Throughout our Blogs, we have written about investing a portion of your income and setting up automated investments into Low-Cost Index Funds to capitalize on Compound interests’ power. Let’s say you’re hyped about investing and drinking the DIY investing Kool-Aid; you might ask, “What funds should I be buying?”
That is a great question, but as stated in our Disclaimer, we are not financial advisors, so we cannot tell you what to purchase. We can, however, write about some popular ETF portfolio strategies for you to learn about.
Popular ETFs and What They Consist of
Before diving into the strategies, let’s dive into the common ETFs they each contain.
VOO or SPY – Both are very popular ETFs that track the S&P500, which comprises 500 large-cap US stocks. They both perform the same, but we prefer VOO slightly more due to its lower expense ratio. A portfolio should have one or the other and not both.
VTI – Vanguard Total Stock Index. This ETF tracks the entire US Market index containing over 3900 stocks. Diversification is critical with this ETF since it holds so many stocks.
That being said, based on the past 10+ years, the performance of the 3 ETFs above are very similar, with VOO slightly more positive (because of the lower expense ratio).
BND – Vanguard Total Bond Index. This ETF tracks the broad bond index. We realize that when talking about Bonds, there are different classes. There are some with long, intermediate, and short term rates. We’ve simplified the analysis by using the Total Bond Index.
VXUS – Vanguard Total International Stock ETF. This ETF covers all listed stocks based outside of the US, no matter the size.
VUG – Vanguard US Large Cap Growth Index. There are roughly 240 stocks in this index, and in it are the top high flyers of all the Large Cap stocks. Heavily includes a lot of Nasdaq stocks but not limited to it.
QQQ – This is the popular Nasdaq 100 index, which contains the 100 largest and most actively traded companies listed on the Nasdaq stock exchange. Predominantly technology driven. Out of all the ETFs listed here, it has the highest expense ratio of 0.20%. The other ones listed above average around 0.03%.
SCHD – Schwab US Dividend ETF. While this is not exactly an Index Fund per se, this is a favorite of HutYeeDow. It tracks the Dow Jones top 100 companies and has stringent criteria to be a part of this ETF while paying a dividend of roughly 3.5%. We like it because it doesn’t have many common names like AAPL or MSFT (which is a part of VOO, VTI, VUG, and QQQ, to name a few). And because of this, we feel this adds diversity to the portfolio.
Sizing and Fund Ratios
Before diving into the different portfolios, the ratios and the sizing of the funds listed below are just general guidelines. This is all dependent on your risk tolerance. If you’re ultra conservative, adjust the ratios where bonds are a higher percentage and vice versa.
The 60/40 Portfolio
The 60/40 portfolio is comprised of 60% stocks and 40% bonds. This type of portfolio has been a widely recommended strategy by many financial advisors for decades due to its simplicity and track record for delivering reasonable returns while managing risk.
- 60% – VOO
- 40% – BND
Let’s see the performance. We’ll be charting the performance of a portfolio starting in 2002 by
So, with the 60/40 strategy, the annual returns are roughly 6.8%, with the best year of 22% and the worst year of -20%.
VOO (or SPY) has an annualized return of 9.92% (in the past 30 years), with the best year of 38% and the worst year of -36%.
BND has an annualized return of 3.3% (in the past 20 years), having the best year of 8.7% and the worst year of -13%.
The Warren Buffett 90/10 Portfolio
Arguably the most successful investor in history. He stated that he wanted his inheritance to invest 90% into the S&P500 (VOO) and 10% in bonds upon his passing.
- 90% – VOO
- 10% – BND
This essentially has the same components of the 60/40 portfolio but with different ratios. As you see above, the 60/40 portfolio ended the study with $43,078. In the same analysis but with 90/10, the result is $54,296 in the same period. It’s very close to just going entirely all in on VOO. Because of this, we don’t believe this is a viable portfolio structure. The reason why bonds should be added to any portfolio is to add less risk. By adding 10% of bonds, the worst year of this period was -33%, which is only 3% less than VOO’s worst year. The 60/40 ratio would be more suitable if risk is your main objective. If you’re young and risk-averse, you might as well go without bonds.
