7 Years of ETF Investing: What I Learned

7 years have now passed since I first started passively investing in index funds via ETFs together with my wife with our ETF portfolio growing to € 267,000 since then I've learned a lot throughout this period which has led me to change my investment approach a few times since 2017 I've also made my fair share of mistakes some of which may surprise you today I'm going to share my six most important lessons with you and I'm hoping you'll be able to avoid some of my missteps yourself after watching this video let's get right into it starting with how my investment approach changed over time lesson number one keep it simple it took me a while to learn this one let's go back to the beginning to show you what I mean since my knowledge was fairly Limited at the time in January 2017 I started investing in the stock market via a robo advisor which was meant to choose the right ETFs for me and to rebalance on a regular basis but just 2 months later after reading several books and doing a ton more research into the world of index fund investing I realized I could easily buy ETFs directly on my own own that way I wouldn't only have full control over how my money was invested but also save 0. 8% in fees which the robo advisor was charging me on a yearly basis well I still ended up over complicating my portfolio at the beginning splitting my money into six ETFs which you can see here I felt tempted to try and beat the market so I selected precise percentages to allocate to different regions around the world including small cap stocks at the time I didn't consider how much more I would need to pay in trading fees to buy Six ETFs on a regular basis or the tax implications and costs that come with rebalancing now in hindsight would all that effort have been worth it since then as it turns out no I would still have underperformed a global 1 ETF solution like the footsie o world then in September 2017 I finally realized that a 6 ETF strategy was way too costly and too cumbersome to maintain longterm so I sold five of the six ETFs I had and switched to a simpler two ETF strategy 75% MSI world and 25% MSI Emerging Markets just out of curios when looking back today this one would have also underperformed just buying the market as a whole since Emerging Markets performed very poorly over the past decade now I could have left it at that but at the end of 2018 I made the decision to simplify things further by only buying a single ETF covering both developed and Emerging Markets on a market cap basis I'm of course talking about the popular Vanguard footsy oal ETF the only ETF my wife and I have been buying ever since first in the Distributing version and then in the accumulating version from 2021 onwards since the L is a bit more tax efficient and automatically reinvest dividends into the stocks within the fund saving us some time we fell down to our older MSI World ETF shares though since these were nicely in profit and there's no point in selling them and having to fully tax these now instead of later in retirement when we actually need the money also an mcii world is still in line with a global investment strategy since it has an overlap of around 90% with the footsy O world as you can see the start of our ETF investment Journey was quite messy and far from straightforward so don't be too hard on yourself if the same happened to you luckily we were able to avoid any costly mistakes throughout this period with our investments in the stock market it simply took us 2 years to learn the benefits of keeping things simple by sticking to a one ETF solution instead of trying to outsmart the market and thanks to our high 70% savings rate in large part due to our low expenses and total returns of $554,900 since we started our combined ETF portfolio is now worth € 267,000 7 years later by the way you can find the best local brokers in Europe for ETFs linked Down Below in the description which is a great way to support me if you'd like to and while you're there don't forget to subscribe to the channel so you don't miss out on any upcoming videos lesson number two it never feels like the right time to invest somehow it never feels like the timing is just right there's always something new to worry about every single year and I doubt that's going to change going forward had we listened to news headlines we would still be standing on the sidelines today waiting for the right time to get into the market which means we would have missed out on average yearly returns of 10% since 2017 or 18. 4% in 2023 alone a year when everyone recommended moving to cash and bonds instead due to Rising interest rates looking back I'm grateful we didn't let any of that affect us and stuck to a simple Buy and Hold strategy still it doesn't mean it has been easy either we were down 5.

