Actually I kind of do I have a bunch of regions in my investments.  But my salary is paid in China and my stock benefits are paid in the USA.   So I deliberately spread my investments in other places because if the RMB tanks I will lose money on my salary every single day.

 

What I'm trying to tell is that where you keep your funds is irrelevant for the performance. If you keep you trackers in the US, China or Africa the performance will in principle be equal. Exchange rates level it out they are embedded in an international investment portfolio, when there is a payout it will be equal no matter what currency you use. Obviously there may be differences in tax regime, overhead costs from the broker/bank and risks of fraud and theft that may affect the final outcome.

 

The currency of your salary has little to do with where you should invest. From a risk perspective you should however try to match income stream currency with expense currency streams as that will lower exchange rate risk. I know several people that have a mismatch, income in one country, living in a different one. Sometimes this works out great, sometimes it works out poorly. Not very comfortable specially if your income is low and the exchange rate moves against you.

 

From this perspective there is something to say for investments in the country you intent to retire. For the long term you may however ask or this is entirely valid. The lack of spreading associated with investing in your expected retirement country increases risks and for long term investments this may very well outweigh the benefits.  

[Kobo-Daishi]

Don't know about China or the UK, but, here in the US, for retirement, I've got social security, a 401(k) at work and IRAs (individual retirement accounts).

 

For social security, the federal government deducts a certain amount each pay period from my pay even before I get the paycheck.

 

The 401(k) is a no-brainer. You have to sign up for it. And the amount is also deducted from your pay each pay period. You specify the amount. The first 5 percent my employer matches 100%. This is like free money. You have a 100% return on investment from the get go. The second 5 percent you invest, they match 50%. This is like a 50% return.

 

Then there are IRAs, regular and Roth. The difference between the two is when you are taxed. Either at the beginning or at the end. Depends on whether you think you'll be taxed more now or later.

 

There's a limit to the amount of money you can contribute to your 401(k) and IRAs. But if you're 50 or older, you can contribute catch-up contributions. This is for those who weren't prudent enough to start investing at an earlier age to contribute more to "catch up" on their investing.

 

When I first invested with my 401(k), we only had 3 funds available to invest in.

 

A fund that invested in government treasuries. The safest but also the worst return on investment.

 

A bond fund. Less safe with slightly better returns.

 

And a stock fund that tracked the Wilshire 5000. The riskiest but also the one with the most potential for high returns.

 

https://en.wikipedia.org/wiki/Wilshire_5000 The 5000 tracks all the stocks in the US, New York Stock Exchange, NASDAQ, or the American Stock Exchange.

 

Of course, I chose the stock fund. Haven't regretted it a minute. As they always say. When you're young you invest in stocks. Then you gradually change the mix as you grow older.

 

The only thing with these 3 types of investments is that they are for retirement. You can't withdraw from them without incurring substantial penalties before retirement.

 

But you can always invest in mutual funds on your own.

 

At your investing stage just invest in an index fund.

 

Warren Buffett recommended the Vanguard S&P 500 Admiral index fund which tracks the S & P (Standard & Poor's) 500.

 

https://www.google.com/search?q=buffett+vanguard&gws_rd=ssl

 

https://en.wikipedia.org/wiki/S%26P_500

 

Vanguard is now the biggest mutual fund company in the world. No load, & low fees.

 

They're mainly known for index funds, but, I don't invest in them. I've a managed fund with Vanguard that was up about 10% for the year until the recent worries about Greece. Damn Greece!  ;-)

 

Get a copy of "Investing for Dummies" to learn more.

 

Invest to get the 20% down payment needed to buy property. In Los Angeles, the median home price is $600,000. A 20% down payment would be $120,000. But who buys the median?

 

Kobo.

[Angelina]

I specialized in leveraged derivatives and the underlying message was the same. We are creating a market out of nothing, its a lot of smoke and mirrors. i was right in the center of it. 

 

 

Exactly. 

 

 

Yes the physical use of money is dying out as you say, but this has zero correlation to digital currencies. 

