I’m 20 and just inherited $100,000 from a close family member. I’m trying to figure out how to divide it between the S&P 500, an all-world fund, or emerging markets.
Here’s my thinking: I’m from Austria and feel that Europe, with its low birth rates and heavy welfare systems, will underperform compared to the U.S. and emerging markets like India, where the population is younger and growing. I’m not optimistic about Japan either, with its low birth rate and restrictive immigration policies.
I’m leaning towards an 80% S&P 500 and 20% emerging markets split, skipping or minimizing all-world exposure. Maybe 10% in an all-world fund just to be safe?
Is this a bad strategy? I’d really appreciate any advice or suggestions!
If you’re debating this, it means you want to diversify beyond the S&P 500. You could go with 80-90% S&P 500 and put the rest into something you believe in or think will outperform.
Another option is to put half into the S&P 500 now and keep the other half in a money market earning around 4.5%. Slowly move money from the money market into the S&P 500 each month. This hedges against a market drop and helps you avoid panic if the market dips. Big drops can be stressful, and you want to stay calm and focused.
Also, consider putting $7k into a Roth IRA (if you’re eligible) this year and another $7k in January. That money grows tax-free, and $14k at a 10% return could grow to $1 million by the time you retire.
Congrats on your inheritance, and remember to think long-term and avoid blowing it on unnecessary things like a fancy car.
@Cypress
This is solid advice. Dollar cost averaging through a money market and maxing out Roth IRA contributions are great ideas for someone young and new to investing.
@Cypress
I don’t think Austrians can access a Roth IRA. They have something called Zukunftsvorsorge, which is a state-subsidized retirement savings plan.
@Cypress
Money market accounts aren’t as common in Europe, and they often come with strings attached. For example, banks might offer good rates only if you invest in their high-fee funds, or the rate might only apply for new accounts or for a limited time.
I think your strategy makes sense. The U.S. has been the strongest performer historically, and its business environment is very investor-friendly. I’m Canadian, but I still put more money into U.S. markets than my own country.
As for emerging markets, I personally avoid them due to their volatility and risks like corruption, fraud, and hyperinflation. I’d rather double my money steadily every seven years with the S&P 500 than take big risks in markets that might completely crash.
You’re young, and with your time horizon, you’re in a great position. Good luck!
At 20, I’d put it all in the S&P 500. Forget foreign stocks for now. If you want more diversification, you could add some small-cap value funds, which are expected to perform well in the next few years.
A good split could be 100% S&P 500 or something like 50% S&P 500 and 50% small-cap value (e.g., AVUV).
The S&P 500 already has significant foreign exposure. The U.S. market has consistently performed better because of its stable government and economy. That’s likely to continue.
Blake said: @Olin
Did you really think my comment deserved a downvote?
Your point is valid. Markets thrive on stability, even if it sometimes comes at the expense of other priorities. It’s what keeps investors coming back.
I’ve had emerging markets in my portfolio for 15 years, and they’ve been disappointing. My S&P 500 investments have outperformed all my friends who try to trade individual stocks or niche ETFs.
If I could do it over again, I’d just stick to the S&P 500 and leave it alone.