I have previously written about some of the stocks I like to invest in and my returns so far. Today, instead, I wanted to explore the ETFs and sectors that I like to buy.
Disclaimers
Always remember that I’m not a financial advisor. What I share here is just my opinion and or experiences for entertainment purposes only.
What Are ETFs And Why Invest in Them?
The term ETF stands for Exchange-Traded Fund. It serves a similar purpose to a mutual fund, with the advantage that you can buy and sell its shares like a regular stock.
In high-level terms, you can think of an ETF as a basket of stocks. An ETF holds shares of several different companies. Therefore, when you buy a share of that ETF, you automatically get exposed to all the underlying companies without needing to buy shares of each individually. To illustrate, a popular ETF that tracks the S&P 500 index is VOO (it’s managed by Vanguard). This ETF seeks to match the index and when you buy a share, you automatically invest in the top 500 companies in the US in one fell swoop.
Another characteristic of ETFs is that they come with a fee, usually referred to as the “expense ratio”. This is a fee that the manager of the ETF charges in the percentage of the holdings. Going back to the example above, VOO has an expense ratio of 0.03%. That means that you will be paying $3 for every $10,000 invested. But to be clear, you don’t actually pay that money directly. Instead, it comes out of the performance of the ETF. You can check this very helpful article if you are looking for a more in-depth explanation of what ETFs are and how they work.
Buying ETFs for Diversification and Sector Exposure
For me, the main two reasons to invest in ETFs are diversification (safety) and exposure to specific sectors of the economy. The safety aspect is evident from the fact that you automatically diversify your investment into several companies. This takes away the risk of picking the wrong company that will go bankrupt in the future.
Additionally, ETFs are a great way to invest in different sectors of the economy without betting on a single company. For example, there are ETFs for real estate investment trusts (REITS), or for pharmaceutical companies, international investments, etc.
What Sector Exposure Am I looking For?
Right now, I’m investing in the following sectors through ETFs:
- Broad US market
- Small cap US companies
- International develped countries
- International developing countries
- US technology sector
- US Fintech sector
In the future, I also plan to find good ETFs for commodities, bonds, and gold. Let me know in the comments if you have any suggestions. I’m also creating my own “ETF” for cryptocurrencies. You can follow its performance in this post.
ETFs I’m Buying
Below is a table of the ETFs I have been buying during 2021.
| ETF Symbol | Type/Sector | Expense Ratio (%) | Tracked Index | Notes | |
| VOO | Broad US Market | 0.03 | S&P 500 index | Top 500 US companies | |
| VTI | Broad US Market | 0.03 | CRSP US Total Market Index | Over 4,000 US companies | |
| VGT | Broad US Technology Market | 0.10 | MSCI US IMI 25/50 Information Technology | Heavily weighted towards Apple and Microsoft. | |
| QQQ | Broad US Technology Market | 0.20 | NASDAQ 100 Index | Maybe not ideal for long term holding. | |
| FINX | Broad US Fintech | 0.68 | Indxx Global FinTech Thematic Index | Has performed really poorly recently. | |
| VXUS | Broad International Market | 0.07 | VXUS-US – FTSE Global All Cap ex US Index | Mainly large caps, Asian companies | |
| VEA | Broad Developed International Markets | 0.05 | FTSE Developed ex US All Cap Net Tax (US RIC) Index | Broad international exposure to developed markets, inlcuding Australia, Asia, western Europe | |
| VWO | Broad Developing International Markets | 0.08 | FTSE Custom Emerging Markets All Cap China A Inclusion Net Tax (US RIC) Index | Emerging markets, mainly large caps. | |
| IJR | Broad US Small Cap | 0.06 | S&P SmallCap 600 Index | This fund invests in 600 small cap companies. |
First, let me say that having VOO and VTI in the same portfolio might be redundant. This is because both indexes have performed almost identically over time, despite the fact that VOO invests in the top 500 companies in the US, while VTI invests in virtually all public US companies (over 4,000).
The reason for the similar performance is due to the fact that even though VTI invests in the total market, it is still market-cap weighted. Therefore, most of the allocations are pretty similar between them.
In my case, I’m slowly transitioning from VOO to VTI. Given that their performance over time has been very similar, I prefer the extra diversification layer that VTI offers.
Specific Sectors
From the table above, I have two ETFs that focus on the US technology sector: QQQ and VGT. Now, QQQ is not specifically a technology ETF. It just happens that the index it tracks, the NASDAQ 100, is mainly dominated by technology companies.
I’m still debating whether to sell all QQQ and just focus on VGT since the latter is specifically focused on technology, which is my interest.
Another sector ETF that I’m buying is FINX. This one is geared towards the financial industry and payment processors. Among its top 10 holdings are Block (formerly known as Square, Inc), Coinbase, and Intuit. So far, my returns with this index have been lackluster. I started investing in FINX over 1 year ago, and so far I’m down almost 30% on this investment.
Despite the poor performance, I’m still dollar-cost averaging when I can. My reasoning is that global finance and especially online commerce will keep growing. As a result, this fund gives me quick exposure to many players in that sector.
International Exposure
To cover the international side, I recently started investing in VXUS, VEA, and VWO. The first two mostly invest in large caps from developed countries. On the other hand, VWO focuses particularly on emerging markets. This combination allows me to have some exposure to other countries as well.
What Brokers Do I Use?
Most of the purchases I make are done through mainly two brokers: Robinhood, and Fidelity. In addition to that, I am starting to use Public, another zero-fee trading broker. Both Robinhood and Public offer free stock as a sign-up bonus. You can get it by using my referral links:
Public and Robinhood would be my starting point as an introduction to the stock market. I say this because their user interface is very intuitive and easy to use. Moreover, they both allow you to invest in cryptocurrencies as well. However, neither of them offers retirement accounts at the moment.
That means that if you want to open an IRA, Roth IRA, etc, they are not for you. For those cases, I prefer Fidelity since it also offers free trading on stocks. Its interface looks more outdated, but it does the job. I also like it more than other traditional brokers like Charles Schwab because you can buy fractional shares of ETFs, and not only stocks.
Final Thoughts
Right now, most of my portfolio consists of individual stocks. However, I am making an effort to grow my ETF holdings to improve diversification. In particular, I would like to have at least a 20% exposure to international markets. Investing in ETFs such as VXUS, VEA, and VWO is the simplest way to accomplish that goal.
Let me know in the comments if you have any suggestions of ETFs I should look into. As I mentioned above, I’m interested in eventually expanding to bond ETFs and commodities bonds. And finally, don’t forget to sign up for the newsletter to stay in touch.