Tae, this is a banger of a video. Thank you! I am begging you though, please do a comprehensive video on ETFs vs mutual funds. It seems like there are nothing but positives to ETFs. Lower expense ratios primarily. The minimum buys are not a problem for me. Curious why I would go mutual fund over ETF.
The difference in expense ratios between ETFs and mutual funds is not very much. One can invest automatically in mutual funds. To the best of my knowledge, it is not (yet) possible for a retail investor to buy fractional shares of ETFs; also, one must log on and make every ETF purchase transaction. With mutual funds one can "set it and forget it" and automatically invest down to the last penny every month -- it's a lot less likely that something will go wrong.
@brucestiles6477 I use Wealthsimple in Canada. I can make automatic investments in ETFs, buy fractional shares, and automatically drip. And the cash account currently earns 4% interest (4.5% if your total investments on the platform are above $100,000 CAD).
Some sources add Mid-Cap as an asset class, and differentiate between Growth and Value, e.g., Large-Cap Growth, Small-Cap Value, etc. All assets classes have an average annual rate of return that can be calculated. This value is called the "expected return." The expected return is the value that Tae gave for each asset class, but some people use more asset classes. The amount of market volatility that an asset class has is measured by how much, in general, the return of any one year varies from the expected return. The specific measurement is the standard deviation of the expected return. An example of high volatility is the chart at 3:45. An example of low volatility is the chart at 13:02. A "correlation factor" can be calculated for any asset class with respect to any other asset class. The correlation factor is a measure of how closely the two asset classes move together (or not) in response to market changes. An example of high correlation is the chart at 6:00. An example of low correlation is the chart at 13:18. You can take all of the asset classes, calculate the expected return, the standard deviation of the expected return (which gets renamed to "risk"), and the correlation factors of each asset class with all of the other asset classes. (If you do that, you'll know what statisticians do on Saturday night.) Given the expected return and the standard deviation (risk) for every asset class, and the correlation factor for every asset class with respect to every other asset class, it is possible to calculate the expected return and the standard deviation (risk) of any portfolio that can be constructed by using those asset classes. You can then plot the location of that portfolio on a graph with expected return on the Y axis and the risk on the X axis. Yes, I know -- it's very exciting. You can enter all of this information into Modern Portfolio Theory software, and the software will calculate and map the expected return and the risk for every portfolio that can be constructed using the asset classes. What you get is a cloud of points showing the return and standard deviation of each portfolio. The portfolios along the top edge of the cloud are called "Efficient Portfolios" because for each of them, you get either the highest possible return for any level of risk, or the lowest possible risk for any level of return. The line along the top of the cloud is called the "Efficient Frontier," and it comprises every Efficient Portfolio. These portfolios are as good as they get. You can then build an efficient portfolio to optimize the tradeoff of risk for reward. You repeat the process every year. Or, you can select a broad-based, low-cost index mutual fund, such as a total market index fund or even an S&P 500 fund, make investments to it automatically, and spend the time you save watching cat videos -- both methods will get you where you want to go. There is no other work involved in managing your single-fund portfolio, and it is impossible to break. Just remember to increase your investment rate when you can, regardless of which method you use.
Well Tae, I've been listening for a while now. Today I finally caved and sold all my single stocks (made market-beating returns over 3 years thru them, btw) and threw it all into VTI.
Jack Bogle the founder of Vanguard invented the index fund back in the 70s. Vanguard pioneered low cost index funds for the average investor. All these other companies were forced to create their own index funds just to compete with Vanguard. Fidelity has slightly lower expense ratios on some funds, for example 0.015% for Fidelity 500 and Vanguard’s equivalent 500 fund has a 0.04% expense ratio. Fidelity is cheaper by a little bit, but I think many still choose Vanguard because of their reputation and their customers trust them.
I just found this guy today and watched several of his videos. Tae packs so much content into 10 minutes. My one quibble is I feel he shortchanges investment real estate. Check out Jason Hartman for the many ways real estate pays off, especially putting inflation on your side. Having said that, real estate is not passive, like what I am seeing from Tae Kim. It sure has worked for me. In another video Tae compares investing in rental real estate vs. index funds. What he didn't say in that video is that your fixed rate mortgage becomes an invaluable asset as years pass because of inflation. Rents go up. Your mortgage does not. You're paying back that mortgage with dollars that have been debased by inflation.
I really wish you would cover something else beside Vanguard funds. My employer does not offer Vanguard in our 401k, so it would be great if you could cover EFTs and Fidelity funds once in a while.
Just Google the names. I'm not American and I can easily find the Fidelity equivalent of Vanguard funds by using the wonderful invention called the internet.
You need to look at the asset class to choose the fidelity (or swab) version of the mutual index fund or etf. For example, fidelity has FSSNX for small cap, FSAIX for SP500, FXANX for bonds, FSPSX for international. Your plan might include different funds though, even if it is with fidelity. Or unfortunately, it might not include some index funds for a specific asset class
If someone was interested in US bonds, would it make sense for them to keep those funds in a HYSA that has an APY of over 4%, until the APY of the HYSA went to around 3%, and then shift those funds to US bonds? If not, can you help me understand why, please? Thank you!
Great video Tae! Enjoying your content, very informative. I'd like to see a video on your impression of the book, "money master the game" by Tony Robbins. I have mixed reviews about this book but would like to see your opinion. Cheers!
The U.S. is 32 trillion dollars in debt, with another near 160 trillion owing on entitlements (pensions, etc). Where exactly will this money come from? I think the Roman empire is going to collapse, soon.
Right now you can get 5.3 % fixed for 3/5/7years in a myga annuity which has 100% principal protection, 10%access to your money per year, why risk your money in bonds as we saw last year
