Selecting between investment vehicles for income
You have a comparatively small sum to invest, and since you're presumably expecting to go to college.university soon, where you may well need the money, you also have a short timescale for your investment. I don't think anything stock-related would be good for you -- you need a longer timescale for stock market investments, at least five years and preferably ten or more. I don't know the details of Australian savings, but I'd suggest just finding a bank that is giving a good interest rate for a one-year fixed-term savings account. It sounds like you are interested in investing in the stock market but you don't want to take too much risk. Investing in an Index EFT will provide some diversification and can be less risky than investing in individual stocks, however with potentially lower returns. If you want to invest your money, the first thing you should do is learn about managing your risk. You are still young and you should spend your time now to increase your education and knowledge. There are plenty of good books to start with, and you should prepare an investment plan which incorporates a risk management strategy. $1000 is a little low to start investing in the stock market, so whilst you are building your education and preparing your plan, you can continue building up more funds for when you are ready to start investing.  Place your funds in an high interest savings account for now, and whilst you are learning you can practice your strategies using virtual accounts. In fact the ASX has a share market game which is held  2 or 3 times per year. The ASX website also has some good learning materials for novices and they hold regular seminars. It is another good source for improving your education in the subject.  Remember, first get educated, then plan and practice, and then invest.
I think you have to refer to it (i.e. a hedge fund) as more of a legal structure rather than from an investment perspective. Hedge Funds are generally private investment vehicles that require large capital contributions (whether the hedge fund is set up as a 3c(7) or a 3c(1) structure). Doesn't matter what the relative investment strategy is (long only, long/short, levered, distressed debt, model defined, etc.)  3(c)(7) = qualified purchaser status = Min worth of $25,000,000 3(c)(1) = accredited investor status = less than qualified purchaser status, but still requires certain income limits.  Just my two cents. It's all about risk. These guidelines were all developed based on the risk characteristics of the various asset categories. Bonds are ultra-low-risk, large caps are low-risk (you don't see most big stocks like Coca-Cola going anywhere soon), foreign stocks are medium-risk (subject to additional political risk and currency risk, especially so in developing markets) and small-caps are higher risk (more to gain, but more likely to go out of business).  Moreover, the risks of different asset classes tend to balance each other out some. When stocks fall, bonds typically rise (the recent credit crunch being a notable but temporary exception) as people flock to safety or as the Fed adjusts interest rates. When stocks soar, bonds don't look as attractive, and interest rates may rise (a bummer when you already own the bonds). Is the US economy stumbling with the dollar in the dumps, while the rest of the world passes us by? Your foreign holdings will be worth more in dollar terms. If you'd like to work alternative asset classes (real estate, gold and other commodities, etc) into your mix, consider their risk characteristics, and what will make them go up and down. A good asset allocation should limit the amount of 'down' that can happen all at once; the more conservative the allocation needs to be, the less 'down' is possible (at the expense of the 'up'). .... As for what risks you are willing to take, that will depend on your position in life, and what risks you are presently are exposed to (including: your job, how stable your company is and whether it could fold or do layoffs in a recession like this one, whether you're married, whether you have kids, where you live). For instance, if you're a realtor by trade, you should probably avoid investing too much in real estate or it'll be a double-whammy if the market crashes. A good financial advisor can discuss these matters with you in detail. "The question is asking for a European equivalent of the so-called ""Couch Potato"" portfolio. ""Couch Potato"" portfolio is defined by the two URLs provided in question as, Criteria for fund composition Fixed-income: Regardless of country or supra-national market, the fixed-income fund should have holdings throughout the entire length of the yield curve (most available maturities), as well as being a mix of government, municipal (general obligation), corporate and high-yield bonds.  Equity: The common equity position should be in one equity market index fund. It shouldn't be a DAX-30 or CAC-40 or DJIA type fund. Instead, you want a combination of growth and value companies. The fund should have as many holdings as possible, while avoiding too much expense due to transaction costs. You can determine how much is too much by comparing candidate funds with those that are only investing in highly liquid, large company stocks. Why it is easier for U.S. and Canadian couch potatoes It will be easier to find two good funds, at lower cost, if one is investing in a country with sizable markets and its own currency. That's why the Couch Potato strategy lends itself most naturally to the U.S.A, Canada, Japan and probably Australia, Brazil, South Korea and possibly Mexico too. In Europe, pre-EU, any of Germany, France, Spain, Italy or the Scandinavian countries would probably have worked well. The only concern would be (possibly) higher equity transactions costs and certainly larger fixed-income buy-sell spreads, due to smaller and less liquid markets other than Germany. These costs would be experienced by the portfolio manager, and passed on to you, as the investor. For the EU couch potato Remember the criteria, especially part 2, and the intent as described by the Couch Potato name, implying extremely passive investing. You want to choose two funds offered by very stable, reputable fund management companies. You will be re-balancing every six months or a year, only. That is four transactions per year, maximum. You don't need a lot of interaction with anyone, but you DO need to have the means to quickly exit both sides of the trade, should you decide, for any reason, that you need the money or that the strategy isn't right for you.  