- So you wanna build a solid investment portfolio made up
of all ETFs that are not only gonna make you money,
but save you money by not having
to pay insanely high fees to an advisor,
that will most likely end up costing
you hundreds of thousands of dollars in lost returns?
But the question is, how do you actually put one together
from scratch and feel comfortable with your decisions?
In this video, I'm gonna walk you through the steps
of how to create an all-ETF portfolio for yourself
that you can use in something like a Roth IRA
or taxable investment account.
Now I'll also give you a few example portfolios during
this video to help give you a starting point.
Hey, I'm Jarrad, with two As and two Rs,
and on this channel, we talk about investing
and financial independence.
My dogs, Molly and Cooper, would greatly appreciate it
if you Hulk-smashed that thumbs-up buttons.
A benefit of building an all-ETF portfolio is,
when you buy them, you're instantly diversifying
your money among however many stocks
that ETF holds.
It makes the whole process a lot easier
than trying to pick a bunch of individual stocks
that you hope are winners,
while also trying to manually diversify
your whole portfolio in the process.
There's nothing wrong with buying individual stocks.
If you know what you're doing,
then technically you could kind of build
your own ETF that way.
An ETF is also great in that it can give
you some exposure to a sector that
you might not know enough about
to feel comfortable picking an individual stock.
For example, if you really feel
like the gaming industry is going to take off
over the next 10 or 20 years,
then instead of trying to pick between investing in,
we'll say, Nintendo, Activision, Nvidia,
or Roblox stock, you can just choose a gaming
and e-sports ETF that buys a little bit
of everything in that sector.
When you create an ETF portfolio,
it's good to start with the end in mind.
Now by that I mean, what is the goal
or the outcome that you're looking for?
This is extremely important to know going
into the whole process, because not only is
it going to help you decide what to invest in,
but also help prevent you from making
very irrational decisions when the stock market is going
through something like a correction.
Don't think too hard about this, though.
For most people, it's gonna be a pretty simple answer,
so we don't need to get all woo-woo
and call on some higher power to kinda dig deep
inside of our loins just to figure it out.
I'd imagine that everyone wants to make the
most amount of money possible,
but that's too obvious of an answer for this one.
To know how to build a portfolio for yourself,
you'll wanna figure out what exactly you're saving up for.
For most, it's gonna be retirement.
But after that, another goal might be
to save up for something like a home purchase,
Miley Cyrus tickets, a car purchase,
or even college for your kids.
To go one step further, you might have a goal
of building a dividend-specific portfolio
or something like a fun account
where you play around, picking a bunch of different ETFs.
Once you decide on this, one of the topics
that we'll touch on in a minute will help
you determine the types of investments
that you'll wanna hold to achieve what your goal is.
Keep in mind that you can have multiple investment accounts
that serve different goals.
Now I'm someone who likes to separate
my retirement accounts from everything else.
Because of that, my Roth IRA and 401k is
for retirement money only,
which means that I have a very long investing time horizon.
But I'm also investing-slash-saving up
for a future car, which is a shorter-term goal,
so I have a separate investment account
through M1 Finance for that.
I'll have a link in the description
to check them out and get a free $30.
Once you figure out the goal,
then we need to talk about the time horizon
or how long until you're actually going to need the money.
For retirement, that's most likely gonna be 20-plus years
away for some of you.
If you're going to help pay for your kids' college,
then this money might not be needed for another 10 years.
Answering this question is going to help determine
if you should even be investing
this money to save up for that goal
or if the money is safer just sitting in a bank account.
The main reason for this comes down to the unknowns
in the stock market, because the stock market is
basically a casino in the short-term.
We have no clue if the market is gonna go up
or down, and by how much, within the next couple of years.
Pick the wrong time, and that $10,000 worth
of ETFs that you bought might be cut
in half by the time you need the money.
Imagine investing some money for three years
to save up for a ring so you can propose,
only to have the stock market crash
at the 2-year and 11-month mark.
Hopefully that person is willing to accept
that promise ring that you made
from a twist tie that you got from a bag of bread,
because that's technically all you can afford.
But over the long-term, we have a pretty good idea
of what the stock market is going to do: go up.
Now this, of course, isn't guaranteed,
and the returns that we've seen in the past
might not play out in the same way going forward.
But I'd bet money that something like the S&P 500 is going
to be higher in eight years than it is today.
Look, I'm not your dad, at least that I know of,
and if I am, please have your mom fricking call me.
But it is your money, so if you want to invest it
for the short-term, then go for it.
My personal opinion is that, if you need the money
within a five-year period, then it's better-served sitting
in a savings account.
I need to put an asterisk by this, though.
If you're willing to risk it
and the date that you'll need the money can be pushed
out a little bit if the market is down at that time,
then by all means, invest that money.
But that decision is going to be based
on the level of risk you're comfortable with.
Now, this part of investing gets overlooked a lot,
until it actually becomes a problem.
Just like with anything, it's easy to wanna take
more and more risk when things are going up.
But when things come crashing down,
every decision that you've made leading
up to that point comes into question.
This is where choosing an asset
allocation is extremely important.
A good rule of thumb is that the longer amount
of time that you have, the more aggressive
you can be to maximize your returns,
because what happens on a day-to-day
or week-to-week or month-to-month basis is irrelevant.
Reading the news daily or watching some YouTube channels,
no names, please, would make you think differently,
because according to them, the world is on fire 24/7.
The further away you are from needing this money
and the more risk you're willing to take,
the more equity-based investments you can have
your money allocated towards.
For example, if you were someone
who wants to maximize returns to the fullest extent
and you could care less about risk,
then you'd probably wanna hold 100%
of your money in stock-based ETFs.
