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The Ultimate ETF Portfolio for 2023

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The 8 best ETFs that you can and should invest in for a perfect ETF Portfolio for 2023 if you want to grow your money in the long term.
The Ultimate ETF Portfolio for 2023

The Ultimate ETF Portfolio for 2023

In this post you’ll find the 8 best ETFs that you can and should invest in and I’m going to show why these ETFs are in my opinion the best choice you can make, right now, if you want to grow your money in the long term. 

S&P500 – 5 years Performance – Source: Yahoo Finance

The stock market is down to the same level it was exactly 2 years ago and, although you can never know when a crisis ends, As you can see in the following graph except for 3 cases, in 100 years the market has never been down for more than 2 years in a row and the best returns were always right after the crisis. 

Returns of the Stock Market in the last century – Source: Macrotrends

So, if you have a friend that says “I’ll take my chances and buy individual stocks, because Amazon Grew 112,000% since 1997 and I want to find companies like it”, well, as Jordan Peterson would say: Good luck with that.

20-year annualized returns by asset class – Source: Ansenfg.com

In fact, as you can see on the image above, the average investor has proven to have a terrible record of returns compared to index fund investing, and  in the last 10  years even hedge funds, which are run by experienced fund managers, performed on average worse than the S&P500 every single year and weren’t even close to its performance:


Hedge Fund VS SP500 – Source: The Motley Fool

And if hedge funds on average can’t do better than index Fund Investing, we should humbly ask ourselves: “why should we?”

On the other hand let me show you how life looks like from the eyes of an ETF investor:

20-Year Rolling Stock Market Return – Source: Crestmontresearch

The 20-YEAR ROLLING STOCK MARKET RETURN tells you your average annual return for 20 years depending on when you start investing, if you invest in the total stock market.

So for example you can see right away that if you invest for at least 20 years you’re always going to profit from the stock market and the worst 20-year annualized return occurred in 1948 and was under four percent a year.

Now this graph shows the probability of getting positive returns based on how long you stay invested:

Probability of Positive Returns – Source: LazyPortfolioETF

You can see that after 1 year you have a 73% probability, after 2 years 80%, 5 years 90%, and all the way up to 97% in the 10th year and 100% after 20. This implies the longer you stay invested for the higher the chances that you’ll make money.

But this is valid if you invest in the stock market as a whole, or as you can see in this table, if you invest in Sector ETFs:

S&P500 Sectors – Historical Returns – Source: LazyPortfolioETF

For example if you invested 10 years ago in an Information technology sector ETF you would have gotten an amazing 17% per year, followed by health care and by the S&P500 as a whole.

All that said, let’s get right into the ETFs of my list and I’m going to focus on Vanguard ETFs because they have a really low Expense Ratio, which is basically the fee that you pay yearly, but of course you can choose other providers like Ishares, State Street SPDR or Invesco.

 1. VOO – Vanguard S&P500 ETF

My number 1 is VOO, otherwise known as the S&P500 ETF by Vanguard

The S&P500 contains the largest 500 publicly traded companies in the US Equity Market weighted by market cap and other factors. That means that you get the top of the top, the top guns of the American economy, companies like Apple, Microsoft, Amazon, Google and Berkshire Hathaway.

So why is this ETF my favorite? The  S&P500 ETF offers the best and most optimized diversification of the entire stock market by picking the best companies from each sector.

A committee from the investment company Standard & Poor’s selects the stocks based on:

  • profitability,
  • market capitalization,
  • sector allocation,
  • liquidity
  • and many other important factors

So there is an important vetting process of due diligence behind this choice that is basically the biggest gift you could ever receive as an investor – because let’s face it, you could never be as good as them.

In the last 10 years it gave 12.52% annual return and it’s also down over 18 percent year-to-date which makes it cheaper to buy than it was exactly 1 year ago:

VOO Performance – Source Vanguard

The expense ratio is a ridiculous 0.03%.

In case you want to reduce it even more you could go for the competition and Fidelity offers its own S&P500 index fund that offers an expense ratio of just 0.015%. Basically they are working for free.

Expense Ratio: more important than you think

Now, before going to number 2 once and for all let me tell you something about the fees of an ETF that everybody gets wrong, even famous youtubers, and I kind of get mad when I hear that.

