I made $100,000 avoiding this common ETF investing mistake

Summary

In this insightful video, Professor G from Investing Simplified discusses how he made $100,000 by avoiding common ETF investing mistakes. He emphasizes the importance of understanding ETF overlaps and diversification within your investment portfolio. Highlighting the differences and overlaps among popular ETFs like QQQ, VGT, and VTI, he explains why simply diversifying isn’t always beneficial and warns against frequent portfolio changes without thorough understanding. Additionally, he emphasizes the need to tailor portfolios according to individual goals rather than blindly following popular investment strategies. His “new three fund portfolio” aims at long-term returns with consistency and safety, providing an updated investing approach compared to traditional diversified strategies.

Highlights

• Mixing ETFs like QQQ, VGT, and VTI can lead to redundancy due to similar holdings. 📉
• Over-diversification can dilute investment outcomes; focus on strategic asset allocation. 🗂️
• Frequent, uninformed changes to your portfolio can be detrimental. Stay the course! 🚫
• Adopt a personalized investment strategy rather than blindly following popular advice. 📜
• Explore the 'new three fund portfolio' method for improved long-term investment success. 🚀

Key Takeaways

• Understand ETF overlaps to optimize your portfolio and avoid redundant investments. 📊
• Simply diversifying your portfolio doesn’t automatically lead to better results; strategic choices are crucial. 🎯
• Frequent portfolio changes can hinder your investment growth; consistency is key. 🔄
• Tailor your investments according to your goals, not based on trending strategies. 🧭
• The 'new three fund portfolio' offers an effective, updated approach to long-term investing. 🌟

Overview

Professor G shares personal investing insights that helped him earn $100,000, shining a light on common ETF mistakes. He begins by diving into the intricacies of combining well-known ETFs like QQQ, VGT, and VTI. While these funds are significantly heavy on technology stocks, blindly investing in them can lead to unnecessary overlap, such as having too much Apple and Microsoft, which impacts optimal asset allocation.

He explains that traditional diversification beliefs, like the classic 'three fund portfolio,' might not work in today's market environment. The video underscores how over-diversification can sometimes be a protection against ignorance, as quoted from Warren Buffett. Strategic asset allocation, understanding fund overlaps, and aligning investments with personal goals are highlighted as more effective approaches than just spreading risk across multiple assets.

Ultimately, Professor G introduces his innovative 'new three fund portfolio,' which embodies a modern investment strategy aiming for both consistency and long-term growth. Encouraging viewers to engage with investing on a personal level, he advocates for informed decision-making and tailored portfolio approaches to embody entrepreneurial wisdom, resilience, and success in the investing world.

Chapters

• 00:00 - 00:30: Introduction to High-Return ETFs The chapter introduces high-return ETFs, notably highlighting three: QQQ, VGT, and VTI. QQQ boasts a 10-year average return of 17.38%, VGT offers 19.6%, and VTI provides 11.15% over the same period. The author suggests that combining these in a portfolio could yield an average return of about 15%, making it a valuable investment strategy.
• 00:30 - 01:00: Avoiding Common ETF Investing Mistakes The chapter discusses the potential growth of investing $500 per month over 25 years, highlighting that it could amount to over $1.3 million. It emphasizes the importance of minimizing mistakes when investing in ETFs to achieve such returns. The chapter aims to identify three major mistakes investors make and provides strategies to correct them to become successful investors.
• 01:00 - 05:00: Understanding Total Return and Fund Overlap The chapter discusses the importance of not just focusing on total return when evaluating ETFs for a portfolio. While some ETFs may show amazing returns, such as QQQ which is heavily weighted in technology, focusing solely on the highest returns without considering fund overlap or sector concentration may lead to suboptimal investment decisions.
• 05:00 - 08:30: Importance of Diversification in Portfolio In this chapter, the focus is on the significance of diversification in a portfolio. A comparison between two ETFs (Exchange Traded Funds), QQQ and VGT, is presented. While both ETFs include reputable companies like Apple, Microsoft, Amazon, and Nvidia, VGT is comprised entirely of information technology assets. The transcript highlights that QQQ has 57% of its holdings in information technology, whereas VGT has 100%. The chapter emphasizes that a large portion of VGT is concentrated in Apple and Microsoft, accounting for 40% of the fund. This highlights the need for diversification to avoid overexposure to a single industry or company.
• 08:30 - 10:00: Rethinking the Old Three-Fund Portfolio This chapter discusses the overlap between the holdings of the QQQ and VGT funds. It points out that 33% of QQQ's holdings are also present in VGT and highlights a 50% weight overlap, suggesting a redundancy in investment in major stocks like Apple and Microsoft when both funds are held.
• 10:00 - 15:00: The Mistake of Constant Portfolio Changes This chapter discusses the mistake of frequently changing investment portfolios, emphasizing the redundancy in investing heavily in both Apple and Microsoft stocks. It highlights the overlap in technology-focused funds like QQQ and VGT, pointing out the inefficiencies caused by investing in similar assets across different funds.
• 15:00 - 20:00: Conclusion: Personalized Investment Strategies In this chapter titled 'Conclusion: Personalized Investment Strategies,' the discussion focuses on the importance of foundational ETFs like VTI and how they play a pivotal role in individual investment portfolios. The chapter points out the significant overlap between different ETFs, exemplified by VTI and QQQ, noting that 93% of QQQ's holdings are already included in VTI. This highlights the redundancy in purchasing both as it may not diversify the portfolio as intended. The emphasis is on building a personalized investment strategy that takes into account such overlaps to optimize the portfolio structure.

