7 Years of ETF Investing: What I Learned

Summary

Over the past seven years, an investor shares their journey of growing an ETF portfolio to €267,000, learning valuable lessons along the way. Key insights include keeping investments simple, the irrelevance of dividends compared to total returns, the importance of patience and having an emergency fund, and not obsessing over fees. Despite market fluctuations, sticking to a straightforward, long-term strategy has proven beneficial. The investor emphasizes avoiding overcomplication and maintaining a high savings rate to achieve financial success.

Takeaways

• 📈 Start Simple: The speaker emphasizes the importance of starting with a simple investment strategy, learning from their own experience of initially overcomplicating their portfolio.
• 🔄 Transition to Simplicity: After realizing the high cost and complexity of managing multiple ETFs, the speaker simplified their strategy to a two-ETF approach, and eventually to a single, all-encompassing ETF.
• 🚫 Avoid Market Timing: The speaker advises against trying to time the market, pointing out that sticking to a long-term 'Buy and Hold' strategy has historically provided better returns.
• 📉 Embrace Volatility: Market corrections and crashes are normal and should not deter long-term investors. The speaker suggests viewing these as discount opportunities rather than reasons to panic.
• 💰 Total Return Focus: When choosing ETFs, consider the total performance including both dividends and capital gains, instead of just focusing on dividend yields.
• 🌐 Global Diversification: The speaker's journey led them to prefer a globally diversified ETF for its simplicity and broad market representation.
• 🤑 Psychological Impact of Dividends: While total returns are the same for distributing and accumulating ETFs, the psychological effect of seeing dividends can encourage continued investment.
• 💼 Patience is Paramount: The speaker stresses the importance of patience in investing, warning against changing long-term strategies in response to short-term market movements.
• 💸 Fees Matter, But Not to the Last Penny: While low fees are beneficial, the speaker suggests that once a certain low threshold is reached, the time spent trying to reduce fees further is not worth it.
• 🏦 Emergency Fund Essential: The speaker recommends maintaining an emergency fund, not invested in risk assets, to cover unforeseen expenses and provide peace of mind.
• 🔄 Switch to Accumulating ETFs: The speaker shares their decision to switch to accumulating ETFs for their tax efficiency and the convenience of automatic dividend reinvestment.

Q & A

What was the initial approach the speaker took when starting to invest in ETFs in 2017?

The speaker initially started investing in ETFs via a robo-advisor, which chose the ETFs and rebalanced the portfolio regularly.

Why did the speaker decide to stop using a robo-advisor after only two months?

The speaker decided to stop using a robo-advisor after learning more about index fund investing, realizing they could save 0.8% in fees by buying ETFs directly.

What was the main issue with the speaker's initial six-ETF strategy?

The main issue was that it was too costly and cumbersome to maintain due to trading fees, tax implications, and rebalancing costs.

How did the speaker simplify their ETF strategy in September 2017?

The speaker simplified their ETF strategy by switching from six ETFs to a two-ETF strategy, allocating 75% to MSCI World and 25% to MSCI Emerging Markets.

What further change did the speaker make to their investment strategy at the end of 2018?

The speaker decided to simplify their strategy further by investing in a single ETF, the Vanguard FTSE All-World ETF, covering both developed and emerging markets.

What lesson did the speaker learn about timing the market?

The speaker learned that it never feels like the right time to invest, and sticking to a simple buy-and-hold strategy is more effective than trying to time the market based on news headlines.

What is the speaker's view on dividends when selecting ETFs?

The speaker believes dividends are largely irrelevant when selecting ETFs, as the total return, including capital gains and dividends, is what matters most.

Why did the speaker switch to accumulating ETFs instead of distributing ones?

The speaker switched to accumulating ETFs because they are more tax-efficient and automatically reinvest dividends, making the process simpler.

What is one key piece of advice the speaker offers about maintaining a long-term investment strategy?

The speaker advises being patient and not changing a long-term strategy based on short-term market movements, as this can lead to regrettable decisions.

Why does the speaker emphasize the importance of having an emergency fund?

The speaker emphasizes having an emergency fund to cover unexpected expenses and provide peace of mind, especially during market downturns when invested assets may be down in value.