Doing things simple is often the best approach for the great majority of people. In this post I discuss 3 simple portfolios you can start in 2020.
Keeping things simple is often mentioned by the greatest investors of all times, such as Warren Buffet and John Bogle.
As Warren states:
“I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.”
It is far easier for the average investor to just focus on the long term and on what is more likely to happen. As far as we can tell, the Stock Market, in general, goes up in the long run.
We have market crashes. True fact!
Some companies go bankrupt. True fact!
Your money will not be the same if you check your investment account every day. True fact!
These are the facts that we know from the markets, so the simplest strategy should at least cover these.
Invest For The Long Term
The same way you are deducting part of your income to social taxes hoping to get a pension, later on, you should invest as much as you are able to, for the long haul.
This will be your self-made retirement. The longer you keep your money invested, the longer it compounds generating magic returns.
Track the Market
Instead of taking the risk of picking stocks, you can just buy a low-cost product that tracks the overall market.
3 positive things you are achieving here…
You are already diversified, protecting yourself against the rotten apples of the Stock Market.
You have low management fees and these play an important role in the long term. Fees do compound over time. Since these are generally a percentage of the assets you own, the more you have the more you will pay. So find something that at least under 0.50%.
Some brokers offer free-cost transactions on some of these Index Funds. Take advantage of these. Again, if you are paying a fee every month for 30 years, it is going to add up.
Consistency is Key
Investing every single month is important and this will average out your cost as time goes by.
Pay your self first even if it is just a fraction of your income. Some money is always better than nothing.
You are working for yourself, so be selfish. Pay others later than you pay yourself. You are the priority.
The 3 Portfolios
Here are 3 ideas for simple portfolios you can easily target for 2020:
Portfolio 1: The Large-Cap Index
For this portfolio, we only care about the S&P 500 index. This represents the 500 largest companies listed on the US market.
A Vanguard fund that tracks this index is available under the ticket symbol VUSA. It only carries a 0,07% management fee so it is one of the cheapest you can find.
This is composed of 100% equities. If you are young with a long term horizon, this is usually a great bet. You can read more details here.
Portfolio 2: The International Index
With Portfolio 1, one can argue that is very US based.
If we move to Blackrock, the largest asset management company, you can invest in IWDA. This one features a slightly more expensive fee of 0.20%. However, this ETF does not distribute dividends but accumulates them in the fund. This is an important factor in terms of tax impact.
On this one, you are diversified internationally, The ETF tracks stocks from 23 developed countries worlwide covering 85% of the listed equities in those countries.
IWDA tracks the MSCI World Index. You can read more details here.
Portfolio 3: A Mix of the Two
This last one, is nothing more than mixing the two portfolios mentioned above.
The percentges of each one, should follow your personal bias of giving more weight to US listed companies or more on internatinal ones.
I personally view the US stock market has the most important market globally so I prefer to be overweight on Portfolio 1.
Treating your investments as an automatic savings account, that you are not able to touch for a few years is in my view one of the easiest and error-free ways to invest.
All you need is patience and avoid emotions to influence your decisions.
What do you think on these portfolios? Do you hold any of these ETFs? Let me know in the comments below.