2% in 2018 crashed 30% during covid in 2020 before recovering and 2022 was a difficult year as well with our ETF portfolio dropping 13. 3% in value but Corrections and crashes are noral part of the journey and there's no point in worrying when the next one is going to occur since they're impossible to predict if you're investing long term and have a Time Horizon of at least 5 years ideally 10 years or more it's likely not going to matter anyway not only that as you become more experienced you might actually start to see Market corrections as discount opportunities lesson number three Dividends are Irrelevant for the most part when picking ETFs make sure you always compare the total performance so dividends and capital gains combined over long time periods don't just look at dividend yields after all the total return you get on your investment is what matters the most to help you reach your financial goals here's the footsy O World versus the footsy old high dividend yield for example while the second one has a much higher dividend yield its performance has been lagging far behind since it excludes high quality stocks simply because they don't pay out dividends now when it comes to picking the Distributing or accumulating version of the same globally Diversified ETF having dividends paid out to your account on a regular basis can definitely have a positive psychological effect in in fact this may motivate some people to keep investing to increase this cash flow or to Simply stay invested when the market is down meanwhile when you invest into accumulating ETFs Dividends are reinvested into more shares of the stocks within the fund additionally raising the Share value by that amount over time but when the market is in the red as a new investor it may not be as apparent that you're still holding productive assets since you're not actually seeing the dividends paid out in cash directly to your account whichever approach you choose the total return is the same in both cases minus taxes on dividends in most countries which US usually make Distributing ETFs less tax efficient that's one reason why we switched to only buying the accumulating version of the Vanguard FSI o 3 years ago not only is it slightly more tax efficient in the long run but it also makes our life easier since we don't need to manually reinvest dividends on a regular basis lesson number four patience is key passively investing in a global stock market index via an ETF may seem simple enough but actually sticking to the strategy is not as easy as you may think you can be sure there will be plenty of moments when it feels like you're wasting time holding on to your boring ETF as the market is moving sideways or perhaps even going down for a while don't make the mistake of suddenly changing what was meant to be a long-term strategy by investing into whatever stock sector ETF or risky investment has been running better lately in the hopes of generating higher returns quickly chances are you're going to regret that later on there's a reason why the vast majority of investors and even professional fund managers underperform the market over the long run as Warren Buffett puts it the stock market is a device for transferring money from the impatient to the patient so be patient and don't look at your brokerage account every single day now I'm not saying you can take some smaller bets in single stocks concentrated ETFs or even alternative Investments like crypto it's your money so of course you can I would just urge you to keep this limited to a small percentage of your portfolio for example in my case I'm willing to risk a total of 10% on highly speculative assets like Bitcoin and ethereum meanwhile for you that may be something else speaking of that if you're interested in my investment strategy and my unqualified return predictions for 2024 make sure you check out this video if you haven't seen it yet lesson number five fees are important up to a certain point the benefit of ETFs is that they enable us to diversify our investment into thousands of stocks while paying very low fees in the form of each etf's te or total expense ratio but once you pick the global ETF with a te of 0. 22% or less stop obsessing over ways to reduce this even further it's likely not worth your time also fund providers like Vanguard ishares and spider are constantly working on reducing their fees for existing ETFs and I'm confident they'll keep being lowered in the coming years now when it comes to trading fees luckily we live in a time when these have become extremely low using the best local brokers in Europe for example on interactive brokers I'm able to buy the Vanguard foty oal for only €1.

25 in fees either as a direct purchase or recurring investment while trade Republic only charges a flat one year fee for a direct order and recurring Investments are completely free of charge since we tend to invest at least 800 to €1,000 each time a small fee to buy the share right away doesn't really make much of a difference for my wife and I however if you're only investing smaller amounts like 50 to €100 on a regular basis it can make a lot of sense to buy your ETF shares via a commission free recurring investment using a broker like trade Republic or scalable capital in case you have access to either of them in your country in fact we have a smaller recurring investment for our 14-month-old daughter running on trade Republic for that reason this brings me to the last lesson I want to share with you lesson number six keep an emergency fund we're all affected by recency bias recently a friend sent me the following message hey Angelo do you keep anything in cash for example on trade Republic because of the 4% per year they're paying an interest and wondering if I should just invest everything in stocks and ETFs instead it shouldn't matter if I'm diversifying enough right basically what he was implying is that since the expected return of lowcost well Diversified ETFs is higher at a long-term historical average of 7% per year he should just invest everything instead and since he's Diversified he could always sell some shares if needed for an emergency well here's the thing he would never have sent me a message like this in 2022 when the market was down 133% but since he just experienced a year with Juicy returns of 17.