I would not choose an ETF from iShares just because it is easy to do online transactions. For many investors, that is important! Here, you don't need that convenience. Instead, you need stability and an index fund with a good reputation. You should try to choose an EU based fund manager, or one in your home country, as you'll be more likely to know who is good and who isn't. Don't use Vanguard's FTSE ETF or the equivalent, as there will probably be currency and foreign tax concerns, and possibly forex risk. The couch potato strategy requires an emphasis on low fees with high quality funds and brokers (if not buying directly from the fund). As for type of fund, it would be best to choose a fund that is invested in mostly or only EU or EEU (European Economic Union) stocks, and the same for bonds. That will help minimize your transaction costs and tax liability, while allowing for the sort of broad diversity that helps buy and hold index fund investors." "Not sure what your needs are or what NIS is:  However here in the US a good choice for a single fund are ""Life Cycle Funds"". Here is a description from MS Money: http://www.msmoney.com/mm/investing/articles/life_cyclefunds.htm" Life Strategy funds are more appropriate if you want to maintain a specific allocation between stocks and bonds that doesn't automatically adjustment like the Target Retirement funds which have a specific date.  Thus, it may make more sense to take whichever Life Strategy fund seems the most appropriate and ride with it for a while unless you know when you plan to retire and access those funds. In theory, you could use Vanguard's Total Market funds,i.e. Total Stock Market, Total International, and Total Bond, and have your own allocations between stocks and bonds be managed pretty easily and don't forget that the fees can come in a couple of flavors as betterment doesn't specify where the transaction fees for buying the ETFs are coming out just as something to consider. Thanks for your service.   I would avoid personal investment opportunities at this point.  Reason being that you can't personally oversee them if you are deployed overseas.  This would rule out rentals and small businesses.  Revisit those possibilities if you get married or leave the service.   If you have a definite time when you would like to purchase a car, you could buy a six or twelve month CD with the funds that you need for that.  That will slightly bump up your returns without taking much risk.  If you don't really need to buy the car, you could invest that money in stocks.  Then if the stock market tanks, you wait until it recovers (note that that can be five to ten years) or until you build up your savings again.  That increases your reward at a significant increase in your risk.  The risk being that you might not be able to buy a car for several more years.   Build an emergency fund.  I would recommend six months of income.  Reason being that your current circumstances are likely to change in an emergency.  If you leave the service, your expenses increase a lot.  If nothing else, the army stops providing room for you.  That takes your expenses from trivial to a third of your income.  So basing your emergency fund on expenses is likely to leave you short of what you need if your emergency leaves you out of the service.   Army pay seems like a lot because room (and board when deployed) are provided.  Without that, it's actually not that much.  It's your low expenses that make you feel flush, not your income.  If you made the same pay in civilian life, you'd likely feel rather poor.   $30,000 sounds like a lot of money, but it really isn't.  The median household income is a little over $50,000, so the median emergency fund should be something like $25,000 on the income standard.  On the expenses standard, the emergency fund should be at least $15,000.  The $15,000 remainder would buy a cheap new car or a good used car.  The $5000 remainder from the income standard would give you a decent used car.   I wouldn't recommend taking out a loan because you don't want to get stuck paying a loan on a car you can't drive because you deployed.  Note that if you are out of contact, in the hospital, or captured, you may not be able to respond if there is a problem with the car or the loan.  If you pay cash, you can leave the car with family and let them take care of things in case of a deployment.   If you invested in a Roth IRA in January of 2016, you could have invested in either 2015 or 2016.  If 2015, you can invest again for 2016.  If not, you can invest for 2017 in three months.  You may already know all that, but it seemed worth making explicit.   The Thrift Savings Plan (TSP) allows you to invest up to $18,000 a year.  If you're investing less than that, you could simply boost it to the limit.  You apparently have an extra $10,000 that you could contribute.  A 60% or 70% contribution is quite possible while in the army.  If you max out your retirement savings now, it will give you more options when you leave the service.  Or even if you just move out of base housing.   If your TSP is maxed out, I would suggest automatically investing a portion of your income in a regular taxable mutual fund account.  Most other investment opportunities require help to make work automatically.  You essentially have to turn the money over to some individual you trust.  