Personal Finance - ETF Portfolio

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.

• A Sample Asset Allocation Example:

  Catgeory	Percentage
  US Stocks	60%
  International Stocks	20%
  Alternatives	10%
  US Bonds	7%
  International Bonds	3%
  Total	100%

  Diversification to reduce risk over time.

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

• Adherence to the Target Allocation
• Never time the Market, do regular rebalance
• Invest fully whenever one has cash.
• Avoid emotions and guesswork during the investment process
• Do some Tax management(like tax-loss harvesting, tax-deferred accounts)

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:

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:

• Personal Capital
• M1 Finance

Satya Dillikar

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

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