Before I begin, I am not your financial advisor so you do not have to believe or listen to anything I am writing below. I also don’t want to be liable for your finances without even knowing who you are. But, if you decide to keep reading and are in your late teens to late 30’s, your investment portfolio doesn’t need to be complicated. All you really need to do is pick out an aggressive strategy and ride the stock market for years and even decades. Many of us think investing in stocks is this difficult thing that only finance professionals do. Let me tell you a little secret — the professionals don’t even really know what’s going to happen in the markets.
What we can do, however, is to look at historical events and make assumptions about the future. We generally assume that the United States and the rest of the developed and/ or developing markets will remain intact and will see growth. We assume that the human curiosity will push us forward. It is generally agreed that the stock markets rise in the long term. Even if there are periods of losses, if you hold long enough, you will make money.
Index Investing vs Individual Stock Investing
There are a couple of ways you can invest in stocks. You can either purchase individual names like Apple or Starbucks, or you can purchase a basket of stocks that has Apple and Starbucks and many more in something called an Index Funds (ETF). If you think you have the god given ability (or guts) to purchase individual stocks, go ahead. It is worth noting though that it is proven time and time again that the average investor is not able to pick out individual winners in the longterm, and the broad market indices like the S&P 500 and the Dow generally outperform the stock pickers.
An ETF is a fund that’s sole purpose is to track an index like the S&P 500. For instance, VOO is a vanguard fund that tracks the S&P 500. Therefore, if you purchase a share of VOO, you own a Vanguard fund that will roughly give you the same returns as the 500 largest US companies! If you purchase something like VWO, you will own a fund that roughly tracks the Emerging Market stocks.
What the hell is Vanguard and who are the Emerging Markets?
Solid questions. Vanguard is a financial institution that manages funds that investors can purchase. You can also open brokerage and retirement accounts with a company like Vanguard. Other companies like Vanguard are Charles Schwab and BlackRock.
Emerging markets are in Developed or Developing Nations such as India, South Korea, Brazil, Mexico, Turkey, etc. It is generally recommended to utilize a portion of your portfolio to these markets for returns and diversification purposes.
Ok, What Should I Buy?
If you decide to jump on the Index fund train, I will list some funds I recommend for anyone to hold that are in the late teens to late 30’s and beyond.
For investing in the US markets, I recommend allocating 50% of your portfolio to VTI. With this fund you will own the majority of the US large, mid and small caps. The expense ratio, the amount the fund charges per year for you to hold the fund, is minute. More specifically they charge 0.03% a year. So if you invest $10,000, they charge you $3 a year. And you won’t even be “charged” like a traditional bill you have to pay, they just deduct that .03% from the returns the S&P500 made. Basically what I’m trying to say is that you won’t even notice the fees. And this holds true for ALL the funds I am recommending in this post.
Furthermore, as you can see below, the fund has done a damn good job of tracking the S&P 500 over the last 10 years.
Also, if you are wondering what stocks VTI actually holds, the top 10 holdings are listed below taken directly from Vanguard’s website.
When it comes to the international portion of your portfolio, I recommend investing in VWO and VEU. VWO is the vanguard fund I recommend for the Emerging Markets portion of your portfolio, and VEU is for your broad international exposure that will not only include Emerging Markets, but also include companies from Developed economies like the UK, Japan, Germany etc. These funds don’t have any exposure to US markets; therefore, are wonderful diversification tools.
Below are the top 10 holdings in VWO.
And below are the top 10 holdings in VEU.
I recommend you investing 40% of your portfolio is these two funds I just talked about. The way I’d split it is by going 30%/10% on VEU and VWO. So if I were to invest $1,000, I’d invest $500 into VTI, $300 into VEU and $100 into VWO. That leaves us $100. 🤔
What about Real Estate?
I don’t think it would hurt to invest into a Real Estate Investment Trust (REIT). By owning one of these funds, you get to spread your money over a diversified basket of Real Estate holdings. As the fund collects lease payments, it pushes out that income to you for your portion of ownership. The fund I would buy is VNQ. The summary for the fund is below:
Although not necessary, I think owning some real estate won’t hurt and VNQ is truly a high quality fund for doing so. Therefore, I think VNQ deserves the last $100 in our example. It’s worth noting that I am not getting paid by Vanguard or anyone else, so these recommendations are being made based off of personal research and experience, and the true high quality nature of the funds.
If you continue putting your money into these funds through the ups and downs of the stock market for a period of time (10–15 years), you will take meaningful strides towards becoming financially independent. And honestly as you read above, it’s not that complicated. Of course you can get as complicated as you want with investing, but to get started, you really don’t need anything more than these four funds.