Should You Buy ETFs, Individual Stocks Or Both?
|
|
At The Juice, we believe long-term investing is — and should be — a relatively straightforward proposition. However, this doesn’t mean it’s easy and uncomplicated. If nothing else, you have to drown out a lot of noise to stick to a long-term plan that builds wealth and sets you up financially over time. That’s why we think that — once you have your personal financial ducks in a quack-free row (think debt, emergency savings and such) — your investment portfolio should include room for noise and speculation. Set aside 10% to dabble in, for example, penny stocks, meme stocks and the latest active ETF that you really don’t need to own. From there, keep the remaining 90% in what we know works over time. Investing in market leaders, dividend payers and (mostly) broad market or broad sector- and style-specific ETFs. Here again, only after you set yourself up for success financially. Something we plan to cover extensively in a January 2025 series about how to best situate yourself financially in the new year. Today, we consider that 90%. Looking specifically at how a portfolio of only ETFs, only stocks and a blend of the two would have performed over the last decade. To do this, we use this handy portfolio visualizer, which lets you backtest stock and ETF performance. Of course, past performance isn’t necessarily indicative of future results, but we’re looking as much at how you approach your portfolio here as the specific names. Though, the names matter. We ran three different scenarios with $10,000 invested in January 2015 invested, dividends reinvested over time and an annual rebalance. |
Continued…
|
|
|
Portfolio #1: All ETFs We simply took the five most-searched ETFs in our Trackstar database, put 50% in SPY and QQQ and spread the remaining 50% among the final three tickers.
$10,000 invested on January 1, 2015 would be worth $28,941 as of September 30, 2024, which represents a cumulative return of 189.41%, or an annualized return of 11.5%. If you just put the entire $10,000 in SPY, you would have ended up with $33,145 for an average annual return of 13.1%. Over the past three months, our sample portfolio and SPY alone ran neck and neck, up about 5.6% apiece. YTD, SPY is outperforming our sample portfolio 21.9% to 16.2%. Portfolio #2: All Stocks For this portfolio, we simply went with the five most popular big-name stocks in Trackstar and, after that, the five most popular dividend payers. We realize that hindsight is 20/20 and damn profitable in this scenario, especially on the big tech high flyers. But, to compensate at least a little, we split things evenly between all ten names. We also didn’t include Meta Platforms (META) or Alphabet (GOOG) even though they’re in the Trackstar top ten, but not the top five because they’re relatively new dividend payers.
$10,000 invested in January 1, 2015 would be worth $181,435 as of September 30, 2024, which represents a cumulative return of 1,714.35%, or an annualized return of 34.6%. Of course, this blows away SPY’s 13.1% return. Here again, perfect world stuff, but certainly something to keep in mind going forward. Though, for risk and diversification sake, we don’t recommend this approach unless it’s in addition to portfolio #1 or part of an expanded portfolio #3. Over the past three months, SPY actually crushed our sample portfolio 5.8% to 1.5%. YTD, our sample portfolio is outperforming SPY 32.5% to 21.9%. Portfolio #3: Stocks and ETFs For this portfolio, we created a blend and allocated 10% to each position.
$10,000 invested in January 1, 2015 would be worth $61,753 as of September 30, 2024, which represents a cumulative return of 517.53%, or an annualized return of 20.5%, which outpaces SPY’s 13.1% average yearly increase. Over the past three months, this portfolio beat SPY, 7.1% to 5.8%. YTD, SPY is winning handily, 21.9% to 13.4%.
The Bottom Line: The Juice enjoys running these exercises. We hope you get as much out of them as we do. The key takeaway here — for us — is that individual stock picking is hard, but can look super easy in the rearview mirror. Don’t fall for this trap. Even if you made the “right” choices ten years ago, who knows what you would have done over the last ten years. While this goes for any type of portfolio construction, we strongly suggest doing something closer to portfolios #1 and #3 with your long-term money. Set that 10% aside to have some speculative fun with. |
|
Proprietary Data Insights Top ETF Searches This Month
|
||||||||||||||||||||||||||||
|
News & Insights |
Freshly Squeezed
|
|
Want to get content like this directly to your inbox? |