Become A Great Investor On Just 30 Minutes A Year
Alex Honnold clung to the vertical rock face of El Capitan. If his foot slipped or if his fingers cramped on a tiny hold, he would have fallen thousands of feet to his death. He wanted to be the first person in history to climb this legendary wall without a rope.
If you watch this toe-curling achievement in the 2018 documentary, Free Solo, you would probably think he’s nuts. I agree. But plenty of investors do something similar without understanding the risks. Fortunately, it’s easy to invest like a champ. It can take less than 30 minutes a year. You just need to ignore crazy thrills and use investment ropes.
Unfortunately, that’s not what most investors do. They select funds by looking at recent past results. They might choose a fund or ETF based on how it performed over the past 12 months or over the past few years.
The Russian stock market, for example, offers an intoxicating call. It grew faster than a crowd offered free vodka near the Kremlin. It swelled 53.2 percent in 2019, when measured in USD. The New Zealand stock market also soared. It gained a whopping 38.8 percent. The U.S. stock market gained a dizzying 30.84 percent.
Several investors have recently emailed me to say, “I’ve read your book, Millionaire Expat, and I want to buy a S&P 500 U.S. stock market index because it performs best.” That’s when they ask about two or three ETFs that track the S&P 500. They want to know which one to buy. But if I could get away with it, I might torture such investors with mild electric shocks. After all, we can only see the past. And if such investors knew how the New Zealand or Russian markets performed this year, they wouldn’t be drunk on the stars and stripes.
Smart investors know better than to chase recent winners. After a country’s stock market soars, it often slips while others climb. Unfortunately, patterns of greatness don’t persist. The Novel Investor website publishes detailed tables that prove this point. Please carefully study the link. Every smart investor must.
A stock market might perform well for a decade and then fall hard. It might experience just one year on top and then cascade down. That’s why chasing past performance is like climbing without a rope. Nobody knows which country’s stock market will perform best this year, next year, or the decade after that. And nobody knows which will drop like a drunk to the jagged rocks below.
That’s why smart investors diversify. They ignore past returns. They build globally diversified portfolios of stock and bond ETFs. And if they spend more than 30 minutes a year making investment decisions, they’re likely doing something wrong.
Expats who want to retire in Canada or Australia could choose a simple, effective route to climb. Vanguard Canada and Vanguard Australia offer diversified portfolios of home-country and international stock and bond market funds. Each is wrapped up into a single ETF. Expats can buy them from an online brokerage. Investors would pay fees of about 0.25 percent per year. Morningstar says such investors perform better than those who build portfolios with individual funds. That’s because the all-in-one portfolios limit speculation. Investors never have to worry about which funds to buy. They own a piece of everything at an extremely low cost.
Such funds get regularly rebalanced back to their original allocation. For example, Vanguard Canada’s Growth ETF Portfolio (VGRO) includes about 80 percent in Canadian and global stocks, with the remainder invested in bonds. When stocks fall hard, Vanguard rebalances the portfolio, selling bonds to add investors’ proceeds to the stock allocations. When stocks rise faster than bonds, Vanguard adds more money to bonds. They usually rebalance by adding investors’ new deposits into the lagging index. This allows Vanguard to maintain a consistent allocation of 80 percent stocks and 20 percent bonds. This reduces risk. Sometimes, it even boosts returns.
Canadians can browse Vanguard’s all-in-one portfolios here. Each represents a different tolerance for risk. For example, the higher the bond allocation, the lower the long-term returns, but the higher the stability. Australians can browse their equivalent products here.
Hands-off investors who don’t know where they want to retire might prefer Internaxx’s Smart Portfolios. They’re globally diversified portfolios of stocks and bonds without a focus on a single country. These aren’t technically ETFs. They’re indexed mutual funds. They charge total fees of 0.90 percent to 1.4 percent per year. But investors don’t pay commissions to buy or sell. And the portfolio allocations (as with the all-in-one portfolios above) are automatically rebalanced so investors don’t have to do it.
Those seeking lower-cost solutions could buy a global stock ETF and a global bond ETF. For example, Vanguard’s FTSE All World UCITS ETF (VWRA) provides exposure to global stocks. It charges internal fees of 0.22 percent. The iShares Global Inflation-Linked Government Bond ETF (IGIL) provides exposure to global bonds. Its internal fees are 0.25 percent. But, unlike the Smart Portfolios or the all-in-one ETFs above, investors would need to rebalance their own portfolios. This would be required to maintain a consistent allocation.
Unfortunately, most investors complicate things instead. They chase past performance. They listen to forecasts. They jump from fund to fund like a crazy mountain climber leaping from ledge to ledge. I’m far too greedy to play such games. I would rather retire rich. And I’m guessing you would too.
Andrew Hallam is a Digital Nomad. He’s the author of the bestseller, Millionaire Teacher and Millionaire Expat: How To Build Wealth Living Overseas
Swissquote Bank Europe S.A. accepts no responsibility for the content of this report and makes no warranty as to its accuracy of completeness. This report is not intended to be financial advice, or a recommendation for any investment or investment strategy. The information is prepared for general information only, and as such, the specific needs, investment objectives or financial situation of any particular user have not been taken into consideration. Opinions expressed are those of the author, not Swissquote Bank Europe and Swissquote Bank Europe accepts no liability for any loss caused by the use of this information. This report contains information produced by a third party that has been remunerated by Swissquote Bank Europe.
Please note the value of investments can go down as well as up, and you may not get back all the money that you invest. Past performance is no guarantee of future results.