How to use a simple index investing strategy to invest like Spider-Man
Peter Parker’s worries have exploded ten-fold since that radioactive spider turned him into everyone’s favorite neighborhood spider-man.
Saving the universe in Avengers Endgame probably doesn’t give him much time to manage his money and invest so we’re putting together a simple five-fund portfolio all you super heroes can use for a stress-free investing strategy.
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Why Spider-Man Needs a Passive Index Investing Strategy
Spiderman was by far my favorite super-hero growing up and I’ve been a fanboy since 1984. The socially awkward Peter Parker turned friendly neighborhood spider gave us bookworms a lot to root for.
Now the one-year wait to Avengers Endgame gave me a lot of time to think, what about the daily lives of our favorite costumed characters? What are they doing with their money and what might the Avengers invest in when they’re not fighting universe-ending bad guys?
But Peter always seemed to have the most neurotic and stressful life. From never making enough money as a photographer to protecting loved ones and the tough relationship with Mary Jane Watson, Peter always had way plenty to worry about so I’m thinking Spiderman would opt for a stress-free way to grow his dough.
For that, I’m putting together a simple, stress-free portfolio of just five funds. This strategy will give our web-slinger all the diversification he needs in three different assets from stocks and bonds to real estate. He’ll get a great dividend yield and won’t have to worry about a stock market crash while fighting the Sinister Six.
How to Put Together Your Own Five-Fund Index Portfolio
I’ll be using Vanguard index funds for the portfolio because the company offers some of the lowest cost options available. The funds we’ll be using will give you access to thousands of stocks, bonds and real estate companies for less than 0.12% a year. That means an expense of less than $12 a year on a portfolio of $10,000 dollars.
I’ve got no affiliation with Vanguard and I get no commissions from recommending the funds. I’ve invested in them myself and recommended them to private wealth clients throughout my career.
The first Vanguard index fund in our portfolio is the Dividend Appreciation ETF, ticker VIG. The fund holds shares of 182 companies across sectors, some of the largest companies in the market like Microsoft, Walmart and McDonalds.
The VIG pays a 2% dividend yield which is only a little above the market but is balanced by solid price growth. Over the last decade, the fund has produced an 11.2% annual return which is one of the highest among the Vanguard funds. It also gives you better exposure to some of those safety sectors like consumer goods and services so it’s not nearly as overweight in tech or the other sectors you usually find in a growth fund.
That exposure to safety stocks is important whether the stock market tumbles or you’re fighting Thanos for the fate of the universe.
Our next fund is going to compliment the dividend fund so we get a little more growth. Here we have the Vanguard Mega Cap Growth ETF, ticker MGK. This fund holds shares of 120 companies and has produced a 13.7% annual return over the last decade.
The dividend yield here is only 1.4% because the focus is really on stocks that grow faster rather than returning cash to shareholders. The sectors here are weighted to growth stocks, so you’ve got more in technology and financials and health care compared to the dividend fund.
I really like the combination here from the two Vanguard funds because you get solid dividends and price growth. Investing in the two funds gives you a more balanced investment across sectors versus just investing in the broader market index funds.
Now a lot of investors avoid international stocks and think they get all the exposure they need from those large U.S. companies. They’re missing out on a huge opportunity for higher dividends and less risk though.
Investing directly in international companies takes a lot of the risk from the U.S. dollar and other economic problems. Any company based in the U.S. is going to be exposed to these even if it has a lot of foreign cash flow so you really need to have at least one international stock fund in your portfolio.
For that, I’m going to suggest the Vanguard International High Dividend Yield ETF, ticker VYMI. The fund holds shares in over 900 international companies and pays a healthy 4% dividend yield.
What I like about the fund, besides the solid dividend and average 9.7% annual return since inception, is the ability to get exposure to fast-growing emerging markets as well as developed markets around the world. The fund has half its exposure to relatively safe companies in Europe but also 20% in EM stocks and Asian growth.
Just those three Vanguard funds will give you all the stock exposure you need. Now how much you have in these is going to depend on things like your age and investing goals. Most people will want between half to 65% of their portfolio in stocks but don’t neglect the bonds and real estate funds we’ll get to next.
These two funds for bond investing and real estate are going to smooth out your risk in stocks, provide some great cash flow and even give you the opportunity to take advantage of lower prices when the next stock market crash does hit.
For the bond part of our portfolio, we have the Vanguard Long-term Bond ETF or ticker BLV. Now bonds got smashed last year on the increase in interest rates but have rebounded in 2019 and are actually beating stocks over the six-month period.
The fund pays a 4% dividend and has 42% of more than 2,000 bonds held in U.S. government debt. All the bonds are investment grade so extremely safe credit ratings.
Our real estate fund here is my favorite, the Vanguard Real Estate ETF, ticker VNQ. Real estate is another sector that got hit on rising rates last year but the fund has held up and pays a 4.4% dividend yield.
There’s no better asset than real estate for creating wealth. We’ve got another video on the channel covering the seven real estate strategies I used after getting out of the Marine Corps to get started with no money down.
The problem is that even without having to come up with tens of thousands down, property investing can still be a lot of time and work. REITs are a great opportunity to get that growth and cash flow without all the work.
The Vanguard real estate fund has produced an 8.4% annual return since its inception in 2004 and holds shares of 184 real estate companies. This is a must-own fund for its diversification in every property type and in every region.
That’s it. Just five investments and our favorite Marvel super hero has entire portfolio worked out. Spiderman can sit back, put a little money to his investments each month and dream of spinning webs with Mary Jane.
If he’s using M1 Finance, the investing site I’m using for our 2019 stock market challenge, he’ll also save hundreds a year on fees and watch his money grow faster. M1 Finance is a no-cost investing site with some great features so I’ll leave a link in the video description to learn more.
We’re doing a whole series on Avengers Endgame investing from Captain Marvel to Iron Man, SpiderMan and the Black Panther. Be sure to click through to Let's Talk Money on YouTube and tap that Subscribe button so you don't miss it!