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 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.
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.
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%
Exposure Sector Weight Vanguard Additional funds Developed Markets 75% VEA IEFA, SCHF Emerging Markets 25% VWO IEMG, VEU Total 100%
Exposure Sector Weight Vanguard Additional funds Real Estate 70% VNQ USRT Gold 30% IAU GLD Total 100%
Exposure Sector Weight Vanguard Additional funds core 1-5 years 50% BSV ISTB, AGG core 5-10 years 50% IMTB Total 100%
Exposure Sector Weight Vanguard Additional funds 100% IAGG ISTB, IMTB, BSV
- 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)
Little Book of Common-Sense Investing
By John C. Bogle
- Actively managed funds may not work, because past profits don’t guarantee future success.
- Put the majority of your money in safe, low-cost index funds.
- Choose the cheapest fund to keep things simple.
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.
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.