I made $100,000 avoiding this common ETF investing mistake Transcription

• 00:00 - 00:30 one of the best ETFs on planet Earth is QQQ which has a 10-year average return of 17.38% vgt has a 10-year average return of 19.6% and vti has a 10year average return of 11.15% having those three together in a supercharged portfolio full of Heavy Hitters would be making you bank with returns like that on average between the three that's like a 15% return and if
• 00:30 - 01:00 you were investing just $500 per month with a return like that in 25 years you'd have over $1.3 million off of Just investing $500 per month to make returns like that you're going to want to make sure and cut down on any mistakes in ETF investing and in this video I'm going to go over three huge mistakes and how to fix them to be a very successful investor the first has to do with what I just started Ed with
• 01:00 - 01:30 and that's looking at just Total return here's the thing about looking at just that total return though while each one of those ETFs at the beginning of this video were solid ETFs and each one of them had obviously an amazing return picking only the top ones with the highest returns for your portfolio total may be a huge mistake when we look at those first two ETFs the first one was QQQ and as you can see here it's huge in technology over 57% is all technology
• 01:30 - 02:00 the top 10 Holdings are reputable names like apple Microsoft Amazon and Nvidia but when we look at that other ETF vgt we can see that it is full of all information technology so while QQQ was 57% this 100% is information technology so you're getting the same thing in two different places and when we look at the types of companies that are within vgt we see apple Microsoft Nvidia again and specifically the percentage of the fund 40 % of this is in apple and Microsoft
• 02:00 - 02:30 so when we look at these two and we look at this overlap between the two you can see that 33% of qqq's Holdings are also in vgt as far as weight about 50% is weighted between the two so this means that you're basically buying the exact same thing or very very similar to the same thing just paying for it in two different places if you're buying QQQ and it has a high amount of apple and Microsoft and then you're buying into
• 02:30 - 03:00 vgt who has a super high amount of apple and Microsoft you're kind of just buying the exact same thing but putting your money in two places like I said this isn't necessarily a huge wrong but it could be and the way some of you are doing it definitely is now yes there's going to obviously be a bunch of overlap between a fund whose big priority is technology which is QQQ and then one that's literally called a technology fund vgt so you can see the similarity there one that a lot of people kind of
• 03:00 - 03:30 forget about is when you're having that foundational type ETF one like vti most people have either Vu or vti in their portfolio and then they add things to it so when we look at QQQ versus vti we're going to see that there's still a huge amount of overlap especially by weight here 93% of qqq's 100 Holdings are already in vti so if you have vti and you're buying QQQ you already have 93% of that in your vti
• 03:30 - 04:00 exposure you can also see down here that we have a bunch of overlap in specifically these companies Apple Microsoft Amazon Nvidia and Google but the mistake is not what some people would make you think there's a lot of people that think that fund overlap just by itself is the bad thing and that is incorrect just because you're buying something that you already have a little piece of over here doesn't make that bad especially if the company's good right like for me I really like apple and
• 04:00 - 04:30 Microsoft and I want a bunch of that in my portfolio those are the two biggest companies that we have and two of the strongest and longterm I see them having competitive Advantage so I want a lot of exposure there so it's not fund overlap that's the problem the problem comes when you don't understand what the overlap means and how it actually affects your portfolio overall main takeaway from this point number one is that you need to understand that you do have fund overlap if you have it and
• 04:30 - 05:00 then how much of it you actually have so in the example that I've gone through so far we looked at QQQ vgt and vti as long as you understand all of the Holdings within all of them and then how much of a percentage you actually own and which ones are higher weighted than others that's going to be important for you moving forward because you should understand that in each one of them you're buying into Apple in each one of them you're buying into Microsoft and Nvidia so then if you're looking to invest in individual company and you want to add stock to that ETF portfolio
• 05:00 - 05:30 it's probably not the most beneficial idea for you to add another share of Apple or another share of Microsoft because you're already so heavily weighted with what you already have but if you do your research and you just really really like that company and you are totally fine having of your total portfolio 50% be apple that's not the craziest thing in the world as long as you understand that that does have a little bit higher of risk but the best investor to do it does have a portfolio
• 05:30 - 06:00 with a very high amount of just Apple so understand what's in your portfolio understand what fund overlap is and then make your decision off of that the next mistake and number two has to do with diversification as well but this is one of the biggest mistakes that I definitely see happen all the time it kind of piggybacks off the first one because traditionally the way to invest the most optimal way to invest was this idea that you should have very little to no fund overlap whatsoever ever and so
