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Summary Investing for retirement can be as simple or as complex as you want to make it. If you enjoy researching investments, trading frequently, struggling with your taxes and some sleepless nights when your investments are tanking – then this article is not for you. If you want to get started investing or simplify the investing process then please keep reading. Simply Investing – Philosophy Your chance of long term investment success increases significantly by keeping your investing simple, consistent and well diversified. Whether you are just starting to invest for yourself or your kids or thinking about taking control of your investing back from your investment advisor, remembering to keep investing simple, consistent and well-diversified, will help lead to success. The problem for many people is investing can get complicated quickly and when it gets complex it is easy to lose focus on your overall investment objective, which often leads to mistakes. Investing doesn’t have to be difficult, time consuming, involve large fees or lead to restless nights. Establishing a core investment in well-diversified, low expense, Exchange Traded Funds (ETFs) is a good way to either get started investing or to reduce the complexity of your investment portfolio. An investment portfolio with a “core” allocated to ETFs held for the long term is probably the best option for most people starting to invest. As one’s investing experience, the time one wants to dedicate to investing activities and desired risk, increases, an investor may want to allocate a percentage of their portfolio to “edge” positions, which offer additional risk and opportunity. Vanguard Total World Stock ETF (NYSEARCA: VT ) This article reviews VT, an ETF that Simply Investing believes can effectively make up a large portion of the core of most people’s retirement portfolios. Future articles will look at additional ETFs that can be added to the core portion of your portfolio and for those interested, potential holdings for the part of your portfolio allocated to edge positions. VT – Regional allocation and investment approach Source: Vanguard (allocation as of 10/31/2015) VT seeks to track the performance of the FTSE Global All Cap Index. It has holdings in over 7,000 stocks with broad exposure across developed and emerging equity markets around the world, including the U.S. VT’s broad global diversification helps to minimize volatility that any one region may experience. As indicated above, the majority of VT is invested in North American stocks and although not broken out above, 53% of the common stock holdings are in the U.S. VT -Equity Characteristics and Holdings Source: Vanguard (as of 10/31/2015) As the table above indicates, VT is very well diversified, holding 7,391 stocks. The median market cap is quite large at $34.0 billion. VT’s current price/earnings ratio is high compared to historical levels for global markets. The high current price/earnings ratio is not unique to VT. The price/earnings ratios for the U.S. market and many global markets are currently higher than historical norms. These high price/earnings ratios are likely due to the low returns that alternative investments, such as fixed income, currently offer. Investing for retirement should be done on a consistent basis. A simple investment plan to follow, makes it that much more likely to happen. The relatively high current price/earnings ratio of stocks suggests that if you have a large amount of capital to invest today, it is advisable to dollar cost average this investment into the market over a period of time. Source: Vanguard (as of 10/31/2015) VT’s top 10 holdings are dominated by U.S. companies, with nine out of the 10 holdings based in the U.S. However, these top 10 holdings only account for 8.2% of total net assets and as previously indicated foreign stocks make up 47% of VT’s holdings. VT makes a good core portfolio holding with a diversified mix of stocks from U.S., other developed and emerging markets. Expenses VT’s expense ratio is 0.17%, this is well below the average expense ration of similar funds at 1.27%. Given the relatively high price of the market today, it is likely that future returns may be lower than those recently experienced. In this environment, it is important that the core of your portfolio is allocated to funds with low expense ratios such as VT. Conclusion Your chance of long term investment success increases significantly by keeping your investing simple, consistent and well diversified. One of the easiest ways to accomplish this is to build a core retirement portfolio around ETFs such as VT. In fact, VT might be the only investment many people’s equity portfolio requires, but future articles will look at additional ETFs that can be added to your core portfolio and for those interested, holdings for the “edge” of your portfolio that offer additional risk and opportunity. Scalper1 News
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