ETF funds are low cost and give you instant diversification.
One of my role models is John Bogle, founder of Vanguard. He changed the world for countless people. He created one of the greatest wealth building machines. He believed the entire market does better than picking individual stocks.
When he started everyone was against him. Because there is an entire financial system set up to charge you fees to invest so they can make money off you. The have expensive tastes! But over time the industry could not deny Bogle’s results for himself and his followers.
ETFs invest in a ‘basket’ of stocks. Which basically means they invest in a variety of businesses. So if one business goes out then there are whole host of other businesses there to pick up the slack.
Everyday there are more index funds to choose from. They are becoming more and more popular each year. And for good reason. Passively managed index funds have much lower costs than actively managed funds. Actively managed means that a manager buys and sells the basket of stocks in the funds.
99% of people are not good at picking stocks. Even Warren Buffett has made plenty of stock picking mistakes. I am looking at you Kraft Heinz. So investing the market is much less risky than betting on individual stocks to rise and fall. Don’t be a fool. Do not think that you are the one person that can outsmart the market.
Full disclosure: I like playing in the market. I enjoy buying and selling investments to see how they will do. But I only allow a tiny fraction of my investable assets to be used to purchase individual stocks. So if I want to purchase more individual stocks I have to earn more money and grow my index portfolio larger.
I always say this: Before you start investing, what are you goals? Why are you doing this and what do you want the outcome to be?
The answer to your ‘Why’ will drive your investments. I am relatively young so I am investing for portfolio growth and I am willing to take more risk and less safety. You may be reach retirement and want more safety.
The ETFs I invest in:
- VTI – Vanguard Total Stock Market ETF – 60%
- VGT – Vanguard Information Technology ETF – 30%
- BND – Total Bond Market ETF – 10%
If you start young and build a large enough portfolio, you really do not even need the lower 2 ETF funds, just VTI.
I like equities so I have invest the majority in VTI.
I believe the software and technology sector will grow larger in the next 50 years.
Bonds equal safety
One day when I ready to retire and protect my wealth I will sell out of equities and dramatically increase my percentage of bonds. This is what I tell myself. In reality, I most likely will never retire and never need to raise my bond allocation. Bonds are backed by governments, municipalities and companies. They pay out a fixed amount each month so they reliable. This income limits the grow potential of the investment, but provides a stability.
I also invest in real estate so that I will have income from that and social security in my golden years.
These are the ETFs I invest in. There are so many different flavors of funds out there to meet your needs. You may find that other funds do better than the ones that I have chosen. I chose these funds, because I have confidence in them. Do what makes you confident and secure.
Don’t buy in and out of the funds. Invest and keep investing. You need those dividends to grow your portfolio.
You do not need to beat the market. You do not need to be special and smarter than everyone else. The market does just fine on its own. The market always performs, you just need to ride the wave.
You need to concentrate on earning more income. Growing that business, getting that raise, becoming an expert in your craft.
Simple is better. It means less work for you. And less fees. People charge lots of money to do work. You need to bypass all of that and keep the money for yourself.