The Bogelheads 3 Fund Portfolio
Jack Bogle founded Vanguard and was a big proponent of investing in low cost index funds. His teachings have been widely adopted to be almost cult like.
- 60% – VTI or VOO
- 20% – VXUS
- 20% – BND
The main difference between these three fund portfolios compared to the 60/40 or Buffett’s 90/10 is the addition of International Stocks. By adding the ex-US companies, you’re adding more diversification to your portfolio.
Like most annualized returns, the Bogelhead 3 fund performance doesn’t beat the S&P500 alone. This does outperform the 60/40 portfolio, but there are also more significant drawdowns.
All In Portfolio
The title says it all: All In on the S&P500.
- 100% – VOO
Do you know what? If you went with this portfolio, history backs you; I can’t argue. If you put $10,000 in this index fund, you’ll have over $600,000 today.
There were three bear market downturns during this period, yet the Index returned over 11% annualized. Personally (Disclaimer), if I was in my 20s and possibly 30s, OR I just started investing, and my capital isn’t too “large” (defined differently by everyone), this is the approach I would prefer. It’s not until my portfolio has some size that I would start thinking about capital preservation. Preserving capital is undoubtedly the case when I’m nearly retirement.
That being said, going 100% on the VOO does introduce risk. What has happened in the past does not guarantee it will be the same. You’re putting all your eggs in 1 basket even though it comprises 500 large companies. You are banking on the US and its large companies remaining dominant. All these things can turn very negative with a missile drop or a terrible pandemic. The counterargument to that is that if you weren’t investing in the stock market and invested in housing or business, all of these unpredictable events would most likely cause you harm.
The HutYee Portfolio
We here at Hutyeedow have a slightly different approach. We love the S&P500, as you’re probably aware, especially if you’ve read any of our other blogs. We also love dividends, which is what bonds provide. Unfortunately, bonds don’t appreciate.
This is where we bring in SCHD, Schwab US Dividend ETF. As stated above, it tracks the Dow Jones top 100 dividend companies and has stringent criteria to be a part of this ETF while paying a dividend of roughly 3.5%. We like it because it doesn’t have many common names like AAPL or MSFT (which is a part of VOO, VTI, VUG, and QQQ, to name a few). And because of this, we feel this adds diversity to the portfolio. Looking at the holdings, you’ll see some ancient stable companies that have been around for quite a while.
This fund only started in 2012, so it lacks history when looking at its performance. But it has undoubtedly done very well since its inception, averaging 12.7% annually.
In the years it has performed well, it has certainly done as well as the S&P500. And the down years have certainly been less than the down years of the S&P. All while paying over 3% dividend annually. We believe this is an excellent alternative to bonds as the dividend rates are similar, the stability of experienced companies, and all while providing better capital growth.
While we’re on growth, the 3rd fund in the HutYee Portfolio is VUG, Vanguard US Large Cap Growth Index. As stated above, roughly 240 stocks in this index are the top high flyers of all the Large Cap stocks. Heavily includes a lot of Nasdaq stocks but not limited to it. One could argue that the US stock market has only been carried by these high-growth companies for the past 20 years. Names like Apple, Microsoft, Meta, Google, etc. We like over emphasizing on these.
The makeup of the HutYee Portfolio:
- 40% – VOO or VTI
- 40% – SCHD
- 20% – VUG
Because SCHD has only been around for 11 years, it isn’t easy to truly see historical performance, but here’s what it looks like since 2012.
The HutYee Portfolio has slightly outperformed the S&P500! The most intriguing part is that its best year beat out the S&P, and its worst year was better than the 60/40’s worst year.
Only time will tell if it continues to be this comparable versus other popular ETF portfolios.
We want to emphasize that we are not financial advisors. The information provided on this website and in our YouTube videos is strictly for educational purposes and represents our personal opinions. To ensure the most appropriate financial decision for your specific needs, it is essential to conduct thorough research and, if necessary, consult with a licensed financial advisor. It is vital to acknowledge that all investments involve inherent risks, and there is no guarantee of success in generating, saving, or investing money. Additionally, there is a possibility of experiencing losses when investing. Exercising prudence, making informed choices, and independently verifying information is crucial.