When you find an ETF that has for example an Expense Ratio of 0.30%, what every youtuber likes to say is that it’s just 30$ for every $10,000 invested.

So, not a big deal, right?

Wrong!

Let’s say you buy $10,000 of an ETF with 0.30% Expense Ratio that gives you a 3% return per year. The first year you are going to gain 300$, which is 3%, and you pay 30$ fee, which is 10% of the 300$ you earned.

One day, your portfolio will have a value of $100,000, so that ETF will earn you $3,000 in one year, which is 3%, but you’ll pay a fee of 300$, which again, is 10% of what you earned.

So an Expense Ratio of 0,30% is not a loss of 0,30%, but instead 5-10-15% that you lose every year from your earnings.

2. VTI – Vanguard Total Stock Market Index Fund ETF

My number 2 is VTI, which is really similar to the first one as performance but includes over 4000 companies instead of 500. Basically, the whole american stock market. 

This ETF performs in the long term almost identically to VOO:

VTI vs VOO – Performance Comparison – Source: Portfolioslab.com

VTI follows the Total Market Index fund (VTSMX) that was introduced in 1992, earning an average return of 8.10% annually through 2010. This compares to a 7.98 percent annual return for the Vanguard S&P 500 Index fund (VFINX) during the same period.

If you compare the last 10 years, though, S&P500 did slightly better:

In my opinion there’s almost no difference except that the total stock market index fund is a little more diversified. So I would suggest you just choose one of those two and stick with it.

The total stock market ETF covers everything you could possibly think of, from materials to utilities, to information technology, and all of this without complicating your life with stock analysis, graphs and ratios.:

VTI – Portfolio Composition – Source Vanguard

The expense Ratio, or Management Fee, is a ridiculously low 0.03% just as for VOO, but if you want to go around this you could also go with the Fidelity Zero total stock market index fund which started in 2018 and has 0 expense ratio. 

3. VYM – Vanguard’s high dividend yield ETF 

VYM – Overview – Source: Vanguard

Number 3 is something a little more conservative, that you can use to have a bit more peace of mind and start tasting the beauty of passive income.

I’m talking about VYM, Vanguard’s high dividend yield ETF.

This ETF tracks the performance of the FTSE® High Dividend Yield Index, that includes all companies that give above-average dividend yields.

By buying this ETF you’re going to get 442 great dividend companies including the kings of safe dividends like Johnson and Johnson, Exxon Mobil, JPMorgan, Chevron Corp. and Procter & Gamble.

So far it’s given 3% dividends per year, and on top of this 3% you also get stock appreciation. In fact in the last 10 years it’s given an annualized return of 11.6%.

If you are still not convinced, consider that for this ETF Vanguard offers a low expense ratio of 0.06% and that the biggest exposure belongs to the financial sector with over 20%, which is one of Buffett’s favorite sectors.

4. VGT – Vanguard Information Technology Index Fund ETF

After getting the whole Stock Market and the dividend kings in your portfolio, it’s time for some growth and for this I have 2 ETFs in mind. 

The first is VGT, the Vanguard Information Technology ETF.

This ETF has an expense ratio of 0.10% and comprises all the great companies that belong to the Information Technology Sector, like Apple, Microsoft, Nvidia, Visa, Mastercard, Adobe and so on.

Many of these are also the top companies of the S&P500, but this is just because the technology sector rocks. It rocks because one day these companies are going to be the ones that will produce the robots that will wash our dishes and make us dinner – the evolved versions of our Dishwasher and our Thermomix.

5. VUG – Vanguard Growth Index Fund ETF

The second option that you have if you want a growth ETF is, well, the Vanguard Growth ETF. 

VUG offers a beautiful mix of 247 stocks with an exclusive focus on Growth:

VUG – Portfolio Composition – Source Vanguard

This ETF selects for you all the US companies with high growth potential. Take away all the small companies that are surviving thanks to debt and state help as well as the big established companies that are too old to grow and you’ll get a fabulous mix of young, growing companies like Apple, Microsoft, Amazon, Google, Tesla, Home Depot and so on.

Its annual return since inception in 2004 is around 9.11%  and this considering a drop of 33% in the past year.  So not only you’re getting growth companies with a lot of potential and a pretty good average return, but we are also in a moment of great discount where you’re paying for it a third less than what you’d have paid 1 year ago. 

