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I recently sold a house.

I have no wish to buy another house with the proceeds.
I also have no wish to have manual control (for lack of a better term) over how the money is invested.

I know absolutely nothing about investing. I do not want to manually pick out stocks, or bonds, or real-estate, or futures, or derivatives, or whatever.

I was thinking I would give a house-sized pile money to an investment firm. I would then allow the firm invest the money on my behalf.

As naive as I am, I can be very easily swindled.

A representative of investment firm might tell me, "we will give you 3% per year."

I would say, "that is great!" then had over the moolah, even though someone with more than half of a brain would not accept anything less than 10%.

Assume that:

  • The money being invested is very liquid (in cash or checking account)
  • The sum being invested is approximately equal to the median-value of a house in the United States.
  • We want long-term investments. I do not need to receive interest payments any more often than once a year. I never need to receive the original principle back.
  • When it comes to risk, I would like a less than 1% chance that half or more of the money evaporates into thin air in the next 10 years. Little dips in the portfolio's value are okay, but catastrophic loss is to be avoided.

What is the minimum rate of return I should demand from an investment firm?

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    "Catastrophic" is a subjective term; what does it mean to you? (For example, the US stock markets did not evaporate in 1929.)
    – RonJohn
    Jul 1 at 7:08
  • In previous bear markets, the stock market dropped about 45% in 1987, 50+ pct in 2000 and 2008, and about 35% in 2020. There's never "like a less than 1% chance that half or more of the money evaporates into thin air in the next 10 years" unless you proactively hedge your assets and accept a lower return. Jul 1 at 13:57
  • Speak to you family, trusted friends and business professionals (your lawyer, accountant, etc.) to find out if they use the services of an investment professional and have achieved a minimum of the market's return or more. Hiring one when you are not financially literate is a pot luck recipe for disaster. Jul 1 at 14:04
  • @RonJohn - From its 1929 peak, the DJIA lost 89% of its value in the next 3 years. Subjectively or objectively, I'd say that qualifies as money catastrophically evaporating. Jul 1 at 14:12
  • @BobBaerker call me reductionist... I was thinking "go to 0%".
    – RonJohn
    Jul 1 at 14:21
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It's hard to go wrong with the Bogleheads Three-Fund Portfolio.

A three-fund portfolio is a portfolio which uses only basic asset classes — usually a domestic stock "total market" index fund, an international stock "total market" index fund and a bond "total market" index fund. It is often recommended for and by Bogleheads attracted by "the majesty of simplicity" (Bogle's phrase),

For example:

From Vanguard's list of "core funds," the funds that are best for a three-fund portfolio are:

  • Vanguard Total Stock Market Index Fund (VTSAX)
  • Vanguard Total International Stock Index Fund (VTIAX)
  • Vanguard Total Bond Market Fund (VBTLX)

You would choose what percentage goes in each.

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You should not be demanding, or expecting, any minimum rate of return from an investment. Products with a guaranteed return are annuities, and are not likely to offer decent rates to younger people. They're generally something for post-retirement folks, who want to guarantee an income for their life, even if it means lower returns than they might get elsewhere.

For investments, you'll generally get whatever the market does. If it has a good year, you might see 20% or better returns, but a bad year could give you negative returns. Historically, the average US stock market return has been about 7% after inflation.

You really don't want to go with an investment firm, if by that you mean an individual investment advisor. You'll do much better IMHO by simply buying index funds, as other answers suggest. You also need to consider your time frame, and your personality. Are you likely to want/need any of this money in the short term? (I mean a year or two.) Are you likely to panic sell if the market suddenly drops 30% or so?

