Asset allocation through a very limited portfolio of ETFs
Good index funds, not all of them are, fulfill the above criteria of passive management (market or index performance, low fees, diversification and transparency). An index fund is a fund that represents all the stocks in the index. Instead of buying stocks, you buy units of the index and in doing so, you are buying the equivalent of all the stocks in the index. Your performance will be virtually identical to the market. If the market does well, your shares will do well. If the markets fall, you will follow suit
Index funds come in two versions:
1. Mutual funds. These are funds managed directly by a financial institution.
2. Exchange-traded funds (ETFs). These funds are traded on exchanges, the largest and most recommended issuers being BlackRock (iShares) and Vanguard.
Index Funds: Core Options
As a core index fund, Vanguard Total World (VT) is an excellent ETF, for example. If VT is not available, the iShares MSCI World ETF is a good alternative. For emerging markets, the Vanguard FTSE Emerging Markets ETF (VWO) or the iShares MSCI EM UCITS ETF are options worth exploring.
To invest in a mutual fund, you will not need access to the stock market. You can invest in mutual funds through a financial institution such as Vanguard. Unfortunately, this is rarely the best option outside of the United States, which has the largest offering in the world. You will have to invest in an ETF in order to gain access to the stock market, for which you will use a broker as intermediary. Thanks to its platform, you will be able to buy the shares of an ETF as if it were an individual company share.
Platform: Main options
For a private investor, the following two platforms can be considered:
- DEGIRO: This is a European broker, originating from the Netherlands and regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). It offers a good range of low cost investments and a selection of 200 commission-free ETFs (conditions applicable – List of Free_ETFs – pdf). Although it offers less than Interactive Brokers in terms of derivatives, it is easier to get started and it may be recommended to take your first steps with DEGIRO (Link to DEGIRO).
- Interactive Brokers: This is an American broker that also has offices in the United Kingdom, Holland and Switzerland. They have low prices and a powerful platform. Their trading system is of a professional level, so it can be intimidating for a beginner but it is a good option for a corporate trading account (Link to Interactive Brokers).
Considering that investing carries a risk of loss, you can then follow the three following steps:
Decide on the amount
If this is your first contact with the stock market, we recommend starting with small amounts. This will allow you to see how you react in case of losses and to test the resistance of your psychological profile because investing involves risk of loss.
Determine the timing of investments
On the basis of your plan, it is then recommended to invest regularly, for example every quarter, month, or even week. After 9 or 12 months, reflect on your actions.
You have now determined the parameters and made the necessary decisions. You can open an account with a low-cost intermediary, transfer the money to this brokerage account and make your first investment in the stock market.
Be clever: Get informed, get educated and stay the course
As mentioned in the practical tips, it is better to start small and learn slowly along the way. We recommend publications from professionals like Bridgewater and the weekly updates of this Website. Ideally, it would be wise to read 2-3 reference books (see the library under construction) on personal finance, markets and portfolio management. Not everyone is interested in the subject and we understand if you stick to the minimum and do not want to spend too much time. If you do not want to invest much time, are still recommend to invest some time. You will then be able to spend a few minutes to invest every quarter after having completed those initial homework.
Above all, do not panic and do not try to sell or buy all your assets at once. Finding good entry points is more a matter of patience and luck than skill. Invest small amounts according to your plan and review it once a year. We recommend that you do a complete statement at the beginning of the year after the previous year’s closing and in preparation for the tax forms. You should then invest regularly by following the amounts and ETFs determined, even if they are small amounts, and they should accumulate over time.
This is not a financial advisory firm and nothing on this site should be construed as management advice. No agency or advisory relationship is established with you in any way as a financial advisor, insurance broker, or tax advisory professional. This site is not responsible and cannot be sued for any financial loss or suffering you may experience as a result of reading this blog. This particular contains affiliate links for DEGIRO and Interactive Brokers. You should always do your research before making an investment decision. This site intends to teach and share material in order to help you achieve greater control and financial independence. Nevertheless, every situation is different and your money is also your responsibility. All content on this website is for informational and educational purposes only.