Securities can be automated so that your investment grows automatically even when you are out of touch. It's important to consider your Investor Profile when deciding the right kind of vehicle for your finances. You are a young guy, with a considerable earned income and no dependents (sorry, this was not clear from the question.) This means that you are able to take a lot of risks that people who also have a family to think about, might not. == high risk tolerance You should definitely not put your money in a Wealth Management fund or Mutual Fund or any other 'hands-off' vehicle. These typically have worse returns than the FTSE itself. Their popularity is due to an amazing marketing job and the fact that people in general want to believe there is an easy way to grow their money. Probably the best vehicle for your money is property, so the first thing you should do with the money is hire a competent accountant and solicitor. You're missing the concept of systemic risk, which is the risk of the entire market or an entire asset class. Diversification is about achieving a balance between risk and return that's appropriate for you. Your investment in Vanguard's fund, although diversified between many public companies, is still restricted to one asset class in one country. Yes, you lower your risk by investing in all of these companies, but you don't erase it entirely.  Clearly, there is still risk, despite your diversification. You may decide that you want other investments or a different asset allocation that reduce the overall risk of your portfolio. Over the long run, you may earn a high level of return, but never forget that there is still risk involved. bonds seem pretty worthless, at least until I retire According to your profile, you're about my age. Our cohort will probably begin retiring sometime around 2050 or later, and no one knows what the bond market will look like over the next 40 years. We may have forecasts for the next few years, but not for almost four decades. Writing off an entire asset class for almost four decades doesn't seem like a good idea. Also, bonds are like equity, and all other asset classes, in that there are different levels of risk within the asset class too. When calculating the overall risk/return profile of my portfolio, I certainly don't consider Treasuries as the same risk level as corporate bonds or high-yield (or junk) bonds from abroad.  Depending on your risk preferences, you may find that an asset allocation that includes US and/or international bonds/fixed-income, international equities, real-estate, and cash (to make rebalancing your asset allocation easier) reduces your risk to levels you're willing to tolerate, while still allowing you to achieve returns during periods where one asset class, e.g. equities, is losing value or performing below your expectations. The short answer is that you would want to use the net inflow or net outflow, aka profit or loss.   In my experience, you've got a couple different uses for IRR and that may be driving the confusion.  Pretty much the same formula, but just coming at it from different angles.   Thinking about a stock or mutual fund investment, you could project a scenario with an up-front investment (net outflow) in the first period and then positive returns (dividends, then final sale proceeds, each a net inflow) in subsequent periods.  This is a model that more closely follows some of the logic you laid out. Thinking about a business project or investment, you tend to see more complicated and less smooth cashflows.  For example, you may have a large up-front capital expenditure in the first period, then have net profit (revenue less ongoing maintenance expense), then another large capital outlay, and so on.   In both cases you would want to base your analysis on the net inflow or net outflow in each period.  It just depends on the complexity of the cashflows trend as to whether you see a straightforward example (initial payment, then ongoing net inflows), or a less straightforward example with both inflows and outflows.   One other thing to note - you would only want to include those costs that are applicable to the project.  So you would not want to include the cost of overhead that would exist even if you did not undertake the project. "I think you're on the right track with that strategy. If you want to learn more about this strategy, I'd recommend ""The Intelligent Asset Allocator"" by William Bernstein. As for the Über–Tuber portfolio you linked to, my only concern would be that it is diversified in everything except for the short-term bond component, which is 40%. It might be worth looking at some portfolios that have more than one bond allocation -- possibly diversifying more across corporate vs government, and intermediate vs short term. Even the Cheapskate's portfolio located immediately above the Über–Tuber has 20% Corporate and 20% Government. Also note that they mention: Because it includes so many funds, it would be expensive and unwieldy for an account less than $100,000. Regarding your question about the disadvantages of an index-fund-based asset allocation strategy:" "To answer your question: yes, it's often ""worth it"" to have investments that produce income. Do a Google search for ""income vs growth investing"" and you'll get a sense for two different approaches to investing in equities. In a nutshell: ""growth"" stocks (think Netflix, etc) don't pay dividends but are poised to appreciate in price more than ""income"" stocks (think banks, utilities, etc) that tend to have less volatile prices but pay a consistent dividend. In the long run (decades), growth stocks tend to outperform income stocks. That's why younger investors tend to pick growth stocks while those closer to retirement tend to stick with more stable income-producing portfolio. But there's nothing wrong with a mixed approach, either. I agree with Pete's answer, too." "A 'indexed guaranteed income certificate' (Market Growth GIC) fits the criteria defined in the OP. The ""guaranteed"" part of the name means that, if the market falls, your capital is guaranteed (they cover the loss and return all your capital to you); and the ""index linked"" or ""market growth"" means