I'll have a few example portfolios
to show you this sort of thing in
just a minute, so hang tight.
It's all a big balancing act,
and as time goes on, you'll kinda figure out
what works best for you.
Just keep in mind, higher risk, higher potential returns.
Medium risk, medium investment returns.
And of course, lower risk, lower returns.
If you've looked at my personal portfolio,
you'd probably say that I am taking a
very high-risk approach to my investments
because I hold 100% stock-based ETFs.
I'm far enough from needing any of my money,
and I've been through enough stock market corrections,
to where I can handle my portfolio tanking
for many years, which affords me the ability
to hopefully maximize my returns.
Your risk tolerance is going to determine
how you allocate your money across the portfolio.
But when it comes to allocating your money,
how many ETFs should you actually hold?
Because there's thousands of those things out there.
Side note: I did create a video showing
you how to pick and analyze an ETF
that works best for you, which I'll throw a link
to in the description and above my head.
The simple answer is that it depends
on what you prefer and the types of ETFs
that make up that total number.
In reality, I could make a case
for holding one ETF, and I could also make a case
for holding six different ones.
I'll break the different ETF options
that you have into four groups,
then I'll briefly touch on a few example portfolios.
The first option that
you have is a US-based stock market ETF
that aims to match the average returns
of a certain sector or index within the stock market.
This would usually look like an S&P 500 ETF,
another index-based ETF, such as one
that tracks the Dow Jones or NASDAQ 100,
a mid-cap ETF, or even small-cap ETF, as well.
Then there's index-based ETFs that hold a little bit
of everything, so something like a total stock market ETF.
The reason why it might be ideal
to hold a US stock-based ETF as a large portion
of your portfolio is because of
how dominant the country is as a whole
and the free markets that exist within it.
Think about it.
There's no other place at this point
in time that leads the world in business,
technology, investment opportunities,
consumption, and growth potential
like the United States does.
If you believe this will continue,
then having more of your money
in this type of ETF will be advantageous.
But just because the United States is
as dominant as it is today, doesn't mean
it's gonna stay that way forever.
Whether it's the Roman Empire, Mongol Empire,
or British Empire, history has shown us that,
one day, it won't be the same powerhouse
as it is today.
Whether that downfall happens in our lifetime or not,
it's nearly impossible to know.
All we know is that nothing lasts forever.
That's why having some exposure
to an international ETF, might make sense
for you, as an investor.
International ETFs essentially hold stocks
of businesses that reside out of your home country.
Now my audience is pretty much based in the US,
so we're talking about anything outside of America,
but we also have to be aware that
not all countries operate like the US
in that they can hinder the growth
of companies, which will directly impact the price
of their stocks.
Over the past couple of years,
we've seen the Chinese government mistreat,
fine, and even threaten to de-list
certain companies for not informing
them of certain things that they were doing.
There's also different economic factors
at play within each individual country
that will directly impact how well
that company will perform.
Because of all this,
an international ETF might be a little bit more risky
and might not perform as well
as US stocks in the short-term.
But it's going to help diversify
your overall portfolio so not everything is concentrated
into US businesses.
Another option would be a fixed income ETF,
a.k.a. bond ETFs.
Now, these are used more when you're trying
to preserve your wealth as you get closer
to needing the money.
If you are someone who is headed into,
or is already in, retirement,
then you might not be able to afford
to risk too much money in stock-based ETFs
because you need the money to live on right then and there.
The returns on these things are next to nothing,
so if you are in the wealth accumulation phase
of your investing life, then I'd suggest
not even touching these, or at least limiting the amount
of money that you have allocated towards them.
Remember that you only have 100% of your pie
to allocate towards certain ETFs.
The more that you put into something
like a bond ETF, the less of a percentage
that you'll be able to put into stock-based ETFs,
which have a higher upside than the fixed income ETFs.
With the last option, I'm going
to combine two different types of ETFs together,
high-dividend-based ETFs and REIT ETFs.
Both of these ETFs are going to be used
if you have immediate income needs within your portfolio.
Because they will usually pay you regularly
through dividends, you most likely won't see
as high of returns through price-per-share increasing
like you would in an ETF that
mainly holds growth-type stocks.
If you don't need the residual dividend money
for a long period of time,
then you'd probably want to avoid these two types
of ETFs because they might end up dragging down the
overall returns in your portfolio.
Okay, so now I'm gonna give
you a few portfolio examples based
on different goals and different timeframes.
Once again, none of this is financial advice.
Use this as a starting point to think
through how you'd like to create an ETF portfolio
of your own.
The first portfolio would be for someone
who is looking to maximize growth,
high risk, high return, that doesn't need the money
for ten-plus years, and only cares
about US-based stock ETFs.
This portfolio would consist of 100%
in an S&P 500 or total stock market ETF.
Now, I created a whole video comparing my two favorites,
which I'll link above my head and at the end
of this video, as well.
The next portfolio is for the same type
of person that I just mentioned,
so they don't need the money for ten-plus years,
and they wanna add in some international stock exposure.
This portfolio would consist of 70%
in an S&P 500 or total stock market ETF
and 30% into an international ETF.
The next person is someone who is investing
for ten-plus years looking for medium-risk,
medium-reward, and wants to hold
both US and international-based ETFs, as well.
That portfolio would look like 60%
in an S&P 500 or total stock market ETF,
20% international ETF, and 20% US-based bond ETF.
If we're talking about someone who's
very conservative, that needs their money within five years,
still wants their money to grow a little bit,
but want to preserve some of their money,
then an example portfolio would be 60%
in an S&P 500 or total stock market ETF
and 20% US-based bond ETF.
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I'll see you in the next one, friends, done.