Whenever anyone asks me how to get started with investing in stocks I tell them to start with an ETF (Exchange Traded Fund). I always feel a bit funny about it though as I have almost zero money invested in ETFs. So I figured I should walk my talk and jump on the ETF bandwagon like everybody else in the financial freedom movement.
The reason I’m not invested in ETFs is not because I don’t believe in them, it’s because I enjoy looking into companies and buying individual stocks rather than a whole index of them. I like the challenge of picking my own companies and I guess I’m a bit of a gambler at heart. Which doesn’t mean I’m into small speculative companies that could triple or halve overnight but if that’s what interested me then I could do that.
With ETFs you just choose your index, buy, collect dividends and repeat forever. Which is a good strategy that beats most managed funds and those who choose to pick their own stocks.
Getting Started with ETFs
John Bogle and his Vanguard company are legendary in the exchange traded funds world as they almost created the industry themselves. Sure there were others in the beginning but Bogle was a great promoter of them and his message was simple; invest in low cost ETFs, keep investing uncomplicated, be disciplined and invest for the long term.
It’s a strategy that is boring but it beats investing in actively managed funds and trading in and out of stocks. Investing should be simple and it should be boring, otherwise you’re trading, speculating or gambling.
Most people don’t have multiple hours each day to research and monitor a portfolio of companies that will hopefully beat the market. Even those who invest billions of dollars for clients fail to beat the market nine times out of ten, so ETFs sell themselves. They’re a no-brainer.
Oh and I’m assuming you already know what an Exchange Traded Fund or ETF is, but if not, it’s simply a fund that is bought and sold on a stock exchange. The ones we’re most interested in are index funds with very low management fees. Index funds will simply track various financial indexes like the S&P 500 index or ASX 200. So there’s no overpriced management fees as they’re simply following an index of companies. You would think that this strategy would underperform a highly paid fund manager as there’s no genius picking and choosing stocks but you would be wrong. Managed funds nearly always underperform low cost index funds.
Investing with the Vanguard Website or App
Firstly, Vanguard aren’t paying me to say anything about their service, I’m sharing this because I like what they do. You can achieve the same goal by using your brokerage account to purchase ETFs created by any company, but Vanguard do a good job and they make investing very simple. I do also recommend having stocks outside of Vanguard though as I never trust one basket with all of my eggs.
Vanguard is an American company so I’m assuming that the US version has a few more bells and whistles than those outside the country. I’m based in Australia so that’s the website I’m using and it’ll have an Australian flavor with options to appeal to Australians, obviously.
Other countries catered to at the time I’m posting this include those in Europe: Austria, Belgium, Denmark, Finland, France, Germany, Iceland, Italy, Liechtenstein, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom. Countries in the Asia/Pacific region include: Australia and China. And those in the Americas include: the United States, Mexico, Canada and South America.
So there’s a lot of countries missing but that shouldn’t stop you from getting started with ETFs. If your country has a stock exchange and reliable brokerage companies then you’re in business. No excuses amigo, stop being a cockroach.
Automatic Investments into ETFs or Managed Funds
The main reason I have decided to use and recommend the Vanguard website or phone app is the Auto-Invest function that they offer. It’s a set and forget path to financial freedom for those who don’t have the time nor interest to research stocks. In Australia the minimum investment amount for setting up an automatic investing account is $200 AUD per fortnight, month or quarter. And if $200 per month is too much for you to invest then do something about it as you’ll need much more than this to achieve financial freedom anytime this century.
Vanguard Australia also offer free brokerage when buying their ETFs or managed funds. They allow you to buy stocks listed on the Australian Stock Exchange for a low fee but then they charge a holding fee each year, so I wouldn’t recommend buying individual stocks through their platform. Use your regular brokerage account if you’re buying individual stocks.
My ETFs Portfolio with Vanguard Australia
So, I have started an ETF portfolio using Vanguard’s auto-invest feature and I’ll update the progress each month just to show how easy it is and how quickly the value increases over time. I’m starting with $288 per month and will add $500 lots when I am able to.
For most funds Vanguard will offer it in an ETF or a managed fund version. The ETF is listed on the stock exchange and has to be brought in lots of whatever the share is trading at. So if you auto-invest $300 and choose three different managed funds you can choose to purchase exactly $100 each of the three of them.
With ETFs you would have to purchase them in lots of whatever the stock is trading at. The three ETFs I chose below are currently trading at $66.19 (VHY) $61.79 (VBLD) and $107.99 (VGS). Which means I would have to have at least that amount for each ETF using auto invest. To be safe I would say $70 for VHY, $70 for VBLD and $115 for VGS. Any remainder will roll over to the next month.
I have chosen to invest in Vanguard ETFs as the management fees are slightly lower and the returns are slightly higher than their managed funds of the same product which hold the same companies.
For the month of August my portfolio at Vanguard sits at $1,567.66. This includes one automatic payment of $288 and I also added a couple of one-off payments as my first goal is to have at least $1000 invested in each stock. Once I achieve this goal I’ll probably forget about the account and just let the auto-invest function do its work.
I also have about $2,000 invested into the iShares IVV S&P 500 ETF because Vanguard Australia doesn’t have one. Why they wouldn’t have an ETF of one of the most popular indexes on the planet I wouldn’t know. I like the look of a few Betashares ETFs in Australia too so I’ll probably end up with 3 or 4 ETFs outside of Vanguard.
My main focus will be on the individual stocks that I hold in my traditional brokerage account outside of Vanguard as I enjoy looking into companies. The Vanguard account will run in the background and over time I’ll start to see those quarterly dividends increase. If or when I lose interest in following individual companies then I’ll consider selling my stocks and moving the money into ETFs.
For now though, I just want to show how easy it is to get started with investing and how quickly things start to snowball when you consistently add to your portfolio. Obviously all of the dividends will be reinvested
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