that instead of the ROI being fixed/determined when you buy the GIC, the ROI depends on (is linked to) the market growth, e.g. an index (so you get a fraction of profit, which you share with the fund manager). The upside is that you can't 'lose' (lose capital). The fund manager doesn't just share the losses with you, they take/cover all the losses. The downside is that you only make a fraction of whatever profit you might make by investing directly in the market (e.g. in an index fund). Another caveat is that you buy a GIC over some fixed term, e.g. you have to give them you money for a year or more, two years." Lets imagine two scenarios: 1) You make 10.4k (40% of total income) yearly contributions to a savings account that earns 1% interest for 10 years. In this scenario, you put in 104k and earned 5.89k in interest, for a total of 109.9k. 2) You make the same 10.4k yearly contribution to an index fund that earns 7% on average for 10 years. In this scenario you put in the same 104k, but earned 49.7k in interest*, for a total of 153.7k. The main advantage is option 1) has more liquidity -- you can get the money out faster. Option 2) requires time to divest any stocks / bonds. So you need enough savings to get you through that divestment period. Imagine another two scenarios where you stop earning income: 1-b) You stop working and have only your 109.9k principal amount in a 1% savings account. If you withdraw 15.6k yearly for your current cost of living, you will run through your savings in 7 years. 2-b) You stop working and have only 20k (2 years of savings) in savings that earns 1% with 153.7k in stocks that earns 7%. If you withdraw your cost of living currently at 15.6k, you will run through your investments in 15 years and your savings in 2 years, for a total of 17 years. The two years of income in savings is extremely generous for how long it starts the divestment process.  In summary, invest your money. It wasn't specified what currency we are talking about, but you can easily find access to an investment company no matter where you are in the world. Keep a small amount for a rainy day. So, first -- good job on making a thorough checklist of things to look into. And onto your questions -- is this a worthwhile process? Even independent of specific investing goals, learning how to research is valuable. If you decided to forgo investing in stocks directly, and chose to only invest in index funds, the same type of research skills would be useful. (Not to mention that such discipline would come in handy in other fields as well.) What other 80/20 'low hanging fruit' knowledge have I missed? While it may not count as 'low hanging fruit', one thing that stands out to me is there's no mention of what competition a company has in its field. For example, a company may be doing well today, but you may see signs that it's consistently losing ground to its competition. While that alone may not dissuade you from investing, it may give you something to consider.  Is what I've got so far any good? or am I totally missing the point. Your cheat sheet seems pretty good to me. But a lot depends on what your goals are. If you're doing this solely for your education and experience, I would say you've done well. If you're looking to invest in a company that is involved in a field you're passionate about, you're on the right track. But you should probably consider expanding your cheat sheet to include things that are not 'low hanging fruit' but still matter to you.  However, I'd echo the comments that have already been made and suggest that if this is for retirement investments, take the skills you've developed in creating your cheat sheet and apply that work towards finding a set of index funds that meet your criteria.  Otherwise happy hunting! you are discounting the cash used, the discount rate for cash should be whatever you determine is your risk premium over the risk free rate not the equity growth rate. if equity growth rate is above your determined required return the equity investment is wealth destroying and if it is above that then it is wealth increasing.   The difficulty I see is that the scenario is all wrong, what you are really after is a rent vs buy decision. Do I take this money and rent a place or do I buy a house? In either case you could invest the remainder after paying your rent/mortgage in the equity market no?  So what really matters is the difference in cost between renting and buying.   Let  (EGR)=equity growth rate  Rent = rent M = Mortgage payment  I = income  HA =  home value appreciation  Now the question is is renting or buying a better decision two scenarios, renting first  PMT =(I - rent)  I/y = (EGR)  N =Time horizon in years  FV= Gain from cf left after paying rent    then discount to present day at your required rate of return to find present value  now scenario for buying, this is more complicated because you are investing two different cf streams at different rates and have to calculate both and add them together.  1) CF 1 the mortgage payments buy you equity in the house which appreciates (hopefully) but can be extremely volatile. This is the cf stream scenario one doesnt have, when renting the rent payments poof disappear forever and you earn nothing on them 2) The income left after mortgage payment which can be invested at the market rate measured the same way as above. **This is extremely simplistic and doesnt take into account expected maintenance, property taxes and other costs intrinsic to the investment. It also doesnt take into account the lost down payment setting you well behind the renter.   TL DR: It is complicated but you determine the required return(discount rate) based on the perceived risk of the investment and your particular views  and it doesnt matter what expected growth rates are since any investment with an expected growth rate below your required rate is wealth destroying since you are paying for something which returns cash flows too small for its risk level. If you use growth rates as discount rates then all your investments will net to zero