:thought_balloon: Personal Finance - ETF Portfolio

:thought_balloon: Personal Finance - ETF Portfolio

- 6 mins

My parents or older generation people used to focus on “Savings”. While “Savings” is important, to become Rich one should also need to learn “Investing”. I have read many personal finance courses and had used financial advisor services in the past 20 years and what I learned is one of the best gifts one can give to themselves is “financial knowledge”. One should take control of their finances and manage them themselves. No one else including financial fiduciaries has the same level of intention to grow your money.

Managing your finance might seems hard because it is not taught in school. But don’t worry, start early and learn through trial and error. In the initial year, one might make many mistakes and but those will teach some lifelong lessons that will help to master money management. I am a great fan of low-cost ETFs and I pick my funds. I distribute my money accordingly and never bother about any stocks going up or down or market news or anything else.

Asset Allocation

Asset allocation is the most important decision an investor can make. Ensuring one’s portfolio is positioned properly is essential to achieving one’s financial goals.

One should select optimal suitable allocation based on their age, risk profile, and financial situation.

  1. US Stocks

    Most index funds are market-cap-weighted. They mirror the market value of each stock. By equally weighting each sector, one can achieve better results over time, often with less risk. Here is a sample approach with Vanguard and SPY ETFs.

    Sample Example:

    Exposure Sector Weight Vanguard ETF SPY ETF
    Materials 10% VAW XLB
    Consumer Staples 10% VDC XLP
    Health Care 10% VHT XLV
    Energy 10% VDE XLE
    Utilities 10% VPU XLU
    Communication Services 10% VOX XLC
    Consumer Discretionary 10% VCR XLY
    Financials 10% VFH XLF
    Information Technology 10% VGT XLK
    Industrials 10% VIS XLI
           
    Total 100%    
  2. International Stocks

    Example:

    Exposure Sector Weight Vanguard Additional funds
    Developed Markets 75% VEA IEFA, SCHF
    Emerging Markets 25% VWO IEMG, VEU
           
    Total 100%    
  3. Alternatives

    Example:

    Exposure Sector Weight Vanguard Additional funds
    Real Estate 70% VNQ USRT
    Gold 30% IAU GLD
           
    Total 100%    
  4. US Bonds

    Example:

    Exposure Sector Weight Vanguard Additional funds  
    core 1-5 years 50% BSV ISTB, AGG  
    core 5-10 years 50%   IMTB  
             
    Total 100%      
  5. International Bonds

    Example:

    Exposure Sector Weight Vanguard Additional funds
      100% IAGG ISTB, IMTB, BSV

Disciplined Rebalancing

BOOKS Recommendations

Little Book of Common-Sense Investing
By John C. Bogle

Lessons Learned:

  1. Actively managed funds may not work, because past profits don’t guarantee future success.
  2. Put the majority of your money in safe, low-cost index funds.
  3. Choose the cheapest fund to keep things simple.

Conclusion

The below sheet has the return for Low-Cost ETFs(Vanguard) and SPY throughout 10yrs.

Click here to download the file asset-allocation-cmp-vanguard-spy. xlsx

The conclusion of risk vs reward is as follows:

Target Goal
Risk 13.60%
Returns 8.80%

As we can see that Low-Cost ETFs offer similar returns as SPY with low risk for a long period (>10yr) of investments. I have not come across any actively managed funds (including ARK’s ETFs) which can beat SPY over a long period. By Doing Asset allocation and disciplined rebalancing, one can achieve a significant part of the financial freedom goal without taking the additional stress of stock market movements or breaking news.

Web Resources:

Satya Dillikar

Satya Dillikar

Accomplished technology leader with over 20 years of experience leading global teams to deliver innovative, scalable, and mission-critical software products

DISCLAIMER: All views expressed on this site are my own and do not represent the opinions of any entity whatsoever with which I have been, am now, or will be affiliated. Any collateral used is referenced in the Web Resources or others sections on this page. The information provided on this website does not constitute investment advice, financial advice, or trading advice.

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