One Stock to Own Them All: The Magic of ETFs
Ever thought about owning bits of the best companies worldwide, all with a single purchase? That may sound like a fantasy, but it became my reality when I discovered Exchange Traded Funds (ETFs).
ETFs are like a basket of various stocks that you can buy in one go. They're not just a time-saver, they also improve your chances of making money over time.
Let's look at the S&P 500 as an example, which is an ETF that includes 500 of the biggest companies in the U.S. The neat thing about this ETF is that it's self-cleaning. If a company within it starts doing poorly, it gets replaced by a better-performing company, and you don't have to do a thing.
There are loads of different types of ETFs that can help you build a strong collection of investments for the long run. Here are some of the popular ones:
S&P 500 ($VOO): It's like owning small parts of 500 big companies in the U.S. It's perfect for those who believe in the strength of the U.S. economy.
Real Estate ($VNQ): This one allows you to own parts of many different property companies. It's good if you're looking for a source of regular income from your investments.
Tech Stocks ($VGT): This gives you ownership in many technology companies. It's a great choice if you want to benefit from the growth in the tech sector.
NASDAQ 100 ($QQQ): This lets you own parts of 100 of the most significant non-banking companies. It's ideal if you're excited about big tech, health care, and consumer services.
Growth Stocks ($VUG): This one focuses on companies that are expected to grow faster than others. It's suited for those who are looking for faster-than-average growth.
Small Companies ($VB): This one focuses on smaller companies that have the potential to grow big. While they can be risky, they can also offer big rewards.
Total World Market ($VT): This gives you small ownership in companies all around the world. It's an easy way to spread your investments globally.
Dividend Stocks ($SCHD): This one focuses on companies that regularly give money back to their investors. It's suitable for those looking for regular income from their investments.
Total Bond Market ($BND): This one lets you own a variety of bonds, which are basically loans that pay interest. It's good for regular income and is generally less risky than stocks.
Emerging Markets ($VWO): This one lets you own parts of companies in quickly growing countries like China and India. It's great if you're looking for the potential of high growth, but remember it can be riskier.
Total US Stock Market ($VTI): This one gives you a slice of all kinds of companies in the U.S. It's an easy way to spread your investments across all kinds of industries and company sizes.
Remember, the key is to pick the ETFs that match what you want from your investments and how much risk you're comfortable with. The wonderful thing about ETFs is that there's something out there for everyone, no matter what your goals are.
When it comes to the number of ETFs to hold, there isn't a one-size-fits-all answer because it largely depends on your personal goals. Some investors might find that just one ETF, such as a broad-market ETF like the Total U.S. Stock Market ETF ($VTI) or the Total World Market ETF ($VT), can provide enough diversification.
These types of ETFs encompass a wide range of sectors, company sizes, and, in the case of the Total World Market ETF, even countries. However, other investors might choose to hold several ETFs to further diversify their portfolio or to gain targeted exposure to certain sectors, types of companies, or regions of the world. For example, if you're optimistic about the technology sector, you might add a tech-focused ETF to your portfolio alongside a broad-market ETF like $VTI. Ultimately, the key is to balance diversification (spreading out your investments to reduce risk) with concentration (holding fewer investments so that you can benefit more if those investments do well).
ETFs are a big deal in the world of investing, but they're often overlooked. If you want an easy way to start building your collection of investments, ETFs could be a great place to start.
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I recently put together a master list of 100 different ETFs designed to support different investment goals. You can grab it here.
And as always: Stack assets & enjoy life.
-Josh
Blog Post: #129