 

Yes it has. I can't predict whether the future is in Alipay, Tenpay, Apple Pay, or Bitcoin, but it would not surprise me if people start using a similar format en masse in the future.

 

Usually wars and crises are accompanied by changes in the way people deal with monetary transactions. 

 

They're mainly known for index funds, but, I don't invest in them. I've a managed fund with them that was up about 10% for the year until the recent worries about Greece. Damn Greece!  ;-)

 

Love thy neighbor they said hihi 

 

My new neighbor, virtually down the road (天目山路), is Alipay. Speaking of which, can non-Chinese citizens use the 支付宝钱包？It is a good idea to save at least part of your income there. 

 

余额宝 (Yu'e Bao)

 

Interesting. 

[carlo]

I'd add that 25 is the perfect time to learn as much as you can about saving and investing. Even if you find the subject uninteresting, increasing your financial literacy as soon as possible tends to have a very large impact on how you will live the rest of your life -- even if you only buy index funds. 

 

"The Global Expatriate's Guide to Investing" explains some of the technicalities involved. I haven't read the book but from a quick browse it looks as if it may answer some of your questions. A collection of Berkshire Hathaway Letters to Shareholders is a great place to begin a self-study programme in long-term capital allocation.

 

I don't think an internet forum is the best place to give investment advice, but here's what I wish someone would have told me fifteen years ago:

 

- (No offence intended to all professionals on this thread, but...) the investment industry is a jungle. There are plenty of hidden costs and misaligned incentives: make sure you understand them very well before choosing a service provider. Rather than relying solely on experts, make a serious effort to learn how to survive on your own. The name of the game is keeping costs low and let the money compound for as long as possible. A tiny difference in costs now has a huge impact 30 years later.

 

- Beware of overconfidence, and always make sure you understand exactly what you are doing and why. It's much better to be paranoid and watch other people get rich faster rather than gamble your life savings with something you do not understand.

 

- Stocks seem more volatile than real estate only because prices are quoted every day. If you buy an index fund and sell it after 30 years, short-term volatility is irrelevant. This being said, you may find it psychologically stressful.

 

- Real estate is a local game -- very hard to invest in one country when you're living in another. I've personally had a few problems with this in the past for this very reason (having other people looking after the details of renovation and management is expensive).

 

Are your savings in RMB within China? If so, take them out and set up an offshore bank or brokerage account anywhere else to enjoy greater access to globally diversified opportunities, cheaper service providers and lower transaction costs/tax.

[imron]

BTW there is nothing wrong in investing in digital currencies.

You have confused the word 'investing' with 'speculating'.

 

First of all, the majority of what you have defined as 'digital currencies' aren't anything of the sort.  Alipay, Tenpay and Apple Pay are 'digital payment providers' and if you don't understand the difference, you really shouldn't be giving investment advice in this area.

 

That leaves Bitcoin, which is a true digital currency.  Firstly, forget about mining.  If you're not spending tens of thousands of dollars buying specialist hardware to do the mining you're not going to be in a position to earn any sort of money.

 

That leaves speculation in the currency itself.  It doesn't particularly have a stellar track record though, not only does its price fluctuate wildly, but also its history is littered with exchanges going bankrupt, 'losing' all their 'investors'' bitcoins, sometimes in ways that seem so improbable that the likely explanation is that the owners of the exchange decide to cut and run with all the bitcoins.

 

I would only 'invest' in bitcoin if it's money you're willing to lose, i.e. don't do it with your retirement funds.

 

 

 

Age ain't nothing but a number.

Same too a bank balance, and ideally it's one that goes up with your age.

[Angelina]

Remember the Q coin?

http://gbtimes.com/china/chinas-q-coin-next-bitcoin

[Silent]

 

 

- Real estate is a local game -- very hard to invest in one country when you're living in another. I've personally had a few problems with this in the past for this very reason 

This may be true for direct investments, there are however plenty of real estate funds that provide diversification. Generally though real estate fund tend to concentrate on commercial properties. Consequently these funds are sub-optimal for hedging against rising residential real estate prices. 

[Michael H]

Well said, imron, regarding bitcoin. I wanted to write something like that but couldn't think of a nice way to say it without offending people by insulting their intelligence. :-)

[imron]

Remember the Q coin?

