I am a big fan of passive long term investing. Why? Because it’s very simple, low cost requires a few hours per month and it performs better than any actively managed hedge fund. I make my investments through ETFs. The broker I use to buy the ETFs is Interactive Brokers. Click here to open a new account
What Is an ETF?
An exchange-traded fund (ETF) is a type of security that involves a collection of securities—such as stocks—that often tracks an underlying index, although they can invest in any number of industry sectors or use various strategies. ETFs are in many ways similar to mutual funds; however, they are listed on exchanges, and ETF shares trade throughout the day just like an ordinary stock.
Some well-known example is the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 Index. ETFs can contain many types of investments, including stocks, commodities, bonds, or a mixture of investment types. An exchange traded fund is a marketable security, meaning it has an associated price that allows it to be easily bought and sold.
So, if you want to invest in the stock market, instead of investing in individual stocks, you can invest in an ETF. It’s less risky than investing in individual stocks and its totally passive. You just buy a portion every month or every year and forget about it.
A few years ago I had read in a blog a very nice example, why to invest in an ETF instead of individual stocks. It was like this. Think about an individual stock as an individual team in the NBA, and think of an ETF like the SPY as the NBA. In which of the two you would feel more confident to invest? The individual team or the NBA? I would put my money in the NBA as I know it will be there forever and I believe in it. I am not saying that the individual team will not be there forever, but you never know, companies go bankrupt, remember Lehman brothers?
Let’s get back to my strategy. After a lot of research, I came across Paul Merriman.
Paul Merriman is a nationally recognized authority on mutual funds, index investing, asset allocation, and both buy-and-hold and active management strategies. Now retired from Merriman, the Seattle-based investment advisory firm he founded in 1983, he is dedicated to educating investors, young and old, through weekly articles at Marketwatch.com, and via free eBooks, podcasts, articles, recommendations for mutual funds, ETFs, 401(k) plans and more, at his website
I follow his best performing strategy Ultimate Buy and Hold Worldwide Equity Portfolio Tables (70% US / 30% Int’l)
Basically this strategy from 1970 until 2019 (50 years) had an annualized compound return of 12.9% ! Pretty impressive ! So if you had invested $100.000 in 1970 based on this strategy, with yearly rebalancing, it would grow to $43,329,609 ! Crazy ! Just money making more money. How can you not fall in love with this? Do you understand that you can change the future of your grandkids by simply start investing today? Of course, past performance does not guarantee future performance, but personally, if someone invests today $100, I don’t see how that $100 can worth less in 50 years 🙂
What exactly is the ultimate Buy and hold worldwide strategy?
Its an 100% equity portfolio, 70% US and 30% International. The 70% US is allocated in 35% LCV (Large Cap Value), 35% SCV (Small Cap Value) and the 30% international is allocated in 12% LCV, 12% SCV, and 6% in Emerging markets.
I am a European citizen and I can’t directly invest in US ETFs like the SPY. So I made a little research to find the equivalent European ETFs (UCITS).
What is a UCITS ETF?
UCITS ETFs are ETFs (Exchange Traded funds) domiciled in Europe and subject to European Union regulation. These ETFs are mainly held by European investors, but they are also becoming increasingly popular among investors in Latin America, Asia, and other markets due to tax advantages.
UCITS stands for Undertakings for the Collective Investment of Transferable Securities. In simple terms, it is a system of safety standards introduced by the European Union that govern all UCITS ETFs and protect investors from unsuitable investment vehicles.
Under UCITS, an ETF must be diversified enough. No single security held by the fund can make up more than 20% of the fund’s NAV (Net Asset Value). Further, UCITS ETF assets must be separated from those of the ETF provider by an independent custodian. This assures investors that their assets can’t be seized to settle the liabilities of the ETF issuer in case it goes bankrupt and runs into any financial difficulties.
UCITS also obliges an ETF to be liquid and accessible at all times. That means investors can redeem their holdings even if the market is disrupted by a flash crash or any other event. Investors also have the right to redeem their shares directly with the ETF provider (or through the broker).
The UCITS ETFs that I have invested are the following
iShares Core S&P 500 UCITS ETF (35%)
iShares MSCI USA Small Cap UCITS ETF (35%)
iShares Core MSCI Europe UCITS ETF EUR (Acc) (12%)
iShares MSCI EMU Small Cap UCITS ETF (12%)
iShares Core MSCI EM IMI UCITS ETF (6%)
Worth mentioning that all 5 ETFs are accumulation funds. Accumulating ETFs are the best choice as they automatically reinvest your income back into the fund at no extra expense. This compounds your returns, saves you time, and spares you dealing fees.
That’s it. The ultimate buy and hold strategy!
Books to Read
Think and Grow Rich | Buy on Amazon US | Buy on Amazon UK
The little book of common sense investing | Buy on Amazon US | Buy on Amazon UK
I Will Teach You To Be Rich | Buy on Amazon US | Buy on Amazon UK
The Intelligent Investor | Buy on Amazon US | Buy on Amazon UK
A wealth of common sense | Buy on Amazon US | Buy on Amazon UK