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  • and historically, stock markets outside the US have not returned 7%. More like 0% for some of them. Or negative %. Past performance doesn't guarantee future results, so perhaps the US will revert to the mean at some point.
    – user253751
    Jul 2 at 11:36
  • @user253751: Yes, and perhaps an asteroid will hit the Earth in a couple of years, making all your investments irrelevant :-) Point is, you have to go with what's likely. (And my international stock funds have been doing quite well, thank you.)
    – jamesqf
    Jul 2 at 16:00
  • @jamesqf I don't know what an index fund is, or how to buy one. Going it alone is not an option. I need some source of information, whether it be a book, a person, or something. Jul 3 at 18:54
  • @jamesqf I have no idea how money works other than the fact that I sometimes use money to buy groceries, clothing, etc... Also, I know that whenever I take a job, I receive a small amount of money per unit of time. I graduated from high school, and have a bachelor's degree in mathematics. At no point during my "education" were the basics of investing explained to me. You say that I do not need an investment advisor; that I should go it alone and buy index funds. I currently cannot tell the difference between the world's worst investment and the world's best investment. Jul 3 at 18:58
  • @Michael Butler: Then perhaps you should spend a little time educating yourself? Index funds are a form of mutual fund, which are vehicles which allow many people to combine their (usually rather small amounts of) money to buy a variety of stocks. Index funds try to mirror the stocks that make up market indicies, such as the Dow or S&P 500. This reduces risk to that of the general market, rather than buying one stock, which might fail. They charge a small fee (usually a fraction of a percent).
    – jamesqf
    Jul 3 at 23:44
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The size of your investment does not really matter for returns as most sound investments do not have minimum sizes. The return is the same, no matter whether you buy one share or a million of them (disregarding brokerage cost which are often capped). Meb Faber's booklet Global Asset Allocation investigated a number of portfolios and they were all returning around 5% after inflation over a period of 50 years. Future returns are likely to be a bit lower due to currently high valuations on the stock market and low interest rates, but 3-4% seem realistic.

However, there is a catch as these returns are calculated before costs. If you give your money to an investment firm or a mutual fund, they may easily cost you 1.5% fees per year which is totally ruining your return while a portfolio of bread and butter ETFs will cost you 0.1-0.2% in fees. The exact asset allocation matters a lot less than costs Therefore I can only recommend to invest some time into informing yourself on the topic and becoming your own financial advisor. Not because you can do better but because you can do just as well for a considerably lower cost.

PS: If you do not want to have anything to do with the daily details, there are also asset allocation ETFs that will only require you to choose the ratio between stocks and bonds once and that's it. These funds cost around 0.25% which is still way cheaper than any active fund

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  • Reasonable investments for the OP - mutual funds - usually do have minimum investments (unless for an IRA or similar). But they're generally a few thousand dollars, so not relevant if investing the proceeds of a house sale.
    – jamesqf
    Jul 2 at 5:08
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A reasonable return is independent to the amount you invest.

You can historically draw down 4% of a stock heavy passive portfolio, whatever the amount of said portfolio is, over long periods of time safely without going broke. Safety here is defined as a 95% chance of not going broke after 30 years. This is also known as the 4% rule used in many retirement calculations. Note that in most cases you will end up with much more money than you started as the average % of return is several points higher.

If you want a more conservative allocation than all stocks, you can mix in an increasing amount of bonds with these stocks, say 120-age or even 100-age as a percentage. Bonds will help you to smooth the ups and down of the stock market, but will (historically) lead to lower overall return rates.

It's also very good that you are cautious of being swindled or ripped off, because there are whole industries built around wanting a share of your money. Your return will always be a secondary consideration for them. This has two implications

  1. You want to reduce the costs of your investments as much as possible. I would personally recommend passive investments with low costs (i.e. index funds), preferably some with a wide diversification like a total stock market and/or a total bond market fund, e.g. from Vanguard. Costs here are far below 1% of your investment (VTSAX currently has a 0,04% expense ratio), while they, on average, outperform active investment strategies. These are perfect vehicles for long-term, very low maintenance investments.
  2. You don't want to trust most investment advisors. If you want to get an investment advisor, make sure he has a fiduciary duty (i.e. he has a requirement to work in your best interest) and is paid by the hour, not as a percentage of your investment or return. You should probably also not trust random people on the internet who give out advice (like myself) without reflecting on it. I will never care as much about your money as you will.

The second point implies that, even if you don't really want to, you should really read up on the basics of investment, so you can make an informed decision. Good entries that cover most of the basics are, in my opinion:

If you understood most of the content of these or similar sources, you may not know everything, but you will be well prepared to invest your money wisely.

Good luck!

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  • @mhoran_psprep you're right, of course. Edited to reflect that.
    – R.K.
    Jul 1 at 12:08
  • True, you want an investment advisor because he has a fiduciary duty to work in your best interest but that doesn't mean that your portfolio won't lose a significant amount of money in a bear market. The Prudent-Person Rule was designed to protect investors from risky/shady investments but there is no penalty for advice that loses money such as buy and hold during a bear market that drops 50%. Jul 1 at 14:02

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