Yes, and I remember when the government banned them from being used to purchase real goods, causing many people who had been speculating in the currency to lose a large amount of money.  Note that all this happened *years* before bitcoin became known/popular.

 

Digital/virtual currencies are not the place to do any sort of long-term investment or retirement planning.

[Johnny20270]

Digital/virtual currencies are not the place to do any sort of long-term investment or retirement planning.

 

 

Absolutely, you can't even classify it as 'investing' under UK rules, and you will never see a major bank internally or advising customers as an investment strategy. Legally they can't. It can be done as speculative strategy and the bank has done its due diligence on customers to classify the customer as a "professional individual", 

[Angelina]

Sure. The distinction between digital currencies and digital payment providers should be made clear. My point is that in 50 years' time paper money will probably not be used, whether or not Bitcoins or Q coins or anything similar will become accepted is a matter of legislation. Maybe they will never be accepted and only existing currencies will become digitalised. The only point I was making was about the nature of the currency and the way financial transactions are likely to be done: online.

Another distinction Imron made is important too. There is a difference between chosing the right currency when saving your salary and working with investment funds.

Someone mentioned Vanguard, why not mention Yu'e Bao?

I already posted the link, here is an interesting part

Wang is not alone. At the end of April, Yu’e Bao (pronounced “yu-eh bow”) boasted an astonishing 554 billion yuan, or almost $90 billion, in assets. It also had 81 million investors, more than the combined total of all other Chinese asset managers. Considering that Alibaba launched the money fund only in June 2013, that makes it the fastest-growing mutual fund of all time, anywhere. Yu’e Bao now accounts for just over a third of China’s 1.46 trillion-yuan money market fund business, a burgeoning segment that makes up 31 percent of the country’s asset management industry. Only three U.S. money market funds — Vanguard Prime ($129.8 billion), Fidelity Cash Reserves ($116.1 billion) and JPMorgan Prime ($108.2 billion) — are larger, and they’ve been around for decades.

[Kobo-Daishi]

Someone mentioned Vanguard, why not mention Yu'e Bao?

I already posted the link, here is an interesting part

Wang is not alone. At the end of April, Yu’e Bao (pronounced “yu-eh bow”) boasted an astonishing 554 billion yuan, or almost $90 billion, in assets. It also had 81 million investors, more than the combined total of all other Chinese asset managers. Considering that Alibaba launched the money fund only in June 2013, that makes it the fastest-growing mutual fund of all time, anywhere. Yu’e Bao now accounts for just over a third of China’s 1.46 trillion-yuan money market fund business, a burgeoning segment that makes up 31 percent of the country’s asset management industry. Only three U.S. money market funds — Vanguard Prime ($129.8 billion), Fidelity Cash Reserves ($116.1 billion) and JPMorgan Prime ($108.2 billion) — are larger, and they’ve been around for decades.

 

Anyone want to explain the difference between a money market mutual fund and a stock mutual fund? According to the article Angelina has linked to, Yu'e Bao is a money market fund.

 

How money market funds buys short-term securities in the money markets to provide current income to shareholders. That they're extremely safe. And that they're really just a place to park your money until you decide where to invest for the long term? And they're just barely better than a regular passbook savings account at a bank?

 

Speaking of Vanguard, I downloaded a copy of The Global Expatriate's Guide to Investing, on Carlo's recommendation, out of curiosity, and in the acknowledgments' the author mentions John Bogle, the founder of Vanguard, "now the largest mutual fund provider in the world".

 

 

Ohhh, and they warn against E*Trade for those not American.

 

 

Kobo.

[Kobo-Daishi]

 

 

They're mainly known for index funds, but, I don't invest in them. I've a managed fund with them that was up about 10% for the year until the recent worries about Greece. Damn Greece!  ;-)

 

Love thy neighbor they said hihi

 

 

I'm down about $100,000 from my high of the previous week. When I was new to investing this would have upset me quite a bit.

 

Now, I'm inured to the ups and downs of the markets so it doesn't faze me a whit.

 

Kobo.