6. VTV – Vanguard Value ETF 

Now, is the growth market going to do well in the future? Nobody knows. They say that value companies might start outperforming growth companies again, and I want to show you something really interesting that might convince you that this is actually the case.

If you take the Russell 1000 indexes Growth and Value, which are the two most established indexes for growth and value companies, and you compare the overall returns since their inception in 1979, you’ll see they’ve had nearly identical annual returns through March 2021 — 12.1% for growth and 12.0% for value.

But check this out, every decade value and growth have taken turns outperforming and underperforming each other:

The Growth-Value Cycle – Source Awealthofcommonsense

’79 to ’88, Value outperformed; ’89 to ’99, Growth outperformed; 2000 to 2008, Value outperformed, and in the last decade? Growth, of course. You can see the same from this graph, that makes us presume that growth is losing its predominance once again:

Rolling 3 Year Annual Return Difference of Growth vs Value – Source Awealthofcommonsense

So one solution would be to split your investment between growth and value, or to take a bet on one of them and just go for it.

In case you choose value, you can consider the Vanguard Value ETF, VTV, with an expense ratio of 0.04% and a 10 years annualized return of almost 12%.

This Fund gives you access to 340 value companies in all sectors with a focus on health care and financials, like Berkshire Hathaway, UnitedHealth Group, Johnson&Johnson and JP Morgan.

7. VXUS – Vanguard Total International Stock Index Fund ETF 

Now some of you might have read the book “Principles for dealing with he changing world order” by Ray Dalio.

If you did, like I’m doing now, it’s probably clear as water for you that pretty soon China is going to kick everybody’s butt and take the first place as the strongest economy in the world.

It’s my bet that in the future the US market will not give the same high returns that it gave on average in the last century, and at some point, within the next 10-15 years, it will be much more profitable to invest in Chinese companies than American ones.

Maybe I’m wrong, but still with a long term perspective it might not be a good idea to invest yourself 100% in the American Market. That’s why I’d like to offer you two alternatives that embrace the rest of the world and I’m not going to give you a pure chinese ETF for 2 reasons:

  1. The Expense Ratio of China ETFs is still extremely high, for example the SPDR China ETF and the iShares China ETF both have a yearly fee of 0.58%. 
  2. It’s true that China is getting stronger and stronger, but moving too fast might put you in a market that for the next 10 years might keep giving really low returns.

So for this reason my number 7 is going to be the international ETF with Ticker VXUS, which is the Vanguard total international stock ETF.

With a really low Expense Ratio of 0.07%, this fund is one of your best choices if you want to broaden your horizons over the US Equity Market and want to put a foot into Emerging Markets, Europe, the Pacific, Middle East and others:

VXUS – Weighted Exposures – Source Vanguard

You’re going to get almost 8000 different stocks and North America weights here only 7.6%, so you’re really covering all your bases of the international market.  

Some of the largest holdings are a semiconductor company from Taiwan as well as Nestle, Samsung, Tencent Holdings and so on:

The good thing about this index fund is also that it has given a trailing 12 month dividend yield of 3.1%, which is actually not bad.

8. VT – Vanguard Total World Stock ETF

And the last option, my number 8 is VT, the Vanguard total World Stock Index Fund ETF.

With 0.07% Expense Ratio, this ETF is for you if you want to cover all your bases because it combines everything that we’ve just talked about.

It’s basically a mix of US stocks, Europe, Emerging Markets, Growth and Value, and all the Sectors you can imagine.

VT Fundamentals and Weighted Exposures – Source Vanguard

VT gives you exposure to the entire world with 9534 stocks and a balanced portfolio of large cap, growth, value and dividend companies. And notice that nord america is still going to take around 63% or the portfolio composition, which means that for now you’re still going to be well covered on the US market, but in case things will change in the global market, the composition will be regularly updated.

The average return of the last 10 years has been a little over 8%, which is not bad,  and now you get it 18% cheaper than a year ago. 

Conclusions

Alright guys these were the ETFs that I suggest you consider in your investments in 2023. Check out my Youtube Channel and if you enjoyed this post and you want more subscribe to the channel!

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