Foundational investment products for my portfolio

finance

“The best time to plant a tree was 20 years ago. The second best time is now.”

– Chinese Proverb

Introduction

One of the best things you can do for your financial future is to start investing. Time in the market always beats timing the market. You will never get rich working 9-5 at a day job. Owning assets is the only way to get financially successful and since most of us aren’t entrepreneurs or won’t have successful businesses, the next best way is to own pieces of publicly traded assets.

Good to know tidbits

  • Having an investment portfolio of $1 million will lead to an average income of $40,000 a year - simply stated if you can live on under 40k a year and accrue investments of $1 million you don’t have to work for the rest of your life

  • S&P500 index or the Standard & Poor’s 500 Index, is a market-capitalization-weighted index of the 500 largest publicly-traded companies in the U.S

  • The average long term return of the S&P500 is 7%

  • Most fund managers do not out perform the S&P500 index i.e. holding the S&P500 will lead to better returns than having an active portfolio manager manage your investments

  • Having some percentage of gold in your portfolio gives your protection against the economy tanking i.e. if gold is going up then the economy is doing worse

  • When interest rates go up asset prices fall

  • When the government prints money it tends to inflate the stock market, the housing market, and college tuition

  • Long positions make money when the price of the asset goes up - Short positions make money when the price of the asset goes down

Foundation

Just like how we build houses and/or software from a solid foundation we should build our portfolio from a solid foundation as well. You can pick and choose individual stocks after you have a base of rock solid investment products setup first. You don’t want to be the investor that owns Dogecoin but doesn’t own Amazon stock.

Usual overused disclaimer: I am not a financial advisor and this is not financial advise - I am just sharing the products that make up the foundation of my portfolio.

Products

S&P 500 Index ETF (VFV)

Holding VFV is equivalent to holding the entire S&P500. Just by purchasing this fund we have already invested in the biggest 500 companies in the US. It also has a 1.2% dividend distribution that gets reinvested giving you more units of the ETF.

More details: https://www.vanguardcanada.ca/advisors/products/en/detail/etf/9563/equity

Growth ETF Portfolio (VGRO)

Where the S&P500 tries to strike a balance between risk and return it is important to be exposed to slightly riskier growth stocks as well. It has a ratio of 80% stocks to 20% bonds and also includes stocks from emerging markets, which is the higher risk piece of this fund, and small cap companies.

If you are a relatively younger investor i.e. decades away from retiring - it is generally fine to have a more riskier portfolio. That doesn’t mean put everything you own in bitcoin.

More Details: https://www.vanguardcanada.ca/advisors/products/en/detail/etf/9579/balanced

FTSE Canadian Capped REIT Index ETF (VRE)

If you have kept up with the news of the housing market you know that the real estate sector is hot. Real estate in every single livable city in the world is going through the roof. Houses here in Kitchener are going for 100k over asking. If I were a millionaire the first few big purchase would be real estate but I am not so the next best thing is to purchase the REIT which exposes me to the real estate sector and rental income. People who cannot get into the housing market will lose out in the long term. There is a reason land does not depreciate in accounting.

More Details: https://www.vanguardcanada.ca/advisors/products/en/detail/etf/9559/equity

Vanguard Dividend Appreciation ETF (VIG)

Capital appreciating is great but getting some recurring dividend income is good to have too. That dividend gets reinvested and becomes more units of the product as well, which increases dividends coming in even more. VIG is an investment product that is predominantly dividend focused.

More details: https://investor.vanguard.com/etf/profile/overview/vig

Canadian Aggregate Bond Index ETF (VAB)

Investors tend to look down on bonds because of the low rate of returns but it is prudent to have a percentage of the investment portfolio be bonds. They provide a stable return with low risk. Over the last 30 years bonds traders have made a lot of money because interest rates have been dropping but recently we are seeing a reversing trend where the 10 year bond yield has been going up again - so expect this to go down while that trend continues. From December 2020 to March 2021 the product has seen a ~5% drop.

More details: https://www.vanguardcanada.ca/individual/indv/en/product.html#/fundDetail/etf/portId=9552/assetCode=bond/?overview

Investment products in my to-buy-next list

There are two assets that I do not own yet but am looking to buy in the short term and they are DigitalOcean stock [$DOCN] and the OGIG ETF.

DigitalOcean went public recently and the stock is currently trading at $40 - I think this is a great buy for an amazing company with a bright future.

The second is Kevin O’Leary’s OGIG ETF which has 91 holdings comprised of the Internet Giants - I think this is a great way to expose yourself to the ‘tech’ sector without over investing in FAANG stocks.

Conclusion

Instead of buying a new iPhone buy Apple stock - Instead of buying an electric car buy Tesla stock - Instead of subscribing to Prime get Amazon stock - Your future self will thank you.