No. it doesn’t matter. Check this thread for an explanation
The individual prices for an ETF are not generally relevant. If you own 4 pieces of something worth £20 for £5 a piece or 2 pieces worth £10 a piece is equal. It’s only a nuisance if it’s so high that buying or rebalancing gets hard for you.
You make some very good points regarding passive investing and for a lot of people who do not have the time or experience/knowledge to select individual stocks this makes a lot of sense. However even selecting different ETF’s can over the long run make a huge difference to returns. For example not investing in Technology over the last 20 years could have left you with a severe underperformance against those people that had. Likewise an ETF in the UK FTSE 100 would have underperformed against a Japanese stock ETF so you cannot be passive really even in ETF’s or funds. You need to take a view on the present relative to the future. I have been investing for 25 years and have done well through investing in both ETF’s and funds but you have to do it with your eyes wide open and look at the present relative to the likely future based on value and growth. Some fund managers do very well based on that and funds such as Fundsmith do well because Terry Smith selects established companies that are better than the overall market due to their quality. Likewise Scottish Mortgage does well because the manager places his bets on future trends. This should give most investors a clue also as to how they could think if they want to add a few stocks to their mainly fund based portfolios.
You don’t need to pick stocks / actively manage to achieve this. There are passive ETFs that follow factors (such as Quality). For example the iShares Quality factor ETF:
In fact active funds over/under performance is often explained by their relative exposure to risk factors as opposed to stock picking ability.
People who picked EV stocks last year literally had 30 years of S&P gains in half a year. I mean sure, it’s likely not going to continue but for those who already locked the gains picking individual stocks will always be a statistically better strategy
Right and plenty of other people picked other stocks and lost money during a bull run.
Not for most though.
For sure. If one wants to put money somewhere for 40 years and never rebalance, broad market index seems like the only option. Investing in anything else would eventually make you a victim of trend reversal.
Yeah, for them but also for people who rebalance every single minute, the advice is no less relevant to people who pay more attention.
‘Be lucky and hope that every sector you rotate into becomes part of a massive speculative bubble’ isn’t exactly useful advice.
This guy I speak to made around 18% from January 2020 to January 2021 - which does not sound great to most, though he was fully invested and diversified throughout and bought more on the March dip. Mostly index funds and robo.
This still made him around $150,000.
Not sure where you think you read that, but picking stocks is generally the worst strategy in the longterm. Also why would you use ‘statistically’ to further an opinion?
Yes that would be a possible ETF to consider. It’s performance since inception in 2014 has been more or less in line with the S&P 500. However it holds 300 stocks so you would not expect it to outperform a fund such as Fundsmith which holds around 30 stocks. Terry Smith has said his investable universe of stocks is only around 65 to 70 of the best companies in the world. Fundsmith has considerably outperformed this ETF and I suspect that over the long term will continue to do so.
Worth a read if you’re new to all this
This is a brillant write up! I’m only young(Ish) so and new to this. So planning on putting 7.5% of income per month into this. Will probably go 80/20 on the safer side.
Hey man, thanks for this introduction! I’m a newbie so making my way through a lot of these forums.
Can I ask for a bit of a breakdown on Bonds and why there is a small portion (20%) on them? Are these more risky than asset ETF?
Being honest - what are they? What would determine if a bond price went up/down? I am doing my own research but intrigued to hear what people on FT are saying instead of Google.
A bond is essentially an instrument whereby you can purchase debt (and thus you get the interest on that debt, plus the principal repaid in X years).
So for example you could buy a bond for £100 which might pay 3% interest per year for the next 8 years, at the end of which you get £100.
They’re traditionally a low-risk asset but in an age of below-inflation interest rates, they’re not at their most appealing.
In addition to paradiselost’s great explanation:
A bond is basically a loan. You loan someone money and receive interest.
What makes a loan a bond is being able to sell and buy it to/from others on an exchange for a certain price.
Doesn’t seem to be a way to buy bonds outside of the ETFs?
VTI • Vanguard Total US Stock Market ETF
FNDB • Schwab US Broad Market ETF
VXUS • Vanguard Total International Stock ETF
VBR • Vanguard Small Cap Value ETF
This is a great long term set up. Simple. Minimalist. All distributing dividends. Not achievable unless using a platform with US etf’s.
QUESTION for the knowledgable etf investors out there; Are there similar funds available which could be added to freetrade?
I really like the idea of a separate total US stock market etf and a single Total International etf. This makes regular investing and rebalancing so darn effortless.
2nd QUESTION for the financial people on here; As a UK investor, would you consider buying US etf’s in Dollars?