• 06:00 - 06:30 diversification is very very important and so if you're investing in two things they need to be totally separate things or at least that's what they used to say and this was the idea of that old three fund portfolio that did work for a while but nowadays we have an update but anyway everyone agrees that a portion of your portfolio should be us equities or US stocks and that would be a broad Index Fund like the S&P 500 or the total US Stock Market that's the first part of the three fund portfolio then in the old
• 06:30 - 07:00 three fund portfolio they wanted something that was also stocks but totally opposite from that first part so if the first part is US Stocks the second portion needs to be non US Stocks so just International exposure then the third part of that fund is totally different than the first two because the first two were stocks so this third one is not stocks and it's bonds now obviously the problem with this old three fund portfolio is the fact that we've seen the data over the last 20 years and it's not so hot for those last
• 07:00 - 07:30 two pieces vxus would be that International ETF and over the last 10 years the return has been about 3.7% and as far as the bond Returns the BN ETF return has been 1.3% per year those are awful so my goal just like wise investors and specifically Warren Buffett is not to be the most Diversified investor of all time you don't get a prize for the most diversification we think diversification
• 07:30 - 08:00 is as practice generally makes very little sense for anyone that knows what they're doing diversification is a protection against ignorance I mean if you want to make sure that nothing bad happens to you relative to the market you own everything there's nothing wrong with that I mean that that is a perfectly sound approach for somebody who who does not feel they know how to analyze businesses if you know how to analyze businesses and value businesses it's crazy to own 50 stocks or 40 stocks or 30 stocks probably uh because there
• 08:00 - 08:30 aren't that many wonderful businesses at that are understandable to a single human being in all likelihood and it and to have some super wonderful business and then put money in number 30 or 35 on your list of attractiveness and and forego putting more money into number one just strikes Charle in me as as as Madness you know do I do I need to own 28 stocks in order you know have proper diversification you know uh be nonsense and the goal should be the best return
• 08:30 - 09:00 with the best long-term safety as well the goal should be consistency and sustainability my new three fund portfolio is the updated version of that old three fund portfolio and has been absolutely crushing it and will continue to for the foreseeable future in my opinion I'll link to this video below and also cue this video up at the end of this current video so you can watch it right away but this last common mistake is by far the biggest I just told you about fund overlap and
• 09:00 - 09:30 to look out for that and watch your portfolio to make sure you don't have too much or to at least understand what and how much of what you are actually invested in I also just said that you should stop worrying about having the most optimally Diversified portfolio in the whole entire world and more so be concerned with long-term results so the common mistake I see here is that people start to realize that maybe their portfolio is wrong or it's not the most optimal possible and so they keep changing it up and they keep changing up
• 09:30 - 10:00 every month or every couple months based off of something new that they just learned the change is not the issue but the method is now just keep in mind I don't know what else you're invested in I don't know your overall goals for investing or at least your goals for investing in this particular portfolio I can't sit here and tell you you should have this ETF or you shouldn't have this one because each one of you has a different investing outlook for example REITs are are amazing especially for
• 10:00 - 10:30 dividend investing and bringing in Crazy cash flow and passive income they bring far more than good solid dividend stocks like Johnson and Johnson or even the best dividend ETF in CHD but I choose those safe boring dividend companies or shd over reats for me personally so if I were to make a video on my five favorite dividend Investments these types of reats probably wouldn't make it into that video specific specifically but it's not because the reats aren't a good
• 10:30 - 11:00 investment and that you shouldn't invest in them I just leave them out because I already invest a fair amount of my portfolio in real estate I have two actual rental properties and that makes up about half of my total portfolio as far as money invested so if I were to add reats or more real estate in that form that would just overload and increase my risk to be having so much in one sector the biggest mistake anyone could make in this investing world is just to take somebody else's word for
• 11:00 - 11:30 their Investments or look at their investments just copy it without doing any extra research yourself and not understand what it is that you're investing in you need to understand not only the investment itself but also what your total goal is with your portfolio my three fund portfolio is the best place to start because especially if you're new to investing or you need to revamp your Investment Portfolio and get it rebalanced these three is where 90% of my stock and ETF portfolio lies and gives you all the great things that I
• 11:30 - 12:00 talked about in this video especially a monster long-term return with consistency and safety check out this video now for a more in-depth explanation